Monday, June 25, 2018

Texas PUC Briefs: Feb. 15, 2018

Commissioners Delay Action on Removing RUCs from ORDC

AUSTIN, Texas — The Public Utility Commission of Texas postponed until March a decision on whether to remove reliability unit commitments (RUCs) from ERCOT’s operating reserve demand curve (ORDC), which creates a real-time price adder to reflect the value of available reserves.

The delay will allow the commission to gather more feedback from ERCOT on the effects of removing RUCs before heading into the summer months. The commissioners are reluctant to make additional changes that may affect prices, following a recent wave of coal retirements that halved the ISO’s planning reserve margin to 9.3%.

Staff issued a memo Feb. 8 that recommended removing RUC capacity from the ORDC “to ensure that out-of-market commitments do not impede accurate price formation during scarcity.” (See ERCOT, Regulators Discuss Need for Pricing Rule Changes.)

“We are prepared for what the summer is going to bring, which is high prices,” Commissioner Brandy Marty Marquez said. “The question we’ve got to ask ourselves is what are the signals we want to send going into the summer? We’re going into a summer where people are going to be potentially paying a lot more. Will we make changes that have another factor of costs layered onto that?”

PUC Chair DeAnn Walker, Commissioner Arthur D’Andrea question ERCOT’s Kenan Ögelman | © RTO Insider

Walker checked her understanding of ERCOT’s RUC process with Kenan Ogelman, the ISO’s vice president of commercial operations. He told her that ERCOT seldom issues RUCs during the summer, and that its operators continue to minimize their use.

“We might RUC something for capacity initially, but it’s also ultimately the solution for a local issue,” Ogelman said. “They tend to intertwine somewhat, so we’re looking at how we might differentiate those.”

Walker said she didn’t want to make any “big changes” going into the summer but also said she believes removing RUCs from the ORDC is the “right decision.” Ogelman responded that the ISO could provide further information to the PUC for its next meeting and still gain approval from its board of directors by July.

That gave comfort to the commissioners, who seem to be leaning toward removing RUCs from the ORDC. Whether it happens before this summer or the next, remains to be seen.

“I think it’s the right policy … but we’re going into a situation that’s new,” Marquez said. “Any changes we make at this point … will have an impact on ratepayers. We just don’t know exactly what that’s going to be. Do we do something at this point that turns up the heat on this, or do we let ourselves go through the summer, and then have more information on it?”

“This is a real opportunity to see how the ORDC works, and we should take it,” Commissioner Arthur D’Andrea said. “That said, removing the RUC from the ORDC makes sense to me, but not if the retail electric providers start screaming bloody murder. My understanding is this could get done rather painlessly.”

Catherine Webking, representing the Texas Energy Association for Marketers, told the commissioners her group would want to see further “quantification” from ERCOT before their next meeting.

“We would not be screaming bloody murder,” she said, “but we do think it violates the concept of giving time to make adequate changes in [power] contracts.”

Utilities Propose Mechanism to Pass on Tax Savings

The PUC continues to deal with the fallout from the reduction in the federal income tax rate and how those savings should be passed on to consumers.

Staff told the commissioners they have been meeting with investor-owned electric utilities, who have all proposed using any combination of three ratemaking mechanisms to share their tax savings: revising their interim transmission cost-of-service (TCOS) and/or their distribution cost recovery factor (DCRF), or by using a credit rider adjustment.

ERCOT PUCT Operating Reserve Demand Curve

PUC staff, commissioners discuss utility tax savings | © RTO Insider

“All companies have indicated they will use one or more of those methods, and all plan to do it in a very timely manner,” reported staff’s Darryl Tietjen. By rule, utilities must file their requested DCRFs by April 1.

Tietjen noted Houston’s CenterPoint Energy had already filed a letter detailing terms of a settlement it had reached with staff and other parties. CenterPoint committed to a series of filings that will include revisions to its TCOS, a DCRF application and a base rate case, to be filed no later than April 2019.

Texas Sen. Kelly Hancock (R), chair of the Business and Commerce Committee, has also filed a letter with the commission asking all retail electric providers (REPs) to make a public commitment that they will pass tax savings on to their consumers.

“Any deviation from that practice would result in legislative action to clarify the regulatory scope of the commission” during the Legislature’s 2019 session, Hancock warned.

Walker asked staff to work with the REPs and “see if there’s some way to accomplish what Sen. Hancock has asked us to look at.”

The commissioners also amended a previous order on the subject, deleting a reference to carrying changes on the balance of excess accumulated deferred federal income taxes (Docket No. 47945).

Staff Opens Battery-Storage Rulemaking

Saying it did not have “sufficient information” to rule on American Electric Power’s request to connect a pair of utility-scale battery facilities to the ERCOT grid, the PUC asked staff to open a project that addresses “necessary policy issues” and develops an “appropriate regulatory structure” through a future rulemaking (Docket No. 46368).

“Only after facts are fully developed will the commission be in a position to resolve relevant policy issues and design the appropriate regulatory framework with proper standards,” the commissioners said in their order. New rules are necessary “to define the appropriate manner in which energy storage devices are used before the use of energy storage devices can move forward.”

AEP had proposed installing separate 1-MW and 50-kW battery facilities in two rural Texas areas, setting them to automatically discharge during an outage or to serve additional loads. It has proposed the energy be accounted for as “unaccounted-for energy (UFE),” which ERCOT defines as the difference between the system’s total generation supply and the total system load plus losses.

Consumer organizations and market participants both opposed AEP’s request, arguing that allowing the assets to be included in its regulatory base would harm competition. (See PUCT Considering Rulemaking over AEP Battery Proposal.)

Commission Approves Investment Firm’s Acquisition of Calpine

The commission, as part of its consent agenda, approved Calpine’s request to be acquired by private investment firm Energy Capital Partners (ECP) in a $5.6 billion deal (Docket No. 47607).

Commission staff found no market power concerns, saying Calpine and its subsidiaries will own or control about 12 GW of ERCOT’s installed capacity upon the transaction’s consummation, or almost 13% of ERCOT’s total — below the 20% cap.

Under the merger agreement’s terms, VoltSub, an ECP subsidiary, will merge with Calpine, which will continue as the surviving entity.

Calpine announced it was going private last August. New York regulators and Calpine stockholders have also approved the transaction, which is targeted to close in the first quarter of 2018. (See Calpine Going Private in $5.6B Deal.)

— Tom Kleckner

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