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Brattle Has Not Examined Texas Retail Provider Credit Requirements "In Detail," Despite Recommendation to Revisit Requirements
July 27, 2012
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Copyright 2010-
The Brattle Group conceded in a response to industrial customers that it has not studied issues regarding Texas retail electric provider credit and qualification provisions, "in detail" -- despite recommending that the PUC revisit REP qualification standards to address certain "risks."
As was only reported by Matters, Brattle, in its report on ERCOT resource adequacy, urged the Public Utility Commission of Texas to, "revisit provisions to ensure that retail electric providers (REPs) can cover their positions as reserve margins tighten and price caps increase."
"[W]e are concerned that as reserve margins tighten and offer caps increase, some unscrupulous REPs with little to lose may be tempted to exploit asymmetric risk exposures, if such exist. They could under-hedge in order to make money in the likely event that realized spot prices are lower than forward prices, while taking a risk that spot prices spike to levels they cannot pay in the unlikely event of 2011-like weather. They would simply default and exit the retail electric business, but ERCOT's other customers would have to pay. Given risks such as these, we recommend that the PUC revisits its credit and qualification provisions," Brattle said.
It was unclear how wading into the certification standards for REPs addressed the three issues that ERCOT requested Brattle study, which were: Investors and their Investment Criteria for ERCOT Capacity; Market Outlook for Investment and Resource Adequacy; and Evaluation of Policy Options for Long-Term Resource Adequacy in ERCOT.
Nonetheless, Brattle's recommendation regarding REP certification was made, which prompted the Texas Industrial Energy Consumers to ask Brattle the following:
"Please explain how revisiting credit and qualification provisions for REPs will mitigate the risk/incentive for a REP to exploit asymmetric risk. Does Brattle believe that its recommendation [will] increase the cost of entry for REPs and favor established REPs with large numbers of existing customers and affiliated generation? If not, why not?"
Here is the entirety of Brattle's response, which was filed with the PUCT yesterday:
"We have not examined these issues in detail. We only identified a risk and recommended that the PUCT assess whether additional measures are warranted to avoid such risks."
Copyright 2010-
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