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Since 2006, the annual State of the Market (SOM) reports have been filed in Project No. 34677, and the Independent Market Monitor (IMM) filed its 2023 SOM report on May 30,2024 in that project. Starting this year, Staff filed a response to the SOM to facilitate the commission’s review of the report. Staff’s memo discusses Staff’ s position on each of the recommendations included in the 2023 SOM report, including those initially offered in prior years.

Staff’s Response To Recommendations Included In The 2023 State Of The Market Report 

A summary table of Staff’s response to each outstanding SOM recommendation is identified in the Staff’s recommendation, followed by a more detailed, narrative discussion. The SOM recommendations are listed in reverse chronological order.

The IMM’ s 2023 SOM report filed on May 20, 2024, contained 15 specific recommendations, 11 of which originated in prior years. Staff’s report summarizes each recommendation and provides suggestions for next steps.

As further background, each year, the Independent Market Monitor for the ERCOT power region (IMM) issues a report on the state of the electric wholesale markets. The IMM provides detailed analysis related the efficiency and competitiveness of the markets in this report and assesses whether any inappropriate incentives or market inefficiencies exist. If the IMM find such flaws, it must offer recommendations on how to address them.

In Staff ‘s most recent report, Staff included a chart identifying Staff ‘s recommendations that labels whether Staff supports, disagrees, or is neutral on recommendations from the ERCOT Independent Market Monitor’s (IMM’s) most recent annual IMM state of the market report.

Elimination ERCOT Energy-Only Market –“Eliminate The ‘Small Fish’ Rule:

Staff of the Texas PUC supports for the elimination ERCOT energy-only market –“eliminate the ‘small fish’ rule.”[t]he small fish swim free rule, at 16 TAC § 25.504(c), provides that a generator that has less than 5% market share is deemed not to have ERCOT-wide market power.

As such, these small fish can bid at levels, such as above marginal cost, without de jure concern about being alleged to be exercising market power through such bids (in practice, while some small fish have used the rule, other non-legal concerns, including the potential for negative press or other attention, have led the small fish rule to be utilized less than perhaps originally anticipated as a means of driving shortage pricing, though instances of small fish bidding above marginal cost do still occur).

In its report the IMM said that the small fish rule was adopted prior to ERCOT having what the IMM termed “effective” shortage pricing under the ORDC. The IMM said that implementation of the ORDC has resulted in the small fish rule being “unnecessary.”

In response to the IMM small fish recommendation, “Staff agrees that it is time to re-evaluate this rule.” Staff notes that it intends to open a project in 2025 to address the small fish rule, subject to resource availability and other legislative priorities.

Staff went on to say that if the TPUC were to revise the small fish swim free rule, Staff recommends approving the changes prior to the RTC+B go-live, which is targeted for December 2025.

Allocation Of Transmission Costs By Ceasing Use Of The 4CP Method:

Staff listed “support” next to the IMM’s recommendation to change the allocation of transmission costs by ceasing use of the 4CP method, although Staff noted that the matter is a policy question for the PUC.

The IMM recommended that 4CP allocation no longer reflects the drivers of new transmission needs. The IMM report noted that demand response from entities seeking to avoid 4CP charges is “likely” inconsistent with real-time market signals and can “significantly” distort market outcomes.

In response to the IMM recommendation, Staff said, “[c]hanges in ERCOT grid topology and upcoming initiatives which will result in significant transmission build out warrant that it may be time to re-examine the TCOS [transmission cost of service] allocation.” “Staff understands that this topic is controversial and may benefit from the Commission determining what, if any, next steps should be taken on these issues.” Staff recommended discussing the 4CP issue in the fall of 2025.

Staff further noted that the 4CP issue is closely linked to an IMM recommendation to re-evaluate the eligibility for certain sites, including certain data centers and crypto-currency mines, for net metering. 

The IMM report said “Loads that can be turned on and off quickly, such as data centers and crypto-currency mines, should be incented to be dispatchable in real time through CLR participation rather than reducing their consumption to avoid transmission cost allocation and other load charges. This would help support price formation and provide better congestion management.”  In response PUC said, “Staff agrees that net metering among unaffiliated load and generation should be reconsidered.”

Project 34677  (08/28/2007)
Reports Of The Independent Market Monitor For The ERCOT Region