Senate Business & Commerce met on November 17 to hear invited and public testimony on the following interim charges:

  • Electricity: Assess the electricity market in Texas. Study issues impacting the Texas electric grid, including transmission planning and maintenance scheduling. Study the consequences of increased electric vehicle usage and charging on the generation, transmission and distribution, and retail sectors of Electric Reliability Council of Texas (ERCOT) and evaluate their potential impact on increased electric demand and reliability of the grid. Examine the growth of renewable energy generation in the state and evaluate its impact on grid reliability. Make recommendations to strengthen the reliability of the grid, and meet the future generation needs of ERCOT through new and existing dispatchable generation. Assess plans to expeditiously add new dispatchable generation. Monitor the implementation of Senate Bill 2 and Senate Bill 3, 87th Legislature.
  • Blockchain and Virtual Currencies: Study current state and federal regulations surrounding blockchain and virtual currencies. Examine how these technologies impact industries such as banking, business, and electricity. Make recommendations to protect consumers while encouraging innovation. Monitor the implementation of House Bill 1576 and House Bill 4474, 87th Legislature.

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

 

Opening Comments

  • Chair – SB 3 directed legislature to secure reliable ancillary services & dev appropriate qualification & performance reqs for reliability services
  • Also speaking on PUC, electric market redesign, etc.

 

Electricity: SB 2 & SB 3

Peter Lake, PUC Chair

  • Introduces ERCOT CEO Pablo Vegas, brings needed expertise to ERCOT
  • Sen. Whitmire – Has he been prepped on what constituents went through during Uri?
    • Lake, PUC – Yes, emphasized this through the process
  •  Sen. Menendez – What can we do to guarantee lights are on in winter?
    • Can continue to do the things we’ve done, implement weatherization standards
  • Menendez – FERC released a winterization report, stated ERCOT has a need for 11.5 gigawatts; studies show we would be at 64 gigawatts during extreme winter conditions, below 85 gigawatt need & even with mitigation strategies from ERCOT have a shortage of 18 gigawatts
  • Menendez – According to FERC grid may not have everything it needs to be stable
    • Report has some inaccuracies that were later corrected, incorrect statistic probabilities
    • Pablo Vegas, ERCOT – Agrees, ERCOT has tools now to address winter need, incl. reliability tools and weatherization
    • However, in the most extreme situations there is a risk of gap, this is why continued power grid investment is needed, incl. incremental resources that have an on switch
  • Menendez – If there are inaccuracies in the FERC report, could you help us see what those are?
    • Lake – FERC report assumes we would use more power than we would’ve used over the last summer, hottest summer on record and we are a summer peak state
  • Menendez – So we should find whatever the most power we’ve used in the winter to determine the potential gap

 

Pablo Vegas, ERCOT

  • ERCOT and PUC work has met need of extremely hot summer and cold winter
  • Power grid has been tested, it is strong and reliable; strong ERCOT is needed to continue reliability, SB 2 helped & SB 3 made substantial progress in overall grid reliability
  • Maximum Daily Resource Plan Outage Capacity is a new metric that sets max number of outages allowed, published in advance
  • Developed firm fuel product that added roughly 3k megawatts
  • Chair Schwertner – Many things currently in the works, RODC curve has been changed, high cap changed, ERS program expanded; other ancillary services aside from firm fuel; all things in totality are a significant improvement in the overall market structure
    • Vegas – Also highlights the creation of the energy supply chain map that helped inform where risk points are
  • Chair Schwertner – SB 3 also established a reliability standard, directive to PUC to set this target for what would be considered acceptable for outages
    • Lake – Can provide this update in the next segment
  • Chair Schwertner – Other part is developing incentives to push market to meet reliability standard; legislature clear about what is needed
    • Yes, very clear roadmap
  • Whitmire – What is it going to take to get additional investment in generation?
    • Have more power coming online, will be laying out consultant report in the next segment
  • Whitmire – Some type of incentive with profits?
    • Vegas – Different parts of energy supply each perform different functions for the grid, contribute different attributes to the energy system
    • But there is an imbalance, not seeing right incentives to help build dispatchable resources; additive to other pieces
  • Sen. Johnson – Also important to consider management of grid itself, things discussed so far are at best real time
    • Yes, many different tools that can be used, should discuss all of them; need to explore & triage the tools available, want the biggest impact now, but want to build out all tools over time
    • Lake – Some of these are already underway, incl. new transmission line to RGV
    • Commissioner McAdams and Glotfelty have also launched pilot project on distributed generation
  • Sen. Campbell – Don’t want to lose supply & demand energy-only market; new model needs to be affordable to consumers & LSEs, need to maintain competitive market to ensure we’re pretty reliable
    • Yes, focusing on solutions that do not interfere with energy market, day-ahead market, etc.
    • Will lay out add-on when presenting the consultant report that guarantees we have reliable power in the long run
  • Chair Schwertner – Have yet to hear that new plants will be definitely built if we do this; need certainty, not sure any of the proposals guarantee this
  • Sen. Kolkhorst –
    • Cost to consumers is always top-of-mind, by requiring more on-demand dispatchable and reliable generation, we reduce costs by reducing number of days grid is in scarcity
  • Kolkhorst – Energy independence is also important, however with renewables, low estimates show we are 70% dependent on China for parts; worried about this
  • Menendez – Would like focus to be kept on ratepayers who can least afford the cost; have you looked at what we can get out of energy efficiency?
    • Yes, conservation is by far the cheapest version of that resource; newest PUC Commissioner Kathleen Jackson is leading on this effort, focusing on cost of these programs first
  • Menendez – Have seen report that we could get up to 8 gigawatts inexpensively, one way constituents could afford the reliability

 

Thomas Gleeson, PUC Executive Director

  • PUC LAR includes exceptional item on energy efficiency
  • SB 2 requires PUC to approve any new ERCOT rules before they take effect, PUC has developed a process for this
  • Highlights info showcasing 200% increase in PUC rules & projects
  • On SB 3, PUC directed weatherization efforts, in Phase 2 now to address winter and summer extreme temperatures; Phase 1 required addressing acute issues and hardening
  • Energy map has assisted in addressing problems quickly; suggesting updating the map twice a year
  • Also under SB 3, interagency communication with RRC, etc. has improved
  • LAR is including request for funding for Office of Public Participation focused on educating public on how to interact
  • Johnson – How are we going to measure how well information sharing is going?
    • Mapping committee is discussing making information sharing better
    • Hopeful that we will have legislative recommendations to improve transparency, information sharing, etc.
  • Johnson – Everything shared with us so far has been very impressive, looking forward to this being resolved outside of the assistance of the legislature
  • Johnson – SB 2 went to great lengths to ensure independence of ERCOT while making ERCOT answerable to PUC, is there tension between these directives? Concerned about ability of agencies to function independently and together
    • Vegas – In checks & balance system key is balance, checks exist now, independent ERCOT board brings a unique balance
    • Lake – Important to not be too heavy-handed and not overstep bounds, ERCOT board is decision-making body, PUC is a reference point; also important for ERCOT to deliver
    • ERCOT ultimately accountable to the Gov
  • Johnson – Selection committee is appointed by the Governor, who then selects the committee
  • Menendez – Approx. $600m or more federal funds are set aside to help families to increase efficiency, public participation office could pay for itself
  • Menendez – When can we expect TERC report?
    • Gleeson – Mapping committee will be making its own recommendations and will be sent to the legislature by Jan 2023, hoping to have a preliminary preview ready soon

 

Electricity: Future of Generation

  • Chair Schwertner – SB 3 set out clear directive to figure out how to incentivize dispatchable generation for reliability
  • Reports set out proposals for new generation, but not seeing a requirement for new generation; need to be focused on powering TX in the future & ensuring what we need; need to ensure entities aren’t profiting from promises & the profits got o things like stock buybacks without delivering generation

 

Peter Lake, PUC Chair

  • Stabilized grid & have seen these things tested; still have issues with dispatchable generation & flood of renewables is leaving smaller piece of revenue for dispatchable
  • Need a reliability standard; analysis from E3 contemplates test year of 2026, showing triple amounts of solar and nearly 5k more megawatts of wind while dispatchable fleet continues to drop as renewables soak up revenue in the market
  • Report took last 40 years of weather data to model multiple versions of 2026, didn’t include outages experienced during Uri due to the reforms put in place so far; not possible for us to have 50% outages again, but does include extreme hot and cold weather
  • Johnson – Heard assumptions of the weather conditions and outages during Uri; E3 report assumes that weather variation is similar to the last 40 years, did they actually use extreme weather conditions?
    • Yes, looked at extreme weather conditions as the term occurred, back to 1989
  • Johnson – Your answer gives me more confidence than the write-up in the report
    • They also included more variability than the weather itself, adds 5%, 10%, etc.
    • Very thorough and robust set of analyses
  • Chair Schwertner – Would’ve like to see energy-only market analysis, not in the report; why wasn’t this included?
    • Additional ancillary service is largely captured in the Backstop Reliability Service (BRS)
  • Chair Schwertner – But this isn’t new generation
    • New generation encapsulated in the Dipath cable Energy Credit (DEC) concept, DECs were expanded beyond batteries to include quick start gas plants
    • Because this wasn’t a comprehensive system-wide solution, new steel under this program simply accelerated retirement of older generation
  • Chair Schwertner – DEC isn’t really an ancillary service; E3 isn’t here today?
    • Weren’t available
  • Chair Schwertner – And we gave them how much money?
    • They can be available in the future to meet with you
  • Chair Schwertner – Assumptions made for long term projection with so many variables
  • Campbell – E3 not being here to explain process & research is bad form; concerned that all information in the report is based in a capacity market, model presented hasn’t been tested on an energy-only market like Texas; report also assuming there will be a loss 11,000 megawatts of coal this presents a view that we are vulnerable
  • Menendez – E3 report also assumed unlimited access to fuel?
    • Recognizes reforms we’ve put in place with RRC, gas industry, mapping critical infrastructure, etc.
    • DO include some number of outages in the analysis, doesn’t assume every thermal generator works flawlessly every time
  • Menendez – Part of the issue in Uri was larger than expected outages
  • Menendez – On assumption with coal & gas loss, did they interview?
    • Number of thermal generators lost is an output, analysis can see input of renewables into the market and lost generation based on reduced revenue resulting from this
  • Menendez – What have been the most reliable sources of energy, would assume nuclear would be the most reliable
    • Yes, every generation source during Uri had problems, but in normal operations nuclear is an outstanding generation resource
    • Small modular reactors performed well, looked at these with the view that they would be able to compete for incentives
  • Menendez – Planned outages for the state currently?
    • Vegas – Can check on this
  • Menendez – I think it’s around 21 gigawatts
  • Chair Schwertner – Certainty in the model?
    • LSEs will be required to buy megawatt equivalent of power they use plus reserve
    • Across market, this will have to be procured from reliable sources of power
  • Chair Schwertner – Interruptible allowed to participate
    • Consultant contemplation includes those that are online, though reliability payments for performance credits should only go to reliable sources that can commit in advance
  • Chair Schwertner – New generation incentivized through this would be online when?
    • Depends on number of factors, incl. regulatory certainty; assumption from consultant would be 3-4 years to build system within ERCOT
    • Some generators have expressed that they would build generators concurrently
  • Chair Schwertner – Are they prepared to promise today in front of us
    • Would leave that to them
  • Chair Schwertner – They’re not going to be here today I can tell you that
    • Implementation would be streamlined by new expertise at ERCOT
  • Johnson – Only want reliable resources in the performance model, there is not just a reward for being available, but also a penalty for not participating; wouldn’t this be incentive enough? If they have a battery array?
    • If they have a battery, they can
  • Johnson – Or if they have a great meteorologist
  • Chair Schwertner- The penalty is loss of revenue, not loss of revenue plus additional penalty
  • Johnson – Well we could change that
    • Penalty for noncompliance would not only be loss of revenue, but equivalent admin penalty
  • Johnson – In which case we have left this open for renewables to participate if they accept the risk?
    • Yes, tried to make this an add-on and not interfere with existing models for dispatchable and renewables
    • Contemplated PCM is designed to create a new stream of revenue for dispatchable, paying for performance
  • Chair Schwertner – Idea of LSEs buying credits reminds me of carbon credits & the complexity of that; if the penalties were enhanced, would there be outs for fuel issues, etc.?
    • Intend this to place accountability and reward on businesses in the marketplace; generators need to be online during the 4 tightest hours in order to validate credits, if not you lose revenue and receiver penalty
  • Chair Schwertner – PCM seems to be the preferred model presented, will be 2 years to build model and then new generation might be built; what do we do in the meantime? Backstop? Hybrid? Build our own?
    • One of the questions we put to the public recently
  • Chair Schwertner – Need a belt & suspenders solution?
    • Yes, absolutely; as presented backstop is quickest to implement, but has issues
    • By implementing system reliability models like PCMs, you reduce or eliminate chance for extremely high costs to ratepayers via regular market forces
    • Backstop could deliver reliability, but takes a year or two to deliver itself
  • Menendez – DMN reported that many Texans are trying to decide between paying for essentials or utilities; focusing on efficiency could provide direct benefit to reliability without impacting cost to consumer; efficiency could be the answer, need to look at what we can do to access the $600m in federal dollars
    • Yes, PUC looking into this; many efficiency measures are in building codes, new AC units, etc. that are beyond purview of PUC
  • Menendez – There could be something like loan repayment programs, etc.
    • Will keep you updated on progress, have also been including conservation in new energy design models
    • Look forward to the ways companies can incentivize customers to pursue efficiency; conservation incentive was purposefully built into PCM
  • Menendez – PCM is entirely new, no one else has tried it yet?
    • One or two international markets have tried it, overall a new concept
  • Chair Schwertner – Why do a whole new mechanism rather than working within confines of ancillary product well-known to the market and legislature
    • In the short term, a viable path until we have a more comprehensive solution
    • Concern was that expanding ancillary services to another 5,600 megawatts, will still be nothing else to retain the remaining dispatchable resources
  • Chair Schwertner- So we need more money in the system and something else to incentivize what we want?
    • Something to incentivize old and new reliable resources
  • Chair Schwertner – Did the system cost analysis take the ORDC curve into account which raises the floor?
    • Yes, also incorporates other things that incentivize very fast operating resources
  • Sen. Paxton – Do we have existing facilities that are not operating currently? Existing infrastructure that could generate if it was incentivized properly?
    • On most days, we have resources that aren’t operating, wind & solar is cheaper
  • Paxton – Mothballed facilities?
    • Don’t think we have many, almost had 3 this summer
    • Vegas – Very small number, not a meaningful amount that could make a difference
  • Sen. Creighton – Can you restate
    • Lake – Under the current market construct, the ORDC operates as a scarcity payment for generators
    • Goal for the PCM model is to incentivize generation when low generation is expected, but not have the grid actually be impacted
  • Creighton – We’re demanding low rates and high reliability, incredible intersection of demands when we’re asking for investment; tough environment to ask for investment
    • PCM delivers 10x improvement in reliability for less money than we’d expect spend in absence of reform
  • Menendez discusses how high costs resulting from market scarcity is shared among consumers
  • Menendez – Need to look for reliability at a price we can afford; investors are global companies
  • Campbell – With increased renewables there is an automatic decrease in dispatchable resources?
    • Results of the analysis
  • Campbell – The same amount? What we did with Phase 1, strengthened reliabilities for the grid; bankruptcies in an extraordinary situation is not the standard
  • Campbell – Has ERCOT looked at the proposal and are they going to submit written response?
    • Yes, ERCOT has indicated they expect to provide feedback at the board meeting in December
    • Vegas – Board will discuss best options to support objectives of ERCOT
  • Campbell – Plan is convoluted, not equitable, costly for LSEs; end users will lose in the plan
  • Campbell – Has the PUC signed off on this proposal?
    • Lake – No decision has been made, PUC has only approved publication of the report and request public comment
    • PUC commissioners discussed the plan and saw a market solution that delivers 10x reliability as cost effective price
  • Campbell – Study is flawed because it is based on assumptions that aren’t necessarily true; not convinced this was a great study, could be an effort to put something out there just to say you did something; current market working on supply & demand hasn’t failed us, need to enhance what was working for us
    • Backstop concept in these designs is a capacity market, paying for generators not to participate; this is one of the points of concern PUC and staff had
  • Campbell – What did we do for the recent blackouts?
    • Used a number of tools, RUCing mechanism, ORDC was used to bring generation on sooner
  • Campbell – And this was done all without capacity market tools

 

Carrie Bivens, Independent Market Monitor

  • Regarding change to scarcity pricing mechanism, impact on energy cost is approx. $1.6b to October, total impact of ORDC adder was over $2b
  • Phase 1 steps have not yet come to fruition
  • IMM continues to recommend adoption 2 or 4 hour uncertainty product to address ERCOT’s operational issues
  • On the E3 report, failed to properly model ORDC and impacted loss of load model in the report, understates future revenues of energy-only market
  • Report also overstates resources retirements, as a result LOLE is higher than it should be for 2026
  • PCM could be designed to send appropriate price signals consistent with competitive markets
  • BRS would be very costly in the short term
  • Creighton – On the $9k being reduced to $5k, last change was during polar vortex of 2012, input led to increase from $3.5k to $9k & now looking to reduce to $5k?
    • Yes, reduced as of Jan 1, 2022; but curve has expanded so there is more revenue in this space now, $2.2b
    • Could be improvements to the way curve is determined, but the result of PUC’s changes has been to add revenue into the market
  • Creighton – How important is Minimum Contingency Level increase?
    • Minimum Contingency Level is supposed to draw line on curve when LOLE is 100%, we believe 3k is too high, can shape load without this level
    • Has impact of moving revenues out of scarcity intervals and into non-scarcity intervals
  • Creighton – How long do market participants have to weigh in on what we’re discussing?
    • Lake – Public comment is due on December 15th, 5-6 days longer to account for holidays
    • Public was included in multiple hearings last Fall, not the first time the public or marketplace is hearing about this
    • PUC website top banner has the market redesign, E3 report, comment details, etc. (link)
    • December 15th is not when the decision is made, after public comment will be calling vote
  • Chair Schwertner – Asks after reliability standard
    • Bivens – 1 in 10 standard that E3 has in the report implies a very high VOL; IMM believes competitive market can have very high reliability standard
  • Johnson – E3 study has LOLE too high?
    • We believe 2026 LOLE is too high, didn’t model changes to ORDC parameters over time
    • The more solar you have, the more intra-hour uncertainty there is; ORDC parameter is meant to look at this & makes curve bigger as this changes
  • Johnson – Extra revenue will generally go to thermal production?
    • Yes
  • Johnson – What was the other flaw you talked about?
    • Revolves around retirement, assumed that retention cost not equaling cost of entry will invariably lead to retirement, but we’ve seen different in many years
  • Johnson – So they accelerated retirements?
    • Correct
  • Johnson – Other issues with the report?
    • Throughout the report, would not take the 56/30 MW potentially lost at face value
  • Johnson – Peak net load and batteries?
    • Biggest impact would be agnostic tech
  • Johnson – BRS model seems to have changed; are talking about taking e
    • Take issue with the assumption that procuring those resources would be from new generation; older generators be the least consequential
  • Johnson – Have not seen so many experts disagree with each other, not picking the plan now, just want to get this right
  • Menendez – Told ERCOT in July shift in energy cost has been $1b?
    • Correct
  • Menendez – Explain congestion rent
    • Indicator of output energy model; was $2.1b (42% increase over 2020)
    • Redispatch that needs to occur to maintain reliability of system
  • Menendez – Is also a cost
    • Correct; is not a cost to consumers, effects generation and load
  • Kolkhorst – More solar you have, more intra-hour uncertainty
    • With renewables have to forecast the weather; which typically have errors
    • Variability raises this parameter in the curve
  • Kolkhorst – Solar had the most intra-hour uncertainty and coal/natural gas did not grow at all; need to focus on firm fuel
    • Uncertainty can be in thermal unexpected outages, whether what we are anticipating load will be, wind and solar forecast
  • Kolkhorst – Which is the greatest uncertainty?
    • Do not have that data with me; average case, ERCOT does not face uncertainty
    • On extreme days renewable is probably the highest, but is not the only cause of uncertainty
  • Kolkhorst – Which is the costliest? Struggling with the idea of pushing off costs to the consumer with an uncertain market
  • Kolkhorst – Do not think getting “familiar enough” a PCM aligns with SB 3
  • Lake – Spoke with an investor if we needed to do this, if you make this phase self-correcting, for the future

 

Tom Oney, Lower Colorado River Authority and AECT

  • Texas population expected 47m by 2050
  • Crypto mines asked to enter ERCOT which matches demand in NY
  • More and more industries are moving to electricity
  • State ranks first in wind and second in solar and batteries
  • Not enough financial incentive to expand dispatchable generation for natural gas plants
  • 8GW of natural gas and coal has been retired in recent years
  • Supports a comprehensive market solution; support 3 of E3’s recommendations
  • Including the “poor mans” credit market
  • Market should have a specific reliability standard, ensure resources perform for compensation, and promote competition
  • Members are reviewing E3 recommendations and will weigh-in in more detail

 

Catherine Webking, Texas Energy Association for Marketers

  • Overviews the current market mechanisms; current market works
  • SB 3 speaks to looking at ancillary and reliability services to be procured by ERCOT; believe there is a mechanism that will address the uncertainty in the ERCOT market
  • Energy-only market was not a candidate in the E3 report; under proposed plan 25% goes under a capacity charge
  • Shift in the mechanism of the cost in the E3 report; quantity and price is unknown at this time
  • Johnson – There is nothing proposed today that is not based on supply and demand
  • Johnson – Has been an issue for 10 years in terms of dispatchable and non-dispatchable
    • Need pricing signals to be appropriate

Julia Harvey, Texas Electric Co-Ops

  • E3 report and PCM is a novel concept; still working through mechanics
  • PCM is consistent with SB 3 objectives; cost will depend on the reliability standards among other items
  • The demand curve is 30 in the report, but could change to 48; framework will be a little challenging for co-ops and generators in general to implement this
  • Concerned PCM is not the ideal way to create confidence for capital investment
  • Need more analysis on how it would have worked the last couple years
  • Recommend E3 hold a workshop for stakeholders and the public
  • Kolkhorst – What would be the cost to change to a 30-or-48-hour lookback?
    • Still evaluating that; not having a lot of confidence in our members
  • Kolkhorst – Peter Lake said earlier about being comfortable with unfamiliar, but PCM does not guarantee capital investment
    • Does not facilitate access to capital

 

Katie Coleman, Texas Association of Manufacturers

  • Report is a lot to digest
  • Report says we do not have a capacity problem and meet the 1 event in 10 years standard
  • Report notes that Texas has more reliability than the national average
  • Assumption of the 11,000 MW to retire is one of the bigger assumptions members are concerned about in this report
  • Have reliability problems to be solved, but is not a capacity problem, is operational uncertainty
  • SB 3 clearly discusses capacity services, not necessarily the proposals discussed today
  • Are some benefits to a PCM being backwards-looking, but overall is not the right objective
  • Are concerned about chilled investment; none of the proposals guarantee any new investment
  • Support something like the uncertainty product the IMM discussed
  • Schwertner – Explain that to the dais
    • Each event over the summer were due to unexpected outages
    • Would create a market-based approach additional targeted revenues based on historical difference between what happened and what was forecasted to happen
    • Recommend we look a day-ahead
  • Schwertner – Sounds like an ancillary and reliability service?
    • Correct, would be a solution for Texas
  • Kolkhorst – Is no guarantee with the PCM that you would have access to capital
    • Report cannot model externalities such as investment or any future federal action
    • Support something Schwertner proposed previously where the state can play a role in backing loans for dispatchable generation
    • Are ways to incentivizing new builds not on the customers’ dime
  • Kolkhorst – Reliability is above the national average; reiterates that if we are going to become number 1 in solar and wind, consumers will pay more for reliability
    • Have increased consumers’ cost previously and did not find more reliability
  • Schwertner – Almost like we should build it ourselves
    • Direct procurement
  • Johnson – Out of market contract
  • Schwertner – Support a contact with a guarantee?
    • If IMM plan went into action, would focus on the problem of variability in performance
  • Schwertner – Would need a reliability standard
    • Believe SB 3 has been misconstrued that we need a reserve margin mandate
  • Schwertner – Advent of wind and solar in Texas has made energy cheaper?
    • Has driven down energy costs, but has increased ancillary serves and transmission
  • Johnson – Oney, agree?
    • Oney – Do not agree with a lot of what has been said; state needs a reliability standard
    • Oney – Generators outside of the state want to be here; PCM needs regulatory certainty and a price signal
    • Oney – The market that exists today will not exist in the next three years due to the amount of solar; if EPA gets their way, 11,000 MW of coal retiring could not be far off
  • Schwertner – Notes scarcity market has worked for many energy companies; need more base-load generation to balance out renewables and price signals
    • Oney – Investment will come; reliability standard would incentivize new projects
  • Creighton – Asks Oney for clarification
    • Oney – Hopes the PUC begins implementation so the generation that wants to come will be incentivized by PUC’s action
  • Menendez – Coleman, manufacturers are the only one here representing those who would foot the bill?
    • Correct
  • Menendez – Not in an emergency situation right now?
    • Correct; are doing well nationally and were not close to load shed during the weather events last summer
  • Menendez – Would make sense to offer option to lower demand to residential customers?
    • Yes, is a huge part of the problem
  • Menendez – $600m set aside for individual tax-payers to make homes more energy efficient; interested in this?
    • Anything to mitigate the demand would have big impacts
  • Campbell – Where is new generation being natural gas built? What does it look like?
    • Mainly small peaking units and a smaller scale backup generation for renewables
  • Johnson – Incentivize REPs to incentivize consumer demand response?
    • Webking – Working to see this
  • Johnson – Oney, of PCM, FRM or new ancillary service which will incentivize new generation, particularly thermal?
    • The PCM as it is based on a reliability standard; would be preferential especially to peaker plants
  • Schwertner – SB 3 calls for new ancillary services and reliability standard
    • Agree that a reliability standard
  • Campbell – Asks other panel members to answer Johnson’s question to Oney
    • Disagrees with Oney, he is probably interested in reliability standard that comes along with mandated wealth transfer; market is subject to whims of regulators
    • Harvey – A more forward-looking product would be preferable
    • Webking – Current market incentivizes investment
  • Schwertner – Notes LCRA previous testimony supported two new ancillary products
    • Oney – Number one priority is reliability
  • Kolkhorst – Asks to clarify wealth mandated transfer? Put well, the Lt. Governor has not supported that
    • See PCM as a capacity market; does not guarantee future investment
  • Kolkhorst – Renewables are the most heavily subsidized; will not be voting for renewables to be a part of Chapter 313s
  • Schwertner – Are many options out there regarding federal tax credits
  • Kolkhorst – Is good going on in certain areas – PUC approved a natural gas plant Thursday; need to make sure that reliability standard
  • Johnson – Asks about cost versus reliability
    • Number one concern is reliability; some act as backup and provide ancillary services
  • Menendez – Oney, would help with investment if were able to sell power to other states?
    • Oney – Are already DC connections to other grids; a broader connection to other grids is concerning to market participants
  • Menendez – Members already operate outside of ERCOT; investor in a LCRA solar farm?
    • Correct; do not own the asset
  • Menendez – On the topic of mandated transfer of wealth, should offer low interest loans to consumers?
    • Oney and Webking discuss how consumers can make decisions to mitigate their consumption
  • Kolkhorst – Notes a recent event in Germany
    • Webking – Would not
  • Menendez – Want to clarify there are currently only 1.2GW of ties in the state

 

Carrie Bivens, Independent Market Monitor

  • Rise in real time congestion rent; $2.4b year to date at the end of October
  • Majority generated by West Texas Export $550m
  • Kolkhorst – Who pays for that?
    • Effects the prices generators get paid or prices that load pays
    • West Texas Export mostly effects how much generators get paid although does affect how much the state pays for energy prices

 

Thomas Gleeson, Executive Director PUC

  • Just proposed a rule to implement SB 1281 congestion cost savings test; will be on the agenda November 30
  • Would approve transmission lines based on this test
  • Kolkhorst – Who will pay for those lines?
    • Ultimately the load side
  • In the PUC’s budget, had a rider put into the budget that requires an analysis of additional DC or AC ties East West into Mexico to see if that is in the public interest
  • Will be in agency report deliver no later than January 18
  • Rio Grande two new reliability lines are on track to be completed in 2026

 

Woody Rickerson, ERCOT

  • Have increased the number of generators since Winter Storm Uri; about 450 more
  • Overviews the tests used to determine future transmission projects
  • Working on rulemaking for the following major changes due to previous legislation:

Major change in previous legislation was a new economic test based on what consumers pay for electricity

  • Major allowance for projects to be evaluated on resiliency
  • Generation is being build further from load, transmission planning is becoming more dependent on information, and stability limitations are becoming more important
    • Most highly congested lines are due to stability issues, not thermal
  • Kolkhorst – Wind and solar are being built where people live, will need to build more transmission; is a reliability issue
    • Could be, but is not always
  • Kolkhorst – Transmission lines have a guaranteed ROI; will need to consider this for pricing issues
    • Correct
  • Schwertner – Are companies that want more transmission so they can sell their cheaper product to the market
  • Kolkhorst – Where are we at with Oncor and Lubbock Power and Light
    • *question was not answered by witnesses
  • Schwertner – Prioritization of transmission? Recent change?
    • Dispatchable generation moves to the top of the cue; by rule started last year
  • Menendez – Number of new generation?
    • 450 new generators; most new generation is relatively small
  • Menendez – Anyone done an analysis of aggregation solar on taxpayer owned buildings
  • Johnson – Resiliency is not the same as reliability?
    • Reliability based on NURC standards and resiliency goes beyond that; would be based on emergency situations
  • Johnson – Were unable to roll outages during Uri; would further segmentation contribute to resiliency goals? Is ERCOT looking at that?
    • Could be; no, is not a part what ERCOT looks at
    • Would not affect how ERCOT would run the market
  • Johnson asks about the distribution system – running a pilot?
    • New program where we run resource from the distribution system
    • Pilot is about accumulating small resources into one large one

 

Jason Ryan, CenterPoint Energy

  • Have a generally reliable transmission system
  • Serve 2.7m citizens and businesses; not enough generation in Houston to meet demand, so import power from other areas of the state
  • 25% of the energy usage in the state is in the Houston area
  • Every year add the equivalent amount of people in Waco into Houston
  • Supported SB 1281 last session that addressed congestion issues
  • Generally support PUC’s implementation of SB 1281, but have a couple tweaks
  • Recommend shortening time to approve those lines from 1 year to 6 months
  • Houston needs to have a more resilient system moving forward
  • Johnson – Thoughts on segmentation of feeders?
    • Are doing that now, started after Uri
  • Johnson – Expensive do to this? Big cost?
    • Does have a cost; is not as big as it would be if we did not do it

 

Katie Coleman, Texas Association of Manufacturers

  • Strongly supported the passage of SB 1281 last session
  • Are pro-transmission when it makes sense economically for consumers; will make that investment if it makes sense
  • Do not support the production cost savings test; measures reduction in production cost which is not what consumers pay
  • Would prefer consumer impact test
  • Members are concerned about generation being built further from load; not intended to be a “blank check”
  • SB 1282 would have created an allowance for those costs which did pass Senate, not the House
  • Do not need to model multiple contingencies for transmission projects
  • Menendez – Do your concerns transfer to the residential consumers?
    • They do since transmission costs are socialized grid-wide; office of Public Utility Counsel engages on these issues also

 

Warren Lasher, Lasher Energy Consulting

  • Congestion is a feature of the market; aligns market incentives and the need for reliability
  • Price maps accentuate the costs of congestion; last MW sets the price
  • Is a price cap when congestion gets severe; if they were changed, would change some of the results
  • Impact of the congestion to the consumer is spread out over their load zone

 

Electricity: Electric Vehicles

Darran Anderson, Texas Department of Transportation

  • IIJA formula funding coming to Texas for EV; TxDOT will be the receiver of those
  • Have already received $60.4m and $86.8 for FY22 and FY23 and will continue until FY26 and funds will not expire until completion of project
  • Will award additional grants
  • TxDOT will not own any of the rechargeable equipment; needed to complete alternative fuel corridors before implementation
  • Plan was approved on the federal level in September
  • Waiting on final rules to follow before implementation of program
  • Conducted public/stakeholder outreach
  • Plan will start with 55 locations and then additional stations
  • Working with ERCOT on the plan and have been asked about total demand; theoretical demand if every port was charging at the same time would be 666MW on the system
  • Menendez – A lot of federal funding available for electric school busses? you’re not going to own or operate the charges?
    • Separate federal grants for the school busses, done separately from this program
  • Menendez – So you’re not going to own or operate any charging stations? Simply making sure they meet federal requirements
    • Correct
  • Menendez – Do any National Electric Vehicle Infrastructure (NEVI) funds assist in future proofing infrastructure?
    • Don’t provide for future proofing, have a plan published to see what challenges may be faced at each station
  • Menendez – Fees?
    • Yes
  • Menendez – Will be in rural areas as well?
    • Yes, will be working with 190 counties to appropriately site locations
  • Menendez – Who is responsible for maintenance?
    • Awardee
  • Campbell – Does the state get any admin dollars from the fund?
    • No
  • Campbell – So the state absorbs the cost of workers to monitor and awards the grant?
    • State oversight of electric systems would apply to this area as well

 

Woody Rickerson, ERCOT

  • Have growth projection incorporated into models for various vehicle types
  • EV charging is .2% this year, expecting 1.25% by 2029; roughly 900 megawatt load
  • Normal load forecasting shows load will be sufficient

 

Adriane Jaynes, American Electric Power

  • Provides history of AEP and grid buildout
  • Excited about introduction of EVs, opportunity to continue services
  • Generation impacts will be very small, transmission that exists today will likely be able to handle increased load, but will need more for high concentration areas, particularly for large trucks
  • Distribution system will see a lot of the earlier impacts of EV, but expect to be able to expand to meet needs

 

Large Flexible Loads

Woody Rickerson, ERCOT

  • Large Flexible Loads (LFL) first came to ERCOT’s attention due to the large demand and rapid build time
  • Ability of 100s of megawatts to ramp up and down must be controlled for reliability, needs to be accounted for
  • Tracking about 90 LFL sites today, roughly 1,500 megawatts online today, but interconnection queue goes as high as 37 gigawatts
  • ERCOT started the LFL Task Force, will be introducing language to address some LFL issues; aim is to create environment where LFLs are dispatched as controllable loads
  • Menendez – What would an LFL look like today?
    • Sites incl. large buildings that are full of processors, crypto mining

 

Liz Jones, Oncor

  • Large load evaluation process has ensnared all large loads, chip plants, O&G processing, etc.; must go through same scrutiny as LFLs, though often has lesser impact due to lengthy time to interconnect
  • Highlights crypto facility coming online in Denton and doubling size of municipal load
  • SB 1281 was intended to assist in shaving delays, and it may, but electric infrastructure is not in position to keep up with the rapidly growing economy
  • Should consider whether crypto loads should be treated as other loads, or whether there should be different guidelines & what changes can be made to expedite building transmission
  • Johnson – Do we have statutory authority to treat LFLs as controllable loads?
    • No, matter of PURA, up to legislature if LFLs were treated in a different way
  • Menendez – Often studies are done to ensure infrastructure is in place to handle large projects, could do something similar for LFLs
    • Some of the crypto providers have expressed interest in turning down or off when prices per megawatt/hour are high, but not compulsory and part of day-to-day decisions
    • For a residential high rise, we have a good idea of what consumption would be, don’t have and may not ever develop good sense of crypto customer consumption
  • Menendez – If they drive up the use to where it becomes a scarcity issue, also drives up the price for everyone else
    • Crypto has ability to manage that risk, but not codified or required

 

Michael McNamara, Lancium

  • Lancium’s crypto customers can act as controllable loads, controllable loads are important, can act as ancillary services
  • Will work with ERCOT on transparency, new ancillary services, etc.
  • Understand the scale of LFLs have impact on the grid, want to make sure they help the grid
  • Bitcoin is volatile, no bitcoin firm wants round the clock power, run very infrequently and when wind & solar are most abundant
  • Crypto firms are easily able to be ramped up and down
  • Foresee electric trucks will grow faster than many anticipate, could have up to 10 gigawatts additional loads
  • Crypto mining is a bridge to accommodating other types of loads
  • Chair Schwertner – How does your controllable load tech work? Patents?
    • Willing to provide licenses to tech, allows for quick ramping up and down

 

Blockchain & Virtual Currencies

Jennifer Buaas, DIR

  • Provides overview of blockchain tech and applications, transactions are verifiable; allows for trading digital currencies with limited supply
  • Bitcoin mining has grown recently in TX due to regulatory environment allowing mining to flourish
  • HB 1576 created the Work Group on Blockchain Matters, has been meeting & developing recommendations for a report to the legislature

 

Carla Reyes, Texas Workgroup on Blockchain Matters

  • Report is the product of a year of extensive research, deliberation, and public input via the Work Group on Blockchain Matters
  • Recommendations include adopting UCC 2022 amendments, digital identity, recommendations related to DAOs, and possible backend system for contract filing
  • There are other states who are moving on DAOs and not handling it well, complication is that contracting aspects can be in code
  • Backend system for UCC-1 contract statements would not require change in law
  • Recommendations work together to provide all-around approach to provide a measured, predictable digital economy
  • Campbell – What is DIR’s role in assisting or partnering with Blockchain?
    • DIR leads state’s tech strategy, protects state infrastructure, and provides cost-effective solutions
  • Menendez – Asks after use of blockchain tech
    • Blockchain is a tool to be used to reduce inefficiencies and misinformation among a group of people
  • Menendez – Can you give me an example of how it is used?
    • At present, key use is transacting in digital cash
    • Good use case could be UCC-1 filing system, would allow for changes to be tracked to documents more easily
  • Johnson – Can it make it easier than the current system for users to receive notices?
    • Yes
  • Johnson – Could it be compatible with fax machines?
    • It could, but would take a couple extra steps; goal is to be able to interact with legacy systems
  • Johnson – If state is going to pursue this, would likely need to upgrade some tech systems
    • Buaas, DIR – Yes, lots of opportunity for the state to leverage blockchain tech, particularly for transactions, but need to modernize tech to integrate

 

Patrick Hatfield, Locke Lord LLP

  • Two recommendations about how to make blockchain transactions efficient and certain
  • Uniform Electronic Transactions Act and federal e-sign law provide sufficient support for electronically completed transactions & should not tinker with these
  • Law is not clear about property rights in digital access, group that promulgated UCC has developed a new Article 12 to establish digital asset rights; state should consider and enact this new article

 

Natalie Smolenski, Texas Bitcoin Foundation

  • Highlights growing issue of data collection, many attempts to limit data collection have been fought as anti-police or anti-capitalist; government and authority are exercising ability to collect data and control flow of information
  • Paxton – Your comments could be construed in opposition to a blockchain policy?
    • Yes, blockchain tech could be used as the most pervasive form of social control ever seen
    • Could be a privacy nightmare; should allow people and markets decide what particular implementations rise to the top
    • TX should make clear that property rights will be protected, privacy will be protected, etc., but digital assets held should be up to the individual

 

Christopher Calicott, Trammell Venture Partners

  • Should encourage generalized datacenter activity
  • There are business models around lending that are fundamentally different from crypto trading
  • The fiscally conservative model Texas is using should be replicated everywhere else
  • Ability of citizens to be custodians of themselves is being challenged by ideas like “self-hosted wallets”
  • Paxton – Tech is a neutral thing, how we use it can be good or bad
    • Agree, can be coopted by adversarial nations; Texans shouldn’t be subjected to use of Central Bank Digital Currency

 

Travis Iles, Texas State Securities Board

  • TSSB has limited jurisdiction in this space; started looking at the idea of digital assets and underlying tech in 2013, by 2018 realized a lot of players had come into the market and securitization investments
  • Agnostic to the tech, but tried to be aggressive with regards to the fraud, first action was in 2017
  • Texas has been a leader at addressing fraudulent securitized digital assets
  • FTX case is similar to cases the AG has done good work on, such as Voyager and Celsius; TSSB assisted in addressing and identifying harms to investors
  • Johnson – Anything said by the Work Group that would give you any concern?
    • Hadn’t seen report yet, but 4 items highlighted would be good to look at from a governmental perspective
  • Menendez – Anything we can do to help with identification?
    • Something worth exploring, but does impact anonymity in the tech itself; in many fraud cases don’t always know exactly who you’re dealing with

 

Charles Cooper, Texas Department of Banking

  • Currently charter 212 banks with $412b in assets, hundreds of money service businesses
  • Receipt of money or monetary value in exchange for promise to make that money or monetary value available at a later time
  • Previous guidance said bitcoin is not considered money under state code and doesn’t trigger licensing requirements, however backed stable coins do; regulation of virtual currency is varied and uncertain
  • Federal agencies are issuing guidance, many conflicting
  • Have been working with other state banking departments and industry to develop model money transmission law; would like to work with committee to discuss model law

 

Electricity Public Testimony

Bill Peacock, Energy Alliance

  • On E3 report, PUC is creating a capacity market, only possible result of mandating firm reliability standard
  • E3 analysis is flawed, PUC meddling with market prices has corrupted the energy-only market
  • Proposed market redesign will do nothing to stop growth of intermittent resources in TX
  • E3 report suggests cost will only be $460m, but cost will be greater because E3 does not differentiate between energy cost and regulatory cost

 

Alison Silverstein, Texas Consumer Association

  • Many Texans are having to forego food and medical bills to pay for utilities
  • E3 and PUC proposals are not appropriate solutions; proposals will raise bills much higher but will not solve generation or peak problems
  • E3 is claiming success against an unrealistically low bar
  • Should adopt BRS and DEC as they were presented months ago rather than as they are revised under the E3 report
  • Johnson – Can you explain the difference?
    • Idea of DEC proposal was to reward fast ramping clean energy resources that could run for 1 or 2 hours, has been changed to require minimum of 2-day operations which knocks out demand response and batteries
    • Doesn’t allow for demand response or distributed generation
  • Johnson – You were looking at the old 2-4 hour model?
    • Yes, ICF model has been completely changed by the E3 proposal and conclusions cannot be compared
  • Johnson – ICF study nevertheless offers us useful info?
    • ICF study was far more accurate regarding weather and costs, extremely relevant to how legislature should evaluate proposals

 

Cyrus Reed, Lone Star Chapter Sierra Club

  • Winterization rules are generally good but could be improved
  • Phase 1 was good, has supported reliability but at a cost to consumers
  • In general, PUC has ignored demand side of the equation, haven’t done anything about energy efficiency; joined rulemaking petition that was rejected
  • Have not yet taken position on Phase 2 proposals, but need to look at DEC proposal as it was originally proposed
  • Should also look at other energy-only market proposals like Multi-Interval Market
  • Should take advantage of federal money, can do it without strings; would likely flow to SECO
  • Johnson – Should look at SB 238

 

Blockchain Public Testimony

Peter Vogel, Foley & Lardner LLP

  • Appointed to the Texas Work Group on Blockchain Matters, Work Group recommendations were excellent & legislature should think on these and rely on them

 

Collin Groebe, Texas Bitcoin Foundation

  • Type of protections afforded to consumer cash deposits & securities do not exist in the crypto industry; implementing these can avoid meltdowns

 

Ann Baddour, Fair Financial Services Project, Texas Appleseed

  • Fraud, insider trading, etc. are problems
  • There are problems with the code of blockchain tech, have seen people take advantage of these flaws multiple times
  • Paxton – If you were to highlight one protection that needs to exist what would that be?
    • Tough question, complex ecosystem
  • Paxton – Ship has sailed and tech is there, general principle for consumer protection?
    • Exchanges need to be regulated in the same way other financial institutions are regulated, assets need to be protected on the front end, all scrutiny is currently happening on the back end
    • Would want some kind of backstop to make people whole

 

John Pugh, Self

  • Bots and fraudulent identities are redistributing wealth to bad actors
  • Recommendations include mandate multi-factor passwords for websites related to financial aid, bots and fraudulent addresses should be removed from educational systems

 

Sam Padilla, ATX DAO

  • Should rethink and reformulate legislative approach to protect consumers; most recent damage has come from centralized exchanges, lack of reserve requirements, and mismanagement
  • Should require orgs to adopt dynamic proof of reserves, disclose how funds are used, and adhere to minimal liquid asset reserve requirements

 

Quin Weidner, Node Providers, ATX DAO

  • Should recognize DAOs as legal entities, give them the same legal restrictions and protections as other corporate entities

 

Adrian Shelley, Public Citizen

  • Crypto industry is extremely volatile, energy demand is massive and increasing rapidly
  • In other states crypto mining has led to reopening coal plants, etc.
  • Demand response is incredibly expensive, paying $170m for industry access & could triple with just planned participation
  • Industry arbitrage is occurring, transmission costs are very large
  • Oppose crypto participation in Chapter 313 and local tax breaks