Texas regulators OK $5,000/MWh cap Jan. 1, replacing $9,000/MWh

After little discussion, the Public Utility Commission of Texas on Dec. 2 set the Electric Reliability Council of Texas high systemwide offer cap, HCAP, at $5,000/MWh effective Jan. 1, replacing what would have been a $9,000/MWh HCAP that is in effect at the beginning of each year.

ERCOT currently operates under its low systemwide offer cap, LCAP, which is $2,000/MWh.

Under ERCOT's scarcity pricing scheme, the HCAP remains in effect from the beginning of the year until the Peaker Net Margin — a hypothetical cumulative profit for a gas-fired peaking generator given current gas and power prices — reaches three times the net cost of new entry. As that net CONE has been estimated at $105,000/MWh, the threshold is $315,000.

In 2021, the PNM crossed the $315,000 threshold during the deadly mid-February Winter Storm Uri, and it was $766,680.10 as of Dec. 1.

The $9,000/MWh HCAP was in effect from Feb. 14 through Feb. 18, partly by order of the PUC, to ensure that no generation that was capable of producing electricity stopped operating during the Energy Emergency Alert.

However, that cap also imposed a massive cost on the market, $2.9 billion, which the PUC and ERCOT are in the process of securitizing to spread the cost over 30 years.

'Proven ... liability' on market

The proposal for adoption in this Project No. 52631, approved Dec. 2, explained that the $9,000/MWh HCAP "has proven to be a liability on market participants and customers of ERCOT."

"The commission agrees ... that lowering the HCAP would help ensure prices remain affordable during the upcoming winter season and lessen the financial risk to customers during scarcity events," the filing said. "The commission also agrees ... that lowering the HCAP too much would reduce the incentives for economic demand response."

On Dec. 2, PUC Chairman Peter Lake praised PUC staff for acting quickly enough, among the myriad of other ERCOT reform measures in the wake of Winter Storm Uri, to have the new, lower HCAP in place by Jan. 1.

PUC staff initiated the rulemaking project Sept. 23 at the PUC's direction, with initial comments due Sept. 30, and filed a proposed rule for publication on Oct. 5. It was published Oct. 22. No public hearing was requested, but the PUC discussed the issue during several market redesign workshops.

"This was a very, very quick turnaround in order to make sure it could be implemented by Jan. 1, before the price cap resets to $9,000," Lake said.