88th LegislatureEnergyTexas Legislature Wants Its Say on ERCOT Market Redesign

After handing the task of redesign off to the Public Utility Commission in 2021, legislators now pine for a say in the decision to tweak the ERCOT market.
December 7, 2022
When it reconvenes next year, the Texas Legislature will have a familiar issue on its plate: the power grid, specifically its market design.

That task was originally handed off entirely to the Public Utility Commission (PUC). But now, legislators are keen on applying their own input before the agency moves forward.

After the collapse of the Electric Reliability Council of Texas (ERCOT) power grid in February 2021, legislators sat through marathon committee hearings. Power grid reform became the focal point of a session previously marked by a global pandemic and the public health reactions and economic turmoil that came with it.

The Texas Legislature passed a broad piece of legislation in response that focused heavily on ensuring the state’s generators and natural gas infrastructure were physically ready for a future winter storm. But it also punted on the structure of the ERCOT market — the exchange on which electricity supply is bought and sold in real-time, dubbed an “energy-only” market — instead leaving review of that task with the PUC.

Since then, the PUC has extensively considered options for tweaking the market to make it more viable long-term. The reason for its vulnerability, according to PUC Chair Peter Lake in a House committee hearing this week, is that the grid is increasingly reliant on wind and solar power that in turn depends on the wind blowing and sun shining.

The Texan Tumbler

The trend has been long developing; about one-third of the state’s installed capacity is now wind generation, while solar’s total capacity will grow to over a quarter in the coming years.

Subsidies, tax credits, and other federal incentives — but not just federal — make installing renewable generation substantially cheaper than thermal generation whether it’s natural gas, coal, or nuclear. The single biggest contributor is the federal Production Tax Credit, which originally just paid wind generators a credit per kilowatt-hour of production. But the Inflation Reduction Act passed last summer extended that credit for 10 years and expanded its application to solar generators.

That is something entirely out of the state’s control but which is impacting greatly its main power grid market.

A higher proportion of renewable generation in the portfolio presents a clear risk: when the wind slows and the sun dulls, that variable amount of generation can evaporate.

This — along with thermal plants succumbing to cold weather issues and the grid operator itself shutting off the very means of producing electricity-generating natural gas from power — caused the dire scenario experienced in February 2021.

Since then, Texas has experienced tight conditions a handful of times but never went beyond a conservation request. The state has been operating with more caution than before the blackouts; backup generation is brought online sooner and more frequently than previously, an operational tweak that has worked but comes at a financial cost.

While the physical reforms are almost uniformly in place and seem to be working, at least so far, the generation discrepancy still looms ahead.

The PUC’s consultant report provided its recommendation for market reform last month. Specifically, they recommended a back-end reliability credit — a financial reward paid to generators a few times per year for generating power at times of high grid stress. That proposal is a kind of mirrored opposite of Gov. Greg Abbott’s command in the summer of 2021 to stick renewable generators with costs the state or industry incurs when wind or solar doesn’t produce.

Last week, Lt. Governor Dan Patrick named incentivizing the development of dispatchable generation among his highest two priorities for the next session.

On December 1, a day after Patrick’s press conference, Senate Business & Commerce Committee Chairman Charles Schwertner (R-Georgetown) and eight other senators circulated a letter calling the recommendation inadequate and demanding that the Legislature get its say.

Schwertner asked the PUC to define terms and goals of reliability, but added, “[A]ny other holistic market design change, including the [Performance Credit Mechanism], that goes beyond the scope of Senate Bill 3 should not be adopted by the PUC without further consultation with the Legislature.”

In a House committee hearing, Lake was grilled by legislators about the market reform and assured the members that “[the PUC] will not move on market redesign without receiving input from the Legislature.”

Given the complexity of the topic, it is unlikely that a final directive by the Legislature is completed early on in the session; it’s even possible a special session will be needed. That pushes a potential redesign back for at least six months for a process that will take years to see effect if it does at all. Lake had previously committed to unveiling the final redesign before the end of 2022, but that was well before the Legislature put the screws on the agency.

A return of the power grid discussion means another sizable chunk of legislative oxygen is gulped up, just as in 2021. But the issue holds profound importance for the future of Texas’ foremost power grid — in its fuel mix, financial viability, and cost to consumers.

Correction: This article misstated the name of the federal legislation that extended and expanded the Production Tax Credit. We regret the error.


Disclosure: Unlike almost every other media outlet, The Texan is not beholden to any special interests, does not apply for any type of state or federal funding, and relies exclusively on its readers for financial support. If you’d like to become one of the people we’re financially accountable to, click here to subscribe.

Get “KB's Hot Take”

A free bi-weekly commentary on current events by Konni Burton.

Brad Johnson

Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.