SENATORS DEBATE NEW ELECTRIC MARKET STRUCTURE

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(AUSTIN) — A new framework adopted by the Public Utility Commission that would significantly change the way that electric companies buy and sell electricity was met with skepticism by members at Tuesday’s hearing of the Senate Business and Commerce Committee. Following the near collapse of the state electric grid on Valentine’s Day 2021, the Legislature passed a number of measures not only to reduce the chance that extreme weather could damage critical energy infrastructure, but also to make the energy market on which generators and retail electric providers buy and sell energy more robust and to entice more new power plants into the state. Senators at Tuesday’s hearing, however, questioned PUC chairman Peter Lake’s assurance that the new plan would accomplish those goals. “It’s very novel,” Weatherford Senator Phil King said about the proposed plan. “I’ll admit to you that the words ‘novel’ and ‘electricity’ in the same sentence are always kind of scary.”

Senator Robert Nichols of Jacksonville explained to the committee that because federal tax incentives have made renewable power like wind and solar generation more attractive to the private sector, Texas has seen an explosion in renewable capacity, while the share of the state energy portfolio consisting of thermal generation sources like natural gas or coal plants has dwindled. While renewables tend to be cheaper for consumers on most days, they are subject to weather conditions. Thermal generation, while more expensive to build and maintain, is what is called dispatchable energy – it is energy that can be turned on and off at need. Many state lawmakers have called for extensive expansion in thermal dispatchable generation in the form of new natural gas power plants, and Nichols expressed concern that absent change, that won’t happen. “We’re continuing to lose dispatchable power, no one is building anything new,” he said.

The electricity market run by the Electric Reliability Council of Texas (ERCOT) operates on a supply and demand model: as demand rises so too does the wholesale price that generators charge to electric retail providers – those power companies that provide residential power. During 2021’s storm, as nearly half of the state’s generation capacity was iced over, the price of a megawatt/hour of electricity shot up to the statutory cap of $9,000, an astonishingly high price compared to the $20 to $30 for the same amount typical of a normal day in Texas. Prices stayed at that cap for 30 hours, resulting in billions of dollars in overcharges. One of the major reforms enacted by the Legislature last session was lowering that price cap to $5,000.

The PUC plan calls for a new market that operates alongside existing ERCOT markets where generators could sell a promise in the form of a “performance credit” that guarantees that a specific amount of power would be available on certain dates where demand is predicted to be very high. If they can’t to meet that promise, they would face penalties. Senators questioned, however, how this plan would incentivize the type of dispatchable generation the Legislature demanded through last session’s reforms.

In the face of pushback from the Legislature, Lake has said he will put further planning on hold as lawmakers mull the PUC proposal. It is within their authority to reject, amend, or accept this plan. The stakes here are very high. While it wasn’t related to state grid performance, the winter storm that knocked out power for hundreds of thousands of households in central Texas last week was a reminder of what a few days without power during February in Texas is like. Given the tenor of Tuesday’s meeting, it’s clear supporters of the PUC plan will have to work hard to ease lawmakers’ uncertainties. “This is the first of its kind, we’ve seen the first of its kind before, sometimes it works, sometimes it doesn’t,” said Brenham Senator Lois Kolkhorst. “We cannot miss on this. It’s critical.”