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Texas Electricity Market Update
Reforms to Strengthen Power Grid
Texas has taken significant steps to address the shortcomings that led to widespread power outages during Winter Storm Uri in February 2021. The state’s Public Utility Commission (PUCT) has implemented several reforms to strengthen the power grid and ensure that market participants can meet their financial obligations.
In February 2021, Texas faced one of the worst winter storms in its history, causing a massive power outage that lasted for days. As a result, the Public Utility Commission of Texas (PUCT) has implemented several changes to prevent a similar event from happening in the future.
Credit Requirements for Market Participants
One of the main issues during Winter Storm Uri was that many market participants were unable to pay their counterparts for the power they had procured from the Electric Reliability Council of Texas (ERCOT) to serve their consumers. The PUCT and ERCOT have since determined that unsecured credit limits are inconsistent with actual creditworthiness. Therefore, ERCOT has implemented changes requiring market participants to provide additional financial collateral to prevent defaults from being shifted to consumers.
To address the debts accrued due to Winter Storm Uri, the Texas Legislature passed a law allowing for debt-obligation bonds. This allows affected companies to spread the repayment of these debts over time, rather than bill consumers in one lump sum, stabilizing the financial foundation of the ERCOT market while dampening the high cost to consumers.
Power Outage Alert System
The PUCT has adopted a rule to establish criteria for alerting Texans prior to potential regional and statewide power outages. This alert system will notify consumers of the possibility of outages in their region, locations to receive assistance if an outage occurs, and other relevant information.
The PUCT has taken steps to fortify the transmission system in the Rio Grande Valley, including ordering a second circuit to be built in an existing right of way to send additional power to the region. The PUCT has also introduced a consumer economic benefit test for new transmission projects, identifying lines where the construction cost will be offset by congestion cost savings.
The PUCT has made fundamental changes to the governance of ERCOT, restructuring the ERCOT Board of Directors to be comprised only of independent board members appointed by a selection committee and subject to specific qualifications. The Board has approved amendments conforming to the ERCOT Bylaws to the legal requirements imposed by these changes.
The PUCT has reviewed data regarding the interconnection of ERCOT to neighboring grids and has discussed legal considerations regarding further interconnections and FERC jurisdiction over ERCOT. ERCOT currently has three DC ties and one VFT connecting it to adjacent grids, with two additional DC ties pending regulatory approval.
These reforms have significantly strengthened the power grid and will ensure that Texas is better prepared to withstand extreme weather events. While there is still work to be done, the PUCT’s efforts to improve the state’s power infrastructure will provide Texans with greater reliability and stability in the years to come.
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