The Public Utility Commission of Texas is considering a pair of proposals to create a new power market for the state in the wake of the storm in February 2021 that caused blackouts and was blamed for more than 200 deaths and left millions in the dark.
Two companies submitted proposals: Potomac Economics and Energy and Environmental Economics Inc. (E3) of San Francisco.
The PUC then agreed to a $364,000 contract with E3 to conduct a review of the proposals, including its own, that were submitted to redesign the Texas energy market.
“Can you spell conflict of interest?” Alison Silverstein, an Austin-based energy consultant, said to the Houston Chronicle. Silverstein worked for the PUC from 1995 to 2001 and with the Federal Energy Regulatory Commission from 2001-04.
“Just on the surface, apart from evaluating their own project, you’re not supposed to have the appearance of bias if not the reality of possible bias,” Silverstein said. “Most of us citizens think if you take money from someone like a generator, you are likely to favor that party’s point of view.”
A Texas energy analyst also is questioning why the PUC is conducting its business this way. Brent Bennett, who holds a Ph.D., is policy director of the Texas Public Policy Foundation’s Life:Powered.
“Unfortunately, the PUCs efforts to redesign the ERCOT [Electric Reliability Council of Texas] market have resulted in a hiring a California consulting firm to bring California market design ideas to Texas,” Bennett told Austin Journal.
“The PUC’s main proposal, called a load-serving entity obligation, would require an entity selling electricity to end users to purchase that electricity in the wholesale market years in advance and make consumers bear the full cost of ensuring reliability in the Texas market,” Bennett said. “This market mechanism will be prohibitively expensive and is already failing to ensure reliability where it is being applied, primarily in California and Australia. There is no guarantee that a revamped version of it would work for Texas.”
Bennett said E3’s previous work shows a heavy bias in favor of wind and solar development and against what he considers more reliable energy sources, but it was also hired by NRG Energy to bring this current proposal forward.
“Therefore, E3 already brings a heavy bias in favor of their idea and against cost allocation to wind and solar generators, which is what is sorely needed to fix the ERCOT market,” Bennett said.
“What’s needed in the ERCOT market is to ensure that wind and solar generators pay for the reliability deficit that they are imposing on the grid through their high variability, in particular, to purchase backup power for when they are not operating,” Bennett said. “More than $60 billion has been invested in new wind and solar development in Texas, while natural gas and coal generation have been in decline.”
In his view, this is the fundamental cause of the reliability problems facing the Texas grid.
“The PUC wants to solve this problem by creating ways to subsidize more natural gas generation and inject more money into the market, but it won’t work as long as wind and solar are allowed to build without any discipline and erode the overall reliability of the market,” Bennett said. “We don’t need more money to be invested. We simply need to redirect the existing money in the market toward investments in reliability and resiliency instead of putting all of it into new wind and solar. The E3 proposal, unless dramatically restructured from its current form, would not accomplish that goal.”
STEC submitted a proposal to the PUC “in an effort to continue to work toward resolution of the reliability problems in the Electric Reliability Council of Texas.”
The comments submitted ask the PUC to modify the RFP to allow other proposals, including STEC's, to be reviewed, with one goal being the consideration of cost allocation to wind and solar sources.
The Texas Public Policy Foundation submitted comments to the PUC lending its support for the proposal put forth by STEC. The foundation focuses specifically on cost allocation being the most important inclusion in STEC's proposal, noting that none of the current proposals address the issue.
The foundation also notes that subsidized variable energy generation has upended the traditional ERCOT method of assigning costs to loads due to a lack of reliability requirements. The organization argues that STEC's proposal suggests a good solution by spreading the costs, and therefore the incentives, across all market participants.
The foundation went on to state that it is not endorsing a certain reliability standard at this time, though it believes it to be essential that “the PUC define a quantifiable and transparent standard.”
The section went on to implore the PUC to “include in its RFP [request for proposal] studying the impacts of standards that define fixed frequencies and durations of outages.”
The Austin Journal reported on a letter sent from Texas Gov. Greg Abbott to the PUC in summer 2021 in which he instructed the PUC to streamline incentives within ERCOT to support the development and maintenance of proven sources of power, including natural gas, coal and nuclear power.
Abbott also requested directives to allocate reliability costs to energy producers that cannot guarantee availability, such as wind or solar power.
Bennett said that needs to be a crucial piece of any agreement.
“A key element of the STEC proposal is a mechanism to make wind and solar pay for some backup power, which is not present in the existing PUC proposals,” Bennett said. “The PUC had an opportunity to make the STEC proposal part of their existing study or to commission a new study, and the Senate Business and Commerce Committee requested that they do so. Certainly, there are limited resources and expertise available to study all ideas, and time is of the essence. However, the fact that no element of allocating reliability costs to wind and solar is in the current study means that the current effort is destined to come up short.”
Bennett said the PUC chairman and PUC staff should ensure that E3 study cost allocation to wind and solar as part of the existing study.
“Texans deserve a fair comparison of as many options as possible, especially a market reform that the Texas Senate, the governor and the entire conservative movement has been requesting for more than a year,” Bennett said. “Given the continued federal subsidies for wind and solar that will distort our market for years to come, this is an essential reform if Texans are going to continue to have affordable and reliable electricity.”