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    Overhaul of ERCOT power market in limbo amid questions from lawmakers

    December 5, 2022 - Bob Sechler, Austin American-Statesman


      An effort by Texas utility regulators to redesign the state’s electricity market is facing skepticism from state lawmakers, injecting uncertainty into an initiative viewed as a key step to make the power grid more reliable over the long term.

      Peter Lake, chairperson of the Public Utility Commission of Texas, was quizzed by members of a House oversight committee Monday. They questioned him on the complexity of the potential market overhaul, the timing of its implementation and the likelihood that it will accomplish a desired goal of spurring private investment in so-called "dispatchable" power generators in the state, meaning plants that can be turned on quickly in times of need.

      And all nine members of the state Senate's Business and Commerce Committee — six Republicans and three Democrats — signed a letter last week instructing the utility commission to tap the brakes on its redesign efforts until the Legislature weighs in. The letter was first reported by The Dallas Morning News.

      Among other issues, the Senate committee raised concerns that some of the proposals under consideration by the utility commission are beyond the scope of its mandate and "will not guarantee new dispatchable generation in a timely and cost-effective manner."

      More:Here's why Texas officials say the state's power grid is ready for winter weather

      Dispatchable generation generally refers to plants powered by fossil fuels, such as natural gas.

      Lake, who was appointed by Gov. Greg Abbott in the aftermath of the near-collapse of the power grid during severe winter weather in February 2021, told the House committee Monday that the utility commission intends to vote Jan. 12 on a plan to redesign the power market — two days after the start of the legislative session.

      Still, he characterized the outcome of the commission's vote as merely a recommendation to the Legislature.

      “In no way would we operationalize anything before getting guidance from you all and the Senate," Lake said in his testimony to the House State Affairs Committee.

      With that in mind, state Rep. Rep. Richard Peña Raymond, D-Laredo, said he doesn't see a reason for the utility commission to delay its effort.

      “We have asked you to make recommendations, (and) you are making them," Raymond said. “I don’t really get why (members of the Senate committee) don’t want you to make them.”

      Once the utility commission determines its preferred plan to overhaul the market, he said, the Legislature can take it into consideration and decide how to move forward.

      More:'Marginally better': Texas power grid still vulnerable to extreme winter weather, federal report warns

      The potential redesign of the state's electricity market, which is managed by the Electric Reliability Council of Texas, is the second phase of a broad effort to make the power grid more reliable in the wake of the February 2021 calamity. Extensive blackouts during the disaster contributed to hundreds of deaths and billions of dollars in property damage statewide.

      The initial phase of the effort to shore up the grid since then has included operational measures that have largely been implemented, such as winterization mandates for Texas power plants, as well as moves by ERCOT to ensure that greater amounts of reserve power are available.

      Carrie Bivens, an executive with consulting firm Potomac Economics who serves as an independent monitor of the ERCOT power market, told the House committee Monday that the changes aimed at running the grid more conservatively added about $2.8 billion to energy costs through October, a sum equating to "about 10% of the total energy market value year to date."

      Lake has previously defended the added costs, and he reiterated Monday that the grid reforms put in place so far have been effective. The utility commission has been working to shore up the grid since the Legislature directed it to do so during its 2021 session.

      “In the absence of the reforms ... over the last 18 months we would have been in emergency conditions or blackouts eight times," he said.

      The second phase of the planned grid overhaul has been described by Lake as intended to move it away from its current "crisis-based business model," in which soaring prices during times of peak electricity demand provide the primary incentive for private companies to build more power plants in the state.

      More:New ERCOT CEO Pablo Vegas: 'Continued reliable execution' is goal for Texas power grid

      One of the proposals to help change that — which has drawn support from Lake and some other members of the five-member utility commission — is called the "performance credit mechanism." Boiled down, it would require electricity companies that provide power to homes and businesses to buy "performance credits" awarded to generators that have earned them by being available during periods of the greatest strain on the system.

      Supporters say the plan would create an incentive to spur private investment in dispatchable power plants on the ERCOT grid while also preserving free-market principles, because the credits would only be awarded for performance. But the idea is untested, with a consulting firm that analyzed it for the utility commission noting that such a mechanism "has not been implemented in any market in the world to date," meaning there could be difficulty in getting the system up and running.

      In its letter to the utility commission last week, the Senate Business and Commerce Committee raised concerns about the challenges associated with putting in place "an administratively complex and novel concept" in a timely fashion, as well as the potential that needed investments by private generators might be delayed in the interim.

      "It is not in the best interest of our constituents to support any proposal that further delays investments in new dispatchable generation, and the commission should carefully consider the unintended consequences of any type of proposal that creates more uncertainty for market participants," the letter said.

      This article originally appeared on Austin American-Statesman: Overhaul of ERCOT power market in limbo amid questions from lawmakers


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