Large Texas Gentailers Propose LCAP As ERCOT Emergency Pricing Program Price -- EnergyChoiceMatters.com

Large Texas Gentailers Propose LCAP As ERCOT Emergency Pricing Program Price

August 15, 2023

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Reporting by Paul Ring • ring@energychoicematters.com

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Several Texas gentailers have proposed setting energy and ancillary service pricing under the ERCOT emergency pricing program (EPP) -- which by statute is to be triggered when there are 12 hours priced at the ERCOT high offer cap during a 24-hour period -- at $2,000 per MWh and/or the current LCAP (which is $2,000 per MWh)

NRG Energy said in comments to the Texas PUC that, "The emergency price cap should be set at $2,000/MWh for energy and $2,000/MW per hour for ancillary services to main [sic] consistency with the Low System Wide Offer Cap (LCAP)."

In separately filed comments, Vistra said that, "A reasonable value [for EPP pricing] would be $2,000/MWh, equal to the LCAP."

TIEC said that it, "believes it would be reasonable to set the emergency price cap at or below $2,000/MWh (and $2,000 per MW per hour), which is the same level as the LCAP."

TIEC further said, "TIEC believes that an emergency cap above $2,000/MWh would be unnecessarily high to encourage available market response during an extreme event. In some instances, emergency events that would trigger the emergency cap may correspond with high fuel prices, which may cause operating costs to exceed $2,000/MWh. In those instances, the make-whole process ... would be available to address any 'losses' incurred by resources. However, TIEC submits that the LCAP should not be indexed to fuel prices or set to cover these 'tail' events, as this would undermine incentives for all market participants to responsibly contract for fuel supply arrangements and would shift risk onto the broader market."

Several stakeholders, while not proposing a specific price, noted that when the EPP law was adopted, the HCAP was $9,000, but the PUC has since that time lowered the HCAP to $5,000. The price adopted for the EPP should be cognizant of this prior reduction in the HCAP, these stakeholders said

For example, Shell Energy North America (US) LP said, "The Emergency Pricing Program for the wholesale electric market was adopted by 87th legislative session before the Commission approved an amendment on December 2, 2021, to §25.505 of the PUCT Substantive Rules lowering the high system wider offer cap (HCAP) from $9,000/MWh to $5,000/MWh effective January 1, 2022. The reduction in HCAP seems to have largely addressed the concerns that led to the addition of Public Utility Regulatory Act (PURA) § 39.160 to establish the Emergency Pricing Program. For example: an emergency pricing cap of $4500/MWh is 90% of current HCAP but is 50% of the HCAP when the Emergency Pricing Program was adopted. Hence, Shell Energy respectfully requests that, when designing the Emergency Pricing Program, the Commission give due consideration to the HCAP reduction already implemented after the program was adopted and the price signal needed to reflect the level of reliability in real time desired by the Commission."

Shell further said, "The Emergency Pricing Program cap should be set at a high level. Otherwise, the desire by the Commission and ERCOT to maintain high levels of reliability will be undermined. The high level will also ensure that the prices would provide adequate real time signals for self-commitment, commercial/industrial/residential demand response, and long-term signals for continued investment in dispatchable resources."

Texas Competitive Power Advocates in separately filed comments said, "It is important to note that the Emergency Pricing Program was enacted when HCAP was still at $9,000. Since that time, the cap has been reduced by nearly half to $5,000. Forward markets will inevitably factor in whatever price is set by the Commission because it will reduce revenue opportunity that provides signals that new investment is needed. The emergency price therefore should be set at a price consistent with the level of reliability the Commission is trying to achieve so the signals to participate in forward markets, self-commit, new build investment, or industrial and residential demand response are minimally impacted."

REPs sought assurance from the Commission concerning the pass-through of non-hedgeable regulatory costs if EPP is triggered

TEAM said, "REPs can and do include wholesale market price fluctuation risk in their pricing, but market-based prices cannot account for unanticipated regulatory action. By statute, fixed rate prices for an existing term contract may be changed where a regulatory action (such as those actions to implement SB 3) results in new or modified costs that are not within the REP’s control. As such, the Commission should approve a one-time price adjustment to existing fixed rate contracts that will account for any cost recovery mechanism for out of market costs that are paid under the emergency pricing program."

In separate comments, Shell similarly said, "Depending on what level the Emergency Pricing Cap is set, triggering of the program could cause significant amounts of unknown uplift to the market which load serving entities won’t be able to hedge. By statute, fixed rate prices for an existing term contract may be changed where a regulatory action results in new or modified costs that are not within the REP’s control. Hence the Commission should approve a one-time price adjustment to existing fixed rate contracts that will allow Retail Electric Providers to include corresponding risk premiums in their fixed priced contracts with the end use consumers to account for the cost recovery mechanism for out of market costs that are paid under the emergency pricing program."

Commenting on the EPP being triggered, Vistra said, "[T]o avoid disincentives for DAM participation, ERCOT should be required to reprice the impacted operating hours in the DAM to be capped at the EPP cap. Doing so would avoid disincentives for loads or other entities seeking to gain length in the DAM from participating (on the probabilistic assumption that the EPP could provide the same length in real-time at a significant discount)."

The PUC had also sought comments on when EPP pricing should end.

NRG said, "The emergency price cap should be deactivated automatically two calendar days after the EPP is triggered and prices are no longer at the emergency pricing cap for a 24-hour period to allow for the energy market to resume normal operation."

TEAM said that EPP should not replace current rules on offer caps and PNM

"The emergency pricing program should not displace the current system wide offer cap and peaker net margin [PNM] rules. The emergency pricing program would not necessarily be a system-wide cap, but instead could establish a cost-based mechanism based on verifiable costs to be called upon where the market has failed to provide sufficient signals to bring generation online in real-time to meet customers’ needs," TEAM said

In contrast, Shell said, "The Commission should eliminate Peaker Net Margin (PNM) and the LCAP as they will be duplicative to the Emergency Pricing Program. PNM was put in place to protect customers from continued high prices. The Emergency Pricing Program will prevent continued prices at the HCAP and protect consumers. Emergency Pricing Program limits the consumer exposure during each event without reducing future market incentives for resource to improve availability and for load to hedge (e.g. price signals for events in the rest of the year). PNM mechanism on the other hand doesn’t cap the exposure for resources or loads during any single event but caps the prices for the rest of the year there by reducing the incentive for resource to improve availability and for load to hedge for the rest of the year. Since the Emergency Pricing Program achieves similar objectives to PNM but in a superior manner, the PNM mechanism should be removed once the Emergency Pricing Program is in place."

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