ERCOT Selects Brattle, Author of Highly Criticized Capacity Market Report, for Resource Adequacy Study

ERCOT has awarded the Request for Proposal for a study to examine resource adequacy incentive factors, and factors that influence investment decisions for generation, to the Brattle Group, Inc.

The Brattle Group authored the highly criticized performance assessment of PJM's Reliability Pricing Model, which generally endorsed the capacity market design (see FERC docket ER12-513).

On November 3, 2011, the Maryland Public Service Commission, the New Jersey Board of Public Utilities, the Delaware Public Service Commission, and the District of Columbia Public Service Commission wrote to Howard Schneider, Chair of the PJM Board of Managers, that, "the Brattle Group's Performance Assessment of PJM's Reliability Pricing Model ('RPM') dated August 26, 2011, ('Performance Assessment') is deficient in its attempt to satisfy its obligation to 'report on the performance of RPM.'"

The Organization of PJM States, Inc. later approved a resolution to, "support in principle that the Brattle Group's Performance Assessment of PJM's Reliability Pricing Model dated August 26, 2011, is deficient in its attempt to satisfy its obligation to report on the performance of RPM." The Public Utilities Commission of Ohio, individually from the OPSI resolution, also expressed views similar to those of the Maryland, New Jersey, Delaware, and District of Columbia commissions.

Specifically, the four state commissions said that the Brattle report, whose explicit purpose and scope demands a detailed review of and response to the PJM Independent Market Monitor's (IMM) concerns about RPM, barely mentions the IMM's long-running concerns and efforts.

"This failure to address the concerns the IMM has identified, at length, calls into question the efficacy of the performance assessment of the RPM," the state commissions said.

"The IMM's concerns should be the starting point for Brattle, but instead were relegated in whole to the Appendix to the Performance Assessment; Brattle noted in the Appendix that 'we did not separately summarize comments by the independent market monitor as they were consistent with the IMM's public statements, documents, and presentation posted at www.monitoringanalytics.com. Perhaps, if Brattle had listed the IMM's detailed recommendations on obligations of capacity resources, strengthening the incentives in the RPM Capacity Market, and that the terms of Reliability Must Run Service be reviewed, refined and standardized, which can be found succinctly summarized on page 363 of the 2010 State of the Market Report for PJM, they would have seen fit to address them in the body of the report," the state commissions said.

"We are, quite frankly, bewildered at the disconnect between the [Brattle] Performance Assessment and the IMM's efforts regarding these issues," the state commissions said.

The state regulators noted that the IMM had recommended that the performance incentives in the RPM capacity market design be strengthened.

More specifically, of import to the ERCOT market where there is an underlying desire among certain asset owners to institute a capacity market, the PJM IMM recommended that:

"[C]apacity resources be paid on the basis of whether they produce energy when called upon during any of the hours defined as critical. [emphasis by Matters]

"The [Brattle] Performance Assessment contains no analysis of why generators should be paid 50% of their capacity payment even if they do not perform, despite the obvious fact that capacity payments, or the lack thereof, are essential to the entire RPM construct ... On a related subject, there was no analysis of why PJM experiences emergency generation events even in off-peak seasons when the raison d'être of RPM is to obtain sufficient resources to reliably meet customers' electricity needs during the peak hour of the peak day of the year," the state commissions said.

"The performance assessment is the opportunity for consumers to evaluate whether they are getting value for the billions of dollars a year they pay for capacity. Because of the failure of the [Brattle] study to address the concerns of the IMM, we still have no answer to this question," the state commissions said [bold by Matters, italics in original].

The goal of the ERCOT resource adequacy study is to identify and examine the factors that influence investment decisions related to the financing and development of projects to meet ERCOT's resource adequacy goals.

The assessment of these factors will take into consideration supply-side and demand-side resources, from both a wholesale and retail perspective. The work will also include providing prospective solution options that can be used to enhance favorable investment outcomes for long-term resource adequacy in the ERCOT Market.

The estimated completion date for this project is June 1, 2012.