Texas PUC Formally Maintains ERCOT Reliability Deployment Price Adder If LCAP Triggered, Adopts Discrete Scarcity Pricing Rule Changes

The Public Utility Commission of Texas issued a written order on discrete changes to its scarcity pricing rules, in which the Commission held that the operating reserve demand curve and the real time reliability deployment price adder shall remain in place in the ERCOT market even when the low system wide offer cap (LCAP) is triggered (when peaker net margin is reached)

In a preamble, the PUC stated, "The commission agrees with the commenters that argued that retaining the ORDC and reliability deployment price adders continue to have value after the Peaker Net Margin threshold is reached. As a result, the VOLL should be set equal to the system-wide offer cap that is then in effect. The commission modifies the rule accordingly. This approach ensures market consistency by continuing to apply the ORDC and reliability deployment price adders even after the LCAP is imposed and is intended to reduce the time and cost to implement the changes that may result from this proceeding. Specifically, the rule is amended to state that the VOLL will equal the currently effective system-wide offer cap and that, when the LCAP is imposed, energy prices, exclusive of congestion prices, will not exceed the LCAP plus $1 for the remainder of the calendar year. This change will ensure that all of the mechanisms in place in the current ERCOT market are preserved, and help protect loads while keeping the overall fundamentals of the energy-only market in place. The commission also notes that it does not intend for elements such as the shadow price caps or the Power Balance Penalty Curve to be suspended with the imposition of the LCAP."

The Commission declined to increase the LCAP at this time

In the rulemaking, the Commission declined to include day-ahead market prices or ancillary services revenues in the Peaker Net Margin calculation. "These metrics do not reflect the goal of the Peaker Net Margin, which is to calculate revenues that a peaking unit would receive. The Peaker Net Margin threshold is intended to be a high barrier to ensure that generators have sufficiently recovered revenues before the LCAP is imposed," the PUC said in the preamble.

In the final rule, the PUC adopted the following changes to the current rule:

• Replaced references to the Houston Ship Channel Gas Price Index in the System Wide Offer Cap and related provisions with more flexible language that references a natural gas price index value to be determined by ERCOT, with the intention of allowing the ERCOT stakeholder process to select an index that best reflects current natural gas market dynamics;

• Updated rule language and reporting requirements to reflect current practices and add more descriptive terms that are currently used in the ERCOT Protocols; and

• Repealed §25.508 (prior HCAP rule), which became obsolete when the Commission amended §25.505 in 2012.

Project 48721