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Texas regulator wants mass transitions of retail customers to go 'smoother'

The head of the Public Utility Commission of Texas thinks the recent mass transition of 9,800 customers in the Electric Reliability Council of Texas from a defaulting retail electricity provider went "smoothly," but she wants market participants to learn "best practices" at an upcoming meeting.

On May 31, ERCOT confirmed that Breeze Energy, a limited liability company that has been licensed as a competitive retail electricity provider since October 2012, had defaulted due to a financial aspect of its standard market participant agreement. ERCOT therefore initiated the process of transitioning Breeze's 9,800 customers —residential and commercial customers served by multiple transmission and distribution utilities — to providers of last resort, or POLRs.

ERCOT protocols call for that transition to occur within five days of the notice of default's issuance, Mark Ruane, ERCOT director of retail and credit settlements, said during the grid operator's board of directors meeting June 12.

During the June 14 PUCT meeting, Chairman DeAnn Walker said, "While things went smoothly with it, I think things could move smoother in the future."

On June 21, the Texas Standard Electronic Transaction Working Group will meet to discuss lessons learned from the event.

Referring to the meeting, Walker encouraged "everyone to think outside the box and implement best practices that other utilities have used to make this go smoother if we have to do it again this summer."

"My focus is making sure customers get to choose who they get and will get service from and do that in a timely manner," Walker said.

What rates that Breeze charged customers is proprietary information, but industry observers have said the POLR rates are likely to be higher, because they are designed to ensure POLRs do not lose money serving customers they had not planned for.

'A couple of close calls' so far

On June 12, Ruane acknowledged that in addition to the one default, ERCOT has "had a couple of close calls that have not defaulted."

One factor creating stress for market participants is the retirement this past winter of more than 5,000 MW of generation capacity, including 4,200 MW of coal-fired capacity, which has cut this summer's projected reserve margin to about 11%, well below the 13.75% target reserve margin considered minimal to avoid a 1-in-10 probability of involuntary load shedding.

The sharp tightening of supplies this summer has resulted in ERCOT North Hub July and August on-peak forwards trading in the range of $100/MWh to $200/MWh, according to the S&P Global Platts M2MS Forward Curve.

ERCOT in February implemented a new credit rule that included Intercontinental Exchange forward prices in market credit exposure calculations, which has resulted in a spike in ERCOT's total potential exposure from most of 2017's range of $300 million to $400 million up to totals ranging from $600 million to $900 million during late May, Ruane said.

Therefore, ERCOT has been increasing its request for market participants to post collateral. On a typical day, ERCOT has between zero and two collateral requests, but these spiked to 13 in late May.

Since then, ERCOT's total potential exposure has fallen some, to about $617 million as of June 12, Ruane said, as spot prices "get closer to forward prices," which decreases the exposure calculation.

Mark Watson is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.