The long-time troubled Texas electric utility regulatory scheme, featuring the state’s unique, isolated transmission grid, the Electric Reliability Council of Texas, or ERCOT, is widely understood as dysfunctional, leading to brownouts, blackouts, and other state-wide disruptions. The Federal Energy Regulatory Commission’s recent winter reliability outlook found that the state could face the same blackout problems it saw last February if hit with a major winter storm.
The state’s utility regulatory body, the Public Utility Commission of Texas (PUCT), is looking at how to improve reliability without, apparently, touching the state’s refusal to connect with any transmission grids outside the Lone Star State. Under the Texas system, ERCOT regulates the grid, while generators compete for load.
The PUCT is looking at three possibilities of change, but all are drawing fire from the statewide consumer group, the Texas Consumer Association, which views the three contenders advanced by the PUCT as pushing to state toward the way California’s electric system works.
The consumer group commissioned the respected Virginia electric consulting group ICF to take a deep dive into the PUCT restructuring candidates. Last week, the consumer group reacted in horror to what ICF found. “A proposed California-style redesign of Texas’ electricity market would cost Texans an additional $22.8 billion from 2025 to 2030 — including $8.5 billion more in 2025 alone — but would not make the state’s power grid significantly more reliable, according to the ICF analysis,” the TCA said.
ICF looked a three PUCT offerings on how to change electric regulation in the state. It found, “Currently, Texans should expect, on average, approximately five outages every ten years, or a 0.5 Loss of Load Expectation (LoLE). Reliability is forecasted to further deteriorate by 2030 if no further policy measures are taken.” The three approaches the PUCT is currently considering are:
- “Load Serving Entity Obligation (LSEO)”. According to ICF, “The LSEO seeks to address future resource adequacy challenges by obligating all ERCOT load-serving entities (LSEs such as competitive retail electric providers and municipal and electric cooperatives) to acquire enough firm future resources to cover their share of future demand levels, or pay a penalty for the failure to acquire sufficient forward capacity. The LSEO is comparable to Resource Adequacy (RA) constructs in markets such as MISO, SPP, and CAISO. It would assign credit to generators based on expected availability during forecasted peak demand periods. The LSEO proposes to use a 3-year-forward forecast period.”
- “Backstop Reliability Service (BRS).” BRS is designed “to prevent units that would otherwise retire from actually going offline, by paying each unit’s going-forward fixed and operational costs to enable them to remain available and functional in case of emergency. Every unit that goes into the BRS program is assumed to be allowed and expected to operate only under emergency conditions and is prevented from operating in the day-to-day ERCOT energy market.”
- Dispatchable Energy Credits (DECs). “The proposal would mandate that retail LSEs procure a specified amount of dispatchable energy credits (DECs) every year or pay a shortage price. DECs would be granted to each MWh produced by 2-hr batteries and highly efficient, quick-start thermal resources that produce according to specified fast-start, fast-ramp conditions. Administratively determined assignment of DEC purchase and retirement obligations would be indexed to each load-serving entity’s share of retail load.”
According to ICF’s calculations, “None of the current proposals, by themselves, would improve reliability enough to yield one outage every ten years (0.1 LoLE, a generally accepted industry standard) but the Backstop Reliability Service (BRS) shows the greatest reliability improvements, yielding less than two outages per decade by 2030 (0.17 LoLE).” Both the LSEO and DEC plans “result in between 4-5 outages per decade. However, the two programs have very different costs.” The LSEO would cost consumers “$8.5 billion in the year 2025 alone, and $22.5 billion from 2025-2030 in total.” The DEC plan “would cost consumers $1.3b total over the first three years (2023-2025), but then actually reduce the total costs to consumers by approximately $2b each year from 2027-2030.”
BRS “would cost $838 million in its highest year (2030) and a total of $2.6 billion from 2025- 2030, 90% less than the LSEO with far greater reliability benefits. We forecast BRS to preserve 8.0 GW of capacity that would otherwise retire by 2030” under current procedures.
The ICF report prompted the TCA to blast all three approaches to increasing winter reliability and prevent blackouts. “Our study shows that state leaders need to hit the brakes on this proposal. Texas should not take on the higher energy prices that come with California’s model,” said Texas Consumer Association president Sandie Haverlah. “Just looking at other alternatives on the table, there are better ways to protect Texans from blackouts and to strengthen the state’s power grid.”
ERCOT responded to the consumer complaints, saying “The reliability of the Texas electric grid is our number one priority. ERCOT has worked closely with the Public Utility Commission and elected officials and has implemented many reforms to increase the reliability of the Texas grid. ERCOT has made technical and structural changes to grid operations as part of our Roadmap to Improving Grid Reliability (ercot.com), which includes bringing more generation online sooner if it is needed to balance supply and demand, and purchasing more reserve power, especially on days when the weather forecast is uncertain. ERCOT has improved its process for communicating throughout the entire industry and is working closely with other government agencies to improve communication during extreme weather events.”