Texas regulators refuse to order ERCOT to reprice $16 billion in excess charges

Houston — Texas regulators declined March 5 to order the Electric Reliability Council of Texas to reprice real-time prices, from mid-night Feb. 18 through 9 am CT Feb. 19, that resulted in $16 billion in excess charges to load-serving entities.

"Decisions were made at these prices in real time, based on the information that was available to anybody, to all market participants," said Arthur D'Andrea, chairman of the Public Utility Commission of Texas, during Friday's regular meeting. "They did all sorts of things they wouldn't have done if the prices were different, and it's nearly impossible to unscramble this sort of egg."

The PUC also discussed the possibility of a capacity market and indicated regulators would likely let the existing systemwide emergency pricing rule prevail this summer, setting the systemwide cap at the higher of either $2,000/MWh or 50 times the fuel index price.

In a March 4 filing, Carrie Bivens, who directs the ERCOT independent market monitor office of Potomac Economics, filed a letter to the PUC stating that ERCOT exceeded the mandate it had in a Feb. 15 PUC order to set systemwide wholesale prices at the value of lost load - estimated by the PUC to be $9,000/MWh -- during periods of rotating outages. Such rolling blackouts occurred in the wake of the Feb. 14 winter storm, ultimately totaling about 20 GW and affecting about 4 million consumers (Project No. 51812).

"ERCOT recalled the last of the firm load shed instructions at [11:55 pm] on Feb. 17, 2021," Bivens wrote. "Therefore, in order to comply with the Commission Order, the pricing intervention that raised prices to VOLL should have ended immediately at that time. However, ERCOT continued to hold prices at VOLL by inflating the Real-Time On-Line Reliability Deployment Price Adder for an additional 32 hours through the morning of Feb. 19. This decision resulted in $16 billion in additional costs to ERCOT's market, of which roughly $1.5 billion was uplifted to load-serving entities to provide make-whole payments to generators for energy that was not needed or produced."

'TIP OF THE ICEBERG'

On March 5, state Senator Drew Springer, a Republican representing Weatherford, wrote to the PUC in support of the IMM's recommendation "to ensure Texans may continue to not only keep their lights on, but in order to keep the economy going."

D'Andrea acknowledged Springer's letter, but said power traded on the ERCOT market represents only "the tip of the iceberg." Repricing this 32-hour period could have massive negative consequences for both producers and consumers of electricity, depending on how market participants hedged risk in markets such as the Intercontinental Exchange, which has a firm deadline for settlement of the relevant period at 4 pm March 5, he said.

"So, you don't know who you're hurting," D'Andrea said. "You think you're protecting the consumer, and it turns out you're bankrupting a co-op or a city [for example]. So, it's dangerous after something is done to go around and redo it."

To the uninformed, repricing would appear to safeguard the interests of power consumers, but that view is "very simplistic," D'Andrea said, and entities representing consumers have advocated both sides of the issue.

"Agreed, completely agreed," said Shelly Botkin, the sole remaining PUC member after the March 1 resignation of former Chairman DeAnn Walker.

CAPACITY MARKET

In response to the February winter storm brownout, some have proposed a capacity market for ERCOT, but D'Andrea said capacity markets are expensive, and other options might be more effective.

"Our problem wasn't capacity," D'Andrea said. "Our problem was that our capacity went 'poof!' all at once, and we lost half of it. ... Our problem was more physical than market-based, but again, we're still investigating what went wrong, and I'm open to change my mind."

The PUC also indicated it would likely let the existing emergency pricing rule prevail this summer, with the systemwide offer cap at the higher of either $2,000/MWh or 50 times the fuel index price, once a peaker net margin threshold has been breached.

The peaker net margin "circuit-breaker" mechanism relies upon a calculation of how much net revenue a hypothetical natural gas generator might have earned in a year, given real-time power prices and spot natural gas prices. The 2020 total was less than $50,075. The threshold is $315,000, considered three times the cost of new entry for such a hypothetical plant.

The PNM was $707,587.20 - 4.7 times the 2019 record high of about $150,000 -- as of 4 pm CT March 4.

"I'm not inclined to mess with [the cap]," D'Andrea said. "I think I'd like to let it run as our rule said and let it be $2,000/MWh over the summer, but I don't want to have regrets later."

Therefore, the PUC directed staff to initiate a project to consider options such as leaving it as written, eliminating the fuel index price link, or eliminating or raising the dollar cap. The PUC set March 26 as a deadline to file comments on the issue.