Print đź–¨

The House Committee on State Affairs met on March 1st to hear invited testimony from agencies and stakeholders pertaining to the Texas electric grid. A video archive of the hearing can be found here.

This report is intended to give you an overview 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 Hunter – Reminds witnesses they are testifying under oath, will be providing invited witnesses with ample time
  • Organizational hearing to provide members opportunity to hear from agencies & stakeholders about the Texas Electric Grid & challenges facing resiliency of the grid
  • Will be calling up testimony in panels & asking questions after panels, asks witnesses to be judicious with time

 

Panel 1 – PUC, ERCOT, & E3

Peter Lake, PUC Chair

  • Provides overview of PUC mission statement and operations; after changes last session, now a 5 member Commission, 234 FTE cap, $42m budget for the biennium, have oversight of water, wastewater, telecoms, and electricity
  • After Uri, reestablished Division of Compliance & Enforcement, created Rules & Projects Division, created Office of Public Engagement, created multi-language team, and enhanced communications team
  • Regulate traditional voice telecoms providers, no authority over broadband or wireless
  • Oversee financial & managerial aspects of water & wastewater, incl. retail rates, CCNs, etc.
  • Only state served by all 3 major electricity interconnections, generation fleet is primarily NG
  • Provides overview of competitive electric market in Texas; have investor-owned vertically integrated utilities, municipalities, and coops outside of ERCOT
  • ERCOT is a deregulated market, PUC only regulates the transmission, generators and retailers are in a competitive wholesale market
  • Have spent time & effort implementing SB 3; started stakeholder process after passage last session, goal was to develop ancillary or auxiliary service to ensure reliability during times of extreme load or low generation
  • In Dec 2021, had a blueprint that laid out two phases of implementation, Phase I was immediate items that leveraged existing tools (winterization, ORDC expansion, etc.), Phase II was to determine reliability service to ensure long-term reliability
  • Hired E3 and gave them 3 or 4 initial concepts from blueprint for long-term reliability to try and get to the best reliability service
  • E3 did work well, conducted robust analysis, then PUC began looking at concepts to start working on a hybrid design
  • Result of this work is the Performance Credit Mechanism (PCM)
  • Report was published in Nov to accept extended public comment, held multiple meeting in Jan to evaluate, final consideration was in late Jan; PUC voted to unanimously adopt the PCM as the preferred reliability service to refer to the legislature
  • Many technical questions left, Commissioners recognize we can’t answer those questions as well as stakeholders; anticipating robust stakeholder process through Technical Advisory Committee at ERCOT to help answer these questions
  • If we move forward with PCM, would involve extensive and thorough period of market participation
  • Moving on very aggressive timeline, goal was to deliver results to you this session; hired consultant to drive out profit-seeking and focus on math
  • Happy to consider PCM and work with legislature on options
  • Chair Hunter – Asks witnesses to define terminology, Chair Lake for definition of PCM
    • Lake – Performance Credit Mechanism

 

Pablo Vegas, ERCOT

  • Provides overview of ERCOT’s role; Independent System Operator (ISO) for Texas subject to oversight from the PUC and legislature, administer wholesale and retail electric markets; job is to balance supply with demand
  • Key take away from Phase I is it helped support grid during a very active summer & winter
  • Problem 1: Growing number of intermittent resources, need to have available supply to fill gaps when those are offline & need to have ability to backfill when needed; problem that gets worse with growth of renewables & leads to more operational risk
    • Deal with this today with ancillary services, generally generation plants that can respond quickly based on forecast
    • In process of rolling out new ancillary service, ERCOT Contingency Reserve Service, will go live in summer & can manage operations in concert with existing ancillary services
  • Problem 2: Long-term resource adequacy to account for increasingly growing demand and peak usage
    • At start of market we were able to lean on sizable thermal generation cushion, but this has eroded over time and theoretical availability of thermal is less than peak so would need to rely on renewables; gap growing larger over time, if there is not enough renewable generation, could be a risk of not meeting peak need
    • Separate problem of market supporting the right resources to accommodate growth
    • Not accurate to characterize market as healthy enough to support investment in thermal generation; investments have slowed own greatly in last 15 years
    • Age of thermal fleet is also an issue, leaning on very outdated resources & no amount of maintenance or weatherization can guarantee reliable operation in stressful conditions
  • Other markets have a third component in capacity payments to incentivize thermal generation
  • Performance credit is an elegant mechanism to pay generators to perform when the system needs it most; available and online resources during high load would earn performance credits
  • Market is not giving generators a signal for revenue consistency in the future; PCM does this by providing predictable revenue stream, opportunity to earn over time if resources perform
  • PUC has asked ERCOT for other things in the short-term to address issues while the market design is being consideration; starting to host workshops this month, planning to bring to Board in April, then if approved will take to PUC
  • Chair Hunter – What does ERCOT stand for?
    • Electric Reliability Council of Texas

 

Zach Ming, E3

  • E3 is an energy consulting firm retained by PUC to analyze potential reforms to the TX electricity market
  • Provides background on E3, energy consulting firm that works across the industry
  • Hired to analyze six potential reforms to the Texas Electricity Market, one of these was the PCM
  • Looked at how reform would improve reliability, what resources would enter & exit market, and what the costs would be
  • On PCM, establishes a reliability standard for the grid for the first time, as required in SB 3; would need to be determined by the PUC & would need to calculate a minimum number of dispatchable resources on the grid to deliver that reliability
  • Under PCM, resources available during tightest hours will receive performance credits, loads consuming energy would have to purchase performance credits; loads that reduce consumption could avoid needing to purchase credits & incentivizes efficiency and demand response
  • Price of performance credits is based on sloped demand curve, designed to ensure price is self-correcting based on supply of credits
  • Generating resources need to offer performance credits in advance to earn credits; forward aspect
  • E3 used ERCOT models, extensive data history, weather history, etc. to analyze the PCM
  • Under current market, number of factors are leading renewables, batteries, etc. to grow; 5k megawatts wind, 27k solar, 5k storage over next 3 years
  • These resources reduce profits of existing generating resources and cause those to exit the market; E3 calculating 11k megawatts of existing dispatchable resources will exit the system, will have power outage event exceeding 1 day per year
  • PCM incentives more dispatchable resources coming online, would improve reliability to one power outage event per decade
  • Cost of PCM is about $467m incremental per year, roughly 2.5% increase over existing market design
  • PCM moving parts include cost of credits themselves, but also has downward impact on energy prices
  • PCM also stabilizes annual volatility of electricity prices for generators and consumers, creates stable revenues generators and loads can plan around

 

Panel 1 Questions

  • Raymond – Cost will be a big part of the debate, have a significant surplus now, but don’t want to use much of this on recurring expenses; perhaps should consider taking some of the money and consider it in discussing this solution
    • Raymond – Surplus is money that taxpayers have paid this session; no bill requiring new money will be more important than electricity grid bill this session; spoke a bit about a SWIFT-like fund, but not the focus, more speaking on using $3b towards solution, could be a way to give money back to ratepayers and impact rates
    • Raymond – Thinking it should be around $10b, would be significant enough to affect what ratepayers are paying over the next few years
  • Raymond – Can you comment on 31% of dispatchable resources older than 40 years, etc.; can you anticipate how many will come offline over next 10 years?
    • Vegas, ERCOT – Typically economics drive retirements and replacements; 11k megawatts likely to come offline are from these older resources
  • Raymond – How many plants?
    • Vegas – 10-20 plants, older units tend to be larger & at risk from an operational view; costs to run also tend to go up
  • Raymond – If we can pay for some of that steel, state wouldn’t run the plants but could cut costs and they won’t charge the ratepayer
    • Vegas – Think about this in 2 ways, in a long-term design idea, how could state’s funding be used & for bridging solutions
    • Can think about this and come back
  • Raymond – Time to take some of this money and see if we can invest it
  • Raymond – Between 2008-2022 had 15k megawatts of new dispatchable, how much from solar & wind?
    • Vegas – All thermal dispatchable, primarily NG
  • Smithee – Probably directed more to Mr. Ming, what degree of certainty can we have that credits will provide the incentive? Have these been used elsewhere?
    • Ming, E3 – This is a Texas-specific market design & leverage elements of the market participants are familiar with today; designed to reward performance and reduce need for admin decisions
    • Price signals the credits provide are much more certain than the current market, competitive structures rely on price signal to incentivize & PCM is good at generating stable, predictable signals
  • Smithee – Purpose of credits is to alter behavior of generators, have you spoken to generators to see if this will alter behavior?
    • Ming – Have analyzed the economics of the benefit to generators, would trust this more than statements
    • But generators have made statements of intent to invest
  • Smithee – What happens if you’re wrong & we commit to $400m in PCM and the result is not what we hoped; increased cost for consumers for little or no benefit; everything done so far is theoretical
    • Lake, PUC – No point wasting money on hopes, need real steel in the ground
    • Had a new resources declare bankruptcy last year; since PCM was announced have had several thousand new dispatchable megawatts commit to investments
    • Also had a renewable generator commit to batteries; already seeing market respond
    • Major project finance sponsors recognize that the most important part of this is carving out some portion of ERCOT revenue for just dispatchable resources every year; this guarantees that market will respond
  • Smithee – Models to predict increase in capacity?
    • Ming – Yes, one of the key outputs of the E3 report, predicting 5.6k megawatts of dispatchable generation
  • Geren – Asks Lake, what is the goal of the PCM?
    • Keep the lights on long-term
  • Geren – Paying for new & existing?
    • Goal is to retain and attract new
  • Geren – Depends on performance?
    • Yes, generators only earn credits for being online and available during critical hours
  • Geren – Definition of performance?
    • Online, available, in ERCOT’s system, ready to dispatch
  • Geren – So not penalized, just don’t earn credits?
    • One of the questions; will definitely earn credits, penalties is an open question we’ve put in list of technical questions
  • Geren – Would the penalty be the same for renewables
    • Under PCM, because it is only for eligible dispatchable resources, wind and solar alone wouldn’t be eligible
    • Paired with a battery they could be and could be subject to penalties
  • Geren – Asks Ming, with profits generators are making with ability to buy back millions in stock, why is there no incentive to build new plants under the current market?
    • Ming – Past few years have been good, TX market cycles between booms & busts
    • Seeing 37k megawatts in renewables and batteries that will impact dispatchable profits; PCM will still provide a source of revenue to retain and incentivize dispatchable resources
  • Geren – Have they indicated they will take resources offline or result of supposition
    • Ming – Not a supposition, result of technical analysis
    • Many generators have indicated they will retire plants
    • Best way to judge is to analyze the economics
  • Geren – I do know generators in ERCOT have been making very nice prices; what if we were to put a tax on renewables to help bring money into market and incentivize new thermal?
    • Ming – Did not analyze that market design
  • Geren – Afraid of renewables or to bring that up? Not afraid of taxing renewables
    • Ming – Renewables have played an important role in Texas grid, but don’t provide reliability
  • Geren – And they’re very expensive in terms of transmission; have problems with generators making enough money to buy back stock or purchaser other entities but not investing
  • Anchia – Asks Ming, E3 report notes that implementation of PCM entails significant risk because of novelty, Pg 21 articulates some of the implementation risks; significant execution risk?
    • Ming – Looking at other electricity markets they have capacity products & this is well understood; E3 considered the experience with this product when making recommendations
  • Anchia – E3 did not recommend the PCM outright, recommended Forward Reliability Market? Also wants to hear Chair Lake’s opinion
    • Ming – E3 recommended a market design that could provide reliability & had a proven track record, but this isn’t the only good or workable option
    • Believe PCM can also provide improvements in reliability at little cost
  • Anchia – Concern about PCM is that no one has done it & it is possible TX wouldn’t implement it soon enough, properly, or in a way that would ensure reliability?
    • Ming – There is risk in implementing market design that hasn’t been implemented in other markets
    • PCM is a hybrid design that came out of discussions and analysis, as process has continued E3 has become more and more comfortable recognizing PCM leverages aspects market participants are very familiar with; novel but workable
  • Anchia – Asks Lake for his input
    • Lake – E3 evaluated only the options we directed them to
    • PUC preferred the PCM over the FRM because we wanted it to be market-based; wanted generators selling megawatts to companies delivering them to consumers
    • FRM would also require ERCOT to make a year ahead forecast and this is very difficult; heard similar from stakeholders
    • Most system operators over-forecast which is more expensive and burden on retailers
  • Anchia – Because you were concerned about ability to forecast, you chose a market design that was retrospective? Rewarding those who actually delivered?
    • Lake – Yes, thought performance was better than forecasting, more efficient
    • FRM also depends on notion of assigning credits or performance values to resources, under PCM generators actually earn credits
  • Anchia – What do you think of narrative that we really don’t have a capacity problem, we have a flexibility/response problem? Also that price signals in the market are sufficient? That we’re getting thermal annouceme4nts and we should stay in scarcity market?
    • Lake – If we don’t have a problem, we wouldn’t have issued conservation notices last July, wouldn’t have been focused on reliability the week before Christmas
    • Cannot build 30 year assets on 1-year analysis for cost to enter the market; model years recently are not good to base analysis on
    • Saw partial retirements last summer, but as soon as PCM was announced as recommendation, saw new announcements for generation
    • If we truly don’t need this at all and current market can solve this, then cost of PCM will be $0; was designed this way
  • Anchia – $460m baseline?
    • Lake – If we have retirements; if we have enough generation, cost will be zero; more supply than demand will mean no cost to ratepayers
    • Vegas – Operational flexibility generally a short-term issue that needs to be managed
    • Long-term resource adequacy is a separate issue, if every unit is on that can be and demand is rising, then we are obligated to cut demand; this is a capacity issue and no amount of flexibility could help
    • Demand exceeding available generation is the long-term adequacy issue
  • Anchia – PCM essentially is an insurance product, $460m is the insurance policy to prevent Texans from losing power, deaths, billions in financial loss, e.g. spend half a billion and you can avoid this
  • Anchia – Do not other markets like PJM have this design and have weather events that caused stress? Does the PCM prevent us from having another Uri?
    • Vegas – PJM and others have had load shed events; PJM had performance issues on generation, fuel availability issues, etc., these have not been mitigated to the extent Texas has mitigated because of our experience
    • PJM had 40k megawatts not perform to the level they expected; think they will learn that lesson, but to make those changes they will need FERC approval
    • PCM is putting TX a step ahead of everyone else in terms of innovative market design, creates performance incentive which is the novel twist, Amy see others follow our footsteps
  • Turner – Can you walk through how PUC operates? Commissioners full time? Run day-to-day?
    • Lake – Full time Commissioners, day-to-day run by Exec Dir, Commissioners serve similar to judges in rate cases; important organizational split on rate cases where Commissioners and staff analyze separately
  • Turner – And you set general policy for PUC & ERCOT?
    • Lake – Yes, have oversight of ERCOT, PUC implements rules from SB 3 like winterization
  • Turner – How often do you meet?
    • Lake – Typically every other week
  • Turner – Seems like there is a sense of urgency to do something; seems like dispatchable thermal peaked in 2013 and then declined, correct?
    • Vegas – Yes
  • Turner – Demand has continued to increase, what did ERCOT have as a plan to address increasing demand and declining dispatchable generation before SB 3?
    • Vegas – ERCOT has seen this over time and has been making periodic changes to the market to tweak outcomes and put more dollars in system to change trajectory
    • Changing tools like ORDC at edges of market has not historically changed the signals, which is why redesign is necessary to change the signals and incentivize new investment
  • Turner – So ERCOT was trying to do things, but it wasn’t adequate?
    • Vegas – Yes, constrained by market construct and without policy shift had to use available tools
    • SB  2 governance changes and SB 3 potential tools were significant
  • Turner – Asks Lake for input
    • Lake – Echoes comments that SB 2 was critically important, independent governance & oversight is good; no one on old Board was harmed by higher prices, no incentives to be reliable
  • Turner – Did anyone at the PUC raise these concerns prior to Uri?
    • Lake – Wasn’t around, but general sense is PUC was kept out of ERCOT governance
  • Turner – On PCM, incremental cost of $460m per year? To who?
    • Ming – Cost to consumers of electricity
  • Turner – So constituents, did you analyze what that works out to on average for ratepayers?
    • Ming – 2% increase on monthly bill
  • Turner – Assuming $460m figure is accurate, have seen other studies suggesting higher amounts; if the estimate is wrong and it is $2b this would be an $8 or more increase on a $100 bill
    • Ming – Number is not a cost that could be higher or lower, cost that PUC has a lot of control over in how it shapes the demand curve; if energy prices are high it dynamically influences the cost
    • Could be structured to take the higher $2b figure off the table; PCM is designed to ensure resources can recover costs
    • Not like NG price where prices can shift on external conditions, PUC has a lot of control on preventing $2b cost
  • Turner – So confident that $460m is a sound cost and a ceiling?
    • Ming – If you compensate enough megawatts to meet reliability, that would be the cost
  • Turner – What are ERCOT and PUC doing on the energy efficiency side?
    • Lake – Demand side is important, cheapest way to save a megawatt
    • Demand response was evaluated as part of each of E3 models; PCM incorporates demand response because cost of credits is reduced by those reducing consumption
    • Have also been working on efficiency via more efficient A/C, weather-proofing, etc.; Comm. Jackson has taken a lead on this & is examining efficiency programs
    • Comm. Jackson has also asked legislature to help fund Energy Efficiency Council in the next budget
  • Turner – Any data of how much energy could be saved through these efforts?
    • Lake – No concrete numbers yet, but do see market currently incentivizing demand response; on Dec 23 retailers utilized company demand response to trigger smart thermostats, provide real-time rebates, etc.
  • Turner – Highlights Rep. Raymond’s comments about one-time investments, could do these for energy savings and efficiency, federal programs exist for heat pumps, etc.
  • Dean – Main issue appears to be to use common sense and make it simple for constituents and customers by talking about reliability; reliability measures aren’t always the cheapest in terms of rates; many states have already defined reliability, firm reliability standard gives market the needed certainty; asks Vegas & Lake to comment
    • Vegas – All of the mechanisms are based on definition of a reliability standard, informs the entire design
    • Operating under a kind of reliability standard during Uri that was inadequate, need to characterize this in a way that reflects importance of reliable electricity during extreme weather events
    • Would challenge PUC to set reliability standard that makes TX one of the most reliable
    • Lake – Echoes Vegas’ comments; any reliability standard is better than the nothing we have now
  • Geren – Asks Ming, you referred to guardrails we have in place, if NG prices climb what are the guardrails?
    • Ming – Referring to guardrails on cost to implement PCM; rising cost of gas will be a price to consumers regardless of market design
    • PCM improves reliability and increases costs by 2% & there are many guardrails that prevent this from multiplying
  • Geren – So increasing costs of NG could still happen?
    • Ming – Didn’t study factors that didn’t have to do with market design
  • Geren – Asks Vegas, if we had ramped up prior to Uri, would it have solved some of the issues?
    • Vegas – During Uri, from Monday to Tuesday all generation was running and has several cold days
  • Geren – Was told we hadn’t ramped up as we had in the summer
    • Vegas – understanding is ramp up was not this issue, issue was what happened when resources froze and supply issues

 

Panel 2 – NRG, Texas Electric Cooperatives, Texas Association of Manufacturers

Bill Barns, NRG

  • Provides overview of NRG, primarily sells retail electricity products, shield customers from volatility by hedging
  • Growth, demand, and rise of renewables highlights need for market redesign
  • A larger amount of dispatchable capacity reduces load shed
  • Supports policy direction adopted by PUC to adopt reliability standard & market-based solution; other solutions introduce subsidies that could distort market

 

Julia Harvey, Texas Electric Cooperatives

  • Provides overview of TEC & regulation of cooperatives; SB 7 directed unbundling of IOUs, coops were allowed to continue operations, resulted differently but still part of ERCOT market and changes being contemplated still affect coops
  • Agree with premise of PCM, need for revenue stability, and managing volume of wind & solar
  • Have concerns with regard to novelty and the fact that consultant didn’t recommend it due to the risk; not persuaded it will achieve stated goals
  • Could drive undesirable performance like curtailment, generators could strive to be available during arbitrary hours
  • Hard to understand impact given continued unknowns
  • Fully appreciate that reliability costs money, but should keep cost sensitivity in mind & look at ways to allocate costs so they aren’t solely borne by consumers, e.g. allocated to low performers or using state resources

 

Katie Coleman, Texas Association of Manufacturers

  • Provides background on TAM, largest consumer of electricity in the state with billions invested; electricity is one of the top 3 production costs
  • Reliability is very important to members, cannot deal with frequency blips or voltage irregularities
  • Need to balance reliability against risk that consumers will face; important to consider given the history of market development in the state, shifted capital risk to generators; concerned about how much additional risk is added
  • View PCM and similar approaches as a capacity market, amount of money at stake is determined by PUC via the Administrative Demand Curve
  • $5.7b quoted in the E3 report is a known cost because PUC will set it, energy offsets are assumed
  • ORDC was an admin tool that added $3b to costs; new admin tool only costing $460m doesn’t make sense to members
  • Companies that have strongest incentive to influence tool are generators, but creates substantial disadvantage to consumers; putting a lot of power in a government agency to shift cost from consumers and will be hard to control
  • On assumption that there will be retirements, this is an output of a modeling exercise and not based on definite statements; based on current info not aware of any expected retirements, 11 gigawatts of retirements is an assumption

 

Panel 2 Questions

  • Geren – Asks Coleman, your members can avoid use of PCM so they aren’t charged for this cost?
    • Coleman – Customers do try respond to market conditions, but very few can completely zero out during those times; many cannot provide demand response, e.g. TI, Samsung, refineries
    • Way PCM is being talked about, reliability risks are going to be extremely unpredictable, consumers won’t know when these conditions are in effect; looking at year could require holding large amount of credit, looking at months hours may not match to periods of actual risk
  • Geren – Generators are making large profits, buying back stock, but if it is profitable, why aren’t TAM members investing in generation
    • Coleman – Some TAM members are looking at self-serve generation due to high prices, economics are changing
  • Geren – How much money are members making by selling back to market?
    • Coleman – Members are net consumers of power; some sell power back to in specific instances at prevailing market price, but profits are very small compared to overall electricity costs
  • Geren – Difference in $460m estimated cost of PCM versus the $5.7b figure?
    • Coleman – No one really knows how much PCM would cost, E3 report estimates in an equilibrium year and costs are known the overall will be $5.7b, but will be offset by new generation
    • Concerned about situation where new generation isn’t built, PCM cost could be much higher than $5.7b and goes back to how PUC sets demand curve and chooses credit costs
    • E3 modeling doesn’t capture failures of fleets like we had in the past; models assume new generation that runs perfectly
    • PCM will be set by PUC based on what is needed to backfill, if they’re wrong could pay high energy and PCM costs
  • Geren – Could one of the reasons we’re not seeing a lot of new generation be because lenders are wanting to be paid back on much shorter timeframes than generators would be able to manage?
    • Coleman – Absolutely, PCM increase market revenues and provides certainty around profits for entire generation fleet with goal to incentivize generation, but we don’t really know
    • If we’re concerned about new generation, should target that sector with incentives
    • Don’t know what federal environmental restrictions will be, ESG, etc.; lenders looking for higher returns on power plants
    • Property tax abatement, low interest loans, etc. would be more effective to get new investments
  • Anchia – Your clients don’t make any money by selling back to grid?
    • Coleman – Can make money on a given transaction, but net consumers
  • Anchia – Demand response, money maker or loser?
    • Coleman – Different aspects, some members can provide ancillary services
  • Anchia – Voluntary?
    • Coleman – Yes, have to sign up & get paid to provide; this is a profit in isolation, but consumption costs are in excess
  • Anchia – But electric bills are a baseline?
    • Coleman – More complicated, one drawback of ancillary services is that you can’t reduce usage until told; if they aren’t hedged you have to pay prevailing price of power and could be net loser
    • When they do have to turn down, lost manufacturing profits can be massive; model revenue on long-term basis
  • Anchia – And model is net positive?
    • Coleman – Has to be for them to do it
  • Anchia – Right because you would never participate if it wasn’t
    • Coleman – Yes, but capacity used for this purpose is a relatively small portion overall
  • Dean – Familiar with large manufacturers that do hedge electric costs, typically buying at the low point, if they get to a position they can sell at the high point that’s where the hedge is, right?
    • Coleman – IMM estimated that more than 80% of market transactions are hedged
  • Dean – which is not unusual
    • Coleman – No, symptom of good market; consumers want to protect against high prices
    • Locked in, but bilateral contracts have risk premium built in; primary way to finance a power plant
    • Generators & loads are not paying real time price
  • Dean – Could TAM operate with the PCM? Could you support it?
    • Coleman – don’t know way to solve fundamental issue of value being determined by PUC, structural to PCM
    • If state decides to do this, there are ways to design this to be better or worse; closer to actual reliability risk hours the PCM ends up is better for us, e.g. year is better than month or season
    • Understanding is not that resources need to be on to receive credits, just have to put an offer in, so still have uncertainty around can they and if they will perform
    • Performance penalties are another aspect that could make it better or worse
  • Raymond – You take issue with assumptions that plants will go offline? So none will go offline? Think some will go offline in 20 years, 15 years, 10 years, 5?
    • Coleman – Will probably see plant retirements, but you expect these will be replaced with new resources
  • Raymond – Would like to know what your assumptions; changes in federal law will likely affect older plants
    • Coleman – Definitely retirement risks, but TAM believes you can structure to incentivize replacement of retiring resources
    • Want to allow retirements of units that have reached end of useful life
  • Raymond – Trying to make sure we have what we need in the years to come; thoughts on using surplus to incentivize new generation?
    • Coleman – Recommendation would be to find a way to level playing field for competitive investment
  • Raymond – You said deregulation meant ratepayers didn’t pay for new plants?
    • Coleman – Don’t pay directly
  • Raymond – They still pay for it
    • Coleman – Not required to pay for the cost of capital
  • Raymond – Those that build have the ability to get those amounts back from ratepayers
  • Raymond – Last session, how did TAM testify on HB 44?
    • Coleman – In State Affairs we were opposed because it would uplift costs to some customers
  • Raymond – Ratepayers are paying for that; whatever happens going forward, ratepayers are going to pay for it, this leads to suggestion to use surplus to incentivize, some ratepayer money we’ve already collected
    • Coleman – Agree with that, one was of using this would be low interest financing for new generation
    • Have heard alternative to provide bonuses for new generation built
    • Generally supportive of these approaches
  • Raymond – Period of time for securitization? 20 years?
    • Coleman – Not part of bill, 15 or 20 years is typical
  • Raymond – Thinking we should also look at maybe paying off that bill with surplus, could save ratepayers money in the long run
  • Turner – Do you think PCM if implemented would improve reliability?
    • Coleman – Don’t believe adding more power plants will improve reliability for customers
    • Over past few years nearly all reliability issues were not issues of number of plants, but how many performed
    • If PCM is successful and plants perform, it would, but not sure this is the case and a very expensive gamble
  • Turner – Plants and generators not performing is generally older plants, this would incentivize new plants; reasonable to conclude new generation is less susceptible to being down?
    • Coleman – Some of the newer plants have had issues as well
  • Turner – Examples outside of Uri?
    • Coleman – During Elliot had very high forced outages in new & old plants
    • Firming up output and having reserves ready would improve reliability, but building new plants wouldn’t necessarily improve reliability
  • Turner – So not a certainty?
    • Coleman – Not a certainty, PUC can set costs, but can’t require people to invest
  • Turner – You’re concern about PCM is that it will add cost to members?
    • Coleman – Concern is that it will not be cost effective, risk of it being abused is high
    • TAM has had proposals like buying additional reserves every day, supporting transmission etc. that have costs, but would improve reliability
    • Happy to pay for reliability, but PCM price tag is not justified
  • Turner – Agree with 2% cost increase projection?
    • Coleman – No, assume you will build new capacity and it will run perfectly; E3 report also assume factors like Real-Time Co-optimization
    • Admin pricing tool added $3b last year, not confident adding $460m more would help
  • Turner – Cost for PCM?
    • Coleman – Another 3rd party consultant, Aurora, estimated $3-$5b
  • Turner – Would like witness perspectives on who benefits under current system and who would benefit under the PCM?
    • Coleman – Original version of energy-only market was premised on cheapest is best, under this model consumers likely benefited more because of high reserve margins, etc.
    • But as grid has changed, need to pay more attention to reliability, particular with growth of wind & solar; consumers will need to pay to have a reliable grid
    • Believe market has shifted more towards reliability and not just cheapest cost, ORDC already serves this purpose, ancillary services are insurance, etc.
    • Current market design is probably shifting too far towards high costs, though part is cost of NG
    • Goal of PACM is to reduce costs of generators, designed to benefit generation
    • Harvey, TEC – Under current market, elements probably benefit every segment, under a reliability market generators will benefit on prices, but consumers will benefit from increased reliability
    • Barns, NRG – PCM levels playing field for reliability across all consumers, current market is intentionally designed to be short-term scarcity & advantages sophisticated participants
    • General public sentiments were made clear after Uri for a more reliable system, have short-term reliability, but don’t have a long-term resource adequacy component; long-term component gives us reliability
    • PCM also increases stability of revenues, which is important for investment
  • Turner – Asks Barns, can you speak to reliability of new generation, e.g. even with new generation no guarantee it is available?
    • Barns – PCM sends investment signal for new generation
    • Newer, more efficient generation will have higher capacity factor
    • Have seen shadow retirements with existing resources where forced outages are increasing because revenues can’t cover maintenance; resource adequacy problem
    • Want to create lowest cost structure to meet the reliability standard, goal of PCM is to transition to newer resources in a way that doesn’t impact older resources

 

Panel 3 – Texas Energy Association for Marketers, Sierra Club, CenterPoint

Catherine Webking, Texas Energy Association for Marketers

  • Provides overview of TEAM and retail market, association of competitive retail electric providers, speaking mostly from perspective of retailers serving small & residential customers; market has been successful, provides cost certainty for customers
  • All factors of the market generally get translated to line item on customer’s bills
  • Asking legislators to consider how to preserve price benefits to customers & risk premiums involved or not; should consider this before a decision is made on best approach
  • SB 3’s goal was to assess reliability needs of market, does not say reliability standard; industry-wide connotation to that term that may predetermine statute
  • Also asks PUC and ERCOT to look at ancillary or reliability service that would be procured by ERCOT
  • Collateral costs are key to the retail electric market as well; lookback after significant period of time could add large collateral cost

 

Cyrus Reed, Lone Star Chapter Sierra Club

  • Other part of equation is to reduce demand
  • Tremendous growth in load is caused by residential consumers living in older homes and apartments; should think about the demand side
  • Part of peak demand is that the climate is changing, will need a more reliable, nimble system
  • Solutions incl. good Sunset bill for PUC, PUC needs more resources, Office of Public Engagement, should have energy efficiency council, maybe create statewide goal on residential demand response, need to fix ability of Energy Conservation Office to update codes for new construction, make sure distributed energy resources can participate in the market, and consider state program for energy bill support

 

Jason Ryan, CenterPoint

  • Introduces CenterPoint, Houston-based operator of electric & gas companies
  • Speaking on Houston electric utility, Houston market is growing rapidly, but small concentrated area; need to import power into Houston via transmission lines; building lines will increase reliability and reduce cost to customers in Houston
  • Looking at ways to reduce time to build transmission
  • Resilient distribution grid is increasingly important; have a reliable grid, but don’t have a resilient grid in the face of extreme weather and other events, need to invest more in resiliency
  • Also support energy efficiency programs, spend $30-$40m per year on these programs and cheaper than building a new powerplant

 

Closing Comments

  • Rep. Hunter – Will set forth rules on time limits at each meeting