More power could cost ratepayers $1.5B

ERCOT’s new operating model makes an effort to have more electricity in reserve

Texas’ efforts to have more reserves of electricity on the power grid could ultimately cost ratepayers roughly $1.5 billion this year, an independent market monitor told the Texas House’s State Affairs Committee on Wednesday.

Carrie Bivens, a third-party consultant hired by the Public Utility Commission to study the Electric Reliability Council of Texas, or ERCOT, said the grid manager’s increased reliance on buying up reserve power and operating more conservatively has skewed price signals and fundamentally changed how the state’s wholesale power market functions.

As of May 31, Bivens estimated ERCOT has spent between $685 million and $860 million this year by purchasing more reserve power and changing elements of the wholesale power market in order to procure more electricity before its needed. That’s far more than the roughly $400 million the state spent on those conservative operating measures from June 2021 through the end of that year, Bivens said.

Public Utility Commission Chair Peter Lake and ERCOT interim CEO Brad Jones have said the more conservative operations are meant to be temporary and are a stop-gap measure to ensure reliability until the PUC finalizes the changes it wants to make to the wholesale power market, which officials hope to finish by the 2023 Legislative session.

Lake said the new posturing has already showed positive results.

“We're no longer waiting until the grid gets on the brink before we bring more reserves and more resources to bear to ensure it’s reliable,” he said. “We've seen the results. In the last 12 months, we've had at least six days where the grid reserves were so low that if we had not built in that margin of safety and those extra re

serves, we would have been on the brink of rolling blackouts.”

Part of the new operating procedures is forcing and paying generation units to sit on the sidelines and be ready if they’re needed in case of tight grid conditions. That stands in contrast to how the power market has operated since it was deregulated in 2000, where power generators only get paid when they’re producing power, said Michele Richmond, executive director of the Texas Competitive Power Advocates, a trade group for power generators and other market participants.

Many of the units that have been called to sit on the sidelines are older natural gas and coal-powered plants that have been in operation for decades, in some cases nearly 50 years, according to testimony the Texas Senate Committee on Business and Commerce heard in March. Richmond said having those units humming on the sidelines puts more wear and tear on them and could make them less reliable in the future.

“Those units are designed to run a couple of weeks of the year, not all the time,” she said. “It makes the maintenance needs more frequent and potentially more comprehensive, also going to be costly.”

The costs of the conservative operating measures will inevitably trickle down to ratepayers, said Tim Morstad, associate state direct for advocacy and outreach at AARP Texas. And ratepayers are already being saddled with paying off costs associated with the February 2021 freeze and power rates that have nearly doubled in a year thanks, in part, to abnormally high natural gas prices.

“Texans are struggling, and the public needs an effective channel to weigh in before impacts like these are put into motion,” he said.

Lake said the PUC’s priority is reliability, but that insurance will come at a cost both with these temporary measures and in the redesigned power market.

“There will be some costs increases. We had a low-performing product, and we need to enhance it, we need to improve it,” Lake said. “That’s the costbenefit trade off, it’s our job to make sure it’s worth the trade off.”