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The REP Coalition Texas Energy Association for Marketers (TEAM) and Alliance for Retail Markets (ARM) filed comments in response to the Texas PUC’s ALJ’s proposed order that would decline to find that ECRS is an ancillary service product under which REPs incurred charges, “beyond the REP’s control for a customer’s existing contract.” The ALJ’s rejection of such determination means that REPs would not be permitted to adjust prices under certain existing fixed rate contracts because of the implementation, after the contracts’ start dates, of ECRS.

As previously reported, the ALJ’s proposed order generally finds that REPs should have anticipated the costs of ECRS and that REPs were in a better position to manage ECRS cost risk than retail customers.  As such the Texas PUC ALJ’s  proposed order denies retail electric providers’ (REP’s) petition to designate ERCOT Contingency Reserve Service (ECRS) as an ancillary service product under which REPs incur charges, “beyond the REP’s control for a customer’s existing contract,” would, as stated in exceptions filed by the REP Coalition, force REPs to price into current fixed price contracts costs from programs such as Dispatchable Reliability Reserve Service (DRRS) and even the Performance Credit Mechanism (PCM), whose parameters and designs remain uncertain, and for, PCM, may ultimately not even be implemented due to a cost cap (the observation on PCM’s viability is solely ECM’s own and was not an observation made by the REPs, though REPs did note uncertainty surrounding PCM’s ultimate design.

In exceptions to the ALJ’s proposed order, the REPs argue that the ALJ’s reasoning would lead to “absurd” pricing. Under the ALJ’s reasoning, REPs should already be including in their fixed rates the costs of Dispatchable Reliability Reserve Service (DRRS) and should have done so since the day that the law authorizing DRRS became effective.  However, in the same vein as the development of ECRS, REPs noted that key cost drivers for DRRS, including the quantity of the procurement and characteristics of the resources eligible for payments, are still being developed, with no final adoption to date.

The REPs also noted that, “[O]f course, the PCM has not been designed and implemented, and the associated costs and timing of PCM, if it were to be implemented, are not yet known,” ,[I]f the ALJ’s proposed order is adopted, REPs would need to start including in fixed rates, “hypothetical and speculative future costs, to guard against the REP having to absorb those costs later.” “Such a result would contradict the purpose of the language of the rule and would cause unnecessary increased costs to all customers.”

From the REP Coalition’s Executive Summary:

{***} The REP Coalition has filed this petition to have the Commission determine whether the newly adopted Electric Reliability Council of Texas ERCOT Contingency Reserve Service (ECRS) ancillary service is a new cost or fee beyond a retail electric provider’ s (REP’s) control for existing contracts entered into prior to the implementation of this new ancillary service. If the Commission makes the requested determination, then REPs could choose to make a one-time adjustment (related solely to the incremental cost of ECRS) to the price charged on prospective bills for customer contracts entered into prior to June 9,2023. The Proposed Order incorrectly asserts that the REP Coalition seeks retroactive application of the designation sought here. ECRS is the first new ancillary service that has been implemented by ERCOT in more than 20 years. The designation requested here is necessitated by Commission rule amendments adopted in December 2021 in response to legislation regarding wholesale indexed products that would pass through real-time settlement point prices and other market risk. The Proposed Order incorrectly asserts that in adopting this rule change, the Commission contemplated that the new rule language would exclude designation of ECRS as a new ancillary service. 

At the time that amendments to 16 Texas Administrative Code (TAC) § 25.475 were adopted, ECRS was not developed, and further development had been paused in the wake of Winter Storm Uri. However, the Proposed Order would adopt a policy indicating that REPs should have priced in ECRS from the time that the concept of implementing ECRS was approved in 2019. As the Commission continues to implement substantial changes to the wholesale ERCOT market pursuant to legislative direction, REPs need to be able to address such changes in law that cause new costs or fees beyond the REP’s foresight and control into existing retail contracts in order to efficiently price products to customers and offer long-term products to customers. The Proposed Order as filed would reflect a public policy determination that would harm residential and small customers by encouraging prices that reflect additional regulatory uncertainty of potential future costs for new ancillary services that may not even be implemented during the term of those customers’ retail contracts or having limited options for longer term contracts. Therefore, the REP Coalition respectfully requests that the Commission designate ECRS as an ancillary service product that caused REPs to incur costs beyond their control for contracts that were existing prior to the implementation of this new ancillary service on June 10, 2023. {**}

REP Coalition’s Exceptions To Proposed Declaratory Order (09/18/2024)
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)