Texas Staff File Draft to Increase High, Low Offer Caps in ERCOT

Staff of the Public Utility Commission of Texas have filed a draft proposal for publication concerning an increase in the high and low system offer caps and the peaker net margin in ERCOT (40268).

Though the draft does contain proposed levels for the caps (along with two alternative cases), the draft will serve more as a vehicle for the Commission to quickly input, and publish for comment, the proposed numbers it intends to reach consensus on (at least for terms of publishing a rule for comment) at the April 12 open meeting (See earlier story)

Also, the draft, as directed by commissioners at the last open meeting, addresses the level of the offer caps on a longer-term basis, and not the question of whether an increase is appropriate for the summer of 2012.

Specifically, the Staff draft would raise the high cap (HCAP), which is currently $3,000, to:
• $5,000 beginning June 1, 2013
• $7,000 beginning June 1, 2014
• $9,000 beginning June 1, 2015

The two alternative cases included in the draft, to prompt stakeholder comment, would raise the HCAP as follows:

Case 1
• $4,000 before the summer of 2013
• $5,000 before the summer of 2014
• $6,000 before the summer of 2015

Case 2
• $4,500 before the summer of 2013
• $6,000 before the summer of 2014
• $7,500 before the summer of 2015

The draft proposal for publication would also raise the low system offer cap (LCAP) to $2,000.

Staff's draft would include various questions for stakeholder comment, including:

- How long would it take market participants to adjust their financial exposure to the proposed amendments?

- Will these changes affect liquidity in the ERCOT market? If so, how?

- Will financial counterparties in hedging arrangements continue to be willing to participate, and if so, at what cost, if the HCAP is increased significantly?

- Would there be any difference if changes were made over a shorter or longer period of time

Additionally, Staff's draft would increase peaker net margin to $262,500 (from $175,000), and ask for stakeholder comment on the following:

- Is the use of the peaker net margin (PNM) method described in the rule the appropriate mechanism to measure resource adequacy in an energy-only market? If not, what should replace it?

- Should the PNM trigger amount be the cost of new entry (CONE) or a multiple of the CONE as determined by ERCOT?

- Should the trigger causing the system-wide offer cap to be reset to the low system offer cap be based on a calendar year or a rolling 12-month period, or should the use of the mechanism be based on hitting the trigger for a single year, or for multiple years?

- Should variability in the weather be taken into consideration in determining whether the PNM trigger is met?