Concerns over the future reliability and affordability of Texas’ electric grid were brought to the forefront with the recent resignation of the person hired by the Public Utility Commission of Texas (PUCT) to monitor the performance of the Texas electricity market.
When Carrie Bivins, who leads the independent market monitor team for Potomac Economics, announced her resignation in October, it was the cumulation of a month of concern and speculation over the future of the Texas grid.
The tumult got started when the PUCT issued a new request for proposal for the market monitor for when the current contract with Potomac expires. In the RFP, the PUCT made some changes from the previous contract that caught the eyes of numerous market observers.
One of the changes was a change in the name of the monitor. Since its inception, the position has been called the “independent market monitor” (IMM). But in the RFP, it was changed to “electric market monitor.” Another change allowed the PUCT’s executive director to fire the IMM rather than the commission.
Two people who objected to these changes were Texas Lt. Gov. Dan Patrick and state Sen. Charles Schwertner, the chairman of the Texas Senate committee with oversight of the PUCT. In a letter to the PUCT, they wrote, “removing "Independent" from the title of the position Independent Market Monitor (IMM) and renaming it the Electric Market Monitor (EMM) implies that the position is no longer truly independent. … This position is similar to an auditor or ombudsman, and their analysis should not be influenced, nor their recommendations suppressed, by politicians or bureaucrats.”
Much of the speculation about the changes to the IMM’s contrat focused on the possibility that Bivins had ruffled the feathers of the PUCT and perhaps Texas Gov. Greg Abbott with some analysis of the PUCT’s actions.
Most recently, Bivins had highlighted the high cost to Texans of recent changes to the market made by Texas regulators. Under the direction of the PUCT, the Electric Reliability Council of Texas (ERCOT) earlier this year implemented a new protocol called ERCOT Contingency Reserve Service (ECRS). Its purpose is to increase reserves of energy to meet periods of high demand.
The problem with this though, according to Bivins, is that it reduced energy available in the market and thus resulted in “Shortage pricing for energy and [ancilliary services] when the market is not short.”
With less energy in the market, prices rose much higher than they would have normally. This meant that in June, July, and August, prices increased $8.5 billion higher than they would have without ERCOT’s intervention in the market. The $8.5 billion will be passed on to consumers and businesses. While ERCOT and the PUCT implemented these changes, they actually were just following the lead of the Texas Legislature which has supported increasing electricity prices for more than a decade.
About 2011, electric generators began claiming that future reliability of the grid was at risk because low electricity prices meant that they could not make enough money to invest in new reliable generation. That claim proved to be untrue, as investment in new natural gas generation plants continue to be strong.
Despite the continued investment, in 2014 the PUCT implemented a mechanism known as the Operating Reserve Demand Curve (ORDC) designed to artificially increase electricity prices. For instance, in the summer of 2019, the ORDC increased electricity prices by more than $3 billion.
The generators were right about one thing, though. Electricity prices were being artificially lowered by renewable energy subsidies. Since 2011, federal, state, and local renewable energy subsidies in Texas averaged more than $2 billion a year. Because of this, wind and solar farms often lowered prices to undercut their competitors. Over time, this eventually led to more investment in renewables and less in natural gas generation.
Yet the Texas Legislature did nothing to stop renewables. Instead, Texas political leaders encouraged the PUCT to continue its policy of making electricity more expensive in order to subsidize renewable generation. The most recent example of this is the $5 billion constitutional amendment approved by Texas voters this fall that will provide low cost loans and grants to subsidize the building of new natural gas generation.
Whether or not Bivens premature departure was driven by Texas politicians’ and regulators’ discomfort with her reports highlighting the increasing cost of electricity, Texas electricity prices will continue to increase unless Texans push their elected officials to stop subsidizing renewable energy. Absent that, renewables are going to take over the Texas grid and make electric grids in states like California look reliable and affordable by comparison.
