Texas utility regulator says ERCOT overcharged power companies by far less than $16 billion cited by watchdog group

Electrical workers repaired a power line in Austin on Feb. 18. An extreme winter storm in March knocked power out for millions of Texans.

AUSTIN — The Public Utility Commission of Texas adopted a two-phase blueprint Thursday to address the state’s wholesale energy market design.

The restructure is in response to the February winter storm that caused a catastrophic electric system failure, leaving as many as five million Texans without power, some for multiple days. By July, officials had attributed 210 deaths to the storm, but other reports find the number of casualties to be closer to 700.

The first change is to the Operating Reserve Demand Curve, a mathematical formula that affects how electricity is priced as reserve electricity generation becomes scarce. The changes will provide earlier price signals to bring additional generation online and for large consumers to adjust their demand.

The commission also increased the market incentives for large consumers to decrease electricity usage in response to prices and grid conditions. This includes virtual power plants where groups of customers can come together into a single resource for the grid.

“In prior years, any single one of these changes would have been considered significant. Taken together, they are a generational shift in the Texas electricity market,” said PUCT Chairman Peter Lake.

In addition, the PUCT laid out phase two of its plans that will restructure how energy is managed in Texas by emphasizing the need for load-side reliability mechanisms to ensure dispatchable generation sufficient to meet system demands of the Electric Reliability Council of Texas, or ERCOT.

“The balance that we're trying to strike here today with these rules, and that is continuing in our commitment to protect residential and small commercial consumers and maintain a healthy competitive retail market,” Commissioner Lori Cobos said.

The load-side reliability mechanisms include load-serving obligations and dispatchable energy credits that should offer economic rewards and provide robust penalties or alternative compliance payments based on a resource's ability to meet established standards, per the memo.

In addition to the creation of that mechanism, the commission agreed to develop a backstop reliability service tool to target and meet specific reliability needs. This is to work as an insurance policy to help prevent emergency conditions in ERCOT, per the memo. Lake made this a top priority for staff to address.

Commissioners gave staff and ERCOT until Feb. 15 to explore the concepts addressed in the blueprint and establish plans and timetables to achieve tangible results. Some of these changes will take effect this winter while others will provide long-term incentives for investment in reliable power generation infrastructure.

“We've all agreed to principles, which is the most important part,” Lake said. “We know these are long-term reforms, but the most substantial ones we will make in the long run.”

The commission also adopted power outage alert criteria Thursday that would allow for mass communications when major energy issues occur, PUCT officials said.

The alert, designed in conjunction with the Department of Public Safety, will be similar to the AMBER Alert system and can be issued regionally or statewide up to 48 hours in advance, officials said. The PUCT will have the power to recommend the issuance of an alert, they added.

“As Churchill said, ‘This is not the end; This is only the end of the beginning.’ And our job moving forward is to provide continued affirmative instruction [and] hard deadlines for deliverables,” Commissioner Will McAdams said.

The PUCT also previously established new rules that would compel power plant operators and transmission companies to implement new winter weather standards. The PUCT filed 13 violations against eight companies for noncompliance before the Dec. 1 deadline. Officials said about 97% of companies complied on time.

Another rule adopted in October, establishes the coordination between the electric and gas industries during energy emergencies by creating a new designation for critical natural gas facilities that supply the majority of natural gas in Texas.

The commission also reduced the highest price that can be charged in ERCOT from $9,000 per megawatt hour wholesale electricity price cap to $5,000. This is in response to a price spike that walloped some customers with plans tied to wholesale prices during the February storm. Texans with fixed-rate plans likely did not see higher rates immediately but are subject to increases in the future.

McAdams said he believes the adoption of the blueprint provides the PUCT a measured and incremental approach to addressing the future of energy in the state so that a deregulated market is maintained while managing costs to consumers so that they do not experience a price shock.

“Throughout this process, the overarching thought has nagged at me and that is in any policy change we consider, the cure should not be worse than the disease,” McAdams said. “Our blueprint … I believe threads that needle.”

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