September 29, 2022


Skillful Business Crafters

‘Unacceptable:’ Texas market reforms will not be quick, electric grid operator tells dissatisfied regulators

Table of Contents

Dive Brief:

  • Major reforms to wholesale power markets will take longer to implement than the Public Utilities Commission of Texas (PUCT) anticipated, setting off concerns among regulators.
  • The PUCT issued an implementation “blueprint” for wholesale market changes on Jan. 13 at the direction of state lawmakers and the governor, following last winter’s cold snap and widespread blackouts. Electric Reliability Council of Texas (ERCOT) officials say they do not have sufficient staff to implement new reliability products by next winter, and stakeholders say they are concerned at the lack of detail in the PUCT’s blueprint.
  • Observers say a lack of coordination between regulators and ERCOT grid officials have put customers at risk. “We have expectations that these products be put in the market as soon as possible,” PUCT Commissioner Lori Cobos said at Thursday’s open meeting. “Two years is too long. It’s unacceptable.”

Dive Insight:

The PUCT approved a suite of “improvements” for the wholesale electricity market in December. The PUCT’s blueprint for wholesale market changes is two-pages long, dated Jan. 13, and requires some changes to be finalized by Jan. 1, 2022. 

“I’m pretty sure this isn’t the way it’s supposed to be done,” Doug Lewin, an energy analyst and president of Stoic Energy, said in an email. “I am not saying this in any official capacity,” he added.

“It’s more than a little bizarre,” he said of the time-stamped order requiring changes be made almost two weeks prior. “This pricing change impacts everybody in ERCOT and there was no notice in the Texas Register, ability to ask for a hearing, etc.,” Lewin said. “The apparent disregard for the Administrative Procedures Act is troubling, to say the least.”

“To describe it as a ‘market blueprint’ is rather generous,” Michael Hogan, senior advisor at the Regulatory Assistance Project, said in an email. “A better description would be a market miasma.”

Some changes are already in place for this winter. In December, the PUCT approved adjustments to ERCOT’s scarcity pricing mechanism, lowering the high systemwide offer cap to $5,000/MWh from $9,000/MWh. This change is part of modifications to ERCOT’s Operating Reserve Demand Curve, which helps to set scarcity prices and which regulators wanted complete by Jan. 1, 2022.

Power plants and transmission facilities have also been weatherized. The state is working to avoid a repeat of February blackouts, which knocked out power to millions of customers and left some consumers facing bloated energy bills.

Other changes, however, will take significantly longer. The commission had wanted to have a firm fuel and backstop reliability service in place before next winter but have not sufficiently defined those products, according to Allison Silverstein, an independent consultant working with the American Council for an Energy-Efficient Economy.

“So on the whole, it looks like much of this work could not come to fruition until 2023 or 2024, at the earliest, unless there is a major expansion of ERCOT funding and contracting to implement some of these changes,” Silverstein said.

ERCOT, in a Jan. 10 memo to the PUCT, warned of this bottleneck and said that it “must stay focused” for the next 18 months on delivery of an ERCOT Contingency Reserve Service (ECRS), due to how it will interact with other products.

“If the ECRS project cannot be delivered prior to the EMS [Energy Management System] upgrade, ECRS will have to wait until after the new EMS system is stabilized,” ERCOT Vice President of Commercial Operations Kenan Ögelman wrote in the memo. The grid operator also said it may be able to deliver additional upgrades to ancillary services products such as the Firm Fuel Product or Backstop Reserve.

“However, due to the relative size and complexities of these efforts, ERCOT cannot deliver three major projects simultaneously in next 18 months,” Ögelman warned.

“I know ERCOT has resource constraints. Those need to be evaluated by the leadership at ERCOT and the [ERCOT] board,” Cobos said.

ERCOT officials are meeting this week and today the board is scheduled to discuss the grid operator’s project portfolio. That discussion is key to advancing market reforms, according to PUCT Chairman Peter Lake.

“That’s the most important next step, and by our next commission meeting we’ll have the pieces in place — will continue to put the pieces in place — and continue to move implementation forward,” Lake said at Thursday’s open meeting.