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ERCOT Files Report Whether Local A/S Needed For Reliability, Cost of Marginal Loss Implementation

October 02,2017

ERCOT has filed its second report to address the two outstanding requests from a PUCT Staff memorandum concerning price formation issues

• Comment on the need and/or cost of introducing a local reserve product or local operating reserve demand curves in conjunction with real-time co-optimization.

• Provide an estimate of the implementation time and cost of incorporating marginal losses into dispatch and pricing.

ERCOT reported that it has not identified any reliability requirements that would necessitate the definition and provision of a minimum quantity of any of the ancillary service products in a particular location within the ERCOT system.

"Nonetheless, ERCOT appreciates that Potomac Economics as the Independent Market Monitor ('IMM') for the ERCOT market has recommended the creation of local operating reserves as a mechanism to improve price formation and promote alignment between ERCOT's operating requirements and its planning requirements ... Although ERCOT has not identified a need for locational ancillary services from an operational reliability standpoint, ERCOT stands ready and willing to further explore and understand the IMM's proposed idea for the establishment of a local reserve product within the construct of real-time co-optimization," ERCOT said

ERCOT also reported that, if marginal loss pricing were adopted, the implementation of marginal losses is estimated to require a project duration of 18 to 24 months after Protocol changes have been approved by the Board and a total cost (minimum) of $10 million.

At a high level, real-time co-optimization was estimated to require a project duration of 4 to 5 years after Protocol changes have been approved by the ERCOT Board of Directors and a total cost (minimum) of $40 million.

"Overall, ERCOT continues to emphasize that the cost and time estimates are high level and preliminary as key policy and design decisions have not been made to move forward with the implementation of marginal losses," ERCOT said

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