Published: July 6, 2023
By: Concentric Staff Writer
Texas Governor Greg Abbott signed new legislation reforming the state’s utilities and allocating reliability costs to intermittent generation sources in the same week a searing heat wave set in and set electricity prices skyward.
Governor Abbott on June 9 signed HB 1500, a “sunset” bill, which is a regular reauthorization of the Public Utility Commission of Texas (PUCT), and includes several provisions to shore up grid reliability. The bill drew a negative reaction from some renewable energy interests over provisions they say are aimed at hindering clean-energy resources.
Reliability has become more of a discussion topic in Texas since February 2021 when Winter Storm Uri caused widespread outages and hundreds of deaths, mostly due to freeze-ups of natural gas infrastructure. Summer reliability risks include grid impacts due to high electricity load and hot weather—the Electric Reliability Council of Texas (ERCOT) issued a voluntary conservation call on June 20 from 4 p.m. to 8 p.m. central time that followed a “weather watch” from June 15–21.
The HB 1500 legislation requires generation resources, other than battery storage facilities, to demonstrate to the PUCT that they will be available to operate when called upon during times of highest reliability risk. The owner or operator must be able to meet the requirement by January 1, 2027, by supplementing or contracting with on-site or off-site resources, including energy storage. The legislation directs the PUCT to determine the average capability based on “expected resource availability” and seasonal-related capacity on a standalone basis.
HB 1500 also requires establishing an ancillary services program to procure energy for dispatchable reliability reserve services on a day-ahead and real-time basis to account for market uncertainty. It also requires a determination of the quantity of services necessary based on historical variations in generation availability for each season, based on a targeted reliability standard or goal. This includes the intermittency of non-dispatchable generation facilities—wind and solar—and forced outage rates for dispatchable generation facilities.
Under the new law, the PUCT cannot require any retail customer or load-serving entity in the ERCOT power region to purchase credits designed to support a required reserve margin or other capacity or reliability requirement unless the PUCT ensures that the net cost of the credits to the ERCOT market does not exceed $1 billion annually, less the cost of any interim or bridge solutions. The credits are available only for dispatchable generation and the credits must be obtained centrally to prevent market manipulation. A generator also cannot receive credits that exceed the amount of its generation bid into the forward market.
Generation units can receive a credit only for being able to perform in real-time during the tightest intervals of low supply and high demand on the grid, to be defined annually by the PUCT. The bill also establishes a penalty for generators that bid into the forward market but do not meet their assumed obligation. The bill also establishes a single ERCOT-wide clearing price for the credits program that does not differentiate payments or credit values based on locational constraints.
A new Grid Reliability Legislative Oversight Committee was also created through the new law, which will oversee the PUCT’s implementation of legislation related to the regulation of the Texas electricity market enacted by the 87th and 88th Legislatures. The eight-member committee will be composed of three members from the Senate, three from the House, and the Senate and House chairs having “primary jurisdiction over matters relating to the generation of electricity.”
The legislation requires the PUCT to file a report no later than December 1 each year that includes the annual costs incurred by load-serving entities that back up dispatchable and non-dispatchable generation resources to guarantee that a firm amount of electric energy will be available to the Texas power grid.
Following a review of the report, the PUCT will determine whether specific transmission or distribution system constraints or bottlenecks in Texas give rise to market power in specific geographic markets. If there is a finding that such constraints give rise to market power, the PUCT can order reasonable mitigation by requiring utilities and others to construct additional transmission or distribution capacity or both.
Environment Texas Executive Director Luke Metzger issued a statement in opposition to the passage of HB 1500, saying it favors fossil-fuel-powered generators and will lead to higher transmission costs for renewables.
“We need, and Texans want, more clean energy, not less,” Metzger said. “There is strong support for more wind and solar energy, more battery storage, more energy efficiency, and more interconnection with the national grid. Unfortunately, the Legislature ignored these solutions to strengthen our electric grid while protecting consumers and the environment.”
However, Brent Bennett, policy director with the Texas Public Policy Foundation, lauded passage of the bill.
“We commend the legislature for passing HB 1500, which renews the Public Utility Commission on the condition that they take up needed market reforms, including Governor Abbott’s 2021 directive to ‘allocate reliability costs to generation resources that cannot guarantee their availability,’ and to ‘ensure that all power generators can provide a minimum amount of power at any given time.’ These reforms are critical in light of the federal government’s profligate spending on unreliable energy sources and onslaught of regulations on reliable energy sources,” Bennett said.
The new legislation coincided with a heat dome that hit the state in recent weeks, which will increase electricity demand for air-conditioning. Early in the week of June 25, Texas was under a hazardous heat warning, with afternoon temperatures of 104 degrees Fahrenheit recorded on June 27.
ERCOT broke its peak demand record on June 19 at 79,304 MW surpassing the previous June’s record of 76,718 MW. ERCOT set 11 peak demand records in the summer of 2022, typically in the late afternoon and evening hours. The grid operator said it was using tools such as reserve power, calling for large customers to reduce usage and bringing more generation online sooner. ERCOT said that other than extreme heat and record demand, it was experiencing outages of thermal power plants, declines in solar in the evening hours and low performance from wind during the summer peak.
The conditions on the grid led to extreme wholesale market prices in excess of $5,000 per MWh[1] on June 20.
—
All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
________________________
[1]“ERCOT: Real-Time Price – LCG Consulting.” EnergyOnline, www.energyonline.com/Data/GenericData.aspx?DataId=4. Accessed 29 June 2023.