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Texas PUC "Adopts" Performance Credit Mechanism, Obligation For REPs; Won't Implement Immediately, Will Defer To Legislature
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The Texas PUC voted to "adopt", without immediate implementation, a performance credit mechanism (PCM) for the retail market, which will require REPs to procure, through a centrally cleared mechanism, performance credits (PC)
See background on the PCM design here
Numerous REPs have expressed concern with PCM and said that it will negatively impact the retail market, especially for independent REPs (see story here)
The PUC will not immediately implement the PCM in order to permit the legislature to weigh in on the PCM. PUC Chairman Peter Lake said that adoption without implementation is a de facto recommendation to the legislature, but Lake said that formal adoption was required to fulfill the PUC's obligation under SB 3.
Numerous senators have expressed opposition to the PCM, while Gov. Abbott supported strong consideration of the PCM. While the composition of the chambers has changed, observers will recall last session, the Senate was seeking to address concerns about emergency wholesale pricing in the days after ERCOT exited EEA3 conditions, while the House declined to address the issue.
The PUC set forth design principles and decision points for the PSC in a memo adopted by the Commission
The memo states that, "Once implementation is launched at some point in the future subject to
consideration and direction of the 88th Legislature, the Commission will develop
an implementation plan with categories to determine which entity -- whether the
Commission, ERCOT, the IMM or some combination thereof -- is responsible for
the analysis related to each of the decision points [discussed in the memo and noted below].
Among other things, the PCM is to be centrally cleared, and, "Ensure entities with affiliated eligible resources and affiliated
retail entities do not self-arrange commitments by requiring all
transactions to be cleared through a centralized, transparent
ERCOT administered market."
Although the term was not used in the adopted memo, Chairman Lake has previously said that the central clearing mechanism will prevent REPs affiliated with generators from engaging in bilateral transactions for PCs
The PUC said that the PCM must also, "Maintain and protect ERCOT's robust competitive wholesale
market and retail electricity market that provides choice for
consumers."
Furthermore, the PCM and market mitigation in the market, "Ensure competition and innovation will continue to thrive in the
ERCOT market by mitigating market power concerns, especially
regarding affiliated eligible resources and affiliated retail entities," the PUC said
During a discussion of the potential impact on the retail market, Chairman Lake reiterated his previously expressed view that the current market design does not impose any obligations on REPs
Lake again characterized certain REPs as fly-by-night operations, and said that the PCM can serve to separate the wheat from the chaff in the REP market
Commissioner Jimmy Glotfelty pushed back against Lake's characterization of REPs, which Glotfelty called not fair
Going forward, PCM decision points for the PUC include:
• Define eligible resources on both generation and load side, including
evaluation of possibilities to incorporate energy efficiency, demand
response, and DERs subject to SB 3 requirements
• Determine PCM compliance period
• Determine number of PCM hours per compliance period
• Determine how PCM hours are calculated
• Determine methodology for identifying hours of highest risk
• Determine reliability standard associated with each PCM compliance
period
• Determine demand curve parameters for each PCM compliance period
• Determine requirements for earning a Performance Credit including
forward offer requirements
• Determine forward market timing
• Determine if there should be geographic requirements for earning PCs
• Identify the appropriate combination of penalties, claw backs, and other
financial consequences in cases of non-performance by performance
credit recipients
• Evaluate and identify best practices to mitigate market manipulation
through bidding behavior and evaluate ways to mitigate against self-dealing/market power abuse in the centrally cleared market using code
of conduct, bidding behavior, and other appropriate
limitations/standards
• Determine if modifications should be made to the ORDC based on
implementation of PCM, if so, what?
• Determine if changes should be made to VOLL or SWOC based on
implementation of PCM, if so, what?
• Determine ability of virtual parties to participate in the PCM market
• Determine the best mechanism to track and annually report percentage
of performance credits for new builds versus existing generation facilities
and new market entrants versus incumbent generators
• Determine the best type of KPI or success metric to measure the ultimate
performance of the PCM
In addition, the Commission is directing ERCOT to evaluate bridging options to retain
existing assets and build new generation until the PCM can be fully implemented.
The memo outlining the PUC's PCM is here
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PUC Chair: PCM May Help Separate The "Wheat From The Chaff" Among REPs, Calls Some REPs Fly-by-Night
January 19, 2023
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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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