London Economics International recommends reforms to ERCOT energy market design to improve reliability

 BOSTON, MA, September 30, 2021 – In response to the Public Utility Commission of Texas (“PUCT”)’s Review of Wholesale Electric Market Design, Project No. 52373, London Economics International LLC (“LEI”) submitted recommendations to modify the real time energy market pricing mechanism and to introduce a new, forward ancillary services product to secure competitively priced dispatchable resources to serve as backup to supply participating in the energy markets. 

Based on the requirements in Senate Bill 3 and the objectives articulated by Governor Abbott and the PUCT, LEI worked with Vistra Corp. to design market reforms that would improve the reliability of the Texas electric energy system and restore the long-term investment signal in the energy-only market design.  In its comments, LEI noted that the market reforms would be expected to improve security of supply for customers by avoiding the negative consequences of load shed, fix the economic signal for maintaining existing dispatchable generation and investing in new dispatchable generation, and provide ERCOT with certainty around the capacity it has available to reliably operate the system.  

“There is no need to capitulate on an energy-only market design,” Julia Frayer, Managing Director at LEI noted. “However, in order to get additional capacity online as hoped by the Legislature, Governor Abbott, and the PUCT, a methodic and holistic revision to the scarcity pricing mechanism known as the operating reserve demand curve (“ORDC”) is required.  We also recommend an insurance-based ancillary services product that would harness the power of competitive markets to procure additional backup capacity.”

For more specifics of LEI’s recommended market reforms, the Filing Receipt is available through the Texas Public Utility Commission website: http://interchange.puc.texas.gov/Documents/52373_162_1156715.PDF

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London Economics International LLC is a global economic, financial, and strategic advisory professional services firm specializing in energy and infrastructure, with extensive experience advising on wholesale market rules, auction design, competitive procurements, economic evaluation of infrastructure assets and market analysis. For further information on LEI, please contact Julia Frayer at (617) 933-7221 or visit www.londoneconomics.com.