2023 Texas Power Market Update: Rate Changes & Resiliency

Changes to Texas' power grid have improved ERCOT's ability to keep power flowing during significant winter storms. However, a seasonal assessment shows that the grid could still face rolling blackouts in an extreme scenario.

Summary

• Recent legislative moves in Texas have been aimed at improving the reliability and resiliency of ERCOT energy supply during extreme cold weather events. 
• While important, these changes will increase energy costs to 3rd party suppliers and result in higher prices for energy users. 

Background

In the words of ERCOT and PUC leadership, the Texas grid is "better prepared than ever" to handle the energy demands of the coming season. However, energy consumers in Texas may not be in the clear for a worry-free winter. Despite grid winterization improvements made in the wake of 2021 winter storm Uri (one of the worst power grid events in U.S. history), Texans could still face calls to reduce electricity usage this winter if the grid experiences higher than anticipated demand for power, according to an estimate from the Electric Reliability Council of Texas (ERCOT).

In the most extreme scenario, a combination of high electricity usage, power plant outages, and low wind and solar energy production, ERCOT would have to resort to rolling blackouts much akin to the disaster that ensued in February 2021.

Pablo Vegas, president and CEO of ERCOT, said, “It is critically important to address the fact that … under the most extreme conditions, there could be not enough power,” “That’s not acceptable.”

“That’s why change is needed in the market design in order to address that,” he added.

ERCOT and the Public Utility Commission (PUC), which regulates electricity infrastructure, are currently working on redesigning Texas' power market. A plan released earlier this month proposes that power providers would be required to purchase “performance credits” from power generators, intended to guarantee enough electricity is available to meet high demand. If providers don’t buy the credits or generators don’t produce the power, both would face financial penalties.

This plan follows the Texas Legislature’s passing of Senate Bill 3 (S.B. 3) in the summer of 2021. The bill requires power companies and some natural gas companies to make facility upgrades that enable them to withstand extreme weather. The bill also requires regulators to create an emergency alert system, similar to an Amber alert, for power outages and inclement weather.  

As part of this bill, the Public Utilities Commission of Texas (PUCT) was required to take necessary actions to ensure a consistent fuel supply. As a result, it directed ERCOT to establish a new Firm Fuel Supply Service (FFSS) to enhance fuel reliability in ERCOT in winter when demand is high for power generation.

Impact, Cost & Timing

In discussions with the supply community, some suppliers have stated they plan to call on Change in Law provisions to pass through the resulting cost increases from the FFSS onto their customers. In contrast, others will use new or existing contract language to directly pass through any cost increases to customers. In either scenario, energy end users will likely experience some increase in rates for power usage.

The actual cost impact will vary by supplier and the unique load they serve during the applicable time period. In our discussions with suppliers, we are hearing rough estimates of the FFSS cost impact to be about $0.0005/kWh for electricity usage from November 15, 2022, through March 15, 2023. While costs to homeowners would be minimal, the cost difference for large industrial businesses could be up to $100,000 per year or more. Additionally, the PUCT also lowered the systemwide offer cap to $5,000 per MWh, down from $9,000 per MWh (compared to the seasonal average of $50/MWh).

Solutions of digitalization, decentralization, and decarbonization

Disruption from extreme weather events is less of an if it will happen, but a when. It is crucial to prepare your business for a worst-case scenario. At Schneider Electric, our energy and risk management team help our customers weather any potential storm by:

• Providing timely and actionable information regarding legislation and grid reliability to keep your team aware of what is coming
• Informing you of expected energy cost impacts and variances to budget through proactive communication
• Offering immediate solutions to protect your business’ budget

Working with an experienced energy advisor not only helps you stay on top of the immediate actions you can take to protect your energy supply and budgets in the face of extreme weather or other unexpected disruptions. We also help you consider the long-term enhancements that will provide greater visibility into and control over your energy usage by:

• Harnessing IoT connectivity to monitor critical infrastructure assets like the smart grid
• Connecting meters, relays, and sensors to sophisticated analytics and management tools
• Helping companies adopt decentralized alternatives such as microgrid technology

Success Stories

During Winter Storm Uri, Schneider Electric supported affected customers across the U.S. in a variety of ways. By relying on our experts to help them to make critical decisions, our customers yielded millions of dollars in cost avoidance and savings. For one international steel manufacturer with a site in Louisiana, which relied heavily on natural gas from Texas, our Energy Operations team quickly put measures into place that resulted in the client avoiding nearly $500,000 in charges. Learn about the four actions taken at this site that brought in this outcome, and read more success stories following the 2021 Texas power crisis in this collection of case studies.

In another instance, a Schneider Electric customer proved firsthand the power of our microgrid technology. In the aftermath of destructive windstorms, Montgomery County, Maryland, bolstered resiliency by deploying two microgrids and modernized power distribution systems in their critical sites. Using EaaS, the county avoided capital expenses.

Looking to the Future

Maintaining the reliability of power and managing energy budgets is no easy task when the grid is aging and weather-related interruptions are becoming more pervasive. Though efforts to build new infrastructure and improve on current systems are underway, it’s up to individual organizations to put the necessary contracts and technology in place to ensure your operations are reliable and resilient this season. When facing another unpredictable winter ahead, especially amidst an ever-increasing demand for energy, there’s never been a better time to assess your coverage. Connect with a strategic sourcing expert at Schneider Electric to get on your path to building a short-and long-term energy supply strategy that will save money and reduce operational risk.