Grid change may cost Texans again
The power market, for all of its periodic convulsions in times of peak heat or cold, has mostly held steady since Winter Storm Uri knocked out power for millions of Texans and killed hundreds two years ago. Gov. Greg Abbott staked his political credibility on ensuring reliability, and while the results haven’t been perfect, predictions of the grid’s full-on collapse have, thankfully, so far, been greatly exaggerated.
Still, we were reminded by state Sen. Lois Kolkhorst, R-Brenham, during a hearing on the Texas grid held last week by the Senate Business and Commerce Committee that the pain from Uri will linger for years to come on our monthly electric bills — to the tune of at least $10 billion in surcharges on top of higher electricity rates.
“Look at Uri and what happened, the customers paid a great price. They’re gonna pay it for decades,” Kolkhorst said, later adding that she and her colleagues in the Legislature were elected to “make sure we guarantee there is never a repeat of what we saw in February 2021.”
Now, a proposed market redesign for the state’s power grid could cost Texans more, with no guarantee of reliability.
What the Public Utility Commission, Texas’ energy regulator, wants lawmakers and rate-payers to believe is that an overhaul of parts of the state’s power grid will help the state avoid widespread blackouts from severe weather. The commission approved a redesign proposal in January: a Performance Credit Mechanism (PCM) model. This dizzyingly complicated scheme would pay generators in advance to have power available during peak demand hours. If the generators deliver during this period, electric retailers are obligated to purchase a “performance credit” from them, giving generators an additional revenue source.
The hope is that this proposal would incentivize more generation to be available during the roughly 30 hours every year when the sun sets and evening winds are too light for turbines and solar panels to contribute enough to the state’s energy output.
The problem with this incentive structure is that it won’t make our electric bills any cheaper. Rather, it will simply tack on more costs, to the tune of $460 million annually. The power retailers who buy a performance credit are likely to pass the added costs on to consumers, and the plan passed by the PUC doesn’t directly address if or how those costs can show up on residents’ utility bills. Even the PUC, which unanimously adopted the plan, did not shy away from admitting that the performance credit model could increase consumer costs.
The commission’s all carrots approach, in theory, will allow for the adoption of newer energy sources down the road — think batteries and hydrogen — but possibly at the expense of new natural gas plants in the short term. At the Senate hearing, PUC Chairman Peter Lake testified that the goal of the performance credit model will be to let the market dictate which power sources are best equipped to dispatch power quickly. Right now, that’s mostly natural gas producers, and there’s optimism that with an additional revenue source from the performance credits, generators will, in turn, invest in new power plants. The Texas Competitive Power Advocates, which represents competitive power generators and wholesale power marketers, has previously said the group’s members could build more than 4,500 megawatts of new gas generation under the performance credit model.
We believe that is wishful thinking.
In Lake’s own words, natural gas producers are the most reliable dispatchable sources “based on today.” But if gas prices go up and cheaper battery storage technology scales up to be a part of our energy market share, why would generators invest in building a gas plant that might be phased out within the next decade? Lake admitted as much when he shared an anecdote about a conversation with a generator that plans to bring an old gas plant back online as part of the performance credit market, even as the generator acknowledged that it likely won’t be able to compete in the market in 10 to 15 years.
“Eventually, new technology is going to replace him,” Lake said. “We want the PCM market to always incentivize the cheapest, most efficient dispatchable power.”
State lawmakers remain unconvinced. State Sen. Charles Schwertner, a Georgetown Republican who chairs the Business and Commerce Committee, tweeted that the PUC’s adoption of the performance credit framework was “unacceptable,” and he pledged in a letter to consider “new legislation to fulfill our obligation to protect the people of Texas.”
Among the many questions we would like answered before the Legislature signs off on this new market design is how regulators will calculate the hours of demand that merit a performance credit; what penalties will be in place to ensure that generators actually deliver what they promise; how the market will adapt to the likelihood of more frequent extreme weather; and whether there will be rules in place to prevent companies from exploiting the system for profit.
We already know the performance credit proposal won’t make our Uriinflated electric bills cheaper. The least regulators and lawmakers can do is make sure Texans get a sturdier grid in return.