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PUC approves recommendation for restructuring the electricity market

Ali Linan

CNHI Statehouse reporter

AUSTIN — The Texas Public Utilities Commission (PUC) on Thursday unanimously approved a market restructuring that it will present as a recommendation to Texas lawmakers.

Nearly two years later, energy leaders have concluded that the Performance Mechanism, or PCM, is the best option to meet the government’s long-term reliability needs.

The memo, approved by the commissioners on Thursday, outlines his recommendations.

“I think this reflects a deliberative process on the part of the commission,” Commissioner Will McAdams said. “I said a year and a half ago that I think our finest hour is yet to come, and I think this is part of it.”

Texas electric utilities, including the Greenville Electric Utility System (GEUS), are grappling with regulatory uncertainty in the electricity market. The most recent PUC recommendation still needs legislative approval.

“We really need to get a definitive answer on what the market design will look like so we can understand what changes we need to make here to be able to fit what we do into this new structure,” GEUS CEO Alicia Hooks . said recently. “So this will be our biggest challenge going forward to adapt to the changes that will eventually come with the design of the ERCOT market.”

PUC took on the task of exploring options for reorganizing the market following the winter storm Uri in 2021, when extreme winter weather nearly brought down the state’s power grid.

Through Senate Bill 3, passed in 2019, lawmakers directed the Texas Electric Reliability Board and PUCT, which oversees ERCOT, to develop new regulations and eventually a potential market restructuring that will strengthen the state’s power grid and ensure another similar event does not occur. .

PUCT Chairman Peter Lake, who has been a strong supporter of the PCM model since its inception, said he believes it offers the state everything it needs: an incentive for a new generation while ensuring reliability.

PCM creates an additional revenue stream for electricity operators by allowing them to earn “performance credits” for electricity available during peak hours.

This will be an added layer to the current grid system and will not necessarily change the current operations.

Grid executives said they support it because it provides an incentive for generation and innovation as companies compete to get the most power at the lowest cost. They also said they believe the model will reduce costs because by making the grid more reliable, it reduces the number of days electricity prices rise sharply.

One criticism of the redesign, however, is that it hasn’t been done before. This is a unique market addition that will take a long time for some to set up, and without prior implementation there is no guarantee of its success.

Lake said that every part of the model has been used in other energy markets around the world and only the combination of these parts is unique.

“All these components are known,” he said. “There is no great secret here. It’s just a new combination of the best ingredients from various products that we’ve seen around the world.”

Critics are also concerned that PCM is just a façade of the power market that no stakeholder wants.

The capacity market pays for the available resource to meet peak demand for electricity when it occurs, such as during extreme weather events. With this market structure, the state usually pays the bills to ensure safety, and this has led some states, such as California and Connecticut, into debt.

“This PCM is a market mechanism that we’re trying to stick a needle into, but if it doesn’t work, I don’t want the sloping demand curve to turn into a dry and dry capacity market,” Commissioner Jimmy Glotfelty said. .

The commission members said that since the commission agreed to exclude any capacity market options even from consideration, this reduces the risk that it could become part of the final reorganization of the PCM market.

What’s next?

Under SB 3, PUCT is only required to make a market restructuring recommendation, which they support. Since legislators are currently in session, they must either pass it, make adjustments, or send the PUCT down a different path altogether.

If the legislators approve the PCM model, PUCT and ERCOT will continue to develop details on the structure and implementation of the market, as well as a likely bridging component that will serve as a short-term solution.

“We heard the Texans loud and clear; they require a reliable network. Landmark reforms have proven effective in improving the reliability of the grid we have today by providing power during the record heat wave and Arctic explosions over the past year,” Lake said. “Today, we are taking another historic step towards building the network of the future by introducing a new reliability service.”

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