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Texas Retail Providers: "Subsidy" for Generation-Related Capital Costs Would Set "Dangerous Precedent" For Market

December 30, 2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

This story was updated on 12/30 to reflect TEAM filing a clarification that Cirro Energy did not participate in filing the comments. The REP Group's original filing had erroneously listed Cirro as a participating member


The adoption of a "subsidy mechanism" assigning the costs of generators' compliance with any Subsynchronous Oscillation (SSO) standards adopted by ERCOT, "would establish a dangerous precedent for ERCOT's competitive markets," the Retail Electric Provider Group said in comments to the Public Utility Commission of Texas

The REP Group consists of the Alliance for Retail Markets and the Texas Energy Association of Marketers. Members of ARM participating in the proceeding are Direct Energy, LP and Noble Americas Energy Solutions LLC. Members of TEAM participating in the proceeding are: Accent Energy d/b/a IGS Energy, Just Energy, Spark Energy, Stream Energy, TriEagle Energy, and TruSmart Energy.

"[U]nregulated entities owning and/or controlling generation facilities should recover any facility modification costs incurred in compliance with ERCOT's [SSO] standards solely through the competitive market, rather than through any Commission-sanctioned compensation or reimbursement mechanism," the REPs said.

"The adoption of such a subsidy mechanism for specific generation-related capital costs would establish a dangerous precedent for ERCOT's competitive markets," the REPs said.

"In PURA §39.001(a), the Legislature finds that the production of electricity in the restructured electric industry in the ERCOT power region is not a monopoly warranting the regulation of rates. It further states the public interest in competitive electric markets requires that customer choice and the forces of competition determine the price of electricity, with the exception of rates for transmission and distribution service. Consequently, an entity owning and/or controlling electric generation facilities in the ERCOT power region recovers its costs of providing and selling electric power solely through the competitive wholesale market, rather than through Commission-approved rates or other regulatory mechanisms. These costs include capital, operating, and other types of expenditures germane to the generation of electric power," the REPs said.

"Consistent with those legislative findings, PURA §39.001(c) precludes the Commission from adopting rules or issuing orders regulating competitive electric services, prices, or competitors, or restricting or conditioning competition. It also prohibits the Commission from discriminating against any participant or type of participant in the competitive market by rule or order. Likewise, PURA §39.001(d) directs the Commission to authorize or order competitive rather than regulatory methods to achieve the goals of Chapter 39 (including electric network reliability objectives) to the greatest extent feasible, and to adopt rules and issues orders that impose the least impact on competition," the REPs said.

"Any regulatory mechanism for the compensation or reimbursement of facility modification costs incurred by entities owning and/or controlling generation facilities in compliance with ERCOT SSO risk standards would contravene the principles in PURA §39.001. Such a mechanism would subsidize an electric generation company's cost to produce electricity in violation of statutory principles of cost recovery through the competitive wholesale market. This subsidization would contravene the legislative finding that the forces of competition determine the price of electricity. Furthermore, such a compensation or reimbursement mechanism would restrict or condition competition, allowing the Commission to discriminate against and in favor of certain power generation companies. It would sanction certain power generation companies' recovery of facility modification costs incurred in compliance with ERCOT standards addressing SSO risk mitigation measures, while requiring other power generation companies not subject to those standards to recover all of their capital costs incurred in the production and sale of electricity solely through the competitive wholesale market," the REPs said.

"Moreover, nothing in PURA specifically authorizes the Commission to compensate or reimburse electric generation entities for the costs associated with the modification their facilities to address SSO risk. In principle, any such compensation or reimbursement would resemble a 'rate', in view of the broad definition of the term in PURA §31.002(15). The Commission lacks the statutory authority, however, to establish a rate (in whatever form) for the purpose of compensating or reimbursing a power generation company in the ERCOT power region for any type of costs incurred in the competitive wholesale market, including any capital costs relating to generation facilities (e.g., facility modification costs). PURA Chapter 36 sets forth the Commission's authority to establish and regulate the rates of only an electric utility. The definition of 'electric utility' in PURA §31.002(6) specifically excludes a 'power generation company' within its scope. Given the Commission's authority to set rates for compensatory purposes is limited to utilities only, it cannot specify the compensation or reimbursement of specific costs incurred by an entity owning and/or controlling generation facilities in the ERCOT power region. Again, those costs are recoverable only through the competitive wholesale market," the REPs said.

REPs also said that any compensation to regulated transmission service providers related to SSO mitigation should be recovered via the transmission service provider's Transmission Cost of Service, rather than the ERCOT system admin fee or uplift.

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