By Cyrus Reed
When most people’s attention turns to holiday merriment, my attention has been diverted to the potential for major changes to our electric grid and the agency that regulates utilities (okay, and the World Cup).
Turkeys, in-laws, and soccer aside, there are two big things underway in Texas energy. First, the Public Utility Commission of Texas (PUCT) is seeking comments on potentially fundamentally changing our electric market. Their decision could come as soon as January. Second, the Sunset Advisory Commission has released its initial report on the PUCT and is seeking public input in December with decisions being made also in January.
Market reform, but for whom? Options Seem to favor certain interests.
First, on November 10, two days after the election, the PUCT finally released their so-called “Phase 2” report through their consultant E3. The Assessment of Market Reform Options to Enhance Reliability of the ERCOT System, is a 150-page report that reviews six options to supposedly make our energy-only electric grid more reliable. A copy of the report and the PUCT memo on the report can be found here.
E3 made some assumptions about our current market and how it might look in three years as more wind, solar, and storage capacity are added to the system, in addition to what changes might be needed to meet a reliability requirement of one outage (one day without power) every 10 years, a common reliability standard used in the utility industry.
There are a lot of acronyms in this report as they review both the existing market mechanisms and six other options. “PCM, LSERO, DEC, BRS, FRM…” what’s it all mean? I’m here to save you the time so you don’t have to read it (unless you really want to).
The options laid out in the report include:
- Doing nothing new other than what has already been done.
- A backup reliability service - paying large fossil fuel plants to be there in case we need them separate from the market.
- Modified “capacity” payments either based on looking forward (Load Serving Entity Reliability Obligation and Forward Reliability Market).
- The Performance Market Credit - which looks back at the 30 “worst” hours - and then pays generators to be available the following year with the cost being paid for by consumers (through their providers).
- Creation of Dispatchable Energy Credits (DEC) that would cover two percent of the market and would largely favor newer resources like batteries, although fast acting gas plants could also qualify.
- Finally, as they find that DEC alone wouldn’t actually meet the reliability standard, they suggest one could combine BRS with DEC to meet the reliability standard.
Interestingly, while the report suggests that the Forward Reliability Market might be the best fit for ERCOT’s market, the one selected by the PUCT (at least initially for comment) is the Performance Market Credit identified above. Either of these options costs about the same (they claim) - some $460 million more than doing nothing, while buying more than 5,600 MW of extra power. They claim the actual cost is around $5.6 billion, but they claim the extra money it will put in the market will assure that coal and gas plants won’t retire, lowering overall costs in the rest of the market. Again, the opinion of the third party that wrote the report is not necessarily ours – other reports find much higher costs for these types of annual capacity markets, and without a corresponding reduction in energy prices.
Comments are due by December 15. While the Sierra Club has yet to take a definitive position on any of the six options, we do have a few observations (you can also check out our recent testimony to the Senate Committee on Business and Commerce, which held a hearing on the subject November 17).
First, E3 considered a “do-nothing” let the market work approach, but made pretty unusual assumptions about how many power plants would retire in the next few years if we do nothing (about 11,500 MW of fossil fuel plant capacity before 2026). While there are likely to be some retirements, it is interesting that this is the only scenario in which the retirements are assumed, conveniently creating the problem the chosen market mechanism is supposed to solve. It’s convenient if you are saying we must do something now to prevent a crisis in 2026!
It is also worth noting that they did not assess what many market participants have been pushing for, including the Independent Market Monitor, also hired by the PUCT. What they’ve been saying is, essentially, don’t just do nothing, add to our existing market structure. First, co-optimize “real-time” energy and “day-ahead” ancillary service markets so they work better together, and second, add a new ancillary market product called the “Uncertainty Product.” Such a product would be provided by resources (like yes fossil fuel plants, demand response and storage units) designed to run when there are sudden changes in weather, demand or sudden outages. It would be dynamic and work with our existing market structure.
On a side note, Sierra Club and many partners have been pushing for a consumer friendly approach that reduces electric demand by investing in energy efficiency, helping residential and small commercial businesses reduce their use, which would alleviate pressure on power plants. Again, our attempt to petition the PUCT to do something through rulemaking was rejected, but the PUCT has begun a separate process that could lead to rulemaking in the future (fingers crossed). E3 was not asked to model what investing in energy efficiency might do to reliability, but you really don’t need a study - it would make the system more reliable!
One of the approaches studied - the Dispatchable Energy Credit – was one that Sierra Club believes might have merit. However, the analysis by E3 changed the performance requirement from a two-hour service to a 48-hour service, meaning the whole point of creating a new cheap but important service that would benefit two-hour electric batteries and fast-acting gas resources, is undermined in the analysis. It costs a lot more to make something available for 48 hours rather than two hours. Not surprisingly, the E3 report found that DEC would be expensive and wouldn’t lead to the best outcomes.
Again, while we can’t say we support the two leading contenders - the Forward Reliability Market picked by E3 or the PCM favored by PUCT staff and Chairman Lake - we haven’t yet fully analyzed their impact or who it would benefit. Many other market participants, however, don’t seem impressed and believe they would largely benefit existing fossil fuel generators, as opposed to newer cleaner options. Important to the Sierra Club will be the cost to consumers, how it will impact future generation, and whether newer technologies like battery storage, geothermal, and demand response - literally shutting down use of power - can be used to meet the “PCM.”
Comments on the report are due December 15 and to their credit, the PUCT has created a specific website where you can find the report, the staff questions, and how to comment here. Warning: They are asking 12 specific questions which are pretty detailed and “in the weeds” but we are here to help you cut through the noise.
In addition to the PUCT, the Texas House of Representatives is holding a special hearing on December 5 at the Texas Capitol at 9 AM to discuss the report and next steps. The House Committee on State Affairs will hold the meeting on ERCOT market design and take invited and public testimony. Information can be found here.
Is the Sunset process viable for reform?
On November 17, the Sunset Advisory Committee released its report on the agency, as well as ERCOT and the Office of Public Counsel. It is another lengthy report with several important recommendations. A copy of the executive summary can be found here and the full report can be found here.
I think the report is a good step, but it does not go far enough. First, I agree with many of its findings and recommendations. Among its overall findings and recommendations, the report finds that:
- PUC is woefully under-resourced given its critical responsibilities and work that still lies ahead.
- Without additional resources and clear decision-making processes in place, PUC cannot truly fulfill expectations for ensuring a reliable electric grid.
- To restore trust, PUC needs to further improve its public communication efforts.
- PUC needs additional resources and attention focused on its water and wastewater regulation to avoid overburdening utilities and their customers.
- PUC’s poor data practices and lack of policies and procedures limit its ability to best allocate resources and serve the regulated community
- Continue PUC for six years and remove the Sunset date of the agency’s enabling statute.
- The state has a continuing need for OPUC, but the agency should strengthen its processes for contracting with legal expert witnesses.
The Sierra Club agrees with all of these points, and many specific recommendations suggested in the report, like improving the website, allowing more public input at Commission agenda meetings, and making it easier for the public to comment on rules, projects, and other processes.
However, the report falls well short of the comprehensive recommendations that we and many partners are calling for, as outlined in this letter from October. Specifically, we need the PUCT to put the public and residential ratepayers first. We need to prioritize energy efficiency and weatherization programs. We need to make sure our state has programs to help working Texans faced with energy burdens, and we need to make sure that PUCT has the authority to also oversee the gas supply that was such a problem during Winter Storm Uri. In addition, we also have been noting that when Texas chose to move to a deregulated energy market we were promised competition and low prices, but more than 20 years later, we now have two companies controlling roughly three-quarters of the market! Better enforcement and limits on market power are sorely needed.
There are several ways to make your voice heard on the Sunset process. First, Sierra Club is working with our partners Public Citizen’s Texas Office and CEER on a townhall on November 29 at 630 PM.
Have a story to tell about Winter Storm Uri? Have your electric bills gone up? Are you concerned about the power grid? Get involved by joining the PUC Virtual Town Hall on Nov. 29.
Then, on December 7, the Sunset Advisory Commission will hold a public meeting, expected to start at 9 AM at the Texas Capitol. On that day, they will be taking public oral and written comments on the PUCT, ERCOT and OPUC. And unfortunately, you can’t just call in or appear virtually. You have to be there in person. You also have to get there early in the day to sign up to speak.
Can’t make it the capitol on those days? Well the Sunset Commission will actually be taking comments through December 14 and you can submit public comments through their website here.
Look out for some of our top recommendations and thoughts on the Sunset Staff Report soon.
Decisions won’t be made in December on either issue. First, the Sunset Commissioners will come back on January 11 to make decisions on the Sunset report and will hopefully have listened to comments from everyday Texans. Then the legislative session begins and the decisions will be turned into legislation.
On market reform, the Commissioners are scheduled to meet on January 12 to discuss the proposed market reforms, but given opposition from many stakeholders and Texans, it could be the beginning of a conversation, not the end!