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Resolution Of ERCOT ADR Proceeding Results in Uplift To Market

October 24, 2018

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

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The resolution of an Alternative Dispute Resolution (ADR) proceeding at ERCOT concerning a co-op's Congestion Revenue Rights will result in uplift to the ERCOT market after ERCOT determined that it should not have voided the co-op's Pre-Assigned Congestion Revenue Rights

An ADR had been filed by East Texas Electric Co-op, Inc. (ETEC) along with several of their member distribution cooperatives (the "Affected DCs") regarding disqualification of Pre-Assigned Congestion Revenue Rights (PCRRs) held by Tex-La Electric Cooperative of Texas, Inc. (Tex-La) on behalf of the Affected DCs.

In 1958, Tex-La entered into a power sales agreement with Southwestern Power Administration (SWPA) for electric power from the hydroelectric power plant located at Denison Dam (the "864 Contract"). The 864 Contract recognized that Tex-La would be purchasing power for the service of the Affected DCs. The Affected DCs that benefit from the PCRRs have all been members of Tex-La since before September 1, 1999, to present. Tex-La was authorized by the Affected DCs to act as their agent in managing the PCRRs.

In 2017, Tex-La and ETEC pursued a merger arrangement in which Tex-La would merge into ETEC. ETEC sought approval from the Public Utility Commission of Texas (Commission) for its proposed merger with Tex-La, which was approved by the Commission on October 11, 2017. Effective January 1, 2018, Tex-La merged into ETEC. As a result, Tex-La no longer exists as a legal entity. ETEC has effectively taken Tex-La’s place as the Counter-Party to the 864 Contract, and agent to manage the PCRRs on behalf of the Affected DCs.

Following the merger, ERCOT initially determined that ETEC was no longer eligible for PCRRs because ERCOT believed that the merger constituted an impermissible assignment or transfer requiring termination of the PCRRs under Protocol Section 7.4.1.3.1(2)(b).

On May 15, 2018, ETEC requested ADR for reinstatement of the PCRRs and compensation for the months during which ERCOT determined ETEC was ineligible to receive PCRRs.

As a result of the ADR proceeding, ERCOT has determined that the appropriate disposition of the ADR proceeding is to grant ETEC’s request for relief. Pursuant to Protocol Section 20.1(1), a Market Participant may seek relief through the ADR process by making a claim that "ERCOT has violated or misinterpreted any law," including the ERCOT Protocols. In this matter, for the reasons set forth below, ERCOT said in a market notice that, "ERCOT misinterpreted the ERCOT Protocols when it determined that the merger event between ETEC and Tex-La constituted an impermissible assignment or transfer that would result in disqualification of the PCRRs."

Protocol Section 7.4.1.3.1 sets forth PCRR disqualifying events. Specifically, Protocol Section 7.4.1.3.1(2) provides that a NOIE will be disqualified from PCRR eligibility if there is a "termination" of the long-term contract upon which the NOIE’s eligibility is based. Protocol Section 7.4.1.3.1(2)(b) contains the following language that further defines what might qualify as a "termination": Any change in control of the capacity under the contract, including, but not limited to, assignment of the contract to another Entity. The foregoing notwithstanding, a NOIE shall still be eligible to receive PCRRs if the capacity under the contract is transferred to another Entity or a generation and transmission EC for the benefit of the NOIE, the Entity or the generation and transmission EC continues to supply the NOIE under the same terms and conditions of the long-term contract, and the contract continues to meet all other relevant PCRR eligibility requirements.

Under the ADR proceeding, ERCOT said in the market notice that, "ERCOT has determined that the merger between Tex-La and ETEC was not an impermissible transfer or assignment resulting in 'termination' of the contract under Protocol Section 7.4.1.3.1(2)(b). No 'termination' of the 864 Contract occurred because the contract remains in effect between SWPA and ETEC for the benefit of the Affected DCs. Since the merger, SWPA has confirmed that ETEC will continue to receive the same allotment of hydropower from Denison Dam previously received by Tex-La for use by the Affected DCs in accordance with federal regulations. Further, no transfer or assignment has occurred in connection with the merger, and no assignment agreement of the 864 Contract has been executed. Under Texas law, an assignment was not necessary for ETEC to assume Tex-La’s position under the contract."

ERCOT said in the market notice that, "The Tex-La/ETEC merger should not have been construed as a disqualifying event, and ERCOT should not have voided ETEC’s PCRRs. Accordingly, ERCOT will grant ETEC relief for PCRRs that were voided from January 1, 2018 through November 30, 2018; ERCOT estimates that the amount of relief to be provided to ETEC to be approximately $75,546.00 for amounts owed up to October 21, 2018. ERCOT will also reinstate ETEC’s PCRRs, beginning December 1, 2018, after the CRR Market User Interface project is fully implemented."

Pursuant to Protocol Section 20.10.1(2), ERCOT will make the adjustment required to resolve this ADR Proceeding through a separate ADR invoice which will be issued to all affected Market Participants after ERCOT has estimated the total amount of relief to be provided to ETEC (in early December 2018). The payment to ETEC will be uplifted on the basis of the Monthly Load Ratio Shares (MLRS) applicable to the months of January 2018 through November 2018, ERCOT said in the market notice

Market Notice M-A102318-01

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