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ERCOT market monitor cuts storm pricing error estimate to $3.2 billion from $16 billion

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ERCOT market monitor cuts storm pricing error estimate to $3.2 billion from $16 billion

Highlights

Lawmaker calls for replacing PUC chair

Change nets self-supply, forward positions

Political leaders advocate repricing

Keeping price at cap 'a judgment call'

Houston — The Electric Reliability Council of Texas' independent market monitor has lowered its estimate of the amount of erroneous real-time energy market charges during the Feb. 18-19 winter storm to $3.2 billion from $16 billion, reflecting the net effect of self-supply situations and day-ahead market positions, lawmakers learned March 11.

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But during testimony before the Texas House of Representatives' State Affairs Committee, Arthur D'Andrea, Public Utility Commission of Texas chairman and the sole remaining member, denied that the charges were erroneous, under state and ERCOT rules, which drew a suggestion from a state representative that D'Andrea be replaced.

In response, state Rep. Richard Pena Raymond, a Democrat from Laredo, said, "if your position is that there was nothing the matter, that there was no billing error, then I would say we probably need somebody other than you in that position. I'm not going to tell you that you ought to resign right now, but I think the governor should appoint somebody else in that position."

Governor Greg Abbott, Lieutenant Governor Dan Patrick, and 28 of Texas' 31 senators have called for a reversal of $16 billion in rotating blackout overcharges, based on a March 4 filing by Potomac Economics, ERCOT's IMM. In that letter, the IMM estimated that ERCOT's decision to continue setting real-time prices at the $9,000/MWh systemwide cap through 9 am Feb. 19 after ERCOT had ended its call for rotating outages at 11:55 pm Feb. 17 had resulted in overpricing the real-time market by $16 billion.

SELF-SUPPLY, FORWARD POSITION FACTORS

Potomac Economics, in a March 11 letter said, however, "correcting this error will not reduce costs to consumers by $16 billion because a substantial share of the demand is served by owned generation or forward contracts."

Potomac Economics noted that all changes in settlements net to zero for ERCOT, so positive changes for some will be offset by negative changes for others.

Potomac Economic has also advocated repricing ancillary service charges at the value of lost load, estimated to be $9,000/MWh, even though the AS market has no pricing cap.

On Feb. 15, the first full day of the winter storm, for example, the day-ahead market clearing price for responsive reserve services, one type of AS, would have been $21,819.38/MWh, according to a market notice, based on ERCOT protocols.

Repricing the energy market would cut charges by $3.2 billion, and repricing the AS charges would cut charges by another $1.9 billion, the IMM said.

In a March 5 meeting, D'Andrea and Shelly Botkin, who resigned from the PUC March 8, said they opposed the idea of repricing the energy market, but did not decide whether to reprice AS charges, as there was no pressing deadline on settling the AS market. D'Andrea's predecessor as PUC chairman, DeAnn Walker, resigned March 1.

D'Andrea and Botkin announced their energy market positions March 5, because the Intercontinental Exchange, in which many ERCOT market participants hedge ERCOT energy market risk, had a firm deadline at 4 pm that day.

REPRICING AN EMERGENCY: GOVERNOR

On March 9, Abbott directed state lawmakers to consider "legislation relating to the correction of any billing errors" by ERCOT for "inaccurate excessive charges and any issues regarding ancillary service prices."

Designating the item an emergency lets the Legislature vote on the matter within the first 60 days of the session. This regular session is scheduled from Jan. 12 through May 31, so the first 60 days ends March 12.

On March 10, 28 state senators from both parties signed a letter to the PUC urging the correction of the charges.

But during testimony March 11, D'Andrea said he has no authority to order the repricing of these transactions, under Texas law, PUC rules, or ERCOT protocols.

The PUC has directed repricing, but only when ERCOT has committed an error, but D'Andrea said, "I don't think this was a billing error."

Regarding the positions taken by the lieutenant governor and 28 senators, D'Andrea said, "I think they're relying on wrong information from the IMM."

The reason that ERCOT continued to set real-time prices at the $9,000/MWh cap was that while ERCOT had rescinded its call for residential rotating outages, large industrial consumers were still being requested to curtail load, so that more residential customers could be brought back online sooner, D'Andrea said.

Those large industrial consumers were re-selling their power to the market at high prices to compensate for their inability to operate their machinery, D'Andrea said. If those high prices had not persisted into Feb. 19, those industrial consumers could well have brought load back online too soon, thereby increasing the likelihood of cutting residential customers' power again.

'A JUDGMENT CALL'

In a separate March 11 meeting of the state Senate Jurisprudence Committee, Bill Magness, ERCOT's president and CEO until May 30, acknowledged that ERCOT's decision to price energy at the $9,000/MWh cap was "a judgment call," but it was needed because ERCOT needed to send a signal "throughout the market" to ensure the stability of the grid.

"The main issues is that we didn't want to go back into outages, rotating or not rotating," Magness said.

Late Feb. 17, the winter storm had not yet ended, and ERCOT was concerned about how well supply could cover demand surges the mornings of Feb. 18 and Feb. 19.

"We were in constant communication with the [PUC] chairman," Magness said. "We consulted with her on [whether] we needed to do anything ... and she, I believe, expressed the same concern. I made the ultimate call, because I directed my people to issue this notice. ... We did not want to get back into the danger zone."

Carrie Bivens, who directs Potomac Economics' ERCOT IMM office, expressed opposition to continuing the $9,000/MWh Feb. 18, but Magness said, "the response we got from Chairman Walker and I was that we need to maintain consistency in the system" that was still facing significant challenges.

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