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Exelon Seeks Rehearing Of Texas PUC Orders In Order To Mitigate Uplift Impact On Non-Defaulting Market Participants

March 18, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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Exelon has sought rehearing of two Texas PUC orders, which Exelon alleged were not adopted in a lawful manner, in order to mitigate any uplift impacts arising from the Commission’s order

Exelon specifically sought rehearing of a PUC order that gave ERCOT discretion to deviate from its protocols, including with respect to uplift

Exelon said in its filing that, "On February 21, the Commission, on its own motion and without the opportunity for notice and comment, adopted an order 'authorizing ERCOT to use its sole discretion in taking actions under the ERCOT Nodal Protocols ('ERCOT Protocols') to resolve financial obligations between a market participant and ERCOT.' The authorized actions, among other items, gave ERCOT discretion to 'deviate from protocol requirements regarding the maximum amount of default uplift invoices.' The maximum uplift charge permitted by the ERCOT Protocols is $2,500,000 per month, an amount arrived at through ERCOT’s lengthy protocol revision process, which was designed to protect market participants and consumers."

Exelon noted that, under the protocols, any uplifted short-paid amount greater than $2,500,000 must be scheduled so that no amount greater than $2,500,000 is charged on each set of Default Uplift Invoices until ERCOT uplifts the total short-paid amount. ERCOT must issue Default Uplift Invoices at least 30 days apart from each other. ERCOT shall issue Default Uplift Invoices no earlier than 90 days following a short-pay of a Settlement Invoice on the date specified in the Settlement Calendar, per the protocols

Once default uplift invoices are issued, payments of default uplift invoices are due five business days after the invoice is received.

"In the wake of the PUCT’s repricing orders issued on February 15 and 16, which already have caused more than $3 billion in defaults by market participants as of March 11, 2021, with the final amounts yet to be determined, this aspect of the Order now threatens to drive even more participants out of the market, as they could now be made to bear enormous default uplift charges," Exelon said

"With the maximum default uplift rule eliminated, ERCOT now has sole discretion to determine how and when to collect this massive default amount, and thereby to determine who will be able to stay in the market and who will become a subsequent defaulting party. The unfettered discretion that the Commission awarded ERCOT also complicates the already challenging task of managing cash flows going forward for those market participants that have not defaulted, as it is unclear how much notice ERCOT will provide to market participants about the change in rules," Exelon said

"There is good cause for concern: ERCOT thus far has not been transparent with respect to short-pay and uplift expectations, which means that market participants have not known what percentage ERCOT will pay of the funds that they are owed while at the same time they are required to meet their payment obligations to ERCOT. In some instances, this has led to a need to secure additional cash in the overnight lending market," Exelon alleged

"While thus far Exelon has been able to manage these challenges, there is absolutely no need for ERCOT to have unfettered discretion with respect to default uplift invoices, which would typically only begin to be collected 90 days after the short-pays occur," Exelon said

"Good cause to grant this Motion on an expedited basis exists in light of the imminent peril to the ERCOT market as a result of the extraordinary uplift, pending legislative efforts to address recent events at ERCOT, and a desire by some market participants to rush to the courthouse to individually exclude themselves from the impending uplift, thereby harming all other market participants with a greater potential share of uplift," Exelon said

"We have already seen the impact of the Commission’s administrative pricing Orders of February 15 and 16, with an electric cooperative, retail providers and others defaulting on large obligations to ERCOT. Now, with the uplift cap eliminated, those defaults imminently threaten to cause severe financial hardship, insolvency, business disruptions, restricted access to capital markets, credit rating downgrades, loss of goodwill and, for some, potentially bankruptcy, which has downstream negative impacts on the non-defaulting market participants. Those left standing face the imminent risk that they will have no adequate remedy at law as their defaulting commercial counterparties become insolvent," Exelon said

Exelon asked the PUC to rescind its prior grant of discretion to ERCOT to deviate from protocol requirements regarding uplift, including the maximum amount of default uplift invoices

Exelon said that the PUC should open a rulemaking and/or evidentiary proceeding so that the uplift problem can be addressed by the Commission in due course, in substantial compliance with its rules, and upon a reasoned agency record

Separately, Exelon also sought rehearing of the PUC's February order that temporarily delayed any potential transition of customers to POLR, to allow new VREPs to sign up, as Exelon said that such delay may have caused and/or exacerbated uplift to all market participants due to defaults in the market caused by the PUCT’s February 15 and 16 repricing orders

"Issued on February 19, it appears that the Order may have delayed mass transitions to POLR by up to five days, during which period defaulting retail providers would have continued to accrue liabilities to ERCOT for serving their customers’ loads. Those liabilities may now be imposed on remaining market participants as default uplifts under ERCOT Nodal Protocol § 9.19. Combined with the Commission’s administrative pricing orders issued on February 15 and 16, which already have caused more than $3 billion in defaults by market participants as of March 11, 2021, and the Commission’s Order eliminating the $2.5 million cap on default uplift charges permitted by the ERCOT Protocols, the additional default amounts accrued during the POLR mass transition moratorium threatens harm to other market participants, including Exelon. Absent an investigation, there is no way to determine at this time whether the Commission’s Order delayed any mass transitions to POLR, or the financial impacts of those delays, because ERCOT thus far has not been transparent with respect to its negotiations with defaulting counterparties, or its shortpay and uplift expectations," Exelon said

"Exelon accordingly recommends the Commission consider the effect that delaying mass customer transitions has on the aggregate amounts that defaulting REPs would owe ERCOT and the resulting impact that has on all market participants through the default uplift process," Exelon said "Exelon urges the Commission to reconsider this aspect of its Order by opening a rulemaking, project and/or evidentiary proceeding to determine the impact of a POLR transition delay on default uplifts, and consider what can be done to shield non-defaulting market participants from the impact of the Commission’s Order," Exelon said

Exelon alleged that the PUC's relevant orders were unlawful because they were not adopted under any process described in the Administrative Procedure Act (APA) or PURA, and did not comport to emergency APA procedures. Exelon also alleged that the PUC further did not act within the authority granted by the Governor’s emergency proclamation in its ERCOT discretion order

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