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Texas PUC Staff Seeks Comment On LSE Obligation For Reliability: Retail Impacts, Market Power, Alternatives

October 26, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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Staff of the Texas PUC formally issued for comment questions concerning a proposed LSE obligation as a means to assure reliability in ERCOT, as well as other questions arising from the PUC's recent work session on wholesale market design changes

As previously reported, a majority of PUC Commissioners expressed serious concerns with an LSE obligation (see prior story here for details)

Commission Staff requested written comment on the following questions by noon (local time) on November 1, 2021.

Additional policy questions discussed during the Commission’s October 21 work session will be addressed in future requests for comment.

The questions issued for comment by Staff are below:

Questions regarding an LSE obligation, or alternative thereto, include:

• Are there alternatives to a load serving entity (LSE) Obligation that could be used to impose a firming requirement on all generation resources in ERCOT?

• Are there alternatives to an LSE Obligation that could address the concerns raised about the stakeholder proposals submitted to the Commission?

• How can an LSE Obligation be designed to protect against the abuse of market power in the wholesale and retail markets?

a. Will an LSE Obligation negatively impact customer choice for consumers in the competitive retail electric market in ERCOT? Can protective measures be put in place to avoid a negative impact on customer choice? If so, please specify what measures.

b. How can market power be effectively monitored in a market where owners of power generation also own REPs that serve a large portion of ERCOT’s retail customers?

c. What is the impact on self-supplying large industrial consumers who will have to comply with the LSE Obligation and will it impact their decision to site in Texas?

d. What is the impact of an LSE Obligation on load-serving entities that do not offer retail choice, such as municipally owned utilities or electric cooperatives?

e. Can market power be monitored in the bilateral market if an LSE Obligation is implemented in ERCOT? Can protective measures be put in place to ensure that market power is effectively monitored in ERCOT with an LSE Obligation? If so, please specify what measures.

f. Should the LSE Obligation include a “must offer” provision? If so, how should it be structured?

• How should an LSE Obligation be accurately and fairly determined for each LSE? What is the appropriate segment of time for each obligation? (Months? Weeks? 24 hour operating day? 12 hour segments? Hourly?)

• Can the reliability needs of the system be effectively determined with an LSE Obligation? How should objective standards around the value of the reliability-providing assets be set on an on-going basis?

a. Are there methods of accreditation that can be implemented [sic] less administrative burden or need for oversight, while still allowing for all resources to be properly accredited?

b. How can winter weather standards be integrated into the accreditation system?

• How can the LSE Obligation be designed to ensure demand response resources can participate fully and at all points in time?

• How will an LSE Obligation incent investment in existing and new dispatchable generation?

• How will an LSE Obligation help ERCOT ensure operational reliability in the real-time market (e.g., during cold weather events or periods of time with higher than expected electricity demand and/or lower than expected generation output of all types)?

• What mechanism will ensure those receiving revenue streams for the reliability services perform adequately?

• What is the estimated market and consumer cost impact if an LSE obligation is implemented in ERCOT? Describe the methodology used to reach the dollar amount.

• How long will the LSE Obligation plan take to implement?

• If the Commission adopts an LSE Obligation, what assurances are necessary to ensure transparency and promote stability within retail and wholesale electric markets?

• Are there relevant "lessons learned" from the implementation of an LSE Obligation in the SPP, CAL-ISO, MISO, and Australian markets that could be applied in ERCOT?

Other questions issued for comment include:

• The ORDC is currently a "blended curve" based on prior Commission action. Should the ORDC be separated into separate seasonal curves again? How would this change affect operational and financial outcomes?

• What modifications could be made to existing ancillary services to better reflect seasonal variability?

• Should ERCOT develop a discrete fuel-specific reliability product for winter? If so, please describe the attributes of such a product, including procurement and verification processes.

a. How long would it take to develop such a product?

b. Could a similar fuel-based capability be captured by modifying existing ancillary services in the ERCOT market?

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