The Texas Public Utility Commission has shelved the market design it once favored, agreeing with staff’s recommendation that the performance credit mechanism (PCM) results in “minimal” additional resource adequacy value.

In a memo filed before the PUC’s Dec. 19 open meeting, commission chair Thomas Gleeson said he concluded the PCM, “as currently designed,” wouldn’t provide “the reliability benefits needed in the ERCOT market.” He said it would be “appropriate” to reconsider the PCM in the future,” but that the commission’s “collective resources are best directed toward implementing other market design initiatives” (55000).

“The outcome is what it is,” Gleeson said during the open meeting after gaining agreement from his fellow commissioners. “But the work was tremendous, the analysis was tremendous, and that got us to the decision that we needed to make.”

“There are variables that are in the PCM, there’s things that we can come back if later needed to learn from … and definitely something that is not thrown away, just put on the shelf,” commissioner Courtney Hjaltman said. “[Let’s] see what other things are in the market, and we can come back and learn from those things.”

The commission in August directed ERCOT and the Independent Market Monitor to complete updated assessments of the PCM’s cost to and its effects on the market. Staff reviewed those assessments before making their recommendation.

The PCM was designed to incent more gas generation by awarding thermal generators credits based on their performance during a determined number of scarcity hours. Those credits would be bought by load-serving entities, based on their load during those same hours, or exchanged by LSEs and generators in a voluntary forward market. (See Texas PUC Submits Reliability Plan to Legislature.)

However, ERCOT’s assessment, conducted with the Energy and Environmental Economics (E3) consulting firm, found that the market would hit a $1 billion gross cost cap imposed in 2023 by the Texas Legislature every year and add only about 800 MW of dispatchable generation. It said the cap “significantly limits the effectiveness of the PCM.”

The IMM said the “novel” design would provide a new source of revenue for generators that would increase ERCOT’s capacity margin and the costs to customers but reduce shortage revenues. Eventually, the higher capacity margins would reduce the frequency of shortage pricing, with the net costs falling to $350 million to $725 million annually.

“Good riddance,” energy consultant and former PUC and FERC staffer Alison Silverstein said. She agreed with the PUC’s decision to wait on real-time co-optimization and better battery rules, targeted for implementation in December 2025, and other measures before revisiting the PCM.

The grid operator also is working on a standalone dispatchable reliability reserve service (DRRS), a non-spinning reserve service subtype as a result of a new law, and analyzing ancillary service demand curves.

“If you’re going to mess with the market, the juice should be worth the squeeze,” Silverstein told RTO Insider. “The limits on PCM make it unlikely to be an effective gas plant subsidy, so why bother?”

Doug Lewin, Stoic Energy’s founder and principal, also agreed with the PUC’s decision.

“Capacity market constructs do too little, if anything, for reliability for their massive cost,” he said. “I hope now the commission, ERCOT and stakeholders can focus on more important things and stop wasting time arguing about capacity market design.”

ERCOT spokesperson Christy Penders said in an email that while the PCM didn’t provide enough benefits to move forward for the time being, “We continue to work with stakeholders on market solutions to enhance the reliability of the Texas power grid.”

ERCOT to Pursue Braunig MRAs

ERCOT General Counsel Chad Seely told commissioners that staff expects to execute a reliability must-run agreement with San Antonio’s CPS Energy within weeks for its Braunig Unit 3 gas resource. The grid operator says the capacity is needed to address transmission reliability until several South Texas projects are completed by summer 2027. (See ERCOT Board of Directors Briefs: Dec. 2-3, 2024.)

Seely said staff are continuing discussions with CPS, CenterPoint Energy and Life Cycle Power over moving 15 large generators and their 450 MW of capacity from Houston to distribution sites in the San Antonio area. The generators, which range in size between 27 and 32 MW, would provide a less expensive alternative to the $56 million CPS says it will take to overhaul and continue running Braunig’s other two units.

The San Antonio municipality told ERCOT earlier this year it intended to retire all three 1960-era units in March 2025.

“We think technically, this is a very feasible option and will provide a better, reliable solution than moving forward with an RMR agreement for Units 1 and 2,” Seely said.

In the interest of time, ERCOT issued a request Dec. 20 seeking one or more must-run alternatives to the potential solution being negotiated.

CenterPoint Executive Vice President Jason Ryan told the PUC that if the generators are moved to San Antonio before the summer, its Houston-area customers won’t be charged for the units, and the utility won’t receive any revenue or profit from them.

“This whole time, it’s been our priority to make sure that we can bring to the table a Texas solution … and at the same time [we’re] providing that Texas-based solution, making sure that our customers see a rate reduction as a result.”

CenterPoint leased the generators for $800 million in 2021 following that year’s winter storm that nearly collapsed the ERCOT grid. The large generators turned out to be anything but mobile and when they went unused in Hurricane Beryl’s aftermath, CenterPoint came under fierce political and customer criticism.

ERCOT’s Kristi Hobbs, vice president of system planning and weatherization, said the ISO’s twice-yearly Capacity, Demand and Reserves report’s December release will be delayed into 2025 “to ensure we get it right.” A recent protocol change (NPRR1219) extends the seasonal CDR reporting to all four seasons and adds unavailable switchable generation resource capacity.

In other action, the PUC:

• • Adopted new requirements for utilities in ERCOT that lease and deploy mobile generation facilities. The rule is a result of the 87th Texas Legislature’s House Bill 2483 (53404).
  • Approved staff’s review of ERCOT’s ancillary services (AS) that was conducted with the grid operator’s staff and the Independent Market Monitor. The review found that ERCOT’s current set of AS and the future DRRS are enough to comply with NERC requirements and recommended only minor changes (55845).
  • Again tabled Entergy Texas’ proposed system resiliency plan that would implement six resiliency measures over a three-year period at a cost of $335 million. At issue is Entergy’s request for conditional approval of $198 million of projects that would become part of the plan if the utility receives grants under the Texas Energy Fund’s Outside ERCOT Grant Program (56735).
  • Rejected a joint petition by two retail advocacy groups requesting ECRS be designated as an ancillary service incurring charges beyond a retailers’ control for existing contracts executed on or before June 9, 2023 (55959).
  • Approved the final draft of its biennial agency report to the Texas Legislature. The report must be submitted by Jan. 15 (56335).

Commissioner Lori Cobos adjourned the meeting, her last as a PUC member. Cobos, the last of the three commissioners appointed in 2021 to replace the three previous incumbents following that February’s disastrous winter storm, announced her retirement in November. (See Texas PUC’s Cobos to Leave Commission.)

Cobos battled her emotions as she thanked fellow commissioners, the PUC staff and the state’s political leadership, calling her appointment the “honor of a lifetime.” Her audience included former FERC and PUC chair Pat Wood.

“I am tremendously grateful for this opportunity to have served on the PUC,” Cobos said.

Alluding to Cobos’ focus on building transmission, Hjaltman said, “We’re going to hopefully do you proud with everything and your legacy of transmission and get those projects done for you.”

Gleeson revisited his comments from Jimmy Glotfelty’s departure Dec. 12 and thanked Cobos for “all the work you did on my Permian Basin reliability project.”