Energy Central-News Article

AUSTIN — Regulators of Texas’ electric grid approved an overhaul of the Texas system Thursday that will increase consumer electric bills as officials seek to encourage new natural gas power plants.

Politicians and commissioners at the Public Utility Commission have remained focused on building natural gas power plants in their effort to address reliability weaknesses in the ERCOT power grid by redesigning how electricity is bought and sold in Texas.

After weeks of deliberation and countless hours of testimony, the commissioners settled on a complex market construct known as the “performance credit mechanism,” going against the recommendation of the commission’s paid consultant, ERCOT’s independent market monitor and in defiance of state senators who called for a halt to the process.

Critics have said the new market design shifts costs and risk onto consumers while doing little to encourage the construction of coveted natural gas fired power plants.

“This is a blank check for generators with no consequences,” said Austin-based energy consultant Doug Lewin.

Proponents, including a trade group representing Texas energy giants, have said the new market will lead to reinvestment in the Texas grid. PUC officials estimate it would increase consumer electric bills by 2%.

The vote was unanimous to create a secondary market that has the potential to be a major windfall for companies that operate natural gas power plants. The basic design would award potentially lucrative credits to power plants that deliver on promises to produce electricity when demand is high and reserves are scarce.

Its approval faced near immediate pushback from Georgetown Republican Sen. Charles Schwertner, the author of the 2021 legislation Senate Bill 3 that put the market redesign in motion, who said last week in a letter to the PUC that it would be “imprudent” for the commission to approve the overhaul without consulting the Legislature.

Following the vote, Schwertner called their action “unacceptable.”

“To be clear: SB 3 did not direct the PUC to replace the state’s energy-only market with an unnecessarily complex, capacity-style design that puts the competitive market at risk without guaranteeing the delivery of dispatchable generation,” Schwertner said in a letter to the PUC.

Schwertner said he would hold hearings to create new legislation to “fulfill our obligation to protect the people of Texas.”

The idea of the performance credit mechanism emerged just two months ago and appeared to be dead on arrival after energy insiders expressed skepticism about a market design that was criticized as overly complicated and untested. The energy firm paid $600,000 to analyze the redesign said the model, “entails significant risk because of its novelty.”

Within weeks, every member of the powerful Senate Business and Commerce Committee signed off on a letter calling for a halt to the process after a somewhat bruising hearing at the Capitol.

However, a vow from the trade group Texas Competitive Power Advocates, which counts Texas electricity giants Calpine, NRG and Vistra Corp. among its membership, breathed new life into the proposal after organization leader Michele Richmond testified at the Capitol that 4,500 megawatts of new power generation would be built of the model was adopted.

Gov. Greg Abbott cited Richmond’s vow in a public letter announcing his support for the market model, and commissioners spoke of the promise at length during deliberations today. On Thursday, Richmond did not immediately comment on the decision.

Thursday’s vote is a milestone for the Public Utility Commission, which was completely reconstituted after the entire leadership of both the commission at the grid operator ERCOT either resigned or were sacked following the near collapse of the power grid in 2021 that led to the deaths of more than 200 Texas residents.

Since the freeze, the ERCOT market has remained based on a design that rewards power generators for capitalizing on price spikes that come about when power demand flirts with oustripping available supply. PUC Chairman Peter Lake has repeatedly referred to it as a “crisis-based” market, one that regulators hope to preserve in part for the low electric prices it created while discarding aspects that undermine its stability.

The hope is that the “performance credit mechanism” is the solution.

“This is a big step at ERCOT and I appreciate the guidance and support from the Legislature and the governor going back to the last session – major landmark legislation resulting in action here today,” Lake said.

What commissioners approved Thursday was a roadmap laid out in a series of bullet points. ERCOT will be in charge of creating many of the technical minutiae while the PUC would deliberate on larger policy issues. PUC officials estimate it could take up to four years to implement.

In the meantime, Lake said that following Thursday’s vote, the PUC would “tap the brakes” and “defer the legislature to consider their options throughout the legislative session.”