Texas regulators are wasting little time in redesigning the ERCOT market as they rush to meet a self-imposed deadline to release a new blueprint by Dec. 19.

The state’s Public Utility Commission staff is expected to release a strawman on the new market design this week. Stakeholders have until Nov. 12 to comment on the draft design, with further discussion possible during two PUC work sessions Nov. 4 and Dec. 9 (52737).

That compares with the years of work that went into constructing the ERCOT market in the late 1990s and the ISO’s nodal redesign that was implemented in 2010.

“We’ve got to choose a path to go down relatively soon,” PUC Chair Peter Lake said during a commission work session Thursday. “We don’t have luxury of years of study.”

The commissioners appear to have consensus on reforming the operating reserve demand curve and emergency response service (ERS) and continuing ERCOT’s development of fast-responding regulation service and contingency reserve service products.

However, Lake’s push for a load-serving entity reliability obligation met with resistance from all three of the other commissioners over the proposal’s uncertain costs and its effects on ERCOT’s competitive retail market. The LSE obligation addresses resource adequacy concerns by introducing a formal reliability standard and a mechanism to ensure sufficient resources meet this standard. (See Study Suggests Texas LSEs Can Provide Reliability.)

Jimmy Glotfelty, among those who helped design the ERCOT market 25 years ago, called the LSE obligation a “massive market change.” He shared the fears of some that the obligation would result in the state’s largest retailers consolidating their positions.

“I don’t want to go to four generation retailers that have monopolies in the state,” Glotfelty said. “If [the LSE obligation] is detrimental to customers and retail competition, it’s going to be really hard to get over that hump. I want to have a robust retail market, and I don’t yet have any assurances this will incent new generation.”

Lori Cobos, who led the consumer-focused Office of Public Utility Counsel before being appointed to the PUC, asked that ERCOT’s Independent Market Monitor protect the market should the LSE obligation lead to fewer retailers.

“We’ve spent a lot of time working … stabilizing the ERCOT market. Part of that stability is protecting the crown jewel of our retail market,” she said. “I want to ensure all this hard work we’ve put [in] is not destroyed at the back end because we’re looking for reliability in all the wrong places.”

Doug Lewin, president of Stoic Energy and a proponent of demand response and energy efficiency measures, echoed Glotfelty’s comments that the proposed changes “are massive departures from Texas’ competitive market.”

“As noted by all of the commissioners, they could have negative impacts on competition and increase the already significant market power of the largest ‘gentailers’,” Lewin said.

“Gentailer” has become a common expression within the ERCOT market for large power providers such as Vistra and NRG Energy that have both generation and retail affiliates. Their retailers, TXU Energy and Reliant Energy, respectively, already control 70% of the market.

“There will be lots of unintended consequences if the PUC doesn’t thoroughly vet and understand these proposals before adopting any of them,” Lewin said. “No one knows yet what any of the proposed market overhauls would cost.”

As he pointed out, several of the proposals add extra costs to renewable energy in favor of dispatchable thermal energy. Lake has suggested imposing a firming requirement of up to 60% of a generator’s nameplate capacity.

“Many of these proposals likely won’t increase reliability but would certainly raise energy costs for Texans and Texas businesses.”

Those costs are expected to be passed on to consumers. Prices on the state’s Power to Choose website, where customers can search for electric providers, are up 50% from a year ago to an average of 12 cents/kWh.

Cobos warned that the LSE obligation could turn into a “potentially litigated process.”

“All I’m asking is that for the next couple of months we take a look at the LSE obligation,” Lake said. “I don’t know how we can say we are doing our job without taking a serious, serious look at this.”

Lake initiated the discussion with a pre-meeting memo calling for the commission’s focus on “refining the concepts that will bring reliability to our grid.” He noted his list of recommendations was a starting point “and by no means an exhaustive list.”

“This is my version of what an LSE obligation could look at,” Lake said. “It’s a draft of a draft of a draft. The only thing I’m certain of is I got a lot of this wrong.”

Commissioner Will McAdams said he had significant questions about the LSE obligation proposal’s effect on the market and that those questions “must be answered before any type of endorsement from the PUC.”

The commission agreed it will need further analysis from The Brattle Group and other outside consultants in the few weeks that remain before Dec. 19.

“We have to have breathing room to study firming requirements now for down the road,” McAdams said, pointing to the wave of intermittent resources poised to hit the ERCOT market in the next few years.

The commission also discussed whether it could increase ERCOT’s budget for the ERS’ winter period and whether it could direct the grid operator to deploy the service before an energy emergency alert. The ISO is scheduled to send out a request for winter ERS bids on Nov. 8.

ERCOT staff said they would need a rule change to eliminate the ERS $50 million budget cap. The ISO procures the service over four contract periods during the ERS year, which runs from December to November.

PUC staff said they would review the rules and work with ERCOT legal and bring back a response this week.

Weatherization Rules in Effect

The PUC approved a two-step plan to ensure generation plants and transmission facilities are properly protected against a repeat of February’s severe winter storm that nearly toppled the ERCOT grid (51840).

Under the new rules, generators must implement winter weather readiness recommendations from a post-event analysis of a 2011 winter weather event and fix any “known, acute issues” from last winter. The generation owners are required to file a notarized attestation from their highest-ranking executive that the resource has met its required actions by Dec. 1. (See “Weatherization Rule Published,” PUC Workshop Takes First Stab at Market Changes.)

“This is a good first step to ensure the physical resilience of the grid is vastly improved over last winter,” Lake said.

Generators will be allowed to submit a “good cause exemption” if they fail to comply. However, the PUC and ERCOT will have to sign off on the exemptions.

The rules also direct ERCOT to inspect generators before the end of the year. Staff plans to inspect nearly 300 units, focusing on those responsible for the 80% of lost megawatts from the February storm. (See ERCOT’s Jones Looks Ahead, not Behind.)

Transmission service providers must comply with similar requirements, using a FERC/NERC report on the 2011 event as a baseline.

Stronger year-round weatherization standards are scheduled to be implemented next year once a comprehensive weather study is completed by the state’s climatologist and ERCOT staff. That study is expected in February.

Securitization Orders Finalized

The commission made several minor changes during a brief open meeting on Oct. 13 before approving a pair of orders granting ERCOT’s requests for debt-obligation orders that would allow the grid operator to securitize $2.9 billion in market debt as a result of high charges incurred during February’s storm. (See Texas PUC Finances Market Debt over Lt. Gov.’s Objections.)

ERCOT said last week it will begin issuing bonds and collecting default charges from market participants in November to finance $800 million owed to the market by cooperatives and municipalities (52321).

The grid operator won’t begin issuing bonds for the $2.1 billion uplift balance to the market until the first quarter of 2022, staff told the Board of Directors on Friday. ERCOT has proposed that the bonds be issued through a special purpose entity (52322).