ERCOT overcharged power companies $16 billion for electricity during winter freeze, firm says

[thackney]

ERCOT overcharged power companies $16 billion for electricity during winter freeze, firm says
https://www.texastribune.org/2021/03/04/ercot-texas-electricity-16-billion/

The Electric Reliability Council of Texas made a $16 billion error in pricing during the week of the winter storm that caused power outages across the state, according to a filing by its market monitor.

Potomac Economics, the independent market monitor for the Public Utility Commission of Texas, which oversees ERCOT, wrote in a letter to the Public Utility Commission that ERCOT kept market prices for power too high for nearly two days after widespread outages ended late the night of Feb. 17. It should have reset the prices the following day.

That decision to keep prices high, the market monitor claimed, resulted in $16 billion in additional costs to Texas power companies. The news of the overcharging was first reported by Bloomberg.

Some of the providers that were chrged during the high price period could pass the costs to customers, depending on the type of contract they have, according to Detlef Hallermann, director of the Reliant Energy Trade Center at Texas A&M University....

[thackney]

PUC Project No. 51812, Issues Related to the State of Disaster for the February 2021 Winter Weather Event
https://interchange.puc.texas.gov/Documents/51812_61_1114183.PDF
March 4, 2021

...The IMM agrees with the Commission's Order from February 15, 2021, which mandated that real-time energy prices reflect firm load shed by setting prices at the value of lost load (VOLL).  This is essential in an energy-only market because it provides efficient economic signals to increase the electric generation needed to restore the load and service it reliably over the long term.

Conversely, it is equally important that prices not reflect VOLL when the system is not in shortage and load is being served. The Commission recognized this principle in its Order, expressly stating it is only ERCOT's out-of-market shedding firm load that is required to be reflected in prices. Unfortunately, ERCOT exceeded the mandate of the Commission by continuing to set process at VOLL long after it ceased the firm load shed.

ERCOT recalled the last ofthe firm load shed instructions at 23:55 on February 17, 2021.  Therefore, in order to comply with the Commission Order, the pricing intervention that raised prices to VOLL should have ended immediately at that time. However, ERCOT continued to hold prices at VOLL by inflating the Real-Time On-Line Reliability Deployment Price Adder for an additional 32 hours through the morning of February 19. This decision resulted in $16 billion in additional costs to ERCOT's market, of which roughly $1.5 billion was uplifted to load serving entities to provide make-whole payments to generators for energy that was not needed or produced. Although most energy costs can be hedged by ERCOT's load-serving entities through bilateral contracts or generation, these make-whole payments are particularly harmful because they are uplifted to alltoads through the Real-Time Ancillary Service Imbalance Charge. Therefore, they cannot be hedged and will likely result in substantial adverse economic effects, including higher levels of defaults.

Therefore, the IMM recommends that the Commission direct ERCOT to correct the real-time prices from 0:00 February 18,2021, to 09:00 February 19,2021, to remove the inappropriate pricing intervention that occurred during that time period. From a practical standpoint, this will primarily be accomplished by removing most, if not all, of the Real-Time On-Line Reliability Deployment Price Adder during these intervals, which will substantially eliminate the Real-Time Ancillary Service Imbalance Charge....