State regulators have approved a controversial reform of the Texas electricity market

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The Public Utilities Commission voted Thursday to fundamentally change the state’s electricity market in a controversial effort to make the entire system more reliable. The agency said it would allow the legislature to review its plan before moving forward with putting it into effect.

The idea, known as the Performance Credit Mechanism, is the first proposal of its kind. They are supposed to help produce enough power when extreme heat or cold causes demand to increase and electricity production decreases for various reasons – such as a lack of sun or wind to produce renewable energy or equipment failure in gas or coal-fired power plants.

Under the new concept, which still has many details to work out, companies like NRG Energy will commit to being available to produce more power during those challenging times. The companies will sell loans to electricity retailers such as Gexa Energy, municipal utilities, and cooperatives that sell energy to homes and businesses.

The credits are designed to give power generators an additional income stream and make it worthwhile to build new power plants.

In theory, credits help retailers and customers by cushioning volatile price hikes when demand is high — but there is broad disagreement about whether this will happen in practice. some electricity providers Filed bankruptcy After the winter storm of 2021 because they had to pay a lot for power.

Critics of the plan say the idea is risky because it has not been properly analyzed nor tested elsewhere. Members of the Senate Business and Commerce Committee wrote to the PUC in December that they had a “grave concern” about whether the proposal would succeed.

After the PUC vote, state senator Charles SchwertnerR-Georgetown, shared a message on Twitter that called the decision a “fundamental departure from the legislative intent” of a bill passed by lawmakers in 2021 that requires overhauling the network.

An advisor to PUC estimated that the credits could cost retailers $5.7 billion annually, a sum they said could be largely offset by an overall reduction in energy costs. However, experts argue that consumer bills will go up under the plan, though they disagree about how much the bills will go up.

This is a particular concern for groups like the Texas Association of Manufacturers, which includes industrial facilities that use a large amount of electricity and expect they will see larger bills.

But companies that generate power support the plan because they say the credits will give them reason to build new and needed power generation facilities to meet demand in a growing state. governor. Greg Abbott He also indicated his support for the idea.

PUC president Peter Lake, who was appointed by Abbott, pushed it forward on Thursday.

“I think we can not only defend the product itself, but … we can defend the process,” Lake said before calling the vote.

PUC commissioners have been working on how to improve the state’s electrical grid — which operates independently of other grids in the country — since shortly after a February 2021 storm left millions without power for days in freezing weather. When the network was about to collapse, hundreds of people died from hypothermia and other causes.

After the storm, the legislature directed the PUC to prepare the grid for severe weather and for times when solar and wind power production would be low. Solar and wind power are a large part of the electricity market in Texas; At one point on Thursday afternoon, the two contributed 27% of the electricity to the grid.

Changes have already been made: To incentivize plants to start producing more power earlier when demand versus supply seem tight, the PUC has asked grid operators to pull the trigger when they can raise the price of electricity — giving producers a financial incentive to meet that demand.

The agency also directed grid operators to reduce the maximum electricity price from $9,000 per MWh to $5,000 per MWh.

During the storm of 2021, gas-fired power plants had trouble staying online because they We couldn’t get enough natural gas When the gas generator equipment froze and production stopped. The PUC also required power generators to winterize its equipment to minimize downtime during extreme cold.

Commissioners spent Thursday moving line by line through a document outlining the proposal, including the intent to set a reliability standard for the state’s grid for the first time — for example, the grid could have a goal of producing enough power to meet demand for all but one day every 10 years.

Experts disagree about whether the performance credits will actually convince energy companies to build more natural gas plants, which are dirtier than wind and solar power but can be turned on at any time. Some say new factories will be built anyway. Others say companies can simply use the credits to make more money from their existing plants without building more.

Michelle Richmond, executive director of Texas Competitive Power Advocates, wrote in her comments to the committee that group members were “willing to bring in more than 4,500 [megawatts] of additional generation” of the country’s grid if the new system is adopted. That would be enough to power 900,000 homes. Members of the group include Calpine, Luminant and NRG.

She wrote that if the PUC did not change the market, there would be insufficient reason to invest in building new power generation facilities and to continue operating existing facilities.

The Sierra Club’s Lone Star chapter was among the groups asking the PUC to spend more time considering whether new credits are the best solution “before making fundamental changes in our market that would increase costs to consumers,” conservation director Cyrus Reed wrote.

An independent market watcher, Potomac Economics, which is paid by the PUC to monitor the market for manipulation and to look for potential improvements, does not support the idea. The group believes that enough patches have already been made to ensure the network is reliable.

Still others, such as Allison Silverstein, a former senior advisor at PUC and the Texas Public Power Association, which is made up of municipally-owned utilities, have warned that there is not enough reliable information and analysis about the appropriations proposed to achieve such a goal. important decision.

Silverstein wrote to the PUC that network reliability must be improved, but that “we cannot do it at any cost, nor can we do it by using poorly understood, poorly analyzed, or uncertain market mechanisms to address unclear definitions and objectives of the problem.”

Silverstein added, “If the commission makes a bad decision about … market reform because of haste, wrong identification of the problem, erratic analysis, or misleading justifications, all Texans will suffer the consequences for years through rising electricity costs, lower reliability, a slowing economy, and millions of Texans will suffer.” Low-income Texans are declining health and comfort while sacrificing to pay electric bills.”

The commissioners voted unanimously to approve it. Network operators said the plan would take at least two years to implement.

Disclosure: NRG Energy, Calpine, Texas Competitive Power Advocates (TCPA), and the Texas Public Power Association are financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization funded in part by donations from members, foundations, and corporate sponsors. Financial backers play no role in the Tribune press. find file List them here.