Dive Brief:

• Texas regulators are considering adopting a new market mechanism they say would help to ensure electric grid reliability by requiring utilities to purchase “performance credits” earned by generators based on their availability during hours of greatest risk to the system. The system aims to incentivize more generation to be available during times of high demand.
• The Public Utility Commission of Texas adopted a blueprint market design in December and hired consulting firm E3 in May to recommend options. The E3 study was released before the PUCT’s Thursday meeting and concludes a Performance Credit Mechanism, or PCM, will cost consumers about $460 million annually.
• The study did not model extreme weather such as Winter Storm Uri, which devastated the Texas grid in 2021 and led to almost 250 deaths. The commission has taken a “litany of actions” to address generator performance failures, including comprehensive weatherization standards, PUCT Commissioner Lori Cobos said at the open meeting.

Dive Insight:

Texas regulators say the PCM addresses rapid growth in the state, rather than solves “specific problems” encountered during Uri. 

“What we're solving for today, through phase two market redesign, is for long-term reliability in a state that has high economic and population growth and a large amount of intermittent renewable generation,” Cobos said.

The PCM would set a fixed quantity of credits awarded to generators, with the state’s grid operator, the Electric Reliability Corp. of Texas, acting as the central exchange of the credits. The credits would be awarded to generators after the close of a compliance period, based on a look back at their availability across a set of high reliability risk hours, according to E3’s description of the program. Utilities would have an obligation to purchase credits based on their share of system load during those hours.

“At the most fundamental level, the PCM requires ... anyone who sells power to a household or business in ERCOT to guarantee that they are buying that power from a reliable source,” Chair Peter Lake said. Utilizing a central clearing mechanism “provides transparency, minimizes self-dealing and requires accountability for all of our market participants, which at the end of the day protects consumers and ensures reliability.”

Texas lawmakers have been redesigning the state’s energy-only electricity market since Uri. Senate Bill 3 passed in 2021, required strengthening grid reliability through weatherization and market reforms. The PCM would “guarantee a pot of revenue for reliable resources to go compete for,” said Lake.

Those resources could include gas, coal, nuclear, batteries, hydrogen or anything with “an on switch,” said Lake. “We want that to be tech agnostic.”

The PCM is a “unique solution for our needs,” said Commissioner Will McAdams. It requires that loads purchase enough power to “satisfy our needs, plus reserves, but does not do so on a forward basis.”

“It allows both loads and generation to make their business decisions based on the best available information possible going into the operating day,” he said.

Texas has eschewed a forward capacity market for its electric markets, unlike other major grid operators. McAdams called the PCM a “hybrid of two models” that “adopts many of the best features” of capacity markets and an energy-only market.”

“It would allow us to cope with the extreme variability of power supplies and an energy portfolio that is only becoming more dominated by intermittent resources,” he said.

Comments on the proposal are due to the commission by noon Dec. 15.