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As reported previously, the Electric Reliability Council of Texas, Inc. (ERCOT) recently provided an update regarding the ongoing Value of Lost Load (VOLL) study for the ERCOT region. This filing included analysis conducted by ERCOT’ s contractor, The Brattle Group (Brattle), which provides a set of VOLL estimates for the Commission to consider in determining an interim VOLL value, until a survey of customers in the ERCOT region can be completed. Staff anticipates the ERCOT-specific customer survey will provide another significant data point to help the Commission understand the preferences of Texas electric customers and develop robust, consumer-focused reliability policy. In the meantime, the interim VOLL will inform ongoing studies, but it will have no immediate market impacts. During the January 18, 2024 Open Meeting, the Commission directed Staff to review this filing and provide an interim VOLL recommendation.

Excerpts From Staff Recommendation Memo:
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VOLL in the ERCOT region is currently set at $5,000 per MWh. Prior to January 1, 2022, VOLL was set at $9,000 per MWh, but it was reduced to the current level6 and subsequently decoupled from the System-Wide Offer Cap7 (SWCAP) during a redesign of the wholesale electric market. Any of the estimates described above represent a considerable increase from the current level. However, as noted by Potomac in the 2022 State of the Market Report by the ERCOT Electric Markets, the current level likely underestimates VOLL by a substantial amount. Based on the various analyses described above, Staff agrees with ERCOT’ s assessment that Options 2a ($24,693 per MWh) and 2b ($26,245 per MWh) represent the most reasonable estimates of VOLL, but for the sake of simplicity, we would recommend that an intermediate value be selected for the interim VOLL.

Recommendation No 1:
Staff proposes that the interim VOLL be set at $25,000 per MWh.

However, Staff also recognizes that many of the proposed options are imperfect due to their reliance on an existing model and data that are not specific to the ERCOT region. Therefore, we would also recommend that any study employing the interim VOLL as an input should, whenever feasible, conduct sensitivity analysis to examine how relevant outcomes are impacted by different VOLL values. For example, the interim VOLL will be used to estimate the marginal cost curve as a part of the ongoing reliability standard study, as described by ERCOT in their most recent reliability standard study update.8 Relying on a single, imperfectly estimated VOLL for the purpose of important, policy relevant projects is ill-advised.

 Staff refers to the estimates described above to provide guidance on the range of VOLL values that should be considered in any such analysis. The lowest VOLL estimate of $20,000 per MWh is provided by Potomac in the 2022 State of the Market Report for the ERCOT Electricity Markets. The highest VOLL estimates are described in Brattle’s Option 1, from which we would recommend using the average system wide estimate of $67,822 as a point of reference.

Recommendation No. 2:
Staff recommends that any study that uses VOLL as an input should conduct sensitivity analysis, varying VOLL between $20,000 and $70,000 per MWh.

The number of values within this range that should be considered for the sensitivity analyses may be situation specific, but in each case, the analysis should include sufficiently many different values to ensure a full understanding of how VOLL affects the results. Once the survey of customers in the ERCOT region has been completed and a new VOLL estimate has been obtained, the need for sensitivity analysis and the range of values can be re-evaluated. {***}

Staff Recommendation Memo on Interim VOLL  (01/25/2024)
55837  (11/21/2023)