Energy market reform embroiled in potential conflict of interest

Energy market reform embroiled in potential conflict of interest

In October, Colorado-based E3 Consulting presented a plan for how the Public Utilities Commission would redesign the deregulated energy market in Texas. It produced a 44-page show, paid for by Chicago-based energy giants NRG and Exelon.

Now, PUC – saying it wants an impartial review of the proposals – has appointed E3 to analyze plans, including its own.

The PUC contract signed on May 10 shows the consulting firm will receive up to $364,000 for its review. The contract states that E3 will set up an “internal firewall” to guard against bias in the report, but E3’s Contract Manager is the first of four authors included in its market redesign plan.

E3 did not respond to an audio message or email requesting comment. House spokesman Rich Parsons said the selection of the E3 was made through a competitive bidding process that is “open to any qualified responders and in full compliance with the state’s procurement laws and procedures.”

“Through this competitive process, it has been determined that E3 offers the best value to Texans for this project,” he wrote.

But energy experts said the contract casts a shadow on the market redesign process.

“Can you spell conflict of interest?” Allison Silverstein, an Austin energy consultant who worked at the PUC from 1995 to 2001 and with the Federal Energy Regulatory Commission from 2001 to 2004, said: “Only on the surface, regardless of their project evaluation, is not supposed to have the appearance of bias, if not The reality of potential bias. Most of us as citizens believe that if you take money from someone like a generator, you will probably prefer the point of view of that party.”

market suggestions

The Texas legislature ordered the House of Representatives to find a new energy market after a freeze in February 2021, when power plant failures triggered statewide blackouts it blamed for the deaths of more than 200 people and plunged millions into darkness. During that week, PUC allowed the wholesale price of power to stay at $9,000 per megawatt for several days, untangling a $16 billion bill that Texans will have to pay for decades. The purpose of the price was to attract much needed power generators in the market.

Six months later, in an effort to improve the way energy is bought and sold in Texas, PUC asked six questions to applicants seeking to transform the state’s electricity market.

Instead of answering questions, E3 made a proposal to redesign the marketplace sponsored by NRG and Exelon. The proposal will have service providers – such as CenterPoint in the Houston area And electric retailers — those who sell power to consumers — contract directly with power generators to make sure they have enough generation to meet demand. Similar markets have a grid manager — such as the Texas Electrical Reliability Council — that contracts with generators to ensure they have enough power, said Oliver Kerr, president of US Department of Energy Research, Oliver Kerr.

The E3 plan would keep wholesale prices private and benefit companies like NRG, which generate energy and sell it to consumers.

“When you have large integrated facilities that have both supply and (demand), they can exercise market power and set the contract price,” Kerr said. “They’ve become the gatekeepers – that’s a competitive concern.”

Kerr said the competing proposal is closer to the current market structure. But it will provide energy credits that will reward generators with assets, such as large-scale batteries or natural gas-fired power plants, that can run quickly.

“Both of these policies can be designed in a competitive manner.” Kerr said. “One is not inherently more or less.”

potential conflict

When PUC, which regulates public utilities in Texas and oversees ERCOT, sought companies to provide independent analysis of market proposals, only two responded: E3 and Potomac Economics, an independent market monitoring service out of Fairfax, Virginia.

Potomac is watching ERCOT to ensure companies don’t cheat in the wholesale electricity market, where energy producers compete to provide electricity at the cheapest prices.

Unlike the E3, Silverstein, the energy consultant, said, Potomac cannot receive money from power generators or retailers due to its standalone status.

Ed Herz, a University of Houston energy fellow, said the RFPs for independent analysis were written in a way that may have alarmed some analysis firms. He said it appeared that PUC was looking for a rubber seal, a concern he said was also reflected in his contract with E3.

E3 told PUC about its work with NRG and Exelon during the petition process, in accordance with the contract, but noted that the relationship was “terminated before this contract was signed.”

The contract also states that E3 will create an “internal firewall” that will prevent employees working in independent analysis from providing recommendations or analysis to any Texas energy market participant until work is complete.

However, E3 Contracts Manager Zachary Ming is the first author included in the E3 white paper to present his market redesign proposal.

Parsons, with PUC, said the contract would be executed “with the strict supervision of PUC personnel to ensure that it is only executed in the public interest of the Public Utilities Commission and the people of Texas…”

The whole process irritated some participants in the energy market.

Aaron Zopate, CEO and founder of energy investment firm Eolian, proposed the energy credit model, along with PUC Commissioner Will McAdams. He said no one with an E3 has contacted him to ask about his suggestion.

“In the fall when we jumped into the process, I felt there was already a pre-baked result, which would benefit existing heat generators and impose huge cost increases on consumers,” he said. “Given the cost increases already seen in the market, I hope the (E3) planners will have the ability to objectively evaluate other alternatives.”

Using E3 for review casts doubt on the entire redesign, which will affect the 90 percent of Texans who live in ERCOT’s energy market and who “deserve to make transparent decisions about something as important and expensive as electricity,” Silverstein said.

“And we deserve to know if the decisions were made for good reasons that have been well-studied to help us in the long run for reasons we can understand.”

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