Public Utilities Commission Settles on ERCOT Market Redesign Plan, and Lawmakers Backtrack

The Texas Public Utilities Commission (PUC) approved the long-awaited plan to overhaul the state’s primary electricity market, drawing a swift rebuke from lawmakers.

In a vote of 5 to 0, PUC agreed to move forward with Performance Credit Mechanism (PCM) but stipulated that they would wait for input from the Texas legislature, which runs through May 29.

The entire Electricity Reliability Board of Texas (ERCOT) redesign project has been directed toward one overriding goal: ensuring that more heat generation is developed in the marketplace. The PCM aims to achieve this by granting generator credits for production during times of high demand or tight grid conditions. A similar option—the Forward Reliability Market Plan—would provide those incentives based on expectations, not actual performance.

according to Report By a PUC advisor, PCM is estimated to cost $5.67 billion annually with an estimated addition of 5,630 MW of natural gas generation development over time. In contrast, the cost of maintaining the status quo system has been estimated at $22.3 billion annually going forward, largely from high-price generation during periods of scarcity pricing.

Electricity rates were across Texas significantly higher Since the 2021 event for a number of reasons, including the extra caution with which the country is currently operating — bringing extra services and reserve generation online sooner, and for longer, than before.

Under analysis, the PCM system carries with it a conception event expectation loss of 0.1 days per year; The status quo has an estimate of 1.25 days.

The PUC has also agreed to look extensively at the “reliability standard” – standards by which reliable performance is measured and generators are monetarily rewarded.

We heard Texas loud and clear. They demand a reliable network. The landmark reforms have proven effective in enhancing the grid reliability we have today by providing electricity during record temperatures and Arctic blasts over the past year, PUC Chairman Peter Lake said in a statement following the vote. “Today, we are taking another historic step towards building the network of the future by adopting a new reliability service – the Performance Credit Mechanism.”

PCM is a bona fide effort at some form of hybrid system [between the energy-only market and a capacity market]PUC Commissioner Will McAdams said during the meeting.

It comes about a week after Governor Greg Abbott weighing In the long-running redesign discussion, PCM supported and urged the PUC to move forward with the plan. In his letter, Abbott was convinced that the PCM would provide enough financial incentive to motivate companies to invest capital toward building more heat generation sources.

But this position contradicts the position of the legislature. Last month, House and Senate committees throttled Peter Lake, President of PUC, to move on to the redesign without getting further input from them.

Then Lake agreed to wait for the body weight through 88y Legislative session.

The last point in the lake agenda The PCM reads, “The Committee directs PUCT and ERCOT staff to delay implementation of PCM until such time as the 88th Legislature has an opportunity to pass a ruling on the merits of PCM and/or create an alternative solution.”

But the decision angered some in the legislature. Senator Charles Schwertner (R-Georgetown) issued a Message To PUC criticizes PCM.

As the author of Senate Bill (SB) 3, the [PCM] approved by [PUC] In today’s town hall represents a material departure from the legislative intent of Subsidiary Body 3, specifically Section 18, which relates to the development and procurement of a new ancillary service or reliability to incentivize the new deployable generation,” Schwertner wrote.

To be clear: Subsidiary Body 3 did not direct the PUC to replace the state’s power-only market with an unnecessarily complex capacity-style design that endangers the competitive market without ensuring delivery of a new deployable generation.”

SB 3 The legislature’s broad response to the February 2021 blackout was 87y Legislative session. This bill assessed the redesign to the PUC; One section reads, “The Committee shall…assess whether additional services are required for reliability in the ERCOT Power District while providing adequate incentives for removable generation.”

Detachable generation is defined as generators whose production is not “essentially controlled by forces beyond human control”—thus excluding wind and solar power generation, which depend on atmospheric conditions to produce electricity.

Schwertner contends that the PCM does not meet the PUC Legislature’s directive that the redesign ensure the development of distributable authority.

Back in November, 1st Lt. Dan Patrick named adding more scalable generation to the ERCOT network as the best priority For the legislature said to use part of record excess To support that development is an option that should be considered.

Industry members—the Texas Oil and Gas Association (TXOGA) and the Texas Manufacturers Association—record skepticism about the PUC action.

[C]Concerns remain about shifting risk away from generators and toward consumers as the Performance Credit Mechanism (PCM) model is designed and continues to evolve,” stated Todd Staples, President, TXOGA. “The E3-designed PCM reflects a cost of $5.7 billion annually and is focused on availability rather than performance. Today’s conversation discussed paying for actual performance which is encouraging but not sufficiently specific and not yet designed to fully understand the cost to consumers.”

Staples then called for the creation of a government fund to issue loans to developers who would invest in a new distributable generation; extending real estate tax cuts for power generation projects; and create a new reliability service.

TAM President Tony Bennett said: “TAM is interested in the action taken by the PUC today to approve a new proposal that is not well understood, not designed, but seems designed to ensure a certain profit level for the current generation.”

Bennett also echoed his support for the three things Staples mentioned.

State Rep. Jared Patterson (R-Frisco), who works in the energy industry for his day job, criticized the UFC decision.

I have serious concerns about the PCM model approved at PUC today” books on Twitter. “One of the biggest items we cover in this session should be securing the long-term competitiveness and affordability of the network. PCM falls short in both.”

Before addressing any kind of market structure change, the [Texas Legislature] All administrative actions taken by the PUC over the past decade, including shifts in [Operating Reserve Demand Curve] and more recent price cap changes and additional market. Then, we should have a vigorous discussion about the actual problem on the network, lack of distributable generation resources rather than spotty resources.”

The operating reserve demand curve adds another hurdle to this redesign; it’s the price viper Responsible for excellent electricity rates in times of tight grid conditions. This comes on top of the stream flow From renewable energy generation to the ERCOT market at the expense of distributable development enabled by tax credits and exemptions, especially from the federal government in the form of the production tax credit. This credit is given to renewable generators per kilowatt-hour produced and has just been extended for another decade by Congress.

Critics like Patterson say this has distorted and distorted the ERCOT energy-only market beyond what it once was: pushing generators of actually producing electricity along a supply-and-demand curve in static equilibrium.

Ultimately, however, much of the market redesign debate points to the fault line between the ERCOT market as it was originally formed and the ability market properties that have been added into the mix.

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