News Stories

“As part of the cost-benefit assessment of the reliability program described in PURA § 39.1594, an evaluation of the cost of new entry (CONE) must be completed.1 To meet this requirement, ERCOT contracted with the Brattle Group (Brattle) to conduct a study on the appropriate variables used to calculate CONE for the ERCOT region. On June 6,2024, ERCOT filed an update with the Commission that included Brattle’ s slide deck summarizing the results of its CONE study. At the June 13, 2024, open meeting, the Commission directed Staff to provide its recommendation on the CONE study results ahead of the July 11, 2024, open meeting. This memo is filed in response to that direction.”

“The Commission should consider whether the low system-wide offer cap is needed. 

As mentioned above, the application of peaker net margin and the trigger threshold to decrease the system-wide offer cap to the low system-wide offer cap would be impacted by a change in the reference technology used to determine CONE. With the recent addition of the emergency pricing program in the ERCOT region, some stakeholders have opined that the Commission should eliminate peaker net margin and the low system-wide offer cap, as they will be duplicative of the consumer protection value that the emergency pricing program provides. Staff recommends that the Commission study this recommendation during the review of system-wide offer cap programs the Commission will conduct in 2026.”

As previously reported, under current rules, if peaker net margin exceeds three times the cost of new entry (CONE), the system-wide offer cap is set at LCAP for the remainder of the calendar year, and energy prices in ERCOT shall not exceed LCAP plus $1 for the remainder of the calendar year.

The LCAP is currently $2,000 per MWh, versus the normally applicable high cap of $5,000 per MWh.

Staff’s memo also affirms the administrative nature of CONE-based market designs, as Staff’s memo demonstrates that the following must be considered in establishing an administrative value for CONE:

• The specific technology used for the basis of CONE
• Whether multiple technologies and CONE values should be established
• Unique CONEs for different geographic areas
• The frequency of CONE and CONE study updates

Staff recommended using the Frame Combustion Turbine CONE that Brattle included as a sensitivity in its study, which would set the CONE value at $162/kW-year. This constitutes a 54% (8%) increase over the existing nominal (inflation-adjusted) CONE value, compared to a 179% (95%) under Brattle’s value.

Staff Memo on CONE  (07/03/2024)
Project 54584
Reliability Standard For The ERCOT Market