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Price Formation

Table of Contents

The Gist

The ERCOT market uses three separate mechanisms to form prices.  The first is supply and demand (including the Power Balance Penalty Curve); the second is the Operating Reserve Demand Curve (ORDC); the third is the Reliability Deployment Price Adder(RDPA).

Supply and Demand.  ERCOT holds auctions in the Day Ahead and Real-Time markets that set prices based on optimal interactions between the supply and demand. In the Real Time Market the demand consists of the Power Balance Penalty Curve (stair stepping from $250/MWh to $5000/MWh over 100MWs), any bids from Controllable Load Resources, with all other load assumed at $5001/MWh.

Operating Reserve Demand Curve.  The ORDC is an adder paid to all generation and generation capacity over and above reserve requirements.  The ORDC is designed to reflect the value load would place on reserve generation; thus, when reserves are low and the system is more in danger, the value of reserves are high.  When reserves are high and the system is in relatively less danger, the value of reserves are low.

Reliability Deployment Price Adder. The RDPA is another adder paid to all generation and generation capacity over and above reserve requirements.  The RDPA is a “but for” calculation in which the average price of load is calculated for every Real Time interval with any of a specific set of ERCOT reliability actions “taken out” or “undone” in specific ways.  Any positive difference between the “but for” average load price and the original average load price becomes the RDPA for that interval.

Important Actions

Reference

Senate Bill 3 (enrolled version text)

Phase 1 and 2 Market Reform Blueprint

Meeting Notes

3/10/22 PUC

2/25/22 PUC

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