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The Senate Committee on Business & Commerce met on September 28 to discuss implementation of legislation addressing Winter Storm Uri, possible market changes, and incentives for dispatchable generation. The committee heard invited testimony from PUC, ERCOT, RRC, and TDEM, as well as several market participants.

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

Opening Comments

  • Schwertner – Legislature took significant action to improve electric grid with SB 2, SB 3; will be hearing from PUC, TDEM, etc. on actions taken to ensure reliability
  • Will hear from market participants on ideas to incentivize new dispatchable generation
  • Scarcity pricing is main reason electricity prices are lower in the state, but is prone to issues during periods of extreme stress
  • Need to rebalance market to incentivize greater reliability
  • Whitmire – Why do we need to incentivize someone to do their job?
    • Nichols – Public officials have a different mission, private actors are here to make money and will not invest without reasonable return
    • We have a system that incentivizes non-dispatchable generation, generators are not building new dispatchable generation
    • If we do not create some time of system of fix the fair market so they compete equally, will continue to see more non-dispatchable
  • Whitmire – You want government to subsidize these generators?
    • Nichols – Don’t have a free market, it is distorted
  • Whitmire – Incentivized for renewables, now you want to move to gas, coal, etc.; Are we going to give loans, etc., to the private sector?
    • Nichols – Haven’t had this discussion yet, not a free market system; can sell electricity for zero and still make money, no one will want to invest in these markets
  • Whitmire – Certain we agree we want to have a reliable grid, but may be worse off now than we were in February
  • Schwertner – Highlights the need for this hearing at this time & to be asking these questions, what we’ve done for the past decades has not worked to incentivize dispatchable generation
  • Johnson – Need to think about definition of dispatchable and the dependence on natural gas, need to build out the whole infrastructure so it all works together
  • Whitmire – Important to have these discussions now ahead of the winter
    • Schwertner – Will be heartened by the things done by PUC Chair Lake for better grid management

Panel 1 – PUC, ERCOT, RRC, TDEM

Chair Peter Lake, Public Utility Commission

  • 2 key changes with ERCOT, 1) have a lot more reserves, sized reserves based on real time conditions, 2) shifted market to allow ERCOT to take out of market actions earlier
  • Out of market actions have negative impacts on market participants, but necessary to support grid through summer; longer term changes will be done through market redesign
  • Have taken significant testimony on redesign, blueprint expected to be ready in December, implementation will depend on how many mechanisms are changed or created
  • PUC priorities include weatherization, requiring all generators and transmission to meet 2011 standards w/ $2m penalty, must also show they’ve mitigated factors that broke last February
  • Have published proposed rules along with RRC for critical natural gas infrastructure
  • Electric supply chain mapping committee is meeting monthly, work groups meeting at least weekly
  • Scarcity pricing is a big issue, have decoupled scarcity pricing from underlying fuel costs to prevent formula from skyrocketing fuel price
  • Johnson – Can you explain that?
    • Chair Lake, PUC – Ancillary services market didn’t have a cap before, either $9k cap or 50x the fuel cost
  • Johnson – So you severed the cap from the fuel cost?
    • Correct
    • Still want people generating, will be paying costs back
  • Whitmire – So what is your safeguard against keeping $9k price for so long
    • Implemented another rule to move away from formulas; new rule is if ERCOT is in load shed the price is at cap, as soon as we move away from this, price is according to formulas
  • Whitmire – Is it more a formula than a human decision?
    • Yes, it’s one formula, not 30 different formulas interacting
  • PUC also proposed rule to drop price cap from $9k to $4.5k
  • Grateful to have additional members of PUC, ERCOT has a new board & selection committee is meeting weekly
  • Goal is to make sure reliability is core part of market, not an add-on or bonus future
  • Nichols – Didn’t talk about where we’re headed with market redesign, is it too early?
    • Have a lot of work to do, final stakeholder input is being gathered this week, then will issue drafts
    • First draft issued will be wrong, but will continue to work
  • Nichols – Very interested in where you’re going, want to make sure you have statutory authority
    • Yes
  • Nichols – Asks for clarification on ancillary services
    • There’s a whole universe, can make changes in existing ancillary services incl. changing demand response, considering a winter ancillary product, market for those with dual-fuel or onsite generation or storage, mitigation for solar generation dropping at sunset
  • Nichols – Definition of dispatchable? No clear definition in statute
    • Not sure any grid has a clear definition
  • Nichols – For me a turbine with a battery backup can dispatch as needed, not for very long, but battery tech is improving
  • Nichols – As we work to bring certainty to the market, need to clearly define dispatchable to work with the incentives
    • Yes, SB 3 was very clear on the need to define dispatchable
  • Nichols – Hoping PUC will define
    • We will, if we do our job right then PUC shouldn’t have to worry about when batteries are ready, economics should move to the reliability outcome we want, regardless of where that comes from
  • Johnson – New generator rules will be released in a couple months?
    • Phase 1 was in August, deadline for generators will be December 1
  • Johnson – Generators working on it right now?
    • They better be
  • Johnson – Critical facilities mapping is with RRC?
    • Joint with RRC
  • Johnson – TDEM, TERC?
    • Separate committee, but the mission overlaps
  • Campbell – You’re looking for an overall plan for all stakeholders, incl. O&G with RRC?
    • Working with RRC on critical infrastructure, but market redesign only touches the electric market
  • Campbell – You can’t make RRC do what they’re supposed to do, so if they don’t want to weatherize, you have no say? Is this a flaw in the design
    • So far have had a good working relationship with RRC
  • Campbell – Good answer, but who has authority to tell RRC to weatherize O&G resources?
    • Out of PUC’s jurisdiction
  • Schwertner – Collaboration between agencies was lacking, TERC will continue to foster dialogue
  • Schwertner – PUC and ERCOT have changed some of the operating principles heading into fall and winter, incl. buying reserves, out of market actions, etc.; PUC is also redesign pricing mechanisms?
    • Correct
  • Whitmire – You said generators “better be” weatherizing, can you show us weatherization taking place with generators
    • Deadline is December 1 for requirements
  • Whitmire – Talking about getting ready for the winter, where is it taking place right now
    • Sending inspectors out into the field on December 1
  • Whitmire – I want weatherization to be demonstrated today, want urgency
    • Feel confident generators will be able to share urgency they are feeling
  • Whitmire – Is there ever any contemplation to join with another grid? Bizarre to me that some areas of the state didn’t suffer the same effects because they were attached to reliable grids
    • Plenty of chatter in the industry, that decision is far beyond scope of PUC and would be at legislative level
    • One of the benefits of TX being independent is that we can act very quickly
  • Kolkhorst – Asks after requirements for generators & 2011 standards
    • Based on requirement to operate at certain temperatures; will have operating requirements in Phase 2
  • Kolkhorst – Almost had a train wreck in June, issue was the wind didn’t blow, solar goes to zero at sunset
  • Kolkhorst – In June it seemed like a lot of our thermal went offline, where are we? Compliments PUC on avoiding a near disaster
    • Moved the outage notification timeline to 3 days all summer, incl. power lost, cause, return timeline; will continue to be available
  • Kolkhorst – Is this info verifiable, has it helped you manage grid better?
    • Certainly think so, will defer to ERCOT
  • Kolkhorst – Agree on sense of urgency

Brad Jones, ERCOT Interim CEO

  • Need to have a close working relationship with PUC, meeting with PUC staff at various levels, will be going on a listening tour around Texas
  • Had an implementation list & over half have been implemented; e.g. brought reliability plan for RGV, already approved and moving forward into actionable state
  • Operating grid in a more aggressive manner, conservatively, with more reserves and early alerts
  • FERC had an open meeting to discuss winter storm, Texas is addressing all points discussed through rule and discussions
  • Understand that winter is coming, will be ready
  • Schwertner – ERCOT is in a position of managing a less and less reliable grid, but grid needs more dispatchable generation longer term; definition of dispatchable?
    • Dispatchable is any generation or load that can increase or decrease on instruction
    • Would include batteries, responsive load, generation; need to also consider speed of response, start time, duration of resource
  • Nichols – Shutting power off makes more power available, but not really generating; if TX keeps growing need to consider what power sources we’re going to have to match this growth
  • Johnson – Important to have more power available, but also need to avoid black start
  • Johnson – Regarding good summer, some of it was management, some luck; purchased additional ancillary services capacity & this is power ERCOT is paying for whether or not it is drawn or produced, fair to say it is a one-day capacity market?
    • Fair
  • Johnson – What were the pressures on the market?
    • Market has always operating in a hyper competitive and efficient structure, participants benefited from scarcity pricing & this is where we’ve changed today
  • Johnson – So this will have a depressing effect which jeopardizes the market because we depend on scarcity; anything that we do that gives us reliability will have a depressive effect on prices, are we considering putting state money in to subsidize prices?
    • Not sure about that, but PUC is involved in market redesign to restore prices for most generators & incentivize generation
  • Johnson – So we’re trying to increase stability without decreasing prices? Anything we do to stabilize tends to increase prices, but availability of higher prices gives developers incentives to build more generation
  • Schwertner – Market redesign will shorten timeframe for seeing returns
    • Chair Lake, PUC – Yes, key element
    • Need to consider frequency of payment, some generators only operate during scarcity, so even if price comes down, if those generators are operating more often you see more hours and more incentive to not retire the asset
  • Johnson – Because they can make more money based on what we’ve done to the market?
    • Potentially given more hours even if at lower price
  • Johnson – This is good, but we’re facing reality of more dollars in the market
  • Schwertner – Reliability costs
    • ERCOT is responsible for ensuring reliability, need to move this out into the market which has the tools to address this
    • May see higher prices, but the solution to higher prices is higher prices
  • Johnson – Right, and we won’t crash and have people die
  • Johnson – What’s happening with distributed generation, etc.
    • Jones, ERCOT – Had a moratorium on distributed generation in the past
  • Johnson – Folding this generation into the grid when it’s not used by the consumer is what you’re working on?
    • Yes, will be done by the end of the year
  • Johnson – Load management? Ability to have a nimble grid
    • Has more to do with allowing load in ancillary services and energy products
  • Johnson – What’s a real example of one?
    • Deployed resources this past weekend to ensure reserves, brought a generator online that we had purchased and had stayed offline until needed at ERCOT’s request
    • Opening up nonspend to load resources that are willing
  • Johnson – Want to improve fuel security?
    • Want onsite fuels at many locations, most market moved away from this due to competition and efficiency, but now looking at some amount of generation to bring onsite fuels with some incentives; can help mitigate supply issues
  • Schwertner – Market design changes are overdue and necessary, but prior design changes have not incentivized dispatchable generation to meet the needs of the state
  • Schwertner – Besides what we are doing now; do we as a body need to incentivize or build additional dispatchable generation
  • Menendez – ERCOT has been conservative with reliability commitments?
    • Jones – Yes, now requiring more megawatts for reserve
  • Menendez – Cost to consumer?
    • Started around $1-$2 million
    • Later in the summer is about $25-$40 million
  • Menendez – Demand response dispatchable? How long cost capped?
    • $50 million; yes
    • Has been many years
  • Menendez – ERS overperformed and generation underperformed; cheaper to do demand response?
    • Try to stay away from RUCs; spend about $1-$2 million on RUCing in June
    • RUCs are cheaper, but try to stay away from non-market units
    • Spent $1m in June on RUCing
    • Working to open up markets to more load response, not necessarily ERS, but will bring ancillary costs down
  • Menendez – How much weather sensitive demand was there during Winter Storm Uri?
    • Difficult to say, will be A/C or heating driven
    • Because of very low ERCOT prices, many homes switched to strip heating which creates extraordinary demand on system
  • Menendez – Seems like we could use energy efficiency measures to lower demand and put more dispatchable on the system
  • Menendez – Many large companies like HEB, Buccee’s have generation for their stores and can put generation on the grid, could have privately funded generation
    • Yes, very optimistic about distributed generation program
  • Whitmire – How do we avoid situations like the summer where too many went to maintenance at the same time?
    • These units had uncontrollable outages, these units were forced off
    • Excessive outages combined with low wind and solar put us at risk of tight conditions
    • Conservation ask was to prevent us from getting into a jam, in the past ERCOT had always done this very late
  • Whitmire – Intrigued that you were going to travel to see what people are thinking, people are concerned about reliability and concerned that we don’t see another Winter Storm Uri; want to be protected and not gouged, people are still scared
    • Feel it’s important to ERCOT to go through the state and be held accountable and assure the public we’re addressing problems
    • Have also set up an advisory board of mayors across the state, meeting regularly
  • Campbell – Regarding dispatchable energy, what is the most dispatchable?
    • Ancillary services are defined for those types of attributes
    • Don’t’ want to overreact to particular situations, need to lead more to measured response by generation
  • Campbell – Where are we on nuclear energy production?
    • 2 major units at each site, 2 sites near Ft. Worth and Houston
  • Campbell – Are we discussing developing more nuclear sites?
    • Haven’t done this in the US for many years, a couple are nearing completion
    • Last development project was an STP expansion, concluded and terminated 5 years ago
  • Campbell – Why wouldn’t we consider these?
    • Regulatory and market risk, nuclear power is not dispatchable and typically stays online at a fixed level to more easily meet safety requirements
  • Campbell – Do we use geothermal?
    • Little in TX, opportunity for it, but cost is high in TX
  • Kolkhorst – How often is transmission taken offline with no notice?
    • Repairs during summer were generation
    • Transmission outages are scheduled with ERCOT, ERCOT managed these to maintain reliability
  • Kolkhorst – During Hurricane Nicholas, STP operated at 100% even though some transmission was offline, so ERCOT was able to manage and keep STP running
  • Kolkhorst – Asks after outages during the summer
    • During that period of the summer, projected a number of forced outages, but outages increased significantly; have confidence that generators were not taking advantage of the market, especially after transparency
  • Kolkhorst – But changes like the 3-day change were done after the June crisis; important to see more baseload created
  • Nichols – Highlights the Entergy plants being built with market design changes via rider
  • Nichols – If we expect natural gas companies in ERCOT to put in gas storage, then they should be compensated
  • Nichols – Distributed generation is great, 10 megawatts is the standard for not having to register these, someone created a module to take advantage of this; could we raise this to 15, 20?
    • Cannot recall how this was determined
  • Nichols – If someone is creating modules, it could benefit us to raise this to 15 or 20
  • Schwertner – How much distributed generation do we need in TX
    • Load peaks in the 70k range with no renewables, distributed generation is less than 1%

Wei Wang, RRC Executive Director

  • Menendez – Have you had a chance to read over NERC and FERC report, unless gas supply is weatherized TX will be at risk of future outages?
    • Wei Wang, RRC – Yes
  • Menendez – Can gas generators and pipelines opt out of critical status by paying a fee?
    • Only facilities that are prepared to operate may be designated as critical, operators can certify that they are not prepared & there is a fee
    • Different variety of reasons can apply, incl. weatherization; review process is designed to screen this
  • Menendez – Appreciates the process, but concerned that we don’t have ease or incentive at the RRC to ensure critical operators are registering & could leave us exposed
    • In SB 3 there is a weatherization deadline and critical infrastructure map; map due by Sept. 1 of 2022, 90 days after this the weatherization rule must be implemented
    • Highlights audit & inspection process
  • Menendez – Want to not have a loophole allowing someone to exempt themselves from critical designation
  • Menendez – Asks after pricing
    • When we receive a complaint, we refer price gouging to AG
  • Menendez – Maybe should look to states that have storms regularly
  • Schwertner – SB 3 enacted requirements, lack of clarity on critical infrastructure, but rule allows for oversight of pretty much everything; anything not in your purview?
    • Propane
  • Schwertner – Reads areas under the RRC’s oversight, broad swathe of industry designated critical & can obtain exemption via paying a fee; is the purpose of rule to keep everything from being critical, will you take steps to ensure gas supply flows?
    • Rule was drafted to allow RRC to designate critical gas production infrastructure; looked at generation, peak demand
  • Schwertner – Have you looked at tracing back from generation or a tiered structure?
    • 3 phases to SB 3 implementation, critical infrastructure designation has a deadline of Sept. 1
  • Schwertner – You’ve done this by essentially designating every gas production facility as critical
    • Yes, looking to requirement to consider critical customers
    • Trying to address lack of supply in February and allow for producers to provide information
  • Schwertner – Find it difficult for a TDU to implement this; premise of SB 3 is to allow for the absolutely essential gas supply to be prioritized in the RRC’s eyes
  • Johnson – After you designate them as critical, can they opt out?
    • Opt out is part of the process if they invoke the SB 3 preparedness language
  • Johnson – If too many opt out, don’t we have a problem? How do we fix this along with PUC, ERCOT, etc.? Don’t know that TDUs are able to tell you who can and can’t opt out; penalty of not receiving electricity is not enough to ensure producers do not opt out
  • Johnson – Don’t want to have a lot of producers who opt out because they don’t want to weatherize, counting on RRC and TERC
  • Campbell – Not hearing clear answers, has the RRC assessed the wells and pipelines that froze
    • Have not, in the process of standing up critical infrastructure division which will hire inspectors
  • Campbell – Isn’t this a little late because we don’t have 7 months before the next storm
    • Recognize the urgency
  • Campbell – I don’t think you do
    • Have reviewed reports from producers, worked on critical infrastructure rule first to ensure RRC meets the deadline
  • Campbell – How can producers opt out and say they aren’t ready? Sounds like they can say this and pay the $150 fee, what do we do about this?
    • In a way, this is the process that SB 3 allowed
  • Campbell – Why are you not demanding they are prepared?
    • Bill language did not allow for this
  • Campbell – Chair Schwertner read the broad authority, trying to make sure RRC is doing what they are supposed to for all the providers of gas needed in order to generate; sounds like you’re going back to the bill to find reasons for providers to opt out
    • Not the intent, this is a proposed rule
  • Campbell – Sounds like you will miss this coming winter; will wellheads, pipes, etc. be ready?
    • Weatherization rule will not be ready for this winter because maps need to be completed
  • Campbell – But you’re able to see who failed in the last storm
    • We are making recommendations on best practices
  • Menendez – SB 3 language regarding critical customers created a loophole, loophole created an incentive for producers to not weatherize; if you need us to make changes to ensure there are no loopholes, still have few days in this special session
  • Nichols – Very disappointed in the conversation, failure to get gas was caused by weatherization, but also lack of power
  • Nichols – You’re testifying we’re not prepared for this coming winter with weatherization, which will be in the media; but other part of this was that producers were not identified for not having electricity turned off, please assure us that they will not have power turned off
    • Yes, proposed rule will allow for this
  • Nichols – Haven’t implemented the rule yet? Shouldn’t take months and months to identify producers to not have electricity turned off
    • We have done this, RRC did this in March and April to send notice and allow for producers to apply
  • Whitmire – Have all those with an application been declared a critical need? I hope it works that efficiently
  • Schwertner – Issue of getting gas to electric generation plants was extensively discussion, SB 3 directed collaboration between PUC and RRC, provided that only those prepared to operate be designated critical infrastructure; no recourse if these resources shut down
    • If they invoke the language in the bill, process for us is to follow up on the reason
  • Kolkhorst – This part of the discussion is disturbing, if you can opt out for $150; concerned about possible market manipulation
  • Whitmire – Should sit here until we get a more favorable resolution; RRC sounds like they missed the urgency message; you’ve unified this body, don’t want to leave until we have a better solution, do we need to get the Railroad Commissioners here in the morning?
    • Heard the committee, rule is draft, if we need to make changes, we will
  • Whitmire – Revisiting the rule is not a good answer, don’t like this provision as it doesn’t give us the security we’re looking for; Sen. Nichols is correct this will hit the media, your position ought to be at stake in whether you can change this provision
    • Understood
  • Schwertner – How many FTEs did you request for the mapping? $21m
    • 100 inspectors, remember it as $18m
  • Schwertner – Significant amount of money to address a priority to address gas supply, PUC got $2m to do the same; we funded this to ensure gas supply
  • Campbell – This is a great opportunity for the RRC to prove up their worth, if you don’t, could be moved to the PUC

Chief Nim Kidd, TDEM

  • Interested agencies will start meeting monthly, we see the urgency and take this seriously
  • Goal of TDEM is to ensure regulatory bodies come together to address issues
  • Johnson – Can you help provide some assurance on the issues we’ve discussed with Director Wang, need a coordinated effort to identify critical needs, maybe need some statutory resources to support
    • Want a little more time to listen to regulatory agencies before asking for more legislation; bill is clear on collaboration and coordination
    • Members are being appointed, will be asking questions on what tools are needed
  • Whitmire – You deal with urgent emergency crises, which we’re still in until we go through a winter that is successful; plan breaks if parts are broken, which sounds like RRC is, urges TDEM to use authority to fix this system
  • Whitmire – Have you had an opportunity to address the breakdown of water supply in Houston, etc.?
    • Will be talking with TWDB, need to keep pushing the message
  • Whitmire – Can’t just talk about it, Houston is vulnerable
    • We all seek efficiency, but this kills preparedness; preparedness will always take a back seat if we continually seek efficiency
    • Need to drive through incentives, maybe also through penalties
  • Whitmire – Milder weather moved attention elsewhere, need to focus on this
  • Johnson – Price gouging laws need to apply to winter storm; if someone has taken a tragedy and turned it into a huge profit
  • Kolkhorst – Filed SB 680 that would have implemented price gouging provisions

Panel 2 – Vistra, LCRA, WattBridge

  • Schwertner – Next 2 panels are about looking forward to energy needs & what needs to be done; focused on incentivizing dispatchable generation, spoke about completion bonus for dispatchable generation, loan programs, etc.
  • Schwertner – Preference is for reserve system, perhaps completion bonus for putting steel in the ground; this combined with market redesign
  • Menendez – Whatever we agree to do, constituents pay; important to look at what other states have done and make sure we follow cheapest source of energy
  • Menendez – Similar to San Antonio with water conservation, need to look at demand side
  • Schwertner – Will certainly be discussing this at future
  • Nichols – Can’t keep up with growth by turning power off
  • Menendez – Don’t disagree, combo of efficiency and investment

Amanda Frazier, Vistra Energy

  • Highlights how SB 3 empowers PUC to address failures from Winter Storm Uri and encourage dispatchable generation
  • Vistra has suggested several options & working with others to ensure previous storm is not repeated
  • Some concepts discussed could lead to decreases in dispatchable generation, need to work to support existing generators
  • Concerned about subsidies provided to limited number of companies to build dispatchable generation
  • Competition has served market well, legislature should allow PUC to fully consider all aspects
  • Vistra proposing 2 market design changes later this week: 1) Lowering cap to around $4k, change slope of the curve to incentivize without scarcity pricing, 2) dispatchable standby reserve to give ERCOT capacity when needed
  • Proposals would support more generation without jeopardizing existing generation
  • Schwertner – Need to incentivize generation long-term, how do we get new megawatts without building it ourselves or tying it to a completion bonus?
    • Understand the concern, everyone is looking for Y generation for X number of dollars
    • Can design incentivizes to provide rational number of dollars to drive investment; may not be Vistra
  • Schwertner – What is the dollar amount per megawatt hour needed to incentivize generation?
    • IMM puts out a report annually, differs by resource
    • Combined cycle or single cycle generators need $70-$100/megawatt hour averaged over a year
  • Schwertner – We’re currently in the $20s-$30s, would need to possibly double this; which is cheaper, market redesign, going in ourselves, or putting incentives in
    • May be cheaper in the short term, but won’t be in the long term due to increased retirements
  • Nichols – 10 years ago we looked at winterization, continued to see plant shutdowns & close to wearing out existing plants
  • Nichols – You said to not make any changes until PUC can review and suggest changes, but there is a realization that dispatchable power is worth more than non-dispatchable and market pricing is not recognizing the difference in electrons; recognizing this would drive investment
    • Important to price the type of generation you’re looking for
    • We prefer this through ancillary services and reliability products rather than through energy price itself; when demand is being served real-time every megawatt hour is worth the same to the customer
  • Nichols – Weakness in the system is that renewables are not dispatchable, but are paid comparatively more for the power provided; creating a product in the ancillary services that pays dispatchable services makes sense to me
    • Agree, we don’t pay renewables the ORDC if they aren’t generating
  • Nichols – No matter what we pay, they aren’t hitting the numbers
  • Menendez – Storage on grid was around 200 megawatts at the beginning of the year, now up to around 500 megawatts; could have 1000 megawatts on the grid by the end of the year
  • Nichols – And they should be paid for that, battery power is dispatchable
  • Menendez – Through securitization of Winter Storm Uri, some in areas like Brazos Electric’s may be paying $200/year to pay off securitization; don’t want to add more to the cost without seeing what we’re doing
    • This issue is still pending at PUC, settlement was filed on this docket last week and proud of collaboration to allocate $2.1 billion across market, great example of legislators stabilizing competitive market
    • Allows Vistra to get some of this money back, but unlike Brazos Electric or regulated gas, Vistra is still part of the competitive market, need to provide attractive rates to maintain and grow
    • Securitization was a very good bill, but not necessarily the same as Brazos or retail gas securitization
    • Should allow for SB 3 process to work and allow PUC to come up with ways to get reliable and dispatchable generation before passing more legislation
  • Menendez – What percentage of your generation fleet relies on natural gas?
    • 60%
  • Menendez – So if RRC doesn’t get the job done, if you don’t get natural gas to your plants you can’t produce?
    • Very big issue, important that all parts of supply chain are weatherized and registered
    • Taking action within our control to address issues and bring more backup fuel onto sites capable of using it, spending $50m on winterization and fuel prep for this winter
  • Johnson – On the dispatchable standby reserve, this would contribute certainty in addition to dollars; can you tell us about this product?
    • Reserve payment, procured by ERCOT through an auction
  • Johnson – Like the one-day service, but not one day
    • Either monthly or seasonal, would be sized to make sure there is generation is available on extraordinary days
    • Generators would compete to drive price down, would offer what is needed to standby and be available on extraordinary days
  • Johnson – Pre-commitment by ERCOT to buy a certain amount of power that people bid on, then market participants know they will pull down a certain amount of dollars; how certain can we be that this would drive investment
    • Need both; important that ORDC continues to provide incentive for new build, but this would also give certainty on revenues and megawatts
  • Schwertner – Could I tie this to only new generation? [said in jest]
    • Would be an expensive version of the Berkshire Hathaway proposal
  • Schwertner – Dependability will cost in increasing wholesale prices or structure that incentivizes new generation directly; to guarantee new supply we need to link money to the new steel
  • Kolkhorst – You’re spending $50m on weatherization, is this out of profit? We were told during Uri that we needed to pay you, is the incentive the $2m fine?
    • $50m comes from the operating budget out of ordinary revenues, spending this as an investment in the state
    • Two incentives: 1) don’t want Uri to happen to us again either, 2) trust that PUC and legislature will do the changes needed to pay for reliable generation
    • Anticipating this will be a profitable investment
  • Nichols – So you’re weatherizing plants, but fuel supply is not
    • Enormous concern of ours
  • Nichols – Brings me to fuel storage, some natural gas has fuel storage for several days; do you have onsite storage?
    • We contract for natural gas storage
  • Nichols – Did those function?
    • The storage functioned well, but had problems with the transportation over the pipeline
  • Nichols – Are they within a mile or two?
    • Within 50 to 100 miles
    • Did have some backup fuel oil storage for some plants, worked pretty well except that roads were frozen that prevented re-supply of fuel
    • Part of the $50m is going to increase that fuel oil storage
  • Nichols – Storage is a specific thing plants could do; wouldn’t be subsidizing, would be paying to have surety
    • This would be less offensive to market factors; preference would be to create an ancillary product for those with fuel storage
  • Nichols – Has this been proposed in the meetings with PUC?
    • I know this has been talked about, proposals will be filed Thursday, on ERCOT’s list as well
  • Schwertner – Ancillary service keeps it in market as opposed to a low-interest loan, this would be out of market in your opinion?
    • It is out of market, but not as offensive as direct subsidy
  • Schwertner – Funny what is considered a direct subsidy or a market change
    • It is, but what makes something a subsidy is how it flows into the energy market, free money changes how participants will operate into the market
  • Menendez – Not sure how constitutional it would be to give taxpayer money to for-profit companies
  • Menendez – Can you explain force majeure and how it played a role in the storm?
    • Pipelines and producers were invoking force majeure clauses that allowed them to not provide gas
  • Menendez – If they invoke the clauses, they do not have to honor contract price?
    • Correct
  • Menendez – Paid multiple times more for the gas; on this price gouging, you could either not pay and have more people affected, or take the loss, correct?
    • Correct
  • Menendez – Cognizant that this is an investment and we’re talking products, but hope we remember that lives were lost & people were injured; want to thank you for the decisions you made, but also want to keep in mind that we could have avoided or diminished this tragedy

Randa Stephenson, LCRA

  • Generation benefit goes to lower cost, constantly optimizing generation fleet
  • Looked at weak points, installed temperature gauges, insulation, kerosene storage for heating plants; have been proactive
  • Reevaluating fuel supply system
  • Agree with Sen. Schwertner that there is a huge need for thermal generation hat can respond up and down
  • Need to build new generation based on market signals and competitive mechanisms
  • Need resiliency in addition to reliability
  • Need to look at resiliency to address tail events, incl. the right insurance policies, ancillary services
  • Suggesting 1) dispatchable reliability ancillary service and 2) firm fuel ancillary service
  • Dispatchable reliability service would need to respond within 30 minutes to provide uninterruptable power for 24 hours
  • Schwertner – Whose definition is that?
    • LCRA’s, have submitted this to PUC
  • LCRA believes in long term seasonal procurement to provide certainty, would include financial penalties if you’re not there
  • Johnson – Would not include financial penalties?
    • Would need to meet a certain availability and then have financial penalties if you fail
  • Johnson – If you sign up?
    • Correct
  • Kolkhorst – Asks after the ancillary services
    • If you look at responsive reserves that ERCOT buys today, portion of quantity they buy is based on intermittent renewables; there is a linkage between ancillary and renewables
  • Johnson – Not the only link, don’t want to get into a discussion about renewables and ancillary services
  • Kolkhorst – Have seen this develop over the years, have made changes based on renewables that are not as reliable; interesting to keep in mind, not the only factor, but certainly added to it
  • Menendez – How did you fair during Winter Storm Uri
    • Had 80% of fleet operational due to own provision of natural gas
  • Firm fuel service is trying to provide a competitive bid process for ERCOT & someone with gas expertise to determine need; fits nicely with what was in SB 3

Mike Alvarado, WattBridge

  • Highlights large investment of dollars and wattage in TX, expect to have a total of 4 gigawatts in the TX market by 2025; open market and intermittency challenges provided an opportunity
  • Highlights WattBridge’s tech and peaker power facilities, suited for markets with renewable intermittency
  • During February, HO Clark station operated continuously
  • Menendez – you started 36 months ago?
    • Parent company ProEnergy has been in the industry for 20 years, have very vertically integrated capability
  • Menendez – So what is the size of the peaker plants?
    • 288 megawatts
  • Menendez – Chair Schwertner was talking about new generation and you built these int eh last 36 months?
    • Yes
  • Menendez – So if we provide an incentive for others it would hurt your business model, similar to Vistra’s concern
    • Would agree, someone will make a rational decision to invest and WattBridge is an example of that
  • Schwertner – How many megawatts are being produced by your facilities?
    • HO Clark at 288 megawatts, have a facility called Topaz with 10 units, 9 of which are operational
  • Schwertner – How often are you not operating?
    • Plants typically run 1000 hours a year
    • Have a facility in Fort Bend that is 3 months from completion
  • Schwertner – So 41 days out of the year when pricing is most advantageous
    • On average we run 1000 hours/year, expect these to be run predominantly in the summer
    • However, in this market we’ve run continually since February
  • Schwertner – Because you’re required to?
    • No, because market pricing has driven us to run our plants
  • Schwertner – Why aren’t others building plants of the same type?
    • We have a significant cost advantage in the advantage due to 20 years experience and vertical integration
    • Using GE or Siemens turbines, you wouldn’t be able to build in this market
  • Kolkhorst – How would you define intermittency challenges?
    • Unpredictability related to renewable resources
  • Kolkhorst – So because of the renewable challenges we’re building more thermal; you chose to address intermittency challenge instead of base load in part because of pricing
    • We think intermittency is the fundamental problem with the grid
  • Whitmire – What is the fuel source?
    • Natural gas, have capability to burn 35% hydrogen
  • Whitmire – What about the weatherization issue?
    • Evaluated where challenges were during February, make siting decisions based on availability of load and supply, e.g. locating in Houston on top of well-developed infrastructure
  • Johnson – Asks for clarification on storage figures in the presentation, is it storage?
    • Comparing our ability to produce power with average wind generation
  • Menendez – So projects through 224, at the end of 2021 may have 900 megawatts?
    • By January, 1,500 megawatts
  • Menendez – So under the existing market you’re able to invest; system may be working

Panel 3 – NRG & Calpine

Bill Barnes, NRG

  • NRG sponsored proposal alongside PUC that will enhance reliability of ERCOT in accordance with SB 3
  • Establishes a grid-wide reliability requirement for all load-serving entities
  • Each entity can contribute to reliability in whatever way they see fit; strengthens competitiveness of market
  • Talked a lot about market design and evolution of market; Winter storm has redefined goals of reliability, of market; energy-only market has never had a reliability requirement ensuring reserves
  • Goal moving forward is they want a certain level of reserves, not change to capacity market
  • Market is so present-focused, difficult to make long-term decisions
  • Schwertner – How much will load-serving entities pay for reliability requirements?
    • Depends on where they decide reserves should be
    • Can’t get to reliability standard without additional, reasonable cost
    • Let competitive market solve problem
  • Johnson – So much fear regarding capacity changes; what is purpose with this plan?
    • Key first step starting with principle trying to achieve; rather be more direct, start with what you want, and allow competitive market to go solve it
  • Johnson – Changing capacity market could be simpler than reserve requirements?
    • Controversial topic; central procurement of capacity takes solution out of market’s hands, doesn’t allow entities to differentiate themselves in procuring capacity
    • In case of change in capacity market, cost distributed among entities all the same, socialized
    • ERCOT market unique due to competitive retail market
  • Johnson – Is there a way we can achieve change to capacity market without creating a socialized market?
  • Menendez – How will this impact co-ops, consumers?
    • Flexibility allows each individual LSE to address share of requirement; this approach more conducive and communities, Co-ops that have already started new generation, etc.
    • Will reward the ones who have already made changes or safeguards to reserves
    • Reliability can come from many different forms
  • Menendez – How do you enforce it?
    • Financial penalties if you don’t meet margin; more detail coming on this
    • Commit to amount; if you don’t reach it, you pay penalty
    • Menendez – Gives flexibility to how they’re going to reach it

Bryan Sams, Calpine

  • Tools in place to implement policies for market success; changes need to be made to ensure reliability and to dispatch generation
  • Concerned that outer-market proposals will hurt competitive market; ERCOT can address reliability in a way that maintains integrity of market while also ensure reliability
  • Asks committee to give market more time to consider this so as to not hurt market; will say this to PUC
  • Schwertner – Have other ideas to propose?
    • Yes, details will come later to PUC
  • Menendez – Fossil fuel supply not endless, oil and gas industry has 100-year lead on renewable energy; think about whatever we invest, how much return we will get; can all agree, don’t want to add unnecessary costs to constituents
  • Kolkhorst – TX doesn’t have that competitive of a market nor the cheapest market; ranked #27 in nation; there needs to be balance
  • Campbell – Talked about geothermal energy, how much does it cost, where is it used, what are plans for future?
    • Geothermal assets in CA