Dive Brief:

• Generators Calpine and NRG filed a white paper Wednesday with the Texas Public Utility Commission seeking changes to the pricing and settlement rules in the power market administered by the Electric Reliability Council of Texas (ERCOT).
• The paper expresses concern about a "noticeable decline in energy prices since 2014" due to low natural gas prices and higher penetration of subsidized wind. It argues for changes in system-wide price formation, local scarcity pricing and transmission cost allocations to avoid "subversion" of the market model.
• In particular, the paper seeks changes to the Operating Reserve Demand Curve (ORDC), which determines when scarcity pricing events occur, to better take into account the influx of subsidized resources. 

Dive Insight:

Low and negative electricity prices in the ERCOT market are stoking concerns that Texas may not be able to attract sufficient new generation to ensure reliability. In March, the CEO of another grid operator, ISO-New England, told Utility Dive he sees the Texas model as "very vulnerable" in the long run. 

Calpine and NRG pick up on those concerns in their new white paper, which is written by William Hogan of the Harvard Electricity Policy Group and Susan Pope of FTI Consulting. They say the lower prices are due to both low gas prices and subsidized wind generation.

"2016 natural gas prices in ERCOT were at their lowest level for 15 years," they wrote, "and ... the average real‐time price in 2016 of $24.65/MWh was the lowest on record for ERCOT."

Because Texas has no capacity market, generators make their revenues in the shorter-term energy market. Typically, they rely on scarcity pricing events — which can pay up to $9000/MWh during periods of high demand — to cover the costs of their plants. 

But the influx of subsidized wind has cut down on those scarcity events, PUC Chair Donna Nelson said at an energy conference in March. 

“Last summer, for the first time, we saw days with high demand where we saw about 4,000 MW of wind online,” she said. “Now, that's not enough where you can count on wind to always be there, but it is enough to remove the scarcity pricing."

To counteract that, NRG and Calpine propose fixes to the ORDC to better take into account subsidized renewables. Wind and solar generation are artificially inflating ERCOT's reserve margin, they argue, because they are not dispatchable, and so the ORDC should not take them into account when determining scarcity events. 

"[I]mprovements to price formation appear possible through the modification of the loss of load probability to take account of the uncertainty accompanying high levels of intermittent resource output, and logical modifications to exclude the capacity of out‐of‐market deployments from the estimate of reserves," the authors wrote. 

In addition to ORDC modifications, the paper argues for changes to Texas's socialized transmission cost allocation scheme, blaming the build-out of power lines, particularly under Competitive Renewable Energy Zone program, for allowing more wind installations and pushing prices down.

Alternatives to the current reliance on summer peak demand to determine transmission cost allocations are detailed in the appendix of the report. These "would reduce distortion of energy market pricing," the authors wrote.

The white paper comes amid growing concerns over the functioning of wholesale power markets across the nation. In California, generators are dealing with more instances of negative pricing and curtailment, sparking calls for market reform.

The Federal Energy Regulatory Commission held a technical conference last week considering how to integrate state climate and renewable energy goals into eastern wholesale markets. There, Calpine and NRG joined calls from analysts and economists to integrate a carbon price into power markets.