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Texas State Senate Considers Electricity Market Restructuring

In the wake of grid failures in Texas, including Winter Storm Uri, the Texas Public Utility Commission (PUC) has recommended a proposal to improve grid reliability. The plan, known as the Performance Credit Mechanism (PCM), would pay power generators to have additional capacity to compensate for peak demand in the summer and winter months. 

>>>READ: Were Competitive Electricity Markets and Renewables to Blame in the Texas Blackouts?

The PCM has been the subject of vigorous debate in the Texas State Legislature. Last week Texas’ Senate Committee on Business & Commerce held a hearing to consider the recommended plan from the PUC. Among the experts that testified was C3 Solutions’ Board Member Rebecca Klein. Ms. Klein has a wealth of experience in this field and has held positions at the Colorado River Authority and in the Bush White House. Klein also led Texas’ grid restructuring in 1999 when she served as the Chairman of the PUC. 

Klein offered the senators guidance on the issue and emphasized the importance of maintaining Texas’ tradition of competitive, free markets. 

“What I would recommend…is really deciding what fundamentals do you want to keep in place in this market? The fact that this market has shown two characteristics, and it’s really because of the Legislature’s leadership in this over the last 20 years, those two characteristics are commitment and certainty. By that I mean that the Legislature has stayed committed to a certain philosophy; the philosophy of competitive, free market principles.”

Later in her testimony, Klein stressed the need to keep Texas’ grid technology-neutral before again highlighting the value of free markets. “We know that fundamental free market principles, and this has been in studies before, but free markets are cleaner markets. Free markets are more adaptable markets.”

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The PUC’s proposed Performance Credit Mechanism has come under scrutiny for the cost that it would incur on taxpayers for little perceived benefit (in terms of reliability). In a recent interview with John Hart on Right Voices, Matt Welch, the State Director of Conservative Texans for Energy Innovation (CTEI), pointed out that the PCM would shift the energy playing field and deter renewable generation in the state. 

Discouraging renewable energy would hurt rural communities in Texas. A new CTEI study found that over their lifetimes, utility-scale wind, solar, and energy storage projects will generate $7.2–$8.8 billion in new local tax revenue.

>>>READ: New Report Highlights Economic Benefits of Renewable Energy in Texas

Energy economists from the University of Texas, Austin recently laid out three steps that the PUC and Electricity Reliability Council of Texas (ERCOT) could take to improve grid reliability at a fraction of the cost of the PCM. These include promoting energy efficiency measures, improving demand response mechanisms, and connecting Texas’ power grid to Western and Eastern connections. 

Whatever decision the state does make, it must remember to prioritize consumers. As Nick Loris previously laid out

“As ERCOT attempts to iron out the specifics and the plan moves to the legislature for approval, affordability and reliability must be of the utmost concern. Regulatory and policy decisions require consideration of tradeoffs. The choices that keep consumers at the forefront of that conversation rather than parochial interests will best serve the residents of Texas.”

As the nation’s energy leader, decisions made in Texas will impact regional grids across the nation. By following its tradition of limited government and “all of the above” approach, Texas can improve the reliability of its grid and drive energy innovation.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.

Copyright © 2020 Conservative Coalition for Climate Solutions

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