It’s called the Operating Demand Reserve Curve — ORDC for short. You can be forgiven if you’ve never heard of it.
But the ORDC — which is a component of the state’s wholesale power system — was in the news this month … and in a way that could portend higher power costs in the future.
The Texas Public Utility Commission on Feb. 15 signaled it may institute ORDC modifications that could occasionally increase revenues to power generators. This also could eventually lead to higher home electric bills.
Consumer groups and industrial electricity users urge caution, saying the ORDC mechanism is relatively new and should be allowed to work as designed. But some influential power companies have lined up behind the proposals.
As with most aspects of the state’s wholesale power market, the back story is complex.
The ORDC works in conjunction with ERCOT’s real-time wholesale power auction system. Think of the ORDC as an algorithmic formula. ERCOT employs this formula in an automated fashion to calculate payment adders that go to generators. The generators collect these ORDC payment adders when they successfully offer power into the market during shortage conditions.
The ORDC price adders are variable. As operating reserves diminish (eventually approaching blackout conditions), the size of the ORDC adder increases.
The size of the ORDC payment theoretically correlates to the value that consumers place on preventing blackouts. Or, as the PUC staff explains: it is “the price at which consumers, on average, are indifferent to having their electric service curtailed.”
But Houston energy giants NRG and Calpine have consistently complained that certain wholesale power market rules — including certain parameters embedded within the ORDC — improperly suppress power prices. Because these actions impact their bottom line, they end up discouraging generation investment over the long term and are counterproductive, NRG and Calpine argue.
Last year the power companies sponsored an expert report that outlined their concerns and that also included proposed changes to the ORDC. The Public Utility Commission took up those proposed changes during its regular meeting last week and expressed an openness to making some of them — although the commissioners also appeared undecided about going forward in time for the high-usage summer months.
The ORDC algorithm interacts with a separate practice at ERCOT in which the organization periodically arranges for generating units to deploy for reliability purposes. The companies’ proposal, if implemented, would change how the ORDC algorithm accounts for these deployments.
NRG and Calpine have argued that the ERCOT-ordered reliability deployments are not based on purely economic considerations and therefor inappropriately suppress the ORDC payments. They say the full capacity of these deployments should be subtracted from the ORDC algorithm — a move that likely will increase the average size and frequency of the adder payments, and eventually could lead to higher home electricity bills.
But by how much is difficult to quantify. “Any changes we make at this point will have an effect on ratepayers and we don’t know 100 percent what that will be,” said PUC Commissioner Brandy Marquez.
Consumers groups and industrial users urge caution, saying that for various reasons the ORDC already is inflated and already delivers windfalls to generators. They also say the ORDC process is relatively new and works reasonably well and so more time is needed to determine whether any changes are merited. The PUC directed ERCOT to implement the ORDC in June 2014.
Is a policy analyst consultant for TCAP, a coalition of political subdivisions in Texas that purchase electricity in the deregulated market for their own governmental use. Because energy costs are typically a significant budget item to our members, TCAP is consistently looking for ways to save our members money, through cost-saving contracts, energy efficiency or demand response programs.