State regulators pass controversial overhaul of Texas electricity market

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The Public Utility Commission voted Thursday to make a substantial change to the state’s electricity market in a controversial effort to make the entire system more reliable. The agency said it will let the legislature review its plan before moving forward with its implementation.

The idea, known as a “credit-for-performance mechanism,” is a new proposal. It is intended to help produce enough energy when extreme heat or cold increases demand and electricity production drops for various reasons – such as lack of sun or wind to produce renewable energy or equipment breakdown in gas or coal fired power plants .

Under the new concept, which still has many details to work out, companies like NRG Energy would commit to being available to produce more energy in these difficult times. The companies would sell credits to electricity retailers such as Gexa Energy, municipal utilities and cooperatives that sell energy to homes and businesses.

The credits are designed to give power generators an additional income stream and make building new plants worthwhile.

In theory, credits help retailers and customers by smoothing out volatile price spikes when demand is high – but there is wide disagreement over whether this will happen in practice. Some electricity providers filed for bankruptcy after the 2021 winter storm because they had to pay too much for power.

Critics of the plan say the idea is risky because it has not been properly analyzed and has never been tested elsewhere. Members of the Senate Business and Commerce Committee wrote to PUC in December that they had “great concern” about whether the proposal would work.

Following the PUC vote, State Senator Charles Schwertner, R-Georgetown, shared a letter on Twitter calling the decision “a substantial departure from legislative intent” from the bill lawmakers passed in 2021 that required the network to be fixed. .

A PUC consultant has estimated that the credits could cost retailers $5.7 billion a year, an amount they say could be significantly offset by an overall reduction in energy costs. Still, experts argue that consumers’ bills would increase under the plan, though they disagree on how much bills would increase.

This is of particular concern for groups like the Texas Manufacturers Association, which includes industrial facilities that use a significant amount of electricity and expect to receive larger bills.

But power generating companies support the plan because they say the credits will give them a reason to build new power generation facilities needed to meet demand in a growing state. Governor Greg Abbott also indicated support for the idea.

PUC president Peter Lake, nominated by Abbott, advanced on Thursday.

“I think not only can we defend the product itself, but… we can defend the process,” Lake said before calling for a vote.

PUC commissioners have been working on how to improve the state’s power grid — which operates independently of other grids in the country — since shortly after the February 2021 storm left millions without electricity for days in cold weather. When the net nearly collapsed, hundreds of people died from hypothermia and other causes.

After the storm, the Legislature instructed PUC to prepare the network for extreme climates and times of low solar and wind production. Solar and wind are a big part of the Texas electricity market; at one point on Thursday afternoon, the two contributed 27% of the grid’s power.

Changes have already been made: to encourage plants to start producing more energy sooner, when demand versus supply seems tight, PUC has told grid operators to increase the trigger for when they can raise the price of electricity – which gives producers a financial incentive to meet that demand.

The agency also instructed grid operators to lower the maximum electricity price from US$9,000 per megawatt-hour to US$5,000 per megawatt-hour.

During the 2021 storm, gas plants had trouble staying online because they were unable to get enough natural gas when equipment on the gas generators froze and production stopped. PUC also required power generators to winterize their equipment in order to reduce failures during extreme cold.

Commissioners spent Thursday reviewing line-by-line a document outlining the proposal, including the intention to set a reliability standard for the state’s grid for the first time – for example, the grid could aim to produce enough power to meet demand from all but one day every 10 years.

Experts disagree on whether performance credits will really convince energy companies to build more natural gas plants, which are dirtier than wind and solar but can be turned on at any time. Some say new plants will be built anyway. Others say companies can simply use the credits to make more money from their existing factories without building more.

Michele Richmond, executive director of Texas Competitive Power Advocates, wrote in her comments to the committee that the group’s members were “ready to bring in more than 4,500 [megawatts] of additional generation” to the state grid if the new system were adopted. That would be enough to power 900,000 homes. Group members include Calpine, Luminant and NRG.

If PUC doesn’t change the market, there’s not enough reason to invest in building new power generation facilities and keeping existing facilities running, she wrote.

The Sierra Club’s Lone Star Chapter was among groups that urged PUC to spend more time considering whether new credits are the best solution “before making fundamental changes to our market that would increase costs for consumers,” as the director wrote. of Conservation Cyrus Reed.

Independent market monitor Potomac Economics, which is paid by PUC to monitor market manipulations and look for possible improvements, does not support the idea. The group believes that enough fixes have already been made to ensure that the network is reliable.

Still others, like Alison Silverstein, a former senior adviser to PUC and the Texas Public Power Association, which is made up of municipal utilities, cautioned that there wasn’t enough reliable information and analysis about the proposed credits to make such a meaningful decision.

Network reliability must improve, Silverstein wrote to PUC, but “we can’t do it at any cost and we can’t do it using poorly understood, poorly analyzed, or unproven market mechanisms to solve unclear problems and goals.” .

Silverstein added, “If the commission makes a bad decision on … market reform due to haste, misdefinition of the problem, careless analysis or misguided rationalizations, all Texans will suffer the consequences for years through higher electrical costs, lower reliability. and a slower economy, and millions of low-income Texans will suffer ill health and comfort as they sacrifice to pay their electric bills.”

The commissioners voted unanimously to approve it. Network operators said the plan will take at least two years to implement.

Disclosure: NRG Energy, Calpine, Texas Competitive Power Advocates (TCPA) and the Texas Public Power Association have financially supported The Texas Tribune, a non-profit, non-partisan news organization that is funded in part by donations from members, foundations and corporate sponsors . Financial backers play no role in Tribune journalism. Find a complete list of them here.