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Texas PUC Executive Director Issues Notice Of Violation To Market Participant, PUC Staff Seeks $50,000 Fine

March 15, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Executive Director of the Public Utility Commission of Texas has issued a Notice Of Violation (NOV) to Viridity Energy, Inc. which alleges Viridity violated 16 TAC §§ 25.503(f)(2); and ERCOT Protocols § 8.1.3.3.1, regarding suspension of qualification of non-weather-sensitive Emergency Response Service resources and/or their qualified scheduling entities.

A report from the PUC's Oversight and Enforcement Division Staff alleges that Viridity failed to achieve a portfolio-level Emergency Response Service Availability Factor (ERSAF) of 0.95 or greater during any of the time periods for ERS-30 in the October 2015 - January 2016 Contract Period and any of the time periods for ERS-30 in the February - May 2016 Contract Period. Staff alleges that this was caused by Viridity failing to maintain the required amount of load available for ERS deployment

Enforcement Staff, as well as the PUC's Executive Director, recommend that Viridity be assessed an administrative penalty in the amount of $50,000.

Enforcement Staff alleged that after ERCOT clawbacks due to Viridity's alleged failures, "Viridity was still compensated $78,753.11 for these two contract periods, in accordance to ERCOT Protocols."

Viridity Energy issued the following statement to EnergyChoiceMatters.com: "Viridity will challenge the size of the proposed penalty, as the violation was related to a reduction in load by several of our customers associated with a downturn down in their business. No bad behavior or market manipulation was involved."

According to Enforcement Staff's report, "It should be noted that three of the four ERS resources in Viridity's portfolio were metals operations whose site loads are dependent on forecasting economic activity and production orders for the petroleum industry. According to Viridity, the ERS bids for these ERS resources were based on a review of the previous year's season as well as the prior months. Bid levels were chosen based on the expectation that loads would be at or lower than historical levels. Viridity stated that all the ERS resources positively affirmed their respective bid levels. The forecasts on which the ERS bids were based turned out to be very inaccurate, which caused the ERS resources to have reduced production and therefore reduced availability for ERS purpose."

Enforcement Staff alleges, "Viridity's primary problem appears to be the types of ERS resources that comprise its portfolio. According to Viridity, these ERS resources are susceptible to decreased production, or even closure, under certain economic conditions. This makes it very difficult for Viridity, or the ERS resources themselves, to project availability. While it is true that Viridity has no control over whether the ERS resources decrease production due to economic conditions, as the QSE, Viridity is responsible for ensuring that the ERS resources it represents are appropriate for inclusion in an ERS portfolio and that the MW amounts committed are available."

Enforcement Staff said that Viridity had submitted the following corrective action plan after the failure in the May - September 2016 Contract Period:

• Where possible, customers will be aggregated (if contractually able and based on baselines). One customer's underperformance can be covered by another's over performance.

• Prior to an auction, discussions will be held with customers to determine any future production changes which would negatively impact performance.

• Customers will be offered an electronic "dashboard" in order to see their instantaneous load and average load across a month. This will allow them to monitor against commitments.

• Resource capability offers will have a larger discount to ensure compliance with Availability Test.

However, Enforcement Staff alleged that such corrective actions are similar to those taken in response to prior allegations that Viridity failed to meet its ERSAF (which had led to a prior settlement agreement).

Enforcement Staff stated that Enforcement Staff, "does not believe Viridity's plan is sufficient to improve compliance so long as the portfolio includes a significant percentage of ERS resources that have the potential to shut down or go out of business during the contract period."

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