Texas power market stakeholders differ on future after Feb 2021 crisis reforms

Three years after a deadly winter storm resulted in more than 4 million power customers in the Electric Reliability Council of Texas footprint losing power, some for days, market participants remain divided about how the market's current and planned changes might enhance reliability and market outcomes.

"It was a paradigm shift in thinking for my fellow legislators about what we as a representative body should be doing," said state Senator Charles Schwertner, a Republican from Austin who chairs the Senate Business & Commerce Committee, who served as keynote speaker during Infocast's ERCOT Market Summit at the Austin Marriott Downtown.

Before that mid-February 2021 storm, the regulation of Texas power and gas markets were largely separate and uncoordinated, despite the markets crucial interdependency, Schwertner said..

"What materialized was a set of actions that reformed coordination and oversight and formalized various bodies," Schwertner said.

Among the reforms:

• Setting weatherization standards for generation-related facilities, with significant penalties for noncompliance
• Mandating a much-expanded map of power-related critical infrastructure
• Establishing of a public alert system for the risk of power outage
• Expanding the Public Utility Commission of Texas and reforming the ERCOT Board of Directors
• Passing legislation to create a $7.2 billion Texas Energy Fund to provide low-interest financing to develop as much as 10 GW of dispatchable capacity
• Facilitating the development of the PUC's favored Performance Credit Mechanism to reward generation that supplies power during high-risk periods, with an annual net cost cap of $1 billion
• Directing the creation of a new Dispatchable Reliability Reserve Service

Asked about the possibility of encouraging more transmission links to adjacent grids, Schwertner said Texas lawmakers do not want to encourage federal regulation of the Texas power market. The massive changes enacted in the wake of the mid-February winter storm could not have passed with "Mother Federal Government telling us what to do."

'Reliability costs'

"Definitely, reliability costs," Schwertner said, adding that the thermal investments encouraged by the Texas Legislature provide "long-term benefits" to balance the generation fleet as federal tax incentives continue to drive growth of intermittent renewable resources.

Describing how the ERCOT grid performed during the January 2024 storm, various speakers noted that dispatchable generation -- mainly natural gas, coal and nuclear -- provided about 95% of the power at the most critical periods.

During a panel discussion about the PCM, Arne Olson, senior partner at Energy and Environmental Economics, which evaluated the proposal for the PUC, said his group estimated it would cost about $5.7 billion a year, but would provide about $5 billion a year in benefits by reducing energy costs.

However, Resmi Surendran, Shell Energy North America vice president for regulatory policy, said the PCM's net cost has generated "a lot of debate."

"You can tweak the input assumptions in the study to get any result you want," Surendran said. "You can make the cost of PCM significantly large or significantly short."

For example, limiting weather conditions to the past 15 years, which have featured extremes of heat and cold, would result in a high cost estimate, while expanding that time band to 42 years would result in a lower estimate.

Olson countered, "You can't legitimately make the models say anything you want" by altering assumptions.

To account for different assumptions, an evaluation must include modeling sensitivities for extreme conditions.

PCM proposal to change

Bob Helton, Austin-based vice president for regulatory and legislative affairs at Engie, and member of ERCOT's Technical Advisory Committee, said "a lot more analysis" of the ultimate PCM proposal will be necessary after stakeholders develop its final rules

"The PCM in the E3 study that was done and what the PCM is when we get done with it are going to be a lot different," Helton said.

Brandt Vermillion, ERCOT market lead at Modo Energy, a company that provides forecasts and data for new energy assets, said the E3 study assumes large amounts of coal and gas generation capacity retire, but that may not occur, especially as the grid requires more capacity to cope with weather extremes.

Texans will not know how effective the reforms since February 2021 are "until it happens again," Vermillion said.

The grid has much more battery storage, for example, he said – about 3.5 GW today versus less than 500 MW a few years ago.

"It's probably going to about double in the next couple of years," Vermillion said. "That would have been a big contributor to avoiding the extreme loss of load [in 2021], at least to reduce the magnitude and duration of it."