New report offers market redesign recommendation, PUCT skeptical

Weatherford Democrat
Ali Linan - CNHI Statehouse Reporter
​​​​​​​Nov 6, 2022

AUSTIN — A report by consulting firm Energy and Environmental Economics recommends Texas take a page from the New England, New York and Mid-Atlantic’s electric grid structure.

Members of the Public Utility Commission, however, are leaning toward another approach.

The report released Thursday analyzes six specific market redesign options. Of those, E3 recommended the state select a Forward Reliability Market, which is now being used by other grids across the country, and is best suited to provide the reliability that Texas seeks, the report said.

Even so, members of the PUCT instead favor a potential Performance Credit Mechanism market.

Texas began looking into the idea of switching its electric market design following Winter Storm Uri. In 2021, the state experienced a near complete collapse of its electric grid after the severe winter storm blanketed much of the state in snow and ice. The weather forced operators to institute rolling blackouts leaving millions of Texans without electricity and subsequently water for days amid freezing temperatures leading to the death of hundreds of Texans.

Since then, the PUCT, a five-member board appointed by Gov. Greg Abbott, initiated a market redesign with reliability at the forefront. The PUCT oversees the Electric Reliability Council of Texas, which manages the state’s independent grid, including the flow of electric power to more than 26 million Texas customers — representing about 90% of the state’s electric load.

The PUCT adopted a blueprint for a two-phase market redesign last winter. The first phase focused on enhanced current market reliability practices. The PUCT quickly enacted rule changes including actions that increase coordination between the electric and gas industries during emergencies and one that compels power plant operators and transmission companies to implement new winter weather standards.

The second phase is to focus on a wider rebuild with specific actions to be identified.

The PUCT hired E3 to evaluate market redesign options and make a recommendation, but board members said they preferred a different approach than what was provided.

DIFFERENT MARKET OPTIONS

E3 recommended Texas go with a Forward Reliability Market, similar to the New York Independent System Operator, Independent System Operators of New England and the Pennsylvania-New Jersey-Maryland Interconnection.

It requires ERCOT to conduct forward-looking assessments to identity system needs during net peak period and assigns reliability credits to resources. ERCOT would also conduct a centralized auction for reliability credits to procure what is needed during the period.

Following the operating period, energy generators are assessed and penalized if they fail to perform at the accredited level.

E3 said it selected this model because it is “the best fit with Texas’ competitive retail and wholesale markets.”

PUCT Chairman Peter Lake said he currently heavily favors the Performance Credit Mechanism model.

In this model, ERCOT establishes a requirement for operators to purchase “performance credits” earned based on their availability to the system during the hours of highest risk at a centrally determined clearing price. The credit requirement is a fixed quantity that is determined in advance.

Credits are then awarded to generators after the close of the compliance period based on a look-back of their availability across a predetermined number of hours of highest reliability risk, the report said.

Lake said he favored the PCM concept because it would move the financial and operational risk of generation out of the ERCOT control room and “into the private businesses that make money by evaluating and managing risks.” This, he said, is “where it belongs..”

“At the most fundamental level, the PCM requires in my mind, anyone who sells power to a household or business in ERCOT to guarantee that they are buying that power from a reliable source,” Lake said. “For the first time ever, the companies that sell you power that you send your money to each month when you pay your electric bill will now actually be required to ensure they can deliver that power.”

However, PCM is not currently being used anywhere in the world, so the state would have to start from scratch to create it.

Commissioner Will McAdams said he believes that is why Texas should move forward with the PCM model because it allows the state to create a “unique solution based on (Texas’) needs.”

“It has a requirement that loads purchase enough power to satisfy our needs plus reserves, but does not do so on a forward basis. It allows loads to make their business decisions based on the best available information possible going into the operating day,” McAdams said. “It solves for operating day conditions that constitute high risk hours.”

The PUCT did not make a final decision on which method to select.

The report is available to the public and market participants for comment through noon on Dec. 15. After that, the commission and PUCT staff will consider providing insights before moving forward with a decision.