Texas regulators shelve an electricity market reform proposal they say does too little to shore up grid

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The Public Utility Commission on Thursday shelved the performance credit mechanism, a controversial idea that was designed to bring more power onto the state grid and increase its reliability.

“I don’t believe that the PCM, as currently designed, will provide the reliability benefits needed in the ERCOT market,” PUC Chair Thomas Gleeson wrote in a Dec. 18 memo that the rest of the commission endorsed on Thursday.

The performance credit mechanism represented a complex change to the way Texas’ electricity market works.

The idea would have required electricity providers — the companies, co-ops and municipal utilities that sell power to people — to pay more to generators that committed to having electricity available when grid conditions get tight. Electricity providers then could have passed those extra costs onto consumers.

The goal was to incentivize companies to build more of what are known as dispatchable power facilities. Dispatchable power sources, such as natural gas, nuclear and coal-fired plants, can turn on any time and fill in the gaps in supply when demand for power is high — unlike renewable sources that depend on sun and wind.

Amid concerns that the tool would lead to skyrocketing electricity bills without guaranteeing greater reliability, the Legislature last year imposed a $1 billion cap on how much it could cost consumers.

That cap, according to the Electric Reliability Council of Texas, which manages the state grid, was the parameter that “most significantly limits the effectiveness of the PCM.”

ERCOT and an independent market monitor found this year that with the $1 billion limit, the proposal would have only minimally improved the grid’s reliability, estimating that it would lead to an extra 780 megawatts of generation — far short of the 10,000 megawatts needed to meet the state’s reliability standard.

A coalition of consumer advocates, oil and gas lobbyists and environmental activists had demanded the cost limit to protect consumers from higher electricity bills. Companies that operate gas-fueled power plants had opposed a cap, saying it would reduce or kill the effectiveness of the credits.

The PUC on Thursday pointed to other mechanisms that commissioners said would do more to increase reliability.

“While reconsideration of the PCM may be appropriate in the future,” Gleeson wrote in his memo, “at this point I believe our collective resources are best directed toward implementing other market design initiatives.”

Those measures include tools to streamline how ERCOT procures power and a new ancillary services program that can offer power to smooth out uncertainty on the grid.

In August, the PUC adopted a grid reliability standard that said a major power outage due to inadequate power supply could take place no more than once every decade on average; any outage must last less than 12 hours; and the amount of power lost during any hour of an outage could not exceed the level that could be safely rotated through rolling blackouts.

Beginning in 2026, ERCOT must conduct an assessment every three years of whether the system is meeting the reliability standard — an opportunity, the PUC said, to evaluate the effects of changes implemented by the agency and the Legislature since Winter Storm Uri in 2021 and to consider any other measures that may be needed.