PART 2. PUBLIC UTILITY COMMISSION OF TEXAS
CHAPTER 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
SUBCHAPTER S. WHOLESALE MARKETS
The Public Utility Commission of Texas (commission) adopts new §25.508, relating to Reliability Standard for the ERCOT Region, with changes to the proposed text as published in the June 28, 2024, issue of the Texas Register (49 TexReg 4678) and will be republished. The rule implements Public Utility Regulatory Act (PURA) §39.159(b)(1) as revised by Section 18 of Senate Bill (S.B.) 3 during the Texas 87th Regular Legislative Session. This rule creates a reliability standard for the Electric Reliability Council of Texas (ERCOT) power region and identifies a process for the commission to review whether the ERCOT system is meeting that standard. This new section is adopted under Project Number 54584.
The commission received comments on the proposed new section from the Advanced Power Alliance and American Clean Power Association (APA and ACP), the Alliance for Retail Markets (ARM), Conservative Texans for Energy Innovations (CTEI), CPS Energy, Inc. (CPS), the Electric Reliability Council of Texas (ERCOT), Hunt Energy Network, L.L.C. (HEN), the Institute for Policy Integrity at New York University School of Law (Policy Integrity), the Lower Colorado River Authority (LCRA), NRG Energy, Inc. (NRG), Octopus Energy (Octopus), the Office of Public Utility Counsel (OPUC), the Oncor Electric Delivery Company, L.L.C. (Oncor), Potomac Economics (Potomac), Shell Energy North America LP (Shell), the Sierra Club, the Steering Committee of Cities served by Oncor and the Texas Coalition for Affordable Power (Cities), the Texas Advanced Energy Business Alliance (TAEBA), Texas Competitive Power Advocates (TCPA), Texas Electric Cooperatives, Inc. (TEC), the Texas Energy Association for Marketers (TEAM), the Texas Energy Buyers Alliance (TEBA), the Texas Energy Poverty Research Institute (TEPRI), Texas Industrial Energy Consumers (TIEC), the Texas-New Mexico Power Company (TNMP), the Texas Oil and Gas Association (TXOGA), the Texas Public Policy Foundation (TPPF), the Texas Public Power Association (TPPA), and the Texas Solar Power Association (TSPA).
Briefing Questions
The commission invited interested parties to address two questions related to including exceedance tolerances in the reliability standard's metrics.
1. What are the advantages and disadvantages of enshrining an exceedance tolerance for magnitude and duration in the commission's rule?
In response to this question, several parties included an opinion on whether the exceedance tolerances should be included in the rule. The following parties expressed support for including the exceedance tolerances: ARM, CPS, ERCOT, HEN, LCRA, NRG, Octopus, OPUC, TCPA, and TEC. The following parties expressed opposition to including the exceedance tolerances: APA and ACP, Potomac, Shell, Cities, TAEBA, TEAM, TXOGA, TIEC, and TEPRI.
The major advantages of enshrining exceedance tolerances in the reliability standard that were identified by commenters were flexibility, clarity, regulatory certainty, transparency, and guidance to ERCOT. For example, ERCOT stated that, without an exceedance tolerance, even one extreme outlier event above a criterion's threshold would cause the reliability standard to be violated, making the standard too rigid. OPUC agreed with ERCOT that including a reasonable exceedance tolerance would balance the goal of avoiding events where outages cannot be rotated with the cost of eliminating all such outages from the model entirely. ARM stated that a codified exceedance tolerance would provide transparency and clarity, leading to regulatory certainty. HEN stated that the key purpose of the reliability standard is to be sufficiently specific to provide clarity and guidance to ERCOT in determining the resource adequacy needs of the ERCOT grid. Similarly, Octopus stated that codifying an exceedance tolerance in the rule would ensure that the commission sets the level of flexibility in the standard, rather than ERCOT. TCPA stated that one advantage to enshrining exceedance tolerances in the rule is to reduce the risk of frequent changes to the reliability standard metrics to achieve a particular outcome. TCPA explained that frequently changing the metrics could create uncertainty and therefore undermine confidence in the ERCOT markets.
The major disadvantages of enshrining an exceedance tolerance identified by commenters were rigidity, complexity, overreliance on the misplaced belief that 1-in-400-year events will happen only once every 400 years, and lack of specific direction provided to ERCOT. APA and ACP recommended that the rule direct ERCOT to model the outcomes at several different exceedance tolerances, which would allow the commission to decide which exceedance tolerances to use. APA and ACP explained that the exceedance tolerances are subject to the shortcomings of assumptions and modeling practices in ERCOT's study. TEC noted that setting the exceedance tolerances too high or too low would lead to undesirable outcomes. TEPRI stated that there are other ways to achieve the goal of determining whether the ERCOT system is reliable, and that "it would be more useful for the commission to request ERCOT to show the probabilistic distribution of outages and what the major causes of the outages are so that proper policy measures can be put in place outside of a resource adequacy construct." Potomac and Cities commented that if they are included, the tolerances should reflect a reasonable estimate of the value of lost load (VOLL). Cities further commented that the exceedance tolerances should be flexible, rather than codified as a single value. Cities noted that the commission could adjust the exceedance tolerances outside a formal rulemaking, such as within the ERCOT stakeholder process.
TPPA stated that "if values for exceedance tolerances are to be included in the rule, then greater detail is necessary in the rule on other modeling inputs, including the number of simulations to be run and the precision and range of correlation to be used."
Commission Response
The commission agrees that exceedance tolerances provide the benefits identified by commenters and that codifying exceedance tolerances in the rule strikes the right balance between reliability and likely future costs to achieve that level of reliability. The commission disagrees that codifying exceedance tolerances in the rule introduces rigidity because the exceedance tolerances allow the system to exceed the reliability standard by a defined amount. Moreover, the commission retains discretion to reevaluate the exceedance tolerances after reviewing assessments from ERCOT on how the system is performing. For the same reasons, the commission declines to modify the rule to require ERCOT to model outcomes at several different exceedance tolerances, as suggested by APA and ACP.
In response to TEPRI on probabilistic outcomes, having ERCOT provide a probabilistic distribution and cause of the outages identified in the model would provide a valuable data point in reviewing future assessments. However, the commission disagrees with TEPRI that this should be done in lieu of establishing exceedance tolerances in the rule because the exceedance tolerances establish the acceptable thresholds on the duration and magnitude metrics through which that information can be interpreted. The commission disagrees with Potomac and Cities that the exceedance tolerances need to be directly linked to an estimated VOLL because the thresholds are not solely based on economics, but on the level of reliability for the ERCOT region that the commission aims to achieve. The commission disagrees with Cities that the commission should not adopt static exceedance tolerance values to gain additional flexibility because an undefined tolerance amount does not promote regulatory certainty.
In response to TPPA, the commission modifies subsection (c) of the rule to include a period for stakeholder comment after ERCOT submits its modeling assumptions. Stakeholders can submit feedback at that time on particulars of ERCOT's modeling inputs.
For these reasons, the adopted rule retains exceedance tolerances. However, the commission modifies the exceedance tolerance related to the magnitude criterion for other reasons, as discussed below.
2. Should the exceedance tolerance be evaluated more frequently than the reliability standard? If so, what is the appropriate frequency?
ERCOT, HEN, OPUC, TCPA, and TEAM answered that no, the exceedance tolerances should not be evaluated more frequently than the reliability standard and instead should be evaluated at the same time as the standard metrics themselves.
Several commenters answered that yes, the exceedance tolerances should be evaluated more frequently than the reliability standard. There were two main responses on the appropriate frequency: generally, that the exceedance tolerances should be evaluated more frequently than the standard (APA and ACP and Cities), and that the exceedance tolerances should be evaluated when the ERCOT system is assessed (TEC, Potomac, CPS, and TAEBA). Shell commented that the exceedance tolerances should be evaluated whenever the underlying analysis or data collection methodology changes. TIEC agreed with this notion, stating that the commission should not codify any frequency, duration, magnitude, or exceedance tolerance metrics in the rule at all because modeling assumptions could skew the results one way or the other.
Commission Response
The commission agrees that the exceedance tolerances should be updated at the same time as the reliability standard metrics because the exceedance tolerances are part of the metrics. However, the commission declines to modify the rule to add scheduled reviews of the reliability standard metrics and exceedance tolerances. Updating the exceedance tolerances frequently, such as on the same cadence as ERCOT's system assessment or whenever the underlying analysis or data collection methodology change, would cause the reliability standard to change too frequently, creating regulatory uncertainty. The commission will review ERCOT's system assessments regularly and use its discretion to open a rulemaking to change the reliability standard metrics, including the exceedance tolerances.
Time frame for updating reliability standard criteria thresholds
A few parties commented on the length of time between updates to the reliability standard metrics. LCRA, TCPA, and TXOGA stated that the reliability standard metrics themselves should be stable and not frequently revisited. For example, LCRA suggested at least a five-year gap between reviews of the standard, TCPA suggested at least a 10-year gap between reviews of the standard, and TXOGA suggested only that the standard be reviewed less often than the system.
Other parties took a different view. Octopus recommended that ERCOT submit an annual report to the commission, and after the review, the commission should determine whether a rulemaking is necessary to update the reliability standard or exceedance tolerances. TIEC, which recommended that the commission not codify metric thresholds in the rule, suggested that the commission adjust metric thresholds every five years after a 60-day comment period. TEBA, which was also against codifying metric thresholds, suggested adjusting metrics no more frequently than every six years, or at least on a similar cadence as the system assessments. TEC suggested that the commission evaluate the reliability criteria and the exceedance tolerances every three years.
Commission Response
As discussed above, the commission disagrees with TIEC and TEBA's suggestion not to codify the reliability standard metrics. The commission agrees with commenters that observed that the reliability standard metrics should remain stable over time to provide regulatory certainty and a stable measurement tool to gauge the long-term reliability of the system. The commission therefore declines to modify the rule to add an explicit timeline that would require the commission to reopen the reliability standard rule to review and update the reliability standard metrics. The commission retains discretion to reopen the rule and conduct that review at any time.
Proposed §25.508(a)(2) - Definition of "loss of load event"
Proposed subsection (a)(2) defines "loss of load event" as "an occurrence when the system load is greater than the available resource capacity to serve that load, resulting in involuntary load shed."
TPPA sought clarification on whether a loss of load event caused by transmission overload, frequency event, or lack of voltage support would meet the criteria of the definition of "loss of load event" in the rule because, in TPPA's view, the definition is supposed to be limited to load shed resulting from a shortage of market-wide generation capacity. TPPA suggested language modifying proposed (a)(2) to account for this distinction. ERCOT suggested modifying the definition of loss of load event to include "system firm load plus required minimum operating reserves" to avoid the potential misunderstanding that the system must reach zero megawatts (MW) of available excess capacity in a simulation for a loss of load event to occur.
Commission Response
The commission agrees with TPPA that, for purposes of this standard, a loss of load event would only include situations involving a system-wide shortage of resources to meet demand and would not include localized load shed resulting from transmission constraints on the system. Accordingly, the commission modifies the provision to reflect a system-wide event. The commission also agrees with ERCOT's recommended addition and modifies the rule accordingly. In addition, the commission modifies the rule to clarify that a loss of load event also needs to account for the minimum operating reserves required to avoid an energy emergency alert level three event, because even in a load shed scenario, ERCOT is required to maintain a minimum level of operating reserves.
Proposed §25.508(a)(3) - Definition of "transmission operator"
Proposed subsection (a)(3) defines "transmission operator" with a reference to the ERCOT protocols.
Some commenters suggested defining this term using the definition of "transmission operator" that is in the ERCOT protocols, rather than using placeholder text that refers to the definition in the ERCOT protocols.
Commission Response
The commission declines to modify the rule to use ERCOT's current definition of its term. The term "transmission operator" is primarily used by ERCOT and appears in the commission's rules infrequently, making a cross reference appropriate.
Proposed §25.508(a)(4) - Definition of "weatherization effectiveness"
Proposed subsection (a)(4) defines the term "weatherization effectiveness" as "the assumed percentage reduction in the amount of weather-related unplanned outages for thermal generation resources included in the model, due to compliance with the weatherization standards in §25.55 of this title (relating to Weather Emergency Preparedness)."
TPPA, TEC, and CPS suggested that the definition of "weatherization effectiveness" include all generation resources, not just thermal generation resources. TPPA stated that the definition does not consider energy storage resources, DC ties, renewable generation resources, and load resources. TPPA sought clarification on the definition, suggesting that the definition is intended only to include a percentage reduction for unplanned outages of thermal generation resources. TEC expressed concern that the defined focus on thermal generation resources because the current weatherization rules include all types of generation and the transmission system.
Commission Response
The data used by ERCOT in its study on which the reliability standard is based included weatherization effectiveness only for thermal generation resources. In the future, it is possible that ERCOT could include weatherization effectiveness for non-thermal generation resources as the relevant data becomes available. Accordingly, the commission modifies the rule to remove "thermal" from the definition of "weatherization effectiveness." The commission declines to modify the definition to remove the word "generation" because the reliability standard is based on resource adequacy. The commission also modifies the provision to add energy storage resources because these resources are also part of resource adequacy.
CPS suggested removing the proposed definition of weatherization effectiveness, because it is ambiguous, and replacing it with the generator outage rates and other applicable input assumptions in the ERCOT filing required by subsection (c)(1)(A). CPS asserted that the longer the weatherization rules are in effect, the more normal they become, and comparing the effectiveness of current standards to historical standards becomes less meaningful to the development of the reliability standard.
Commission Response
The commission declines to remove the defined term from the rule, as suggested by CPS. The commission's latest weatherization requirements under became effective in 2023, and therefore, modeling outcomes will tend to underestimate the impact of those requirements until there are enough historical years included in ERCOT's modeled assessment to forecast more accurately generation resource output under the new regulatory requirements. The commission may consider the relevance of weatherization effectiveness at a later date.
Proposed §25.508(b) - Reliability standard
Proposed subsection (b) defines the reliability standard with three threshold values for frequency, magnitude, and duration of loss of load events.
Potomac recommended that the commission set a reliability standard that reflects a reasonable implied VOLL.
Commission Response
The commission disagrees with Potomac's suggestion that the most principled reliability standard is one that reflects an implied economic measure. Potomac's focus on a "reasonable implied VOLL" is consistent with the independent market monitor's mission to search continuously for wholesale market economic efficiency. However, the commission is not exclusively focused on either economic or reliability outcomes: it must reasonably balance both and declines to consider only economic outcomes to establish the reliability standard for the ERCOT region. Moreover, considerations related to the cost of achieving that reliability standard will be addressed when evaluating potential market reforms when the reliability standard is not met. Because the reliability standard does not automatically trigger any market changes, the evaluation of potential market reforms to achieve the standard is the appropriate time to consider cost.
Proposed §25.508(b)(1) - Reliability standard frequency threshold
Proposed subsection (b)(1) defines the frequency threshold of the reliability standard as the following: "The expected loss of load events for the ERCOT region must be less than 0.1 day per year on average, i.e., 0.1 loss of load expectation (LOLE)."
TPPA sought clarification on the meaning of "on average" in the context of the measurement of frequency of a loss of load event.
TCPA suggested changing the frequency criterion to better align it with what is being measured--the probability of a loss of load event occurring within a modeled year--and gave a suggested redline edit. TCPA stated that this would also avoid misinterpretation of the frequency criterion as a duration metric of 2.4 hours.
Commission Response
The reliability assessment will involve conducting many independent, probability-based simulations, each of which may result in some number of days with a loss of load event. In this context, in response to TPPA's request for clarification, "on average" means averaging the number of loss of load events from all of these independent modeling runs to determine the expected number of loss of load events for the system.
In response to TCPA's suggested redline to subsection (b)(1), the commission modifies subsection (b) of the rule to state that the system will be simulated using a probabilistic model. This modification clarifies that the criteria listed in (1)-(3) of subsection (b) will all be measured by this probability-based model simulation. Because of this change, it is unnecessary to modify subsection (b)(1) as suggested by TCPA. However, the commission modifies (b)(1) to clarify that the frequency metric is based on the number of expected load shed events, not the expected loss of load hours. In addition, the commission modifies the definition to state that the expected loss of load events must be "equal to or less than one event per ten years on average" to align with the industry standard.
Proposed §25.508(b)(2) and (3) - Reliability standard duration and magnitude thresholds
Proposed subsection (b)(2) defines the duration threshold of the reliability standard as the following: "the maximum expected length of a loss of load event for the ERCOT region, measured in hours, must be less than 12 hours, with a 1.00 percent exceedance tolerance." Proposed subsection (b)(3) defines the magnitude threshold of the reliability standard as the following: "the expected highest instantaneous level of load shed during a loss of load event for the ERCOT region, measured in megawatts, must be less than the maximum number of megawatts of load shed that can be safely rotated during a loss of load event, as determined by ERCOT, in consultation with commission staff and the transmission operators, with a 0.25 percent exceedance tolerance."
As an alternative to its primary recommendation of replacing the magnitude and duration criteria with expected unserved energy (EUE) or normalized EUE (NEUE) - discussed below - Potomac argued if the magnitude criterion is retained, the exceedance tolerance should be relaxed to 1.00 percent; and if the duration criterion is retained, the threshold should be lengthened to 24 hours, rather than 12. Potomac explained that it found the reliability basis for the duration standard unclear. Sierra Club recommended exceedance tolerances for both duration and magnitude of two to three percent, and Shell recommended an exceedance tolerance for magnitude of no lower than three percent if the commission retains the current ERCOT data analysis methodology.
Commission Response
As discussed below, the commission declines to modify the rule to eliminate either the magnitude or the duration criterion because these are essential components of the commission's chosen reliability standard. The commission agrees that the magnitude criterion's exceedance tolerance should be relaxed to 1.00 percent and modifies the rule accordingly. This exceedance tolerance sets the expectation of a load shed event occurring during which ERCOT cannot safely and effectively rotate outages once every 100 years, on average. This level more appropriately balances the importance to the commission of avoiding these high-impact events with avoiding expensive outcomes driven solely by modeling assumptions. However, the commission disagrees that the duration threshold should be extended to 24 hours because the emergency pricing program (16 TAC §25.509) is in place to mitigate the cost impacts of load shed events that last longer than 12 hours. The reliability standard's duration threshold in the adopted rule remains at 12 hours to signify that load shed events that trigger the emergency pricing program are significant, and the market should be designed in a way to avoid such events.
The commission declines to relax exceedance tolerances for magnitude and duration any further, as suggested by Sierra Club and Shell, because doing so would signal the commission's acceptance of a less reliably designed system.
Policy Integrity commented that the thresholds for magnitude and duration are flawed because they are based on a constant VOLL, rather than a dynamic VOLL that varies by outage duration and severity. Policy Integrity suggested basing the analysis for these thresholds on a dynamic VOLL.
Commission Response
The commission declines to modify the rule to require a variable VOLL, as suggested by Policy Integrity, because the commission already has work underway through a survey to establish an updated VOLL for the ERCOT region. This value will be used as a basis for cost estimates associated with market design changes. Because the reliability assessment is a new process, the commission considers it valuable to allow ERCOT to conduct at least one assessment with the updated VOLL before considering further model changes related to VOLL.
Many commenters suggested improvements to the magnitude criterion in the proposed rule. Oncor, TNMP, Cities, and TAEBA stated that the variables used to calculate the magnitude threshold lacked clarity and recommended addressing this ambiguity. Some commenters suggested that the rule should clarify the requirements and process that ERCOT will use to determine the amount of load shed that can be safely rotated, including information regarding the frequency and process by which the criterion will be updated. For example, TSPA recommended that the initial maximum magnitude value be identified in this preamble. Octopus suggested that ERCOT provide an annual report on the maximum number of MW of load shed that can be safely rotated. TAEBA recommended the rule justify and provide explanation for the reasonableness of the 19 gigawatt (GW) amount used in ERCOT's study that formed the basis for the reliability standard's metrics. TEC suggested that the amount of load that could be rotated be analyzed as a dynamic number based on changes to the system. Other comments suggested factors to include in calculating magnitude to improve the accuracy of the criterion, such as: cold-load pickup, underfrequency load shedding obligations, presence of mobile generation assets, clarification of the term "critical circuit," transmission and distribution service provider demand response, load management programs, large load additions, circuit segmentations, transmission-level customers, and ongoing resiliency improvements.
Commission Response
The commission agrees with commenters that additional clarity and consideration surrounding the variables used to calculate magnitude is desirable. However, the commission declines to amend the proposed rule because the result would be overly prescriptive for a calculation that must consider an evolving transmission and generation landscape. Instead, the commission expects ERCOT to achieve a similar result by considering stakeholder input, either through the adoption of protocols or other appropriate processes. This expectation bolsters the existing language of the adopted rule, which requires ERCOT to estimate the number of MWs that can be safely and effectively rotated during a loss of load event in consultation with commission staff and transmission operators. Allowing stakeholder input on the development of the assumptions and variables used in the calculation will ensure that transmission operators and other market participants can participate meaningfully in the establishment of the metric while providing additional flexibility to ERCOT and market participants to adjust the calculation as new technologies and information become available.
The commission does modify the proposed rule, however, to require ERCOT to file with the commission, on or before December 1 of each year, the amount of MW that can be safely rotated and a summary of the methodology used to derive that number.
Other parties expressed concern regarding the feasibility of the standard from a cost and implementation perspective. Cities stated that the magnitude criterion is overly strict as it effectively sets the frequency standard at 0.037 LOLE, rather than the 0.1 LOLE stated in the proposed rule. Cities questioned whether a 0.037 LOLE is attainable given the current market transition and load growth in Texas. HEN stated that magnitude is the controlling metric for calculating the reliability standard because frequency and duration should be easily achieved if magnitude is met. TIEC stated that selecting a maximum magnitude of 19 GW drives a frequency metric of one event in twenty-five years, a result TIEC considered unlikely to be justified by the cost to reach it. Potomac stated that, from its analysis, it is unlikely that an energy-only market can satisfy the one-in-ten reliability standard because it found that other regional transmission organizations with a one-in-ten reliability standard rely on capacity markets to supplement their energy and ancillary services markets.
Commission Response
The commission finds the magnitude criterion with the proposed exceedance tolerance to be reasonable and will address concerns about hypothetical market design change costs at the time it considers ERCOT's system reliability assessment. Further, the adopted rule requires this figure to be updated annually, which will provide opportunities to revisit the issues noted by commenters.
Several commenters expressed concern with ERCOT's study methodology and calculation of 19 GW as the initial amount of load shed that can be safely rotated. HEN suggested modifying the rule to provide a clear, maximum outage magnitude. HEN also recommended that the amount of load shed that can be rotated be reduced to 25 percent of the total load that can be controllably shed, instead of ERCOT's suggestion of 60 percent; which translates to a magnitude threshold of eight GW rather than 19 GW. HEN explained that PURA §39.159(d)(1) requires ERCOT to determine the quantity of dispatchable reliability reserve service (DRRS) necessary considering "historical variations in generation availability for each season based on a targeted reliability standard or goal," and that the magnitude threshold in the proposed rule does not provide meaningful guidance to ERCOT for determining the quantity of DRRS needed to meet the standard.
NRG supported the frequency, magnitude, duration, and exceedance probabilities provided in the proposed rule. However, NRG noted that the magnitude threshold should be set to an amount that can be rotated in a manner that minimizes disruption to customers, not the maximum amount of load shed theoretically possible on the system. NRG suggested that if TSPs determine 40 GW can be shed in total to rotate load shed safely, the magnitude threshold should be set to less than 20 GW.
Shell stated that the magnitude threshold should be calculated as the sum of the estimated amount of load that can be rotated by each distribution service provider (DSP) because this method would produce a reasonable and cost-effective metric to cover for an extreme event that has minimal chance of occurring.
Oncor suggested that ERCOT base its magnitude threshold amount on a load shed rotation cadence of 1:1, a ratio of consumers' time with power to their time without power, which translates to a maximum percentage of the total load available for load shed of 50 percent, rather than 60 percent. However, Oncor stated that it would support further reducing the amount of load shed that can be rotated to less than 50 percent. Oncor asserted that the 19 GW amount provided by ERCOT's study for safe rotation of load shed is incorrect. Oncor concluded that ERCOT overstated the amount of load shed that a TSP can effectively rotate during a LOLE which in turn understates the system's need for new generation. Oncor stated that 19 GW fails to account for the practical and operational considerations that would diminish load-shed capabilities to well below 19 GW in a real loss of load event, and that the magnitude criterion requires further refinement for accuracy.
TNMP had similar concerns to Oncor's and recommended that ERCOT's determination of 19 GW as the magnitude threshold be revised for accuracy. TNMP stated that increasing the number of consumers curtailed from 50 percent to 60 percent during a reliability event leads to at least a 50 percent increase in consumers' time without power.
TEC and TSPA recommended that the commission allow for stakeholder comment when it sets the magnitude criterion's threshold. TSPA further recommended that the magnitude threshold be set by commission order.
Commission Response
As a reliability metric, basing the standard for the magnitude of tolerable loss of load events on the amount of MW that ERCOT can safely and effectively rotate is a reasonable policy outcome. However, the commission finds commenters' concerns about the calculation of that MW amount credible. Because that MW amount may change frequently due to changes in system configuration, installation of new technologies, or adoption of different emergency response strategies, to name just a few reasons, the commission declines to codify the process to calculate a numerical MW amount in rule. Instead, and as noted above, the commission expects ERCOT to use a stakeholder-informed process to calculate the amount of MW that can be safely and effectively rotated and modifies the rule to require ERCOT to file with the commission the result of that calculation and a summary of the methodology used at least annually.
Oncor suggested one redline to the magnitude criterion--that the magnitude threshold be set as the following: "the highest instantaneous level of load shed . . . must be less than the maximum load shed that can be effectively rotated during a loss of load event."
Commission Response
The commission disagrees with Oncor's suggested edit to the magnitude criterion because the term "effective" as applied to the magnitude criterion in this rulemaking is unclear.
TPPA requested clarification whether "expected highest instantaneous level of load shed" is meant to refer to load lost for mere fractions of a second or a measured ERCOT interval.
Commission Response
In response to TPPA's request for clarification on the interval over which magnitude is calculated, the commission modifies the rule to state that the measurement for magnitude is "the expected highest level of load shed during a loss of load event for the ERCOT region, measured as the average lost load for a given hour."
Proposed §25.508(b) and (c)(1)(C) - Reliability standard criteria, EUE, and NEUE
Proposed subsection (b) lists the reliability standard criteria: frequency, magnitude, and duration. Proposed subsection (c)(1)(C) requires ERCOT to report EUE and NEUE in its assessment.
Several parties commented specifically on the use of EUE and NEUE. Potomac, TXOGA, TIEC, and Shell recommended not using the three metrics of frequency, magnitude, and duration and replacing them with a single metric of EUE or NEUE. Potomac and TIEC explained that an EUE-based standard, considering the VOLL and cost of new entry (CONE), would be the most economically optimal choice. Potomac, TXOGA, and TIEC stated that EUE captures magnitude and duration. TIEC and Shell both suggested that the commission only monitor frequency, magnitude, and duration, and instead adopt the EUE or NEUE as the reliability standard. TEPRI also suggested that magnitude and duration be eliminated and replaced by EUE along with VOLL because EUE already considers risk, magnitude, and duration. TEPRI specifically acknowledged that EUE does not account for tail events and suggested that these events be accounted for through a separate study performed by ERCOT for the reliability standard, rather than through the magnitude and duration criteria with their exceedance tolerances.
HEN preferred EUE to LOLE as a better measure of reliability but was not opposed to using LOLE as one of the reliability measures. TSPA expressed support for keeping EUE and NEUE in the rule as proposed, within subsection (c)(1)(C).
TIEC and TEBA commented that the commission should not codify threshold metrics in the reliability standard rule. TIEC stated that "the commission should maintain its discretion in evaluating the modeling data to set a reasonable reliability standard, taking into account ERCOT's assessment of key metrics, along with the cost impacts to consumers."
Commission Response
The commission declines to modify the rule to replace the magnitude and duration criteria with either EUE or NEUE as recommended by Potomac, TXOGA, TIEC, and Shell. The commission agrees with TSPA that EUE and NEUE should remain informational only. Although EUE is a useful metric, and the commission requires ERCOT to include it in its assessment results, it is an average measure of events and does not distinguish the characteristics of extreme events. Because EUE is an average measure, the commission disagrees that EUE effectively captures the nuance provided by a reliability standard comprising individual frequency, magnitude, and duration criteria.
The commission disagrees with TIEC and TEBA that reliability standard metrics should not be codified in the commission rule. The commission must have a stable set of metrics by which to gauge the reliability of the ERCOT system, and to remain stable, these metrics must be codified in rule and updated only through deliberative and transparent processes. For these reasons, the commission declines to modify the rule.
TEPRI suggested modifying subsection (b) to specifically mention resource adequacy because that is what the rule is meant to address. TEPRI stated that in the future the commission should work towards changing the definition of a reliability standard from resource adequacy to the likelihood of residents losing access to electricity.
Commission Response
The commission agrees with TEPRI that the proposed rule is limited to resource adequacy and not a broader understanding of the causes and implications of interruptions to consumers' electricity access. However, the commission declines to modify the provision to explicitly mention resource adequacy. The proposed rule is clear in its limitations. Whether the broad concept of a reliability standard should be redefined to capture all interruptions to consumers' electricity access is beyond the scope of this rulemaking.
Policy Integrity suggested adding stress testing as a fourth criterion to the reliability standard in the proposed rule. Policy Integrity stated that including and measuring this criterion would minimize risk from tail events.
Commission Response
The commission declines to modify the rule to require stress testing, as suggested by Policy Integrity, because it is unnecessary. The adopted rule's thresholds are based on analysis that includes historical tail events, such as Winter Storm Uri. In addition, stress testing, which requires projection of tail events and an estimate of their severity, would introduce unnecessary subjectivity to the standard.
Proposed §25.508(b) and (c)(1)(D) - Roles of the commission and ERCOT
Proposed subsection (b) states that the ERCOT system meets the reliability standard if an ERCOT model analysis finds that the system meets each of the criteria provided in this subsection. Proposed subsection (c)(1)(D) states that if any reviewed system falls below the reliability standard, ERCOT must include recommended market design changes in its filed assessment.
TPPA commented that it is the commission's role, not ERCOT's, to determine whether the ERCOT system has met the reliability standard. Similarly, LCRA recommended modifying subsection (b) to state that the commission's role is to ensure that the bulk power system for the ERCOT region meets or exceeds the metrics established in the rule. In support of its suggestion, LCRA cited PURA §39.159(b), which requires the commission to ensure that ERCOT establishes requirements to meet the reliability needs of the ERCOT region.
Potomac commented that it is an economic and policy function to develop market design alternatives. Specifically, Potomac stated that it should be the commission's role to determine market design changes, not ERCOT's, and that it is inappropriate to require ERCOT to recommend market design changes to the commission. Potomac accordingly recommended eliminating subsection (c)(1)(D) from the rule, or, in the alternative, the rule should require an independent review by the Independent Market Monitor (IMM) of any market design changes recommended by ERCOT.
Commission Response
Although the commission agrees with TPPA that it is the commission's role to establish a reliability standard, the evaluation of whether the system has met the reliability standard is an objective assessment based on a model that uses publicly available assumptions that are subject to commission review. Therefore, it is unnecessary to modify the proposed rule to explicitly recognize the commission's role in determining whether the ERCOT system has met the standard.
The commission also disagrees with LCRA's suggested modification because PURA §39.159(b) obligates the commission to ensure that ERCOT establishes requirements to meet the reliability needs of the ERCOT region. This rulemaking is limited to establishing a reliability standard for the ERCOT region, as discussed in the commission's response to comments on subsection (c)(2) below. It does not address the particular means by which that reliability standard will be met.
The commission declines to remove subsection (c)(1)(D) as suggested by Potomac. ERCOT may provide recommendations on market design options for the commission to consider, and the commission considers ERCOT to be a credible source for such recommendations. The commission retains discretion to decide whether to implement any market design changes as a result of the assessment and in consideration of ERCOT's recommendations. However, the commission agrees that the IMM should provide its assessment of ERCOT's recommended market design changes. The commission therefore modifies the rule to require the IMM to review recommended market design changes and expected system costs associated with those changes.
ERCOT suggested modifying subsection (b) to describe the simulation it will run to determine whether the system is meeting the reliability standard. Specifically, ERCOT suggested language to clarify that ERCOT is not conducting an analysis to determine whether the system is meeting the standard. Instead, ERCOT is running a probability-based model simulation that will demonstrate whether the system meets the standard.
Commission Response
The commission agrees with ERCOT's suggested clarifying language and modifies the rule accordingly.
Proposed §25.508(c)(1) - Timing of ERCOT's assessment
Proposed subsection (c)(1) requires an assessment to be performed every five years, starting January 1, 2026, and the assessment must review the ERCOT system that exists today and the system that will exist three years into the future.
Many parties expressed concern with both the length of time between full system assessments and the two-year gap between the three-year look-ahead and the five-year assessment. TEC suggested that the assessment occur every three years, and Octopus suggested that it occur every other year; TXOGA and Sierra Club both expressed concern with the five-year assessment schedule but provided no suggestion for a preferred review cycle. However, most parties that commented on this provision indicated a preference for an annual review of the system. TCPA and NRG cited PURA §39.159(b)(2) as support for their contention that the commission is statutorily bound to an annual reliability assessment. NRG also stated that ERCOT's resource mix and load growth change frequently. Similarly, TXOGA and TEPRI suggested the assessment be performed annually; TXOGA's reasoning was timely identification and mitigation of risks. TEPRI also recommended requiring a more comprehensive assessment every five years.
Commission Response
The commission modifies the rule to require ERCOT to perform its assessment every three years, as recommended by TEC. A three-year review cadence appropriately balances the need to provide the commission with timely and accurate information to evaluate the system's reliability with the administrative burden and regulatory uncertainty that more frequent evaluation would impose. This will also allow enough time for the commission to complete any required rulemakings and ERCOT to implement any changes in the protocols before the beginning of the next assessment.
The commission disagrees with TCPA and NRG that PURA §39.159(b)(2) is relevant to ERCOT's assessment of whether its system meets the reliability standard under this rule. This rule requires an assessment of the general reliability of ERCOT's system. It does not require a targeted evaluation of the quality and characteristics of ancillary services required to ensure reliability is certain pre-defined circumstances. The requirements of PURA §39.159(b)(2) will be met by the annual ancillary services methodology study, which is subject to approval by the commission.
TCPA recommended that the rule specify a time frame for ERCOT to deliver the system assessment, rather than specifying the time at which ERCOT will begin the assessment. TCPA stated that this would ensure a transparent and thorough process.
Commission Response
The commission declines to modify the rule to impose a deadline for ERCOT to file its assessment, as recommended by TCPA. Rather, the adopted rule imposes a start date on ERCOT's assessment to ensure ERCOT has sufficient time to complete its modeling and provide thoughtful market design recommendations, if necessary. The adopted rule involves a novel process and opportunity for stakeholder feedback. Furthermore, while not required by the rule, ERCOT might determine that additional analysis is required to support its recommendations. Commission staff and ERCOT communicate frequently on a wide array of topics, including developing coordinated workplans, and updates on the status of ERCOT's analysis can be provided, if appropriate or necessary.
Proposed §25.508(c)(1) - ERCOT's assessment filing format
Proposed §25.508(c)(1) requires ERCOT to file a system assessment.
TEPRI recommended that the commission require the assessment to be provided in a searchable Excel spreadsheet. TPPF recommended that the commission add language to the rule guaranteeing that enough information will be published so that outside entities will be able to replicate the models used for the assessment and to evaluate the model outputs.
Commission Response
The probabilistic simulations ERCOT uses are extremely complex models that use an enormous amount of data - some of which is sensitive or otherwise confidential - and requires the use of SERVM modeling, which is inaccessible to the majority of market participants. Requiring ERCOT to provide sufficient information for outside entities to be able to replicate its results is infeasible. However, the commission expects ERCOT to provide sufficient information or explanation for outside parties to understand ERCOT's methodologies.
Proposed §25.508(c)(1)(A) - ERCOT's list of proposed assumptions
Proposed subsection (c)(1)(A)(i)-(v) is a list of assumptions that ERCOT must file with the commission before it conducts its assessment.
Several parties expressed a preference for adding other items to the list of assumptions that ERCOT must file. For example, Shell and Sierra Club both suggested adding "load forecast error, renewable forecast error, resource outage scenarios, resource outage scenarios by which the scenarios will be weighted in the study, and expected probability of weather pattern occurrence." Sierra Club also suggested adding expected levels of load reduction capability through the use of energy efficiency, demand response, and local distribution-level generation that has the impact of lowering load on the transmission system. TEC suggested adding load forecasts. TPPA and TEAM suggested requiring an update to VOLL, and TSPA suggested requiring an update to CONE and the reference technology. APA and ACP suggested using a dynamically modeled VOLL to better capture actual costs of loss-of-load events and to provide the commission with maximum information. TEPRI listed numerous requirements for inclusion in subsection (c)(1)(A) of the proposed rule, including gas constraints and transmission outages. TSPA recommended that the rule include a review of distributed energy resources (DERs) and microgrids as part of the assessment. APA and ACP suggested including transmission-related data in ERCOT's modeling, such as upgrades and outages.
TPPA recommended that proposed subsection (c)(1)(A)(ii) be edited to clarify that ERCOT's filing only includes expectations of the number of new resources and retirements that ERCOT is forecasting. TPPA also opposed ERCOT updating CONE on a routine basis unless there are structural changes to the generation market that would markedly change the costs of the technology because updating CONE is an extensive process. TPPA recommended removing the requirement to update CONE in proposed subsection (c)(1)(A)(iv) and updating CONE separately from the reliability standard assessment. TCPA also suggested removing reference to CONE from the list of ERCOT's proposed assumptions because an updated CONE value and reference technology choices are relevant only after ERCOT finds that a modeled system fails to meet the reliability standard.
ERCOT suggested a modification to proposed subsection (c)(1)(A)(iv) to add "a recommendation regarding whether more than one reference technology should be incorporated in the assessment."
Commission Response
The commission agrees with commenters that the proposed rule does not list every relevant assumption that ERCOT will likely need to include in its system assessments. The purpose of requiring certain assumptions is transparency and certainty for stakeholders, ERCOT, and the commission. The commission disagrees, however, that transparency and certainty can be achieved only by adding numerous required assumptions to the commission rule. Instead, authorizing a comment period for stakeholder input on assumptions submitted by ERCOT should address these concerns. This way, stakeholders can provide input on the assumptions ERCOT has filed with the commission and identify any other assumptions that ERCOT should include before it performs its assessment. For these reasons, the commission declines to modify the rule to add any additional required assumptions but modifies the rule to allow for a comment period with the commission after ERCOT files its assumptions.
The commission declines to modify the rule to require a dynamically modeled VOLL, as suggested by APA and ACP, because the commission has already initiated a survey to establish an updated VOLL for the ERCOT region.
The commission declines to modify the rule to specify the methodology that ERCOT will use to identify resource additions and retirements, as suggested by TPPA. ERCOT will provide its information on the resource additions and retirements as part of its assumptions, and the commission will have an opportunity to modify these values if necessary.
The commission modifies the rule to remove the requirement that ERCOT update the CONE as part of its assessment because CONE updates will occur through a separate commission process. The commission agrees with ERCOT's suggested modification and modifies the rule accordingly.
APA and ACP, TEPRI, and TPPF suggested that the commission require ERCOT to appropriately weight high-impact, low-probability events, such as Winter Storm Uri, in its modeling. TIEC and TPPF alternatively recommended that the commission require ERCOT to eliminate these events entirely from its modeling. HEN expressed support for including these events.
Commission Response
The commission declines to modify the rule as suggested by commenters because it is unnecessary. The adopted rule allows for public comment on ERCOT's modeling assumptions, including the historic weather years ERCOT plans to use in the assessment. The commission will weigh feedback on ERCOT's modeling assumptions when they are filed.
Proposed §25.508(c)(1)(A) and (c)(2) - Allowance for comments on ERCOT's proposed assumptions and system assessment
Proposed subsection (c)(1)(A) requires ERCOT to file its proposed assumptions with the commission. Proposed subsection (c)(2) requires ERCOT to file its completed assessment with the commission.
Several commenters argued that a comment period after ERCOT submits its system assessment should be explicitly included in the rule to ensure that there is ample opportunity for stakeholder input. Some additionally requested that the commission establish an earlier comment period--after ERCOT submits its modeling assumptions. For example, Potomac suggested "an opportunity for comments on ERCOT's proposed modeling assumptions by market participants and the IMM since these assumptions can substantially alter the results of the assessment." Shell commented that, because ERCOT's assessment is heavily dependent on underlying assumptions, there should be an abundance of transparency and opportunities for stakeholder input on the assumptions and parameters in the assessment.
TNMP, TPPA, and Potomac suggested that commission approval of ERCOT's modeling assumptions be added to the rule because it would strengthen the opportunity for stakeholder feedback. TPPA recommended further that the commission require ERCOT to approve modeling assumptions through the ERCOT stakeholder process.
Commission Response
The commission agrees that stakeholder input after ERCOT files both its proposed modeling assumptions and system assessment would be valuable. In particular, the commission agrees that allowing comments on ERCOT's proposed assumptions is important because the assumptions will form the basis of ERCOT's assessment. Accordingly, the commission modifies the rule to add two comment periods: one after ERCOT files its proposed modeling assumptions and one after ERCOT files its system assessment. The commission further modifies the rule to provide commission staff with discretion over the timing and requirements of these comments. Because the commission modifies the rule to provide a comment period at the commission, the commission declines to modify the rule to require ERCOT to approve modeling assumptions through the ERCOT stakeholder process, as recommended by TPPA.
With regard to commission approval of the modeling assumptions, proposed modeling assumptions are an interim step in the system assessment and do not necessarily require a commission order or approval in every instance. However, the adopted rule does provide for commission review of ERCOT's modeling assumptions, if necessary. Further, ERCOT is required to consult with commission staff before filing its final recommended assumptions, and the commission may approve or direct revisions to the assumptions at its discretion. In addition, the commission modifies the rule to allow commission staff to provide its own recommendation on ERCOT's final modeling assumptions for the commission's review.
Proposed §25.508(c)(1)(B)(iii) - Market equilibrium reserve margin (MERM)
Proposed §25.508(c)(1)(B)(iii) requires ERCOT to report on the system configuration three years from the date of the current year's system analysis that would be required to achieve the MERM.
TEC recommended removing the requirement to calculate the MERM because it is inappropriate to include, and TCPA noted that the MERM takes a long time to calculate.
Commission Response
The commission modifies the proposed rule to remove the requirement for ERCOT to report on a system configuration at the MERM because the current year assessment and three-year forward-looking assessment provide a sufficient snapshot of the resource adequacy outlook.
Proposed §25.508(c)(1)(C) and (D) - Adding system cost to recommendations
Proposed subsection (c)(1)(C) requires ERCOT to include certain results in its system assessment filing. Proposed subsection (c)(1)(D) requires ERCOT to include recommendations for market design changes in its filing with the commission if any modeled systems fall below the reliability standard.
Many commenters suggested that if the system is not meeting the reliability standard, bringing the system up to the level of the reliability standard will incur consumer costs, and these costs should be made publicly available as part of ERCOT's required recommendations in proposed subsection (c)(1)(C) or (D). OPUC, Cities, Sierra Club, CTEI, TEPRI, TXOGA, TEAM, TIEC, and Shell cited the need to balance reliability benefits with consumer costs. In contrast, TSPA, Octopus, and TEC simply recommended adding system cost as a required reporting component in proposed subsection (c)(1)(C) or (D). TPPF recommended that the rule require ERCOT to submit a cost-benefit analysis of any generation additions or transmission changes along with recommended market design changes.
Commission Response
The commission agrees with commenters that reliability benefits must be balanced with costs to achieve the desired reliability. The commission therefore modifies the rule to require ERCOT to include cost estimates along with its recommended market design changes and to require the IMM to conduct an independent review of both recommendations and costs. The cost estimates and independent review, along with a stakeholder comment period, will allow the commission to consider costs before determining whether any market design changes may be necessary.
Cities commented that ERCOT's analysis, on which commission staff relied to create the reliability standard, used an outdated CONE that underestimates system costs and is subject to uncertainties and change given that the Brattle Group study on CONE is ongoing. In addition, Cities recommended modifying the proposed rule to require ERCOT to include consumer costs related to the performance credit mechanism (PCM). Cities supported its suggestion by stating that "the reliability standard will set the PCM's target, driving the cost of the performance credits. (B)ecause performance credit costs are a direct outcome of the reliability standard, ERCOT should include performance credit costs in the system cost analysis."
Commission Response
The commission disagrees with Cities' suggestion to include the cost of performance credits as a required submission by ERCOT. The PCM is not the only potential solution available to the commission to bring the ERCOT system into compliance with the reliability standard; therefore, requiring costs for this single solution would be inappropriate. In addition, this rulemaking is to establish the reliability standard, not to prescribe consequences if the modeled system does not meet the standard.
TEPRI recommended using EUE and the VOLL to gauge consumer willingness to pay for increased reliability, stating further that the commission should support policies that are cost effective. TIEC stated that the commission should "disregard the costs ERCOT included in its modeling because they are not representative of the consumers' actual costs." In support of this notion, TIEC stated that using CONE as a cost basis ignores that the market cannot pay only new resources but must instead pay all existing resources as well. To address this issue, TIEC recommended modeling NEUE with an updated VOLL.
Similarly, Shell contended that what consumers would pay for increased reliability is closer to CONE times the total dispatchable generation MW. Shell stated further that "investment for improving reliability is cost beneficial to consumers only if cost of generation investment is lower than cost savings to consumers from avoiding load shed or out of market actions due to the added generation."
Commission Response
For reasons discussed above, the commission declines to replace the three reliability standard metrics in the rule with one based on NEUE, as TIEC proposes. However, the adopted rule retains the proposed rule's requirement for ERCOT to include the EUE and NEUE in its assessment filing in order to gauge consumer costs of the modeled reliability outcomes, as suggested by TEPRI and TIEC. Additionally, the commission modifies the rule elsewhere to include a comment period after ERCOT files its assessment, so stakeholders will have an opportunity to comment on ERCOT's cost estimation methodology.
Sierra Club and TEPRI suggested that the commission update a study on an Economically Optimal Reserve Margin (EORM) because it is outdated. Sierra Club stated EORM could provide an important data point in assessing the reasonableness of the reliability standard.
Commission Response
The commission declines to modify the rule to require calculation of the EORM because ERCOT's assessment will report data more relevant to cost implications of the modeled systems. The EORM is an assessment of the level of reserves that minimizes societal costs. Assessing a system configuration at the market equilibrium reserve margin will provide insights into the willingness of hypothetical investors to take certain actions that may improve resource adequacy under the existing market design than would data related to the EORM.
Proposed §25.508(c)(2) - Consequences of a failure of a modeled system to meet the reliability standard
Subsection (c)(2) of the proposed rule states that the commission will review ERCOT's assessment of the ERCOT system and determine whether any market design changes are necessary.
Opinions from commenters varied on whether subsection (c)(2) should require action by the commission to change market design in response to a failure of the system to meet the reliability standard. CPS, LCRA, NRG, TCPA, TEC, and TPPA opined that the reliability standard is mandatory and action to come into compliance is therefore required. Cities, Octopus, OPUC, and TAEBA asked the commission to clarify in the rule whether the standard is mandatory. CTEI, Potomac, TEAM, and TEBA supported the rule as proposed. CPS expressed support for the reliability standard as a standard with automatically triggered consequences that account for VOLL and CONE. In support of its opinion, CPS stated that without performance incentive mechanisms tied to the reliability standard, reliance for grid reliability will disproportionately fall to public entities, such as CPS, and that the reliability standard would therefore be incomplete as a standard.
Of those that recommended that the reliability standard be mandatory and that the rule include consequences for failure to meet the standard, both LCRA and NRG referred to legislative direction in PURA §39.159 as support for their position. LCRA stated that the statute places a clear duty on the commission to ensure that ERCOT establish requirements to meet the reliability needs of the power region, and that it is the commission's responsibility to effectuate this legislative mandate, ensuring that action will be taken if the reliability standard is not met. NRG stated that, for this policy to be effective, "failure to meet the reliability standard should trigger a pre-defined process to evaluate and then adopt any necessary changes to the ERCOT market structure to . . . meet the standard." NRG stated that this principle is embedded in PURA §39.159 and is consistent with how every other type of reliability measure is met in the ERCOT region, such as ERCOT's forward assessments of the transmission system and ancillary services and the reliability unit commitment process.
TCPA also stated that a pre-defined process in response to a failure of the system to meet the reliability standard would be appropriate and that a firm timeline associated with this process should be included in the rule.
TPPA commented that the long-term trajectory of the ERCOT market is uncertain because the commission's previously adopted blueprint documents are out of date, so there is uncertainty among stakeholders as to how the reliability standard will be applied. TPPA accordingly requested an updated version of the blueprint documents be published as part of the reliability standard rulemaking. In addition, TPPA stated that ERCOT should not provide recommended changes as part of its reliability assessment because the commission is the appropriate body to consider legislatively sanctioned market design changes and broader policy decisions, not ERCOT. TPPA therefore recommended that the commission seek stakeholders' input rather than accept recommended changes from ERCOT.
Of those expressing support for the proposed rule's treatment of the reliability standard as a measurement tool, rather than a mandatory trigger, TEBA, TIEC, and CTEI appreciated that such treatment will not require implementation of any particular market design, including the PCM or some other form of a capacity market. TIEC stated that it would oppose any language that would make market design changes mandatory to achieve certain generator revenues, remove the commission's discretion to decide whether market changes are needed, or result in any kind of CONE-based revenue stream for all generators that are available at a particular time. Potomac noted that treating the reliability standard as informational will greatly reduce any associated costs. TEAM stated that the reliability standard should not establish a reserve margin mandate because this would implicitly create a capacity market and shift risk to consumers.
LCRA, Shell, and TCPA suggested that the commission add language to the proposed rule specifying that the commission will adopt any market design changes through a rulemaking process. In support of its position, LCRA cited House Bill 1500 (88th R.S.), the commission's ERCOT directives interim process memo filed in Project No. 52301, and PURA §39.1514. LCRA stated that the bill, process memo, and statute demonstrate that the commission can direct ERCOT to take an official action through a contested case, rulemaking, or memorandum or written order adopted by a majority vote. LCRA and TCPA further suggested that the proposed rule should include an explicit timeframe in which the commission will open this rulemaking after ERCOT files an assessment indicating the reliability standard has not been met.
Commission Response
The commission agrees with commenters that expressed support for the reliability standard as a measurement tool. The adopted rule establishes a process by which the ERCOT system will be regularly assessed for reliability, provides opportunities for input by stakeholders, the IMM, and commission staff, and allows the commission to determine whether market changes are required to address any identified reliability deficiencies and what those changes should be. The commission is presently considering many different mechanisms to ensure reliability and resource adequacy in the ERCOT region, and the selection of which solution is most appropriate given a particular set of circumstances - both now and in the future - should be deliberative and fully informed at the time that selection is made. Accordingly, the commission declines to modify the rule in response to comments requiring a particular outcome or action within a predetermined timeframe if ERCOT's projections do not meet the reliability standard.
With regard to PURA §39.159, the commission disagrees with stakeholder suggestions that the commission is required to adopt a reliability standard that mandates changes to market design should the standard not be met. Instead, the reliability standard included in the adopted rule defines the reliability needs for the ERCOT region and provides the basis for the commission and ERCOT to create the requirements, through other rules and the protocols, to meet those needs. It was not designed to accomplish any of the more targeted objectives of PURA §39.159(b). Those objectives are addressed through other means, such as the annual ancillary service methodology study.
The commission declines to modify the rule to require the commission to address identified reliability deficiencies through a rulemaking process, as recommended by LCRA, Shell, and TCPA, because it is unnecessary. Any solution that is identified by the commission will be implemented using the appropriate process for that particular solution, be it a rulemaking, directive to ERCOT, or some other action. In some instances, the appropriate action may be more information gathering in the form of workshops or studies or even requests for legislative action.
The commission declines to provide an updated blueprint as recommended by TPPA, because this request is beyond the scope of this rulemaking project.
With regard to ERCOT's role in providing recommended market design changes, the commission agrees with TPPA that the commission is the appropriate body to consider and ultimately determine whether market design changes are necessary. However, ERCOT has the technical expertise to evaluate both market design changes and the costs of those changes, making it an invaluable contributor to the commission's policy deliberations. The commission will consider ERCOT's recommendations, the analysis conducted by the IMM, and stakeholder comments to arrive at its own decision whether any market design changes are necessary.
The adopted rule includes other clarifying changes to describe the contents of ERCOT's filed assessment and recommended market design changes.
A majority of commenters suggested that the proposed rule should be modified to account for the specific tools the commission should employ in response to a modeled system's failure to meet the reliability standard. Most suggested that the commission limit itself to established, competitive market mechanisms or the energy-only market as a corrective for such a failure. Examples of out-of-market mechanisms, which commenters agreed should not be allowed, were capacity procurements, noted by Sierra Club, Shell, and TCPA and the PCM, noted by TEBA and TIEC. Sierra Club stated that the standard should not be interpreted as a specific capacity requirement on load-serving entities. TCPA opposed any state-sponsored or utility-owned capacity additions. TAEBA, Octopus, and NRG requested that the commission clarify its intentions for responding to a failure of a modeled ERCOT system to meet the reliability standard.
ARM "caution(ed) against too frequent development of new market products to address reliability standard shortfalls and prefer(red) the use of existing market design features (including those currently in development) to address any such shortfalls." In addition, ARM proposed that if the commission directs ERCOT to make changes to ancillary services to meet a shortfall in the reliability standard, the commission make an express designation in its orders whether such changes impose costs beyond a REP's control for a customer's existing contract. ARM also recommended a modification to the rule to ensure that if market changes will be made in the future to meet the reliability standard, changes will allow for sufficient lead time, such as one year, following the date the commission determines which changes are appropriate.
A few commented that the commission should specifically add non-generation alternative solutions to the rule that the commission could employ in response to a failure of a modeled ERCOT system to meet the reliability standard. For example, TSPA recommended including DERs and microgrids. TSPA supported its recommendation by stating that DERs and microgrids directly offset the need to rotate outages during an EEA event. TEPRI listed weatherization, segmentation, microgrids, and support of distribution resilience. Octopus specifically recommended that the commission direct ERCOT and stakeholders to identify and implement solutions to increase reliability at a lower cost, such as through greater integration of DERs, and report annually to the commission on these market activities.
Shell and TIEC urged the commission to require ERCOT to identify any non-generation, cost-effective alternatives that would reduce the frequency, duration, or magnitude of load shed events.
CPS suggested that the commission include existing and future programs in the rule, such as the current procurement of ancillary services quantities, future components of a co-optimized real-time market, including the ancillary service demand curves, or the performance credit mechanism. CPS stated that if these programs are available as automatic solutions in the rule, the commission could more quickly adjust the magnitude of the mechanism and deliberate on the need for larger market design changes as described in the proposed rule.
Cities suggested that the commission not adjust the policy levers of the market too frequently to bring the system into compliance with the reliability standard because frequent adjustments create regulatory uncertainty and undermine investment signals.
Commission Response
The commission declines to modify the proposed rule to add any market design, system change, or other action that may be useful to address a scenario in which the modeled system fails to meet the reliability standard. Such actions will be considered at the time ERCOT's assessment reveals a failure of the modeled system to meet the standard and predetermining those actions in the rule would only serve to limit possible policy or market design responses to the assessment.
Finally, the commission disagrees with ARM's request related to a retail electric provider's ability to pass through costs associated with market design changes. Such a designation, if appropriate, will come at the time the commission approves a change to the market design.
All comments, including any not specifically referenced herein, were fully considered by the commission. In adopting this section, the commission makes other minor modifications for the purpose of clarifying its intent.
This new section is adopted under the Public Utility Regulatory Act (PURA), Texas Utilities Code Annotated §14.002, which provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and specifically, §39.159(b)(1), which requires that the commission adopt a reliability standard for the ERCOT power region.
Cross Reference to Statutes: Public Utility Regulatory Act §§14.002 and 39.159(b)(1).
§25.508.Reliability Standard for the Electric Reliability Council of Texas (ERCOT) Region.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context indicates otherwise.
(1) Exceedance tolerance--the maximum acceptable percentage of simulations in which the modeled ERCOT system experiences a loss of load event that exceeds the threshold for a given criterion of the reliability standard.
(2) Loss of load event--an occurrence when the system-wide firm load plus minimum operating reserves required to avoid an energy emergency alert level three event is greater than the available resource capacity to serve that load, resulting in involuntary load shed.
(3) Transmission operator--has the same meaning as defined in the ERCOT protocols.
(4) Weatherization effectiveness--the assumed percentage reduction in the amount of weather-related unplanned outages for generation resources and energy storage resources included in the model, due to compliance with the weatherization standards in §25.55 of this title (relating to Weather Emergency Preparedness).
(b) Reliability standard for the ERCOT region. The bulk power system for the ERCOT region meets the reliability standard if an ERCOT probability-based model simulation demonstrates that the system meets each of the criteria provided in this subsection.
(1) Frequency. The expected loss of load events for the ERCOT region must be equal to or less than one event per ten years on average, i.e., 0.1 loss of load expectation (LOLE).
(2) Duration. The maximum expected length of a loss of load event for the ERCOT region, measured in hours, must be less than 12 hours, with a 1.00 percent exceedance tolerance.
(3) Magnitude. The expected highest level of load shed during a loss of load event for the ERCOT region, measured as the average lost load for a given hour, must be less than the maximum number of megawatts of load shed that can be safely rotated during a loss of load event, as determined by ERCOT, in consultation with commission staff and the transmission operators, with a 1.00 percent exceedance tolerance. Beginning in 2024, on or before December 1 of each year, ERCOT must file the maximum number of megawatts of load shed that can be safely rotated during a loss of load event and a summary of the methodology used to calculate this value.
(c) Reliability assessment. Beginning January 1, 2026, ERCOT must initiate an assessment to determine whether the bulk power system for the ERCOT region is meeting the reliability standard and is likely to continue to meet the reliability standard for the three years following the date of assessment. The assessment must be conducted at least once every three years.
(1) Modeling assumptions.
(A) Before conducting the assessment, ERCOT must file a comprehensive list of proposed modeling assumptions to be used in the reliability assessment. The proposed assumptions must include:
(i) the number of historic weather years that will be included in the modeling;
(ii) the amount of new resources and retirements, in megawatts, listed by resource type;
(iii) the weatherization effectiveness; and
(iv) any other assumptions that would impact the modeling results, along with an explanation of the possible impact of the additional assumptions.
(B) Commission staff will provide interested persons with at least 30 days from the date ERCOT files its proposed modeling assumptions to file comments recommending modifications to ERCOT's proposed modeling assumptions. Commission staff may include filing requirements or additional questions for comment.
(C) After reviewing filed comments, ERCOT, in consultation with commission staff, must file its final recommended modeling assumptions for commission review. Commission staff may provide a separate recommendation on ERCOT's final recommended modeling assumptions for the commission's consideration.
(2) Assessment components.
(A) ERCOT's assessment must include review and analysis of the resource fleet, loads, and other system characteristics for the ERCOT region for the following points in time:
(i) the current year's system configuration; and
(ii) the expected system configuration three years from the date of the current year's system analysis.
(B) The assessment results must include, at a minimum, the following metrics for each point in time:
(i) the LOLE;
(ii) the probability of a loss of load event exceeding the duration threshold established in subsection (b)(2) of this section;
(iii) the probability of a loss of load event exceeding the magnitude threshold established in subsection (b)(3) of this section;
(iv) the expected unserved energy; and
(v) the normalized expected unserved energy.
(3) Commission review and determination.
(A) ERCOT must file its assessment with the commission, including any information required under subparagraph (C)(i) of this paragraph.
(B) Commission staff will provide interested persons with at least 30 days from the date ERCOT files its assessment to file comments on ERCOT's assessment. Commission staff may include filing requirements or additional questions for comment.
(C) If the assessment shows that any reviewed system fails to meet the reliability standard described in subsection (b) of this section:
(i) ERCOT must provide the commission with a summary explanation of any identified deficiencies and its supporting analysis. ERCOT must also provide the commission with a menu of proposed recommended market design changes, including a primary recommendation, that are intended to address the identified deficiencies. ERCOT must provide the commission with the expected system costs associated with each of its proposed recommended changes;
(ii) the independent market monitor must conduct an independent review of ERCOT's proposed recommended market design changes, including associated expected system costs for each proposed recommended change, and file its review no later than the deadline established in subparagraph (B) of this paragraph; and
(iii) commission staff must provide a recommendation to the commission, considering expected system costs and reliability benefits, on whether any market design changes or other changes may be necessary to address the deficiency.
(D) The commission will review ERCOT's assessment and any recommendations, the independent market monitor's review, commission staff's recommendations, and stakeholder comments to determine whether any market design changes may be necessary.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on September 9, 2024.
TRD-202404367
Adriana Gonzales
Rules Coordinator
Public Utility Commission of Texas
Effective date: September 29, 2024
Proposal publication date: June 28, 2024
For further information, please call: (512) 936-7322
The Public Utility Commission of Texas (commission) adopts an amendment to §25.510, relating to the Texas Energy Fund In-ERCOT Generation Loan Program with no changes to the proposed text as published in the July 26, 2024 issue of the Texas Register (49 TexReg 5456). The amendment to the rule is to correct an inadvertent omission by the Texas Register in the definitions for the formulas in subsection (b)(4) and (5). No other amendments have been made to the rule. This amendment is adopted under Project Number 55826. The adopted rule will not be republished.
The commission received no comments on the proposed amendment.
This amendment is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (PURA), which provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and specifically, §34.0104, which authorizes the commission to use money in the Texas Energy Fund to provide loans to finance upgrades to or new construction of electric generating facilities in the ERCOT region; §34.0106(c), which requires the commission to adopt performance standards that electric generating facilities must meet to obtain a loan; and §34.0110, which authorizes the commission to establish procedures for the application and award of a grant or loan under PURA chapter 34, subchapter A.
Cross Reference to Statute: Public Utility Regulatory Act §§14.002, 34.0104; 34.0106(c), and 34.0110.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on September 12, 2024.
TRD-202404428
Adriana Gonzales
Rules Coordinator
Public Utility Commission of Texas
Effective date: October 2, 2024
Proposal publication date: July 26, 2024
For further information, please call: (512) 936-7322