Unraveling the Mystery of ERCOT Market’s ‘Fake Profits’

Unraveling the Mystery of ERCOT Market’s ‘Fake Profits’

June 24, 2015

by Margarita Fournier; Copyright 2015 by Competitive Assets, LLC.  All rights reserved

As mentioned yesterday in the Texas Electric News, on 6/22/15, the Houston Chronicle published a rather breezy article on ‘mistakes in the Texas electric market’ and the grid operator’s supposed reluctance “to claw back consumer’s money from generators.” Breezy – as in brief – and certainly short on actual facts, as the author builds his assertions, based on the reporting by Dave Fehling at Houston Public Media, who “followed up on a seemingly innocent error in May that cost Texas power customers $50 million.” The HC continues that “[a]ccording to the rules, when ERCOT discovers such an error, it is supposed to artificially lower electric rates until the customer is made even. But that hasn’t happened yet, so he asked why not?” Not being able to speak with ERCOT and getting only a short comment from the PUCT, HC nevertheless concludes that this “is part of a long pattern of pro-industry decisions made by ERCOT and the PUC.” But is it really and/or could the story be somewhat more complicated?  

Dave Fehling’s report is based on allegations of just one person – Adam Sinn, who CorporationWiki lists as a ‘governing person’ at Raiden Commodities 1, LLC and Aspire Commodities 1, LLC. (Raiden recently sued GDF Suez over manipulation in the ERCOT market (also, here).) Fehling states that “Sinn had a surprising admission: He said his company had made what he calls “fake profits” last month selling electricity in Texas, profits Sinn says his company didn’t deserve. What mistake led to “fake” profits? Sinn explained that some bad data was entered into the ERCOT computer system. It made it seem like there was going to be big decrease in electricity generated in West Texas (it was discussed in an ERCOT meeting on June 1st),” [i.e., at the Congestion Management Working Group (CMWG)]. The decrease never happened and prices spiked – by up to $50 million, according to Sinn, who is unhappy that ERCOT has so far failed to address the situation.

In fact, ERCOT staff and stakeholders did address the problem – in discussions at CMWG and also at length at the 6/3/15 meeting of the Wholesale Market Subcommittee (WMS). At WMS, ERCOT staff responded to a CMWG’s presentation on ‘high congestion that occurred on 5/18/15, in the West Zone,’ which may have been caused by a faulty/inaccurate line rating entered by Oncor for its Glenhaven to Midland Airport line. Once the error was discovered, and after discussions with ERCOT operators, Oncor corrected it, as part of the Temporary Operations Action Plan (TOAP), updating the dynamic rating telemetry with the correct rating. It is worth noting that ERCOT does not have procedures to issue price corrections based on data errors from a market participant, but only for data from within the ERCOT systems.  At WMS, there was no mention of a $50 million impact, although a lower number of about $4 million in added costs to the market was noted as a possibility. The 6/3/15 WMS Report by Competitive Assets has further details about the discussions at that meeting, including an ERCOT staff explanation, and stakeholder conclusions. An Oncor representative also provided limited information, possibly because of an yet-to-be concluded investigation. Suffice it to say, the discussions were less dramatic than implied by Sinn and Fehling. (This is, of course, in no way to suggest that legitimate mistakes ought not to be corrected, when required by ERCOT Protocols – but simply that complex situations require full understanding of facts on all sides before jumping to conclusions.)

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