A new energy market mechanism being considered by Texas lawmakers could cost consumers up to $5.7 billion annually while failing to add significant reliability to the state’s electric grid, a broad coalition of stakeholders warned Monday.
The Public Utility Commission of Texas in January endorsed a new Performance Credit Mechanism as part of an overhaul of the state’s energy market, designed to ensure more generators are available at times of grid stress. The PCM must be authorized by state legislators and stakeholders have raised concerns over the novel design option, how long it would take to stand up and its potential cost.
The redesign of the Electric Reliability Council of Texas energy market “will be among the most consequential decisions the Legislature will make,” Tony Bennett, president and CEO of the Texas Association of Manufacturers, said in a statement.
TAM, along with the Texas Oil & Gas Association, Texas Chemical Council and Texas Industrial Energy Consumers, hired the economic consulting firm Bates White to evaluate the proposed PCM. Its analysis concluded “there is no current or imminent capacity shortage in ERCOT,” and that the grid operator’s “immediate reliability challenge is to ensure operational flexibility to accommodate expected large additions of intermittent renewable generation.”
Bates White also concluded that implementing a new ancillary reliability service known as a Dispatchable Reliability Reserve Service would “provide a targeted procurement of dispatchable resources specifically suited to addressing intermittent resource forecast uncertainty.”
The Dispatchable Reliability Reserve Service would provide annual revenue of approximately $1.7 billion directed toward dispatchable resources, Bates White estimated, at an annual cost of about $923 million. The difference, according to the analysis, is because ERCOT would save money now being spent to procure reserves using pricey Reliability Unit Commitments.
“We wanted an expert review of the leading options on the table to ensure that any redesign will be consumer-focused, actually enhance reliability and maintain competitive cost structures,” Bennett said.
Texas regulators have tackled a variety of energy market reforms in the wake of Winter Storm Uri in 2021, which resulted in widespread blackouts and led to the death of almost 250 people in the state. Regulators spent 2022 considering market enhancements before beginning to consider the PCM in November.
The PCM “would entail billions in costs for customers without a meaningful improvement in reliability,” according to the Bates White analysis.
The PCM model has support from Texas Gov. Greg Abbott, R, who says generators have committed to building thousands of new megawatts of dispatchable generation if the PCM is adopted and implemented.
“Our focus is on dispatchable power, to make sure that we will have the needed dispatchable power to provide reliable electricity to everyone in the state,” Abbott said in a Wednesday press conference, according to a local CBS affiliate.