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Texas Co-op: Retail Providers Should Be Forced To Pass-Through Any Marginal Loss Surplus To Customers

October 2, 2017

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

In comments on the Hogan-Pope whitepaper on price formation issues in ERCOT's energy market, South Texas Electric Cooperative, Inc. said that, to the extent marginal loss pricing is adopted, retail electric providers should be compelled to pass-through any marginal loss surplus to their customers

"Because the marginal loss construct collects substantially more money than was collected with respect to average losses, a surplus of revenues is created through the collection of the marginal loss allocation. A key decision point will be the allocation of the marginal loss surplus. If no action is taken to modify TCOS recovery, the Commission should consider allocating that surplus on the same basis as the TCOS recovery such that it is paid to those that pay for transmission in the 4CP process," STEC said

"The current incentives for TCOS rewards those entities that have the ability and the incentive to avoid the 4CP as discussed above. This disproportionately shifts the TCOS burden to residential, small commercial and other larger commercial consumers," STEC said

"Any allocation of the marginal loss surplus should go to those paying for transmission including residential, small commercial and larger commercial customers or those industrial loads that pay for transmission. No marginal loss surpluses should be paid to customers that do not pay the costs of transmission due to 4CP avoidance," STEC said

"Further, to ensure that the consumers that pay for transmission actually receive the marginal loss payment in the competitive market, all retail electric providers should be required to pass through to their consumers the marginal losses credit," STEC said

"Residential consumers and those unable to shift their usage should be granted some relief that will subsidize larger customers to a lesser extent. If the commission opts not to change the 4CP allocation methodology, STEC believes that returning the marginal loss surplus on a 4CP basis will mitigate some amount of TCOS subsidization," STEC said

STEC raised various concerns with marginal loss pricing.

"Marginal losses that include a single specific 'center of load' represented by a single bus may be a sensible solution for a system where all resources are owned by a single entity and that entity is then encouraged to site generation based on the marginal loss component, if all other pricing issues are equal between such locations. However, given that transactions are occurring in and around multiple load centers on the ERCOT system, this system-wide load center does not reflect the actual flows between specific generation and loads on the grid. Marginal losses using a single 'center of load' bus tend to reward generators that locate near the electrical center of load, which is close to the Houston area, however it punishes generators that are on the periphery of the system and yet are located adjacent to the very load centers they serve (e.g. the Valley, Laredo, Midland/Odessa, and potentially Dallas)," STEC said

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