How The Performance Credit Mechanism Works
by Bori Bernát
PUCT s Plan to Improve ERCOT Reliability
The PUCT wants to the change the Texas electricity market with a performance credit mechanism. Find out how this could affect your electric bills!
Texan lives depend on the reliability of the ERCOT electric grid. When it s really hot or cold, there needs to be enough Texas electricity for people to heat and cool their homes. But in 2021, winter storm Uri stopped the Texas grid cold. As a result, the PUC of Texas now wants to establish a new market system with the performance credit mechanism (PCM). Let s see how the PCM will work and how it could affect electricity prices.
Changing the Texas Electricity Market
Currently, power generators in Texas are paid for the energy they make. Known as an “energy-only” market, the goal is to produce the cheapest electricity possible. But some generators will only make electricity when demand drives prices high. And so, the energy-only market doesn t always keep the grid reliable.
With this new PCM proposal, generators could sell performance credits to providers. These performance credits are basically a promise. A promise that they ll have enough power to meet the high demand when the time comes. In theory, any power producer will be able to sell credits.
This may change the basis of the Texas electricity market. In theory, the PCM would bring Texas closer to what s called a “capacity market”. And the goal would shift from low prices to consistency.
The Performance Credit Mechanism and Reliability
About 28% of the power made in Texas comes from renewable sources. And that s great for Texans and the planet. But, the PUCT fears wind and solar farms can t make enough electricity. Whether it s extreme heat or an arctic blast, electricity producers always need to meet the demand.
With the PCM, companies are incentivized to build and maintain generators that can make power when they re needed. Known as “dispatchable power”, they include nuclear power plants and generators using fossil fuels like natural gas and coal. But all that investment and building means that credits won t be cheap.
Unfortunately, retail providers will need to increase their prices to cover the cost of the credits. In short, it means that the PCM will probably increase electric rates across Texas.
Performance Credit Mechanism Concerns
The PUCT voted unanimously for the PCM. But, not everyone s convinced it s a good idea.
Some economists, environmentalists, and oil and gas producers have concerns that the PCM won t guarantee grid reliability to the level PUCT hopes. And since the money appears to come out of consumer pockets, critics worry about increasing in the price of Texas electricity. Some even estimate that the PCM could cost customers up to $5.7 billion.
In January, PUCT voted to adopt the PCM. Now, it s up to lawmakers in Austin. They ll either let the PUCT put it into effect, or they ll ask for a different idea.
Find Good Electric Deals in Texas
For now, the PCM won t affect prices. All the same, consumers have some time to prepare for summer by shopping for lower electric rates. Luckily, the best time to shop for a good deal is now. The Spring shoulder months have started and rates have come down. Visit www.texaselectricityratings.com to view all the current deals and choose the best one for your home.