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Texas Retail Providers: Market Changes Sought By Third-Party Demand Response Providers Would "Significantly Disrupt" Retail Market, Interfere With The Rep-Customer Relationship

SPEER Recommends Approach Which Necessitates Uplift To Market

January 23, 2018

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

Changes sought by non-LSE curtailment service providers to provide new avenues for third party demand response providers to participate in the ERCOT market, "would significantly disrupt the competitive retail market," the Retail Electric Provider Group (REP Group) and the Texas Competitive Power Advocates (TCPA) said in comments to the Public Utility Commission of Texas

"Joint Commenters believe that Load Serving Entities ('LSEs') including Retail Electric Providers ('REPs') are best suited to facilitate load resource participation within the framework of ERCOT's competitive wholesale and retail markets," the REP Group and TCPA said

"In competitive portions of ERCOT, REPs are the primary customer facing entity for electric service and bear responsibility for customer usage in wholesale settlement," the REP Group and TCPA said

"The primary obstacle to greater load participation in the ERCOT market is a financial one, as numerous opportunities exist for loads to participate for both energy and capacity compensation," the REP Group and TCPA said

"Given the recent price history of the ERCOT wholesale market, investments to qualify load resources as Controllable Load Resources have largely been uneconomic," the REP Group and TCPA said

"When the ERCOT market signals a need for new resources through persistent higher energy prices, the value of demand response services will increase, providing REPs with further incentive to make additional investments in real-time telemetry, nodal dispatch and settlement, notification lead times, and continuous controllability (or partner with 3rd party demand response providers for such services)," the REP Group and TCPA said

"Characterizations of organizational and regulatory obstacles by certain parties are overstated and pale in comparison to the simple economic obstacles that load resources (and all other resources) face in depressed market conditions. During ERCOT stakeholder discussions, 3rd parties complained about the inability to interact with and be compensated by ERCOT as a QSE. Those 3rd parties, however, have two obvious solutions that would allow them to immediately participate in the ERCOT energy and ancillary service market: 1) obtain a REP certificate and participate in the market as a REP; or 2) partner with a LSE, such as a REP. The Commission is right to emphasize the competitive retail market as the ultimate provider for demand response products and services for consumers," the REP Group and TCPA said

"ERCOT's retail market is highly successful and fiercely competitive. There are 117 REPs offering hundreds of products available at any given time. A key design feature that has allowed the retail market to be so successful is the requirement for REPs to own the customer relationship for electric service. This simplifies the customer experience and allows competition on a level playing field," the REP Group and TCPA said

"Some parties may argue in this Project that the Commission should adopt policies that would encourage 3rd parties to interfere with the REP-customer relationship through their provision of demand response products. Joint Commenters oppose such proposals. Allowing 3rd parties to directly access customers without comparable certification requirements or customer protections can create an unfair advantage for 3rd parties competing with REPs when selling demand response products. Proper oversight and comparable requirements for 3rd parties are essential. Furthermore, to the extent entities other than REPs are allowed to offer demand-response products and services to residential and small commercial customers, the customer protection rules should apply to such 3rd parties in the same manner as they apply to REPs. Currently, the Commission rules do not cover these 3rd parties, therefore the rules must be expanded to provide the same customer protections and establish proper Commission authority and oversight to properly protect customers," the REP Group and TCPA said

"[S]ome of the proposals intending to facilitate 3rd party participation in SCED are highly complex and would significantly disrupt the competitive retail market," the REP Group and TCPA said

The REP Group and TCPA recommended that the Commission clearly reject both the Full LMP approach and the LMP-G (and its various permutations) approach to demand response participation and compensation

The REP Group and TCPA listed various implementation obstacles to LMP-G (which have been noted previously in various stakeholder collaborative), including how to address the issue of REPs billing customers for consumption that never occurred. Regarding LMP minus Proxy $G, the REP Group and TCPA noted that the proxy rate will not reflect the customer's actual rate, and raised questions of how to define Proxy $G and how often it should be updated must be addressed.

"Ultimately, ERCOT stakeholders determined that the complexity, perverse financial incentives, and disruption to the retail market presented issues that greatly exceeded the benefits of proceeding with the proposals. As such, the Commission should not burden the retail market with implementation costs and disruption to subsidize pursuit of uncertain benefits from incremental 3rd party demand response participation that should occur through the retail market once energy market economics signal their need. In addition, even if these complex proposals were adopted, the level of participation by 3rd parties is uncertain and susceptible to the same economic forces that have limited demand response in the past," the REP Group and TCPA said

"By way of an example, ERCOT implemented Loads in SCED in June of 2014, yet no market participant has participated in the program," the REP Group and TCPA said

The South-central Partnership for Energy Efficiency as a Resource (SPEER), in contrast, urged in comments to the PUCT to allow third party DR providers to participate directly in ERCOT without being an LSE.

"[T]he primary shortcoming of the current system is that it does not allow such participation by customers on their own behalf, or with the assistance of a third-party services provider," SPEER said

SPEER claimed, "This limitation was not intentionally created in order to prevent certain market participants from entering the market, although this has been the effect, but rather reflects the fact that the more limited, partial changes adopted avoided the complexities associated with altering the current market design for third-party participation."

SPEER continued to push for a modified version of LMP minus Proxy $G. Under this mechanism, the DR provider would be paid LMP minus a proxy generation price, however, there would be no load added back to the obligation of a REP whose customers participate as a load resource through a third-party DRP. Instead, to avoid the cost and complexity discussed above, the costs of the load deployment would be charged to all loads on a load-ratio basis

SPEER conceded that providing compensation to third-party DR providers under this mechanism would necessitate uplift.

"We recognize the issue this creates -- where the money to pay for the cost-effective DR resource would come from -- is not insignificant. No one loves an uplifted or socialized cost. However, the fact that our simplification makes implement of LRIS2 conceivable, and likely much cheaper is also no small matter. Our suggestion to uplift to all loads is reasonable, if one considers that a working LRIS2 process would contribute to an overall more efficient market, by incorporating additional resources. While loads might otherwise participate passively, simply undermining price formation, by participating directly they would sometimes actually set price," SPEER said

Project 41061

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