DALLAS — Members of the Public Utility Commission of Texas on Thursday are expected to adopt a plan that will ultimately raise electricity rates for consumers in the belief that it will spur the building of new power plants.
The proposed plan would pay power companies that produce electricity to be available when there’s an electricity shortage on the grid. It’s called a “performance credit mechanism,” or PCM. Retail electric companies would buy those power credits and then would likely pass those costs on to consumers.
The plan would take about three years to implement. It’s projected to cost about $460 million annually, or about $2 a month on an $100 electricity bill.
State lawmakers ordered the PUC to devise the plan during the last legislative session that started days after 2021 winter storm nearly shut down the power grid in Texas.
“ERCOT currently relies on an energy-only mechanism that works unevenly because investment signals are only sent when there’s scarcity on the system,” ERCOT CEO Pablo Vegas told commissioners during a PUC meeting last week. “To break the cycle of scarcity and surplus, a different signal to steady investment is clearly needed.”
Vegas said the plan offers the best path away from the current market’s extreme pricing, scarcity and conservation notices.
“What we have in front of us is a market-based solution that thorough analysis says would deliver a 10 times improvement in reliability for less money than our customers would pay in the absence of action,” PUC Chairman Peter Lake told the state Senate’s Business and Commerce committee in November.
Backers of the plan hope it will encourage companies to build new natural gas-fueled power plants.
“Generators, they want to build here. They need regulatory certainty and a price signal to do that,” Tom Oney of the Association of Electric Companies of Texas told lawmakers in November.
Texas Gov. Greg Abbott has endorsed the plan.
But critics don’t think the plan will work.
“This doesn't guarantee new generation,” said Doug Lewin, an Austin-based energy expert. “What it does guarantee is a lot of extra revenues for the existing generators.”
Lewin believes the proposed plan solves the wrong problem, which is that not enough of the power grid’s capacity is available when it’s needed most.
During that November committee meeting, some lawmakers expressed deep skepticism about the plan’s viability.
“I have yet to have a generator come to me and say, ‘If y’all do any of these, we're absolutely going to build 10 new peaker plants for the state of Texas,” the committee’s chair, State Sen. Charles Schwertner, R-Georgetown, said.
Schwertner also sent a Jan. 11 letter to the PUC, telling commissioners that “given the clear absence of consensus among energy experts, advocates, and industry, unilaterally moving forward with a market design change …without consultation and collaboration with both the Texas House and Texas Senate is imprudent.”
During November’s hearing, Schwerter suggested the state could consider building it’s own power plants.
Beth Garza, ERCOT’s former independent market monitor, supports the PCM and says the state getting into the power-plant building business is a bad idea. She told WFAA that it would signal to private investors that there’s no need to invest their own capital.
Since the 2021 winter storm, ERCOT officials have run the grid much more conservatively, not allowing it to get even close to what previously happened. What that means is that some of the state’s older natural gas power plants have been forced to stay online during tighter grid conditions, and the companies that own them have lost money or barely broke even.
The concern is that companies that operate those power plants would eventually close them down rather than continue to operate them at a loss.
“The data shows that in the absence of those actions over the last 18 months we would have been in emergency conditions or a blackout eight times in 18 months,” Lake said.
The consultants hired by PUC project that 37 new gigawatts of renewable energy will be coming online over the next few years. At the same time, they project 11 gigawatts of thermal plants – those fueled by fossil fuels – will be retired.
Critics have said they believe the consultants have overstated the amount of plant closures.
In mid-December comments to the PUC, the state’s Office of Public Utility Counsel (OPUC), which advocates on behalf of consumers, objected to the PCM plan.
“Regarding the Performance Credits Mechanism ("PCM"), it appears that all price risk is borne solely by the end-user,” officials with OPUC wrote. “There are no assurances that paying generators for PCs will result in the building of any new generation assets that may reduce overall energy prices and result in fewer scarcity pricing events lucrative to generators in the market.”
“While ERCOT has spent the last decade creating incentives to promote the building of additional generation resources (preferably dispatchable) to little avail, the federal government has been extremely successful in seeing new renewable generation resources (mainly wind and solar) built by utilizing a more direct subsidization approach via investment tax credits and production tax credits,” OPUC’s letter said.
Last month, Michele Richmond, executive director of Texas Competitive Power Advocates, a trade association representing power generators, told a House committee that the group's members are committed to bringing "more than 4,500 megawatts of new natural gas generation to the market if PCM is adopted under the right framework."
“Investors and lenders need policy certainty – both regulatory certainty and legislative certainty," Redmond said. "The PCM, if adopted by the PUC and supported by the Legislature, will provide that policy certainty – then investors can make their bets and take on the financial risk,” Richmond.
Companies that own power plants are firmly on board with the proposal.
Bill Barnes, an NRG Energy official, told PUC commissioners that the company has three new projects totaling about 1,600 megawatts in the “queue.”
“The PCM will help us move those projects closer to completion in terms of financing,” he said. “We’re all watching you guys. …You know we’re not going to wait three years until it’s implemented."