Repower Texas: Costs Too Much and Won’t Solve Our Issues

Fix the Grid, Lower Our Bills


There will be a total of nine bills and one Senate Joint Resolution heard on Thursday, March 23,  at the Business and Commerce Committee meeting. The Sierra Club will be commenting on several of the bills then and/or providing written testimony. 

While we fully expect that the authors of the bills (Sens. Schwertner and King) are working on committee substitutes, we wanted to offer our thoughts on the good, the bad, and the just plain costly that are contained in the bills. 

Here is the tl:dr; of our positions on the bills as filed:

SB 6 and SJR 1 - Oppose
SB 7 - Some good some bad
SB 1287 - Oppose
SB 2010 - Support
SB 2011 - Support
SB 2012 - Some good some bad
SB 2014 - Oppose
SB 2015 - Oppose

...And a quick example of what you can say if you have a few minutes to call your Senator:

Stop SB 6 Graphic


Now For the Details

We must repeat that focusing only on the supply side of the equation is short-sighted, expensive, and ignores solutions that are quick, cheap and clean - energy efficiency, distributed energy resources, demand response, and advanced building codes. We know there are separate bills that will be heard later in the session on these issues, but wanted to express our disappointment that these “big” bills fail to look at how to reduce the demand, when roughly half of our peak energy use is due to residential heating and cooling during weather extremes. 

What follows is our brief analysis and opinion of this set of bills as introduced.

SB 6 (Schwertner) - Relating to the establishment of the Texas Energy Insurance Program and other funding mechanisms to support the construction and operation of electric generating facilities.

The Sierra Club is opposed to this bill, as well as the accompanying SJR 1. SB 6 would create the framework for building up to 10,000 megawatts (MW) of gas-fired power plants as a backup to the ERCOT system as part of a new “Texas Energy Insurance Program.” The bill would require the Public Utility Commission of Texas (PUCT) to issue a Request for Proposals (RFP) and then guarantee the owners of these plants a rate of return on the backs of ratepayers. While the resulting plants would only be used for emergencies, the cost on consumers would be potentially enormous. Even worse, if the assets become stranded, those stranded costs would still be paid for by all retail customers. In other words, if the assets work well, we pay for them. If they don’t, we pay for them anyway. 

The bill also picks the technology, essentially ignoring other technologies that could also serve as a backup service, like energy storage, solar plus storage, demand response, or geothermal. The bill specifically says the plants could be located near population centers, meaning many of Texas’s cities (already facing high smog and pollution levels) could be subjected to additional pollution in their airsheds. This non-market solution is the wrong solution for Texas. We already have a working backup system called Emergency Response Service which the PUCT is already ramping up in response to the events of Winter Storm Uri. 

States like California tried a similar scheme of a backup service and it destroyed their energy market, and created massive waste and expense. This is the wrong solution for Texas. 

Interestingly, the assets could only be used when ERCOT reserves drop below 1,000 MW, but again the existing Emergency Response Service (and transmission and distribution utilities’ load-management programs) are already used effectively when reserves drop below 3,000 MW, so SB 6 could create massive costs for consumers for no reason. 

The bill would also create a state-financed “Generating Facility Fund” to help construct generating facilities within Texas. However, these could be used for new or existing generation facilities.  This would essentially create a state-backed financing authority for the construction of private generation facilities in Texas, similar to the SWIFT Fund for water. While at the very least this fund is available for all “dispatchable” generation, and not just gas plants, putting the PUCT (and a separate Trust Fund) in charge of administering a loan fund for private businesses is not good public policy. Essentially, you would have the same entity in charge or regulating the energy market also in charge of providing low-interest loans for generators. 

We are also concerned about having a separate advisory committee consisting of the Comptroller and members appointed by the Lt. Governor and Speaker of the House, further putting political decision-makers into potential decisions made about the fund. 

SB 7 (Schwertner) - Relating to the reliability of the ERCOT power grid.

Sierra Club believes this bill contains both good and less good provisions. We are opposed to the bill as filed, but do believe that the bill can be improved. 

First, we oppose the change in cost allocation in the bill (found in (b)(6)), which would change cost allocation from all loads, to a complex formula consisting of loads, dispatchable generation, and renewable energy generation. This is a fundamental change in our market structure. Currently, loads (power consumers) pay for ancillary and other reliability services and we do not try to “assign” costs to generators - whether renewable (eg., solar and wind) or thermal (eg., gas, coal). We also believe the proposed formula (based on the resources’s  proportion to their contribution to net load variability over the highest 100 hours of net load in the preceding year) is not the correct methodology to assign costs. It is also very unclear how resources like storage would be considered in setting the cost allocation since storage can be both load and generation. 

Second, we do support the creation of an ancillary services program that requires load serving entities to purchase dispatchable reliability reserve services on a day-ahead basis to account for market uncertainty. We do want to make sure that the reserve service could allow both generators and loads to participate, but do support the need for an additional ancillary service. In fact we believe that the creation of such a product - sometimes called an “uncertainty” product (or a DRRS) would work well with our existing market structure. 

Furthermore, while we do not object to the requirement of an annual report on dispatchable versus non-dispatchable power, or calculation of transmission costs, the bill as written only has the report focused on costs associated with non-dispatchable power, instead of a wider report on transmission costs. It makes no sense to somehow only report on transmission costs as if they can be separated out to only focus on non-dispatchable power since transmission serves loads and all kinds of generation. 

In summary, while we are supportive of parts of the bill, overall the bill seems intent on “punishing” non-dispatchable resources, even though they are cleaner and more cost-effective. As such the bill could prevent Texans from enjoying continued investment in these clean resources. 

SB 1287 (King) - Relating to the cost of interconnecting certain electric generation and energy storage facilities with the ERCOT transmission system.

The Sierra Club is opposed to the bill. SB 1287 would change existing policy which states that interconnection costs and transmission costs are socialized on loads, and instead attempt to create a “postage-stamp” method of transmission costs, with some part of the generator interconnection costs shifted to generation. Because of the way the bill is written, it will generally favor generation closer to loads and discourage generation in rural areas, such as wind and solar farms. Because wind farms in particular tend to be less dense and spread out, the creation of an “allowance” on a per megawatt basis will again tend to favor larger plants like nuclear, combined cycle, or coal. While there are some aspects of the bill that Sierra Club could support, overall we believe the bill would make lower costs, cleaner energy options more expensive and less likely to come into our market. We believe the fundamental issue to fix is our constraints on transmission, not how transmission is priced. 

SB 2010 (Schwertner) - Relating to reporting by the market monitor of potential manipulation of the wholesale electric market.

The Sierra Club supports this bill. We agree that our enforcement and monitoring of the energy market should be improved to better protect consumers. The bill accomplishes this by requiring reports by the independent market monitor (IMM) and the PUCT on potential violations and enforcement actions. Under current law, there is no statutory requirement that these activities be made public or published with the PUCT. SB 2010 requires the IMM's existing report to the PUCT to include the number and type of potential market manipulations and all discovered or potential violations of PUCT or ERCOT rules, be in writing and sent to PUCT staff. It also requires the PUCT to produce an annual public report on February 1 annually that includes the number of instances in which the IMM reported potential market manipulation to the PUCT or its staff; the laws, regulations, and ERCOT requirements alleged to have been violated; and the number of violations where the PUCT or PUCT staff initiated enforcement action.

We would also support adding an Independent Market Monitor for the gas supply either as part of this bill or other bills. 

SB 2011 (Schwertner) - Relating to the authority of the Public Utility Commission of Texas to impose administrative penalties and enter into voluntary mitigation plans.

The Sierra Club supports this bill. The bill increases maximum penalties from $25,000 to $1,000,000 and also updates Voluntary Mitigation Plan requirements to ensure that such plans provide meaningful protections against market power abuse. The bill also sets up the procedure for enacting a Voluntary Mitigation Plan, modernizing our enforcement regime. 

SB 2012  (Schwertner) - Relating to electricity services.

The Sierra Club believes there are good and bad aspects to the bill. While we cannot support the bill overall since it could lead to the implementation of an expensive Performance Credit Mechanism (PCM), we appreciate the attempt to put guardrails on the PCM, and like much of the rest of the bill. 

We support the changes in the bill related to voluntary mitigation plans, enforcement, and the need to set seasonal requirements for ancillary and reliability services. While we understand the effort to put some limits on a PCM going forward by stating that it could not be implemented if the net costs were greater than $500 million, we think many of the provisions will be counterproductive. In particular, saying that a PCM can only be provided or earned by dispatchable generation cuts out controllable load resources like demand response from participating, which would lower the costs of the PCM. In addition, assigning the costs of the PCM to the generators themselves could be difficult. We do appreciate that the PCM could only be implemented after real-time co-optimization. 

We support the formation of a grid reliability committee and agree that market share controls are needed. While we are not taking a position on the percentage (be it 20 percent or some other number), establishing a limit on the amount of customers makes sense. 

We are very much opposed to Section O of the bill, which would require dispatchable power to be built by transmission and distribution utilities (TDUs) if the market did not produce at least 5,000 MW of dispatchable power between June 1, 2023, and December 31, 2026. While we view it as unlikely that the market won’t build this amount in the near future, fundamentally we would be opposed to TDUs rate-basing generation into rates, and giving them an unfair market advantage over merchant power plants. 

SB 2014 (King) - Relating to the legislature's goal for renewable electric generating capacity.

The Sierra Club opposes this bill. The bill would formally end competitive renewable energy zones (CREZ), as well as the Renewable Energy Portfolio Standard (RPS) last updated in 2005, and the resulting renewable energy credit (REC) program. The RPS has easily been met by Texas but is an important tool to show our progress. While Texas has already met the RPS easily with our vast array of renewables, the required and voluntary REC market that has resulted is an important tool to market and sell renewable energy in Texas. The REC market is vibrant, largely voluntary and helps customers and companies track their investments in megawatt hours of renewable energy. Retail Electric Providers (the utilities most Texans pay their electric bill to) and other load-serving entities use RECs and the program run by ERCOT and the PUCT to help connect customers to renewable energy. Many electric cooperative and municipal utilities also use RECs, sometimes selling them or retiring them. The bill would also prevent distributed renewable energy owners from earning RECs. 

The Sierra Club does not object to Section 10 of the bill which could lead to “reactive” power requirements on renewable energy facilities since we believe the Commission already has this authority, and ERCOT has already started discussions with stakeholders on this issue. That section also would create a report on transmission needs, which we do not object to.  

SB 2015 (King) - Relating to the legislature's goals for electric generation capacity in this state.

The Sierra Club opposes this bill. The bill would create a huge cost on consumers large and small of this state by creating a specific state-mandated goal for “dispatchable generation.” The bill would state that beginning on January 1, 2024, 50 percent of any new installations of power plants would be required to be dispatchable. The bill further would create a dispatchable energy credit trading program that would go into effect if less than 55 percent of new installed generation was not “dispatchable.” 

Essentially, load-serving entities would be required to invest in dispatchable generation if the market did not produce at least 50 percent “dispatchable” generation. The reason this will be so expensive is that it dictates that at least half of new generation be “dispatchable” when the majority of investments in new generation is in solar and storage. It would also essentially mean solar and wind could not even be built until a certain amount of gas plants (or potentially storage) were built. 

The bill could further allow the PUCT to “accelerate implementation of individual requirements” on generators, municipally-owned utilities and electric cooperatives, essentially directing the Commission to get involved in utility decisions on investments in new generation. This would be a dangerous precedent. 

The Sierra Club does not object to reporting requirements about utility plans to invest in new generation, although we believe this could best be handled through the ERCOT interconnection process. We would also not object to the creation of a new trading program in dispatchable energy credits that was voluntary, but object to the state creating a mandatory goal that would undermine renewable energy development. We would be happy to work with the author on a separate voluntary dispatchable energy credit program.

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