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By Cyrus Reed
What ever happened to all those bills that passed the Texas House and Senate, became law, and were supposed to “fix the grid”? Have the changes that we expected to see happen, happened?
What about that acronym-acronym-alphabet soup of so-called “solutions” pushed by various interest groups? What happened to the extra ancillary service favored by customer groups including the Sierra Club and and the Texas Industrial Energy Customers – the Dispatchable Reliability Reserve Service (DRRS) – to address those periods when demand is suddenly high or solar and wind drop off?
What about the somewhat maligned “PCM” or Performance Credit Mechanism, a scheme invented by the Public Utility Commission of Texas (PUCT) that was seen as an expensive giveaway to the older coal and gas plants and was limited by the Legislature with support from consumer groups to cost no more than $1 billion per year (instead of the nearly $12 billion it might have cost otherwise)?
What about the required “reliability” standard, a key component of SB 3 from the 2021 legislative session? Wasn’t one of the requirements of that legislation to assure energy resource adequacy by finally having a required extra supply of reliability for all times when demand is high?
What about the $10 billion in taxpayer funds, some of which could go to loans or grants for building more gas plants? The Sierra Club opposed Prop 7, the constitutional amendment that resulted from SB 2627, but a strong majority of Texas voters passed it in November.
And will the PUCT ever implement SB 1699, the bill supported by the Sierra Club that includes measures designed to increase both distributed energy resources and demand response, literally shifting the use of electricity during peak times?
Well a lot is happening at the PUCT and the Electric Reliability Council of Texas (ERCOT) this month, and while we can’t cover it all, we’ve got a solid update for you.
DRRS, what is it?
During the too-long discussion back in 2021 and 2022 about how to “fix the grid,” a number of solutions were put forth. One that was supported by many stakeholders, including the Sierra Club, was to add an ancillary service (originally known as the “Uncertainty Product”) that was favored by the Independent Market Monitor. Many of the problems in ERCOT have been due to sudden changes, be they related to weather and climate, sudden spikes in demand or sudden changes in the availability of renewables, such as cloud cover impacting normal solar output or a sudden drop in wind output. Most days the ERCOT grid works well, but any of these factors or a combination can play havoc with the system. An extra “ancillary service” that can operate over, say, four hours can fix the great majority of problems.
While PUCT commissioners largely ignored this solution, a coalition of industrial and other consumers supported such a service during the regular legislative session in 2023. The new service – renamed the DRRS – is required by the passage of HB 1500, commonly known as the PUCT sunset bill. With the bill setting a date of December of 2024 to develop the new service, ERCOT quickly – some would say too quickly – put together a proposed rule to implement the DRRS. That original proposal – which would have created a quick and easy DRRS service based on an existing ancillary service – was not supported by most stakeholders as it was narrowly tailored only to be eligible to certain resources, and was tailored in a way that might raise the costs of ancillary services more than anticipated.
Following a letter from several key political leaders, including Senate Business and Commerce Committee Chair Charles Schwertner and House State Affairs Committee Chair Todd Hunter, indicating that the PUCT and ERCOT did not have to strictly interpret the December 2024 deadline, ERCOT scrapped that initial protocol and instead has begun a stakeholder process to arrive at a more comprehensive DRRS. Sierra Club itself was not happy with the original proposal since it ignored the potential of storage and loads shutting off in times of peak use from providing the service, which the legislation seems to require. They have held two meetings so far.
ERCOT is proposing to make the DRRS available to two types of resources that would bid the service into the “Day Ahead Market.” First, off-line resources – mainly older gas plants but potentially also batteries that were ready to be discharged – could bid part or all of their power into the new ancillary service for at least four hours the next day. Another batch of resources – including gas plants, batteries and even loads – that were online and functioning could pledge a part of their resource to supply the service. It would be up to ERCOT whether to “dispatch” the resources if conditions were right to need the extra service. A copy of their basic proposal can be found here. They recently released an actual draft of the protocol, which can be found on this webpage, but realistically the DRRS product is a couple of years away since it must go through the ERCOT stakeholder process, PUCT approval, and then implementation. Also expect some traditional generation companies like Vistra to argue that DRRS should only be open to offline coal and gas plants.
Even as ERCOT and the PUCT are developing the DRRS, they have not forgotten their signature “Blueprint” solution developed back in 2022 – the Performance Credit Mechanism (PCM), a backward-looking payment to dispatchable resources that are available during the 100 or so hours when the grid is most stressed. The payment is supposed to reward resources that show up when needed, but the details are still being developed. Recently, ERCOT released a draft guidance, and schedule, but commissioners made clear that it is the PUCT and not ERCOT that will determine the parameters of the PCM. Many consumer groups are worried about the potential expense and whether the PCM will simply reward traditional power plants like coal and gas plants, as opposed to providing any incentive for new generation. In response to these concerns, the legislature put some guardrails on the PCM, capping the total cost at no more than $1 billion on an annual basis. In fact, the PCM is not required but simply a potential tool should the PUCT find it necessary. Again, like the DRRS, the PCM will go through a lengthy process and will be several years from being implemented. In pushing back against some initial filings, PUCT commissioners asked staff to lay out a new schedule for consideration of PCM, with an initial stakeholder meeting currently scheduled on April 17th.
Perhaps of more immediacy are the rules surrounding SB 2627 and its associated constitutional amendment – Proposition 7 – that authorizes up to $10 billion in taxpayer dollars for four programs, including loans and completion bonuses (grants) for dispatchable power plants within Texas’s main grid – mainly gas. It also includes a grant program to build backup power packages for facilities like nursing homes and hospitals, as well as a program offering loans and grants for infrastructure for utilities outside of ERCOT. See here for more details on the latest developments with Prop 7.
All of these efforts – the DRRS, PCM, backup power packages and loans and grants for “dispatchable” power plants – are supposedly intended to keep the lights on especially during times of high demand and lower renewable energy production. In addition to these efforts, the PUCT is also working in a rather deliberative process on an actual reliability standard.
For years, Texas has relied on a voluntary reserve target of 12.5 percent – that is, supplies should be 12.5% higher than electric demand during peak hours. While Texas has met this target for the most part, factors like weather extremes have meant Texans' reality has been far different, and the Legislature put in a general requirement for the PUCT to set a specific reliability requirement. Currently, the PUCT is working with ERCOT and outside parties on a series of studies on different metrics and standards that might be adopted. What appears to be clear is that Commissioners are not interested in a single standard – such as the well known “1 in 10” standard that is intended to assure only one major blackout event every 10 years – but in a standard that considers duration, size, and frequency of events.
ERCOT has been modeling different scenarios and has engaged third parties for a variety of studies including VOLL (Value of Loss of Load) studies, which attempt to determine the value to different types of consumers of loss of power. It appears the Commission will be taking their time and may not set a new reliability standard until after key decisions on the DRRS and PCM have been made.
So if all of these efforts are developed, we don’t have to worry, right?
Well, as Sierra Club has been saying since Winter Storm Uri, we can’t build ourselves out of the crisis with additional supplies and services alone. Instead, transmission solutions and especially efforts to reduce energy use are key. Indeed, the quickest, cleanest and cheapest way to meet our energy needs is to use less energy, especially during peak times.
One of the bills supported by the Sierra Club and passed by the Legislature – SB 1699 (Johnson) – has yet to be implemented. That bill not only makes it clear that distributed energy resources like onsite solar and storage must be prioritized and be able to participate in our energy markets, but in addition the state should set goals for residential demand response programs – where consumers are paid to shift their energy use during peak winter and summer hours. That bill also encourages utilities to spend money on such programs as part of their energy efficiency plans.
Recently, as part of an Energy Efficiency Implementation Project meeting, several utilities including TNMP and AEP Texas did announce they intend to begin residential demand response programs in the next year or so, which is great news and is a response to pressure from groups like the Sierra Club. Others with existing programs like Centerpoint Energy and Oncor indicated they may expand their program offerings. A copy of utilities’ presentations can be found here.
In addition, the PUCT has indicated at least informally it intends to begin a rulemaking on both residential demand response programs – as required by SB 1699 – but also on energy savings programs in general. An exact timeline however has not been filed yet. An important first step was the announcement that they had finally hired a new PUCT Director of Energy Efficiency, Ramya Ramaswamy.
With staff in place, it is expected the PUCT will finally pay more attention to the demand side of the electric market. Recently, all eight private Transmission and Distribution Utilities (TDUs) filed their energy efficiency plans for the 2024-2025 period, and the Sierra Club is presently reviewing those filings and will provide input to the Commission. Look for future information on those filings in the next few weeks, especially as utilities get ready to file their tariffs to pay for the programs.
In addition, in another positive move, the two largest associations of retail electric providers – TEAM and ARM – filed a proposed pilot program for smart thermostats and demand response programs that would help expand such programs in the ERCOT market. In response, Sierra Club filed comments in support which can be found here.
As always, we will keep our members informed about what is happening and how you can be involved.