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From the memo dated August 20, 2026, Staff requested answers to the following questions:

1. Scarcity Pricing Mechanism (SPM)
a. The current Low System-Wide Offer Cap (LCAP) is $2,000 per MWh for energy offers and $2,000 per MW per hour for ancillary service (AS) offers. The current High System-Wide Offer Cap (HCAP) is $5,000 per MWh for energy offers and $5,000 per MW per hour for ancillary service offers. Do either of these values need to be updated? Why?

b. With the implementation of RTC+B, there is a difference between the day ahead (DAM) and real-time (RTM) system offer caps for both energy and AS. The DAM offer cap is $5,000 per MWh per hour, and the RTM offer cap is $2,000/MWh. Should this difference continue? Why?

c. Should any of the scarcity pricing mechanism features listed below be modified? Why?

i. Peaker net margin calculation
ii. LCAP trigger threshold iii. Reimbursement for operating losses when the LCAP is in effect.

2. Emergency Pricing Program (EPP)
a. Since its adoption in December 2023, ERCOT has never activated the EPP. Should any of the EPP features listed below be modified? Why?
I. The activation trigger for the EPP
ii. The Emergency Offer Cap
iii. The duration of the EPP
iv. The market notice specifications
v. The reimbursement for costs that exceed the ECAP
vi. The reporting requirements after the EPP has been activated

3. How should the Ancillary Service Demand Curves (ASDC) be modified to better reflect scarcity and improve economic efficiency?

4. What credit risk concerns should the Commission consider if either the SPM or the EPP were to be adjusted, and how should existing credit obligations be recalibrated in response?

5. Are there any other topics the Commission should consider as part of this evaluation?

The Texas Public Power Association (TPPA) responded to the Commission’s request for comments. TPPA “recommends that the Commission delay completion of this review until the Reliability Assessment is complete. At this time, it is unclear to TPPA whether the existing SWOCs are appropriate or require modification to ensure the market sends appropriate price signals to incentivize new investment. However, the results of the Reliability Assessment will help demonstrate whether market changes are warranted and, if so, inform the evaluation of potential changes. One such potential change could be adjustments to the SWOCs. Another potential change that TPPA believes warrants additional consideration as part of the Reliability Assessment review is moving away from conservative operations and back toward a market that experiences some level of scarcity and scarcity pricing. Accordingly, TPPA recommends delaying this review until completion of the Reliability Assessment to ensure that all relevant information is available and transparent to all commenters and that a holistic discussion of potential solutions can occur.”

“Additionally, while TPPA believes it is important to maintain a functioning market and address potential issues, TPPA ultimately recommends avoiding unnecessary changes to the market to allow it time to stabilize, adjust, and respond to the significant changes that have occurred over the past five years. The exception to this approach would be ensuring that existing market mechanisms are properly calibrated, which is largely consistent with the scope presented in these questions.”

ERCOT also responded to the request for comment. ERCOT “supports the need to reevaluate the System-Wide Offer Cap (SWCAP) programs, including the Scarcity Pricing Mechanism (SPM) and Emergency Pricing Program (EPP), on a five-year cadence.”

“ERCOT supports the need to perform a holistic evaluation of the SPM, including the values of the Low System-Wide Offer Cap (LCAP) and High System-Wide Offer Cap (HCAP). ERCOT anticipates considering this as part of its due diligence in the Triennial Reliability Assessment.”

“ERCOT strongly recommends that a higher SWCAP be maintained for the Day-Ahead Market (DAM) than the SWCAP ofthe Real-Time Market (RTM).”

“ERCOT recommends that the Cost of New Entry (CONE) used to calculate the Peaker Net Margin (PNM) threshold should be reevaluated. Because the EPP has not yet been activated, ERCOT recommends that the current EPP program parameters be maintained until the next quinquennial review.”

“ERCOT understands that the Ancillary Service Demand Curves (ASDCs) are no longer required to replicate the pricing outcomes of the ORDC and looks forward to working with the Commission and stakeholders to evaluate potential changes. Changes to the SPM or EPP inherently and proportionally impact financial stress exposure in the ERCOT market. ERCOT is developing a financial stress-testing framework and recommends that, once developed, such framework be incorporated into the consideration process for future changes to SWCAP programs.”

Texas Industrial Energy Consumers (TIEC) commented, “TIEC does not presently see a need to adjust the LCAP. The current LCAP of $2,000/MWh for energy and $2,000/MW per hour for ancillary services was last set approximately two and a half years ago, and the conditions that informed that determination have not materially changed. At current natural gas prices, the LCAP implies a heat rate of approximately 700-800 MMBtu/MWh-far above the marginal cost of any physical generation resource on the system.11 This provides substantial headroom for all resources to recover their operating costs when the LCAP is in effect, which is the primary purpose of the cap as a customer protection mechanism.”

TIEC further comments that, “The Commission should consider a meaningful upward adjustment to the HCAP. TIEC has consistently advocated for an HCAP that approaches the VOLL to allow voluntary market response to ration available supply among customers, and to incentivize real-time performance and bilateral hedging . Importantly , it is not necessary to actually have high prices in order to facilitate hedging behavior and strong market performance. The risk of high prices promotes bilateral contracting by large customers and retail electric providers, encouraging longer-term fixed price agreements at a premium for generation resources that can perform when needed. These bilateral contract premiums are a much stronger and more stable driver of investment than actual real-time prices.”

Comments were also filed by Texas Electric Cooperatives, Inc., Google LLC, Base Power Company, TCIPA, Shell Energy North America, Lower Colorado River Authority, Hunt Energy Network LLC, Vistra Corporate Services Company, Texas Energy Buyers Alliance, Texas Solar & Storage Association and Jupiter Power LLC.

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Quinquennial Review Of System-Wide Offer Cap Program Under 16 TAC 25.509(d)