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Texas PUC Commissioner Proposes New Portfolio Standard, Imposed On LSEs, For Dispatchable Generation, As Alternative To Forward LSE Physical Generation Obligation

Designed To Put New Steel In The Ground, Most Existing Generation Wouldn't Qualify For Credits

November 17, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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Texas PUC Commissioner Will McAdams has, in a memo in advance of tomorrow's open meeting, proposed that the PUC adopt a Dispatchable Portfolio Standard to address (along with other market reforms) reliability in ERCOT, as an alternative to the LSE obligation (which is essentially a three-year forward "capacity" obligation).

While the Dispatchable Portfolio Standard would not solely be open to new generation, the qualification and accreditation requirements proposed by McAdams (described below) would exclude most of the existing dispatchable fleet

McAdams had previously raised the possibility of using the existing statute which provides for a goal for natural gas as a means to achieve desired level of dispatchable generation.

However, McAdams in the memo said, "While this is a statutorily authorized mechanism for procuring dispatchable generation, it focuses on only one fuel type of generation resource. For the PUC to commit to making natural gas the predominant resource within the ERCOT market, at a time when the fuel cost of natural gas is rising at a sustained and alarming rate, could be economically imprudent for Texas consumers."

Rather than using the goal for natural gas, McAdams wrote that, "I believe that the broad policy of PURA § 39.159 provides us with the ability to develop our own goal for new dispatchable generation to ensure grid reliability."

"As such, we should establish a Dispatchable Portfolio Standard, similar to the goal set for renewables twenty years ago," McAdams wrote

"This new goal should be calculated to account for the continuing strong growth of the ERCOT grid. The Texas economy is growing rapidly, and we need to address this head on. If electricity consumption in the ERCOT region grows just 2% per year, and that is conservative given the number of people and industry relocating here, then we will need 15 GW of additional generation capacity in 10 years just to keep up with the growth -- and that is assuming no retirements of existing generation resources ... From this Dispatchable Portfolio Standard, we would establish a system for certain qualifying generators to create Dispatchable Energy Credits [DECs], which would be bought, sold, or traded in a fashion similar to the REC program now," McAdams wrote

McAdams proposed that the annual DPS goals for the program life would be determined at the outset and are based on forecasted increases in energy consumption and peak demand for the ERCOT market. "I welcome input from market participants and my fellow commissioners on how best to right-size this program," McAdams wrote

Annual DPS targets would be set as an annual percentage of total ERCOT retail energy sales, with each LSE required to procure a minimum amount of DECs equal to a share of system demand during key peak seasonal intervals from the prior year. ERCOT could maintain a centralized clearinghouse for DECs allowing credits to be cleared over a 12-month period. LSEs under this program would maintain the optionality to enter into bilateral agreements for qualifying DECs, procure directly from the clearinghouse, or pay an alternative compliance payment

Every load-serving entity would have an annual requirement based on their share of system demand during key peak seasonal intervals from the prior year. That requirement could be met by either buying DECs or paying the ACP.

Alternative Compliance Payment should be imposed, similar to the ACP for RECs to ensure that the cost to customers remains reasonable, McAdams wrote

ACP funds would then be applied to Ancillary Services costs incurred and thereby would reduce costs for all consumers.

McAdams wrote that the PUC should identify performance standards for new generation qualifying for DECs. For example, the PUC could require qualifying DEC generation to be facilities able to ramp to full nameplate capacity within 5 minutes or less and have a net facility specification heat rate less than or equal to 8,000 Btu/kWh, or a battery that can discharge for at least 2 hours. McAdams further wrote:

• Qualifying Hours of Performance: Only generation that bids into the market and clears during hours 06:00 - 20:00 should qualify for a DEC.

• Verification of Performance: PUC should verify performance qualifications of dispatchable generation, either as a one-time verification or annually.

• Compensation Conditions: Pay for performance based on accepted bids into ancillary services, the day-ahead market, or the real-time market.

• Interconnection Qualification: Generation seeking qualification for DECs should only be interconnected at transmission voltage.

McAdams wrote that, "the DPS program outlined in the accreditation of generation resources that qualify for DECs would exclude most of the existing dispatchable fleet," but noted that, "this Commission appears to have consensus on a suite of new ancillary services, as well as adjustments to the Operating Reserve Demand Curve, that will undoubtedly have the effect of supporting our existing dispatchable generators."

"I believe this two-track approach to ensuring reliability is needed. The first track focuses on bolstering the economic health of our baseload fleet in the near term, while the second, as outlined by this memo, focuses on guaranteeing that new, efficient, and economic dispatchable generation is built over the long term," McAdams wrote

"This program is meant as a transitional incentive. The duration of the program and the annual goals needed to be met should be established at the outset and should not be open-ended," McAdams wrote

"This plan has the added dividend of eventually mitigating its own effect, regardless of success or failure. If the DEC program is a success and the credits are in demand, then new generation gets built. In that case, over time, like RECs now, DECs become cheaper. If, on the other hand, no DECs are generated or no LSEs want to buy them, then those LSEs are paying a percentage of their load in ACPs to offset the needed increase to ancillary services. In either case, this plan can get new steel in the ground without dramatically increasing costs for Texas ratepayers," McAdams wrote

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