ERCOT adds new pricing zone; design similar to California

Ann de Rouffignac
OGJ Online

HOUSTON, Jan. 28 -- Wholesale electricity prices could rise in Houston during high demand periods after the Texas grid operator added a new Houston pricing zone.

On Jan.1, the Electric Reliability Council of Texas (ERCOT) created the Houston zone to discourage congestion on electricity transmission lines and control costs. Congestion costs soared last August to almost $100 million, five times what ERCOT officials originally expected for a year.

When power is scheduled between zones causing congestion, ERCOT pays generators to stop producing or pay others to start producing to maintain reliability and the integrity of the transmission system. Those costs are the costs of congestion and are borne by all the market participants. But starting Feb. 15, the cost of congestion will be borne by those who cause it.

ERCOT originally planned three zones. Zones encourage power generated in a zone to be consumed there, thus reducing the risk of transmission line congestion. Whether the new zone increases prices won't be fully known until hot weather boosts power demand creating congestion. But Texas market participants expect costs to rise in Houston.

"The added constraint will limit imports [of power] into Houston area," said one Texas market participant. "They might see higher prices relative to the rest of the south zone."

The Texas zonal market design is similar to the system being scrapped in California. "Texas should look with concern at the Texas wholesale market design that bears a strong resemblance to the original California model now explained as built on false premises," said Prof. William Hogan of the Kennedy School of Government at Harvard University, an expert on wholesale electricity market design.

ERCOT is required to determine the commercially significant constrained zones each year and make adjustments, said Sam Jones, chief operating officer. "There is a lot of new generation in South Texas, especially Houston and Corpus Christi," Jones said. "Last summer we had to manage a lot of congestion in and out of Houston. I don't think the new zone will change the pricing much."

He predicted schedulers or "QSEs" will compare prices and may decide it is cheaper to pay the congestion costs. "Whoever is the buyer pays for it," he said.

But creating more zones and directly assigning the costs will create a different set of problems, said Clarence Johnson, director of regulatory analysis for the Office of Public Utility Counsel. "That will just shift the costs to a different area," he said.

In February 2001, Hogan told PUC and ERCOT officials the zonal system would worsen congestion and ERCOT would be forced to add more. "Any time you have to pay someone not to generate power, there has to be something wrong with the design," said Hogan. Only Texas and California have the zonal pricing system, he said.

California also added zones in an attempt to solve the congestion cost problem before it decided to redesign the system, he said. California filed a preliminary proposal to redo its entire wholesale electricity market earlier this month with the Federal Energy Regulatory Commission.

The wholesale market flaw in California was overshadowed by blackouts, the collapse of the retail market and the subsequent bankruptcy protection filing of the state's largest utility, he said. "And this has distracted many from learning the lessons about wholesale market design that have much greater relevance beyond California's borders," Hogan said.

"The failure of the California wholesale market design should be a warning for every other market that has embraced its philosophy and adopted its details." The only way to solve this problem is to "surrender and say the philosophy is wrong," he said.

Contact Ann de Rouffignac at annd@penwell.com

Related Articles

BLM approves ROW for Elko gas pipeline expansion project

07/07/2015 The US Bureau of Land Management’s Tuscarora, Nev., field office signed a decision record approving a right-of-way for Paiute Pipeline Co.’s (PPC) ...

Obama urged by IPAA president to lift ban on US crude exports

07/07/2015 Commending the administration for its actions allowing some condensate to be exported as a petroleum product, Independent Petroleum Association of ...

WAFWA: Aerial survey finds lesser prairie chicken population grew

07/06/2015 A recent range-wide aerial survey found the lesser prairie chicken population rose 25% from 2014 to 2015, the Western Association of Fish & Wil...

Buru awarded onshore Canning licenses

07/06/2015 Buru Energy Ltd., Perth, and Mitsubish Corp. have been granted two production licenses for Ungani oil field in the onshore Canning basin of Western...

Woodside lets contracts for Browse LNG project

07/06/2015 Woodside Petroleum Ltd. has let more contracts for the Browse floating LNG project offshore Western Australia. The contracts, awarded to a Technip-...

The price of oil and OPEC-history repeating?

07/06/2015 The world oil market today is characterized by a standoff between the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers a...

Earth model assists Permian asset valuation

07/06/2015 Laredo Petroleum Inc.'s Permian-Garden City asset is an unconventional resource play with more than four potential stacked zones covering a 1,700 s...

China's Yanchi area, western Ordos basin derived from mixed source

07/06/2015 The Yanchi area lies in the west of China's Ordos basin and to the west of the giant Sulige gas field, site of recent breakthroughs in Lower Permia...

Newfoundland, Labrador prepare for deepwater exploration

07/06/2015 Canada-Newfoundland and Labrador Offshore Petroleum Board's (C-NLOPB) most recent call for bids for the Eastern Newfoundland Region is coming to a ...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST



On Demand

Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected