Thread by @douglewinenergy

The @PUCTX is about to recommend a direction for a new market design called Performance Credit Mechanism (PCM) (aka Pretty much a Capacity Market). It won't fix the problems with the grid but it will cost consumers dearly. PUC has an open meeting on the PCM today. #txlege 1/

The biggest problems with it: it won't solve either of the biggest challenges facing the grid: long cold snaps and summer nights. The "credits" given to generators will be random and impossible to predict. You can't build a power plant on a credit generated at random hours.

Bank of America's energy analysts put out a note this week about the immanent adoption of the PCM: "We see the latest developments as a positive for incumbent IPPs." That's independent power producers like @nrgenergy, Vistra, Constellation & Exelon who will make a killing.

The PCM basically perpetuates and doubles down on what Chair Lake said he was trying to avoid: a crisis based business model. It adds even more revenue on top of a beefed up ORDC (scarcity payments) which will mostly be captured (like ORDC) by existing generators. #txenergy

And that's why it's Pretty much a Capacity Market (PCM). It pays for capacity to be available regardless of its flexibility, ability to ramp or respond, or anything else. Just be there & get paid. The PUC's consultant said $6b/yr (the red bar) will move to these capacity payments

No one besides generators supports the PCM. The generators have been working for a capacity market since 2012 & now they almost have it. Great for their bottom line, horrible for consumers, and does nothing for reliability. Does too little, costs too much. #txlege #energytwitter

There are many other problems with the PCM which I'll continue to cover here on #energytwitter and on my substack. This article covered many of the problems with it: douglewin.substack.com/p/looking-for-…

I'll also live tweet the open meeting today starting at 9:30CT which can be watched here.
texasadmin.com/tx/puct/open_m…

There are better ways. Commissioner Cobos and Glotfelty pointed out many of them in their memos filed in advance of today's meeting. To deal with summer nights, increased ancillary services like the just-about-to-launch ECRS (10 minute ramp, 2 hour duration) would help a lot.

For long winter cold spells, the Backstop Reliability Service recommended by Cmsr Cobos would help.

#Energyefficiency & demand response would help a ton w/ both summer & winter problems (see below). These solutions have been there the whole time. #txlege aceee.org/white-paper/20…

But PUC Chair Peter Lake has long favored a capacity market (first the Load Serving Entity Obligation, now the PCM). He and the generators are trying to change be creative with the words but its Pretty (much a dressed up, overcomplicated) Capacity Market. #energytwitter

The Commissioner memo is in the docket linked below but note all the dissenters to PCM: the Independent Market Monitor, AARP, Office of Public Utility Counsel, retailers, electric co-operatives, manufacturers. Pretty much everybody is opposed, except... interchange.puc.texas.gov/search/filings…

One group is in support: existing generators. If they thought this was going to bring new generation why would they support it? What business wants more competitors? It makes no sense. They & stock analysts like BofA know what this will do: enrich the incumbents. #txlege

Existing generators will get paid even more when they happen to be available and have little competition because of the unpredictability of the credit hours. As the Texas Assoc of Manufacturers wrote, it's like giving a raise to someone who doesn't show up to work. #txlege

The PUC meeting is under way. Each commissioner will discuss their individual memos which are all here: interchange.puc.texas.gov/Documents/5433…

Cmsr McAdams starts: All capacity markets are based on a load forecast. And you have to be right on the forecasts and forecasts are hard to get right

He doesn't mention this is a major problem with PCM, too. ERCOT will set a demand curve and a lot rides on them doing that well.

He says they should take the Forward Reliability Market and Load Serving Entity Obligation formallly off the table.

This is purely symbolic bc they weren't going to be adopted anyway.

Also proposes tabling the Dispatchable Energy Credit. DECs never got a fair hearing. #txlege

McAdams wants it "enshrined" that PC values will not be tied to forecasting. Interesting, not sure how you'd do that based on what E3 laid out in their report: "the clearing price of PCs is determined based on an administratively-determined demand curve"

Cmsr McAdams has a definition of PC Qualification. Wants to allow demand side to earn PC.

This is unrealistic because of how unpredictable PC hours will be. If DR removes the demand, then the PC hours shift. They haven't address this. #energytwitter

Cmsr McAdams also says they should use net peak load and include forced thermal outages in their definition. In other words, subtract out forced thermal outages. Very interesting. Policymakers have been slow to grasp how unreliable old thermals are, they're getting closer.

Cmsr McAdams wants a prohibition on affiliated transactions. This would stop companies that are generators and retailers (gentailers) from self dealing. Wouldn't stop them from making billions more than they're making now though...

Chair Lake says they "trusted the analysis" but E3 said the PCM was too complicated and novel and did not recommend it. He says all the elements of PCM are known but E3 said "Implementation of PCM entails significant risk because of its novelty."

Cmsr Cobos says near term actions are as important as long term.

I'd argue moreso given it will take at least until 2027 to implement PCM.

"Reduce and replace current Reliability Unit Commitment (RUC) practices with existing market-driven processes to retain our long-duration dispatchable thermal generation fleet"

This is important. Generating units have been overtaxed. Can't have next four years like last two.

She thinks PUCT should NOT adopt a 1:10 reliability standard. It's outdated and we need a standard that reflects the needs of a modern power system.

This is so vital. Great primer on this here. #energytwitter
esig.energy/resource-adequ…

Cmsr Cobos lays out nine principles for a Long Term Reliability Plan. She wants consistency with ERCOT's competitive electricity market. #9 is consideration of "cost impacts for all customers." This mechanism has the potential to severely hurt Texas' economy. #txlege

Cmsr Cobos also says the PUC should not be handing details of implementation over to ERCOT. Should stay with the Commission.

Cmsr Glotfelty agrees. Says "policy calls" should stay with us.

Agreed on this. PUC needs to own this not punt to ERCOT. #txlege

Sometimes these meetings get bizarre. Cmsr Cobos asked for regular updates on Real Time Coopimization (RTC) and Chair Lake spends 30 minutes pushing back. It's a massively important project. Not sure why this would be an area of contention.

There will be a docket opened to explore a reliability standard.

Cmsr Glotfelty now begins his comments. I encourage all #energytwitter folks to read his memo. He is the Cmsr with the deepest experience. Starts by saying #energyefficiency should qualify for performance credits. He's asked how this would work and hands Chair Lake the PJM manual

Asked by Chair Lake is this a nice to have or does #energyefficiency have to be part of PCM? He says it's required. Lake says so you're a no vote without EE? Glotfelty agrees.

Lake asks if EE has to be controllable?

Glotfelty says it needs to be considered. Here's the thing: if you do energy efficiency focused on biggest reliability benefits (heating, AC, insulation) it will reduce demand at the time PCs are generated.

EE *and* DR should qualify for capacity payments.

EE is capacity.

Chair Lake has voiced support for EE but never done anything to actually increase it. Here's a chance. He doesn't seem to support it though.

Lake asks about DERs, says Glotfelty "might be putting cart before the horse a bit."

Glotfelty says: "Not one bit." #txlege

Cmsr Glotfelty says DER pilot will merge quity nicely w/ 3-4 year implementation timeline.

McAdams says don't forget the Enchanted Rocks of the world. Says the pilot is <1MW but you've got bigger ones at @HEB etc.

(DERs should be able to earn PCs. EE & DR are DERs.) #txenergy

From Glotfelty memo: "DERs & EE must not be limited to a role that just reduces the amount of credits needed to comply. This will allow for participation of both large scale & small scale resources over time, where they are market-based, measurable & verifiable." #energytwitter

Clearly a major disagreement between Lake & Glotfelty (and McAdams & Cobos, too). Glotfelty worries about affiliates self dealing and Lake tells Glotfelty "that's not how markets work."

That he would tell Cmsr Glotfelty he doesn't know how energy markets work is astounding.

The potential for market manipulation under the PCM is extremely high. It's one of the many reasons the Indpendent Market Monitor opposes it. This will need careful policymaking & PUC will need more budget to police the market.

This is a disaster waiting to happen. #txlege

Other highlights of Cmsr Glotfelty's memo: the PCM “will shift up to $5 billion dollars per year." Yep.

"The 1 in 10 LOLE Reliability Standard and the sloped demand curve ARE WHAT MAKE THIS A CAPACITY MARKET, not the PCM itself." (emphasis in original)
#txlege #energytwitter

Glotfelty memo continued: "Over and over we have been told by the incumbent generators that they will build more megawatts if a PCM is passed. Well I want to hold them accountable for that commitment..." #txenergy

"I propose the following: If the 4600 MWs promised are not operational by a time ERCOT deems reasonable, the PCM should be repealed."

Note, 4600MW will probably be built anyway. ERCOT has gained about 2000MW of gas in the last 2-3 years and the ORDC benefits added are large.

Lake pushes back on this proposal. Glotfelty asks: How would you hold market participants accountable for the new generation they promised the Governor?

Lake: "Fair question... I like the sentiment" but he's not sure how they'd do it.

There it is: Chair Lake says that the PCM will keep generators in the market. It's all about enriching the existing generators NOT about new steel in the ground.

Lake says a generator told him: "The PCM is what I need to bring my old clunky unit back."

Ugh. #txlege

Cmsr Glotfelty included this in his memo too: "Consider the development of a claw back mechanism on PCM payments to generators if they close plants within five years of PCM implementation."

Glotfelty included this, too: "I believe we should prepare an implementation timeline for an expanded suite of ancillary services..."

This is so important. PCM won't do anything to get flexible resources. Expanded ancillaries reward fast ramping flexible resources. #txlege

They are back from a break. They are editing pages 4-6 of the document linked below. They will add to it that LSEO, FRM, or DEC are out of the running. They will amend second bullet from "generators" to "eligible resources" to allow demand to earn credits.
interchange.puc.texas.gov/Documents/5433…

They are talking about a major problem with PCM. Generators could offer in low amounts (a few MW) but earn the credit on a large amount. Thus potential penalties for not showing up would be small but potential rewards would be large. They will add a bullet on "bidding behavior"

They worked on language to try to stop self dealing among big "gentailers." Load serving entities have to buy performance credits from generators but some LSEs are in the same company as the generators (e.g. Reliant/NRG, TXU/Vistra). This will likely be a tough problem to solve.

Cmsr Glotfelty expresses concern about the demand curve, which, depending on how it is set by ERCOT could (I'd say likely will) establish a de facto capacity market. They're putting a lot of faith here in ERCOT's ability to administratively set this demand curve.

Discussion about this principle: "Protect ERCOT's robust competitive retail electricity market that provides choice for consumers." This is a sick joke. Two companies own 80% of the retail market already. PCM will likely cause further market concentration. #txlege

Cmsrs Glotfelty and Cobos question the accuracy of this statement of principle in Chair Lake's memo: "Place financial and operational risk on the profit-seeking businesses instead of ERCOT or the consumers of Texas." PCM, they say accurately, shifts risks to consumers. #txlege

Chair Lake says retailers have no accountability and just collect checks every month. This is simply not true. REPs that don't procure enough generation are punished severely in the market. And the PUC's own certification rules include risk management. #txenergy

Cmsr Glotfelty just wants to be clear that this is a major departure from #txlege policies in the past. This shifts risks to consumers and away from profit making companies. It is the regulator directing over-procurement of capacity. And consumers pay for that. #energytwitter

Chair Lake just referred to the "art and the science of determining the demand curve... it's highly technical and policy driven." So much of the PCM depends on getting this right and no one should have any confidence ERCOT & the PUCT will be able to. Not a great track record...

This is why this is Pretty much a Capacity Market (PCM). Shifts the focus of the market from buyers & sellers & lowest cost to working the refs & getting a beneficial administratively set demand curve. The competitive market is taking a huge hit and it won't improve reliability.

Cmsr Cobos wants to modify this so it doesn't read like we're just "shipping it off to ERCOT." Chair Lake says they will determine categories of things which will be PUC policy calls and which will be ERCOT led implementation details. (Imo, these are all important policy calls)

Chair Lake says they need to show "deference" to #txlege on policy as he ignores the letter signed by the entire Sen. Business & Commerce Cmte: "the PCM... should not be adopted by the Commission w/out further consultation with the Legislature." #txenergy

https://twitter.com/DrSchwertner/status/1598452253828042755?s=20&t=YJQlOBjwlPEwVgvbnwAM9g

They are now running through this long list of implementation questions. Remember, the PCM as a concept didn't exist 3 months ago. All this has to be worked out. This is why E3 said this was too risky, novel, and complicated to adopt. I'd add costly to that list. #txlege

Meanwhile, all this time spent on PCM (just like time spent on LSEO) isn't spent implementing solutions that could help in a matter of months not years: increased ancillary services, #energyefficiency, demand response, DERs, Backstop Reliability Service, etc, etc. #energytwitter

There's a discussion about "eligible resources." Chair Lake wants to ask ERCOT to present options. Cmsr Glotfelty wants to demand side included as a principle. He says that more producing the credits help "protect consumers and lower costs."

Chair Lake says the only way to value EE is to have a resource accreditation. That is not true!!! We have smart meters. You can measure EE and DR at the meter!

Cmsr Glotfelty says it needs to be included, we'll create a Texas way. All resources should be eligible. #energytwitter

Glotfelty wants the principle to be tech neutral and that distributed energy resources (DERs) be "in the market" not just to reduce the obligation but to earn credits. He points out all the Commissioners agree we need more so let's include demand. Chair Lake adamantly opposed.

Glotfelty: Just say it's technology neutral:

Long pause from Lake.

Cmsr Cobos says SB3 says dispatchable resources. (Interesting though how power plants that didn't operate during Uri, in May, in July, or in December presumably *will* qualify as dispatchable.)

They agree dispatchable demand side resources will earn PCs and they'll study EE.

Ironically, EE is very well suited to PCM because it's so unpredictable when the hours will occur. It will be hard to have DR programs that move load for one hour bc you don't know which hour will earn a PC. Insulation, HVAC upgrades would reduce demand across many hours.

The PUCT is back from break.
They're working off this updated memo/filing. #txlege
interchange.puc.texas.gov/Documents/5329…

They're unironically wordsmithing the bullet about maintaing the current ERCOT market while they're attempting to do away with the current ERCOT market. With the PCM, there would be less "choice for consumers" and lots more market power concentration. #txlege #txenergy

Here's a reminder while they're trying to define what a performance credit is, supposedly to bring new generation, there are 12.9GW of gas in the interconnection queue. 2.9GW have interconnection agreements signed already. #energytwitter #txlege
ercot.com/mp/data-produc…

On a 5-0 vote, the PUCT "will recommend the creation of a new reliability service... [which] should be based on the Performance Credit Mechanism (PCM) concept as articulated in the E3 Report."

They voted to recommend (in the future?) something like PCM. Clear as mud.🤔 #txlege