|NRG ENERGY, INC. filed this Form 10-K on 02/29/2016|
Organized Energy Markets in CAISO, ERCOT, ISO-NE, MISO, NYISO and PJM
The majority of NRG's fleet operates in one of the organized energy markets, known as RTOs or ISOs. Each organized market administers day-ahead and real-time centralized bid-based energy and ancillary services markets pursuant to tariffs approved by FERC, or in the case of ERCOT, market rules approved by the PUCT. These tariffs and rules dictate how the energy markets operate, how market participants make bilateral sales with one another, and how entities with market-based rates are compensated. Established prices reflect the value of energy at the specific location and time it is delivered, which is known as the Locational Marginal Price, or LMP. Each market is subject to market mitigation measures designed to limit the exercise of locational market power. These market structures facilitate NRG's sale of power and capacity products at market-based rates.
Other than ERCOT, each of the ISO regions also operates a capacity or resource adequacy market that provides an opportunity for generating and demand response resources to earn revenues to offset their fixed costs that are not recovered in the energy and ancillary services markets. The ISOs are also responsible for transmission planning and operations.
NRG's Gulf Coast wholesale power generation business is principally located in the ERCOT and MISO markets. The ERCOT market is one of the nation's largest and historically fastest growing power markets. For 2015, hourly demand ranged from a low of approximately 24,293 MW to a high of approximately 69,877 MW on August 10, 2015, which was a new all-time peak demand record in ERCOT, surpassing the previous record of 68,305 MW, set on August 3, 2011. The ERCOT region contains installed generation capacity of approximately 90,401 MW (approximately 24,190 MW from coal, lignite and nuclear plants, 45,926 MW from gas, and 20,285 MW from wind, hydro, solar, biomass and behind-the-meter generation). The ERCOT market has limited interconnections to other markets in the U.S. In addition, NRG's retail business activities in Texas are subject to standards and regulations adopted by the PUCT and ERCOT, including the requirement for retailers to be certified by the PUCT in order to contract with end-users to sell electricity. In Texas, a majority of the load is in the ERCOT market region and is served by competitive retail suppliers, except certain areas that are served by municipal utilities and electric cooperatives that have not opted into competitive choice.
A number of market rule changes have been implemented to provide pricing more reflective of higher energy value when operating reserves are scarce or constrained. The primary stated goal of these market rule changes is to improve scarcity price formation, forward market pricing signals and provide incentives for resource investment. Among the changes already implemented are: introduction of an operating reserve demand curve to establish scarcity prices in the real-time market when reserves are depleted, an increase to the system-wide energy and ancillary service offer caps, currently at $9,000 per MWh, an increase to the annual peaker net margin threshold to $315,000 from $175,000, an increase to the low system-wide energy offer cap to $2,000 (up from $500), higher energy pricing for ISO reliability unit commitments for capacity, and energy price adders to offset the price suppressing impacts of out-of-market commitments for reliability.
On December 19, 2013, Entergy joined MISO and, as a result, NRG's Gulf Coast region generation assets operating in the Entergy region, are now principally located within the MISO, participating in the MISO day-ahead and real-time energy and ancillary services markets. Additionally, MISO employs a one-year forward resource adequacy construct, in which capacity resources can compete for fixed cost recovery in the capacity auction. NRG continues to provide full requirement services to load-serving entities, including cooperatives and municipalities in the MISO region.