Highlights of ERCOT BOARD FA Committee Meeting

Highlights of Discussion at ERCOT Board’s Finance and Audit Committee Meeting

Author: Margarita Fournier

POINTS OF INTEREST

• The ERCOT Board’s Finance and Audit Committee (F&A) met on 3/18/13, in preparation for the full Board meeting on 3/19/13.  Among the items discussed were user fees and the recently defeated proposal for a limit on the Letters of Credit (LOC) per financial institution.
• After questioning the staff language for a user fee policy, F&A asked them to revise it and come back in May.  The current proposal would allow for approval of a new-user fee if it fulfills the following conditions:
  • Material – The new-user fee should produce revenue in excess of $1 million, or materially improve ERCOT operations;
  • Incremental – It should be incremental to revenue recovered through the System Administration Fee;
  • Limited Beneficiaries – It should be for a service that benefits a relatively few discrete market segments, or market participants (MPs), rather than providing general benefit to most market segments or market participants;
  • Required by Protocols – It may be approved by the Board, as part of a Protocol revision request;
  • Existing Fee Allowance – Existing ERCOT fees are not required to comply with the policy and can be periodically adjusted for cost inflation and other similar factors.
• After updates on the LOC limit vote, the F&A Chair commented that Jorge Bermudez (Independent) felt strongly that ERCOT needs a “concentration policy,” and agreed to discuss this again in May (since Jorge Bermudez was absent).
• The Chair of the Technical Advisory Committee (TAC) reported that some MPs thought that an LOC limit could restrict MP participation in some markets, and they opposed it.
• Judy Walsh (Independent) stated that before instituting a policy, it must be clear what “we are trying to accomplish.”  She agreed that having such policy should not lead to market freezing up on a hottest day. (ERCOT staff said that the one time the proposed limit ($750 million per financial institution) was exceeded was on a hot day in August 2011.)
• ERCOT staff further clarified that this idea was first brought up in 2008, and was initially discussed as a way to hedge banks’ failure.  Judy Walsh commented that if many banks failed, ERCOT could hardly hedge against that.

Copyright 2013 by Competitive Assets, LLC.  All rights reserved.