Texas REPs Oppose ERCOT's Initially Proposed Method For Calculating Uplift Financing Charges

REPs Oppose Additional Financial Security Sought By ERCOT

TXU Reports That Uplift Exposure For TXU & Sister REPs Is $850 Million

August 12, 2021

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Several Texas retail electric providers have opposed ERCOT's proposal for how ERCOT will calculate charges to recover costs of the uplift financing program under HB 4492. REPs also opposed additional security requirements proposed by ERCOT under the financing program

REPs were addressing implementation of HB 4492, which creates a program to finance Reliability Deployment Price Adder ("RDPA") charges and Ancillary Service costs above the Commission's system-wide offer cap for the period beginning 12:01 a.m., February 12, 2021, and ending 11:59 p.m., February 20, 2021 (known as "uplift")

In testimony filed with the PUC, Just Energy noted that ERCOT proposes to calculate the charges to recover costs of the uplift financing program (uplift charges) as a varying lump sum to LSEs (through their QSE) on a daily basis based on the load ratio share for the day prior.

Because each LSE's load ratio share would change daily, under ERCOT's proposal, the amount allocated to the QSEs representing the LSEs would change on a daily basis, Just Energy said

Just Energy noted that ERCOT proposes to create new daily settlement invoices for the uplift charges.

Just Energy said that under the daily lump sum calculation proposal, each day would bring a different daily settlement invoice, and a different amount.

"This is unreasonably complex and would be very difficult for the REPs to implement," Just Energy said

Just Energy noted that the uplift charges are nonbypassable and may be passed-through to customers.

However, Just Energy said that, "passing through daily lump sum uplift charges could not be readily quantified for individual customer invoices. In order for an LSE to pass through the actual costs received from ERCOT for each customer, this methodology would require the LSE to look at daily volumes and daily rates for each day of the month to be included on the monthly customer invoice."

Just Energy noted that, currently, REPs largely charge customers on a per kWh basis, with the kWh rate staying constant until there is a change in charges from the TDU or ERCOT fees or costs. "The [PUC] rules do not contemplate a daily change in the $/kWh rate coming from ERCOT fees. In order to implement ERCOT's proposal, each REP would be required to redesign their billing systems to take a lump sum dollar amount that changes every day and convert that to some type of rate using varying levels of usage so that it can then be passed through as a non-bypassable charge to each of its customers. This type of structure would not fit well within the current Electricity Facts Label requirements for residential and small commercial customers. This would be costly to implement for each REP vs receiving a $/kWh fee similar to TDSP charges that would require no changes to existing systems," Just Energy said

Just Energy said that using load ratio share under the daily lump sum approach , "builds in unnecessary uncertainty and complexity in the recovery of uplift charges."

"For LSEs, the load ratio share changes in the 55 day and the 180 day settlements, not to mention any resettlements along the way which could require a recalculation for every customer. This presents an added issue on the REP's ability to maintain the nonbypassable nature of the cost and pass this cost through to customers. Without a per MWh based fee, there would not be finality on what any individual customer's responsibility until after the 180-day true-up settlement. This is not feasible for residential and small commercial customers in the competitive market," Just Energy said

Just Energy and other REPs proposed that ERCOT calculate the uplift charges on a $/MWh basis. "This is the most straight-forward way to accomplish collection and with an appropriate true-up mechanism, provides no risk to the financing. Further, this approach better accomplishes the goals of lessening the impacts and disruptions to customers, assists the market in stabilization, and 18 better ensures that the charges follow the customer as a non-bypassable way if they switch providers," Just Energy said

The Coalition of Competitive Retail Electric Providers (CCR) similarly favors a MWh-basis calculation for the uplift charges, instead of ERCOT's daily-change proposal

In a joint filing separate from Just Energy's testimony, Just Energy, Gexa, NRG, APG&E, and Southern Federal Power all agreed that the uplift charges should be calculated on a per MWh basis, rather than based on ERCOT's current proposal, which would allocate the charge on a daily basis.

EDF Energy Services, LLC also recommended that uplift charges be assessed on a volumetric basis (per megawatt-hour) as opposed to using a daily charge as ERCOT proposed

While ERCOT's testimony included generalized statements that this lump sum approach might be considered favorably by the bond-issuer, Just Energy noted that prior securitizations included securitization fees that were charged on a $/kWh basis with periodic true-ups, and noted that they all received a AAA rating, making them eligible for the lowest interest rates.

Similar to prior securitizations, CCR said that concerns expressed regarding the volume basis risk under a MWh-basis calculation can be resolved with periodic true-ups.

NRG said in testimony that, "Based on ERCOT' s statements during the August 11, 2021 technical conference in this proceeding, it is NRG's understanding that ERCOT has determined it is feasible to use adjusted metered load values from initial, final, and true up settlements to determine the load ratio share for the allocation of Uplift Charges rather than calculating a load ratio share based on load data for the day prior, and that is it possible to calculate a fixed dollar per MWh fee. This differs from ERCOT' s testimony and NRG agrees with this approach. NRG also recommends that the fee amount be published well in advance so LSEs can manage their costs appropriately."

In contrast, Calpine said that it, "generally supports ERCOT's [originally] proposed allocation method including the variable daily Uplift Charge to LSEs based on each such LSE's load ratio share as allocated on a daily basis. As ERCOT's testimony observes, this daily allocation ensures that that [sic] new LSEs will bear the obligation to support the retail market through paying the uplift charges. This also eliminates any incentive that a fixed charge based on a historic allocation would create for an entity to exit the market and then quickly reenter as a distinct new legal entity without a historic allocation."

Collateral

ERCOT proposes that each Counterparty representing a QSE for an LSE shall post collateral equal to four months of the LSE's estimated uplift charges.

Just Energy said that the four-month collateral proposal is not necessary because the uplift charges are statutorily required to be nonbypassable and ERCOT collects these amounts on a daily basis.

Just Energy noted that ERCOT estimated the annual revenue requirement calculation for the uplift charges to be between $104 million and $132 million. Therefore, a 4-month collateralization would equate to ERCOT holding additional collateral of $35 million to $44 million. In contrast, Just Energy said that the collateral requirement for inclusion of the charges in the standard credit calculations would be approximately 10 days of exposure or $2.8 to $3.6 million.

Just Energy further noted that, "In addition, ERCOT always has the ability to transfer a REP's customers to another REP in the event of non-payment in approximately 10 days, who will then start making the Uplift Charge payments associated with those customers. Thus, the posting of 4 months' worth of Uplift Charges is costly and unnecessary."

CCR similarly said that four months of collateral is not necessary

Calpine supported ERCOT's proposal to require each affected entity to post collateral covering its anticipated uplift charge obligations. "This will avoid the need to reallocate an LSE's allocated uplift charge responsibility should it exit the market and then make a strategic decision to default on its uplift charges (or find itself unable to pay them)," Calpine said

TXU & Sister REP Exposure

In testimony, TXU Energy and affiliated LSEs provided the currently estimated uplift cost exposure of their various retail electric providers, as follows:

TXU Energy:            $642 million
Ambit:                 $119 million
Luminant ET Services:    $2 million
TriEagle Energy:        $40 million
Value Based Brands:     $47 million

The uplift financing program is capped at $2.1 billion

Parties also filed testimony and statements of positions on previously briefed issues, including whether "netting" should be applied to an LSE's eligible costs for recovery, and how the opt-out mechanism should function. See our prior stories linked below for details on stakeholder positions on these issues:

Netting

Opt-out process

Docket 52322

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