The Public Utility Commission of Texas, which regulates Texas' electricity markets, voted to increase wholesale electricity prices at its open meeting on Aug. 3. The PUC's action is designed to increase revenue received by electricity generators by about $500 million a year in an effort to increase grid reliability.
The increase is the latest in a long line of market interventions by regulators to increase revenue for generators. The mechanism used to implement the increase, known as the Operational Reserve Demand Curve (ORDC), was first implemented in 2014 when it increased electricity prices by $88 million, according to a letter dated July 31 from Kenan Ogelman, ERCOT Vice President of Commercial Operations.
Efforts by Texas regulators and policymakers have increased greatly as a result of the statewide blackout during Winter Storm Uri in 2021. During the storm, the PUC overrode market protocols and pricing to increase prices by $16 billion over just a week, KERA News reports.
The manipulation of markets prices has met with opposition. Early this year, the Austin-based Third Court of Appeals ruled the PUC's effort during Uri to be illegal, according to The Texas Tribune. The decision was in response to a lawsuit filed by Luminant, a Texas-based electric generator, that lost $1.6 billion because of the PUC's actions and the higher cost of natural gas.
While the price increase was unanimously supported by the PUC's four commissioners, Commissioner Lori Cobos expressed concern. “We need to keep tabs on whether or not this ORDC price floor, adder, measure is actually working,” she said during the open meeting. “We have to have accountability measures to ensure that we are being good stewards of ratepayer money, but also ensuring that we are accomplishing what we set out to do.”
In a memo prior to the commission's meeting, Commissioner Will McAdams pointed to renewable energy as one of the causes behind the reliability problems the Texas market is facing. "The vast majority of new generation interconnections within the ERCOT system are renewable resources, which produce power on an intermittent and variable basis," he said. "As renewable resources have increased, the grid operator has needed to procure greater quantities of ancillary services in proportion to the level of renewable penetration to cope with the ever-larger variability in power production."
The ORDC has increased wholesale electricity prices by billions of dollars since it was first implemented in 2014. The cumulative price increase of the ORDC through last year was $12 billion. In 2021, it raised prices by $3.2 billion. Last year, the increase was $2.7 billion.
The PUC's change to the ORDC is not the only effort this year to increase subsidies to Texas' electric generators. When they go to the polls in November for Texas' constitutional amendment election, Texans will have to decide if they want to create the Texas Energy Loan Program, according to Ballotpedia. The Texas Legislature chose to include Texans in creating the program rather than doing it themselves. If Texans approve the amendment, the program will be funded with $5 billion from Texas' general revenue fund.
Bill Peacock, the policy director for the Energy Alliance, which promotes energy markets, is concerned that the changes to the ORDC and the proposed loan program will not work. "These changes will disrupt the market by making electricity more expensive for Texans. What they won't do, however, is reduce the amount of renewable energy on the grid, which is the only way to ensure increased reliability," Peacock told Austin Journal.