Electric grid changes are too quick and radical
Regulators are quickly overhauling how electricity is bought and sold in Texas to prevent future blackouts, but they are struggling to balance cost, reliability and innovation.
Last week, after I turned in my column on five difficult ways to fix the Texas grid, the Public Utility Commission of Texas asked for comment on their ideas for avoiding another fatal collapse in electricity generation.
Like any work in progress, it’s a mixed bag.
All five commissioners are new to the job. The last team resigned after the power went out for four days in February and left hundreds of Texans dead.
Gov. Greg Abbott appointed a new commission, and the Texas Legislature ordered them to overhaul the electricity markets to ensure reliable service. Abbott knows his re-election hinges on whether we experience blackouts this winter.
About 20 years ago, Texas abandoned the traditional utility approach of government officials managing private companies to supply power. Since the early 2000s, Texas has only paid for electricity, unlike other states that pay generators to keep extra capacity on hand in case of shortages.
Texas relies on prices alone to encourage new power plants.
The new PUC has taken some initial steps they call Phase I and have proposed a Phase II to guarantee reliability. Some changes are common sense; others are radical departures.
In Phase I, commissioners changed the algorithm that determines how the price of electricity rises along with demand, something called the Operating Reserve Demand Curve. Instead of a hockey-stick slope from about $30 a megawatt-hour to $9,000, the new curve is more constant with a maximum price of $5,000.
Commissioners say this will improve reliability by better rewarding generators with facilities that can quickly turn on and off, like natural gas, coal and batteries. The new system is an indirect way of paying companies to keep generation on standby, a backdoor capacity market.
“It’s paying people for something of value, that our current system, the one that existed before February, was not rewarding at all,” explained Pat Wood, a former PUC and Federal Energy Regulatory Commission chairman, who helped design the wholesale market in the late 1990s.
Changing that curve, though, changes how consumers pay for electricity. We may no longer get gouged during a crisis, but we may end up paying $600 million more a year because wholesale prices will rise quicker than they did before.
The commission has also
ordered the grid operator, the Electric Reliability Council of Texas, to spend more on socalled ancillary services that stabilize the grid as consumption ramps up and down. Energy consultant and ERCOT expert Doug Lewin said no one yet knows how much more Texans will pay as a result, but it could be a lot.
“The goal needs to be the highest reliability at the lowest cost,” Lewin said. “You have to balance those things.”
The biggest danger, though, is the possibility the commissioners will use their reliability mandate to reward politically-connected, fossil fuel companies and stifle their cleaner competitors.
Abbott and GOP lawmakers have inaccurately blamed wind and solar facilities for the blackouts. The commission’s memo repeatedly prioritizes “dispatchable generation,” which appears to only include fossil fuels and possibly battery storage.
In Phase II, PUC Chair Peter Lake is pushing for a radical change by proposing a “Load-serving Entity Obligation.” This would require companies that sell retail electricity to procure an amount of “dispatchable generation” equivalent to what their customers need in advance instead of relying on market trading.
Though we have few details, the obligation would punish renewables and reward older power plants. The commission’s consultants, the Brattle Group, estimate the obligation would add $1.4 billion to Texans’ annual electricity bills.
Lake’s fellow commissioners are rightfully skeptical of his plan in public meetings. Wood, who currently serves on the Texas Energy Reliability Council, thinks a less dramatic approach is needed.
“Yes, it would solve the problem, but it would also create some new problems that we ought think long and hard about,” he told me.
Lewin worries the commission is moving too fast, not doing the mathematical models and failing to gather enough public comment on the most profound change to the Texas electricity grid in 20 years.
“They are making a bunch of substantive changes to the market with very little analysis,” he said. “If the Load-serving Entity Obligation gets adopted, it is effectively the end of Texas’ competitive electricity market.”
Commissioners are making critical decisions that will impact Texans for generations. They appear more interested in rushing out press releases that make Abbott look good than getting it right.
Anyone who buys electricity should pay close attention to the Public Utility Commission and demand more transparency lest we get another system that puts corporations above the public interest.