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Texas REPs Raise Concern On Inability To Hedge Marginal Losses

October 09,2018



In comments to the Texas PUC concerning an evaluation of marginal losses, retail providers expressed concern with the complexity of such a system and the inability to hedge marginal losses

Vistra Energy Corp. said in comments that, "there is currently no mechanism by which to hedge the risk of marginal losses in ERCOT, and we are not aware of any other ISO having developed one, despite having attempted to do so for several years."

Vistra said, "Because of the difficulty of designing an adequate hedge against the risk of marginal losses, it will be difficult for retail customers and the retail market to hedge against that risk. Furthermore, marginal loss transmission pricing in LMPs erodes the value of CRRs in managing power flow risks from the forward markets into real-time."

The REP Group separately said that, "For marginal losses, the joint REP Group is concerned that there are resulting costs that are more difficult to hedge. Marginal losses could increase market complexity with a separate hedging product for losses. This could be counter to the desire to have simple and efficient markets. Any aspect of cost that is difficult to hedge has the result of increasing the costs to retail customers."

"The addition of marginal losses may impact the retail market by creating resulting costs that difficult to hedge. Marginal losses could increase market complexity with a separate hedging product for losses. Marginal losses could cause market disruption and add market costs, especially for existing positions for long load contracts. This result could run counter to the desire to have simple, efficient, and transparent markets," the REP Group reiterated

Echoing comments made previously with respect to marginal losses, South Texas Electric Cooperative said that, "to ensure that consumers that pay for transmission actually receive the marginal loss surplus payment in the competitive market, all retail electric providers should be required to pass through to their end-use customers the marginal losses credit. Allocating the marginal losses surplus in the manner will serve to mitigate some of the TCOS subsidization of customers that avoid paying for TCOS."

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ERCOT   Texas   Marginal losses  

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