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Texas PUC Staff Propose Different Ancillary Service Cost Allocation Methods To Be Included In Required Study
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Texas PUC Staff have proposed a draft scope for a study on the cost allocation of ancillary services (AS) and reliability services (RS) in ERCOT, as required by legislation
PURA requires that certain cost allocation methods be included in the study, but provides discretion for the PUC to consider other methods as well
The law provides that the Commission must study whether to allocate AS and RS costs on a semiannual basis among generators and LSEs in proportion to, "their contribution to unreliability during the times of highest reliability risk due to low operating reserves by season, as determined by the commission based on a number of hours adopted by the commission for that season[.]"
As proposed by Staff, the study would also include the current load ratio share-based allocation method
As permitted by PURA, Staff has also proposed additional methods to consider in the study
One additional method (Allocation Based on Operational Risks) that would be studied under Staff's proposal is the allocation of AS and RS costs to dispatchable and non-dispatchable generation facilities based on how each facility type may contribute to a particular risk for which ERCOT procures the AS or RS.
Staff said, "In this study, the total costs associated with each AS and RS will be assigned into three major categories -- dispatchable resources, non-dispatchable resources, or load -- based upon the types of risks that a product is intended to address. This method aligns with how ERCOT defines the risks in determining the minimum hourly quantities for each AS when developing the methodology (e.g., wind, solar, or load forecast errors; resource outages). These allocation factors will be based on all hours in a year."
A second additional method (QSE Capacity Short Allocation Method) that would be studied under Staff's proposal is the allocation of AS and RS costs similar to the Reliability Unit Commitment (RUC) Capacity Short charge allocation
"Based on a snapshot of each QSE’s position, RUC costs are first allocated to capacity short entities, up to a cap. If these charges are not sufficient to cover all the costs, the remainder is allocated to all QSEs based on their LRS," Staff explained
Staff further said of the QSE Capacity Short method, "This approach, if applied to other reliability services, may provide additional incentives to Load Serving Entities (LSEs) and other participants in the market to improve their positions before real time and improve their forecasting techniques, which could in turn reduce total costs to the market. As such, the study will examine the effects of allocating certain AS and RS costs to QSEs that come into real time (or day ahead) short of generation versus their load position."
Staff's draft also discusses how each method will be evaluated in terms of consumer savings, market participant behavior changes, and settlement and credit impacts
Staff notably said, "The study should examine how such a change in settlement timing would affect the market as a whole and, to the extent possible, describe any expected impacts to consumer costs including unintended consequences such as creating barriers to entry for small entities."
Staff noted that a semi-annual cost allocation, as contemplated by one of the alternatives noted above, is much less frequent than the current approach of settling AS costs daily
Staff observed that the lag in settling AS costs under a semi-annual approach could significantly impact credit requirements for market participants
Staff noted, "Under today’s market requirements, a market participant must post sufficient collateral with ERCOT to cover its potential exposure to real-time market pricing. This credit requirement includes exposure due to AS-related activities."
Staff said, "Currently, ERCOT assigns the AS plan, by service and hour, to each QSE representing load based on the most recent historical settled LRS data. Each QSE is assessed a charge in the Day-Ahead Market (DAM) for any part of this obligation that they do not self-arrange to provide. This obligation and the corresponding charge are then subsequently trued up based on real-time LRS. If the cadence were changed from daily to semi-annual settlements, QSEs representing load may be charged in advance for six months of expected AS obligations, which could result in a significant delay in adjusting and settling these charges based on real-time operational data, or both."
Project 58555
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December 12, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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