Following the winter storm Uri, the players in the ERCOT market are grappling with the resulting financial fallout. Many are now aware of the actions taken by the Texas Public Utility Commission during the February weather event in an attempt to bring and keep as much production online as possible – including ordering ERCOT to implement a temporary adjustment to the mechanism. scarcity pricing designed to translate into real time. prices reaching the system-wide high supply ceiling to the legal maximum of $ 9,000 / mWh at the height of forced production shutdowns.
Now, more than two months away from the storm, the resulting financial impacts are having serious repercussions on the ERCOT market. Several retail electricity providers have filed for bankruptcy, lawsuits are underway against a wide range of market players and regulators (ERCOT, Utilities Commission, producers, PWRs, gas utilities, etc.), and countless market players are facing record high payouts. high bills for a variety of reasons, including the need to source energy from the market in real time in times of scarcity, obtain high-priced gas supplies, hedge positions when their resources have suffered blackouts, or exposure to an increase in default amounts owed to ERCOT. To complicate this, ERCOT did not pay many of those who performed during the storm due to low payout from some market players, which means those who did gamble might not realize the income associated with that performance soon. In addition, the higher prices for electricity and ancillary services have prompted ERCOT to significantly increase the collateral requirements of the counterparty. Last month, the Public Utilities Commission released a order in folder 51812 extending the deadline for contesting ERCOT invoices related to the winter event from 10 working days (according to the ERCOT protocols in force) to six months. Since that order, the Board has taken no further action to address the issues related to the settlement bills resulting from the storm.
Financial consequences of the winter storm
The high amounts of ERCOT’s settlement invoices caused some market players to fully default on their financial obligations to ERCOT, resulting in an involuntary termination and exit from the market, a massive transition of some retail customers and an amount high “unpaid bills”. In anticipation of default, others voluntarily terminated their registrations with ERCOT, attempting to opt out before materially violating their agreements with market participants for non-payment. Two REP have entered into payment plans with ERCOT, and more may follow. Non-opt-in entities (“NOIEs”), such as the Brazos and Rayburn County Electric Co-operatives, have not fulfilled their payment obligations but continue to operate in ERCOT under the protection and supervision of the Court. bankruptcies. Currently, ERCOT has reported short payments (i.e. payments due but unpaid) related to the winter weather event totaling $ 2.9 billion, however, this amount is expected to fluctuate as the invoices are paid and other amounts are disputed. The debt settlement plan is a default recovery process in which other market participants pay off this balance over time.
On April 14, 2021, ERCOT unveiled a plan to set up a default invoicing process. Under the ERCOT protocols, default invoice amounts are capped at a monthly total of $ 2.5 million, which means it could take more than 96 years for ERCOT to recover the total amount being increased. . For now, ERCOT anticipates that only short-term payment amounts owed by market participants who have entered into payment plans with ERCOT, will be excluded from the total amount of the default mark-up. Substantial amounts owed by NOIEs, including cooperatives and municipal utilities, will be included. At present, the amount owed by NOIE constitutes the vast majority of the amount being increased.
ERCOT’s filing indicates that it will not issue increase bills by default until the end of the current Texas legislative session (ending no earlier than May 31, 2021), acknowledging the possibility that a bill of financing can be adopted to help market participants repay their debt or allow ERCOT to immediately securitize the default amount so that it can pay those to whom it has unpaid payment obligations. Currently, ERCOT plans to issue mark-up bills by default in the summer of 2021, unless the Texas Legislature or the Utilities Commission decides otherwise.
Which entities will receive the mark-up invoices by default?
In the absence of any legislation or order to the contrary from the Public Utility Commission, the ERCOT has indicated that it intends to issue mark-up invoices by default to all entities active in the market during the month. preceding the month in which the unpaid payments were collected (the “reference” month) and who are either still active in the ERCOT, or who voluntarily terminated the ERCOT registration after partial payments under recovery have taken place.
As an example, let us consider short payments from February 2021: each Counterparty of qualified programming entities (QSE) or holders of congestion rights accounts (CRR) having an activity in January 2021 can be allocated a share of the amounts of payment invoices with payment due in February 2021. Similarly, each QSE or CRRAH Counterparty having an activity in February 2021 may be allocated a portion of the short remunerations for payment invoices with payment due in March 2021. This means that new market participants (ie those who have no market activity during the reference month) will not receive any default mark-up invoices for the month to short term. Additionally, it means stocks during the winter storm are unlikely to impact a market participant’s uplift share.
Additionally, an entity that voluntarily terminates its ERCOT registration after the date of a short compensation event will remain liable for its entire share of unrecovered liability for unpaid short payment amounts (share of the default increase ratio). ) after its termination. In the event of voluntary termination, ERCOT will require the terminating entity to provide a financial guarantee for its entire share of the default increase ratio, up to its maximum total potential exposure (TPE). As most of these outgoing entities do because they lack adequate financial resources to continue operating, one would expect that a number of them would not be able to publish this guarantee assessment. . This plan also does not take into consideration the time value of money as an existing market participant would, in practice, have to pay their full 90+ raise allowance to exit the market. . It appears that this is designed to keep market participants going until after the legislative session.
How are the default markup amounts calculated?
Each entity’s default uplift ratio share will be based on the entity’s share of activity in the ERCOT market in the month prior to the month in which the short-term payments in collection occurred. The calculation is based on the pro-rata share of the MWh that the QSE or CRR Account Holders assigned to this Counterparty have contributed to the maximum share of the Counterparty’s activity ratio in MWh during the month preceding the month in which the short payments during collection have taken place. . It does not take into account dollars associated with MWh activity, which means that the ratio is currently biased in favor of CRRAHs although their MWh activity is not associated with significant dollar amounts. A description of the calculation can be found in the ERCOT 9.19.1 protocol.
Currently, ERCOT has estimated the default uplift shares for February short-term payments by market segment. A recent contract notice confirms that the reports on the actions of the individual counterparties have been published on MIS. The notice further informs the Counterparties that they are required to maintain financial security or an unsecured credit limit of an amount equal to or greater than their EPT. The potential increase component of the TPE analysis plans to include a year of expected default increase invoices ($ 30 million). ERCOT will adjust TPE’s potential increase component to two equal amounts of $ 15 million on April 29, 2021 and May 17, 2021.
Further review of the default markup billing process is underway in NPRR1074.