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Staff of the Texas Public Utility Commission (PUC) recommends that the Commission deny the retail electric providers (REPs) petition asking the Commission to 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.”   By accepting such a designation 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.

Excerpts from TPUC Staff Brief:

“The REP Coalition’ s petition fails for three primary reasons. First, the proper time to raise the question of whether ECRS costs could be recovered by REPs was shortly after the Commission issued its final order in Project No. 51830. Second, the REP Coalition failed to adequately show the necessity of passing through to retail customers ECRS charges now, a year after its implementation. Thus, granting the petition now fails the balancing test set out in Project No. 51830: balancing the protection of retail customer interests with the Commission’ s duty to enable a robust competitive retail market. And third, the underlying costs themselves are not eligible to be passed through to customers under the plain language ofthe rule. Finally, even if Commission Staff agreed that the petition was not out of time and the balancing test did in fact lean towards Petitioner’ s arguments, to grant the petition now would create an unfair surprise to consumers and allow what would amount to a misleading and anticompetitive practice under PURAf § 17.001.”

“Commission Staff respectfully requests that the commission denies the REP Coalition to designate ECRS as a type of ancillary service product as incurring charges beyond the REP’s control and prohibit REPs from passing through ECRS charges to preexisting residential and small commercial customer contracts.”

“First, Petitioners’ request comes nearly two years after the REP Coalition was both aware of the potential impacts of ECRS charges and able to request designation of the charges as beyond their members’ control.”

“REPs have been aware of ECRS since 2018, when the product was first introduced in Nodal Protocol Revision Request (NPRR) 863.”

“Though the final cost to REPs may have been unknown at the time the revision was adopted, the key components have been long understood since then. Because those components were known and understood, REPs, for example, could have priced in ECRS procurement quantity uncertainty by mirroring incremental Responsive Reserve Service (RRS) Market Clearing Prices for Capacity (MCPCs).” 

“[T]he review process implemented by the commission for ancillary service products substantially addresses the commenters’ concerns by ensuring that, prior to implementation, charges associated with new ancillary service product are eligible for review by the commission on a case-by-case basis to determine if they are appropriate for pass through.”

“[T]he REP Coalition failed to adequately show the necessity of passing through to retail customers ECRS charges now, a year after its implementation.”

“Petitioners made a series of claims from reduced profitability to difficulty in forecasting ECRS costs … However, the comparison does not demonstrate why the pricing risks of ECRS, a product which was sufficiently developed long before its implementation, could not have been adequately accounted for by REPs and thus necessitating a pass through now. For example, REPs with lower risk tolerance could have created products that have higher prices or shorter contract terms. REPs had eighteen months to model various possible market outcomes using different procurement quantities to gauge the risk they might have had to bear. And in that time, a flourishing marketplace for REP risk management and bilateral trading has grown – solely so that REPs can hedge financial risks. However, the petition does not show that REPs made any such plans or efforts, and thus, the REP Coalition failed to demonstrate why it is necessary that the Commission find ECRS charges eligible to be passed through.”

“Petitioners failed to demonstrate that the designation of ECRS is a necessity that meets the balancing test set forth in Project No. 5183.”

“[E]ven if Commission Staff agreed that the petition was not out of time and the balancing test did in fact lean towards Petitioner’s arguments, to grant the petition now would create an unfair surprise to consumers and allow what would amount to a misleading and anticompetitive practice under PURA § 17.001.”

“The Commission’s specificity that designation should come prior to product implementation is a clear effort to safeguard consumers from surprising billing amounts associated with consumption that occurred in the past. Should the Commission grant Petitioner’s request, consumers will be negatively impacted by having this charge retroactively appear on their bills for activity that occurred a year ago.” 

“[A]allowing REPs to pass on these surprise costs also inhibits the bilateral trading market in ancillary services and retail risk management.” 

“Pass through is essentially fraudulent, unfair, misleading, deceptive, or anticompetitive business practices.”

“A one-time adjustment option approved here would occur through an unknown billing mechanism and would likely be inconsistently applied to consumers through various descriptions, rates, and formulas. This behavior is capricious to the point that it amounts to deceptive and unfair business practice.” 

“Customers that experience the sudden appearance of this pass-through charge not only did not agree to it when they chose the product and provider, they have no basis against which to compare rates of different REPs to determine how ECRS charges would be assessed, a situation predicted and already determined by Commission to be unfair to consumers in Project No. 51830 when it noted that the pass through of an ancillary service cost is ‘fundamentally unfair for customers to bear an unexpected, unknown cost that could be exponentially higher than what is expected upon signing of a contract for a fixed rate product.”

“Additionally, whether as billed as a one-time adjustment or other type of cost that passes ECRS costs to consumers, allowing it to be retroactive is fundamentally deceptive. Petitioners noted that REPs did not incur ECRS costs until June 9, 2023. Yet they seek to recover these costs from customers with contracts before the date ECRS costs were incurred. Nothing in the REP Coalition’s petition indicates which REPs will be optioning this charge, the methodology of billing this one time cost such as how these charges will be calculated, or how they will be apportioned. Thus, it is expected that consumers who entered into these fixed price contracts before implementation of ECRS will bear the cost of a service they never received. This is a deceptive business practice in violation of PURA § 17.004(1).”

“PURA § 17.004 established the protection of consumers against business that do not have technical and financial resources to provide adequate service as a primary public policy objection. Petitioners argue that REPs could not foresee ECRS costs, and thus, if obligated to absorb these costs, could operate at a loss, or could lose customers. Though the claims lack support, they do raise the question of whether these companies actually have sufficient technical capability to provide the type of risk management contemplated by the legislature and the Commission.” 

“When consumers cannot depend on consistent procedure and also cannot reasonably compare products, they cannot make an informed choice of a REP, which undermines the competitive market. Thus, while it does not appear that REPs are intentionally misleading or deceptive in attempting to pass through ancillary service charges, it is against public interest for customers to bear an unexpected, unknown cost and to protect a free and fair competitive marketplace.” 

Staff’s Brief  (06/14/2024)
55959  (12/08/2023)
(Joint Petition Of Texas Energy Association For Marketers And Alliance For Retail Markets For Designation Under 16 TAC § 25.475(b)(5))