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Draft Proposal For Adoption On ERCOT Emergency Pricing Program Addresses Cost Recovery Above HCAP, Emergency Price Duration, More

November 21, 2023

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Copyright 2010-23
Reporting by Paul Ring •

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Staff of the Texas PUC have filed a draft proposal for adoption to establish an emergency pricing program (EPP) for the wholesale electric market as required by Public Utility Regulatory Act (PURA) §39.160.

Under the draft proposal for adoption, activation of the EPP must be activated if the system-wide energy price, as determined by ERCOT, has been at the HCAP for 12 hours within a rolling 24-hour period.

The draft provides that, while the EPP is active, the system-wide offer cap will be set to the ECAP for both energy and ancillary service offers. The ECAP will be set equal to the value of the LCAP.

The draft provides that the EPP will remain in effect until the later of:

(A) 24 hours after the activation of the EPP; or

(B) if ERCOT has entered into or remained in emergency operations while the EPP is activated, 24 hours after ERCOT exits emergency operations without re-entering emergency operations

The draft proposal for adoption would adopt a minimum time period for the effective period of EPP pricing of 24 hours, rather than 72 hours as initially proposed

A draft preamble states, "The commission agrees with the commenters that a period of 72 hours is too long for EPP to remain in effect in the absence of ERCOT entering into emergency operations and modifies the rule to lower the minimum duration to 24 hours after activation of the EPP"

The draft would not tie the EPP duration to firm load shed. The draft preamble states, "Once the EPP has been activated, it should remain active while ERCOT is under conditions that necessitate an energy emergency alert (EEA), even if the conditions do not result in firm load shed. Accordingly, the commission modifies the proposed rule to define 'emergency operations' as ERCOT entering into any level of EEA."

The preamble further states, "the modifications clarify that the duration provision in subparagraph (B) applies only if ERCOT has entered into emergency operations, and that the EPP will terminate 24 hours after ERCOT exits emergency operations as long as emergency operations have not been re-entered during that 24-hour period. If ERCOT exits but then re-enters emergency operations within 24 hours, the EPP will remain in effect."

The draft proposal for adoption addresses cost recovery for generators' costs in excess of the EPP cap, limiting recovery to marginal costs.

"While the EPP is active, ERCOT must reimburse resource entities for any actual marginal costs in excess of the larger of the ECAP or the real-time energy price for the resource. ERCOT must utilize existing settlement processes to the extent practicable to verify the resource entity’s costs for reimbursement," the draft states

Furthermore, the draft addresses cost recovery that may be sought in excess of the HCAP

"For reimbursement of actual marginal costs in excess of the HCAP, a resource entity must submit a reimbursement request in the manner prescribed by ERCOT. This reimbursement request must include: (i) for a resource entity requesting recovery of fuel costs, an attestation that the costs submitted for recovery are solely related to the provision of fuel or services directly related to the provision of the purchased fuel; and (ii) any additional documents or information requested by ERCOT, including fuel purchase contracts," the draft states

The draft preamble states, "The commission declines to modify the rule to provide reimbursement for actual operating costs instead of marginal costs as requested by stakeholders. PURA §39.160 requires generators be reimbursed for 'reasonable, verifiable operating costs.' Interpreting this to mean verifiable, marginal costs gives effect to the term 'reasonable' in the statute, because using marginal costs is consistent with ERCOT’s market design and with similar mechanisms such as RUC make-whole payments."

The draft preamble states, "The commission agrees with the IMM that reimbursement of resource entities’ marginal costs following an EPP event is reasonable because recovery of marginal costs provides adequate compensation for resource entities. The ERCOT energy-only market is not designed to guarantee complete recovery of a resource entity’s costs across all intervals. Rather, the market is designed to provide recovery of marginal costs for most intervals and other costs across the lifetime of an asset. Fuel costs are precisely the type of costs that this make-whole provision provides protection against. Finally, it is not reasonable or consistent with the current market structure to require ERCOT to reimburse resource entities beyond recovery of a resource’s marginal costs."

In terms of assigning cost recovery for any make-whole payments, the draft provides that, "ERCOT must allocate costs associated with this paragraph on a load ratio share basis."

The draft preamble states, "The commission agrees with ERCOT that a load ratio share cost allocation methodology will allocate costs equitably across the market and be easy to implement. This methodology should also address TEAM’s concerns surrounding the competitive neutrality of the cost allocation methodology."

As summarized by the draft preamble, TEAM requested that the rule allow REPs a one-time price adjustment to existing fixed rate contracts that will account for any cost recovery mechanism for out-of-market costs paid under the EPP. TEAM argued that the activation of the EPP is a change resulting from a state law that imposes new or modified costs on REPs that are beyond the REP’s control.

The draft proposal for adoption would deny this request, with the draft preamble stating, "TEAM’s comment concerns provisions of §25.475, relating to general retail electric provider requirements and information disclosures to residential and small commercial customers, which is beyond the scope of this rulemaking."

Furthermore, the draft preamble states, "The commission declines to modify the proposed rule to prohibit costs associated with the EPP from being recovered by an electric utility or retail electric provider either directly or indirectly from retail customers as requested by OPUC."

The draft provides for immediate implementation of the EPP, so it may be in place for this winter

"ERCOT must implement the EPP immediately. Notwithstanding any conflicting language in this subsection, ERCOT may utilize a manual process to activate the EPP and may consider the real-time energy price, exclusive of any congestion, to determine the system-wide energy price, until any system and protocol changes are complete. ERCOT must issue a market notice when it transitions from a manual to an automated EPP activation process," the draft provides

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