The market overhaul would create new subsidies for power generators, but at ratepayer expense.


Afar-reaching and controversial overhaul of the ERCOT market has received approval from the Public Utility Commission, although the regulatory agency also signals it will wait for legislative guidance before implementing the change.

Dubbed the Performance Credit Mechanism (“PCM”), the market overhaul would create new subsidies for power generators, but at ratepayer expense. A PUC consultant has put the cost of the PCM at $460 million annually, while other experts give it a higher price tag.

The PUC has spent months investigating possible market design changes — ever since the 2021 winter storm that left more than 4 million Texans without power — and only finalized the PCM recommendation on January 19. The vote was 5-0.

However, various market participants— including consumer groups, retail electric providers and others — have expressed opposition. The PCM model also has drawn opposition from the Independent Market Monitor of the ERCOT market, and key lawmakers.  Gov. Greg Abbott has expressed support for the PCM.

The Background

Under the PCM, a reliability standard would be established along with a corresponding quantity of performance credits. Load-serving entities such as retail electric providers and municipally-owned utilities would be required to purchase these performant credits, and presumably would pass along their costs to end-users. Meanwhile, revenue from the credits would go to generation resources based on their availability during high-risk hours. The PCM design also allows for load-serving entities and electric generators to trade Performance Credits during the year, through a voluntary market.

In addition to the Performance Credit Mechanism, the PUC also has considered various other market redesign options.  These include a Load Serving Entity Reliability Obligation design, a Backstop Reliability Service design, a Dispatchable Energy Credits design, and a hybrid of the Backstop Reliability Service and Dispatchable Energy Credits designs. Each were outlined in a Nov. 10, 2022 expert report commissioned by the PUC, which you can read here.

During a January 12  PUC meeting, commissioners considered employing the Dispatchable Energy Credits design and the Backstop Reliability service design as potential “bridge” mechanisms leading up to the PCM, which could take three to four years to implement.

Supporters and Opponents

PCM supporters include Gov. Abbott, who, in a Jan. 10 letter to the PUC, expressed the view that the PCM would help ensure future generation development while maintaining Texas’ highly competitive energy-only market.

However, the characterization of the PCM as an “energy-only” design has been disputed by various experts — including PUC commissioner Jimmy Glotfelty, who instead describes it as a “capacity market” construct. The distinction is important because Texas policy makers generally have avoided capacity constructs, under which generators receive payments for in-the-ground capacity in addition to payments for selling power. (For more about the distinction between capacity markets and energy-only markets, see the link, here.)

Representatives of various generation companies have expressed support for the PCM, and insist it would help create long-term incentives for generation investment.

Opponents include the Independent Market Monitor of the ERCOT market, who claims the PCM is premised on flawed assumptions. State Sen. Charles Schwertner and members of the Senate Business and Commerce committee that he chairs also have signaled their skepticism. They have urged the PUC to delay implementation until the 88th Texas Legislature — which convened on January 10 — can provide further direction.

Other opponents include the Texas Association of Manufacturers — a coalition of large energy customers, such as oil refineries. The organization estimates the PCM model could add as much as $5 billion annually to energy costs. In a January 19 statement, TAM recommended an alternative approach that would include “low-cost state-backed financing for dispatchable development.”

— R.A. Dyer