ERCOT IMM: LSE Obligation Proposal Would, "Likely Lead[] To Further Retail Market Consolidation"

November 2, 2021

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

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In comments to the Texas PUC, the ERCOT independent market monitor said that an LSE obligation, which has been proposed as a means of attaining reliability, would likely lead to further retail market consolidation.

"The IMM is ... concerned that LSEs that have affiliated generation and LSEs with large retail market shares are put at a strong advantage versus smaller retailers and unaffiliated retailers. Large entities would have little incentive to sell to its competitors at competitive prices. Therefore, it is likely that these large, affiliated retailers will have access to contract terms that are unavailable to others, likely leading to further retail market consolidation," the IMM said

The IMM also has "significant market power abuse concerns" under the LSE obligation proposal, "because it lacks the centralized clearing where the conduct of market participants can be monitoring and mitigated as needed."

"Entities with large generation market shares would likely to have both the ability and incentive to extract excess rents from LSEs and retail suppliers that would rely on contracting to satisfy this requirement and avoid the deficiency penalties. The lack of coordination and these market power concerns would likely result in substantial cost increases that are not efficient or competitive," the IMM said

The IMM also identified four additional issues for the Commission to examine when considering the LSE Obligation, including:

• lack of reasonable performance incentives;

• existing contracts;

• administrative burdens on LSEs; and

• deliverability of accredited capacity.

The IMM continues to favor its proposed mandatory forward shortage energy hedge procurement (see details here)

Various independent REPs expressed similar concerns with the LSE obligation proposal

REPs affiliated with formerly incumbent generation or which otherwise have an integrated gentailer model generally dismissed such above-described concerns, arguing, among other things, that they have net short positions with respect to generation ownership (long retail), and that a must-offer requirement, market monitoring and required transparency (such as a bulletin board) could address any market power or consolidation concerns

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