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The Senate Business & Commerce committee met on February 16 to hear invited testimony to consider various proposals to improve the wholesale electric market design and strengthen the reliability of the Texas electric grid.

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
  • Schwertner – Will continue the potential solutions to meet the future demands of the grid; need market to incentivize investment
  • Schwertner – Will continue to discuss the PUC’s proposed design, but need to look at other options including state owned energy programs, and targeted dispatchable
  • Zaffirini – Notes a number of the members will be moving back and forth between this committee and Senate Finance
  • King – First witness will be Becky Klein
  • King – Have worked with her on a number of projects throughout the years; is an expert on this subject; was previously the chair of the PUC when deregulation occurred
  • King – She is on the board of Diamondback Energy, founder of the Texas Energy Poverty Research Institute, and on the board at Avista
  • King – What should we be thinking about concerning a model for the future of this state from an investor’s perspective
  • King – Was a lot of stakeholder feedback in the creation of the market; your thoughts on what we need concerning that?
Invited Testimony

 

Becky Klein, Klein Energy LLC
  • Here to compare and contrast the process of market design between now and in the past
  • The major motivation in the past to restructure was economic deregulation
  • Senate/House members decided to travel elsewhere to see what was out there; learned from other states, countries, and industries
  • Had five years of planning and was a high level of probity from the legislature, market participants, and the financial community on the concept
  • Legislative members would send days with market participants and those involved to plan it out
  • Was no pressure at the time to act fast and quickly like there is today
  • After the bill was passed, it had its own Sunset provision; got reports and were able to monitor the process/goals
  • Was important to interact with financial community; testified and interfaced with commission
    • Goal was to be transparent and explain legislative intent
    • Learned by questions they asked; ensured complexities were clear/understandable to investors
  • The world is more complex now with more volatility, risk with weather/changed resource risk, cybersecurity, etc.
  • Have a harder time today than the legislature had decades ago; are many moving parts
  • Schwertner – Noted we have a changed resource mix/volatility/cyber and physical security; specific recommendations regarding our long-term goals for the market?
    • Recommend deciding what fundamentals to keep in place for this market
    • Need to provide certainty to the market and financial community
    • Need predictable revenue streams that are forecastable; which are in the market today
    • Need less complex, least risk, technology neutral, no age discrimination, more knowns, and fewer unknowns
    • Need market participant involvement in the creation
  • Schwertner – Continuation of free market and less complexity are thoughts to be kept in mind
  • Schwertner – Need to keep them in mind for novel concepts like the PCM, among others
  • Zaffirini – Learned from other industries? Highlight some of those lessons
    • Learned about disassembly, understanding needed structures to keep distance from regulated companies, and how to measure monopoly power
  • Zaffirini – Lessons learned on what we should not do in this process.
    • Should not U-turn
  • Zaffirini – Deregulation bill had legislative oversight committee; need this again?
    • Important for this body to oversee what the PUC is doing
    • Need commitment from the legislature for the market to have surety
  • Zaffirini – How important for our/ERCOTs process should be transparent?
    • Transparency is still there; notes ERCOT board meetings are open
    • Are reasons to have closed-door meetings
  • Zaffirini – Criteria in evaluating the models?
    • Know free market principles are cleaner/adaptable; technology neutrality important
    • Need to understand cost causation/cost allocation; financial risk will be allocated differently
    • Will have impact on peak scarcity hours and efficiencies like load following
    • Financial community will need to figure out how to put those in their market design
  • Schwertner – Has been discussion of how long the PCM would take to actually become effective and have certainty; claimed they need 18-month rulemaking period
  • Schwertner – As a prior PUC commissioner, is 18 months reasonable time for significant change?
    • Timeframes previously set were aspirational and were usually longer; easily took 50% more time than anticipated
  • Schwertner – Recognizes PUC for their implementation of Phase I, but adding new complexity/novel endeavors adds to the concern of actually getting the job done
  • Johnson – Tension between free market principals and certainty of revenue streams?
    • They have to be balanced, it is more complex
  • Johnson – You noted predictability is important, think flexibility is also important to investment; agree?
    • Agree; if you set the guardrails will consistently do tweaking within those
    • Different things have to be in consideration that we did not have to grapple with before
  • Schwertner – Are already mechanisms in place in ERCOT to add ancillary services
  • Campbell – Do not want to be hasty; currently have a reliable market; do not want to make changes to capacity when Uri was a performance issue
    • NERC and FERC reports indicated it was a performance issue
    • Our restructuring paradigm is so decentralized exposed weakness
    • Market is already showing us where those improvements need to be made with faster ramp and longer duration
  • Schwertner – Agreed, but still do need to address resource adequacy
  • MenĂ©ndez – Need a multitude of trusted resources on this; need reliability at a reasonable price
  • MenĂ©ndez – What lead to the dissolvement of the System Benefits Fund?
    • Was a part of the bill; issue was an accrual of dollars in that fund; was Sunsetted and credited back to low-income customers
    • Is no current backstop for middle- and low-income customers
  • MenĂ©ndez – Is not just middle and low income who are unable to pay at times
  • MenĂ©ndez – Difference between cost causation and cost allocation?
    • Cost causer is when you schedule power, and it is not there
  • MenĂ©ndez – Crestline expansion has caused paying more on a bill and increasing reserves; bills been 60% higher?
    • Have heard that and is normal that transmission costs are socialized
    • Are other costs such as commodity, inflation, labor, permitting costs
  • MenĂ©ndez – Texas is one of 20 who does not require reporting of disconnects?
    • Not aware of that
  • MenĂ©ndez – Would be helpful for us to know the rate of disconnects to see if there is a direct correlation between that and costs?
    • Would be beneficial
  • Schwertner – Cost causation; variable resources should shoulder the cost of their lack of reliability
    • If you set a standard, those technologies will become firmer; they will have to bear the cost of that and how that flows through the market we will see
  • Schwertner – Rate payer pay for the cost of variability or the actual generator?
    • At the end of the day you are pitting the shareholder versus the consumer
    • Do not know the answer to that
  • Schwertner – Is a question about who should shoulder the cost; concerned about the rate payer
  • Schwertner – Has been a directive from the governor and statute to for the company to shoulder the costs
  • Kolkhorst – Could see the role renewables would play during deregulation?
    • Would never have guessed
  • Kolkhorst – With tax credits and incentives renewables are outside of free market principles; will be a challenge to balance that
  • Kolkhorst – Thoughts on ESG impacts the financial market?
    • Impact has been significant; have seen globally that energy security is now a priority than clean energy
    • See growth of renewables as a beautiful thing, but agree with the reservations that Chairman Lake and others have had
    • Need to think about the other regime; do not want to do the same thing you are condemning there to other parts to equalize things
    • Need to revise standards and let the market rise to those
  • Kolkhorst – That is the challenge; leveling the playing field is something we are going to have to balance out
    • Subsidies in those intermittent have skewed market prices, but should not limit ourselves to what the future technology is going to be
  • Kolkhorst – Issue is reliability
    • Will need to be an expectation that reliability will be a premium
  • MenĂ©ndez – You noted that it took 50% more time than you planned to implement; noted we could start energy efficiency and demand response now?
    • Agree; PUC will be working on that and will be an important tool
  • MenĂ©ndez – Could find someone to quantify how much we could save with energy efficiency program? Discusses the SmartMeter program
  • MenĂ©ndez – A study showed we have saved $900m
  • Schwertner – Are benefits for interruptible, but is that because of subsidization?
  • Schwertner – Need guaranteed reliability; and need to consider who pays for that added cost of reliability
  • MenĂ©ndez – Agree, but do not know the most cost efficient dispatchable will be in the future
  • Schwertner – Should set reliability standards
  • King – Notes increases in renewables, federal subsidies, and ESG; seems like unlevel playing field between thermal and renewable
  • King – If the playing field was leveled by firming requirements or other measures, think the market would respond and build more thermal?
    • Effect over time that there will be price suppression
    • Could balance itself out or could put standards in the market do to that sooner
  • King – Need to be thinking about the fuel mix as well
    • Need to go back to the fundamentals in the market to enable that balance
  • King – Primary consideration is to not let another event like Uri occur; need to think about long term and short term
    • Suggest making a continuous competitive procurement process; do things like that today with emergency response procurement
    • Bridging solution may help with a longer implementation of something else
  • King – Thinking we need some backup generation in the short term; could be temporary and phased back out?
    • If you could find a way to do that in the current construct would be good
    • Could be temporary and phased back out; PUC is charged with looking at those interim solutions
  • King – Notes SmartMeters have not been used to their full capacity
  • Johnson – What company is going to swallow the cost? Will be passed to the consumer either way; is not an easy answer
    • Would be passed along to the customer
  • Johnson – Issue is how much dispatchable power we need; cannot be distracted
    • Is not unlike what set a number for renewable power and was continuously reset
    • As long as you have market incentives in place, will drive market
  • Johnson – Federal subsidies are offered nationwide, but wind comes here because it is optimal
  • Schwertner – Is a balance to be had; could build emergency power reserve system ourselves?
    • Have a bias against hybrid markets; something like that would be expensive and would take a while to build
  • Schwertner – Think people would want that type of insurance/assurance?
    • Think there are other market driven ways to drive the same objective
  • Schwertner – With certainty?
    • High probability
  • Campbell – Limited by amount of renewables because we need thermals for voltage support?
    • Agree, ECRS will go a long way to procure those resources in an emergency situation
  • Campbell – EROCT previously considered changing to capacity market; see any increase in thermal generation after reforms passed?
    • Yes, do not know the MW
  • Campbell – PCM an out of market design; think it will decrease competition/change financial risk
  • Campbell – Are we going to take free market principals away with PCM?
    • Would be a different risk allocation for generator and load serving entities
    • Hard to say the PCM is better/worse than other options
    • Is more
  • Schwertner – Is PCM a U-turn to the energy only market in Texas?
    • Not ready to answer without learning more about it
  • Schwertner – Are many unknowns, we will not know more unless we adopt it and then let it go into place
Michele Richmond, Executive Director Texas Competitive Power Associates
  • TCPA comprised of 12 companies; 10 generators and 2 are power marketers
    • Majority of members do not have retail affiliates
  • Companies total 5.4k MW in the ERCOT market; majority are gas plants, have coal/nuclear and some solar as well
  • Judged market proposals against a number of ideals: sets reliability standard, maintained within the competitive market, value reliability dispatchable resources, stable/consistent revenue stream, investment risks on energy companies not consumers, prices should reflect market outcomes, and reliability should be achieved not through regulated segments or subsidized
  • Agree with much of what Chairman Klein said
  • ERCOT market currently is volatile and does not have stable revenue for gas generators
  • PCM does provide a reliability product; removes scarcity, maintains many of the aspects of the market already there
  • Is no upfront payment for the PCM; cost will be on the company
    • Understand they would be required to perform
  • Texas should be a leader in setting performance mechanisms
  • Schwertner – Mentioned it would be stable, understand PCM would fluctuate in price?
    • Agree; day ahead does not work, think seasonally or monthly would work
  • Schwertner – PCM have any effects on operational performance?
    • Yes, market will tell what kind of characteristics it wants
    • Would be a transition to the older
    • Disagree that new construction would not occur until it would be finalized
  • Schwertner – Should be dedicated to only new generation? Discusses Vistra and NRG buybacks
    • Do not have to specify in advance; would have to be committed in advance to perform
    • Should penalize those who do not perform
  • Schwertner – PCM should be technology agnostic?
    • Should be technology neutral; would capture technologies that can make commitment
  • Schwertner – E3 stated PCM would be more beneficial to retaining existing generation?
    • Disagree; companies have had financial conversations
  • Nichols – Have commitments to build, but members have noted they would have built anyway?
    • Yes, some MW were already in the interconnection queue, but some were not
    • Being in the interconnection queue does not mean that they are going to be built
  • Nichols – Have not been many new gas plants being built and all the sudden there are new commitments; IMM stated there were no shutdowns
    • One member has the oldest plant in ERCOT that announced they were not going to be on for a year since the market does not support dispatchable generation
  • Nichols – When someone said it would have been built anyway, that is not the case?
    • Correct
  • Nichols – E3 predicted we would lose 11k MW of dispatchable, agree?
    • Seems reasonable
  • Nichols – They seem 5k MW coming in if PCM, but still at a net loss?
    • Goal is to be designing a market that will be sustainable long-term
    • Energy and reliability are not the same; PCM adds a payment for the reliability we want
  • Nichols – Still concerned about the net loss since we already have dispatchable power shortage and demand is continuously rising
  • Nichols – Do not want to leave this building before we incentivize more dispatchable power; should we build it out own, etc.?
  • Nichols – Want to go home knowing I voted a reasonably priced increase in dispatchable power
    • Cannot have the state building/buying power plants or utilities to build power plants
    • Notes these are issues with California
  • Nichols – Have 70k MW in dispatchable, if the state buildings, will disincentivize other builds
  • Nichols – E3 says PCM will cost $460m more than what currently paying, but some say its $5.7b
    • $460m net cost increase; total cost is $5.7b and expectation
    • As you reduce scarcity would be a reduction in revenues in those markets by $5.2m
  • Schwertner – Theoretically saved costs are projections based upon assumptions of the PCM
    • All of this is projections; my members have already committed to MW
  • Schwertner – Easy for a company to say they are building before they even committed a dollar; are gaming the system towards the PCM?
    • No; has been the first-time firm commitments have been made
  • MenĂ©ndez – Member companies are already assure state has already made a commitment to change things
  • MenĂ©ndez – Reconcile if the PCM over rewards during mild years and does not show up in emergencies?
    • Is performance over capacity; want to make sure there is an appropriate incentive/penalty
    • Do not want to enact huge clawbacks like other states
  • MenĂ©ndez – Asks about distribution issues
    • Most recent weather event was distribution problems; that’s on the regulation side with weatherization
  • MenĂ©ndez – Historically, regulated utilities bills to consumers are lower?
    • Disagree
  • MenĂ©ndez – Asks about capacity market
    • Capacity market is not more/less competitive than PCM
  • MenĂ©ndez – Generation interconnection report notes we have been adding natural gas production; fleet is much younger than others around the nation
  • MenĂ©ndez – Companies want new generation in the market; possible market design changes would benefit incumbent generators?
    • Do not think it will; number of companies have been waiting for something like this
  • Johnson – PCM is a capacity market?
    • No, but there are capacity payments in the market already emergency response service, ancillary services
    • Are not talking about bidding years in advance; is an after the fact payment if you commit to perform
  • Johnson – Who are your members?
    • On our website; are very transparent
  • Johnson – Distinction between forward reliability market or PCM? Members have preference?
    • Yes; members have preferred the PCM
  • Schwertner – PCM does rely on performance, but does have aspects like a reliability standard are administrative demand curve
    • Have a demand curve in the ORDC and
  • Schwertner – Is a capacity market light? Think the credit is like a capacity market
    • Disagree, is an add on to the energy market; are the only market that does not have a reliability standard
  • Schwertner – Is about how we achieve that standard
  • Campbell – Already have a reliability standard in our market lower than what is needed for the study? Are we the only energy only market?
    • Other markets have reliability standards
  • Campbell – Believe the current market does not support new build?
    • Does not support the economic continuation of dispatchable generation
  • Campbell – Market doesn’t support even though we have great reserves?
    • Do not have great reserves; do not have a market that tells generators they need to come online
    • Are running
  • Campbell – PCM guarantees new build?
    • Yes; my members have committed to 4.6k MW
  • Schwertner – Most of which was already in the queue?
    • Not true; reiterates what is in the queue is desire to build, but not promise to build
  • Middleton – Would not be new build if the PCM was not in place?
    • If there is not a mechanism that provides economic incentives
  • Middleton – Need to start talking about net new
  • Middleton – Supported ORDC lowering? IMM did not support this
    • Do not think we made a statement on that
  • Middleton – Think it should be higher/lower?
    • Need to get away from scarcity; better for revenues/prices
  • Middleton – PCM is based on peak hours of need still
    • Do not know what it would look like; want legislative guidance on those details
  • Middleton – Can see your members’ financial information on why they have decided to build?
    • Are competitive private companies; can have members come and meet with you
    • Numbers in the market are already highly unpredictable, PCM brings greater certainty
  • Middleton – Position on firming requirements?
    • Do not have a position, have members on each side
  • Middleton – Could see working with PCM?
    • Possible
  • Middleton – ORDC cap has led to additional generation being built?
    • Do not know any market where energy prices and ancillary alone led to gas generation
    • Were companies that lost billions and some gained billions
  • Middleton – Socialized transmission costs built in with PCM? Are a long way away from where the people are
    • For transmission costs; should consider options on cost caps; should be responsibility of citing your resource
  • Middleton – Have a distorted market? Best solution to undo?
    • Yes; have out of market actions and federal subsidies
    • Cannot undo all distortions like the federal subsidies; best thing to do is have a reliability standard that incentives dispatchable and have smooth retirements
  • Zaffirini – Offers 10x of grid reliability, have other comparison figures for other models?
    • I do not have anything, but can get back
  • Zaffirini – How quickly could a resource you respond
    • Depends on the resource
  • Zaffirini – How preclude the loss of existing generation?
    • Some aging resources should retire, but have new ones come in and take their place
  • Zaffirini – Options that would not delay PCM?
    • Filed comments at the PUC about this, will send your way
  • Zaffirini – Strong statement that would inspire more credibility in the guarantee of new build?
    • Companies are telling you they are investing
  • Zaffirini – Are looking for more assurance than that
  • MenĂ©ndez – Connecting into Western and Eastern grid connection option? Excess capacity cannot currently go anywhere?
    • Members would not be interested in that; other interconnected markets have had just as big issues; cannot act as quickly going though FERC
  • MenĂ©ndez – Seems like it would have been a help during Uri>
    • During Uri other grids would not have been in position to send power to ERCOT
Brent Bennet, Texas Public Policy Foundation
  • Every market is struggling with intermittency of wind/solar; are further ahead that others because of the energy only market
  • Need something new in the market; new should scare us
  • Firming and cost allocation fits into the solution to our problems
  • Amount of solar coming into the state will help during the summer, but will be higher net peak during wintertime
  • Uri exposed issues with our market; still would have loadshed if we solved operational problems
  • Trying to solve main problem of price volatility; why we have had issues with bringing new dispatchables
  • Have an overinvestment problem due to federal subsidies
  • For firming requirements, trying to balance market so we are not continuously paying for backup power
  • Need to balance investments
  • Schwertner – problems with variability, proportional responsibility for variability
    • Questions have been how money gets paid out, assumption has been load
    • Have not had discussions on what happens if we change where money comes from
  • Schwertner – asked how much revenue there would be in his published solution
    • About 12-15% of solar fleet, would get about six out of it
    • With 6 gigawatts, $1/2 billion a year
    • Depends on if its competitively bid, then how much goes to existing generation or new generation
  • Schwertner – cost end up flowing to rate payer, but who should bear the cost
    • Lot of factors go into how cost flow
    • Eventually rate payers end up paying for it
    • If you have right cost benefit analysis done in market then it will balance
  • Schwertner – redisciplines the market by putting a requirement on generation to be more reliable
    • Yes
    • Talking about increased reliability at the lowest cost possible, that is the key
    • Again, about bringing balance to market and discipline
  • Schwertner – why so hard to get this done?
    • ES and G commitments, environmental and sustainability goals
    • Hard to get good data to explore this concept and don’t want to be seen as not supportive of sustainability requirements they gave investors
  • Johnson – thinks he agrees with shouldn’t be afraid to try something new, operational problems are not only problem
  • Johnson – will they ever be able to apply big enough penalty to make renewables at cost parity?
    • Not trying to achieve cost parity but its about balance
    • Firming requirements can address
  • Johnson – if investing in new renewable and saw firming requirement in Texas, then would not locate here
    • Cannot have firming requirement to just new sources but it needs to be to the entire fleet
  • Johnson – won’t market serve curtailment problem?
    • To an extent
  • Johnson – would think it would make investors uncomfortable if Texas changed rules on them every few years
    • Would argue did this before when restructure the market, changing the prices, etc.
    • Agrees it is good to provide more certainty but have made changes in the past
  • Johnson – asked about this tool vs a direct investment
    • Whatever tool selected needs to be competitive
    • Sizing is important
  • MenĂ©ndez – asked about reviewing E3 report, reviews proposals they made to address concerns
    • Yes commented on it
    • Document sounds familiar but may not have written it
  • MenĂ©ndez – is position of TPPF that if you don’t adopt a capacity market, it cannot be done?
    • Believes firming language is needed
  • MenĂ©ndez – Does cost analysis on firming requirements show that cost would increase
    • Savings come in first increments of low cost energy being added to the grid
    • Need to find when lower cost energy worth volatility increase, opinion right now is the market is not balancing it
  • MenĂ©ndez – would like to see number, facts and figures before deciding
  • Birdwell – asked for details on “firming requirement”
    • Lot of ways this could occur, over what time period
    • Key metric is time of peak load performance over thermal fleet
  • Birdwell – how could wind or solar company meet firming requirement
    • Pay to procure back generation from generator who could fill in the gap
    • Longer term if you have storage
  • Birdwell – at some point intermittent sources, renewables, would need to purchase power from non-intermittent sources
    • Correct
  • Birdwell – is federal government action solely an economic action or does it preclude state from acting
    • No, first time asked this question
  • Johnson – application to thermal fleet, notes subject is complex, asked about ESG statement made earlier
    • Would apply to non-performing thermal fleet, more like a penalty for not performing
    • American Electric Power wants to retire a coal plant which makes sense economically but problem is does that benefit rate payers and the market
    • ESG has similar disconnect, with investor sentiment
  • Johnson – if focused on ESG social movement, concerned they will miss the mark
    • Agrees not anti-renewables suggestion
  • Middleton – estimating 6k gigawatts of net new at $500 million a year
    • Could be a lot less, conservative estimate
    • Cost allocation could allow a smaller more targeted product that doesn’t have to take up as much of the market to function properly
  • Middleton – PUC talking about doing this with ancillary market
    • The difference here is size
    • Agrees this is way to help deal with and incorporate existing distortions
  • Schwertner – asked about how this would work
    • There are a lot of ways, create a requirement that is flexible so as variability goes up then requirement goes up
Katie Coleman, Texas Association of Manufacturers
  • Proposal laying out is also supported by TxOGA and TCC
  • Griffey can answer technical aspects of proposals
  • Regulatory certainty is important and impacts companies choosing Texas to do business
  • Would suggest building on current model rather than try something new, don’t experiment
  • Do believe PCM is capacity market, a backward-looking capacity market
  • Solves for a specific amount of revenue for all generators in the market
  • PUC decides how much money should change hands
  • Their plan allows to have units on call which addresses pricing volatility and increases overall revenue in the market for dispatchable generation
  • Include dispatchable generation in program
  • There are ways to incentivize without destroying generation
  • Schwertner – ancillary service, day ahead market but heard it’s not enough to incentivize
    • Believe it is enough to incentivize
    • Made changes in market, current market is providing sufficient revenue
    • Charles Griffey, Peregrine Consultants LLC – targeting units that are resources they need, so target dollars to those resources rather than turning on day before
    • This product is more robust than IMM, proposing to look day ahead
    • Asking a generator to commit for an entire season is an insufficient approach
  • Schwertner – regarding discussion on a firming requirement, any comments
    • Did start out advocating for that, pivoted away not because of opposition but because of information they have seen since then
    • Firming is cost allocation, not incompatible with firming
    • Schwertner and witness discuss the various calculations
  • King – What is best way to implement and cost of backstop
    • Discussions of various backstop approaches include a set of consumer protections to go with it
    • If you go down the road, would suggest one fairest to consumers
  • King – Not saying this is the right way to go but would you say if you do that CenterPoint you are responsible to make sure you have sufficient generation or does ERCOT divide into zones?
    • Use approach as sparingly as possible, only use it if PUC determines if absolutely necessary and for as short a period as possible
    • Emphasized that is not their preferred approach
  • King – is there way to design when run on such a tight basis that those things happen during only critical times
    • Tension between these areas, can say in theory only use in last resort but if paying for new facility sitting on sidelines then at some point would want to start using it
    • Maybe there is a way to address in theory but it is challenging
  • Johnson – is position still there is an operation problem, don’t need more gas etc.
    • Agree do not have a resource adequacy problem
  • ERCOT trying to do part of proposal they have recommended but doing it inefficient and not cost efficient way
  • Johnson – asked about pulling out high quality resources
    • Certain units cannot sell energy until ERCOT tells them they can, so units selling energy are less efficient and higher cost
  • Johnson – Confirms statement 40k MW in gas and fire plants since deregulation
    • Yes, gas and fire generation are being built just not as much and don’t have exact footing as renewables
  • Johnson – why is there such a disconnect between entities
    • There is a lot of variability on the system and difference of opinion on how big the problem is
    • Believe you can measure it
    • Understandable that people want more control, it is attractive to regulators and policy makers but argues it is about more control than data shows there is a need for
  • Johnson – PCMs cost $5.7 billion in paper they put out which undermines their credibility, wants to be clear in the message
    • The cost is $5.7 billion is an E3 number but agrees there could be cost offsetting
    • Charles Griffey, Peregrine Consultants LLC – could also be higher
  • Johnson – asked about $11 million number, how did you arrive it?
    • Took $5.7 billion as a base for calculations
  • Johnson – do you believe the proposal they are suggesting would be more efficient than PCM?
    • Yes, solving for pre-determined amount of profits
  • Would argue the current market is incentivizing and would say people are building currently
  • Johnson – anything to add Mr. Griffey, do you agree we will lose net thermal
    • Charles Griffey, Peregrine Consultants LLC – there needs to be more dispatchable resources to meet growing fleet
    • Charles Griffey, Peregrine Consultants LLC – seen gross about 10k MW of dispatchable gas build since 2016/since ORDC was put in
    • Charles Griffey, Peregrine Consultants LLC – doesn’t think E3 made prediction, will likely see coal plants retire for a variety of reasons
    • Charles Griffey, Peregrine Consultants LLC – don’t think we will see thermal drop off if solar can’t be built, E3 equilibrium analysis is not realistic
  • MenĂ©ndez – interesting panel, refers back to old adage to follow the money
    • Believe their proposal is better solution
    • Agrees it could be a revolving loan product, idea is if state provides benefits for plants it would help level the playing field
    • In PCM if not one builds then significant funds are paid out
  • MenĂ©ndez – would like to see accountability measures if this plan moves forward
    • Absolutely
  • MenĂ©ndez – dispatchable energy question
    • There is a relationship between installed capacity and operational issues
  • MenĂ©ndez – past quote about reliability of renewables
    • There was not a lot of geographical or technical diversity which was concerning but now with those things, it has been made more predictable on the whole
    • Can measure and manage risk now
  • MenĂ©ndez – when competing to get Toyota, state could offer a low electric rate and that helped Texas compete, would you agree
    • Electricity is one of the primary siting recommendations
    • Reliability is number one concern above all else but would like it at a fair cost
  • MenĂ©ndez – appreciate advocacy to keep cost of living low in Texas
  • Campbell – Uri problem was performance not capacity
    • It is a problem to make sure what we have shows up
    • Need to worry about multiple variables
    • No capacity construct would have made a material difference in Uri
    • Performance, real time performance is key
  • Campbell – is there more generation being built (thermal capacity), if PJM building more thermal
    • Questions are what is getting built and how is there reliability
    • Charles Griffey, Peregrine Consultants LLC – 40 MW in gas fire capacity in ERCOT, PJM is about 50 MW
    • Charles Griffey, Peregrine Consultants LLC – in relative size ERCOT has had more build and PJM has had a number of retirements
  • Campbell – RUCs, would it be better to reduce reliance
    • Share concerns on RUCs, it is out of market
    • Reducing reliance on RUCs would be a more efficient service
  • Campbell – RTCs?
    • Should be a no-brainer for RTCs (real time co-optimization)
  • Campbell – something at our disposal that we could be using right now would be RTCs which would save money and provide efficiencies
  • King – response to comments concerns she has heard
    • They pay hundreds of millions in cost each year, very few can take supply side and don’t have anyone that have made a profit
  • Zaffirini – asked about risk
    • Whole premise is to shift weight of market to investors
  • State owned generation could cannibalize the market
  • Zaffirini – which models would their recommendations be most effective
    • The recommendations would work with current market design
    • Recommendations is about finding parity through financing
    • Believe you can build on current market design
Alicia Knapp, Berkshire Hathaway Energy Renewables
  • Will be providing an overview of the 2021 BHE proposal to increase grid reliability; have participated in the regulatory process of implementing SB 3
  • Recommend a request for proposals for public private partnership to build 10k MW of emergency dispatchable generation
  • Located by regions chosen by ERCOT; would provide immediate dispatchable generation during an emergency
  • Small charge on customers’ bills; after an emergency customers would receive net revenues
  • Construction would now cost $10.8b would take 42 months to build
  • If assets are not operational, Texas customers have a performance guarantee of $4b
  • Other market reforms can be implemented independent of this proposal
  • Will not adversely affect the energy-only market
  • Public private partnership guarantees steel in the ground
  • Will result in new dispatchable generation; could serve as an interim solution
  • Cost is reasonable; less than $4 a month for residential consumers
  • Could use some of the budget surplus as a cost reduction
  • Schwertner – Proposal has been criticized as destroying the energy only market
    • Would not disrupt the energy only market as it would come on last in a scarcity situation
    • Would be first to come off once it is alleviated
  • Schwertner – Thoughts on the criticism regarding potential ORDC curve effects?
    • Are not actually participating in the market; would only come on after available generation has already participated
  • Middleton – Is an unchanged plan from 2021?
    • Yes, other than the changed estimates of cost/time; is more needed now than during 2021
  • Middleton – Heard about TAM’s plan loaded towards base load; would yours crowd out more reliable base load generation?
    • Do not think it crowds out investment; is the answer to the dispatchable problem as they are not economic to build
  • Middleton – Agnostic about where the money comes from? Say if they came from a fund for intermittency penalties?
    • Funds would come from the company; manor of recovery of funds is important
  • Middleton – State funds would underwrite this
  • Schwertner – Comment on TDU companies’ proposal?
    • Would be a competitive process, but making it exclusive to TDUs is not beneficial
  • Johnson – How does this differ from public private partnership regulated rate of return in California?
    • Are differences between the California market and Texas’, but recovery mechanism is similar
  • Johnson – Total cost? Concerned about it sitting idle; are other proposals for generation to be participating in the market; company would
    • $10.8b; is not currently economically viable to build, but would build under this plan to ensure reliability
  • Schwertner – Initial bill filled has been significantly altered on rate of return, who could enter, financial underwriting, etc.
  • Schwertner – Issues are operational flexibility, performance, resource adequacy; request committee members meet with stakeholders on this