AUSTIN — A report by consultancy Energy and Environmental Economics recommends Texas emulate the power grid structure of New England, New York and the Mid-Atlantic.
The members of the Public Utility Commission lean towards another approach.
The report, released Thursday, analyzes six specific market reshaping options. Of these, E3 recommended the state select a downstream reliability market, which is now used by other networks across the country, and is best suited to provide the reliability Texas seeks, according to The report.
Even so, PUCT members instead favor a potential performance credit mechanism market.
Texas began exploring the idea of changing the design of its electric market after the Uri winter storm. In 2021, the state experienced a near complete collapse of its power grid after the severe winter storm blanketed much of the state in snow and ice. The weather forced operators to institute blackouts, leaving millions of Texans without power and subsequently without water for days amid freezing temperatures resulting in the deaths of hundreds of Texans.
Since then, the PUCT, a five-member board appointed by Governor Greg Abbott, has launched a market overhaul with reliability at the forefront. PUCT oversees the Electric Reliability Council of Texas, which manages the state’s independent grid, including the flow of electricity to more than 26 million Texas customers, representing approximately 90% of the state’s electrical load. .
The PUCT adopted a plan for a two-phase market overhaul last winter. The first phase focused on improving current market reliability practices. The PUCT quickly enacted rule changes, including actions that strengthen coordination between the electricity and gas industries in the event of an emergency and that require power plant operators and transmission companies to implement new winter weather standards.
The second phase is to focus on a broader reconstruction with specific actions to be identified.
The PUCT hired E3 to assess market redesign options and make a recommendation, but board members said they preferred a different approach than the one proposed.
DIFFERENT MARKET OPTIONS
E3 recommended that Texas opt for a downstream reliability market, similar to the New York Independent System Operator, New England Independent System Operators, and Pennsylvania-New Jersey-Maryland Interconnector.
It requires ERCOT to conduct forward-looking assessments to identify system needs during the net peak period and assigns reliability credits to resources. ERCOT would also organize a centralized auction for reliability credits to procure what is needed during the period.
After the operating period, energy producers are evaluated and penalized if they do not reach the accredited level.
E3 said it chose this model because it is “best suited to the competitive Texas retail and wholesale markets.”
PUCT President Peter Lake said he is currently very supportive of the performance credit mechanism model.
In this model, ERCOT establishes an obligation for operators to purchase earned “performance credits” based on their availability to the system during the most risky hours at a centrally determined clearing price. The credit requirement is a fixed quantity that is determined in advance.
Credits are then awarded to generators after the compliance period closes based on feedback on their availability over a predetermined number of hours of highest reliability risk, according to the report.
Lake said he was in favor of the PCM concept because it would move the financial and operational risk of production out of the ERCOT control room and “into the private companies that make money by assessing and managing risk.” This, he said, is “in its place”.
“At the most fundamental level, the PCM requires in my mind that anyone who sells electricity to a household or business to ERCOT guarantees that they are buying that electricity from a reliable source,” Lake said. “For the first time ever, companies that sell you electricity that you send your money to each month when you pay your electricity bill will now be required to ensure they can supply that electricity.”
However, the PCM is not currently used anywhere in the world, so the state would have to start from scratch to create it.
Commissioner Will McAdams said he thinks this is why Texas should move forward with the PCM model, because it allows the state to create a “one-size-fits-all solution based on the needs (of the Texas)”.
“It has a requirement that loads buy enough power to meet our needs plus reserves, but don’t eventually. This allows loads to make their business decisions based on the best available information possible during the operating day,” McAdams said. “It addresses daytime operating conditions that constitute high-risk hours.”
The PUCT did not make a final decision on which method to select.
The report is available to the public and market participants for comment until noon on December 15. After that, the committee and PUCT staff will consider providing information before making a decision.
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