New PUC chair is ready to wrangle the beast that is state’s power market
AUSTIN — The alligator bust is hard to miss.
The plastic head, almost larger than a toddler, sits on the reception desk of Public Utility Commission Chair Peter Lake’s office, greeting visitors with its mouth agape. It’s a life-size replica of a 10-footer the 39-year-old killed in Anderson County.
Now, Lake is tasked with wrangling a much larger beast — Texas’ troubled electrical grid power market.
Lake and Brad Jones, the interim CEO of the Electric Reliability Council of Texas, announced in late July that their agencies would work to overhaul how power is paid for and sold after the deadly February freeze and power outages and the summer’s heat-related conservation warnings laid bare the grid’s reliability issues. The duo gave themselves a self-imposed deadline of mid-December to present the blueprints for a new electricity market, both wholesale and retail.
Lake, who was appointed to the commission in April after the three-member board resigned in the wake of the freeze, said he was reluctant to take the job. He said Abbott and
other state leaders, however, pursued him because of his experience as a finance chief for several oil and gas companies and his work with the state’s Water Development Board.
Below are excerpts from an exclusive Chronicle interview with Lake at his office near the Texas Capitol. His comments have been edited for clarity and length, but a transcript of his 50-minute conversation can be found at HoustonChronicle.com/ PeterLake.
Q: How have conversations about the new power market unfolded, and what has the PUC and ERCOT done to make sure things are stable while the new market is being designed?
A: This is a gargantuan task. This is once-in-a-generation legislation and reform, and it’s something that is too critical to wait. The realities of the situation dictate that we move forward with our weatherization mandate, which we are in multiple phases.
While we want to live and operate in an energy-only, market-based system, that doesn’t mean we need to continue to operate under the previous crisisbased business model.
The first thing we’ve done is stabilize the grid for the summer. It was establishing a margin of safety by essentially buying more reserve power and having that on standby. And the second part of that was operating the grid with an abundance of caution. That was really an operational change, and having ERCOT be more aggressive in using its authority to force generators on, even if that generator didn’t want to operate in the market conditions at that time.
Q: Gov. Greg Abbott wrote a letter to the PUC and ERCOT with a list of demands, including a suggestion that renewable generators pay some sort of fee for periods when they can’t give power to the grid — like when the sun isn’t shining or the wind isn’t blowing. How is the PUC considering that demand?
A: That’s a big challenge, but that’s a global challenge — reconciling renewable and reliable. Every person that’s coming to my office, I’ve asked that question: How do we reconcile renewable and reliable? Who in the world has figured it out? Who’s got the blueprint, because I am more
than happy to steal good ideas, shamelessly.
With any type of generator, there are pros and cons to each, in terms of intermittent renewables, or renewable resources that are weather dependent. I would love the price point, love the carbon profile, but they have challenges on reliability and dispatchability. If the wind doesn’t blow, you can’t get power.
When you need a critical resource, you need it. That doesn’t mean they’re not a part of what the future of the grid looks like. It doesn’t mean there aren’t ways to firm that up, but we have to address the reality of each top of these resources. Thermal (like natural gas and coal) has its challenges with machinery breaks. Natural gas supply chains are at risk sometimes.
So each generation type has its own pros and cons. Our job is to be honest about what those are and reconcile those differences in the broader scheme of how ERCOT markets should deliver reliable power for Texas.
We very clearly have been directed by the Legislature to refocus on reliability above all else, but of course affordability as a close second.
Q: Power generators have found it difficult to make money within ERCOT, with a UH study finding that they did not turn a profit in eight of the last 10 years. How are you looking at addressing that problem?
A: I think we want to move revenues to reliable assets, and that doesn’t mean not renewables.
It’s not our job to pick winners and losers. It’s our job to recognize the strengths and weaknesses of each of these asset types and design a market that combines them the best way to provide reliable power and the most affordable, efficient way possible.
I think you correctly pointed out that a lot of dispatchable generators are not making money. The big part of that is moving revenue to whoever’s reliable, and we’ll rely on the market to help sort out who in that universe delivers the best result. We’re just going to give the dollar to provides the most reliable energy at the most affordable price.
Q: As you’ve noted in the past, all of these market changes are going to cost money. Who do you think is going to shoulder the bulk of those costs?
A: As we’ve highlighted, we want to deliver reliable power in the most affordable fashion possible. In a well-functioning market, high prices are only high for a short period of time before the market responds and delivers more supply. And so to the extent there are price increases, we would certainly anticipate them being relatively short term while the market adjusts and delivers more supply.
Q: So does that mean it will come from the ratepayers — individual households and businesses?
A: There’s nobody else … who else would pay for it? And so that’s how that breaks up.