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Texas PUC Staff Formally Recommends That PUC Not Move Forward With PCM As Currently Designed
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In a "final recommendation", Staff of the Texas PUC formally filed comments in Project 55000 recommending that the PUC not move forward with the Performance Credit Mechanism (PCM) as currently designed.
As previously reported (details here), a majority of PUC Commissioners this week indicated a preference for "shelving" PCM
Among other things, Staff cited an analysis from the independent market monitor which, as summarized by Staff, found that, "the capacity margin impact from the chosen PCM market design would be less than three percent over the long-term."
Staff reiterated that using a gross $1 billion cost cap for PCM, as previously established by the PUC, is the only "viable" manner to comply with the statutory cost cap for PCM, citing the differing analyses from ERCOT & ERCOT's consultant, and the IMM, as illustrating the impracticality of a net cost cap
Staff said, "The ERCOT/E3 analysis found that the $1 billion of PCM costs would almost be offset by a reduction in energy and ancillary service costs, resulting in the net cost of the PCM coming out to approximately $12 million. This is well below the $1 billion net cost cap imposed by statute. However, the IMM stated that the reduction in energy and ancillary service costs are unlikely to offset the PCM costs to the degree that ERCOT/E3 indicated. In its assessment, the IMM stated that, while higher capacity margins induced by the PCM will reduce the frequency of shortage pricing, the long-term net costs of PCM with the gross cap in place may be in the range of $350 million to $725 million."
"This discrepancy demonstrates the difficulty in crafting a net cost cap: the calculation of net cost is extremely dependent upon the assumptions used to create the base case. We only have two assessments of the PCM with the gross cost cap in place, yet their estimates on the net cost implications of PCM differ by an order of magnitude. Other parties, conducting their own independent assessment, would likely come to different conclusions about the net cost impacts. Thus, any proceeding to determine if a PCM utilizing a net cost cap is compliant with statute would likely be contentious. As Staff has previously stated, the only way to ensure compliance with the statute’s language around a net cost cap is to utilize a gross cost cap on the PCM," Staff said
While recommending that PCM as designed not move forward, Staff stressed that the PUC will need to continue to work on solutions for resource adequacy, citing the following:
• "The long-term equilibrium of the ERCOT market design is well below the frequency criterion of the Commission’s reliability standard (LOLE of 2.67 days per year in the energy-only construct, 2.18 days per year with the addition of the PCM)"
• "Using the 'Low Cost of Retention' sensitivity, the short-term equilibrium also falls below the reliability standard (LOLE of 0.67 days per year in the energy-only construct, 0.52 days per year with the addition of the PCM)"
• "ERCOT indicated that its Long-Term Reliability Assessment shows a forecasted 2026 ERCOT system having an LOLE of 0.51 days per year."
Staff said, "ERCOT and the stakeholder community will need to continue discussions around different ways to address the resource adequacy of the system."
Staff said that additional analysis will be required to determine how much additional generation capacity is needed to achieve the Commission’s chosen reliability standard.
"[T]he Commission may want a slate of options from which it can choose to achieve its resource adequacy target after the first resource adequacy assessment is conducted in 2026, should the analysis still show that the system is deficient," Staff said
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December 13, 2024
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Copyright 2024 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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