by Kelso King, Grid Monitor
Source – Grid Monitor
Posted 09/25/2020

Commissioner Botkin’s Memo

Prior to the Open Meeting, Commissioner Botkin filed a memo requesting discussion at the Open Meeting regarding:

Open Meeting Discussion

Commissioner Botkin suggested that the proposed rule changes could fall under the heading of giving the Commission flexibility, but in this case she has some concerns with that. She noted that the original intent of the changes had been to open the possibility that ERCOT could be the reliability monitor. However, she continues to have concerns about, including the potential perception of a conflict of interest. Commissioner Botkin’s main concern was making the reliability monitor discretionary and she did not believe this should be optional and was something she “could not get over.”

After reading Commissioner Botkin’s memo on the previous day, Chairman Walker spent more time on this and convinced herself that the Commission could not approve the rule as it has been presented and she would be proposing something “even more Draconian.” Chairman Walker noted that a reading of Public Utility Regulatory Act (PURA) § 39.151(d) states in part:

“The commission shall adopt and enforce rules relating to the reliability of the regional electrical network … or may delegate to an independent organization responsibilities for establishing or enforcing such rules …”

“… The organization shall fully cooperate with the commission in the commission’s oversight and investigatory functions.”

… The commission has complete authority to oversee and investigate the organization’s finances, budget, and operations as necessary to ensure the organization’s accountability and to ensure that the organization adequately performs the organization’s functions and duties.

Chairman Walker noted that PURA 39.151 clearly says the Commission “may delegate” those functions but only to an independent organization, which Texas Reliability Entity (Texas RE) is not but ERCOT is, because the Commission has absolutely no oversight over TRE’s finances, budget or operations.

The TRE contract includes overhead, including the CEO’s salary, the Board’s salaries, and the Board’s and CEO’s travel to North American Electric Reliability Corporation (NERC) meetings, things Chairman Walker suggested do “not benefit the State under the reliability monitor contract one bit.”

Chairman Walker concluded that neither the current rule, the proposed rule, nor the contract comply with the PURA because the Commission does not have the authority to have a reliability monitor or make TRE the reliability monitor. Therefore, she recommended giving 30-day notice of terminating the contract.

Chairman Walker explained that the PUCT got here by going out for a new bid for the contract, which she described as “a difficult process.” The new contract price is approximately 25% more than the previous one and Chairman Walker and others had raised concerns about this but were told by TRE this was the actual cost.

The Commission entered into the contract but “continued digging into the actual costs.” Two budgets supporting the contract showed overhead that changed over time, increasing by approximately $80,000.

Chairman Walker noted there was approximately $250,000 in an account that was unspent and which TRE said could not be spent on other things because they are a non-profit. The PUCT asked for this to be used to offset the cost of the contract in order to get that money back.

At the last TRE Board meeting, Chairman Walker asked what the Board knew about that amount and was told the $250,000 was reflected as cash but had not been shown as encumbered.

Chairman Walker stated that, as a Board member, this response had been “disheartening at best.”

Chairman Walker noted that TRE was responsible for PUCT penalties of less than $150,000 this year, which caused her to question whether the $5.3 million contract was getting the Commission the benefits it needs, adding that for this amount of money they could hire “a ton of staff” to be handling this.

Chairman Walker expressed her lack of comfort with: 1) whether there was enough transparency for the ratepayers and what they were having to pay, 2) whether the PUCT was getting the benefits and information it needed, and 3) whether there were other options.

Chairman Walker noted that until 2015 ERCOT had been in the rule, at which time it was changed to reflect the practice that had come about, that TRE had been spun out of ERCOT and was now providing the reliability monitoring function.

As a result of removing the function from ERCOT, Chairman Walker now questions whether the PUCT is in compliance with the statute. She believes the rule needs to be changed but in a different way than what has been proposed and is under consideration. She noted that the PUCT will need to solicit comments to get to the proper rule.

Commissioner D’Andrea noted that the PUCT’s Executive Director has done a good job of finding places to bring competition to the Commission’s contracting process. However, he suggested that it is a bad idea to have a rule that creates a no-bid contract with only one entity that could win and, importantly, one over which the PUCT has no control. If that is necessarily the case, he suggested that it would be better for the entity to be one over which the PUCT has authority, like ERCOT.

Commissioner D’Andrea noted that he also has concerns about what was unearthed, adding that when dealing with monopolists you have to look over the costs.

Chairman Walker suggested the possibility of the reliability monitoring function being undertaken by ERCOT or Potomac Economics (ERCOT’s Independent Market Monitor), although she acknowledged there have also been issues with Potomac in the past.

Chairman Walker noted that TRE currently has four employees and is funded by the ERCOT system administration fee. She suggested that the problem with bringing the function to the PUCT is not having funding from the legislature to perform the required functions.

Chairman Walker noted that PURA 39.151(d) does not require a reliability monitor but the PUCT created a rule imposing that requirement on itself. She concluded that, if the reliability monitor function is delegated, it has to be to an independent organization and ERCOT is currently the only option. She reiterated that the PUCT must have control over the finances, budget, and operations, including raises, trips, etc., of the organization and the PUCT has none of these over TRE.

Chairman Walker wanted more time to look at the rule but added that her bigger concern is giving 30-days’ notice on this contract, which she does not believe the Commission has the authority to be in.

Commissioner D’Andrea agreed with giving notice and noted he had been there even before the Chairman suggested it might be illegal, which provided even more reason.

Commissioner Botkin agreed she would like more time to think about both of those issues. Her main concern with canceling the contract is not having something else in place, or even a plan. She suggested that the Chairman’s concerns about Potomac might make them a non-starter and noted that the consultant having secure data access is important.

Chairman Walker replied that, even if giving notice on the contract, the PUCT can handle those things internally. She concluded that the Commission have to be “good stewards of the ratepayers’ money.”

The commissioners will resume its discussion of the TRE contract issue at its next Open Meeting.

Background

At its July 31, 2020 Open Meeting, the Texas PUC approved publication for comment of a new rule concerning oversight of wholesale market participants, including the selection of a Reliability Monitor. The proposed amendments would give the Commission discretion over whether to appoint a Reliability Monitor and broaden the eligibility criteria the Commission is required to use when selecting the Reliability Monitor, broadening the pool of candidates eligible to serve as the reliability monitor for the ERCOT wholesale market.

On September 17, 2020, Staff filed a draft proposal for adoption of amendments relating to oversight of wholesale market participants. The proposed amendments would update the process used by the Commission to select the entity to monitor wholesale market reliability-related requirements for ERCOT. The amendments also provide the Commission discretion over whether to select such an entity and make other minor changes. The filing contained summaries of parties’ comments on various issues and the Commission’s responses.