Dive Brief:

• Texas' head utility regulator on Thursday said the Public Utility Commission of Texas (PUCT) intends to realign incentives related to how the state's power grid procures resources, following a cold snap in February that led to devastating outages across the region.

• "Historically, our market has focused on affordability first, reliability second," PUCT Chair Peter Lake told reporters during a press conference. "But now, reliability is first." Lake said the PUCT intends to pay for reliability "in any form," including through additional thermal resources or on-site battery storage. He also wants to see market reform incentivize generators that provide power during periods of grid stress.

• The chair said he did not yet know what form those goals would take in practice, but he added the PUCT is committed to working with stakeholders to come up with a sustainable new design.

Dive Insight:

The Electric Reliability Council of Texas (ERCOT) was forced to trigger days of rolling outages this winter that led to an estimated death toll of 700 people, according to a Buzzfeed News investigation, an outcome that has provoked calls from the state and federal level for the state to overhaul its grid operations.

ERCOT's model is currently unique in the U.S. Other U.S. grid operators have capacity markets that create incentives for additional power resources to stand by as needed. But ERCOT instead relies on a real-time power price metric, which assumes generators will be incentivized to provide power to the grid at times of high demand and low supply, when prices are likely to spike and power providers can make more money.

But during the cold snap that plagued the state this winter, the grid operator found it did not have nearly enough supply to meet demand. Nearly half the region's supply fell offline due to several issues largely related to weather during a time of high demand, forcing the grid operator to implement rolling outages to avoid an entire system shutdown.

Since then, the heads of ERCOT and the PUCT have resigned or been fired. Lake has taken helm of the PUCT, and Brad Jones is now interim president and CEO of ERCOT. During Thursday's press conference, the two detailed their commitment to market changes, including shifting incentives to ensure generators can be called online when needed.

"Our market needs to provide economic incentives for generators who commit to showing up at a certain time and actually show up," said Lake. Creating those incentives could mean a variety of changes in practice, he said, including changing how generators are paid for producing electricity, adding "new financial products" to reward reliability or just generally allocating costs differently.

Lake added that Texas customers should not expect their bills to rise as a result of these efforts — "we're just shifting the payments to the generators that provide the most reliable electricity in the most accountable manner possible."

In the short term, however, the state is expecting record-breaking demand, in line with anticipated heat waves throughout the month of August. ERCOT is predicting demand will reach around 74,000 MWh — the grid operator's current record demand is 74,820 MWh, according to Jones. So far this month, purchases of reserve margin power have increased 38% year over year, and by August ERCOT predicts a 56% increase.

Despite the grid nearing its record peak, ERCOT expects to have sufficient generation to handle the demand, according to Jones, though the grid operator will likely call for ratepayers to conserve power during particularly high demand periods.

"We are embarking on once-in-a-generation reforms, and that takes time. But the weather won't wait, so we need to be ready. We have more people in Texas than ever. That means higher demand for electricity than ever," said Lake.

Last month, ERCOT released a 60-point road map outlining how the grid operator plans to ensure the state's power grid is more reliable, following legislation that calls for tighter weatherization standards for power plants and makes changes to ERCOT's board structure. The governor has also called on the PUCT and ERCOT to take additional steps toward creating a more reliable grid.