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House State Affairs met on March 5 to hear invited testimony on the correction of any billing errors by ERCOT, including any inaccurate excessive charges and any issues regarding ancillary service prices.

 

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Carrie Bivens, Potomac Economics

  • Wholesale independent market monitor for ERCOT and multiple electricity markets of the US; PUC has enforcement authority over them
  • Have three recommendations:
    • Capping ancillary service prices; reserves paid to help reliability for load, get uplifted to load
    • Second has already been taking up for ancillary services that were paid for, but were not provided
    • Reprice the energy to correct energy Recommended ancillary services are permanently capped at $9,000; would result in $900 million
  • King – Explain the RUC process?
    • Market design is for market participants to decide if they are going to run that day that is based on the futures market
    • Is a reliability backstop, ERCOT operator can determine if that is insufficient and they need to generate
  • King – If market does not incentivize the generator, ERCOT can ask them to generate and later the costs are reconciled; how does the settlement proves go?:
    • Whatever you offer in; component for starting up, staying on, and generating
    • Guaranteed to at least cover these parts; and if you don’t, we hold them to that
  • King – Back to the winter storm, market model is based upon a model that presumes generation will be available, correct?
    • Assumes supply should meet demand; was demand that was not being served, that value of which is $9,000
  • King – Seems like this model was not designed for a disaster
    • Energy market design is created to
    • Incentive is not in the short duration of the event, but the market design is
    • King – So they should be winterized so they can come on
  • King – Not saying we need a capacity market, but in previous testimony it was discussed that RUC should have been used instead of the $9,000; does PUC have the statutory authority to make that decision?
    • Commission had directed the $9,000 cap
  • King – But what if they did not, if they had made the RUC decision, we would not be talking about claw backs; someone suggested they did not have the statutory authority they needed
  • King – During the storm, traditional market incentives did not work
    • They try not the use RUC because it is outside of the market; likely the prices would have been high anyway
  • King – Does there need to be a different structure under a declared disaster?
    • Yes; PUC has a “circuit breaker” in their rules that includes a process that reduces the $9,000 cap to $2,000
    • Opened a rulemaking to address the gas price issue
  • King – Would you endorse something that said we need to operate differently during an emergency?
    • Not what I envision, but could be determined in rule
  • Howard – Explain how “pricing error” is appropriate for what happened?
    • We read the commission order, and believed since residential load shed stopped, the pricing should have stopped; they are substituting judgement for appropriate action
  • Howard – Prevention of coming online also continued?
    • Firm load shed is outages for residential customers
    • Howard – Is that stated in the rules?
    • Industrial customers do not get shed in reliability issue conditions, some requests may have been made for them to come offline, or they could not come online
  • Howard – Residential versus industrial
    • In the firm load shed plans specifically say what circuits can be shed; which are residential
  • Howard – Take through what could have been the outcome if the price had reverted to the market during those 32 hours
    • Idea is to let the fundamentals of the grid drive prices, not the other way around
  • Howard – Some were not able to come back online? The market can only work if there is power there to be incentivized, then how can the market work?
    • Correct; usually is a RUC issue,
    • For many hours there were plenty of reserves, and artificial price actually helped get more generators online
  • Howard – Cost of natural gas, what was the role that played in this scenario?
    • High gas prices necessitated high energy prices; he
    • Howard – No regulatory control of the gas prices? Could disrupt this system?
    • Correct; is no actual cap on natural gas prices
  • Howard – Should there be an audit to look at the judgement calls by ERCOT operators separate from economics?
    • Not sure about an audit, sure ERCOT and PUC has lessons learned; can make decisions about procedures, rules, etc.
    • Howard – Point being it is not just economics; it is decision making and data
    • Correct
  • Hunter – Who pays? The rate payer correct?
    • Yes, if they do not get absorbed by investors; eventually the customers pay
  • Hunter – In your March 11 letter, you say the decision resulted over priced by $16 billion, correcting will not reduce the cost to consumers?
    • Correct
  • Hunter – $16 billion is not going to be reduced, but it has to be paid?
    • Yes, could be banks; somebody has to pay
  • Hunter – Will all our customers get high bills?
    • Is an expert in the wholesale market, not the retail market
  • Hunter – Cannot dance around this issue; my problem with this has been communication, no one wants to fully explain what happened
  • Hunter – What is your conclusion, what do you want us to understand?
    • That we have three recommendations:
    • Capping ancillary service prices; reserves paid to help reliability for load, get uplifted to load
    • Second has already been taking up for ancillary services that were paid for, but were not provided
    • Reprice the energy to correct energy prices for the 18 and 19; for when the prices were administratively set at $9,000
  • Hunter – Who is your client? You are independent, but paid by the PUC? The rate payer pays you? You think these are the best options
    • Are in a three-party funding system with ERCOT
    • Yes, and yes
  • Lucio – Magic Valley is telling me they made money on the generation side, but paid a high cost when buying off the grid; are saying repricing will not reprice on how much they took?
    • Am surprised to hear about that; if they are fully in the ERCOT market, they should net out on each side
    • They may have some other transactions in the mix, some public powers had other transactions in the mix and correcting may hurt them
  • Lucio – Do not care if they do not make money, but does not want them to lose money; lions share on fixed price, how do costs get passed to them?
    • Yes
    • Competitive retailers offer a fixed price, and cannot change during the contract term; however, market contracts will probably have higher rates
    • Public power is different, those customers are more likely to get those costs passed to them because there is no one to absorb those costs
  • Lucio – So places like Brownsville will get hit harder?
    • Yes
  • Lucio – Can we fix natural gas prices during an emergency? Believes we can; if we adjust prices below the cost to produce
    • Am not sure
    • Expectation is that generators should have continuously added their dispatch price; do not recommend RUC-like repayments during those 32 hours, but do not oppose
  • Lucio – Concerned there will be a lot of people who bare the burden of repricing; mostly municipals and co-ops in my district
  • Lucio – Will be winners and losers on the generator side and on the customer side
    • Operating reserves; is a direct uplift to load; $1 billion will go back to co-ops, municipals, etc.
  • Raymond – Are here because of pricing errors, yesterday the Senate passed a bill on that since the PUC chair said they did not have the ability to fix it
  • Raymond – They people of Texas are about to get hit with another tax, that is what this is; in the event where the comptroller/doctors have over charged, and then they have to get paid back
  • Raymond – Governmental entity allowed this pricing error; 32 hours equals $16 billion, what was the whole event?
    • Around $46 billion
  • Raymond – People have been overcharged $46 billion? If the storm had not happened, they would not have charged that much?
    • Does not believe the whole was a pricing error, just the $16 billion
    • If the storm had not happened, prices during the whole event would not have been that high
  • Raymond – What is the difference between the $16 billion and $4.2 billion?
    • Total market value is market times value; are entities that have hedges or are co-ops
    • Within ERCOT, the settlement impact is $4.2 billion and $1.2 is uplift
  • Raymond – Then what is the $16 billion?
    • The market value of that energy; the $4.2 billion is the settlement
  • Raymond – Is it your position the correction should be $4.2 billion? If we did the same in the house, it should be $4.2 billion?
    • Yes
  • Raymond – Taxpayers should not be taxed an electricity tax based on a bureaucratic mistake; $4.2 billion dollar tax is illegal
  • Raymond – Should let them keep the $30 billion, claw back $4.2 billion; to prevent
  • Raymond – $4.2 billion was never theirs, should be able to pass legislation that protects the co-ops
  • Smithee – Did generators act in reliance on those pricing decisions? Is there any president of the PUC repricing after the event?
    • I suspect they did
    • PUC has not, but other jurisdictions have
  • Smithee – If the legislature orders, like the Senate bill does, the PUC chair to just do it; does that cause concerns in the marketplace in the future?
    • Is something to weigh the balance;
  • Smithee – The mechanics of how repricing works?
    • New prices will be published, and will re-do accounting and settle-up the difference
  • Smithee – Commissioner told us this could affect markets world-wide? Can you re-do prices that have already been settled?
    • ICE markets have already settled, will misalign those prices
    • Will have to talk to ICE
  • King – Is there another option available to put money back into the system other than pretending we are going back in time, like securitizing debt?
    • Is a portion that represents a direct uplift to load; removing that would be $1 billion, would not be paying for operational reserves
    • Is a component of that $4.2 billion, ancillary services are outside of that
  • King – Has the PUC or ERCOT used other mechanisms rather than clawing back?
    • No; are suggesting other options
  • King – Who would benefit from the $4.2 billion?
    • Net-buyers, but primarily municipals and co-ops
  • Metcalf – How do you let the market work, but intervene?
    • Want to remove the administrative price setting on those two days
  • Howard – Other ways to recoup, in the 70s did a windfall tax; how would that work now?
    • Smithee – Was that a federal tax?
    • Howard – Not sure, just wanted to discuss it
    • Not sure, could look into it
  • Howard – $4.2 billion is to say if there were a correction, those costs would be absorbed in a variety of ways rather than affecting customers?
    • Yes, is just money changing hands
  • Howard – What is the cost of energy in Texas in comparison to others? At some point, have to pay for resiliency?
    • Have some of the lowest costs
    • Yes, and the cost can be managed in a variety of ways
  • Paddie – You said the decision on the day was clear; why three subsequent letters?
    • First was on the ancillary service piece and the most recent one was to estimate the financial position on corporate entities
  • Paddie – Have more information than you did on February 18? Your opinion has changed from that time?
    • Yes; opinion on the 18 was based on economic principals
  • Paddie – In your first letter, did that factor in the decision to keep prices at that level?
    • Disagree it followed the commission order; lasted longer than was supposed to
  • Paddie – At the time, did you know how many were still off? Do you know how much
    • No; were sufficient residuals, industrial load makes choices to be on or not
  • Paddie – For way for you to know if they had done what you suggested, it would have gone back? For those that have reliability concerns
    • With those healthy reserves, perhaps more should have come on
  • Paddie – Noted you were not an expert in retail, did not want to answer who pays;
    • Many retail providers who got hurt, would be difficult to find one cheaper than what I had now
  • Paddie – You would not pretend the customers will not be given money back?
    • Those monies will go to corporate utilities
  • Paddie – In areas that have profits from generation; they decided to operate
    • Yes; default uplift, in the event entities have
    • Retail providers or other entities will have to take up that cost eventually
  • Paddie – If we were do what you recommend, would put the customers in a better position?
    • Cannot directly say, but believes it will; most will likely may not be able to offer lower rates
  • Paddie – $16 billion is basically total load served by real time price, but some may not have paid that cap price?
    • Correct; initial letter noted costs are normally headed
  • Paddie – The $4.2 billion is not for customers? This is not refunds for consumers?
    • No, providers
  • Paddie – Market participants respond to posted prices? Do you agree that
    • Yes; dispatch price remains the same as do other startup costs, will do a RUC settlement for those
  • Paddie – What about those who bought into the market?
    • Dispatch should reflect that purchase
  • Paddie – Is that your position that we are going to let those who made money keep some of that, but not all?
    • On the hours in question, people were paid too much; would be clawing some of that back
  • Paddie – There are winners are losers here? What about those who broke even?
    • Yes; do not make recommendations based on winners and losers
    • Because of the inflated prices, paid a lot for reserves; was not accurate or appropriate
  • Paddie – Real time prices; 80-90% transactions are outside of ERCOT market?
    • Everything is based on real time prices, but most hedge ahead
    • Those percentages are not affected by the spot-costs
  • Paddie – If we do this, who gets helped and who gets hurt?
    • Net buyers of energy are helped
  • Paddie – If we did this, those who did everything right, is it likely those people will be asked to give money to those who did not make those good decisions?
    • That money should not have been put in their pocket in the first place
    • Paddie – That is not the question
    • I do not see that as a punishment; reduction of the default uplift will help everyone
    • Paddie – Could you not see that as unfair, like for co-ops?
    • Default uplift is necessary, but bad
  • Hunter – Net buyers will gain, can you name their names?
    • That is competitive information that I cannot disclose
    • Hunter – These gainers are secret, and the customers end up with the bill
    • Retailers, municipals & co-ops, some banks, etc.
    • Hunter – Bottom line, even those who were turned off will pay?
    • Is possible
    • Hunter – Answer the question
    • As a rate payer, believes their rates will go up
  • Raymond – Noted 57 died during the freeze, and the bill is $46 billion?
    • Making recommendations because it is the right thing to do to make the correction
    • Raymond – There is that $16 billion, but those entities should not even get paid that $30 billion, even though it was technically legal
  • Raymond – Can you guarantee even if we pass legislation, that $4.2 billion is going to go back to customers? Who is going to pay the $30 billion? Consumers, correct?
    • No; municipal, co-ops, etc. and then there are the energy purchasers
  • Paddie – Net buyers who benefit are the ones who went out into the market and bought?
    • Yes, could be a number of reasons why they were not able to show up

 

Bill Magness, President/CEO ERCOT

  • Billing has been classified as an “error”
  • On Wednesday, understood there were still people out, but would not have to ask for more; however, models showed we would need rotating outages on Thursday/Friday morning
  • RUC process is a unit-by-unit system, and was not the clearest system to use for generators to stay online
  • On the supply side, saw load shed Thursday and Friday; producers told us they would be offline as soon as emergency conditions were over
  • On load shed side, saw that far more industrial users than expected both voluntarily and involuntary
  • Market structure aims to have high prices to keep generators on the system; made the decision to continue the $9,000 cap in tandem with PUC to prevent outages on Thursday and Friday morning
  • If it is determined that was outside of our scope, then will handle that; but believed it was within out decision/judgement and reserves grew because of it
  • No question that decision has financial consequences, but number one priority was to stop the suffering of those who had not had heat/light
  • Took action because market is security constrained by the reliability means of the system
  • Smithee – Have done exemplary since this occurred; were there generators who made decisions based on this pricing order?
    • Were generators who were communicating before the pricing order; some said they would not run to be on the system
    • Cannot say particular answers
  • Smithee – What implications does this have for the future? If the legislature reprices, are there any implications how the market would work?
    • If the same market structure/incentives are the same, would still face similar decisions if nothing changed
    • If you reversed prices, market participants would be a better one to answer that as ERCOT is the middle man in that
    • More changes made to the market, more uncertainty increases and that has a great value in the market
  • Smithee – The board of ERCOT, were you consulting with them or just PUC?
    • Consulted with some of the board members, could not speak to those who represented corporate interests
    • Most communications were with the commission because they were issuing orders we needed to implement
  • Hunter – We should not be looking on how we have been doing things, but how to fix it; when power went off, it was not the storm’s fault it was the utility’s
  • Hunter – Am disappointed with communications with legislators; why did the board quit?
    • The unaffiliated board members quit upon the idea that board members should be from Texas; two of which were new
  • Hunter – When did the chair and vice chair quit? What did they get paid?
    • After the February 24 meeting; about 14-15 days
    • Does not think they got paid for that period of time; will check
  • Hunter – The board quitting does not look good? The board did not operate correctly during the crisis
    • Correct
  • Hunter – Tell us what is your suggestion for new laws that we should do to prevent this from happening again
    • We are not the policy makers, but supports Raymond’s bill concerning a mass emergency notification system
    • Whether on the gas supply side or the winterization side; something that encourages something different on the other side, but do not have the clear data yet
    • Transmission owners were in a difficult situation because outages got stuck because we asked them to shed a lot of load; solution may need to be driven by software, rules, or legislation
  • Raymond – The $9,000 order, could you have done it for $8,000?
    • Would have had to talk to the PUC chair about other prices compared to their order
  • Raymond – Do you think if you had gone to any other price that it would not have gotten us there?
    • I do not know; not sure what gas contracting prices we were trying to cover, or about contracting fulfillment for other entities
    • Raymond – Asks them to look into it
    • If the legislature asked to develop that information in a more complete way, could do it; challenge is that industry believes it is competitively different
    • Raymond – Did we even have to charge the first $30 billion is my question
    • Had data that the $9,000 was working
    • Raymond – If you could provide us language on prevention of things like this in the future; asks the chair about reports from previous testimony
  • Howard – You said you are the book keeper correct? And are implementing the PUC’s order?
    • Yes
    • Howard – Market design is to incentivize market producers to shed load?
    • Yes
  • Howard – Guidance tells you to not run the market without reliability?
    • Correct, have a complex computer program that is influenced by a lot of things including what is currently available on the grid; take those rules into the system
  • Howard – Ultimate goal is to ensure reliability?
    • Correct, that is the concept
  • Howard – Part of the flaw in the market design is that you cannot control the price of gas, can negate what you are trying to incentivize?
    • Has a huge influence and the availability of gas is a factor; have no visibility in their market
  • Howard – Are there things you would change in the market that would allow us to restructure to provide for redundancy, dual fuel, etc. to be reliable?
    • Most appropriate role for the grid operator to implement the policy of the legislature and PUC
  • Howard – Are focused on economic decisions as opposed to operational decisions; do you have an IMM for the operational part?
    • Is different, IMM reports to commission and ERCOT in part pays for it; NERC and FERC have contacted us about and audit for operational conditions
    • Reliability Operator Entity is responsible for enforcement in the case NERC finds any wrong doings
    • Howard – When will this happen?
    • Any time, have already gotten some RFIs
    • Howard – So there will be a peer review on these decisions?
    • Yes
  • Howard – Is there a mechanism in which we will understand the real causes behind when plants went offline? Who would be responsible for that information?
    • Have made timeline of who went off available, on the whys we have outstanding RFIs to the generators; need to gather that information to the legislature in an organized way
  • Howard – You gave 6 reasons for reliability in your handout; agrees with your number one is protecting human health and safety and reliability of the grid is second
  • Howard – Lt. Governor asked D’Andrea why he did not allow the market to control itself and his response is that the market is killing people, what is your response?
    • We knew people were dying; reliability means providing people with the things to live
  • King – Need to figure out if we need to intervene in the settlement process, identify lessons learned and which are PUC or statutory solutions
  • King – If the House and Senate came up with a solution that notes those $4.2 billion will not come back to the consumer; what other mechanisms could fund that loss?
    • ERCOT does not have a market mechanism, but if the PUC changed the price, you would adjust in their settlement process
    • Are other ways of recovering a chunk of money
    • King – ERCOT cannot borrow from a hedge fund to make up that $4.2 billion?
    • No, only way to do so would be through commission approval; but do not have the ability to borrow $4.2 billion currently
    • System administration fee is socialized across pretty much everybody
  • King – Other than changing prices, what could we do?
    • Not a banker, does not know; if you want ERCOT to be apart of that vehicle, then we can be
  • Paddie – Can you make a distinction between an “error” and a decision? What are the protocols themselves?
    • Price correction is the term in ERCOT protocols and there is limited justifications for price corrections
    • Causes that allow corrections are data input errors, hardware/software error, if outcome is inconsistent with PUC rules/statute; have seen both last year because software was not working with protocols
  • Paddie – The win occurs when?
    • Within 30 days of the operating day, sometimes we can inform the market immediately or can do true-ups at the latest at 6 months
  • Paddie – So this was not an error, it was a decision?
    • Correct
  • Paddie – Generators were bidding into the market at a zero price; what affect does that have on the accurate prices of the market?
    • Are some generators who are “price takers” who want to run, like nuclear plants
  • Paddie – Response at the time was reliability? When there is a disagreement with you and IMM, they are concerned with economic efficiency challenges?
    • Correct; is the difference between reliability and economic efficiency
  • Paddie – How much load is still shed, and how much industrial load was
    • Not precise numbers, residential load shed is based upon transmission owners
    • Heard there were significant industrial facilities that came offline because of some reasons or another
  • Paddie – Asks about if reserves were enough?
    • Were peaking in the upper 50,000s and reserves are around 2,400
  • Paddie – Having the cap there is not just about incentivizing, but there is a flip side on demand as well?
    • Yes, if you are short generation, you want to lose some of that load
    • Market signals are important to send to the load side and demand side
  • Paddie – What are your thoughts about how consumers would benefit if we repriced? Are changing the winners and losers
    • Some already have lost; cannot say for sure, will not deny consumers will pay regardless, just may be out of another bucket
  • Paddie – Will net buyers benefit from this; likely those who were
    • Are dollars they believe they earned, that will be taken away
    • Paddie – They earned those dollars according to the law
    • Net buyers were hurt badly during the storm
  • Paddie – How do we reprice if these monies are outside the Texas market?
    • Can send out invoices based on the change, then the question is if they are going to pay, not pay, short pay or end up with uplift
    • In bankruptcy proceedings to maximize those who owe payment
  • Paddie – Does not think the legislature can retroactively change the rules
  • Paddie – Will head Raymond’s communication bill on Thursday and hopefully vote it out; along with a series of bills that touch on solutions
  • King – If someone short pays you, how does that get made up? Is there interest?
    • We do uplift, spreading it around to the 300 entities in the system; is a limit of $2.5 million total a month
    • Are getting into lawsuits and bankruptcy proceedings
    • Does not think so
  • King – How much in debt are you in right now?
    • $3 billion; is not ERCOT’s money, but are holding it
  • Howard – Uplift charge is a socialized payment that ultimately goes back to the consumer?
    • Correct
  • Howard – Part of the issue is that there are generation companies who did the right thing
    • If they think they did right, they should think again because there will be uplift charges
    • Howard – That is beyond the $4.2 million? Is apart of the $3 billion?
    • Is a part of the $3 billion

 

Paddie notes during the hearing that Paxton issued relief for 24,000 Griddy customers

 

Arthur D’Andrea, Chair PUC

  • Supports Paxton’s action and will work with the AG’s office
  • Have engaged a team at UT to produce a report by the end of the month and a report at the end of the year to determine what went wrong
  • Team is a third-party despite the study being funded by the PUC
  • Paddie – Was this an error or a conscious decision based upon reliability concerns?
    • Was a decision based upon reliability concerns
  • Paddie – Consumers will not necessarily be helped by repricing?
    • Correct; if you reprice, you are bailing out entities you did not intend to; a more effective way to do this is like AG’s actions
    • Are going to continue to find solutions for other consumers
  • Paddie – Reprising is a constitutional issue?
    • Contract clause in the Texas Constitution protects contracts and other laws; believes those who will lose will sue and win due to this clause
  • Paddie – Have priority legislation on solutions; last time you testified you said that we should help customers on the back end, and in my mind that is securitization, is that correct?
    • That is a great example along with the AG’s actions with Griddy, and Texas Legal Services have a long list of recommendations

 

Chris Edmonds, Intercontinental Exchange (ICE)

  • Extends condolences to the people of Texas after what occurred in the winter storm
  • ERCOT’s decisions during the winter storm are irreversible in a market environment and consumers will be hit by any effort to do so
  • When the system was met by the issues of the winter storm, they reacted according to PUC’s $9,000 price; the market reacted as expected to these market changes
  • Conversions to spot prices, settled to the same marginal price and contracts were settled on March 5; they are closed and cannot be reopened since these were not errors
  • Repricing is not the way to fix what happened during the storm and confidence in Texas markets will decrease
  • If repricing occurs, banks will no longer be able to price risks; will work to erode the pro-business environment of the state
  • Hernandez – So we have never done repricing besides clerical or billing errors?
    • Correct, was a conscious decision by ERCOT
  • Hernandez – So repricing has never been the case in this market?
    • No; noted that they provided the opportunity for PUC to extend the settlement period, but the PUC stated the price of power on those invoices was not going to change
  • Hunter – Where is ICE located? You said consumers will pay the price, correct?
    • Between Atlanta and New York; notes he lives in Chicago
    • Yes, some consumer at some time will pay; any time you change the economic construct, that has a price fluctuation to the end user
  • Hunter – What is your conclusion? Are you telling us to not reprice?
    • If you reprice, you will create an enormous number of unintended consequences and has long-term risk of eliminating risk management tools of energy contracts
  • Hunter – Who are the winners? Do you have a list? Will ICE get the list? Can you eventually tell me those names?
    • Does not personally have the list; would have to combine PUC, ERCOT, and other data to figure out those who hedged and to get a more complete picture
    • Can tell you where they entered into the market, but cannot tell you the full pictures
  • Hunter – Are winners and losers?
    • Are winners and losers in the market at any given time, but yes
  • Raymond – Bivens noted there were other markets who repriced, can you tell us what happened there?
    • I am aware there has been repricing for clerical/data errors, but no where near the amount we are talking about here
  • Raymond – Nowhere even close to this testimony has happened?
    • As far as I know, yes
  • Raymond – Notes that people will invest in Texas regardless; notes he wanted to ask D’Andrea if we passed the SB through the House, if he would resign
  • Raymond – Asks about the first $30 billion? That price is the total during the PUC order; we are not challenging that, and thinks that is too big of a compromise
  • Raymond – Is more concerned what happens if the legislature does not pass this bill
    • Was asked if the consumers will pay more, and believes that will occur
  • Raymond – Hearing you say people are going to get their money one way of another?
    • The price in the future is going to be different, and they will charge a higher price
  • Raymond – Is it your testimony that “those guys” will get their money no matter what?
    • If you alter the market structure, that will come at a higher price for all Texas companies
  • Raymond – You are concerned about there will be people who will not get their money if the market is changed?
    • I believe there will be a ripple effect outside of the energy market
  • Raymond – You testify there will be losers, and those who will lose that much will get their money back sooner or later?
    • Yes; am suggesting this is larger than the $4.2 billion, the market structure as a whole will be impacted negatively
  • Raymond – You are saying if we pass the bill, the consequences would be the same if not worse than the $4.2 billion?
    • Correct
  • King – Question asked previously has been what do you need from Texas to make it attractive to invest in energy/telecom, they said do not change the rules; is that what you are saying?
    • Yes
  • King – If we decided that since so much time has passed, after funded that $4.2 billion whether through private securitization or something else, would that have a negative impact?
    • No, could have a way to syndicate the hole itself
  • King – In the past, have passed a securitization bill that spread that cost over a long period of time, if we did something like that, it would not impact the markets?
    • Not that I know of
  • Howard – You are regulated by Commodity Exchange Act, and you have already settled contracts?
    • That has occurred for all the contracts in February with the exception with two ancillary service contracts; does not believe they have the legal authority to re-open that
  • Smithee – You discussed unintended consequences, if we pass a repricing bill similar to the Senate, what would we be looking at?
    • Will have an investigation whether or not we can offer these products at a go-forward basis; they may determine we will not be able to manage the risk associated
    • Companies who use these tools for hedging now become a variable floating rate in the market; could be fully exposed
    • Smithee – That consequence could cause a chain reaction?
    • It could, but if it does not happen; counter offers will apply a premium to other futures like cattle futures
    • Interest rates or other physical commodities like crude oil now has risk
  • Smithee – Texas has sovereignty on construction projects and have to add a premium for building contracts, that is similar to this?
    • Yes
  • Smithee – What else could happen?
    • Higher costs; could affect the pro-business environment other states envy
  • Smithee – Another option is securitizing, and you see no negative implications to the market with that?
    • Correct
  • Metcalf – Has repricing occurred in other states?
    • Have the ability to reprice after clerical errors and during the last week of February had flexibilities to keep contracts open, but PUC stated they would not change the price
    • This is not a clerical or billing error
    • Reiterates two ancillary services contracts are still open
  • Metcalf – Has there ever been a repricing event like this?
    • Has never been anything of this magnitude
  • Raymond – If this has not happened before, then how do you know how badly things will go?
    • If you cannot guarantee convergence, people do not use those contracts
  • Raymond – Asks how much taxpayers are paying for IMM?
    • Paddie – Paid by ERCOT 4 years at $16 million
    • Raymond – May be something to bring up to appropriations
  • Raymond – It appears that there was a mistake, but the markets would not acknowledge that? Would a court look at this and take the side of the generators?
    • Historically, it is not on your side
    • Raymond – What history?
    • There was a bank who sent money to a bunch of accounts, and the people who received it sued and the court sided with those who the banks sent the money to
    • Takes issue with the word “mistake,” it does not fit in with your definition
    • Raymond – Am not trying to make it fit, but we have paid the IMM to figure out who made a mistake; notes that Magnus and Commissioners have quit/resigned, is that because they did nothing wrong?
    • Reiterates that it was not a clerical error, the market reacted to the decisions but ERCOT
  • Hunter – Requests a list of constructive thoughts and a list of what not to do
  • Paddie – Primary challenges are the final settlement price, they are irrevocable, correct? Do not see any room go claw that money back?
    • Yes that was closed on March 5; that is why we cannot be a part of that decision after the fact
  • Paddie – You have risk management tools?
    • When generators sells into ERCOT, we list a contract others in the market can buy
  • Paddie – Your concern is confidence in your market tools if the legislature could just come in and change that? If you do not have that, then you are essentially a Griddy customer?
    • Is a fair assessment