Texas REPs: ALJ's Proposed Order Would Force REPs To Include Prices Of PCM, DRRS In Current Fixed Rates Despite Programs' Uncertain Parameters ("Absurd" Result, REPs Say)

September 18, 2024

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Reporting by Paul Ring • ring@energychoicematters.com

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Adopting the reasoning set forth in a proposed order from a Texas PUC ALJ which would deny retail electric providers' petition to designate ERCOT Contingency Reserve Service (ECRS) as an ancillary service product under which REPs incur charges, "beyond the REP’s control for a customer’s existing contract," would, as stated in exceptions filed by the REP Coalition, force REPs to price into current fixed price contracts costs from programs such as Dispatchable Reliability Reserve Service (DRRS) and even the Performance Credit Mechanism (PCM), whose parameters and designs remain uncertain, and for, PCM, may ultimately not even be implemented due to a cost cap (the observation on PCM's viability is solely ECM's own and was not an observation made by the REPs, though REPs did note uncertainty surrounding PCM's ultimate design)

The REP Coalition (consisting of the Texas Energy Association for Marketers [TEAM] and Alliance for Retail Markets [ARM]) were addressing a recent proposed order from the Texas PUC's Chief ALJ that would decline to find that ECRS is an ancillary service product under which REPs incurred charges, "beyond the REP’s control for a customer’s existing contract."

The ALJ's rejection of such determination means that REPs would not be permitted to adjust prices under certain existing fixed rate contracts as a result of the implementation, after the contracts' start dates, of ECRS.

See more background on the proceeding here

As previously reported, the ALJ's proposed order generally finds that REPs should have anticipated the costs of ECRS and that REPs were in a better position to manage ECRS cost risk than retail customers

The proposed order notes that the original ECRS NPRR was proposed in February 2019

REPs have argued that key parameters for ECRS were not finalized until April 2023

However, the ALJ in the draft order said that REPs, prior to the June 2023 start date for ECRS, should have priced fixed rate products to take into account the possible costs of ECRS

In exceptions, the REPs said that this reasoning would lead to "absurd" pricing.

REPs posited that, under the ALJ's reasoning, REPs should already be including in their fixed rates the costs of Dispatchable Reliability Reserve Service (DRRS), and should have done so since the day that the law authorizing DRRS became effective

However, in the same vein as the development of ECRS, REPs noted that key cost drivers for DRRS, including the quantity of the procurement and characteristics of the resources eligible for payments, are still being developed, with no final adoption to date

Similarly, the ALJ's reasoning, the REPs said, would also mean that REPs should be reflecting the costs of the Performance Credit Mechanism (PCM) in current fixed rates, at least since the time of the PUC's blueprint for PCM was adopted (January 2022), or the date on which the PCM guardrail legislation became effective (September 1, 2023)

"Of course, the PCM has not been designed and implemented, and the associated costs and timing of PCM, if it were to be implemented, are not yet known," REPs said

The REP Coalition said that, if the ALJ's proposed order is adopted, REPs would need to start including in fixed rates, "hypothetical and speculative future costs, to guard against the REP having to absorb those costs later."

"Such a result would contradict the purpose of the language of the rule and would cause unnecessary increased costs to all customers," the REP Coalition said

The REP Coalition also pushed back against the proposed order's reliance on selectively quoted statements during a discussion of the fixed price and A/S rule at the PUC's open meeting in December 2021

The ALJ's proposed order specifically cited a statement from then-PUC Chair Peter Lake, who had said, "when we do get ECRS, how can we ensure that those costs, those new ancillary services are not passed on to consumers," as indicating the Commission's view that ECRS would not be eligible for a fixed rate adjustment

However, the REP Coalition cited further discussion at such December 2021 open meeting as supporting the "pass-through" (which REPs are not specifically seeking as noted below) of ECRS for an existing contract

The REPs said that then-Commissioner Will McAdams stated that the intent of the proposed fixed price and A/S cost language was to: "[L]eave this Commission flexibility to where we can try to move -- depending on how large these ancillary services are, to adopt a plan that we can promulgate to retailers that allows them to start passing through some costs."

The REPs said that during the same meeting, Chair Lake's stance evolved based on the discussion, as Lake contemplated allowing a pass-through in stating, "[E]ven if you do a ·two-year contract…fixed contract now, in 24 months and in Month 23 ... a new ancillary service comes out, [...]for that month, ...that would not be considered an existing ancillary service. And so for that one month those charges could be passed through, but as soon as that 24 month rolls out ... as soon as you get to Month 24 and it’s a new contract, now that is part of the new -- the ancillary -- existing ancillary services."

The REPs also again emphasized that REPs are seeking the ability to make a one-time adjustment to certain fixed rates on a going forward basis

The REPs said that their sought relief is not a "pass-through" as characterized in the proposed order

As such, the adjustment would not retroactively apply to prior usage as suggested by the ALJ (in the ALJ observing that customers were deprived of the notice and opportunity to adjust usage in light of the new ECRS costs)

The REP Coalition's exceptions also reiterated previously raised and reported arguments concerning their petition

Staff and OPUC did not file exceptions to the proposed decision, with Staff arguing that REPs' exceptions were already considered by the ALJ in developing the proposed order

Docket 55959

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