Top Texas regulator: Reform the grid so ‘people don’t die’

By Edward Klump | 08/27/2021 02:46 PM EST

Peter Lake, chair of the Public Utility Commission of Texas Edward Klump/E&E News

As Texas’ top electricity regulatorPeter Lake has as much influence as anyone over where natural gas, renewables and other fuel sources are headed in the state after fatal blackouts in February.

But he’s also focused on preventing another disaster as he oversees an electricity market overhaul, mandated after the crisis.

“We need to build a market that incentivizes a grid that’s resilient enough that definitely people don’t die, first and foremost,” Lake said. “That is tragic and beyond acceptable in the state of Texas. Full stop.”

Lake’s comments came during his first one-on-one media interview since Gov. Greg Abbott (R) appointed him chairman of the Public Utility Commission of Texas in April. The state says more than 200 people died in Texas because of the February winter storm, during which over 4 million Texas homes and businesses lost power for hours or days amid a lack of sufficient generation.

Following the disaster, state lawmakers passed legislation to initiate reforms at the PUC and the Electric Reliability Council of Texas, the state’s primary grid operator. The PUC, which is expanding to five members after having three historically, is tasked with reforming ERCOT’s power market (Energywire, July 14).

“When Texans turn on their lights, the lights need to come on — wherever those electrons come from,” Lake said. “People in Texas and businesses in Texas shouldn’t have to worry about whether they can power their lives or power our economy.”

Lake has sought to provide a steady hand leading the PUC, holding public work sessions and touting efforts to operate the main Texas grid more conservatively. ERCOT hasn’t called for conservation this July or August, but a hot stretch in June caused an uproar as the grid operator asked electricity customers to reduce power use for several days (Energywire, June 15).

As in other states, climate change is raising major questions about grid planning in Texas. Lake said, in a statement to E&E News, that “any policy decision needs to be made on sound science and data which is the driving force” behind an ongoing ERCOT study that is examining weather scenarios that could affect electricity service. ERCOT is working with the state climatologist on the weather study.

Conclusions and projections from that study will play “a key role” in the PUC’s decisionmaking process, according to Lake. The PUC approved publication of a proposed rule on potential weatherization standards that would aim to have power plants and other electricity assets in the ERCOT region more prepared for harsh conditions as another winter approaches.

As the PUC chair works, questions also have surfaced about energy-related campaign donations to Abbott. The governor and other Texas leaders attracted funds from power and fossil fuel executives and companies after at times criticizing renewable energy. Clean energy advocates have said they are concerned that intermittent wind and solar could be hurt in a new market setup, although ERCOT data showed that more natural gas-fueled generation capacity was unavailable during the February power crisis than any other single resource (Energywire, April 21).

On securitization, which could spread massive costs from the February storm over time, Lake recused himself from PUC proceedings this week. He said it was more important that he work to help lay the foundations for the effort, saying he wants to ensure “price shock protection” for businesses and entities in Texas.

The new chairman has an extensive background in the financial world, including work at Gambit Trading and Lake Ronel Oil Co. At the PUC, Lake tosses a red, white and black “devil’s advocate ball” to staff members during meetings to encourage them to express opinions. The Texas native also is a hunter and fisherman who looks forward to getting out in the field with his English springer spaniel, Doc the Bird Dog, when there’s time.

Lake, 39, spoke with E&E News this week at PUC headquarters in Austin to discuss his work with Texas elected officials, the role of renewables, President Biden’s clean energy plans and demand response programs that can compensate customers for shifting or lowering power use.

Why did you take the job of PUC chairman?

I did not seek the job and, in fact, declined the job several times. The governor was persistent in making the point that [Texas leaders] needed a fresh perspective at the commission and at ERCOT and that this is very much a market problem, and they wanted someone with a market background to help move us forward.

There is some concern that natural gas, whether in production or pipelines, won’t be held to the same standards as electricity. Does that worry you?

We’re doing everything within our scope of jurisdiction to ensure reliability and resiliency, especially in extreme weather events. That obviously overlaps with the gas universe. And I’ve every reason to believe the Railroad Commission [the state’s gas regulator] will fulfill the tasks they were sent from the 87th Legislature.

Should renewables expect major changes?

I come to this with a blank slate. All options are on the table. I’m new to this industry and this universe, so I certainly don’t have any allegiances or grudges or loyalties.

We’ve got a very clear mandate from the Legislature and the governor to enhance reliability. That also means there can’t be any sacred cows, so that’s what we’re going to do.

Broadly speaking, this commission is taking the approach we want to move the economics to the outputs desired — not pick and choose winners or select certain inputs.

Reconciling renewable and reliable is a challenge globally. Almost everybody that comes in my office I ask if they’ve got the blueprint on how to solve that. Nobody’s taken me up on that yet.

I don’t know what the final product looks like or [how] the fine print will read. But reliable doesn’t mean not renewables. There’s a lot of strategies and tools that can be used. We hear an awful lot about how rapidly the technology in that space is advancing.

Reliable doesn’t mean just thermal or just hydrocarbons. Reliable means dispatchable power when Texas needs it. We’re going to leave it up to the marketplace to figure out the most cost-effective and efficient way to achieve that.

If fossil fuel plants don’t produce power like they’re expected to, does it matter what the market design is?

Part of hopefully a market designed well will incentivize the stakeholders across the spectrum. We’re very much taking the approach that the market design should move the economics and incentives to reliability and accountability.

We want to move the economics to the output needed rather than selectively allocate them to certain inputs and trust that the market forces and competitive market will drive technology, innovation, infrastructure to the most efficient solution.

And that applies across the board, whether it’s reliability of the gas supply chain or bringing new technologies like batteries or compressed air storage or pumped hydro — any and all of the above we want to make sure the market design incentivizes the results we want and the results we need.

President Biden has talked of decarbonizing the U.S. power sector by 2035. How much are you plugged in on federal legislation or things that could change the power sector?

We pay attention to it. There’s nothing we can do about it. We’re focused on reliability and accountability. We’re not particularly worried about where the electrons come from as long as when Texas turns the switch and needs the power, those electrons are there.

How much do you talk to Abbott, Lt. Gov. Dan Patrick (R) or other state leaders?

[On a] somewhat regular basis. They obviously have my phone number, and I’m always happy to talk to them. I worked with all of them very closely during the legislative session. Not many of us got much sleep or still do.

The governor is very focused on ensuring reliability and accountability for the grid. It’s a huge priority for all our state leadership. They’ve all been very supportive of the changes we’ve made. They’ve gone above and beyond in helping the PUC get the resources it needs and the legislative authority it needs to move in the right direction.

Can you comment on energy-related donations to Abbott that have been in the news?

That’s outside of our scope. I don’t have any insight into that universe.

More generally, some experts have said big guys win in Texas and little people end up paying. What is your message to people?

I’d tell ‘em to go read the comments we got on our market redesign because there are a lot of big guys in there who don’t, based on their comments, don’t feel like they’re winning very much.

The governor and lieutenant governor and the speaker have all been adamant that, “You go do whatever you need to do to make the Texas grid reliable regardless of what feathers it ruffles. We don’t care. This is too important.”

What about your dealings with the Railroad Commission of Texas?

Our working relationship has been good. I’ve sat down with Chair [Christi] Craddick and our staffs are meeting at least once a week to work on the various initiatives that we’re jointly tasked with.

They’ve been cooperative and supportive in everything that we’ve asked them to do and everything we’re working on with them.

Is there any more thought about connecting ERCOT to other grids, including via the proposed Southern Cross transmission project?

I’ve asked Commissioner [Lori] Cobos to specifically look into enhancing or accelerating transmission development within the state. I know the Legislature certainly doesn’t want to interconnect with other grids to the extent that would bring on federal oversight.

But to the extent projects like Southern Cross [which could help connect the main Texas grid with Southeast markets] are viable, absolutely, happy to move those forward and will continue to do so.

Will the ERCOT market design be figured out this year?

We want to have the blueprint finished by the end of the year. As I’ve told the Legislature, depending on what the mechanisms are in that blueprint, implementation could be a month. It could be a couple of months, up to six months.

We got very clear direction in S.B. 3 to address reliability, to look at ancillary services, among many, many other tasks. We need to make sure Texas moves away from this crisis-based business model so that we have a more resilient, reliable grid going into the upcoming summers. And of course we need to be ready to answer the Legislature when they come back in 2023, if not sooner.

This is something that needs to be done quickly but needs to be done right. We don’t have the luxury of getting it wrong or getting a do-over.

It’s up to the PUC and ERCOT to make lawmakers’ changes happen, right?

They were very clear and continue to be very clear that they want substantial change to ensure reliability and accountability in our power grid. They very much recognize that ERCOT had evolved to this crisis-based business model where generators don’t get paid [the premium] until the grid is on the precipice of collapse.

We don’t have to wait for a crisis to incentivize generators to provide the power Texas needs.

Did it evolve that way, or did the Legislature create that?

My sense and understanding is that’s the way [the] ERCOT market evolved through various iterations over the last 20 years. I don’t think anybody ever sat down and said, “You know what fellas, the best way to do this is build a crisis machine.” That’s just the way it evolved when you’ve got a lot of different stakeholders pulling different levers over a number of years.

But that’s also why the Legislature gave us S.B. 2 to reform the governance of ERCOT and make sure it has independent oversight.

How are you working with ERCOT?

We’ve got a new working partnership. [Interim President and CEO] Brad Jones is doing a great job. He and I have a very close working relationship. We meet weekly, talk constantly, and so we’re working very closely together. It’s a transition period for ERCOT.

At the end of the day, absolutely resounding guidance from the Legislature was that the PUC has complete and total oversight of ERCOT.

Many advocates feel like there’s too much focus on electricity supply. Are you looking at ways to shave peak demand as well?

We are looking at it. One of our work sessions will be dedicated almost exclusively to that.

To demand?

Demand response.

On the [commercial and industrial] side we’ve got pretty good demand response programs in place with good incentives.

In terms of [the Emergency Response Service], we don’t want to wait till the grid is on the precipice of disaster to start utilizing that tool. And right now the ERS is in contract, so it’s in place for the time being. But going forward that’s something we’re going to look at to get ERS out of kind of a crisis condition.

So that leaves the residential component, which is a big unknown. I haven’t been able to get a good answer from anybody on how much demand response is happening at the [retail electric provider] level.

We know there are programs out there for lower weekend rates if you commit to conserve during the week, [and there are] rebate programs. There are, you know, subsidies or payments for smart thermostats. [Nobody] that I’ve found so far has that data aggregated. So that’s where we need to start, is figuring how much of that is already happening.

We certainly don’t need to provide more regulation for a problem that’s already being solved by market structure.

Could the state do more?

One of the biggest incentives out there for a [retail electric provider] is to not have to go buy real-time power at spot prices at 5 o’clock on an August afternoon. That’s a huge financial incentive for that REP to use demand response for their customer base.

Does that mean we don’t need to do anything? Absolutely not. We may need to take substantial action. But until we get a sense of what’s happening already, I don’t want to put the cart before the horse.

Do you have thoughts on the PUC’s role on weatherization standards?

We’re publishing … a proposal for publication to have phase one of our weatherization requiring [companies] to implement [previous North American Electric Reliability Corp.] standards, plus address any specific problems that occurred with [the] generation fleet during the [2021] winter event and attest to those problems being addressed and mitigated. Phase two will be [a] more robust, granular weather standard.

Phase one is to ensure that the Texas generating fleet is more resilient this winter than it was last winter.

Will summer eventually be part of weatherization?

Absolutely. That’s part of the phase two bigger, I guess, broader rulemaking.

Do you have other political aspirations?

No. I’m a private-sector business guy and market guy who was honored to take some time for public service at the [Texas] Water Development Board.

I’m honored to be entrusted with this important task [at the PUC], and I’m going to focus on getting it right — and we’ll go from there.

What do you like to do in your spare time?

I’m a hunter and fisherman, so looking forward to bird season, but not as much as my dog is. He’s pretty excited to get out in the field. Didn’t get to go fishing this summer because we’re focused on this [PUC work].

This interview was edited and condensed for clarity.