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REP Principal: 22 Possible Defaults From ERCOT Scarcity Pricing

CEO Of Another Retail Provider Seeks Relief From PUC, Recounts Strain From Wholesale Pricing, Generator Unavailability

February 18, 2021

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Copyright 2010-21
Reporting by Paul Ring •

The following story is brought free of charge to readers by EC Infosystems, the exclusive EDI provider of

A principal of a retail electric provider told that chatter in the market is that there are 22 possible defaults of load serving entities in ERCOT due to recent prolonged scarcity pricing. The principal requested not to be named due to the sensitive nature of the information

Notable among the LSEs, with respect to any potential regulatory action, is that this potential number reportedly includes both REPs as well as municipal utilities and/or co-ops. Small public utilities and/or co-ops in particular may be facing huge bills they simply cannot pay. It is speculated by market participants that munis and co-ops being caught up in this event is what has led to strong language from Attorney General Ken Paxton over pricing

Separately, the owner and CEO of a different REP has been in communication with the Texas PUC, explaining the strain placed on the REP and seeking some form of relief. The CEO requested not to be named due to the sensitive nature of the information

A start-up which had hoped to bring a unique approach to the ERCOT market (noted further below), this REP's load is 97% residential, with a very small load (less than 4,000 residential customers)

This REP started out with $275,000 posted as ERCOT collateral in early February. Since February 15, 2021 this REP has been asked to fund an additional $910,000 bringing its total to almost $1.2MM.

Today, ERCOT requested from this REP another $1.3MM dollars. This would mean the REP is posting $2.5MM collateral for less than 4,000 customers -- or $625 per customer enrolled.

This REP noted that ERCOT bills will be coming due in the next few days. In a communication to the PUC, this REP stated, "President Biden has issued a disaster declaration and the Commission should step in and stop all these invoices from being paid until this is resolved. Our ERCOT invoices will total an estimated $6.5MM for less than 4,000 residential customers. We don’t serve C&I or large commercial – this is ludicrous and no one is talking about these invoices that are coming due in the next few days."

The REP noted that the $24,000 ancillary services prices have cost it an estimated $750,000 in the last few days

The CEO of this REP wrote the PUC, "I did exactly what I was supposed to do and because of extreme weather and the failure of generation our company is falling apart. We have a supply deal with a large supplier but after being in business only four months how am I to leverage this financing arrangement."

The CEO noted that the REP's wholesale supplier requested a significant stake in the company and would require the REP to payback all $6.5MM if the wholesale supplier decides to bail the REP out. "It is almost impossible for me to continue under this arrangement," the CEO said

"I started a REP to bring about competitive prices and fixed priced products that are honest and fair, unlike many of the gimmicks, tiered rates, and wholesale products offered in the market right now. The market has failed and I have my back against the wall because of what is going on. I want to stay in the market and if I can’t stay in this market now, I would like the option to come back in after a default may be issued. This is a unique situation and I would like to address this with you. These are very extenuating circumstances," the CEO of the REP wrote to the PUC

The CEO of this REP noted that it was the kind of new, innovative player that Texas had intended to spur when introducing retail competition. The REP, which is bringing a technology-focused approach to the market, invested to build its own IT, EDI, and other backoffice systems

"I beg you to step in and act. There is no time to wait because these ERCOT invoices are due on Friday. This was nothing we could prevent and we will pay the price because generation did not do their job," the CEO of the REP wrote to the PUC

The CEO of the REP further explained that, "At the beginning of February Day Ahead and Real Time commodity was $30 to $40. We have a very prudent risk management policy where we hedge all our customers and mitigate the risk on 10 year normal weather. In the last several days the commodity price has jumped to $9,000, making it almost impossible to run a business at these costs. The commission has yet to do anything about these prices and is about to cause significant impacts to retail books but allow generators to profit immensely off of these prices. I ask that you guys seriously ask yourself if it really costs any generator $9,000 to produce a mWh? Every year we have had high prices on the grid (2008, 2011, 2014, 2019, and now 2021) is because generation does not show up and they either mothball plants, trip plants, or disappear for some reason. Each of these years the generators have produced record profits."

"There needs to be an intervention before defaults happen. Generators have caused a significant problem and now the retail electric providers will pay the price. Generators will have record profits from this," the CEO of the REP wrote to the PUC

The CEO alleged that gentailers have used profits from wholesale sales in ERCOT to buy up retail competitors.

"The promise of Value of Lost Load (VOLL) has never been realized. A made up price that is about to ruin the market for retailers. Generators have been allowed to reregulate the market by merging with retailers. The whole purpose of deregulation was to break them. For some reason they are now called gentailers (generators + retailers) and they have been allowed to purchase companies like Ambit, Stream, Gexa, Cirro, TriEagle, Green Mountain, and the list can go on," the CEO of the REP said in the communication to the PUC

The CEO of the REP further noted that various holding companies which own REPs have also formed or purchased brokers, as the CEO noted that the Commission prohibits a REP itself from being a broker

"I have been in this market for 14 years and never seen what we are experiencing. Customers blame ERCOT, PUC, TDSP’s, and retailers. The one entity that they don’t blame are the generators because they don’t have a face to the customer but they make all the money in these types of events. If you follow the money you will find that generators make all the money. A price cap has only provided them a target to hit each time we have extreme heat or cold. This happens every few years (2008,2011, 2014, 2019, and now 2021)," the CEO of the REP said in the communication to the PUC

"Again – I ask you guys to open this up for a discussion and share with your leadership. Retailers need help. A second wave is coming and I fear this market will not just have a problem with the outages but with defaults and very bad deals that retailers will be subject to. Meanwhile these gentailers will become bigger and more monopolistic as they make even more money. In 2019, Ambit and Stream were purchased, and in 2020 Direct Energy was purchased. Competition is getting killed by these generators and nothing is being done. Generators aren’t delivering on their requirements because their focus is controlling all aspects of the market; generation, retail, and brokers," the CEO of the REP said in the communication to the PUC

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