Texas REPs Petition PUC To Designate New ERCOT Contingency Reserve Service As A/S Product Increasing Costs Beyond REPs' Control, Allow Adjustment To Fixed Rates

November 13, 2023

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

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The Texas Energy Association for Marketers (TEAM) has filed a petition at the Texas PUC requesting that the PUC designate the new ERCOT Contingency Reserve Service (ECRS) as an, "ancillary service product as incurring charges beyond the REP’s control for a customer’s existing contract,", which would allow REPs to apply a one-time price adjustment to a fixed rate contract that was executed before the implementation of this new ancillary service

Under prior changes to the definition of fixed rate, ancillary services are defined as being included in the fixed rate, but REPs may petition the PUC for a designation of a new A/S product as beyond the REPs' control and to allow a one-time adjustment to the fixed rate to reflect the new A/S product

TEAM said, "ECRS is a new ancillary service created by the ERCOT nodal protocols and implemented for the first time on June 9, 2023. While the original Nodal Protocol Revision Request establishing the basic framework for ECRS was adopted in advance of June 2023, the ERCOT procedures for the deployment of ECRS were not finalized until April 2023, shortly before its implementation. The uncertainty regarding when, in what quantity, and how ECRS would be deployed leading up to the June implementation prevented any ability to know the cost of the new ancillary services product with any reasonable certainty. Any attempt to use Responsive Reserve Service (RRS) as a proxy to estimate potential deployment would have been way off given the unexpected frequency with which ECRS has actually been deployed. This frequent deployment further drove up the price -- the significant impact on the battery life of many of the energy storage resources providing ECRS resulted in offers near the cap in an effort to minimize deployment, which increased the clearing price."

TEAM said, "In short, it was impossible for the market (including REPs) to determine the cost of this new ancillary service or the manner in which ERCOT would procure and deploy the service until it was actually procured and deployed. To this day, forward wholesale market liquidity has been slow to develop and is still quite limited compared to other ERCOT market-based ancillary services. Absent the necessary tools such as an ability to hedge, a proxy product, or a forward curve, there was no way for REPs to reasonably price ECRS into a product until after the summer ended."

TEAM said, "Since June 10, 2023, ERCOT has charged the cost of ECRS to each load-serving entity (including REPs) on a load ratio share basis. Thus, the cost is directly tied to a customer’s usage. Accordingly, for customer contracts that were in place prior to June 10, 2023, the cost of ECRS could not have been priced into those customer contracts."

TEAM said, "From the date of implementation through August 31, 2023, ECRS has had the highest cost of any ancillary service at $608,319,544. The next highest cost was $416,373,083 for RRS -- $191,946,461 less than ECRS. The Independent Market Monitor has concluded that this increase in reserve procurements likely raised the real-time market energy value by about $8 billion in three months. The REPs are not suggesting that any energy value impacts be included in any price adjustments to existing contracts for the cost of ECRS."

TEAM said, "Given the lack of a robust forward wholesale market for ECRS, an analysis of the actual cost per MWh of residential load for ECRS can be used to determine a reasonable methodology for any price adjustment that should be allowed to address the cost of ECRS. This analysis includes an offset for the decrease in NSRS cost associated with the introduction of ECRS."

TEAM said that the net cost of ECRS, including the offset from lower NSRS costs, for residential service ranged from $1.22 per MWh to $9.23 per MWh from June 2023 to September 2023.

"Accordingly, each REP, taking into account competitive forces, could consider applying a one-time price adjustment that accounts for the increase in cost related to ECRS procurement (net of savings from reduced NSRS procurement) to residential fixed price customer contracts executed prior to June 10, 2023," TEAM said

"A similar adjustment could be considered for existing small commercial fixed price contracts," TEAM said

TEAM said, "In order to have a functioning competitive retail market, REPs should not be expected to cover regulatory uncertainty. This is why, by statute, fixed rate prices for an existing term contract may be changed where a regulatory action (such as those actions to implement SB 3) results in new or modified costs that are not within the REP’s control."

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