Power and Renewables

Winds of change in Texas power: Unraveling the implications of Senate Bill 6 for ERCOT’s energy future

byScott Bruns

The Texas Senate Business and Commerce Committee will be meeting Thursday, March 23, to discuss several energy bills related to the Texas power market. Senate Bill 6, which introduces the Texas Energy Insurance Program (TEIP), is one of the items to be discussed. This bill has the potential to fundamentally alter the structure of the Texas power market, and we believe it is essential for you to be informed of the details and potential consequences.

Key facets of Texas Energy Insurance Program

Texas Energy Insurance Program (TEIP), as outlined in Senate Bill 6, contains several noteworthy provisions likely to impact the power market. Some of the key facets include:

  • Requiring the installation of 10,000 megawatts of new thermal generation, to idle as a reliability backstop. While coal and natural gas units could equally apply, it would be likely that all of these would be natural gas units. This would lead to the siting of at least 10 or more new units with the most favorable new natural gas units being smaller quick-start units that have typically smaller output capacity.
  • An RFP process managed by the PUCT, is worded with specific requirements in which only the larger incumbent generation owners to likely to be eligible.
  • Ratepayers cover the full cost of build and guaranteeing a rate of return to owners, even if market forces make the generators obsolete.
  • Costs related to TEIP’s transmission and distribution utility services allocated to all retail customers in the ERCOT power region.
  • The establishment of the Texas Energy Insurance Fund, a special fund administered by the Public Utility Commission of Texas. The bill allows the commission to use money from the fund to provide payments to the independent organization certified for the ERCOT power region on behalf of customers to offset amounts owed to certified entities.

Potential impact of TEIP on power markets

The TEIP would cost more than $10 billion initially, which excludes the potential repercussions on the Texas power market. If enacted, TEIP would lead to the retirement of older units currently idling but available, for newer customer-funded assets that guarantee this rate-of-return. This scenario would likely benefit incumbent generators disproportionately and signal a re-regulation of the Texas market.

Other market changes under discussion

Senate Bill 6 is not the only proposal on the table. Senate Bill 2015 aims to mandate that 50% of all Texas electric generation must come from “dispatchable” generators, which could further influence the market landscape.

The Texas energy market’s future

While these bills seem to go against the competitive spirit of the Texas energy market, they reflect a growing desire among legislative members, the PUCT and recent ERCOT board appointees, to revert to a more concentrated market. Although the chances of these proposals becoming law are uncertain, we believe it is crucial for ERCOT market participants to be aware of these developments and their potential implications on the market structure.

Read our recent article by Rob Allerman, Sr. director of power analytics at Enverus, on the unprecedented growth in the ISO.

Scott Bruns

Scott Bruns

Scott Bruns is a senior power analyst at Enverus. Before joining Enverus, Scott traded physical and financial power for nearly a decade at Direct Energy. Changing focus, he moved into the fundamental analysis group at Direct where he focused on developing congestion models and provided traders with short- and long-term price views. In his spare time, Scott enjoys enhancing his Python programming skills and taking his puppy to the dog park with his wife and children. Scott has a bachelor’s degree in mathematics from the University of Houston.

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