This op-ed is part of a series published by The Dallas Morning News Opinion section to explore ideas and policies for strengthening electric reliability. Find the full series here: Keeping the Lights On.
How can Texas ensure that the electricity necessary for modern life is available when customers need it most? The Public Utility Commission is considering proposals to reform the electricity market to answer that critically important question. The regulator’s actions will show whether the state is committed to making fundamental reforms to ensure reliability — or merely working around the edges of the current market. Getting it wrong can have profound consequences, as demonstrated during the winter storm in February.
Texans deserve an assured standard of electric reliability.
The electricity market operated by the Electric Reliability Council of Texas currently relies on the hope that occasionally high prices will prompt enough investment in power plants to keep the lights on. Every other part of the United States has in place a mandatory electric reliability standard. Winter Storm Uri clearly demonstrated that an aspiration for electric reliability is no substitute for a requirement.
In the wake of the storm, the Texas Legislature passed an omnibus energy bill, Senate Bill 3, to “establish requirements to meet the reliability needs of the power region.” Yet no comprehensive proposal has been made to suggest how the requirements of SB 3 would be carried out in Texas.
That’s why, in a report filed at the Public Utility Commission, we proposed an approach that establishes a minimum standard of reliability and requires sufficient investment in power plants to meet this standard. And it does so while maintaining market competition that has provided so many consumer benefits to Texans.
Here’s how it works. When ERCOT forecasts a systemwide shortfall in supply that threatens reliability, each electricity provider must demonstrate it has contracted for enough power generation, energy storage, or demand response to meet its share of the systemwide need. Providers who are short must fill the gap and make proactive investments to meet their share of demand.
It’s like the requirement that motorists buy a liability insurance policy in order to drive on Texas roads. In this case, to sell electricity to Texans, providers need to show they have an insurance policy in the form of sufficient investments to safeguard against reliability “accidents”.
Meanwhile, the power plants that provide this service would have their contribution to reliability rated based on their ability to perform during times of need. Limitations, such as dependence on uncertain wind or solar output or reliance on an undependable fuel supply, would reduce a power plant’s reliability value. At the same time, customers who can reduce demand when needed are credited against the electricity provider’s obligation, providing a strong incentive to unlock customer-side flexibility.
Reforming ERCOT cannot be about putting “Band-Aids on bullet holes,” as PUC Chairman Peter Lake said at the commission’s open meeting last month. Many alternative proposals have called for tinkering around the edges — raising energy prices in certain hours while lowering them in others—that would not necessarily improve reliability and may increase consumer costs.
Other ideas to get steel in the ground have been floated but would be deeply unfair to consumers and taxpayers. Those include an “emergency reserve” of power plants that would sit idle most of the time but nevertheless be paid for in full by all consumers. Or spending taxpayer dollars on subsidies for new gas plants, which is as likely to crowd out existing power plants as it is to get new ones constructed.
Our proposal is a solution that addresses policymakers’ demand for reform by ensuring, not hoping, that there is sufficient investment to provide electric reliability. The health, safety and prosperity of a 21st century Texas depend on it.
Beth Garza is a former ERCOT Market Monitor. Zach Ming is a director and Arne Olson is a senior partner with Energy and Environmental Economics Inc.
Their report, “The Load-Serving Entity Reliability Obligation,” can be found at the Public Utility Commission of Texas website, filed under Project No. 52373. The work was supported by NRG and Exelon.
They wrote this column for The Dallas Morning News.
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