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ERCOT admits to violating Texas PUC rules on pricing, disclosures

The Electric Reliability Council of Texas has notified state regulators it has violated several state regulations and ERCOT protocols affecting prices and other issues, some since ERCOT's nodal market start-up in December 2010, which one trader on Tuesday said was "troubling."

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In a filing Monday, ERCOT notified the Public Utility Commission of Texas it had violated rules related to the release of information on energy ancillary service offers, to the calculation of proxy offer curves for price-taking resources, to projections for ancillary service requirements in the short and medium term, and to generation interconnection studies.

From December 2010 through June 7, 2017, ERCOT improperly calculated "proxy energy offer curves" for certain resources and scenarios in its Security Constrained Economic Dispatch (SCED) system, the grid operator said.

In particular, ERCOT's protocols require that 1 MW be added or subtracted from certain values to create these proxy energy offer curves, mainly for renewable resources and others that do not submit their own energy offer curves. Instead, through December 10, 2017, ERCOT was adding .01 MW in those calculations.



"This identified inconsistency may have affected SCED dispatch as well as prices to some extent; however, ERCOT is unable to determine with sufficient accuracy how prices may have been impacted," ERCOT said in its filing.

Adam Sinn, a trader at Aspire Commodities, said ERCOT's admission "is troubling."

"True price discovery and efficient markets require accurate data," Sinn said in an email Tuesday. "ERCOT's filing demonstrates that ERCOT for many years and currently is not optimally dispatching. The resulting market prices for Texas energy consumers are both inefficient and incorrect."

Also since the beginning of the nodal market, ERCOT failed to post each market participants' price-quantity offer pairs for balancing energy and other ancillary services when the market-clearing prices for those products were at or above 50 times the Houston Ship Channel natural gas price index. Under state rules, ERCOT must post this information seven days after the operating day.

Since discovering the issue, ERCOT determined that for the period from December 2010 through June 7, ERCOT had 108 days in which the day-ahead market clearing price met that criteria and 64 days in which the supplemental ancillary services market clearing price met that criteria.

Another rule violation was an effort to eliminate duplicative efforts. ERCOT in December 2015 stopped issuing projected ancillary services requirements on a monthly basis and an hourly projection for each hour over the next seven days, as had been required by state regulations.

In a change in ancillary services procurement methodology implemented in December 2015, ERCOT began posting projected ancillary services quantities by December 20 of each year, rather than each month.

And on the seven-day requirement, ERCOT issued only hourly projections for the next two days, with the belief that the three-year projection covered the remaining five days' requirement.

However, ERCOT has since reasoned that these interpretations were likely in violation of PUC rules, and ERCOT is in the process of re-instituting monthly and seven-day ancillary services projections, but has suggested the PUC "may wish to consider whether the requirements of these rules should be revisited in light of the market's experience since the rule was originally adopted in 2006," considering that the rule may be redundant.

Finally, ERCOT on August 16 inadvertently disclosed certain generator interconnection study information from one project developer to another. Staff immediately notified both parties, and the wrongly addressed developer permanently deleted the information.

"ERCOT takes its responsibilities under the commission's rules and the ERCOT protocols seriously and appreciates the commission's understanding in overseeing ERCOT's administration of these requirements," ERCOT said in its filing. "ERCOT is prepared to discuss these matters in further detail at the commission's request.

--Mark Watson, markham.watson@spglobal.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com