ERCOT at a Glance: News Update - February 9, 2006
The ERCOT management team appeared before the Public Utility Commission (PUC) last week to present its application for the 2006 system administration fee and respond to questions from the PUC commissioners and interveners in the case. The two-day hearing concluded on Thursday, and the PUC is expected to rule on the fee application by March 30.
ERCOT proposed keeping its fee at the current level of $0.42 per megawatt-hour. However, ERCOT in the fee application committed to funding its operations at a rate of only $0.4054. Each $0.01 of the fee yields approximately $3 million in revenue, based on projected energy consumption in the ERCOT Region. The $.42 fee would generate an estimated $129.4 million in revenue, with approximately $4.5 million representing the difference between the full $0.42 fee and the $0.4054 needed to fund ERCOTâ€™s normal operations. ERCOT proposes that $3 million of that revenue be set aside to fund anticipated market monitoring costs, and the remaining $1.5 million applied to accelerated debt repayment.
The PUC was directed to hire an Independent Market Monitor, to be funded by ERCOT, in Senate Bill 408, approved by the Texas Legislature last year. The PUC and ERCOT have begun the search for a market monitor, and a PUC rulemaking is underway.
CEO Tom Schrader said the â€œbare-bonesâ€? base operations budget was developed after a rigorous internal review process and additional scrutiny by the ERCOT boardâ€™s Finance and Audit Committee and the full ERCOT board. A public meeting was also conducted to provide information and receive feedback from all interested parties.
â€œThe 2006 ERCOT budget is prudent, cost-effective and provides value for Texas electric consumers,â€? Schrader said. â€œIt ensures that ERCOT has sufficient revenue to support its fundamental responsibilities and system improvements brought forward by market participants, commission staff and ERCOT. It prepares ERCOT for the future by lowering the long-term debt and ensuring that ERCOT can employ and retain capable and motivated employees.â€?
Key exhibits in the fee case included an employee salary survey by Mercer Human Resources Consulting, and a workforce analysis by Jefferson and Associates. Interveners included several market participants and consumer advocates including the Office of Public Utility Counsel.
The proposed budget does not include funding for the Texas Nodal wholesale market redesign, currently the subject of a PUC contested case. ERCOT is developing a readiness plan but has not determined all 2006 costs associated with implementing this project. Additionally, the PUC has not yet decided whether the costs of the market redesign will be covered through the regular ERCOT administration fee or through a different mechanism. ERCOT anticipates making another filing at the PUC to begin recovering Nodal-related costs.
The ERCOT system administration fee is assessed on wholesale energy transactions in the ERCOT market and is therefore embedded in the overall cost of electric energy. If the costs were passed straight through to the consumer, the fee would translate to about $.42 per month (about $5 per year) for the average residential customer, based on 1,000 kilowatt-hour monthly usage.
The ERCOT fee application and testimony filed in the case are posted under legal notices on the ERCOT Web site.
Steve Grendel has been selected to fill the position of market redesign business program director, and Jeyant Tamby will serve as IT program director for the project. Vice President and Chief Information Officer Ron Hinsley will serve as executive sponsor for the market redesign effort.
Grendel has been with ERCOT since the beginning of the ERCOT ISO in 1996. He served in a leadership role in the procurement and implementation of the original ERCOT ISO system and the systems developed for the current retail switching and zonal wholesale market activities.
Tamby has been with ERCOT since 2001 and has held several roles within the organization with his most recent as director of enterprise architecture. He has more than 10 years experience in the utility industry in power system analysis and energy management systems.
Hinsley reported at the January board meeting that the market redesign project will require approximately 735,000 hours of work, 86 projects/initiatives, 50 ERCOT employees (which will require coverage for their regular jobs) and 40 external contractors. The preliminary budget estimate is $95-$130 million. The critical dates, based on a February start date, include:
- July 2006 â€“ Completion of business requirements
- April 2008 â€“ Start of simulation (mock market)
- October 2008 â€“ Start of pilot
- January 2009 â€“ Live nodal market
ERCOT Meeting Calendar
ERCOT is a membership-based 501(c)(4) nonprofit corporation, governed by a board of directors and subject to oversight by the Public Utility Commission of Texas and the Texas Legislature. Its members include consumers, cooperatives, generators, power marketers, retail electric providers, investor-owned electric utilities, transmission and distribution providers and municipally owned electric utilities.