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The Senate Committee on Business & Commerce held a meeting on March 9 to discuss Texas’ electricity market, the performance of the grid over this winter, and market changes that are being considered in the future. A video of this hearing can be found here.

 

This report is intended to give you an overview and highlight of the discussions on 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

  • Schwertner – Discussions will be on the electricity market and the problems discovered in the aftermath of the 2021 winter storm
    • Work still remains to strengthen grids’ long-term liability and oversight; overviews the reforms passed by SB 3 87(R)
  • Have four panels of witnesses today

Panel 1: Peter Lake PUC, Wayne Christian RRC, Nim Kidd TERC, and Brad Jones ERCOT

Peter Lake, Chairman Public Utility Commission (5:30)

  • Have been procuring additional reserves for bigger margin of safety
  • Have been bringing more generation on sooner rather than later
  • Had multiple cold weather events and because of SB 3 we were ready; have exceeded federal winterization standards
  • SB 3 directed us to improve cooperation and coordination and have been working hard to do so Efforts have been shown
  • First time ever these agencies were sitting shoulder to shoulder in operation center
  • Newly formalized TERC has been a tremendous benefit
  • Grid is strong and more reliable than ever
  • Schwertner – Somewhat out of market actions have improved reliability; how long do you think these directives will continue?
    • Lake – Ancillary services are just improvements of an older system
    • RUC is something implemented quickly to ensure immediate reliability; never intended to go on in perpetuity; will eventually reduce the amount of RUC used
    • Expansion of the ORDC has incentive revenue to bring those generators online instead of the RUC; began January 1, 2022
    • Will review to see if this is generating enough reliability
  • Schwertner – What is your idea of phase one and two?
    • Lake – Directing ERCOT to implement first phase of near-term solutions to increase reliability; includes developing a firm fuel product
    • Phase two longer term reforms to ensure reliability; includes load side reliability mechanisms and backstop reserve service; getting an outside consultant for this
  • Menendez – Working towards reforms that will help the bottom line of customers?
    • Lake – Have moved industrial demand response program out of emergency condition where it was never used; is moved to another part of the ERCOT process
    • Committed to treat demand response equally with MWs created by generators in terms of economic rewards and penalties for non-performance
  • Menendez – Energy efficiency changes to homes are expensive; need to look at making an investment in this
  • Menendez – Have any of these reforms caused costs to be passed down to customers?
    • Lake – Only 60 days in, so cannot say yet
    • Have already reduced highest price possible from $9,000 to $5,000
  • Nichols – Encourages Lake to look at RUC program, not sure how long it will last, and cost factors to ensure those on standby can profit
  • Nichols – Should look into the ideas of South Texas Electric CO-OP; applies, as an ancillary product, a cost that ERCOT would go to the suppliers and charge a factor based on reliability
    • Nichols – Essentially the more reliable you are the less you have to pay
    • Lake – Met with the group sponsoring that proposal; will look into it
    • Schwertner – Plan has merit, but that there is no firm information to STEC or PUC and want to vet it with some stakeholders
  • Johnson – Near-term bulk of dispatchable energy is thermal/natural gas; can only succeed if we rely on reasonably priced natural gas?
    • Lake – Correct
  • Johnson – How does a responsive reserve system work?
    • Lake – That is the RRS ancillary service program; would refer to Brad Jones
  • Johnson – Enter into contacts with consumers of large quantities of electricity and we pay them to turn off regardless of if they turn off or not in order to free up capacity
  • Johnson – Capacity markets are inefficient, but are willing to pay for some for reliability; you outright denied a capacity market design
    • Lake – Correct
  • Johnson – Trying to have generators have more firm gas contracts; is that a capacity market concept?
    • Lake – Firm fuel product was adopted as phase one; is a financial incentive, not sitting on the sideline
  • Schwertner – PUC is working on the firm fuel ancillary service structure; is PUC’s top priority
  • Kolkhorst – Why proposing a requirement of 10% of the fleet have firm fuel in phase one and not more aggressive?
    • Lake – Are taking stakeholder comment; ERCOT is studying what that percent should be
  • Kolkhorst – Is there a big cost associated with having firm fuel on site?
    • Lake – Expense to build/maintain the infrastructure, procuring the fuel, maintaining/stabilizing, and additional transport/contractual cost
  • Kolkhorst – Are these reserves being used and then replenished?
    • Lake – From an asset point of view they want to use it, and reliability speaking they do not want to use it
  • Campbell – Is onsite storage stored in a gaseous form? Are able to use 100% of this?
    • Lake – Is in dual use form; natural gas storage is typically offsite because of cost
    • Stored natural gas typically has a high percentage of performance; all could be used

 

Wayne Christian, Chairman Railroad Commission (50:00)

  • Since SB 3 adoption, TDEM, PUC, and RRC commissioners meet regularly on rules and ongoing work
  • First version of the electric supply chain map will be done by April; will be done months before the statutory deadline of September 1
  • Have adopted rules designating gas-specific facilities as critical load; 60,000 gas facilities have submitted their designations
    • Only about 100 were designated before Winter Storm Uri
  • Have put these facilities in three tiers in terms of load shed planning purposes
  • During both Winter Storm Uri and this winter natural gas utilities maintained continuous service to more than 99% of its customers
  • This winter RRC worked with Atmos and CenterPoint to ensure gas was flowing
  • Had open communication with TDEM and TxDOT to get roads cleared when needed
  • Ahead of the cold front this winter pipeline operators packed the lines with gas as a preemptive measure
  • Companies installed a variety of weatherization equipment on their assets
  • RRC inspectors have visited thousands of gas facilities since early fall and verified on-site preparations
  • Before this winter, had 440 billion cubic feet of dry gas storage; another 30-35 billion cubic feet is in typically in pipelines at any given time
  • Apologized for remarks made in the last hearing; information given to the committee was inaccurate, but was wrong in reacting in such a manner
  • Schwertner – RRC, and industry, has taken direct action regarding inspections/weatherization
  • Whitmire – What of the $150 dollar waiver industry could pay to be exempt from weatherization?
    • Christian – That was inappropriately presented in the press; $150 was previously passed by the legislature of the cap that had to be charged for that
    • Out of 4,000 inspections less than 100 had not done weatherization
    • Only allowed about 10 to be exempted
  • Whitmire – Why exempt anybody?
    • Christian – Certain small municipalities have their own supply and others cannot afford weatherization
  • Campbell – Is not enough RRC transparency; how could be more transparency with generators?
    • Christian – Contracts are located in the private sector, the RRC does not have that jurisdiction
    • Suggestions have been made to have daily monitoring by an independent monitor; no state or entity does this
    • RRC reports monthly
  • Campbell – Why do you report once a month?
    • Christian – Only 20% of natural gas in the state goes to generation
    • 90% of our operators are small to mid-size
    • Information on amount of gas available to the generator is available daily by phone call
  • Campbell – But how do we prove that figure is correct?
    • Christian – Historically has not been a problem; only issues with interruptions is in the privately negotiated contracts between generating companies and supply companies
  • Campbell – An independent monitor daily would be a good idea; should we require intra-state pipelines to disclose flows?
  • Campbell – Asks the RRC bring a list of how they provide transparency
  • Schwertner – Has been concern of potential actions of the committees of profiteering by utilizing force majeure interruptible contracts
  • Schwertner – Inter-state gas flow data is more robust than intra-state; asks the RRC look into that regarding the reliability of gas promised through firm contracts
  • Schwertner – RRC needs to ensure that interruptible or force majeure contracts are not utilized to profit at the expense of Texans
    • Christian – Want to work with you on that
    • Do not currently have legislative authority to require intra-state pipelines to disclose flow data; FERP does this with interstate pipelines
    • Schwertner – Would be interested in carrying that type of legislation, maybe some other members of the committee would be interested as well
  • Johnson – Last hearing there were concerns about RRC rules; applauds RRC for proposing a new set of rules that gives more reissuance than those proposed previously
  • Johnson – Could you discuss the new valve being deployed to ensure natural gas in storage is available?
    • Christian – Is beyond my expertise; during Uri natural gas production went down while distribution went up because of the underground storage
    • Main issue was there was no one there to turn the valve
    • Have recommended to the industry to have someone there 24/7 in times of need
    • Does not know about the new type of valve, just that old one can now be turned on
  • Johnson – Are concerns about local monopoly control of the natural gas pipeline and RRC lacks the authority on this; is the job of the RRC to be regulatory authority for affordable prices?
    • Christian – These are free market ideas that RRC does not have authority to regulate
    • Generators know when supply dips they need a fixed contract, need to negotiate with another pipeline, or create generation on-site
  • Johnson – Is there an option to file a complaint to RRC for intercession where market leverage is disproportionate?
    • Christian – Yes have watched that, but there are problems when they don’t have firm contracts
  • Johnson – What if the transporter or supplier did not offer them a firm contract?
    • Christian – Is a bad business decision to be reliant on one supplier
    • Johnson – That is contrary to what we are trying to do here; trying to preserve old generation and get new generation
  • Johnson – Wants a way for the RRC to come in and ask the question – is this a reasonable rate? Section 121.052 could give the RRC the jurisdiction we are talking about
    • Christian – If the Senate is considering this, should be limited; 80% of natural gas is not used for electric generation
  • Johnson – System is unevenly weighted against generators concerning contractual disputes
    • Christian – A contract dispute in January with Energy Transfer that did not affect the public poorly
    • Johnson – Didn’t they threaten to cut off the supply to Texans?
    • Christian – Yes, but RRC intervened; do not want to get into private disputes, but do not want them to use that as a threat against Texans
    • Hesitate to add regulation; protecting the gas oil and fossil fuel industry is the common goal
  • Campbell – Do you need the legislative authority to hire an independent monitor?
    • Christian – Yes, need legislative authority
    • Campbell – Offers to take that up
  • Nichols – How are you assigning those who have been designated as critical infrastructure into the 3-tier system?
    • Christian – 60,000 have responded to the questionnaire
    • Tiers will be established by mid-summer; will be done once the mapping is done in April
  • Nichols – What is the plan for the tier system and who will designate them?
    • Christian – Tier one are homes, churches, medical facilities; the things that are needed to maintain human life
    • Currently establishing tiers two and three
  • Nichols – Is there agreement on the definition and the differences between tiers 1, 2, and 3?
    • Christian – Do not know, are working on that
  • Nichols – Have been working with transmission and Oncor; how are they supposed to shut off electricity?
    • Christian – Natural gas tiers, PUC, and ERCOT tiers are different
    • Schwertner – RRC is responsible for mapping and identifying; for better managing gas flow
  • Menendez – As the reliability of grid increases there is necessity for further increase in generation; only works when there is a firm contract and gas gets delivered
    • Christian – Agree; the more generation of natural gas the more available
    • Need more natural gas production
  • Menendez – Discusses NERC and FERC investigations of corporations declaring force majeure for greater profit; need to hold the oil and gas industry accountable to keep the lights on
  • Menendez – If someone is threatening a utility, it is important for RRC to ensure that they solve their disputes in court and not hold Texan citizens hostage
    • Christian – Requests bill that did not pass the House last session be looked at again
    • Pertains to changing the purchase agreement on the markets, currently must buy wind and solar ahead of oil and gas
    • Is big a reason that natural gas and electric facilities are not being projected here in Texas; is no nuclear and we are losing coal
    • Are building more in unreliable energy and need to ensure we are prioritizing reliable energy
  • Schwertner – Diversified portfolio of assets does benefit costs and reliability

 

Chief Nim Kidd, TDEM, TEMC, TERC (1:41:00)

  • Provides overview of the Texas Energy Reliability Council, all meetings open with a recital of the TERC mission statement; bringing electric, gas & oil together
  • Planned out our meetings for the rest of the year, will have at least one a month
  • TERC subdivided into 2 work groups and 3 committees; work groups focus on immediate needs and drafting charter & bylaws
  • The standing committees are Communications, Supply Change, and Recommendations
  • Have operationalized the TERC mission, 6 state agencies involved are brought into the SOC for weather events & conducting industry coordination calls
  • Paxton – Communication has noticeably improved; can you identify what the immediate needs that could be addressed were?
    • Kidd – Some of these were wimple things like terminology differences, worked to let industries work together and improving coordination and communication
    • Also gave them a platform to talk without fear, calls are not necessarily subject to open records, though would disclose details to legislature
  • Paxton – Need to recognize that legislation cannot prevent weather events & pay attention to danger to Texas residents; highlights other factors like trees hitting powerlines during weather events can impact residents, should be considering all factors that impact consumers and business owners
    • Kidd – Thank you for the wisdom of not making TERC a regulatory entity and also allowing regulators to sit at the table; agencies are taking note of issues like that
    • Addressing these will probably not come as recommendations from TERC, because regulatory agencies are already taking actions
  • Paxton – And TERC provides a forum for those notables
    • Kidd – Yes, takes away excuse of not being able to communicate
  • Whitmire – What questions are we not asking? What’s the next energy emergency that you are discussing in your sessions?
    • Kidd – Happy and proud of the process, but there’s still work to be done
    • Talk a lot about efficiency, but efficiency has killed preparedness; efficiency has prevented depth in the system
    • Accidents are still happening; need to continue to increase communication between industry and office of emergency operation
    • Will be working with mayors and judges to ensure utility in question has a representative in the emergency operations center; nothing mandates this currently & need a mandate that infrastructure operator must send a trained representative
  • Schwertner – Cyber security? Do you have anyone who participates in cyber security threats?
    • Kidd – Working closely with DIR to make sure systems are as safe as possible
    • I think I’m hearing from you that we should add a cybersecurity professional to TERC, open to recommendations
    • Speak with DIR regularly, but no one sitting on TERC yet
  • Schwertner – Think it’s a good idea, don’t know that legislative authority is needed
  • Menendez – Thinks it is critical for that to be added; Asks if there any discussion of micro grids helping amid a disaster? Or being up and running before a disaster?
    • Kidd – Large fan of micro grids, but not sure if it’s in TERCs purview, would put this back on ERCOT and PUC
    • From an emergency management standpoint thinks that they are brilliant; understands that they are higher cost but capability will only bring more resiliency
  • Campbell – Compliments Kidd’s work with TERC and Seguin & McQueeney gas outage, maybe TERC can help define the tiers that RRC was wanting
    • Kidd – Can put that in the next meeting agenda
    • Provides overview of Sequin response, stakeholders were able to work quickly on the issue, identify utilities, and work with CenterPoint
    • Agree on tiers for service, hospitals should be number, need to look at airports & transportation, nursing homes & assisted living
    • Communication about what gets turned on & when is important during the event; very important that utilities have a knowledgeable, trained individual at the city and county EOCs, only way to provide safe return of utility services
  • Nichols – Thanks Kidd for his work with the state

 

Brad Jones, Interim CEO of ERCOT (2:05:00)

  • Schwertner – Wanting to speak about SB 2 and SB 3, management of electric grid
  • Brad Jones – Had three goals in mind when he came on in May
  • Goal 1. Address processes and procedures at ERCOT
    • Operating and maintaining more excess generation in case it’s needed; done by purchasing additional ancillary services, etc.; these measures have prevented emergencies
    • Coupled with calling for conservation keeps us from getting into emergencies
    • Under legislation and PUC rules, now have ability to inspect facilities for weatherization, conducted several hundreds megawatts of inspections this year & 99% were satisfactory
  • Goal 2. Prepare ERCOT for the future
    • Texas ability to produce wind & solar is good, but need to be prepared for renewables coming onto the system by having dispatchable resources at the ready if it is dark & wind is not blowing
    • Also working with ERCOT to correct longstanding issue of transmission in the Lower Rio Grande Valley
    • Also looking into establishing a firm fuel requirement that will carry us through the winter if gas supply is interrupted
  • Goal 3. Rebuild trust in ERCOT
    • Conducted a listening tour across the state for feedback from residents; heard message that communication is needing improvement
    • Focused on clean affordable reliable electricity, but need to make sure reliability is at forefront
  • Schwertner – Highlights size and expertise of new ERCOT board; how often do you meet, what is the tone & tenure of the meetings?
    • Jones – Board meets ten times a year for two-day meetings; board is extraordinary, thanks the legislature for the structure of the board
  • Paxton – 99% of those inspected pass the inspection, asks after weatherization and what the percentage would’ve been prior to Uri?
    • Jones – Percentage would be much lower, significant amount of work was done by producers to get ready for this season, $10s of million was spent & investment has been extraordinary
  • Paxton – And you would say this contributes to the much more minimal disruption?
    • Jones – Yes, weatherization effort and performance of generators is key to reliability of the grid
  • Paxton – Appreciate comments of moving reliability back to the front of priority list, affordability doesn’t mean as much if what you’re buying isn’t reliable
  • Menendez – Reliability is critical but has trouble separating it from affordability when sometimes people are making decisions about rent, food, etc.; need to look at reliability as a return on investment, consumers end up paying for improvements
  • Menendez – You commented that we need to have dispatchable generation ready for a “dark & still” day, gas is needed as well for this as well, correct?
    • Jones – Agrees
  • Menendez – So there should be a gas desk at ERCOT, an independent monitor, correct?
    • Jones – Yes, several operators throughout the country have a gas desk, difficult for ERCOT to assess reliability with an inadequate view on gas production, outages, etc. & how this might impact generation
    • A lot of parties involved, have been talking with TERC, hopeful to get this with voluntary cooperation under TERC’s lead
  • Menendez – You’ve also said energy efficiency could play a bigger role in reliability?
    • Jones – Energy efficiency is of great benefit, up to local communities, counties, and the state to make those decisions & to some degree the PUC
    • ERCOT is looking at megawatts available moment to moment, but have been looking at more ways that load can participate in the market
    • Looking to open markets that were closed to load previously
  • Menendez – Other state ISOs have gas monitors?
    • Jones – Other states do have gas desks, ISOs in the Northeast have the ability to gather info; New York ISO, New England ISO, PJM ISO
  • Menendez – If ERCOT had this person, would have understand these issues at compression stations, etc., would’ve known power was needed & where and possibly alleviated some of the generation & load problems
    • Jones – Certainly believe it would’ve helped, references time during Oct 2021 and by happenstance finding out a necessary generator’s gas supply was under maintenance & were able to get the maintenance window moved
    • Key was that we didn’t know what we needed to know and found out by happenstance
  • Menendez – Is there anything that keeps you from having an independent gas monitor?
    • Jones – Don’t believe so, TERC has the ability to work through these issues
    • Absent cooperation from gas producers, TERC has ability to make recommendations
  • Menendez – Wouldn’t trade affordability for reliability, need to have power on, but people need to be able to afford it as well
  • Campbell – Had a bill called the Lonestar Act last session, goal was to keep hostile countries from interconnecting with utilities, cyber security infrastructure, etc.; there was an interconnection study done between GH America and ERCOT, GH America has ties to China, recommendation was to build huge wind turbine farm
    • Jones – Interconnection study is on hold, ownership of GH America is changing
    • ERCOT monitors all interconnections to make sure they are in compliance with the Lonestar Act and make sure utilities are not owned by the nations listed in the bill
    • Interconnections are cancelled when they don’t meet requirements
  • Campbell – Can’t be any direct or indirect connection with China for this project
    • Jones – Agrees
  • Campbell – Would want that to be a permanent hold unless the land is sold, etc.
    • Jones – We do cancel interconnections if they can’t meet requirements
  • Campbell – Does it look like they will meet requirements?
    • Jones – Unclear, tracking 4 entities, 3 look to be meeting requirements, 4th may need to be cancelled
  • Campbell – What about the Devils River project?
    • Jones – Speaking in generalities, there is one project that may need to be canceled
  • Campbell – Would like to see details on those 4 projects
  • Campbell – What has ERCOT done to harden itself from outside attacks?
    • Jones – Have a very strong cyber security culture within ERCOT, also within the entire electric industry in the country; information is shared extensively within the community
    • Haven’t seen a great uptick in attacks since attack on Ukraine, but staying in close contact with partners
  • Campbell – Asks after specific ways ERCOT has hardened the grid?
    • Jones – Highlights national guidelines, ERCOT follows these, utilities follow these, nuclear has even higher requirements
    • ERCOT has multiple redundant control stations, can also move control to some of the larger generation companies, keep supplies on site for up to a month in case local transmission or power is unavailable
  • Kolkhorst – Appreciates Lonestar Act last session, was very valuable in hindsight and may need to look at more; wants to clarify discussion about gas monitor, with the contracts getting cancelled, RRC issued an edict against it, but was unclear on how to enforce this
  • Kolkhorst – Missing piece was the role of RRC and what happened on the natural gas side; do we need another agency to oversee role of natural gas and how it interlocks with reliability standard? Christian mentioned that RRC doesn’t have authority over private contracts, but there are standards like no price-gouging during emergencies
  • Kolkhorst – Asks Christian, do you not have authority when contracts are breached and lives are at stake to intervene?
    • Christian – We don’t have authority over private contracts, would turn to emergency management
    • Haven’t had a situation where companies have not taken care of this and put lives at risk
    • Job through SB 3 has been to prevent possibility of harm, typically industries, free market, and communities have taken care of this
    • Hesitates to add additional layers without a problem presented, don’t have authority as RRC to act on private contracts
  • Kolkhorst – Asks after ERCOTs statement of reliability needs and having a better picture on gas operators
    • Jones – Needed purely from an operational standpoint, hope is that we can get this with the cooperation of the gas operators, hope to get info through volunteerism
  • Kolkhorst – Communication has improved greatly, SB 3 was a huge step forward, but still holes to address
  • Nichols – Regarding statements that the gas operator being offline was found out through happenstance, power plants being offline is already reportable so trying to figure out what wasn’t communicated; if generation goes off there is a report available
    • Jones – A lot of the info we get is not until the day before, we were looking a week out and didn’t have the info we needed, found out about the gas operator maintenance through questioning
  • Nichols – Outages are not reported 7 days ahead?
    • Jones – Typically not, operators like to carry out ops closer to real time
  • Nichols – If they know they’re going to have maintenance, why don’t we have them reporting a week out?
    • Jones – It would help, but so much changes in a week for the generators, have info on planned maintenance for these, but don’t always have this info for gas
    • In this case, generator wasn’t aware of gas outage until end of that week
  • Nichols – Hard for me to understand why a company supplying gas wouldn’t give notice to generators of outages, you’d think they’d coordinate
    • Jones – What we’re finding out through TERC is the extraordinary lack of communication
  • Nichols – This is why TERC exists, may be able to be fixed without getting into gas part of it
  • Nichols – You’ve gotten away from the edge, dropped from 9k to 5k, wider margin is also outstanding; concerned that we’re covering cost of operations only, if activity is valuable for reliability they should share in some profit, should re-evaluate what the cost is
  • Nichols – I think we’re going to be in this mode until we get more reliable generation online, will take awhile because no one will invest while we’re still talking about it; how long are we going to be running in a RUC situation? Also seems like the older units are running the most
    • Jones – Will continue to operate in a conservative manner to maintain reliability, RUCing is required in the current market to provide reserves
    • How long this lasts is really a question of how long it takes to fix the financial side for operators, number of things we can do to address RUC like change in the pricing curve or increasing level of non-spending reserves, e.g. ancillary services
  • Nichols – I envision you’ll keep the wider margin of reserves way out there, just worry about using 50 year old plants to do it
    • (2:46:00) Lake – Companies do not like having generators run, will stop RUCing as soon as market mechanisms take over like ORDC and additional financial incentives
    • Second portion of ORDC coming up that PUC will address this spring
  • Nichols – Hope margin is kept going, but if they’re complaining about it tells me they’re losing money on it, concerned about older units
    • Lake – Older units are least efficient and mostly likely to be on the sidelines
  • Johnson – Working well, but can’t rely on RUC long term and you don’t plan to; RUCed generators are able to be reimbursed at some percentage above cost but limited to 2x, what is the point of that cap if gas supplier is actually charging vastly in excess of that?
    • Lake – Not sure why this was put in place previously, but under consideration and in the work now, have proposal filed currently to address this
    • Also looking at cost of firm fuel product, participants are looking at more flexible options like option contracts, PUC is looking at how to address this in rule
    • TERC is working to address these issues
  • Johnson – In the event of bad actor, Comm. Christian stated they don’t have authority over contracts, but statute seems to grant this authority, market participants have recourse through RRC to file a rate review request
    • (2:50:30) Christian – Market sets price of natural gas, profits by regions are set by RRC every five years
    • For individual contracts, RRC doesn’t interfere with those
  • Johnson – So is that the point of purchaser bringing complaints, when limits are exceeded?
    • Christian – Yes, we have a system for this
  • Johnson – Can you identify when a generator has complained pipelines have exerted monopoly power and prevailed?
    • Christian – Can get that research to you
  • Johnson – Not saying it hasn’t happened, but seems like there is a little weight on the scale already
    • Christian – Agree, this is why I’m the first Commissioner in some time to vote against flaring permits
    • Improper role of government for people to rely on RRC to cover business decisions
  • Menendez – A gas desk would be different from an independent monitor, gas desk is operations, monitor could look at price gouging, etc.; PUC has ability to hear rate hearings
    • Lake – For fully-regulated TDU, yes
  • Menendez – Would it be in the best interest of the industry to have an independent monitor to ensure generators aren’t being gouged and gas price isn’t being manipulated
    • Lake – Valid enforcement of contracts is important to all transactions, not a uniform answer as to best way to achieve this
  • Menendez – Per previous conversation seems like there is no other way for people seek relief on these claims
  • Menendez – Seems like we could reduce demand, reliability margin could be increased simply by reducing demand; heard that there were too many homes using inefficient electric heating?
    • (2:57:44) Jones – Discovered during Uri that there are a great number of Texas homes that have switched to electric heating
    • Could be that there is no distribution company, could be that price has been very low in Texas in recent years
    • If we make sure homes are better insulated, tighter window seals, etc. through local rule, city ordinance, state gov, then there is an opportunity
    • Texas is growing fast, close to 2% per year in electricity
  • Menendez – Asks after opportunities to incentivize generation by allowing export of excess power via interconnections with other grids, is this possible?
    • Jones – Yes, we have two DC lines going into Eastern side, have a few hundred megawatts into Mexico as well
    • One developer has proposed a 2k megawatt connection as well that reaches all the way to Alabama & Mississippi
    • If we get another instance of cold weather, interconnection could help
    • If there is more possibility of export then that would raise value for new generation
  • Menendez – Financial loss during Uri was $51b?
    • Jones – Not familiar with hat number, total economic week was $50b in costs
  • Menendez – In one week, might have approached the number since we deregulated?
    • Jones – Yes
  • (3:01:45) Christian – Clarifies that RRC doesn’t set price of natural gas, RRC covers the spread made on profits
  • Schwertner – You regulate LDCs not the gas market
    • Christian – Correct

 

Panel 2: Kenan Ogelman, ERCOT, Thomas Gleeson, PUC, Carrie Bivens, Potomac Economics

Kenan Ogelman, ERCOT (3:03:25)

  • Schwertner – Speaking on the actions of ERCOT under PUC and SB 3
  • Ogelman – PUC gave us instruction on a number of items, this is Phase 1 of the implementation plan with 3 categories
  • 1 changes include ORDC changes, moving demand curve
  • 2 would be approved market design changes still being implemented or items still being worked on
  • One of these is the fuel oil issue or on-site fuel service
  • 3 would be items that haven’t started, like voltage support currently in development
  • Phase 2 would be working on policy decisions in concert with PUC
  • Schwertner – Phase 2 will be on the next panel, so let’s stick to Phase 1 things you’ve done or are thinking about

 

Thomas Gleeson, PUC (3:06:57)

  • Schwertner – Tell us how you’re working with ERCOT
  • Gleeson – Adding info on cyber security from last panel, bill was passed in 2019 to give PUC authority to hire a cybersecurity monitor and implement best practices, also established Cybersecurity Council which gets regular briefings from the cyber monitor
  • GAA has a rider directing a report from PUC on interconnection costs, PUC is working on this report
  • Have a section working on efficiency and goals
  • Phase 1 of market redesign talks about virtual powerplants, e.g. aggregating smaller loads together
  • PUC held a series of work session on market redesign, received many comments, first phase is modifying existing design incl. offer cap, firm fuel, etc. as described in SB 3
  • Phase 2 incl. backstop reliability service and load stop reliability mechanism; backstop is an insurance against getting into emergency condition, load stop incentivizes new generation coming on
  • This includes Dispatchable Energy Credits (DEC) program and an LSE obligation that would require certain utilities to procure dispatchable load in advance
  • Menendez – Texas Assoc. of Manuf. sent a letter to the Gov. in opposition of the LSE obligation, would create gov mandated payments to existing generators, akin to decentralized forward capacity market; what is your answer to that?
    • Gleeson – Look at this as all options on the table, will be looking at this with ERCOT, stakeholders, consultants etc.; PUC blueprint says hybrid option should be considered
    • Can be informed by what other states and countries have done
  • Menendez – What would that cost? My understanding is customers would be paying 7% more under the LSEO?
    • Gleeson – Consulting will help us with rightsizing a lot of these options to ensure we don’t have a lot of economic inefficiency
  • Schwertner – Will have panel member who are proponents and opponents in the upcoming panels
  • Nichols – Proposals are not addressing and allocating costs according to SB 3; hope that PUC would consider studying cost
  • Schwertner – Good point on cost and intersection of affordability & reliability

 

Carrie Bivens, Potomac Economics (3:18:00)

  • Schwertner – Any input from the IMM standpoint on strengthening reliability through Phase 2?
  • Bivens – Each Phase 2 approach has some sort of capacity element for the market, some type of additional payment for capacity
  • Need to consider how payments will interact with energy-only market design
  • Backstop reserve service would be a payment to generators to sit on the sidelines until an emergency, will withhold capacity on a normal day and tend to raise prices; see this as inappropriately raising prices that would throw market out of alignment in the long term
  • DEC proposal would provide payments to services and lower costs, would undercut existing generation; doesn’t meet reliability or resource adequacy objectives
  • LSEO has some interesting possibilities depending on how it is designed, because there is a desire to operate market more conservatively, then we will need some sort of secondary market for standby payments
  • LSEO could work with residual option performed at ERCOT, would mean uncleared participants would be mandated to come together and clear and ERCOT
  • Menendez – LSEOs have only collected money, but not improved reliability; no incentive for newer generation
    • Bivens – Well-designed market will have performance incentives, entities that provide more reliability would be accredited with more capacity
  • Menendez – This is a tweak on the pure LSEO with a reliability incentive; LSEO would be okay with this incentive?
    • If there is an appropriate performance incentive for the contracted resources & there are incentives and penalties associated
  • Menendez – How much does RUC cost compared to previous years’ ancillary services?
    • Yes, estimate that between $300-$400m is the impact of additional reserve requirements, attributed to LSEs
  • Johnson – Can you go over reservations on the DEC product?
    • Provides subsidy or side payment for narrow scope of resources, costs of these resources will be lower and will be undercutting existing generation
  • Johnson – Is there any merit to the notion that bringing these tools online would mean ORDC wouldn’t need to be as high; if we don’t do something like DEC won’t we have other costs associated with incentivizing generation when needed?
    • A concept like this needs to apply to new and existing generation, only applying it to new generation will undercut existing generation
  • Johnson – If there were a way to run this in parallel with other incentives; does respond to a particular need in the market, though not promoting DEC specifically
    • Energy-only market is very good at efficiently pricing resources, if there is a need for reserves then additional ancillary services can be considered, etc.
    • There could be an uncertainty option, could make payments to generation that can come online in 2-4 hours to meet need according to uncertainty in forecast
    • Instead of piecemeal approach with some capacity aspects, instead could have capacity-type obligation that could incorporate these components, a credit capacity
  • Schwertner – Have we done enough regarding reliability with changes in leadership and coordination, as well as ideas in Phase 1? Do we need further major structural changes?
    • Believe in the energy-only market, structure we have today is good and does a good job of incentivizing what we need
    • Overly conservative operations undercut components needed for a successful energy-only market
    • Best way to maintain this would be an LSEO with a residual auction
  • Schwertner – People call it a conservative approach, but really it’s an out of market directive
    • It is an out of market directive, but also reserves in excess of what we’ve needed historically
  • Schwertner – In a way it’s similar to increasing prices to incentivizing a demand response; interrupting or interfering with an energy-only, scarcity-induced market
  • Schwertner – Asks ERCOT, regarding ECRS ancillary service and loss of megawatts from solar; this is still being devised but there is a time-crunch as it requires a change & upgrade of ERCOT Management System; is it your intention to complete this within the timeframe?
    • (3:33:00) Ogelman – Yes, want to get ECRS service in before the EMS upgrade to avoid need for redesign, intent is to do this
  • Schwertner – Can you explain ECRS?
    • Ogelman – ERCOT Contingency Reserve Service, idea is you pay for resources that can come online within 10 minutes, allows us to address a series of reliability issues like wind and solar are decreasing
  • Menendez – RUCs cost $300-$400m over what period of time?
    • (3:35:25) Bivens – This is the increased cost of the reserves procured, not the RUCs
    • RUCs were about $5m last year, much more than it normally is but not a significant number
    • $300-$400m is the cost of additional procurement of non-spending service
  • Menendez – So $300-$400m is the cost of having a wider reserve margin?
    • Bivens – Cost for buying additional ancillary services
  • Menendez – Just buying the additional ancillary services? So potentially more on top of this $300-$400 million?
    • Bivens – Yes, in addition to this you have RUC make whole payments @$5m last year, bringing units on also has impact on pricing but this isn’t quantified
    • If a unit is offered onto the day-ahead market, then profits are only clawed back halfway
  • Menendez – So we’re already significantly paying for margin of safety?
    • Bivens – Yes, buying additional to have more reserves
  • Nichols – Are you familiar with system in Australia and why they’re moving away from it?
    • Bivens – Some, but future panel has E3 who can speak more on this

 

Panel 3: Aaron Zubaty Eolian, Beth Garza, and Kenan Ogelman ERCOT

Aaron Zubaty, Founder/CEO Eolian (3:39:00)

  • Has made a personal investment in Texas of about $1billion in Texas for minerals and development of renewable and battery storage
  • How could there be a solution to address the immediate problem that is facing us on a daily bases? There is not enough dispatchable capacity on the market on a daily basis
  • RUCs are being using everyday for multiple hours
  • Reliability does not equal capacity
  • Capacity does not equal dispatchability
  • Not a market structure in place that disaggregates various pieces of reliability
  • DEC spotlights: super simple, can be implemented quickly, targets at problem that exists, cost conscious because they have a cap and are self-correcting by design
  • Schwertner – Dispatchable energy credits for fast ramping, that are similar to RECs that have existed for 20 years
  • Schwertner – It’s an idea that is being studied by PUC in their RFP
  • Johnson – DEC is designed to meet reliability need?
    • Not kicking something off the system with DECs, designed to match needs
    • Not competing in same market
  • Johnson – Are you actively taking them out of the market?
    • This idea came about after hearing discussion
    • Is there a way to keep things from retiring and add new things at the same time
    • A targeted specific focus on the type of generation that is need
  • Nichols – Two hours is not very long, why can’t you put six in a row to have more available hours? Would like to know more about the batteries. Affirms you could put batteries in a row for more time.
    • Building projects on merchant basis, no contracts
  • Nichols – Could this cause a disincentive, don’t think two hours is big enough, need a way to generate capacity and does not want to be too overly prescriptive on a proposal
    • Need to think about what was the state of the ERCOT market and what will it look like in 3-5 years
    • Ramping events are two hours or less, DEC is designed for gas or battery energy storage, something that ramps from a cold start/can start in 2 minutes or less and agnostic towards energy
  • Paxton – Does the tool have long term capability? Affirms it really is a patch for this time.
    • Designed to be a targeted intervention in the market where the market has not delivered what is needed
    • This tool is about using it so it does not destroy the rest of the market, could use this tool until you get or if you get to a market redesign

 

Beth Garza, Independent Consultant (4:00:09)

  • Participated in developing the LSERO proposal and NRG is sponsoring her to testify
  • The LSERO results in entire amount of capacity being procured ahead of when it is needed
  • Result would only a small subset of capacity being procured
  • Agrees it could another name for a capacity market
  • Market would be created to facility capacity exchange between suppliers and LSEs
  • Proposal builds on ERCOTs market to allow curtailment for customer requirement and preference
  • Changing landscape of generation technology is putting downward pressure on wholesale electric prices
  • Schwertner – Confirms we do not have a reliability standard in Texas
    • If you have a standard then need mechanism to achieve, Texas does not have one
    • We have a target of 13.75 % reserve margin
  • Schwertner – Asked if fixed rate would cost more?
    • Yes, you pay for certainty
    • But argues it is not doubling the cost
    • Question is how you set the standard, there are cost to add supply as well as being deficient in supply
  • Menendez – Does we need more or fast ramping, capacity or dispatchable generation?
    • Market was intended to create scarcity prices, they are variable and infrequent but they can be quite high
    • Where does money come from that pays for facilities to exist, revenues from other sources then need to be considered
    • Their proposal builds on competitive retail market
    • Sums up comments, we are in for a fundamental shift
  • Menendez- Dead last as a state having an energy efficiency goal, are you saying your plan incentive people to use less energy
    • Believes it provides an additional incentive
  • Nichols – Discusses Australia’s system and their transition and would like more background
    • ERCOT energy only market drew heavily the design on Australian Eastern Markets about 20 years ago
    • After many years of trying to make energy only market work, oversight board is now recommending a capacity construct and that is a major shift

 

Kenan Ogelman, VP Commercial Operation at ERCOT (4:14:50)

  • Backstop reserve market would allow them to draw on additional reserve
  • Would procure like they procure longer term ancillary services and these plants would get a payment to wait on the sidelines until needed which creates some interesting dynamics
  • Fastest implementation would be to do it on a load ratio share basis which is not necessarily on a cost causation basis
  • Backstop reserve market does enhance reliability and increases reserve margin
  • Schwertner – This would be a new service
    • Older units would be eligible to participate in this program
  • Paxton – Are these tools compatible or mutually exclusive
    • Ogelman – DEC and Backstop are not exclusive
    • Garza – There are aspects of DEC that are important parts to consider if implementing LSERO, such as the certificates
    • Ogelman – Could use backstop reserve as a bridge, LSERO would take longer to implement so they could be combined
    • Zubaty – Points out DEC proposal was designed to address a different issue
  • Johnson – How much will it cost?
    • Backstop reserve service would be a varying cost depending on the service, there would also be a cost for capacity and a cost for adjustment back to equilibrium that would result in higher energy prices
  • Menendez – Would like to see how long the solution last such as winners and losers, would hate to go through all this for just a short-term gain, need a strong and honest evaluation of what is happening
  • Menendez – Worst thing is to go through all this and not come out with something that works in the best interest of all taxpayers
    • Ogelman – RFP has one of the tasks is to learn the cost and the timeframe
  • Menendez – Believes efficiency is way to help the consumer and help state reduce the demand
    • Garza – states that in terms of efficiency, there is a problem with incentives right now
  • Kolkhorst – asks how long a battery lasts, longevity wise, and what disposal is like
    • Zubaty – these are a lot of ‘Peakers’ with pretty good heat rates
  • Kolkhorst – Federal Government is incentivizing so much green it is putting at risk the entire grid; we are not creating thermal units anymore and repeats earlier question on longevity and disposal
    • Zubaty – Battery will degrade over time so they designed it so it lasts 20-year use of life with multiple cycles every day
    • Minimum is two hours, and a gas plant is just as good to solve provided it has a fast ramp
    • Requirements are fast ramp, low heat rate and for new state of the art technology so it can participate in ancillary markets
    • Regarding battery disposal, need to recycle components inside of batteries, eventually will begin taking pieces of the battery and recycling the metals cobalt, nickel, and aluminum
  • Kolkhorst – Garza said she is paid to be here by NRG, then asked about testimony on her proposal and curious if her proposal puts put electric coops at a disadvantage
    • Garza – Says that from a public power perceptive most entities are already managing their supply to match consumption
    • Garza – As long as there is a market clearing mechanism is the way to address potential of abuse of market power and this structure is compatible with their proposal
  • Nichols – Once you get electricity on the grid it all looks the same, however some of it is more valuable getting onto the grid and asked about cost causation and hopes industry will look at many ideas such as the one from Southeast Texas Co-op
  • Johnson – Is ERCOT working with the industry to ensure we can handle rapid charging and discharging? Costs?
    • Ogelman – Yes, it will bring additional costs operationally since systems will need to be redesigned and how a company offers resource into the system

 

Panel 3: Katie Coleman TIEC, and Catherine Webking TEAM

Katie Coleman, Texas Industrial Energy Consumers (4:48:38)

  • Will start off noting things they support, as their goal in improving reliability is that the money they pay is going to improving reliability projects and believes phase one achieves that
  • Has major concerns about phase two proposals and believes they will substantially increases costs, and harm reliability
  • Schwertner – Asked if she believes enough has been done for future?
    • Phase one changes is the right set of changes, do not believe there is a need for any of the phase two changes
    • Right suite of changes is about doing the changes in a targeted well
  • Schwertner – Referring to the RUCing as well?
    • When taking about phase one changes not talking about the rucking, they are concerned about the rucking
    • When ERCOT rucks aggressively it gives them a strong sense of security but for every unit turned on and is not needed it costs customers
    • RUC was not designed to be used the way it is, if we are going to use then a lot needs to be changed to make sure customers are treated fairly
  • Schwertner – Is your organization still opposed to LSC with a backstop option?
    • Does not address majority of concerns
    • Most members have little to know flexibility to participate in market or avoid the cost and those that can curtail, it is more difficult to utilize that
    • Because of a 2-3 year forward obligation, large customers entering Texas have to find a retailer that would have already contracted forward for 200-300 megawatts for length which no one is going to do
    • To manage this would need to find a retail provider very far in advance, very difficult for those trying to site here in Texas
    • For smaller customers with smaller fungibility it may be possible but for large companies it is a significant issue
  • Paxton – How do you define the right kind of dispatchability?
    • Buy ancillary services for customers who buy today to use tomorrow
    • Ancillary services have characteristics of the services based on a demonstrated system need
  • Campbell – Which, if any, of phase two services align with the energy only market, is there anything else they should look at?
    • Backstop reliability services or DEC could be implemented, but not actively supporting those
    • They have proposed something like the backstop reliability proposal before
    • DEC is about targeting new resources which is attractive, but concern is the enticing to expand and if you expand too much it becomes an LSC obligation
  • Menendez – Wants to know if they can quantify the cost of Winter Storm Uri?
    • Does not have a total for all members
    • Knows that there were some individual companies with bills of $600-700 million, public statements of large cost exposure
  • Menendez – LSC obligations, do you see it as obstacle to future economic development?
    • For large industrial customers it is challenging because you have to find extra capacity or you would pay a penalty, need to find a lot of capacity at once
  • Johnson – Examples of what not to do?
    • LSC obligations
    • Provides additional examples
  • Johnson – Ask about form of capacity payment
    • Discusses the difference between responsive reserve service (ERCOT) from a forward capacity market where you have to buy all the generation that exists just because it exists
    • A forward capacity market would be a major departure from what we have
    • Johnson – says he is hearing she is not a fan of overusing the responsive reserve service
    • Would always prefer to buy at a level they actually need
  • Have been worried about reliability in renewables
  • Feel like a big part, apart from traditional dispatchable resources, is smaller dispatchable resources, new demand response capability being developed and a ton of batteries being developed – that activity with phase one will get us there
  • Johnson – Incentives are bit misaligned, asked more about incentives
    • If energy prices are low responsive prices are low
    • There was more discussion on what was being asked
    • A lot investing in on site solar power, but sustainability initiatives that are dispatchable as well
    • Do not think there is an incentive and thinks they are already doing that

 

Catherine Webking, TEAM (5:15:25)

  • Texas is thriving with the competitive market we have built here
  • Appreciates efforts and agencies and is supportive of phase one
  • Provided handouts to the committee, want to make sure customers are only paying for their improvements in the reliability service
  • Uncertainty adds risks and cost and need to make sure principle is maintained that customer has one time price adjustment, uncertainty should not be priced in all the contracts
  • Customers benefit from the competitive options
  • Menendez – Finds it hard to believe that incentivize efficiency programs is the only way to encourage efficiency, asked about her members thoughts/actions on this
    • Retail electric providers are able to help customers manage risk with energy efficiency during peaks which exists today
    • Have same incentives to adjust prices to benefit customers as well as them
  • Menendez – Would like to encourage her to bring more options forward to help measure and what would it be for Texans in savings with efficiency
  • Johnson – Is there something smaller than a three-year plan that would be more palatable to the industry?
    • Closer in time is easier to comply with the mandate without being punitive
  • Schwertner – looking for reliability and affordability, his intention they maintain proper oversight