Texas govt pushes action that could be ‘kneecap’


Global Courant 2023-05-08 06:13:58

The Texas state government is pushing for legislation to boost electricity supply during peak demand summer periods, which network experts warn would be counterproductive and cause more unreliability.

The state Senate passed a package of bills last month to address growing concerns that the state’s energy sector lacks sufficient fossil fuel generation that could provide electricity during emergency peaks. GOP Lieutenant Governor Dan Patrick, who presides over the Senate, said the package “levels the playing field” between intermittent renewables and switchable generation.

However, experts said one of the bills, SB 2012, contains so-called guardrails that could ultimately undermine efforts to incentivize power companies to develop new dispatchable power supplies. The bill caps the state’s Public Utility Commission (PUC) proposed performance credit mechanism (PCM) — a new system that would reward generators that provide reliable power during times of high demand — to $500 million per year.

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“Senate Bill 2012 is designed to end PCM,” Brad Jones, the former president and CEO of the Electric Reliability Council of Texas (ERCOT), told Fox News Digital in an interview. “It’s called a guardrail law, but it’s nothing like a guardrail. That’s just because it sounds good to say “guard rail.” It was actually designed as a kneecap for the PCM proposal.”


A power plant is pictured near Austin, Texas, on July 11, 2022. Officials last week warned that the state’s peak demand for electricity in the summer will for the first time exceed the amount it can generate from on-demand dispatchable current. (Jordan Vonderhaar/Bloomberg via Getty Images)

Jones argued that while estimates put the average cost of the PCM program at about $460 million per year, there would be years when costs would far exceed $500 million depending on weather conditions, meaning it would be difficult to consistently keep costs under the cap every year. Overall, the Texas has an energy market of about $40 billion with an annual tax growth rate of about 2%.

“Texas is going to be facing reliability issues in the very near future, probably 3 to 4 years from now — the alarm has already gone off that we have already crossed that threshold,” he continued. “I think there’s a line in the sand. We’ve stepped over it. If we continue like that, we’ll face real reliability issues in the future. That’s what they’re trying to avoid.”

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A trade group coalition of Texas Competitive Power Advocates — representing power generators, energy wholesalers and retail providers — and the Alliance for Retail Markets stated in a policy note in March that the provisions of SB 2012 are “anti-market in nature and the PCM.”

The SB 2012 debate comes months after the PUC voted unanimously in January to introduce a no-limit PCM system, arguing that it would bolster grid reliability, accountability and affordability in Texas. But the commission said it would hold off on implementing the credit until state legislatures issue guidelines.

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Following the announcement, several power companies announced their willingness to build thousands of megawatts of shippable generation depending on the implementation of the PCM. Chris Moser, the head of competitive markets and policy at billion-dollar power generation company NRG, “having a functional PCM is a critical step” in the company’s development plans.

Cell towers are seen at a power station on June 9, 2022 in Houston, Texas. The state leads the country in electricity generation from wind power and is the second-largest producer of solar energy in the country, according to federal records. (Brandon Bell/Getty Images)

“It’s going to be very difficult to design the piece to meet that cost cap,” Brent Bennett, policy director at the Texas Public Policy Foundation’s (TPPF) Life:Powered initiative, said in an interview. “The generators were very against that and still are. So far the legislature has been very firm on that. We at TPPF don’t think it’s a good idea.”

“Trying to design a program that never spends more than $500 million is almost impossible,” he added. “That’s a very low number compared to the market.”

Bennett, who favors a price cap to constrain an otherwise unrestricted mechanism, said it should either be increased, averaged over five years or indexed to natural gas prices.


And Senator Kelly Hancock, a Republican who formerly chaired the Texas Senate Business and Commerce Committee, expressed concern that the cap, as it is, would hurt consumers the most. He also compared the state’s power grid to California’s frequently encounters power outages during the summer months.

“My concern is that an average means an average and that means it could be twice that or it could be zero,” Hancock told Fox News Digital in an interview. “Putting that cap in was my concern that I expressed on the floor: To keep the lights on, the PCM has to be $750 million.”

“With the legislative limit, they’re not allowed to start doing that, which means they have to pitch low, which means they have to tell people they can’t have electricity. That’s my concern with the limit, that those who are going to be hurt are those consumers who need electricity,” the senator added.

It’s unclear if Texas Governor Greg Abbott would sign SB 2012 into law, but Lieutenant Governor Dan Patrick has supported the legislation. (Brandon Bell/Getty Images)

Hancock said the proposal, and others, are “California-tilted.”

Meanwhile, the PUC and ERCOT, which oversees Texas’ power grid, released an annual report last week outlining risks ahead of the summer. The report issued a dire warning that, for the first time in its history, the state did not have enough power generation to meet demand during times of peak consumption.

“The grid in Texas represents a new reality,” PUC Chairman Peter Lake told reporters after the report was released. “Data shows for the first time that peak electricity demand in the summer will exceed the amount we can generate with on-demand controllable power. So we will rely on renewables to keep the lights on.”

“On the hottest summer days, there is no longer enough on-demand controllable power generation to meet the demand in the ERCOT system,” he said. “From 2008 to 2020, on-demand power in Texas grew just 1.5%. In that same time frame, our population grew 24%. The increase in demand for electricity is outpacing the supply of on-demand shippable power.”


He noted that on the hottest summer nights, when solar power generation declines, the state’s grid will rely largely on wind conditions to bridge the gap.

“We expect to have to rely more on renewable energy during peak times than ever before,” added Pablo Vegas, ERCOT’s current president and CEO. “As a result of these dynamics, this summer may have tighter hours than last summer with a higher risk of emergency operations.”

“The urgency to move forward with meaningful electrical market reforms that will drive the development of switchable generation remains extremely high.”

Republican Governor Greg Abbott’s office did not respond to a request for comment.

Thomas Catenacci is a political writer for Fox News Digital.

Texas govt pushes action that could be ‘kneecap’

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