Update: Texas PUC Staff Partial Termination Of Generator's Voluntary Mitigation Plan Relates To Ancillary Services Bidding

March 15, 2023

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the Texas PUC filed a petition to ratify a partial termination of the Amended Voluntary Mitigation Plan (VMP) for the NRG Energy Companies, with the partial termination relating to ancillary services bidding

Specifically, Staff seeks ratification to strike language in paragraph 2.6 of the Amended VMP as indicated below (removed text noted as strikethrough:

"Day-Ahead Market: Offers and/or bids for energy and ancillary services in the Day-Ahead Market can be submitted at prices up to and including the HCAP"

Staff stated that the effect of the partial termination noted above, "is that NRG Companies may no longer assert an absolute defense to allegations of market power abuse related to offers and bids for ancillary services in the day-ahead market at prices up to and including the HCAP submitted after the effective date of the termination."

"NRG Companies are not prohibited from submitting offers or bids for ancillary services in the day-ahead market at prices up to and including the HCAP, but may be subject to inquiry and enforcement regarding offers or bids in the ancillary service markets that raise concerns of market power abuse. NRG Companies’ ability to submit energy-only bids in the day-ahead market at prices up to and including the HCAP remains unchanged," Staff said

Staff averred, "Commission Staff approached NRG to gauge its interest in negotiating a possible modification of paragraph 2.6 of the Amended VMP. NRG expressed that it was not interested in negotiating a modification of paragraph 2.6. The termination, in part, of paragraph 2.6 of the Amended VMP serves the public interest by removing a safe harbor for anti-competitive behavior observed in the day-ahead ancillary service market and enabling Commission Staff to investigate and pursue enforcement against ancillary service offers and bids that rise to the level of market power abuse."

Staff cited changes in the A/S market and procurement levels for the change

Staff averred, "in the time since ERCOT increased its procurement of ancillary services as part of its conservative operating posture implemented in 2021, the practice protected by paragraph 2.6 has impacted the ERCOT market in a manner which, if not otherwise protected by the terms of the VMP, would likely rise to the level of a market power abuse."

Staff said, "In 2021, ERCOT implemented its current operations posture, which is more conservative than the posture observed in years prior and involves the increased procurement of ancillary services, including non-spin reserve service (NSRS). For example, whereas ERCOT procured NSRS at an hourly range of 1,175 megawatts (MW) to 1,838 MW in 2020, ERCOT procured NSRS at an increased range of 3,654 MW to 4,303 MW in 2022. Given that the total available supply of NSRS averaged roughly 7,000 MW per hour over the past 12 months, the largest suppliers of NSRS—which are the generation entities and affiliates that own or control the largest percentages of generation capacity in the ERCOT power region—are now pivotal NSRS suppliers in many hours. In other words, prior to 2021, the reduced level of NSRS demand could more often be satisfied by procuring NSRS from many combinations of suppliers, which in turn incentivized all suppliers to offer the product at competitive prices at the risk of foregoing the profits associated with being awarded NSRS capacity in the day-ahead market. Since 2021, the increased demand for NSRS more often cannot be satisfied without purchasing NSRS from larger suppliers, and those larger suppliers have recognized an opportunity to effectively control the price at which ERCOT must procure their ancillary services, increasing their offers above average NSRS clearing prices. The resulting outcome is a less competitive ancillary services market in which larger suppliers can set their prices at any level they desire in many hours of the year."

Staff said, "Participation in the ancillary services market is compulsory for load serving entities (LSEs) and, unlike the energy-only market, is tied to the performance of specific resources, thereby leaving LSEs and their customers with no protection from market power abuses. An analysis performed by Potomac Economics, the Independent Market Monitor (IMM) for the ERCOT power region, determined that the ability of large NSRS suppliers to effectively control the price at which ERCOT must procure their ancillary services allowed suppliers to increase NSRS prices and costs to LSEs by an estimated total of between $285 million and $380 million between August 2021 and July 2022. The IMM recommends that, because there is currently no planned end date to ERCOT’s increased procurement of NSRS, the Amended VMP is not effectively mitigating anti-competitive conduct in the ancillary services market as it exists today."

Separately, Staff sought approval for amendments to the separate VMPs of Luminant Energy Company LLC and Calpine Corporation which address similar concerns due to changes in the A/S market.

Luminant Energy Company LLC and Calpine Corporation have each agreed to the respective amendments.

For Luminant, the amended VMP addresses Luminant Energy's offers for NSRS in the ERCOT day-ahead market

For Calpine, the amended VMP addresses Calpine’s offer strategy for On-Line and Off-Line NSRS in the ERCOT day-ahead market

The specific changes are discussed more fully in the amended VMPs

Dockets 54740, 54741, 54739

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