88th LegislatureEnergyStatewide NewsDispatchable Power Floor, Reliability Fees Among Senate’s Priority ERCOT Reform Slate

“We do not want to go the way of other states that have overbuilt renewables to their detriment,” Patrick told reporters in a Thursday press conference. Patrick said the package will ensure the development of at least 10,000 megawatts in new dispatchable generation. The slate requires that half of that amount comes online by the end of 2026.

This session is round two of the Texas Legislature’s response to the calamity of the 2021 blackouts caused by a massive winter storm and the inability to provide enough electricity for the spiking demand.

Whereas last session focused more on physical reforms such as the weatherization mandate, this session’s focus centers on reform to the Electric Reliability Council of Texas’ (ERCOT) wholesale market — the mechanism by which electricity is sold by generators to retailers who then sell it to consumers.

There are loads of renewable generation projects flowing into Texas, which officials say is making the state’s main power grid increasingly unreliable at times of critical need — chiefly when wind performs poorly during the afternoon summer heat. Since last session, ERCOT has set and surpassed 11 demand records without the need for emergency measures during either heat spells and cold snaps. It’s done this through the weatherization improvements as well as the additional 15 percent capacity brought online from “peaker plants” that normally don’t operate during those times of the year.

The problem is, it costs money — lots of it. State officials view the long-term viability of the ERCOT market as dependent on getting more dispatchable generation, specifically thermal sources, online in a financial environment that drastically favors renewable generators. That requires a tweak of the electricity marketplace.

The Public Utility Commission (PUC) has identified the Performance Credit Mechanism (PCM) — which Gov. Greg Abbott has backed — a financial reward for generators who show up during times of high grid stress. But some legislators have expressed skepticism. Sen. Nathan Johnson (D-Dallas), a member of the Business and Commerce Committee, said at The Texan’s 88th Legislative Session Kickoff that “we’re not sure that any of these is the right plan, particularly the PCM.”

In short, some are skeptical that the PCM provides enough financial momentum to jumpstart the lacking thermal generation investment.

The Legislature will now take a crack at providing direction to the PUC on ERCOT market reform, and the Senate’s blueprint to accomplish that was unveiled Thursday. The nine-bill slate includes:

• Senate Bill (SB) 6 – creates the Texas Energy Insurance Program and other mechanisms to provide low-cost loans to dispatchable generation developers
• SB 7 – establishes a firming or reliability requirement for renewable generators
• SB 1287 – caps transmission costs shouldered by the public for generation projects
• SB 2010 – instates market manipulation reporting requirements for grid regulators
• SB 2011 – raises the administrative penalty for operational violations from $25,000 to $1 million
• SB 2012 –  greenlights the Performance Credit Mechanism with certain guardrails and adjustments
• SB 2013 – hardens power grid infrastructure against cyber and foreign attacks
• SB 2014 – eliminates state subsidy credits to renewable energy companies
• SB 2015 – requires at least half of all new generation added to the ERCOT grid to be dispatchable power from 2024 onward

Sen. Charles Schwertner (R-Georgetown), chair of the Business and Commerce committee and primary author of each bill, said that the Texas Energy Insurance Program would allow thermal generation developers to access 1 percent interest loans from the state, whereas the open market only offers 6 or 7 percent interest rate loans in the current climate.

It is similar in structure to the State Water Implementation Fund for Texas which offers low-rate loans for water supply projects the state finds in its interest.

Unlike the quite new PCM, the firming or reliability requirement was floated during the last session but hadn’t really gotten traction. SB 7 allocates the costs associated with ancillary services, a set of break-in-case-of-emergency peaker plants, to generation groupings based on their performance during the 100 tightest hours of a year. These extra peaker plants operating more than they otherwise would are a large reason both that the state has avoided any emergency conditions and that utility bills are increasing substantially.

It breaks down the cost allocation by category: dispatchable; non-dispatchable, that is, renewable; and load serving entities, that is, utility companies.

Based on those categories and their respective performance during tight conditions, fees would be issued commensurate with their contribution to the need for backup generation in the first place.

This reform was among those within Gov. Greg Abbott’s July 2021 letter to the PUC, which the agency has not since adopted.

The idea of a firming requirement is that renewable companies will “firm” their supply with on-site backup generation such as gas supply to ensure they generate electricity at their committed times even when the wind wanes or sun dulls — and if they don’t, the cost after the fact will not fall to the entire market or customers.

Whereas some of these bills are carrots, Rep. Phil King’s (R-Weatherford) SB 1287 is intended as a stick to generators to make them locate their facilities closer to the populations they serve. King is the Business and Commerce vice chair in his first session as a senator. 

Transmission costs are part of every utility bill, and some have called for the state to more heavily subsidize power line construction to get power from where it’s generated to where it’s used. This is especially an issue for the West Texas renewable generators that are located where the wind best blows and sun best shines — and where the available land is — but not in close proximity to most of their eventual customers.

SB 1287 directs the PUC to set a ceiling on the amount of interconnection costs that can be pushed onto consumers.

SB 2010 and SB 2011 are two sides of the same coin, intended to root out potential bad actors in the market by empowering the PUC administratively.

Instating the PCM, SB 2012 establishes certain guidelines — specifically that only dispatchable generators may receive the credits and that the program does not exceed $500 million in net cost.

It also prohibits any Retail Electric Provider, grouping parent company and subsidiary together, from servicing more than 20 percent of the customers within ERCOT.

SB 2013, intended to safeguard the grid against certain threats, forbids grid-related businesses or infrastructure from being owned by individuals or entities from China, Iran, North Korea, or Russia. A similar bill by Sen. Bob Hall (R-Edgewood) would establish a commission to protect the grid against more physical threats; 23 other senators have signed on to his legislation.

The final two bills in this priority slate focus on renewable generators. The first eliminates state renewable energy credits associated with the state’s Renewable Portfolio Requirement, a goal of reaching 10,000 MW of renewable power by 2025 — which the state has far surpassed. 

“That subsidy may have been necessary and a good idea back in 2001 when the renewable market was really immature but now the renewable market is really mature,” King said. “So there’s no reason that Texas electricity customers should be paying a state subsidy to renewable energy.”

The second stipulates that at least half of all generation from 2024 onward is required to be dispatchable power. Rep. Jared Patterson (R-Frisco) has filed in the lower chamber an outright prohibition on the addition of renewable power after 2030.

Patrick again called the addition of dispatchable generation to the ERCOT grid “the most important” issue this session — setting a special session guidepost should he deem it not sufficiently accomplished before sine die.

Given the complexity and long-term nature of financial incentives — which the ERCOT market is built on — Schwertner told The Texan it will take years for the full effects of these reforms to be felt. But both he and Patrick said that if all the bills pass, “new steel in the ground” can be expected in the next two to three years, beginning the snowball-like overhaul of the ERCOT market legislators believe will make the power grid more resilient.