The Texas PUC accepted the ERCOT market monitors recommendations for the first round of procurement for a new ERCOT Firm Fuel Supply Service, including a procurement amount, offer cap and cap on total expenditure.
IMM Recommendation
On April 29, 2022, the ERCOT Independent Market Monitor (IMM) filed recommendations regarding the implementation of a Firm Fuel Supply Service (FFSS) to maximize its effectiveness and minimize unnecessary cost to consumers. The IMM discussed eligibility requirements, pricing and settlements for FFSS, service quantity, and budget benchmarks.
The IMM recommended:
· a targeted procurement of 4,000 MW in the first year;
· an offer cap of $18,000/MW for a 48-hour duration requirement or $27,000/MW for a 72-hour duration requirement; and
· a budget cap of $54 million if a 48-hour duration is established and $81 million for a 72-hour duration.
Open Meeting Discussion
Commissioner Cobos began the discussion by noting that she had filed a memo prior to the last Open Meeting and reviewed the IMM filing. The commissioner explained that the IMM recommended using an offer cap in conjunction with a total budget cap and a range of minimum procurements.
Commissioner Cobos noted that, while she had initially recommended a minimum procurement range of 4-5,000 MW, she would now lower her recommended procurement range to 3-4,000 MW to help with competitiveness and cost mitigation.
Commissioner Cobos agreed with including a total budget cap as an additional cost control, which she noted can also serve as a de facto demand curve.
Commissioner Cobos suggested that she would be okay with a total budget cap for the 48-hour duration, which she recalled was $54 million, but wanted to explore that more, wondering if an offer cap is necessary.
Chairman Lake noted that he was comfortable with all of the input variables, including heat rate, fuel oil, etc.
ERCOT Independent Market Monitor
Carrie Bivens, representing the ERCOT Independent Market Monitor (IMM), explained that, assuming the Commission wants a minimum procurement level, an offer cap would be valuable because having only a budget cap would effectively be an offer cap if you don’t expand the eligibility. The IMM suggested that the conjunction of the two would allow the PUCT to control the offers that are received. The budget cap would allow purchasing more if the offers come in at a lower price than the offer cap. She noted that the offer cap ensures that if you only procure the minimum amount, you’re not paying too much for it.
Chairman Lake agreed that having both an offer cap and program budget cap make sense.
The IMM explained that the $72 million represented the cost of the maximum procurement of 4,000 MW at the offer cap.
Chairman Lake noted that ERCOT would like having a procurement range, rather than a fixed amount, because it would allow them to be able to not overpay for the last megawatt.
Commissioners’ Discussion
The commissioners agreed on moving forward based on the IMM’s recommendation, however, Commissioner McAdams clarified that stakeholders should understand that this framework will not necessarily apply to the second round of procurement.
Chairman Lake noted that the PUCT and stakeholders have been working hard to figure out how to expand eligible technologies to include off-site natural gas with firm transport but there is too much complexity to get that right in time for the first round of procurement.
Commissioner Cobos noted that stakeholders will be working on a list of regulatory and contractual standards and will be surveying those additional resources that will hopefully be the subject of the second RFP, including coal and off-site natural gas storage with firm transportation.
Chairman Lake stated that it is “absolutely critical” to get off-site natural gas with off-site fuel storage involved in this product, especially considering the extraordinary contribution it can make to reliability during winter months. “We have to do it right and we can’t rush it but we absolutely have to get that done.”
Kenan Ögelman, ERCOT’s Vice President of Commercial Operations, noted that ERCOT had also reviewed the IMM’s recommendations and didn’t see any implementation problems. Mr. Ögelman noted that, with the information and first cuts provided by the Commission today, ERCOT believes it can issue an RFP and begin the first procurement.
Chairman Lake offered further clarification regarding eligible technologies for the first cycle of Firm Fuel. He noted that on-site storage has been well discussed, adding that this includes situations where a generator owns the pipeline and access to stored gas, but not third-party remote access.
Commissioner Cobos added that dual-fuel capability with on-site alternative fuel storage could also include fuel oil or other technologies.