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Exelon Seeks Judicial Review Of Texas PUC Order Giving ERCOT Discretion Over Uplift Process

May 10, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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Exelon Generation Company, LLC and Constellation NewEnergy, Inc. sought, in Travis County, Texas, district court, judicial review of the Texas PUC's order dated February 21, 2021 which Exelon said, "removed the monthly cap on default amounts that can be uplifted onto ERCOT market participants in the event of market default (the 'Uplift Rule')"

"On February 21, 2021, after the financial impacts resulting from the PUC’s Repricing Order became apparent, the Commission—again, on its own motion and without any opportunity for notice and comment— issued the Order 'authorizing ERCOT to use its sole discretion in taking actions under the ERCOT Nodal Protocols ('ERCOT Protocols') to resolve financial obligations between a market participant and ERCOT.' The Order hastily gave ERCOT discretion to ignore a laundry list of established ERCOT Protocols related to credit requirements, collateral obligations and, as challenged by Exelon on rehearing, a monthly cap on default amounts that can be uplifted onto ERCOT market participants in the event of market default," Exelon said

Exelon said, "Pursuant to validly adopted ERCOT Protocol § 9.19.1, the maximum uplift charge permitted is $2,500,000 per month. The Protocol requires ERCOT to issue Default Uplift Invoices at least 30 days apart from each other, and prohibits ERCOT from issuing Default Uplift Invoices earlier than 90 days following 'a short-pay of a Settlement Invoice on the date specified in the Settlement Calendar.' Additionally, ERCOT Protocol § specifies that payments of Default Uplift Invoices are due five business days after the invoice is received."

"The challenged Uplift Rule authorized 'ERCOT to use its sole discretion in taking actions under the ERCOT Nodal Protocols to resolve financial obligations between a market participant and ERCOT.' The authorized actions, among other things, gave ERCOT sole discretion to 'deviate from protocol requirements regarding the maximum amount of default uplift invoices' effectively by edict authorizing ERCOT to determine for itself how and when to collect the massive default amounts caused by the Commission’s February 15 and 16 orders," Exelon said

"The unfettered discretion awarded to ERCOT by the Commission harms Exelon and market participants. It complicates the already challenging task of managing cash flows going forward for those market participants that have not defaulted, as it is unclear how much notice ERCOT will provide to market participants about the change in rules. Further, market participants do not know what percentage ERCOT will pay of the funds they are owed while at the same time they are required to meet their payment obligations to ERCOT. In some instances, this has led to a need to secure additional cash in the overnight lending market," Exelon said

"With the monthly Default Uplift Invoice cap eliminated, ERCOT now has sole discretion to determine how and when to collect this massive default amount, and thereby to determine who will be able to stay in the market and who will become a subsequent defaulting party. There is no need for ERCOT to have unfettered discretion with respect to Default Uplift Invoices. In the wake of the PUC’s Load Shed Rule issued on February 15 and 16, which already have caused nearly $3 billion in defaults by market participants, with the final amounts yet to be determined, the PUC’s carte blanche waiver of the Default Uplift Invoice cap threatens to drive even more participants out of the market, leaving creditworthy entities like Exelon to bear enormous default uplift charges," Exelon said

Although the cited order gave ERCOT discretion as described by Exelon, ERCOT has said that it will await the legislative session before issuing uplift invoices, and further said that, absent legislative changes or PUC direction, it will limit invoices to $2.5 million per month (see story here)

"The Uplift Rule has even caused some market participants to rush to the courthouse to carve themselves out of market uplift, thereby harming Exelon and other market participants by foisting a greater share of uplift on the market participants who have not taken such actions. For example, in The City of Denton v. ERCOT, Cause No. D-1-GN-21-001227, in the District Court of Travis County, Texas, 353rd Judicial District, the City of Denton sought and received a temporary restraining order from the Denton County district court restraining ERCOT from requiring the city to pay and Default Uplift Invoices, short-pay statement, or any obligation pursuant to Section 9.19 of the ERCOT Protocols. See First Extended Temporary Restraining Order, City of Denton v. ERCOT, Cause No. 21-1421-16, In the District Court of Denton County 16th Judicial District (Mar. 9, 2021) (transferred to Travis County District Court Cause No. D-1- GN-21-001227)," Exelon said

Exelon further said, "In particular, the Uplift Rule threatens multiple market participants with further defaults or bankruptcies. This risk is exacerbated by the fact that under the Uplift Rule, market participants may have little or no notice as to the billing schedule or the size of the defaults uplifted to them. As one of the solvent market participants, Exelon is threatened with the risk that it will be forced to bear the market share of costs abandoned by others. Exelon will have no adequate remedy at law as ERCOT’s defaulting commercial counterparties become insolvent."

Exelon's arguments that the PUC's uplift order is unlawful are similar to those previously made by Exelon in challenging the PUC's $9,000 pricing order (See prior story for discussion of such arguments)

In brief, Exelon alleged that the uplift order contravenes the substantive and procedural requirements set forth in the Administrative Procedure Act.

Further, to the extent the PUC relied on the governor's emergency declaration in adopting the uplift rule, Exelon alleged that the PUC did not obtain written approval from the Governor prior to promulgating the Uplift Rule as was required for any such action

Furthermore, Exelon alleged, "The Uplift Rule likewise exceeds the authority granted in the Governor’s declaration. The declaration allows for the 'suspension' of certain rules that may hinder actions necessary to protect life or property threatened by the declared disaster—it does not allow the PUC to modify the rules to give ERCOT carte blanche authority to eliminate a validly existing Protocol. Even if the Governor’s declaration gave the PUC some authority to act, the PUC still had to comply with the terms of the declaration. It did not, but rather, acted far outside any potential authority. By so acting, the PUC erred and exceeded its authority."

Exelon sought the following relief from the court:

1. Render a declaratory judgment that the Commission’s Uplift Rule is a rule that interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of Plaintiff and declares the rule void and invalid;

2. Alternatively, reverse the Commission’s Uplift Rule and remand to the Commission for further proceedings;

3. Alternatively, render a declaratory judgment that the Commissioners acted ultra vires in issuing the void Uplift Rule;

4. Further alternatively, issue an order directing the Commission, through its Chair and Commissioners, to withdraw the void Uplift Rule and/or issue a permanent injunction prohibiting the Commission from enforcing the Order; and

5. Grant such other and additional relief to which Plaintiff has shown itself to be entitled.

Cause No. D-1-GN-21-002099

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