If a Houston-area generator under an Electric Reliability Council of Texas reliability-must-run contract were dispatched to resolve a transmission constraint, the price would be about 10 times its current price cap under a rule hotly debated by stakeholders Thursday.
At issue is Nodal Protocol Revision Request 784, addressing mitigated offer caps for RMR units, which was tabled for a month by ERCOT's Protocol Revision Subcommittee on Thursday after it was approved for urgency, which could result in the ERCOT Board of Directors considering the proposed rule change at its August 9 meeting.
On Tuesday, the ERCOT board of directors approved a 25-month RMR contract for the 371-MW Greens Bayou 5 natural gas-fired generator to operate during summer peak periods through June 2018. The contract provides a stand-by payment of $3,185/hour during the months of agreement, which are July-September 2016, June-September 2017 and June 2018. Thus, just the standby cost would total almost $21 million.
In addition to the standby payment, energy from the unit, which is owned by NRG Texas, would be paid according to ERCOT protocols. Because it is in a noncompetitive, transmission-constrained load pocket, NRG would be paid its mitigated offer cap -- roughly $50/MWh -- according to Beth Garza, head of Potomac Economics' independent market monitor office for ERCOT.
At that price, ERCOT operators may override the Greens Bayou 5 unit's "low-dispatch limit" order, Garza said in a comment filed regarding NPRR 784.
"LDL overrides essentially force megawatts into the market, equivalent to price-taking or very negatively priced offers, thereby suppressing real-time energy prices," Garza said.
NRG Texas on June 1 proposed changing the mitigated offer cap in such a way as ERCOT's Security-Constrained Economic Dispatch software would dispatch the Greens Bayou 5 "as far back in the dispatch order as possible but well below" the systemwide offer cap, $9,000/MWh, according to the NPRR.
Bill Barnes, who represents NRG Energy's Reliant Energy Retail Services, said Thursday the new NPRR would likely set a value of $500/MWh or $700/MWh for the Greens Bayou 5 unit.
"We have to get the price right," Barnes said. "It's essential for the market to succeed. ... An RMR is the end of the market. Its price should be reflecting that."
Katie Coleman, who represents Texas Industrial Energy Consumers, said her group has "some sympathy" with the idea of dispatching RMR units after all other units, but the NRG proposal "is not worth it" for the TIEC.
"We are very committed to [ERCOT's] energy-only market," Coleman said, but TIEC does not think ERCOT's current mitigated offer cap treatment for RMR contracts "interferes with any competitive pricing signals."
"When you have an RMR contract, what you are really doing is waiting for transmission," Coleman said.
ERCOT maintains that the reliability issues the Greens Bayou 5 unit is needed to relieve will be resolved when the proposed Houston Import Project, a 345-kV line between ERCOT's North and Houston market zones, comes online in summer 2018.
Amanda Frazier, who chairs the PRS and represents Luminant, the generating unit of bankrupt Energy Future Holdings, said NPRR 784 "would allow prices in a noncompetitive situation to rise artificially."
But Clayton Greer, who represents Morgan Stanley's independent power marketing operation on the PRS, said NPRR 784 would only allow an RMR unit to be dispatched "to maintain reliability, not to affect current economic outcomes."
"If you take the reliability aspect out of the price, it's artificially lower than it should be," Greer said.
An RMR unit, he said, should be treated "economically as if it's not there."
"If you want the energy-only market to work, this is what you've got to do," Greer said.
But TIEC's Coleman said, "This is a unique treatment that is being proposed, different from anything we have ever done before."
