Jun 292022

Electric Reliability Council of Texas’ Independent Market Monitor: Conservative Operating Posture Could Cost Consumers $1.5B

Grace Dickson Gerbas and Emily P. Mallen
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On June 22, 2022, the Electric Reliability Council of Texas (ERCOT) Independent Market Monitor director, Carrie Bivens, testified before the Texas House State Affairs Committee on the ERCOT market design, reporting that ERCOT’s “conservative” operating posture since Winter Storm Uri could add $1.5 billion to consumer bills in 2022.

Following Winter Storm Uri in February 2021, which resulted in hundreds of deaths and sustained blackouts for millions of Texans, ERCOT has built more reserves into its operating position to provide for increased grid reliability. However, these increased reserves have increased costs for Texas consumers. Bivens estimates that ERCOT’s cost for buying more reserves from Jan. 1 through May 31 this year ranges from $210 million to $385 million.

Texas Public Utility Commission (PUCT) Chairman Peter Lake testified, also on June 22, that the increased costs were justified in providing greater grid reliability, stating that “We’re operating the ERCOT grid with an abundance of caution, and we’re moving away from a crisis-based business model that drove our grid before and moving towards a reliability-based business model.” Chairman Lake also told the committee that ERCOT’s new operating approach may have helped avoid rolling blackouts in periods of sustained, increased demand. For the fourth time this month, ERCOT demand has reached a new record — 76,592 MW on June 23.

Director Bivens and Chairman Lake were invited to testify on 2021 ERCOT market design changes adopted following Winter Storm Uri. The PUCT — which exercises oversight of the ERCOT grid and operations — implemented new rules relating to industrial demand response, generator weatherization requirements, and lowering the energy market’s high systemwide offer cap to $5,000 MWh, down from the $9,000 MWh in place during Winter Storm Uri. However, the PUCT stopped short of adopting a capacity market for ERCOT. Capacity markets are thought to help ensure long-term grid reliability by compensating for the readiness for power production in the future. Bivens’ testimony raised the idea that adopting a capacity procurement mechanism for the ERCOT market may correct economic signals in the ERCOT market leading to increased consumer costs, while ensuring the adequacy of ERCOT resources over the long term. During the 2021 market design process, the PUCT repeatedly stated its opposition to adopting a capacity market.

It is unclear what will become of this testimony or whether it will result in new legislation. The Texas legislature is not in session until January 2023.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.

Grace Dickson Gerbas

Dallas

gdicksongerbas@sidley.com

Emily P. Mallen

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