QSE For Texas REP Seeks PUC Waiver Of ERCOT Invoice Deadline To Allow Dispute Of Charges At ERCOT (Alleges 'Grossly Disproportionate' Ancillary Services Prices)

Another REP Asks PUC To Pause ERCOT Protocol Invoice Deadlines

February 25, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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Freepoint Commodities LLC ('Freepoint') filed a Petition for Emergency Relief and requested that the Public Utility of Commission of Texas ('PUCT' or 'Commission') waive Section 9.6(2) of the Electric Reliability Council of Texas ('ERCOT') Nodal Protocols. Freepoint is requesting a waiver that is limited in time and scope to allow Freepoint to fully exercise its dispute resolution rights under the ERCOT Nodal Protocols without incurring the immediate, significant expenses for which ERCOT has invoiced Freepoint with respect to day-ahead market ('DAM') charges attributable to Ancillary Services during the February 2021 Winter Weather Event. Freepoint has made this request of ERCOT Staff, and no response has been made. In the absence of the requested relief, Freepoint faces the very real prospect that it may successfully challenge the Ancillary Services charges, but ERCOT will have insufficient funds to return the successfully disputed amounts to Freepoint. (Docket 51812)

"In particular, Freepoint urges the Commission to immediately grant Freepoint waiver of Section 9.6(2) of the ERCOT Nodal Protocols to allow Freepoint to delay payment of certain ERCOT Settlement Invoices while it fully exercises its rights under the ERCOT Nodal Protocols to dispute the invoiced payment amounts. Additionally, Freepoint requests that the Commission grant this waiver to require Freepoint’s current invoiced amounts, which Freepoint has already paid, to be refunded or, alternatively, placed into escrow while the disputes are resolved. For settlement invoices Freepoint has received but remain unpaid, settlement invoices not yet received by Freepoint, and potential resettlement invoices that Freepoint anticipates receiving, Freepoint is requesting this waiver in order to be excused from the requirement for immediate payment, or, in the alternative, to have the invoiced funds placed into escrow, in each case until Freepoint exhausts all billing dispute rights under the ERCOT protocols," Freepoint said

Freepoint operates in the ERCOT market as a Qualified Scheduling Entity ('QSE') and is the parent company of a certified retail electric provider ('REP'), Freepoint Energy Solutions LLC ('Solutions'). Solutions operates as a load serving entity ('LSE'), Congestion Revenue Rights ('CRR') account holder, and a Renewable Energy Credits ('REC') account holder in the ERCOT market.

Freepoint alleged, "During the February 2021 Winter Weather Event, Ancillary Services cleared at multiples to the ERCOT mandated high system-wide offer cap ('HCAP') and were charged to all REPs, including Solutions. This result is contrary to the market notice M-C021521-01/Legal issued by ERCOT on February 15, 2021 ('Legal Market Notice'), which in relevant part provides: 'ERCOT may soon reach the Peaker Net Margin revenue threshold established in PUC Rule 25.505(g)(6), which requires ERCOT to use the Low System-Wide Offer Cap (LCAP) instead of the $9,000 High System-Wide Offer Cap (HCAP) currently in effect.' The Winter ERCOT Order notes that use of the LCAP as required by the rule could result in prices that exceed the HCAP, given current gas prices. Consequently, the order directs ERCOT to 'suspend any use of the LCAP until after the Commission’s regularly-scheduled next open meeting,' and to 'continue to use the HCAP as the system-wide offer cap until that time.' Furthermore, as indicated in Exhibit 1, the data posted by ERCOT in the Market Information section of its website indicated a system-wide offer cap of $9,000 per MWh."

"Based on the invoices received so far, Freepoint has been able to determine that the DAM Charges attributable to Ancillary Services reflect grossly disproportionate unit prices," Freepoint said, listing the prices as follows:

$21,819/MWh for February 15, 2021
$24,284/MWh for February 16, 2021
$25,674/MWh for February 17, 2021
$24,902/MWh for February 18, 2021
$24,108/MWh for February 19, 2021

"These prices do not adhere to the Legal Market Notice and contradict the information posted by ERCOT on its website," Freepoint alleged

"Freepoint believes that the Ancillary Services charges, typically related to providing a reliable (and operating) energy grid, reflect an algorithm that at least prima facie no longer functioned in a reasonable and rational manner during the February 2021 Winter Weather Event. For example, in its training materials ERCOT describes its Responsive Reserve Service ('RRS') as being 'used under normal operations to recover from significant frequency deviations.' In other words, RRS is intended to ensure generation is online and available to ramp up in the case of a sudden drop in frequency. During the February 2021 Winter Weather Event, however, system frequency was actually managed by load shedding, which ERCOT confirmed during a meeting open to the public held on Wednesday, February 24, 2021. In this circumstance, market participants should not be charged for any RRS generation resources, as all available generation should have been dispatched to minimize the number of residents without power rather than being held in reserve. The same logic applies to Non-Spin Reserve ('NSR') charges. In the extreme circumstances of the Winter Weather Event, all available generation should have been online, with system disturbances managed through load shedding. Consequently, market participants should not have incurred NSR charges during the period in question," Freepoint alleged

Freepoint said, "Freepoint anticipates disputing these charges. ERCOT’s dispute resolution procedures, set forth in Section 9.14 of its Nodal Protocols, generally require disputes to be initiated within ten (10) business days after an invoice is posted by ERCOT, and ERCOT may request additional information regarding the dispute within seven (7) business days. Once a dispute is initiated, ERCOT will attempt to resolve a dispute within fifteen (15) days unless more time is requested because of the complex nature of a dispute. If a dispute is not resolved through the dispute resolutions procedures set forth in Section 9.14 of the ECROT [sic] Nodal Protocols, the party raising the dispute may proceed to the Alternative Dispute Resolution Procedures outlined in Section 20 of the ERCOT Nodal Protocols."

"The requirement to pay the invoices immediately while disputing the charges through a comparatively lengthy process is inadequate. During a meeting open to the public held on Wednesday, February 24, 2021, senior ERCOT executives were asked if they expected to have sufficient liquidity through Friday, February 26, 2021. In response, ERCOT admitted that it does not have a solid answer and would have to wait and see how much money comes in," Freepoint alleged

"Freepoint recognizes and appreciates the efforts by the Commission, ERCOT, and market participants during this weather emergency. This requested waiver is necessary to avoid Freepoint having to make payments immediately to ERCOT despite the continuing uncertainty surrounding the proper amounts of those payments and the requirements generally of Freepoint to make those payments, when, by its own admission, ERCOT may not have sufficient liquidity to return any successfully disputed amounts. In light of ERCOT’s tenuous financial circumstances, and Freepoint’s belief that these DAM charges attributable to Ancillary Services are grossly inaccurate, Freepoint will be unfairly prejudiced if forced to make payment of the disputed amounts. The impacts to Freepoint, Solutions, and in some cases, potentially to end-use retail customers of Solutions, if Freepoint is forced to continue to make these payments immediately will be devastating and cause irreparable harm to Freepoint, Solutions, retail consumers in Texas, and other ERCOT market participants long after the immediate weather event has passed," Freepoint alleged

"Freepoint anticipates disputing settlement invoices it has already received and paid, settlement invoices it has received but remain unpaid, settlement invoices not yet received, and potential resettlement invoices that Freepoint anticipates receiving. However, according to the language of the ERCOT Nodal Protocols, Freepoint is required to pay ERCOT these disputed amounts immediately while the disputes are pending, and, as noted above, it could take more than a month for these disputes to be resolved. Freepoint asserts that, given the extreme emergency conditions faced by all market participants as a result of the extreme weather events, and the potential harm to Freepoint and its customers if required to immediately pay these disputed amounts to ERCOT, waiver of this requirement to pay the ERCOT Settlement Invoice amounts while amounts are in dispute is appropriate, particularly in light of ERCOT’s own statement that it is uncertain if it has sufficient liquidity to last through Friday," Freepoint said

"Freepoint urges the Commission to immediately grant Freepoint waiver of Section 9.6(2) of the ERCOT Nodal Protocols (1) to allow Freepoint to delay payment of certain ERCOT Settlement Invoices while it fully exercises its rights under the ERCOT Nodal Protocols to dispute the invoiced payment amounts and (2) to refund to Freepoint amounts Freepoint has already paid in connection with disputed invoices pending resolution of such disputes. Alternatively, Freepoint requests that the Commission grant this waiver to allow that Freepoint’s current invoiced amounts be placed into escrow while the disputes are resolved and that disputed amounts Freepoint has already paid be placed into escrow by ERCOT. It is imperative that these steps be taken to avoid, or at least help mitigate, the potential financial impact to Freepoint and its customers," Freepoint said

Separately, Spark Energy, Inc. requested that the Public Utility Commission of Texas Inc. (the 'Commission') order the Electric Reliability Council of Texas, Inc. ('ERCOT') to deviate from its protocol deadlines and timing related to settlements, collateral obligations, and invoice payments and to suspend the execution or issuance of invoices or settlements until issues raised by Governor Greg Abbott and the Texas Legislature and investigated by the office of Attorney General Ken Paxton, (collectively, 'State Authorities'), "to address and resolve in a fair and equitable manner the unprecedented financial challenges to Spark and the residential and small business customers it serves in the State of Texas due to the catastrophic winter event of February 15 through 19, 2021."

Spark noted that while the PUC granted ERCOT to use discretion with respect to invoices, ERCOT issued a notice stating it has ceased using such discretion

"Even though the weather crisis had abated, this subsequent ERCOT notice was followed by an unabated flurry of invoices from ERCOT for additional collateral postings in dramatically escalating amounts. This activity was initiated without explanation and even a draw on already posted cash collateral without any delay or failure to pay on behalf of Spark, to-wit: February 15 – $8,151.88; February 16 – $1,559,126.47; February 17 – $7,724,037.31; February18 – $8,842,012.35; and February 19 – $5,299,227.91," Spark said

Spark alleged, "Our Chairman, CEO and President has reached out to the leadership of Texas at every level to address this urgent concern. To date, no action has been taken. We expect there to be hearings and , [sic] investigations which will take months, if not years to complete. However, the issue concerning the huge run up of ancillary charges is one that can be addressed now and solutions found now -- IF the Commission will direct ERCOT to restore its notice of February 22 to deviate Protocol deadlines and allow State Authorities to have an opportunity to fashion a solution that will mitigate the damage done to the competitive marketplace."

"Petitioner is accountable to a Board of Directors, public shareholders, and over 35,000 customers (of over 50,000 RCEs) facing electricity bills for 5 days of service that are in excess of annual mortgage or rent payments. If these outrageous costs are passed through to residential customers under variable rate contracts or even to fixed rate customers under force majeure clauses, the human suffering caused by the waves of consumer bankruptcies across Texas would be staggering. All but the largest independent REPs like Spark will be forced out of business; the retail energy sector will be reduced to a near monopoly dominated by a handful of large generators who have been acquiring REPs in the past few years anyway and who will opportunistically capture the customer bases of smaller bankrupt REPs," Spark said

"The key now for the Commission to exercise its authority its authority outlined below and simply hit the proverbial 'pause' button by restoring the deviation to ERCOT Protocols as was originally issued by ERCOT on February 22, 2021 to stop this irreparably destructive cycle of outrageous pricing and ancillary costs that exceed by thousands of percent the true cost of electricity generation as well as equally dramatically escalating collateral calls and draws that will unravel the entire industry, create significant job losses, and further burden a pandemic-stricken population with yet another heavy financial burden that will take years to recover from," Spark said

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