Monthly Customer Surcharges Would Pay for $8B Plan
Addressing a congressional panel last week investigating the February Texas blackouts, Republican Rep. Michael Burgess said his home state has things under control.
“Texans are angry and deserve answers. No one single policy could have prevented this,” Burgess told the House Energy and Commerce Subcommittee on Oversight and Investigations on Wednesday. “Texans can and will solve this problem within their borders,” he said twice.
That can-do Texas streak of independence is evidenced by its political leadership’s pride in the ERCOT system, an interconnection of its own tucked in between the Eastern and Western Interconnections. The leadership and regulators often credit the grid operator’s deregulated market for providing cheap energy that drives the state’s economic engine.
The independent spirit was also evidenced in Texans’ fury at the ERCOT Board of Directors’ out-of-state members, who are selected to ensure their lack of ties to market participants. Five of those directors resigned from the board and a sixth pulled his nomination a week after dayslong outages during sub-freezing temperatures resulted in at least 111 deaths, according to the Texas Department of State Health Services, and could cost as much as $295 billion in economic damage. (See ERCOT Chair, 4 Directors to Resign.)
Former FERC Chair Cheryl LaFleur, now a distinguished visiting fellow at Columbia University’s Center on Global Energy Policy, said she was disappointed to see the board members run out of the state.
“People from Michigan and Maine might actually be helpful to you if you want to figure out what to do about cold weather,” she said, a reference to former Michigan Public Service Commissioner Sally Talberg and former ISO-NE General Counsel Raymond Hepper.
Enter Warren Buffet’s Berkshire Hathaway Energy. Though Iowa-based, the company is no stranger to the Texas market, having attempted to acquire Oncor Electric Delivery for $18 billion in 2017, only to see Sempra Energy steal away with the utility. (See Sempra Outmuscles Berkshire for Oncor.)
This time, Berkshire is making the rounds at the Texas Legislature and proposing to create an entity, called Texas Emergency Power Reserve, that would build and maintain 10 GW of natural gas-fired capacity and gas storage for $8.3 billion. The plants would only be used to provide emergency power when demand outstrips supply, as happened in February when ERCOT lost more than half its available generation.
According to a slide deck obtained by The Texas Tribune, consumers would be charged a monthly fee for 40 years. Berkshire estimates residential customers would pay $1.42/month, commercial customers $9.61/month and industrials $58.94/month, the paper said. Berkshire is hoping for a 9.3% rate of return, similar to regulated utility charges in Texas.
Berkshire has hired eight lobbyists for more than $300,000, according to the Tribune, and polled 800 likely Texas voters to determine their support. The company said in its presentation that Texans would be “broadly supportive” of paying “a little more” to increase reliability.
Don’t count on industrial consumers as being willing to pay a “a little more” for backup power.
“We need to focus on ensuring that the ample generation we already have is there when we need it, not forcing customers to buy new power plants,” Richard A. Bennett, president of the Texas Association of Manufacturers, said in an emailed statement.
Not surprisingly, the proposal has run into opposition from those in ERCOT’s energy-only market, especially from generators who are only paid when they are sell power into the market. A similar proposal has been floated in the past, though the energy would have been competitively bid, in what was called the “break-glass-in-case-of-emergency” plan. The concern has always been the state’s regulators and lawmakers “wouldn’t have the stomach” to keep the new, more efficient units out of the market, thus eroding investment incentives, said one long-time observer.
Alison Silverstein, an energy consultant who helped write the U.S.-Canada Blackout Investigation report after the 2003 grid collapse in the Northeast, told RTO Insider that as far as she can tell, Berkshire is “generously offering to use our recent brush with electricity disaster to return to guaranteed monopoly recovery of gas plant costs — without the benefits of a competitive market to protect customers from paying for unneeded capacity, overpriced plants or overpriced fuel.”
“I’m leery of billionaires offering gifts,” Silverstein said. “Power plant availability wasn’t the problem in February. The [generation] that failed wasn’t sufficiently winterized and/or didn’t have enough fuel.”
Noting the Trump administration’s push to support struggling coal and nuclear plants, framed as providing grid resilience, Silverstein said Berkshire’s proposal “puts a new face on the same idea” to justify out-of-market generation reserve payments for politically connected resources. (See Perry Orders FERC Rescue of Nukes, Coal.)
“It’s still about using fear of an emergency to pay a favored provider for expensive power plants that can’t compete on their own,” she said.
Legislation Would Overhaul PUC
The Texas Senate last week passed Senate Bill 2154, which would expand the Public Utility Commission from three members to five, still appointed by the governor but required to be Texas residents. The legislation would add professional engineers, attorneys and certified public accountants as being eligible for the commission, and mandate that at least two members be “well informed and qualified in the field of public utilities and utility regulation.”
“We didn’t want just industry insiders,” Sen. Charles Schwertner (R), SB2154’s sponsor, said during debate on the changes. He argued that the PUC needs to better understand the implications of its actions.
Lawmakers have criticized the commission for not enforcing power plant weatherization recommendations and for not repricing 32 hours of $9,000 MWh scarcity pricing after the grid was restored. All three commissioners have resigned in the storm’s aftermath, though Chair Arthur D’Andrea will remain seated until Gov. Greg Abbott appoints a successor. (See D’Andrea Resigns from Texas Commission.)
“Who in their right mind would want to be a PUC commissioner now?” Silverstein said. “How do you unwind these problems with everyone shooting at you? My hat’s off to you … thoughts and prayers go out to them. Those are some extremely tall boots to fill.”
The Senate this week will also consider a bill (SB3) that would give the PUC the authority to fine generators and utilities up to $1 million for not weatherizing their power plants or transmission lines. The legislation also allows the Texas Railroad Commission, which has regulatory authorities over the gas industry, to fine natural gas producers the same amount for not properly weatherizing.
The lack of weatherization, pinpointed by a FERC-NERC report after smaller-scale blackouts in 2011, has been blamed for the loss of much of the thermal generation during the winter storm.
The bill would also set up a Texas Energy Reliability Council to ensure energy and electric industries meet “high-priority human needs and address critical infrastructure concerns” and improve the industries’ coordination and communication; create an improved outage alert network; and limit scarcity pricing to no more than 12 hours in succession.
The measure does not offer funding to companies to weatherize their facilities.
“That’s the cost of doing business,” Schwertner said.