Choice of PUC consultant could cost Texans big — again

The surest way to win a game is to have a friend write the rules in your favor, and big electric companies could have their consultant at the table as the Public Utility Commission of Texas overhauls the electricity market.

The prize is forcing consumers to pay $1.5 billion more for power every year.

This game begins with the question of which consultant will crunch the data for the commissioners.

The largest electricity generators, such as NRG and Exelon, have wanted the PUC to tweak the wholesale market for a long time. Even before the 2021 February freeze, when the Electric Reliability Council of Texas’ grid collapsed and left more than 200 people dead, generators complained they did not make enough money in our market because of competition.

Following the freeze, the Legislature ordered the PUC to overhaul the market, and everyone is scrambling to tilt the field in their favor. The latest fight began when the PUC advertised for a consulting firm “to assist in the analysis, development and implementation” of a new market.

The PUC gave companies only three weeks to submit proposals. Only two firms applied: one that caused trouble for past commissioners and another that advocates for generators.

Potomac Economics, based in Fairfax, Va., is ERCOT’s independent monitor. It ensures companies don’t cheat in the wholesale market where generators compete to supply the cheapest electricity.

Last year, experts at Potomac declared that former PUC Chair DeAnn Walker and ERCOT CEO Bill Magness violated market rules when they kept wholesale prices at $9,000 a megawatt-hour during the blackout, even though prices would have been $1,200 under market rules. Potomac said the decision wrongfully stuck Texas consumers with a $16 billion bill. An interim PUC chair refused to correct the error before he was forced out, and Texans will be paying that debt for decades.

When the new PUC began discussing new rules, Houstonbased NRG and Chicago-based Exelon hired E3 Consulting to draft a proposal that worked best for them.

E3 submitted its whitepaper Sept. 30, advocating for a controversial solution, a “Load Serving Entity Reliability Obligation.” An LSERO would guarantee generators an extra $1.5 billion a year.

E3 was the other firm that applied to rewrite rules for the PUC.

While it may look like a conflict of interest for the PUC to hire an industry consultant to help draft rules for the industry, Texas regulations are fuzzy. The state says no company with “a direct financial interest in the provision of electric … service” is allowed to bid, but firms that consult for those companies are not mentioned.

State procurement rules say companies “may also be disqualified if there are facts that would create an appearance of impropriety, even if no actual conflict exists.” But PUC spokesman Rich Parsons says the agency “is the sole arbiter of whether a conflict or an appearance of impropriety exists.” E3 did not reply to an email seeking comment.

The PUC is behind schedule in announcing the winning consultancy, but PUC watchers say E3 is favored because PUC Chair Peter Lake has publicly supported an LSERO. But the E3 proposal would change market dynamics while not necessarily making the grid more resilient.

Under current rules, ERCOT offers higher prices when electricity reserves get low to attract more power to the market. After the freeze, ERCOT began paying more for backup power and started raising prices faster when supplies got tight. The higher prices are meant to encourage energy efficiency and the construction of more power plants, but generators say it’s not enough.

Other grids pay generators a fee for supplying backup power. If Texas adopted a so-called capacity market, ERCOT would require companies to compete to provide the cheapest emergency electricity. Only then would ERCOT pass the cost to consumers.

An LSERO would tip the scales in the generators’ favor by requiring retail electricity providers, municipal utilities and electric cooperatives to predict their needs two years in advance and pay generators whatever they demand to build enough power plants.

The LSERO benefits companies like NRG and Exelon that generate power and sell retail electricity; they would pay themselves the LSERO. Retailers without their own generation would find it difficult to meet the requirement to contract for the power they need two years in advance.

“It would price (independent retailers) out of the market,” Bill Barnes, NRG’s director of regulatory affairs, acknowledged to the PUC on Nov. 4.

Commissioner Jimmy Glotfelty warned that an LSERO would give generators with retail arms control of the entire market.

An LSERO would boost profits for big generators by reducing competition, blocking smaller companies from innovating and raising electricity bills. Generators must be excited their consultant could nudge the rules in their favor.

Gov. Greg Abbott, above, signs legislation last year to reform the

Electric Reliability

Council of Texas. Is it reform if big

electric companies have their consultant

at the table as the Public Utility

Commission rewrites rules?

Eric Gay / Associated Press