ERCOT REGION NEWS
ERCOT REP nodal preparation scrutinized
PLATTS MEGAWATT DAILY
September 10, 2010
With the scheduled launch of the Electric Reliability Council of Texas’ nodal system less than three months away, some market participants are warning that retail electric providers that have not committed enough people and time to understanding the new system could prevent a smooth transition or, at worst, go bankrupt at their customers’ expense.
The nodal system, scheduled to “go-live” December 1, replaces the current zonal pricing system with around 500 resource nodes, 13 load zones and four hubs where market participants can trade power. The system has been in the works for about seven years and is projected to cost more than a half-billion dollars.
“It’s a whole new game,” said Marty Downey, senior vice-president of energy supply at TriEagle Energy, a Houston-based retail electric provider, or REP, that serves commercial and small industrial customers.
The new system means new products, new settlement systems — “changing the whole way we do business,” Downey said, all of which require time to learn.
There are about 130 REPs currently registered with the Public Utility Commission of Texas.
More than 600 representatives representing more than 70 REPs — or slightly more than half of all REPs — have attended one or more of ERCOT’s nodal market training courses, said Mike Cleary, COO.
The grid operator has provided nodal training for market participants since 2006.
Downey said TriEagle, with about 20 employees, has committed about one-fourth of its work force to understanding nodal. TriEagle representatives attended all the classes and workshops “that REPs need to go to” and the company designed “brand-new systems for day ahead and scheduling.”
Downey said all of this work was done with one fact in mind: “The train is coming and we’re committed to it…. [I]f you ignore it you’re going to get run over.”
StarTex Power has been preparing for nodal for two years, said Bob Zlotnik, president and CEO of the Houston-based REP, which has about 165,000 customers statewide.
“Three months ago, people were saying, ‘Nodal isn’t going to happen. Bob, you’re crazy.’ But over the last month or so, there have been two other REPs that have done nodal workshops,” Zlotnik said.
“I think there’s some realization that it will happen,” he said. It appears other companies have not committed the same amount of resources in advance of the nodal launch, market sources say.
“We’ve been surprised how few other REPs are taking advantage of the training, especially in the advanced training classes. Large powerhouses are there, my-size REPs are there. But a lot of REPs my size haven’t been there or smaller REPs haven’t been there,” Downey said.
Other market sources say there are good reasons to be concerned.
“If someone doesn’t take driver’s education, they have a higher tendency to wreck the car,” said Neil McAndrews, a consultant and principal at McAndrews & Associates in Austin.
Two ERCOT-hosted, REP-specific nodal workshops in Dallas and Houston attracted a total of about 70 people, Cleary said. Another is scheduled for October 6 in Austin, and ERCOT “will continue to encourage retail electric providers to participate in nodal market training as part of their readiness” for the system’s forthcoming launch, he said.
While the grid operator will not say whether attendance so far has been good or bad, it’s “very valuable for all entities and individuals doing business” to participate, according to a recent ERCOT statement.
It is hard to tell how prepared most REPs will be once nodal goes live.
“Sometimes it’s apparent that some people haven’t done their homework and there are immediate repercussions. Later on, internally, they realize some of the support processes aren’t there,” McAndrews said.
For example: “If you’re a retail consumer, all of a sudden your bills go up inexplicably because the REPs get caught up in something and go out of business,” he said, adding that the transition and the new market likely will weed out the weaker firms.
TriEagle’s Downey said the ramifications could extend beyond just customers’ wallets. “It could be really costly for unprepared REPs. The whole grid is changing. It doesn’t do us any good if companies go
bankrupt,” he said.
“We don’t need to see the headline that ‘Six REPS go out of business’ — it doesn’t do anything but upset [policymakers] and ultimately the customers,” Downey added.
A recent Gulf Coast Power Association-sponsored nodal workshop was put forth because of lingering questions about how the new system will work.
A market source, who heads up power research at a global financial services firm but asked to remain anonymous, said “it was obvious … ERCOT and people involved in various committees are concerned” about REPs not being adequately prepared for go-live.
“With these new changes, [there is] a lot of money at stake and a lot of credit. The real risk is that we lose some of them along the way,” the source said. “That’s not a good situation for anyone.”
— John-Laurent Tronche