Affiliate Restrictions Raised By Texas PUC Commissioners In Discussing Resource Adequacy, Market Power, PCM

During a discussion at today's Texas PUC open meeting concerning ERCOT market design, including a proposed Performance Credit Mechanism (PCM), several Commissioners raised the issue of affiliate restrictions when discussing market power concerns

See background on the PCM here

Commissioner Lori Cobos noted that, as part of various centrally cleared resource adequacy mechanisms, several independent REPs have proposed a prohibition on bilateral agreements between generators and their retail affiliates

Chairman Peter Lake said that the proposed PCM would not permit "bilateral" contracts, because all PCMs would be centrally cleared.

As previously reported, there would be a voluntary centrally-cleared forward PC market, described by a consultant report as follows: "ERCOT administers a voluntary centrally-cleared forward auction for PCs based on bids to buy PCs from LSEs (demand curve) and offers to sell PCs from generators (supply curve). While the forward market is voluntary, participation in the forward market is a prerequisite for generators to be eligible to produce PCs; however, actual quantities of PCs produced may differ from forward offers – thus it is not expected that this mandatory forward offer requirement would have any impact on the ultimate quantity of PCs that are awarded or on the settlement price. LSE participation in the ERCOT PC market is entirely voluntary."

However, the Staff proposal does not include a "must offer" requirement for generators, which Cobos noted independent REPs have also proposed. Lake said that evaluating whether to include a "must offer" requirement would likely be part of any consideration of the PCM.

Commissioner Jimmy Glotfelty asked whether "affiliate restrictions" should be considered as part of the market redesign decisions. Staff replied that the Commission, "should absolutely take a look at that".

Glotfelty also asked whether the Staff analysis of the PCM included analyzing the impact on the number of REPs and the number of retail plans in the market, and the impact on the financial stability of REPs. Staff replied that no such analysis has been done (the PUC had not given such direction to Staff or its consultant)

Glotfelty said that the PUC's consideration of market design should include whether the policy will result in more retail market concentration

Commissioner Will McAdams noted the competing outcomes between a vibrant generation system with resource adequacy, and retail choice

McAdams framed that issue as, "Retail has thrived at the expense of our resource adequacy".

The market has become so efficient, McAdams said, that, "generation has not been economically profitable for the last several years," leading to retirements and tight conditions