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Texas PUC Staff Preamble: Granting Regulated Cost Recovery of Generators' SSO Risk Compliance Cost Inconsistent with Competitive Market

April 13, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Staff of the Public Utility Commission of Texas have filed a draft proposal for adoption addressing Subsynchronous Oscillation (SSO) risk in ERCOT.

The rule would require ERCOT to, "establish standards, including protocols and procedures, applicable to TSPs [transmission service providers] and electric generating facilities," to improve the reliability of the electric grid by reducing SSO risk.

The draft proposal for adoption provides that, "An entity that owns or controls an electric generating facility shall be solely responsible for any costs it incurs for facility modifications to reduce the risk of SSO."

Staff's draft preamble explains denial of regulated cost recovery for generators' costs in reducing SSO risk thusly:

"The commission generally agrees with the comments made by CPS, TIEC, AEP/ETT, the REP Group, Oncor/CenterPoint, and Lone Star regarding the improper nature of transmission rate recovery for competitive generators in the context of the deregulated market. This market structure, defined in PURA and further implemented through commission rules, provides for a clear distinction between the competitive market wherein generators operate and regulated transmission service subject to cost of service principles. Because of its location and function, SSO-related equipment installed on generators' facilities does not provide transmission service; therefore, the costs of such equipment are not eligible for rate recovery by regulated transmission utilities. A fundamental precept of the ERCOT market structure set out in PURA is that costs incurred by competitive market participants are recovered through market prices and the normal forces of competition, while costs related to the provision of transmission service are recovered through regulated rates. The commission finds this fundamental distinction is reflected in the rule as proposed. As detailed throughout this preamble, proponents of cost recovery for generators, accomplished either through transmission rates or ERCOT uplift, provide no credible legal justification or public policy rationale for such outcomes. The commission therefore makes no changes to the rule to provide cost recovery for SSO-related facility modifications or opportunity costs that may be incurred by competitive market entities."

The draft preamble further states:

"The commission further notes that the application of cost causation principles to justify regulated rate recovery of generator-side SSO solutions does not comport with the legislatively mandated separation between competitive and regulated functions. This separation is illustrated by the fact that generators in ERCOT are solely responsible for other types of equipment necessary to protect their facilities from the potentially damaging impacts of the operation of a dynamic transmission system. While the application of the principles of cost causation may be appropriate to determine cost responsibility in a regulated environment, in a competitive market participants assume responsibility for costs they may incur as conditions change."

Uplift for generator-related SSO compliance costs is specifically rejected by the draft preamble.

"The commission declines to direct ERCOT to develop an NPRR in the stakeholder process to provide uplift for SSO-related facility costs. The commission notes that the cost recovery mechanisms cited by Brazos, including Reliability Unit Commitment and Reliability Must Run contracts, are designed to make generators whole for the variable or contracted costs of specific capacity or energy contributions they provide when ERCOT determines action is necessary from an operational reliability perspective. The ongoing costs to generators of out of market actions taken by the grid operator to ensure that load is served are not analogous to the cost of facility modifications related to SSO," the draft states.

"The commission agrees with the REP Group that such an uplift mechanism would create an unwise precedent. Establishing a novel cost recovery mechanism through ERCOT market uplift to compensate generators for their facility modifications would shift generator equipment costs to load, would be absent the protections and processes found in regulated prudence reviews, and would provide limited transparency to consumers regarding these costs. For the above-stated reasons, the commission declines to modify the rule language to provide ERCOT market uplift for SSO-related costs," the draft preamble states

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