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Winds of Change in Texas

Rising gas prices spark a rush to wind farms, straining grid capacity and raising larger issues about market design.
Fortnightly Magazine - April 1 2003

"subject the implementation of nodal LMP to a rigorous and demonstrable cost/benefit evaluation."

"Our concern was with a tremendous cost with no offsetting benefits, and no benefit was explained to us that would benefit customers," says Jerry Ward, ERCOT market and regulatory director for TXU in Dallas. In its comments, TXU also noted that "retail competition is succeeding in ERCOT" while "struggling in the PJM states."

Texas generators' ties with PJM are among the many influences upholding the PJM model, a member of the coalition says. "They understand the rules of PJM. … But it's not going to cost them much to redesign the market. … The people that have to pay for the new systems are generally the load side."

As all these design options were being deliberated, Commissioner Perlman made it clear that a "forklift upgrade" 8 was not the goal. Rather, it should be the development of a transition plan toward more granular pricing, which could go as far as a completely nodal system, or a system of trading hubs, similar to the way gas is traded. At that meeting, commission staff proposed going first to simultaneous market clearing (SMC)-a plan for zonal, but independent, bids from each generator as opposed to a fleet of generators.

"The SMC proposal is the first step because it allows the system operator to perform a security-constrained, economic dispatch, just like PJM," says Perlman.

Siding With PJM?

As far as modeling ERCOT after other models, TXU's Jerry Ward notes, "We were looking at the California market as we designed ours, and we were looking at what they did and what worked and what didn't work. We're differently situated. We're not connected to other states. We can control ours a little differently than they were able to." (Ward also chairs the working committee on congestion for ERCOT.)

But PJM has its own assessment of the model's influence. "The implications are the FERC SMD is really looking at a congestion management model and an RTO [regional transmission organization] model that's very similar to PJM in New York," says Andy Ott, executive director of market services for PJM. "They're saying, 'Hey, it's worked pretty well in these established markets; we'd like it to be similar everywhere.'"

From Ott's perspective, their model is attractive because, first, the areas adjacent to PJM will have a similar model, so it will be easier to coordinate power operations with them. Second, from a user point of view, everyone using the same model makes more sense economically because of the uniform or standardized software, he says.

"The actual constraints you impose to power operations are going to vary by region. … In the Northeast we're going to have different types of operating characteristics than they would in either Texas or the Midwest," Ott says. "I think people don't understand that you can have different operating criteria but really the same financial market overlay."

Influencing the Midwest

Meanwhile, in the Midwest, the Midwest ISO (MISO) is eyeing possible changes at ERCOT for several reasons. One has to do with the planned merger