Texas PUC Commissioner: "Troubling" That ERCOT Has Not Presented Public Budget For Winter Capacity RFP

Seeks Opinion As To Whether Costs May Be Passed Through By REPs Under Fixed Rate Contracts

November 2, 2023

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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Texas PUC Commissioner Will McAdams filed a memo concerning the ERCOT winter capacity RFP in advance of today's open meeting

McAdams wrote, "ERCOT believes that its authority is enshrined in an obscure protocol developed in 2011 in NPRR 432 and in the RMR for capacity process. 1 ERCOT concedes that these precedents do not exactly match the proposed design nor manner in which the RFP has been constructed, but they believe an imminent reliability need warrants extraordinary actions. Commissioner Glotfelty was right to question whether this program is even legal."

McAdams wrote, "at the Work Session, we had instructed Commission Staff to coordinate with ERCOT and the IMM to formulate a budget and cost cap for the proposed RFP. ERCOT has insisted that no budget should be established until after the responses to the RFP are due. ERCOT asserts that a budget or cap may distort bids and drive market participants to submit higher offers, causing the budget to be divvied up among a few high bids and, ultimately, reducing the megawatts that may be procured."

McAdams wrote, "It appears that ERCOT holds such a strong conviction in this position that it has refused to provide the Commission with a public budgetary framework. I find this troubling and disappointing. ERS is a clear prototype for the RFP and that service operates under a predetermined budget and cost cap. The system has not had issues efficiently procuring megawatts of demand response under this program in the past and, in fact, ERCOT does not even utilize the full ERS budget. I see no reason why the recent RFP would be any different."

McAdams wrote, "At the last open meeting, I expressed apprehension that by not imposing a budget and cost cap the Commission would in effect establish a dangerous precedent for both the system and the statutorily enshrined market design - free reign to establish short-term capacity markets by fiat. To justify the RFP, ERCOT has presented the information in a manner that seems to lead to the desired result. To me, this indicates that they could use this protocol in the future to address needs they deem critical to the system and drive our market into a capacity construct without input from the PUC, the ERCOT Board of Directors, or the Legislature. If not restrained, the policy could be used to procure unlimited amounts of energy or demand response at whatever costs the staff of ERCOT deem "reasonable" without a system of due process we, as their regulator, are bound by duty and statute to provide."

McAdams wrote, "Such a precedent would undermine confidence in the statutory framework designed to attract new dispatchable generation to be built within ERCOT on the eve of an election where the voters will decide whether to authorize $5 billion in state-backed financing for such an effort."

McAdams wrote, "As such, to allay these concerns I propose that we take official notice that the RFP for capacity is an interim or bridge solution under PURA § 39.1594(a)(1). By taking this step, I believe that we are establishing a legal basis for the program and provide stronger regulatory certainty for the ERCOT market. I would also ask Commission Staff to track that the program is complying with the requirements of PURA § 39.1594 and that the metrics used to justify it are thoroughly reviewed."

McAdams asked for Staff to opine as to whether the costs under the RFP would be able to be passed-through by REPs to customers on fixed price contracts

"Finally, I would ask Staff to come back next open meeting and opine as to whether the costs associated with this capacity program would be beyond a LSE's control for existing contracts and if we should consider expanding or providing good cause exception to 16 TAC § 25.475 for this program," McAdams wrote,

"As discussed at the last open meeting, in the future, I believe that we should develop a policy requiring ERCOT to submit any future RFPs for capacity for Board and Commission approval," McAdams wrote

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