Texas regulators are raising concerns about its contract with Texas Reliability Entity as ERCOT’s reliability monitor, questioning whether they are getting their money’s worth and whether there is enough transparency for ratepayers.

The issue came tumbling into the open during the Public Utility Commission’s Sept. 24 open meeting, when it considered a proposal related to oversight of wholesale market participants. Commissioner Shelly Botkin had filed a memo asking to discuss draft amendments to its rules that would make having a reliability monitor discretionary and allow ERCOT to assume the responsibilities (50602). (See “PUC to Consider Reliability Monitor Rule Change,” Texas Reliability Entity Briefs: Sept. 3, 2020.)

“My main concern I have is making the reliability monitor discretionary,” she said. “It doesn’t seem to be an option to me. … If you want to have flexibility in the rule, I understand that, but it’s something I could not get over.”

Chair DeAnn Walker did not hold back as she shared her thoughts on Texas RE serving another four-year term as reliability monitor. She suggested using their contract’s severance clause to give 30 days’ notice of its termination.

“I don’t think we have the authority … to make Texas RE our reliability monitor,” Walker said.

Citing a section in the state’s Public Utility Regulatory Act (PURA), she read aloud from the statute:

“‘The commission shall adopt and enforce rules relating to the reliability of the regional electrical network … or may delegate to an independent organization responsibilities for establishing or enforcing such rules. …

“‘The commission has complete authority to oversee and investigate the organization’s finances, budget and operations as necessary to ensure the organization’s accountability and to ensure that the organization adequately performs the organization’s functions and duties. …

“‘The organization shall fully cooperate with the commission in the commission’s oversight and investigatory functions.’”

Walker said the statute “clearly says” the commission “may delegate” the reliability monitor’s function to an “independent organization.” That “independent organization” would be ERCOT, not Texas RE, she said.

The PURA repeatedly refers to ERCOT as “the independent organization,” never “ERCOT,” PUC spokesman Andrew Barlow noted.

“What has become clear to me today is that if we delegate the contract, it has to be to an independent organization, and we only have one of those. And that’s ERCOT,” Walker said. “As to us having ‘complete authority to oversee and investigate’ the [reliability monitor’s] finances … we have absolutely none over Texas RE. … I don’t think that contract is consistent with the statute.”

Texas RE holds a $5.3 million contract for the 2020-2023 term, an increase from the previous $4.3 million contract for 2016-2019. The increase did not sit well with Walker.

“To say it was a difficult process with Texas RE is an understatement,” she said of the PUC sending out bids for the new contract. “We raised concerns with [the increase]. We raised concerns because other entities had concerns with it. We were told that’s the price; that’s the actual costs.”

Walker said that in digging into the contract, the PUC discovered that Texas RE had included overhead costs that will increase by $80,000 over the contract’s term.

“The overhead includes part of the CEO’s salary, the board’s salaries, [and] the board’s and CEO’s travels to NERC meetings. … I don’t believe their travel to NERC meetings benefits the state under the reliability contract one bit,” she said.

Barlow said the commission is calling the contract’s value and efficacy into question because of the “return on investment” — Texas RE’s monitoring led to $1.7 million in penalties during its previous contract and almost $150,000 this year — and “somewhat duplicative” work. The Texas RE uses ERCOT data for analysis rather than generating its own, he said.

“The PUC has lawyers and engineers that are fully capable of doing the analysis [the Texas RE] currently handle[s],” Barlow said. “As the PUC continues its ongoing modernization efforts by assessing our own internal organization and scrutinizing major contracts, we’re working to ensure we’re the best stewards of taxpayer resources and protectors of consumer interests.”

“I could sit there all day long and complain that this money shouldn’t be spent this way. The answer I get is, ‘Thank you very much, you’re ex officio,’” said Walker, who, as the PUC’s chair, sits on Texas RE’s Board of Directors.

Texas RE CEO Lane Lanford, who is retiring at the end of the year, said he supports Walker’s “diligence in tracking Texas RE’s expenses along with those of all publicly funded organizations.”

“Ratepayers have a right to know how their money is being spent,” he said in a statement provided to ERO Insider. “As the PUCT considers a new vision for the Texas reliability monitor, Texas RE will continue to assist if needed to ensure the mutual goal of a highly reliable and secure bulk power system within the Texas Interconnection.”

Texas RE is funded through regional assessments, collected by NERC, on load-serving entities’ pro-rate share of net-energy-for-load usage within its regional footprint. Lanford said its reliability monitor finances are “firmly separated” from its NERC activities as the ERO’s delegated regional entity, which is its primary role. The reliability monitoring function is funded through ERCOT’s system administration fee, as stipulated by the PUC’s rules.

“We have a contract I was not comfortable with, that there is not enough transparency to ratepayers and what they were having to pay, and whether we were getting the benefit and whether we were getting the information we needed to maintain that contract,” Walker said.

She expressed further frustration with a Texas RE cash account that she said holds about $250,000 in unspent funds encumbered by the organization’s nonprofit status. She told Botkin and Commissioner Arthur D’Andrea that she had asked whether Texas RE could use the funds to offset the reliability contract, but no action was taken on it.

The PUC may be limited in its options for finding an alternative to Texas RE as the reliability monitor. Commission staff, ERCOT and Potomac Economics, which serves as the grid operator’s Independent Market Monitor, were all mentioned as possible replacements.

“I think we should, and could, look at ERCOT,” Walker said, noting that the grid operator served as the reliability monitor before Texas RE was created in 2010 and was included in the PURA as being able to monitor reliability until a 2015 revision.

Funding issues make it unlikely the PUC would bring the monitoring contract in-house. Texas RE currently dedicates four employees of its approximately 64 staffers to the reliability monitoring function.

“To hire the four here, we would need the money,” Walker said. “We currently don’t have the funding from the legislature to perform the functions that we have within PURA. We scrape by doing the best that we can. For $5.3 million, we could handle a ton of staff to get this done here.”

As for Potomac, Walker said that “in all honesty, we’ve had our issues with Potomac in the past.”

Long-time IMM Director Beth Garza stepped down from her position in December during ongoing contract negotiations with the PUC, citing the need for the commission to have the director it wants. Garza has been replaced by former ERCOT staff Carrie Bivens. (See Garza Steps Down as Head of ERCOT IMM and Bivens Steps in as New Director of ERCOT Monitor.)

“I have come to the conclusion the [PURA] didn’t require us to have a reliability monitor, but we, through our own rule, created that requirement,” Walker said. “I think the rule does need to change, but it needs to change in a different way than what [has been proposed]. We’ll probably have to take comment to get there.”

In the meantime, the thought process will continue. The PUC next meets in open session Oct. 12.

D’Andrea said he supports giving 30 days’ notice to Texas RE, saying “it’s a really bad idea to have a rule where, when you read it, it pretty much creates a no-bid contract.”

“There’s only one entity out there that can win this [request for proposals], and we all know who it is,” he said. “It’s an entity over which we have no control.”

Botkin asked for more time to consider the issues.

“I’m concerned about canceling with no replacement. I’m fully aware there are not a lot of options out there,” she said.

Walker also asked for more time to study the contract.

“We have to be good stewards of the ratepayers’ money,” she said.