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Texas PUC Staff Recommend Retaining Low System-Wide Offer Cap In ERCOT Market In Draft Proposal For Adoption

Would Not Increase Level For LCAP

April 12, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the Public Utility Commission of Texas have filed a draft proposal for adoption in a rulemaking concerning discrete changes to the scarcity pricing rules

Among other things, Staff's draft proposal for adoption retains the current Low System-Wide Offer Cap (LCAP) of $2,000 per MWh, which would be imposed if the Peaker Net Margin threshold were to be reached, and suspends the Operating Reserve Demand Curve and the Reliability Deployment Price Adder if the LCAP is in effect, with the intention of preventing divergence between the real-time and day-ahead markets if the LCAP is ever activated

As first reported by EnergyChoiceMatters.com (see story here), several generators had proposed eliminating the Low System-Wide Offer Cap

In a draft preamble, Staff proposes the following language: "The commission declines to eliminate the LCAP at this time. The commission notes that the LCAP has been in place since 2006, and the interests of the market as a whole are served by continuity and the regulatory certainty provided by the LCAP."

Furthermore, Staff recommends that the Commission decline to increase the LCAP at this time. Generators had proposed raising the LCAP to $4,500/MWh

"The commission adopted the current LCAP value at the same time as the current High System-Wide Offer Cap of $9,000 per MWh, and has historically raised the LCAP only in tandem with the increases to the High System-Wide Offer Cap. The commission is not revising the High System-Wide Offer Cap in this project, and the commission is not persuaded that a change to the LCAP is necessary at this time. The commission will consider the VOLL in Project No. 48540," a Staff draft preamble states

PUCT Staff also recommended rejecting a proposal from retail electric providers to include day-ahead market prices or ancillary services revenues in the Peaker Net Margin calculation.

"These metrics do not reflect the goal of the Peaker Net Margin, which is to calculate revenues that a peaking unit would receive. The Peaker Net Margin threshold is intended to be a high barrier to ensure that generators have sufficiently recovered revenues before the LCAP is imposed," a Staff draft preamble states

Staff does propose amending the rule to state that, if the Peaker Net Margin threshold is reached in a year, ERCOT will not apply any administrative price adders, and that energy prices, exclusive of congestion prices, will not exceed the LCAP plus $1 for the remainder of the calendar year. This change will mitigate market distortions. The commission does not intend for elements such as the shadow price caps or the Power Balance Penalty Curve to be suspended with the imposition of the LCAP. "The commission does intend that the reliability deployment price adder and the ORDC be suspended with the imposition of the LCAP," a Staff draft preamble states

"With respect to parties comments asserting that the commission should direct ERCOT to continue applying the ORDC, the commission declines to make this change and adopts the rule as proposed in this respect. The Peaker Net Margin threshold is intentionally set to be a high, conservative barrier at which generators would have more than recovered their costs and at which loads would be in need of relief from sustained and significant high pricing. Revenues from the ORDC are included in the Peaker Net Margin calculation," a Staff draft preamble states

"With respect to parties' comments asserting that the commission should direct ERCOT to continue applying the reliability deployment price adder, the commission declines to make this change and adopts the rule as proposed in this respect. As with the ORDC, a conservative approach to the Peaker Net Margin, as discussed earlier, merits an equally balanced approach where loads are provided appropriate relief from sustained and significant high prices," a Staff draft preamble states

Staff said that the proposal for adoption makes the following changes to the current rule:

• Replaces references to the Houston Ship Channel Gas Price Index with more flexible language that references a natural gas price index value to be determined by ERCOT, with the intention of allowing the ERCOT stakeholder process to select an index that best reflects current natural gas market dynamics;

• Retains the current Low System-Wide Offer Cap (LCAP) of $2,000 per MWh, which would be imposed if the Peaker Net Margin threshold were to be reached, and suspends the Operating Reserve Demand Curve and the Reliability Deployment Price Adder if the LCAP is in effect, with the intention of preventing divergence between the real-time and day-ahead markets if the LCAP is ever activated;

• Updates rule language and reporting requirements to reflect current practices and add more descriptive terms that are currently used in the ERCOT Protocols; and

• Repeals §25.508 (prior HCAP rule), which became obsolete when the Commission amended §25.505 in 2012.

Project 48721

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