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The House Committee on State Affairs met on June 22nd to hear invited and public testimony on progress of the proposed changes to the ERCOT market design. An archive video of the hearing can be found here.

This report is intended to give you an overview of the discussions and highlight the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Chair Metcalf – Will be hearing 4 panels of invited witnesses, then hear public testimony

 

Panel 1

Peter Lake, Public Utility Commission – Neutral

  • Legislation last session has given PUC the foundation to move forward with changes to power grid
  • Problems are not unique to Texas, world is facing similar challenges, need to get this right as economy demands it and citizens deserve it
  • Have built in a bigger margin of safety in ERCOT operating posture, buying more reserves and adjusting to conditions
  • Operating ERCOT grid with an abundance of caution, moving towards reliability-based business model, not waiting until grid is on the brink to bring reserves to bear
  • In last 12 months, have had 6 days where extra reserves kept us from rolling blackouts
  • PUC ran an extensive & transparent process in deciding how to implement market redesign, held 10 work sessions last summer and fall
  • First phase of market redesign centered around operational reliability, second phase around market reliability
  • Phase one includes firm fuel product, industrial demand response adjustments, increased demand response in ancillary services, working on voltage support product, and changed to ORDC curve to reduce overall max price to $5k
  • ORDC changes limit financial exposure and incentivizes generators to come online sooner
  • Phase two incl. adoption of load-side reliability mechanism and backstop reserve service
  • Load-side reliability mechanism is a requirement for companies to procure reliable power for their customers, working through details now with outside consultants
  • Working through these two aspects now to present results to legislature
  • Reliability should be a core component of market operations, have made tremendous progress, but have some distance to go
  • Chair Metcalf – What ancillary services have already been implemented?
    • Firm fuel is built & designed, but wont be deployed until next winter
    • ECRS is in progress
    • Most of expansion of ancillary services, e.g. additional margin, comes in the existing framework
  • P King – You mentioned you approved load serving entity obligation unanimously, this was a vote to proceed with a study, not implement the product?
    • Yes, agreement to move forward with designing the product
  • King – You voted to hire a research entity?
    • Hired someone to build us the product, nothing implemented until it comes back to PUC, submitted for public feedback, then PUC staff, ERCOT staff, and PUC will review & bring design to legislature
  • King – You could implement by sua sponte as chair, or PUC vote, or take it to the legislature?
    • Intend on having PUC vote of approval, then it will be available for legislative review
    • Want to be prepared to hand it to ERCOT to operationalize
  • King – Anticipating PUC voting on it before January?
    • This is the timeline we’re working on
  • King – If you voted on it, would you delay implementation until legislature can look at it
    • Yes
  • King – Who is doing this?
    • E3, premiere shop
    • Had two bids, Potomac Economics and E3; would’ve preferred more applicants
  • King – Someone had mentioned another retail electric provider had contracted with E3 for the same research?
    • Yes, E3 was retained by another market participant, required them to terminate relationships with ERCOT participants
  • King – E3 determined that LSE obligation was the right way to go?
    • One version, PUC narrowed down several other versions in the blueprint adopted
    • Commissioner Lake and Commissioner McAdams have proposals, all go back to LSEs
    • Each of those versions has features and flaws, hopefully E3 can capture4 features and remove flaws in a hybrid
  • King – Firm doing any work with market participants?
    • Not in ERCOT
  • King – Always a concern when they’ve previously worked with another stakeholder
    • Absolutely, hired E3 to build out the product we want, decision making resides with the PUC
  • Hunter – You’re the chair of the “Public” Utility Commission, shouldn’t forget this; important for PUC to have public understand when they’re paying; in moving forward with the consultant, public should know the cost
  • Hunter – Communication from PUC has been lousy before, though Commissioner Lake is one of the few that have communicated with Hunter’s district
  • Hunter – June 1 to Nov 30 is hurricane season, don’t want to go through cycle again with a hurricane; wants to be sure PUC is focused on that, refineries, plants, etc. are impacted
  • Hunter – Costs are coming this summer, correct? Let’s be transparent to everyone listening
    • Yes, energy prices are higher this summer
  • Hunter – Need to make sure public knows there will be increased bills coming, need to make sure we’re protecting the taxpayers and ratepayers
  • Hunter – PUC recently hired a consultant who will come up with scope of work
    • Hired the consultant, we’re providing them with the scope of work
  • Hunter – Who pays for it
    • Funds allocated in SB 3
  • Hunter – So the taxpayers?
    • Yes
  • Hunter – Any funding of this consultant by any generator, provider, utility?
    • Not directly, no
  • Hunter – Indirectly?
    • Utilities pay a management fee annually, roughly $60m, $18m funds the PUC and rest goes to GA; this is the poles & wires companies
  • Hunter – So the E3, you’re telling us there is no funding from generators, providers, etc. in connection with this project?
    • No generators or retailers, correct
  • Hunter – And you will make sure as this phase goes forward that the public has transparency on costs and impact?
    • Guarantee that we will provide transparency in process, will have public comment period
    • Will direct E3 design to the best cost/effectiveness for consumers
    • PUC will not endorse market redesign that does not drive benefit or reliability
  • Hunter – How much is consultant being paid
    • SB 3 appropriation was $500k
  • Hunter – No cost above that for complete consulting project?
    • This was the budget
  • Hunter – Asks for this info to be given to committee
  • Shaheen – On LSE obligations, how does that work? Time period?
    • General concept is to establish requirement for a retailer
    • Currently no requirement to do anything but collect a check from households, LSE obligation would require retailer to buy reliable power in some quantity related to number of customers served
  • Shaheen – So when you say a retailer is going to go and provide reliable electricity, what’s envisioned? Reliable to me means dispatchable electricity, sources being LNG, nuclear, coal, not as reliable includes solar and wind; so utility will make these determinations?
    • On demand dispatchable power, that’s it
  • Shaheen – 28-30% is renewables on the grid, so these wouldn’t be in play in this market, sure that’s not accurate? How does that work?
    • Another way to think about it is the futures market, dispatchable resources only
    • If wind is blowing, if sun is shining, will take those cheap megawatts, etc., but reliability market is designed to ensure we have enough dispatchable power
  • Shaheen – So forecast is based on dispatchable, but actual is based on renewables? Are these two different points of time?
    • Futures market would be ahead of time, standards and metrics would be set by ERCOT & LSEs would be required to comply with that
  • Shaheen – There’s a time difference, so help me understand; so forecasting is 100% dispatchable, at the time 30% actually ends up being solar?
    • Yes, that’s the way it would work
  • Shaheen – These are the details you’re working out?
    • Yes, is it 3 months, 6 months, etc.; trying to set up reliable only market
  • Shaheen – Don’t have an opinion, will have one later
  • King – Are you concerned that may favor the large reps that own generation over others?
    • Yes, this is a concern, we think we can mitigate this with things like “must offer” where generator can’t hold back for affiliate, also have transparency requirements
    • Well-established mechanism used in other markets; if PUC is not satisfied would rather go back to drawing board than damage competitive market
  • King – One of the concerns in maintaining a robust, competitive electric market
    • Absolutely, want people competing for lowest cost, reliable megawatts
  • Howard – People died, need to keep these things in front of us; market is important but this has huge implications
  • Howard – Is this still an energy-only market or are we falling into a capacity market?
    • At end of the day, this is about keeping lights on for homes & families, reliability should be core to market
    • Mobile generators are up and running, ready to be deployed in hurricane prone areas, working on more resilient transmission in these areas & Comm. Glotfelty is leading this up
    • Not moving to capacity market, moving back to reliable energy market
    • Introduction of renewables challenged the dispatchable market, requirement to buy reliable power shifts back to reliable energy-only market
  • Howard – We know solar & wind are intermittent, sometimes thermal is not available; having intermittent resources has created some volatility
  • Howard – Don’t want to get into renewable v. thermal, like the package Rep. Darby has presented as a good mix; solar & wind helped us get through recent challenges with the heat and have been a cheaper source
  • Howard – We have a market system that is continually increasing costs to the consumer; what you’ve proposed would increase costs?
    • Yes, safety margin is a cost increased, but received direction in SB 3 to make sure we’re reliable; will cost money to get the grid right
    • PUC’s job to make sure benefit justifies the cost, would have seen blackouts without these changes & seems a good trade off for $1/month
    • Trying to take an all-of-the-above approach, PUC very interested in retaining cost savings of renewables & not adding costs like battery requirements, but also making sure dispatchable resources are available
    • Plan is an attempt to capture everything at the lowest cost possible
  • Howard – Trying to understand benefit to consumer, had low cost energy and wondering if we’re not backing into increasing costs
    • There will be some cost increase, but need to improve low-performing product
    • Cost/benefit trade off is PUC’s job to figure out, trying to be technology agnostic with reliable resources, e.g. if next-gen batteries steal the show PUC doesn’t want to get in the way of that
  • Howard – Reliability needs to be #1, just want to make sure reliability isn’t being held hostage to increased prices
    • Will get as much reliability as we need for the lowest cost possible

 

Brad Jones, ERCOT – Neutral

  • Had 3 goals: improve reliability, improve communication, and begin restoring confidence and trust in ERCOT
  • Operating more conservatively, bringing more reserves online, changes made have provided more reliability
  • Have focus as well on improving reliability on the Gulf Coast to improve resiliency in areas where weather could interrupt power
  • On communications, consumers found that each involved party had different messages during Uri, confused consumers; ERCOT has expanded role to try and pull together industry to send one consistent message to the public
  • Sitting in State Operations Center (SOC) with other stakeholders to communicate clearly
  • On restoring confidence in ERCOT, need to do this continuously, started with ERCOT being vocal and transparent about the grid and conservation need
  • Reliability is important to ERCOT, focusing on reliability first; need to maintain affordability, but reliability needs to be first
  • Raymond – Have we experienced rolling blackouts in Texas?
    • Lake – Haven’t seen systemwide rolling blackouts, but have had local outages due to trees, etc.
  • Raymond – Saw on the app that 24k customers in Austin had no electricity for about 70 minutes, can you speak to that?
    • Would need to ask Austin Energy, not in the jurisdiction of the PUC
  • Raymond – So are there other examples like that?
    • Jones – There are local outages due to damage, term is usually how long it takes for the company to repair the outage
    • Performance of these companies is monitored
  • Raymond – Your goal is that we don’t have rolling blackouts, what would it look like if we had one?
    • Lake – In May when we asked for conservation, without extra reserves we would’ve been 1,500 megawatts shorts and ERCOT would’ve directed different operators at different times to cut megawatts over a period of time
  • Raymond – Asks how the responsibility is assigned
    • Jones – Not looking at specific areas and how they are treated, each area has a load share and this share is how we divide up responsibilities
  • Raymond – Should give some consideration to local conditions, e.g. Laredo is hotter than Amarillo
    • We do this, overall distribution; distribution is based on summer or winter peak day and differences are taken into account
  • Raymond – State is growing, assume you are keeping up with demand growth
    • Texas is growing unlike any other state, forecasting years ahead how to stay ahead
  • Raymond – So anticipating growth and thinking in years to stay ahead of it?
    • Yes, combo of attracting new generation and keeping current
  • Shaheen – In new model of reliable generation, the exchange of dollars is different then it is today, is ERCOT handling
    • Anticipating is that ERCOT will evaluate generator for providing reliable service, assessed generation will grant the generator tokens to sell on the open market that can be sold to any number of buyers, ERCOT will report the sales to the market
    • Afterwards, there will be an accounting where unused tokens are turned in and retired
  • Shaheen – So initial is forecast and obligation, end is what’s actually used?
    • Yes
  • Shaheen – Would be hard for a capital intensive industry to get loans
    • Lake – Goal is to construct market to retain existing generation while attracting new generators
  • Shaheen – Seems like if I’m going to invest, then I would in renewables
    • Yes, have had growth in renewables, but negative growth in dispatchable
  • Shaheen – Need to have right balance, sounds like you’re going to try and have market make those decisions
    • Yes
  • Hunter – Seems like legislators are last on the list to be informed, but utility market comes to us to vote; as you are overseeing your jobs, make sure legislators are informed
  • Hunter – Highlights issues with some bills that shows a retail amount that is the same as wires/poles amount; important o make sure public understands costs
  • Hunter – Is it true that two entities have 80% of market? Who is it?
    • Jones – Wouldn’t disagree with number; Vistra and NRG
  • Hunter – Would like you to check & get back to us, if it’s above or below, let us know
  • Hunter – At last hearing, heard that $850k plus benefits was the amount ERCOT head got paid?
    • Wasn’t at that hearing
  • Hunter – Do you know the number?
    • Have heard similar numbers
  • Hunter – You can check and let us know; board members making $95k/year?
    • Can get the exact number, would be somewhere in that range
  • Hunter – How many board members?
    • Lake – 8 new independent board members, selection committee hasn’t designated compensation but will keep you up to date
    • New members required to live in
  • Hunter – Anyone on the board now making $95k/year?
    • Residual amount is still there, so yes
  • Hunter – So change is coming & we still have payments going; public ratepayer pays for these amounts, correct?
    • Yes
    • Jones – There is a system admin fee placed on retail providers, can be passed onto consumers, currently $.55
  • Hunter – Probably going to be passed onto the public, point is all of these costs build up, should be open and tell the public what’s coming
    • Lake – Important point that we need to generate revenue to pay for resources we want while not letting costs grow out of control
    • Bill asked for independent distinguished executives, so striking balance of getting personnel versus costs
  • Hunter – Hearing rumor about a gas desk
    • Jones – Something we would like to have, during Uri, we didn’t have all of the info about system needed, e.g. gas supply, transmission pipeline issues, etc.
    • ERCOT has proposed a gas desk in the control room operated 24/7 to gather information from the gas industry to ensure we have the info needed
  • Hunter – Should watch what you ask for, a lot of companies would like an ERCOT desk
    • We provide a significant amount of info on ERCOT and pricing, would be glad to supply them with whatever ERCOT info they need
  • Hunter – There’s question in developing desks and what they oversee, on the gas desk you should talk to that set of industry as well; should keep committee up to date
    • Cannot do the gas desk without the cooperation of gas companies
  • Harless – We have 83k megawatts
    • A couple days ago we set 76.5k megawatts as the high summer and June, have also set high weekend and May peaks
    • Have carried roughly 15k megawatts on top of the peak load
    • Number does vary in time, gets as low as 8k today & tomorrow, climbs at end of week
  • Harless – Limits on market participation?
    • There is a limit on the capacity, 20% of owned capacity
  • Harless – So this is about 3%/year demand on the grid, do you see this number needing to be increased
    • Don’t have a position on this, a lot of opportunity for investment from larger companies that may be constrained
    • Lake – Job in market redesign is to strike balance between retaining current generation and bringing in new
    • Part of SB 3 is driving new generation, also trying to design market to be self-correcting, so forecasted 7-8% increase in costs should come down
  • Harless – How far are we on grid mapping?
    • By the end of November, we had identified critical LNG supply chain components and they were removed from blackout calls
    • By late April, we rolled out first version of critical gas & electric supply chain map
  • Harless – And we haven’t had any rolling blackouts in Texas
    • None since Uri
  • Howard – Just want to reiterate the technology agnosticism, thermals also have a dependency on weather, weren’t able to perform during the freeze; renewables could become dispatchable with the storage coming to market
  • Howard – With the reserve reforms, what would we then have? What is the goal?
    • Jones – This has yet to be determined, 15% is the standard
  • Howard – How much did we need during Uri?
    • Uri was a unique condition when we lost many generators, wasn’t a matter of generation being insufficient, but weatherization
    • Should be seen as independent of this 15%
  • Howard – Capacity or energy-only wouldn’t have made a difference during Uri, issue of how many entities could generate?
    • Correct, wouldn’t say it wouldn’t have made a difference, but Uri would’ve been the same
  • Howard – Real-Time Co-Optimization (RTC) has been delayed several times, why?
    • This was in route when Uri occurred, but needed to shift to reliability after Uri
    • Efficiency item, still in progress
  • Howard – Has been postponed twice
    • Only familiar with the last one
    • Lake – Excellent tool that should be implemented ASAP, but not a reliability tool
    • Other critical projects need to be completed before RTC can be, incl. Energy Management System (EMS)
  • Howard – Can you make timeline available to us?
    • Absolutely
  • Howard – Comes up repeatedly as the #1 recommendation, appreciate that reliability needs to be the focus, but RTC seems to affect reliability
    • Yes, was a presentation on this at ERCOT yesterday & will get this to you
  • Howard – On critical infrastructure, less than 100 ID’d prior to Uri, now more than 60k
    • Yes, went from nothing is critical to everything is, at the start we over correct on critical need; map is helpful is parsing down what is actually critical
  • King – SB 1281 has a req to go back to consumer benefit transmission test, have you done a rule on that yet?
    • Still in progress, Comm. Glotfelty’s team is working on this and will be hear to testify tomorrow
    • One of the many priorities we have

 

Panel 2

Carrie Bivens, Potomac Economics, ERCOT Independent Market Monitor – Neutral

  • Provides overview of Potomac and role of IMM
  • Annual report covering 2021 just came out, discusses conservative operational posture of ERCOT
  • Looking into 2022, shift of ORDC will increase prices during smaller shortage conditions than previously
  • Pricing outcomes will grow disconnected from operating conditions, can be problematic
  • Continue to believe energy-only market can address concerns, but ERCOT’s conservative position does not entirely match
  • Recommendations incl. implementing RTC, introducing uncertainty ancillary service product instead of trying to adapt current products, capacity procurement

 

Cathy Webking, Texas Energy Association for Marketers – Neutral

  • Private sector can deliver the goals of PUC/ERCOT more effectively than vertically integrated public utility mechanism
  • SB 3 came with a lot of very effective responses to a horrific situation, but didn’t abandon, appeal, or revise SB 7 stating energy needs are best served by competitive solutions
  • Provides overview of retail ele3ctric providers, public face of the grid for the consumer, manage cost of commodity, ERCOT cost, TDU cost, etc.
  • Market ensure barriers to entry remain low, not allowing this stifles innovation and downward price pressure
  • Providers have fierce competition among themselves
  • Provides overview of LSEs, 3 categories of LSEs: retail, municipals, and coops
  • Shouldn’t stifle ability of REPs to provide electricity to customers
  • Has been discussion of forecasting energy credits, when REPs enter market they do so with 0 customers; essential to preserve the incentives in the market
  • Can look to provide reliability with products developed by others, can assess reliability on a grid-wide basis, but difficult to do assess this on an individual REP
  • Was discussion that REPs have no incentive to buy power ahead of time now, but REPs purchase at least 95% of power each day on bilateral arrangements, not purchasing power at the moment
  • Issue with Uri wasn’t that REPs hadn’t purchased power, was that power failed to show up; want to make sure there isn’t a perception issues were due to REPs not purchasing power

 

Julia Harvey, Texas Electric Cooperatives – Neutral

  • Provides overview of TEC background, how coops fit into ERCOT; coops are authorized to operate all functions of the electric system
  • Even with different regulatory framework, part of the larger ERCOT market and directives
  • PUC & ERCOT have done enormous work in supporting reliability, but there are tradeoffs; e.g. some members are interested in participating in firm fuel supply product
  • Some changes make sense in the short term, but don’t make sense long-term; conservative posture at ERCOT has tradeoffs, has created uncertainty, imposing a cost that may not be justified in all cases, disconnected from market, could increase use of RUC, creates wear & tear on generation fleet
  • Temporary rules don’t create the most welcoming environment for large capital investment; clarity on end-date for conservative operations would be helpful, if it is permanent would like to know
  • On Phase 2 proposals, coops are LSEs & would be directly impacted by load-side obligation, would be required to arrange certain amount of capacity bilaterally
  • Would like to see independent analysis of the reforms, would like to see cost to rural consumers and benefits

 

Panel 2 Q&A

  • Chair Metcalf – Do any of the market redesign proposals exist in other markets?
    • Bivens, IMM – LSE obligation has several different forms, somewhat similar to Australian market, but understand they are moving
    • Many proposals have unique elements to ERCOT
  • King – What are your thoughts on how we get more dispatchable generation built?
    • Can tweak energy-only market to provide incentives, actions taken have interfered with signals so won’t get these outcomes
    • Only other option would be centralized capacity market where ERCOT values capacity based on reliability
  • King – This sounds all or nothing, is there a way to have a piece of that without shifting to capacity?
    • Ease of using backstop auction means that everyone will come into it
    • Could be issues around deliverability of contracted-for capacity, so wouldn’t be part of bilateral transaction
    • Residual auction will lead to discussions of moving to capacity
  • King – What are the big impediments to generation coming to Texas
    • Did see some LNG resources built last year, but most is renewables
  • King – So is the big part of this access to capital?
    • Yes, also the value prospect; strong evidence that combining wind and storage together can provide reliability at lower prices than LNG
  • King – If they get subsidies
    • Even without subsidies at the LNG prices now
    • Resources would be accredited based on reliability value they can deliver based on operator studies
  • King – O&G producers are having trouble getting capital due to pressure through ESG and other paths to not fund fossil fuel drilling and production; is the same thing occurring to those wanting to build thermal plants?
    • Might be a better question for generation plant owner
  • King – What is the megawatt breakdown between sources over next five years?
    • Can’t speak to that
  • King – My understanding is that it is almost all renewables in Texas; what causes that?
    • PTC has a role in that
    • Fundamental economics of cost versus value compared to $8 gas prices
  • Howard – You mentioned Australia as being a similar setup, has flipped in terms of wholesale and retail
    • Yes, they were previously an example of load-serving obligation with bilateral agreements, but seems that Australian market monitor and regulator are looking into centralized capacity procurement instead
  • Howard – The RTC proposal and it being delayed, do you know if this is due to staffing and if it could be done? They had to reshift focus, but I know they have high turnover
    • Suspect it is limited resources, there is a lot of demand on ERCOT resources for projects & we’re diluting them with projects
  • Howard – And you highly recommend RTC, what is the outcome?
    • High level is it enables ERCOT to better use resources it already has
  • Howard – So if we could implement, it is better efficiency and lower consumer costs, perhaps we should look at resource or staff need and if it can move forward; sounds like it would mean significant benefits
    • Yes, there was a cost/benefit analysis done years ago, went through rigorous process before and got put on hold; would love to see this proceed
  • Hunter – So you’re the IMM, who hired your?
    • PUC has a contract with us
  • Hunter – Who pays for the PUC contract?
    • Funded through the ERCOT system admin fee
  • Hunter – Can be charged back to public
  • Hunter – $210m to $385m to purchase reserves, total impact of $475m, is this accurate?
    • Correct
  • Hunter – This is through May 31, what is the forecast through Dec 31?
    • Difficult to forecast, probably reasonable to double the reserves number through the end of the year
    • Rule change allowing reserves to participate in demand response could affect the number
  • Hunter – So close to $2b by the end of the year
    • Possibly $1.5b
  • Hunter – Who pays for that?
    • Part of the prices LSEs pay
  • Hunter – The answer is the public
    • Eventually these costs are likely passed to the consumer, not 1:1
  • Hunter – So these are costs coming to the public
    • There will be price increases seen by the public due to LNG price
    • Year-to-date on the ORDC has been $9.7b, so $475m is compared to that
  • Hunter – Who participates in TEAM?
    • Webking, TEAM – NRG, Just, Constellation, ten other corporate entities, many other REP licenses
  • Hunter – Coops in my region have done a very good job communicating, member owned and historically are rural, but many are now 3rd-artying services out to urban companies and regions
    • Harvey, TEC – Correct
  • Hunter – Has been a trend to urbanize these coops, wanted to note that
  • Hernandez – What about the RUC calculation, $1/household/month
    • Bivens, IMM – Ancillary service cost separate from RUCing, $6m in direct costs year-to-date
    • RUC concern is more to do with interference in normal market signals, running resources more frequently than they need to, increased maintenance
  • Hernandez – Also means increased costs for consumers?
    • Yes, at roughly $6m; bigger issue is interference with the market
  • Chair Metcalf – Asks Webking, what effect would LSE obligation have on independent retailers
    • Webking, TEAM – As originally presented by E3, would have an incredibly depressive effect on the market and ultimately detrimental to consumers
    • Hasn’t been successfully implemented in a market with retail competition, only in market with captive customers
    • Australia was the only market with retail competition, but kept layering on mitigation measure and ultimately abandoned it
  • Chair Metcalf – Any of the other market redesign proposals have a similar drastic effect?
    • Forward looking obligation is the difficulty
    • Other uncertainty products can be procured by ERCOT, but more appropriate
    • ETRS service is one of these, will pay for shorter term ramping resources that are essentially dispatchable
    • Should provide certainty so long as we can project forward
  • Slawson – On the PUC study,
    • Harvey, TEC – Really only directs consultant to evaluate prices in retail choice environment
  • Slawson – Municipals?
    • They would be out
  • Slawson – Any indication that it would include municipals?
    • Believe this was an oversight

 

Panel 3

Chris Ekoh, Office of Public Utility Council – Neutral

  • Provides overview of OPUC, represents public consumers in utility cases before PUC
  • Submits comments on Phase 2 redesign, submitting comment tomorrow
  • Highlights large number of residential and commercial connections
  • In 2021 OPUC participated in 51 cases, 45 on the electric side, largely for utilities in the ERCOT region
  • OPUC sits on ERCOT board and participates in all public input opportunities
  • Market design changes are a moving target, OPUC communicates regularly with PUC and tries to represent interests of the public; actions like RUCing units are done without OPUC input
  • RUCing, ancillary services, etc., consumers ultimately pay price for these actions
  • Have 3 dedicated staff fielding consumer complaints, liaise with Consumer Protection Office at PUB & utilities

 

Katie Coleman, Texas Association of Manufacturers – Neutral

  • Reliability is the #1 goal of TAM, power loss can cause billions of dollars of impact
  • Want to achieve reliability at a reasonable cost to consumers
  • Can’t have a system entirely dependent on renewables, want to let renewables run to the extent they can, but need dispatchable resources for when renewables drop off
  • Many dedicated revenue streams pay specifically for dispatchable generation, have very costly mechanisms for funneling revenue to dispatchable generators and these have expanded over the last year
  • ORDC only kicks in towards low level of reserves, almost always when renewables drop off and bulk of revenues go to dispatchable
  • Ancillary services can only be provided by dispatchable generation, buying thousands of megawatts daily at a very high cost, in process of adding more ancillary and a firm fuel that will only be paid to dispatchable generation
  • TAM has supported all of these market features as a way to appropriately incentivize dispatchable generation
  • All of these features are charged to LSEs now and passed onto consumers, but don’t like load serving obligations that look like forward capacity market
  • Don’t want to make payments to companies just because they own a dispatchable generator, hasn’t worked anywhere else & is expensive
  • TAM prefers pay for performance model, incl. reserves in real time
  • TAM has supported many more things than have opposed, but this is an area where there isn’t a path forward from an industrial perspective
  • TAM members are also making multi-billion investments without revenue certainty, participate in a private competitive market and bear the investment risk, should continue to be a core principle of the Texas market
  • Should consider that things sounding trivial at residential level is very costly for industrial consumers, for middle-of-the road industrial consumer would be $3-$5m annually
  • Getting costly in the climate of rising gas prices, inflation, etc.

 

Thomas Brocato, Texas Coalition for Affordable Power – Neutral

  • Addressing how Phase 1 initiatives have impacted cities and how Phase 2 will
  • Cities believe objective of ERCOT is to reliably deliver power at the lowest cost, support competitive market solutions
  • Principle of these markets is to shift risk to commercial participants
  • Market & regulatory certainty enable robust market participation, have concerns that these objectives aren’t being fulfilled
  • Phase 1 was important to address concerns from Uri
  • Current proposals in Phase 2 do not address system failures in Uri, rather a roundabout way to manage the market
  • Phase 2 isn’t taking a holistic approach to addressing market impacts, funnels money to generators but not ensuring generation is producing
  • Don’t mind paying a bit more, but don’t want to pay too much and lights should stay on
  • 3 options: acknowledge Uri was an operational disaster and stay in an energy-only market, move to capacity, or move to a hybrid approach
  • IMM observed that energy-only market is not compatible with ERCOT’s conservative posture, reported hundreds of million in extra costs, $685m-$850m
  • Have been told we received tangible reliability benefits, but would like to see evidence
  • Cities support energy market, capacity market costs more and hasn’t traditionally delivered more reliability than ERCOT
  • Redesign should be done in a holistic and consistent manner

 

Panel 3 Q&A

  • Chair Metcalf – Is TAM in favor of any Phase 2 proposals?
    • Coleman, TAM – There are ways to incentivize dispatchable generation without using the Phase 2 approaches
    • Can expand existing features and get where you need to
    • There are ways for each of the Phase 2 feature to be workable for TAM, e.g. backstop reliability service timeline could be wo9rkable for TAM at a few months
    • Version of load-side obligation we can live with as long as it doesn’t turn into a capacity market; some versions discussed were a decentralized forward capacity market
  • King – So over last year ERCOT & PUC have done a better job with dispatchable resources we have, there is a cost and may be higher than the value, but have done a better job; what is TAM’s preference for incentivizing new dispatchable generation?
    • You don’t need to pay for something 3 years in advance to send market signal that there will be a revenue stream
    • TAM members look at metrics and invest without the guarantee
    • About the risk, in purchasing shorter term services we can have additional reliability and achieve the same pricing signals while leaving risk on competitive investing community and not on customers
    • Fallacy that you need to guarantee revenue stream over a long period to incentivize investment
    • Biggest problem has been endless desire to tinker with the market design, have been arguing about these same things since we deregulated
    • ORDC is a good example, has seen endless lobbying to change features and push funds to dispatchable resources
  • King – Have we seen new investment?
    • Have seen new investment, last changes benefited solar a lot, solar tends to match peak
  • King – Don’t like the idea of a capacity market, but would like to look back 10 years from now and know we’ve built more dispatchable resources, but money seems to be going to renewable resources
  • King – How do you get money to go to dispatchable resources; what can be done that doesn’t push us to a capacity market?
    • Renewables are the darling of the investing community with all of the ESG investing, hard to fight a market
    • Can still appropriately encourage dispatchable generation, will get signals when we get i.e. too much solar on the system and will need to start curtailing, will then get more dispatchable
  • King – This still all sounds like tinkering, what can we do to incentivize dispatchable
    • My proposals are not too dissimilar to forward capacity market incentives
    • Only way to guarantee that customer money is going to dispatchable is a directed procurement, similar to backstop proposal last session for backup power
    • Better deal than throwing money at the market
  • King – So going to a hybrid, is this going to capacity, is a slippery slope?
    • Doesn’t slip you into a capacity market, slips you back into re-regulation over a period of time
    • Once you’ve told market participants you’re willing to make direct procurements, no one will invest in the competitive market, they will hold for these procurements
    • We don’t support this approach, but there is a point where you’re throwing so much money at the market where this will be more effective
  • Shaheen – This is the crux of the situation, need to figure out what percentage of the grid can be renewables; capital markets are so enamored with renewables that they’re ignoring consequences of renewables?
    • Not mutually exclusive, but strong preference, because of ESG investing trend there is a preference
    • Batteries and storage are included in that ESG trend & those are dispatchable
    • Talon and Panda bankruptcies were not due to market design, but due to risky financial positions
  • Shaheen – What specifically do you mean about ERCOT’s conservative posture?
    • I think the pendulum swung a bit too far, but buying additional ancillary services is the right approach
    • ERCOT Contingency Reserve Service will ultimately take the place of some of this, but not there yet
    • To maintain large buffer ERCOT is asking some generators to run uneconomically
    • Understand why they are doing it and public wants it, but as we get more experience with volatility makes sense to tailor this more
  • Shaheen – I think they are trying to figure everything out
    • Ancillary services are supported by TAM, will pay for it, but is needed and will be done consistently and transparently, will provide investment signals

 

Panel 4

Vincent DiCosimo, Texas Pipeline Association – Neutral

  • Provides overview of pipeline industry, all about efficiently moving LNG
  • TPA supports reliability, wants to ensure jobs are available, need reliable energy to have jobs in the state
  • Since Uri, have 60k-70k critical designations, have done a much better job with TDEM and TERC
  • Meeting federal standards required moving to electric compressors, increasing load and were not designated critical during Uri
  • Have enhanced backup with solar deal, other members have deals
  • Winterization is what member companies are doing all the time, getting gas out of the ground and delivering to market is the goal, every incentive to ensure uptime
  • Members continue to look at what areas can be hardened, energy reliability is crucial
  • Continuing to build pipelines in TX, produced more O&G in May than ever before
  • On storage, slightly under where we were this time last year by about 10%; generators can purchase gas storage, would encourage additional gas storage to generators as we head into winter
  • Gas moves in a lot of bilateral agreements, what goes in member pipes is not necessarily owned by them and contents are confidential; pricing info and capacity is relatively available
  • Generation is recognizing the supply chain they have
  • Reliable energy is important for jobs, energy independence

 

Shannon Rusing, Texas Oil & Gas Association

  • Provides overview of TXOGA & members
  • Significant accomplishments have been made that will prepare Texas in the event of another Uri
  • Have seen a large increase in LNG over the last few years, industry is growing substantially and builds products based on firm commitments
  • Other countries and states are purchasing well ahead of when the need arrives, not purchasing just-in-time; Storage of LNG means there is more than enough available for power demand and other uses, key is firm contracting
  • Continued reform should include incentives to procure firm storage, proper provision for firm supply or notice of volatility of spot market, firm transportation
  • Need to be careful when adding more parties to communications between buyers and sellers; TERC can serve as a clearinghouse for market participants

 

Michele Richmond, Texas Competitive Power Advocates – Neutral

  • Provides overview of TCPA, 11 generation resources in ERCOT
  • Addressing some of the questions that have come up in testimony today
  • Almost 1,500 megawatts of gas is coming online in the interconnection queue, vast majority is solar at almost 16k megawatts, batteries at 4.8k megawatts, and wind at 3.6k megawatts
  • The electric market differs from others in that it is price capped, not all ancillary services are limited to dispatchable resources, loads can now participate in non-spend and undermine revenues for dispatchable
  • Generation companies are investing capital consistent with risks and rewards via market signals; question is do we invest in ERCOT or other market, which resource, etc.
  • Currently billions are in batteries and renewables, if you want to shift to renewables it will require market change
  • TCPA believes competitive market works, need to trust the market to work; ERCOT has incredible amounts of transparency today
  • Members have seen higher prices this year, bulk from significantly higher gas prices
  • RUC requirement has been particularly bad, many paying more to produce than they would get, has translated to higher revenues for gas
  • Interstate gas market is very transparent, fosters robust market for transportation and storage
  • Intrastate gas market is not transparent in the same way, interstate systems are required to post on electronic bulletin boards
  • Shippers on interstate system can remarket, intrastate system they cannot; instead, typically there is a penalty for not using capacity
  • Unlike natural gas commodity, transportation and storage is not on an exchange
  • Solutions would require legislative change, major pipelines should 1) have electronic bulletin board with capacity and list of firm shippers, rates, 2) have requirement to permit capacity release, 3) have affiliate protections to ensure 1 & 2 are not evaded
  • Gas industry has pushed for more firm contracts, generation doesn’t disagree, but not all pipelines offer firm contracts
  • Can’t manage costs because you can’t remarket unused firm capacity
  • Pipelines are utilities regulated by the RRC, should be required to provide transparency, opacity is hindering competitive market, not in the public interest, and hindering investment

 

Panel 4 Q&A

  • Howard – Would be interested in response to these issues, in understanding that intrastate info is not public; IMM for gas?
    • DiCosimo, TPA – If you’re a shipper on the pipeline, you have all of that information
    • If you are not the shipper, it is responsibility of the retailer or wholesaler to provide information or clarity
    • These markets trade in real time, situation changes rapidly
    • Communication happens regularly when prices are moving up and down
    • Interstate pipelines that are FERC regulated are utility driven, incl. applications, built in rate
    • Intrastate is much more complex, incl. individual companies building pipes, gathering plants, etc. without guarantees for return
    • Interstate pipes have extremely long permitting timelines, intrastate pipes need to be able to be established quickly; TXOGA, others, rely on this ability; economic activity is aligned with speed of pipes
    • Getting pipes to a producer lowers flaring
    • All other pipe activities are bilateral
  • Howard – What about an IMM?
    • No position until we understand exactly what is not out there that they would like to know
  • Howard – IMM for electricity, all that info is out there, they still have an IMM who looks at the market and how it works; value in the assessment
    • Neutral on that right now until we understand the influence and authority, information needed, etc.
    • Rusing, TXOGA – ERCOT has stopped talking about IMM so much as a gas desk in ERCOT
    • 80% of product is sold to entities aside from generators
    • Not sure what a gas desk would do in trying to secure a product you don’t have a contract for; TERC also is a conduit allowing different entities and industries to come together
    • Most conversation is between buyer and seller to rectify the situation; unsure on purpose and result
    • DiCosimo, TPA – Map of pipeline system is complex, data on capacity in one area wouldn’t mean data on all the other related lines, system changes in milliseconds
    • Important from a supply chain management standpoint to have storage capacity and knowing you own gas in that storage helps generators
    • Large manufacturing sectors receives gas directly and storage helps them
  • Howard – Need to have a better understanding of the back and forth between the two entities; asks for more help in understanding the issue, would be important to hear you talk with each other and facilitate a conversation
  • Chair Metcalf – Asks Richmond, do your members operate on firm contracts?
    • Richmond, TCPA – Depends on member, some are not able to get firm contracts
    • Some facilities have one pipeline, more like a geographic monopoly, in a take it or leave it position with that entity owning the pipe
    • Better negotiating positions
  • Chair Metcalf – How many have firm contracts and how many do not?
    • Not sure, typically don’t get into contracts as it violates anti-trust
  • Chair Metcalf – Asks DiCosimo if he has comment
    • DiCosimo, TPA – typically would do with siting locations and market participants in the area
    • Building pipes are a private investment, possible to have plants with 100% committed pipes
  • Hunter – I would suggest to you that most don’t know the terms you’re talking about; asks that witnesses talk to the committee and help them understand
  • Hunter – Probably won’t get dispute resolved today, need to know what you’re talking about if we’re going to be transparent
  • Harless – 23% of generators have storage facilities?
    • During Uri, only 23%
  • Harless – Do we know how long the storage would last?
    • Will do some research
  • Harless – Something that needs to be addressed for sure
    • Rusing, TXOGA – FERC study indicated that 40% had some storage or firm supply
    • No idea on duration in terms of what was reported in the FERC report, a lot of this is confidential beyond the high level

 

Public Testimony

Cyrus Reed, Sierra Club – Neutral

  • Have some opinions, neutral on this discussion
  • Have submitted written testimony
  • Had two issues in Uri, supply and demand; supply well taken care of in SB 3 with weatherization, but haven’t looked at solutions on demand side given recent spiking demand
  • PUC said they would, but has not yet dealt with energy efficiency programs at the utilities; in blueprint under Phase 1 but have not taken action
  • Have 8 private utilities required to meet demand goals, but hasn’t been revisited in years, getting benefits for meeting demand goals that are easy to meet
  • Asking PUC to look seriously at energy efficiency rules and how to get more bang for the buck
  • Most demand is heating in winter and A/C in summer, if we can deal with this issue, don’t need to invest as much in supply side
  • Need to look at incorporating distributed energy in ancillary services and market; PUC has opened docket on this, but need more work on this
  • Need to move forward on energy codes for new buildings

 

Tim Morstad, AARP – Neutral

  • Health, safety, and economic welfare of older Texans depends on electricity
  • Do need greater transparency in the process and more public participation in market reform; Texans are seeing very high costs, especially those on limited & fixed incomes
  • Rate and price info should be posted online
  • E3 contract statement of work includes encouraging language on cost analysis, should include plain language and what it will actually cost residential consumers