Texas PUC Votes To Issue Proposal For Publication To Remove Fuel Index From ERCOT Low Offer Cap, Add New Make-Whole Provision

The Public Utility Commission of Texas today voted to issue a proposal for publication that would change the ERCOT scarcity pricing rule to eliminate the 50-times fuel index price provision in the ERCOT market low system-wide offer cap (LCAP), such that the LCAP would be $2,000 per MWh and $2,000 per MW per hour

Specifically, the changes under the proposal for publication would strike from the LCAP rule the current language stating, "or 50 times the natural gas price index value determined by ERCOT, expressed in dollars per MWh and dollars per MW per hour," such that the LCAP would be defined only as, "$2,000 per MWh and $2,000 per MW per hour."

The proposal for publication also includes the following language for a make-whole provision:

"Reimbursement for Operating Losses During an Event when the LCAP is in Effect. During an event when the system-wide offer cap is set to the LCAP, ERCOT must reimburse resource entities for any actual marginal costs in excess of real-time revenues. ERCOT must utilize existing settlement processes to the extent possible to verify the resource entity’s costs for reimbursement."

Barring any further rule changes, the $2,000 per MWh low cap would be the applicable offer cap this summer, due to peaker net margin being triggered earlier this year

Barring any further rule changes, ERCOT will continue to apply the operating reserve demand curve and the reliability deployment price adder for the remainder of that calendar year. Energy prices, exclusive of congestion prices, will not exceed the LCAP plus $1 for the remainder of the calendar year.

During the open meeting, Commissioner Will McAdams said that the PUC's action is focused on resolving in a timely fashion an issue with the fuel index identified in the winter event. McAdams stressed that the PUC's discrete action on the fuel index provision is not to say that other questions concerning the scarcity pricing mechanism are not warranted

PUC Chairman Peter Lake similarly said that this is not the end of the conversation on scarcity pricing, and stressed that the action today deals with an acute issue

Project No. 51871