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In ADR, ERCOT Denies LCRA Requested Relief Regarding Congestion Revenue Rights
February 27,2017 ERCOT on Friday issued a market notice which served to conclude alternative dispute resolution (ADR) proceedings between ERCOT and Lower Colorado River Authority (LCRA) concerning Congestion Revenue Rights, with ERCOT through the ADR process denying LCRA's request relief On October 7, 2016, LCRA submitted a request for ADR to ERCOT for reimbursement of approximately $1.9M paid to ERCOT for certain Operating Days (ODs) in July, August, and September 2016, for Settlement of Preassigned Congestion Revenue Rights (PCRRs) and Congestion Revenue Rights (CRRs) in the Day-Ahead Market (DAM), which were converted into Real-Time instruments. Specifically, LCRA alleged that it was due payment for Settlement in the DAM of its previously purchased Point-to-Point (PTP) Options because the conversion of those instruments into PTP Obligations with Links to Options (RTOBLLOs) in the DAM resulted in a net charge to LCRA, which was insufficient to cover LCRA’s actual congestion exposure. LCRA claimed that this was due to the reduction in revenues LCRA received for the Settlement of its PTP Options in the DAM based on ERCOT’s application of a deration component in a formula in ERCOT Protocols Section 7.9.1.2, which LCRA argued, is not present in the formula in ERCOT Protocols Section 4.6.3(3). LCRA claimed that asymmetry in the formulas resulted in LCRA erroneously owing ERCOT a net sum to convert its PTP Options into RTOBLLOs in the DAM, in order to carry its PTP Options to Real-Time. LCRA contended that it should have owed net zero for the DAM transactions because the Protocols require that RTOBLLOs be “reflective of” and settled as if they were PTP Options, and instruments that can result only in compensation and not in a charge to the holder. Specifically, LCRA contends that: • A PTP Option entitles the holder to receive compensation equal to the positive energy price difference between the sink and the source Settlement Point Prices; • A PTP Option does not require the holder to make any payment if congestion flows the opposite direction; • Qualified RTOBLLOs shall be settled as if they were PTP Options; and • RTOBLLOs shall be reflective of PTP Options if the source and sink points are the same and the MWs of the RTOBLLO are less than or equal to the MWs of the PTP Option. LCRA further argued that by subjecting it to potentially significant costs to carry RTOBLLOs from the DAM to Real-Time, ERCOT’s application of the Settlement formulas in ERCOT Protocols Sections 7.9.1.2, 4.6.3(3), and 7.9.2.1 is in conflict with Protocol language relating to the rights and obligations of RTOBLLOs. LCRA claimed that to the extent that the formula in ERCOT Protocols Section 7.9.1.2 resulted in a net charge to convert PTP Options into RTOBLLOs, the Protocol language describing Options Settlement as only receiving payments and not charges controls over the formula. In sum, LCRA argued that ERCOT’s Settlement procedures run contrary to the intent of NPRR322, Real-Time PTP Option Modeling, and requested that ERCOT not apply the derate component in ERCOT Protocols Section 7.9.1.2 in calculating revenues for LCRA’s PTP Options. In the market notice, ERCOT said that it has determined the appropriate disposition of this ADR proceeding is to deny LCRA’s request for relief. It is ERCOT’s position that ERCOT correctly followed the Settlements procedures enumerated in the Protocols in settling LCRA’s PCRRs and CRRs for the ODs at issue, and ERCOT does not believe that it has the authority to disregard Settlement formulas promulgated through the stakeholder process and apply an ad hoc Settlement formula. Moreover, it is ERCOT’s position that ERCOT Protocols Section 7.9.1.2 governs all aspects of payments regarding Settlement of Non-Opt-In-Entity (NOIE) PTP Options in the DAM. The current framework for settling PTP Options in the DAM, and then purchasing RTOBLLOs in the DAM for Settlement in Real-Time is consistent with the letter and spirit of the definitions for PTP Options and RTOBLLOs. ERCOT said in the market notice that LCRA conflates the purchase price of RTOBLLOs with a Settlement charge applicable to owners of PTP Obligations with a negative power flow. RTOBLLOs are settled as if they were PTP Options, meaning there is no Settlement charge; this does not mean that it is costless or without risk to purchase the instruments, ERCOT said "LCRA has stated that application of the deration formula in ERCOT Protocols Section 7.9.1.2 resulted in LCRA owing a significant sum for the Settlement of its RTOBLLOs. However, LCRA owed the sum for its purchase of the RTOBLLOs, not the Settlement. Nothing in the definition of a PTP Option or a RTOBLLO insulates a NOIE from incurring the purchase price cost of the financial instrument. LCRA’s disputed RTOBLLOs were settled with no charge to LCRA, consistent with all Protocol definitions," ERCOT said "Upon the determination by ERCOT that the deration factor in ERCOT Protocols Section 7.9.1.2 was appropriate, LCRA requested that ERCOT limit the Resource Node price to -$251/MWh for oversold constraints in calculating the deration amount. ERCOT considers this to be a policy decision more appropriately addressed through the stakeholder process than an ADR proceeding. ERCOT Protocols Section 21.1(1) requires Market Participants to utilize the revision request process prior to requesting ERCOT to make an ad hoc modification to the ERCOT Protocols," ERCOT said
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