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ERCOT Market Should Expect REP Defaults Due to Nodal Transition, Brewster Says Email
This Story September 29, 2010
The ERCOT market should expect that some retail electric
providers will default in 2011 as a result of mismanaging their commercial operations
in the nodal market, Chris Brewster, Partner at Lloyd Gosselink, said during a panel
discussion on the nodal market at the Gulf Coast Power Association's fall conference.
Brewster typically represents load interests, particularly cities.
Brewster noted that the day-ahead market and Reliability Unit Commitment (RUC) process
do not have analogous counterparts under zonal, and thus REPs will be challenged
to manage around the risks of each market design.
At the very least, Brewster expects REPs to try to "push down" on customers when
faced with nodal results which are contrary to their expectations. While the PUCT
has said that fixed price contracts for customers under 50 kW may not include any
pass-through related to nodal, contracts for customers above 50 kW are not subject
to any such prohibition. Brewster compared the potential scenario to 2008 where
some mismanaged REPs passed-through unexpected ERCOT congestion costs to customers
on fixed priced contracts.
Although not going as far as Brewster in raising the specter of defaults, Luminant's
Brad Jones, Vice President of Government Relations, agreed that he is worried about
the commercial status of some market participants. Bob Helton, Vice President at
International Power America, likewise said that he is worried about small REPs who
may be feel comfortable with their preparation for nodal, but haven't absorbed all
of the new risks inherent in the market because they rely on a QSE for commercial
operations and don't deal with the issues on a daily basis.
ERCOT COO Mike Cleary said that participation in nodal testing among REPs is the
most successful he's seen versus similar transitions in other markets, but did report
some REPs have informed him that they are testing to avoid being flagged as "red"
on the nodal readiness report, as opposed to devoting significant resources to truly
understand the operation of the new market.
Cleary and Helton both stressed to market participants, "if you think you're ready
[for nodal], check again, and check again, and check again."
Panelists also discussed other improvements or issues that they would like to see
addressed, most of which have been previously reported in the context of ERCOT or
PUCT proceedings. Jones reiterated concerns with collateral calls and improving
the day-ahead collateral calculation as soon as possible after go-live (Matters,
Jones again stressed that robust participation in the day-ahead market is necessary
for a successful market. Aside from collateral requirements hindering participation,
Jones said that the extremely higher shadow price caps in the day-ahead market versus
the real-time market may also discourage day-ahead participation.
Helton said that ERCOT should implement a look-ahead Security Constrained Economic
Dispatch under nodal.