The massive growth projections for Texas’s ERCOT power grid raise a vitally important question for the future of our grid and our economy: who should pay for the transmission improvements needed to deliver this electricity?
The existing system of transmission cost allocation is known as the Four Coincident Peak (4CP) program. Through 4CP, large consumers pay for transmission costs based on four peak-use (“coincident”) periods during the summer.
This system works well with existing users, in part because it encourages them to implement demand response strategies that reduce their use when energy is tight on the grid. But 4CP isn’t set up to allocate costs at the giant scale of new customers that are coming onto the grid — we agree they should pay for the transmission services they will likely use.
That’s why TEBA has proposed a new approach to the Public Utility Commission of Texas. Under our proposal, new large loads would pay for transmission services based on their total requested capacity, not four snapshots of their energy use. After a limited time to be determined by the Commission, these users would move into the 4CP (or 5CP; see below) system. This prevents large loads from avoiding transmission charges when they are coming onto the grid while preserving ERCOT’s ability to curtail their energy use during critical periods when the grid is stretched.
This phase-in approach ensures that new transmission costs should be appropriately financed by new loads in the first few years on the grid, and that 4CP continues to help the state incentivize demand response.
Here’s how our proposal would work in more detail: to evaluate a new load’s transmission cost responsibility, its requested capacity (the “numerator”) would be divided by the total system load (the “denominator”), and the resulting number would be used to calculate transmission costs.
By implementing this approach, the PUCT can make sure the costs of serving new customers aren’t passed to other ratepayers, and the commission can enable big users to better respond to real-time prices, curtailing use when electricity is scarce and expensive. Implementing essentially minimum demand charges can ensure customers pay for what they use by adjusting the current system more surgically.
We’ve also told the Public Utility Commission that TEBA supports adding an additional coincident peak — creating a “5CP” system — during the winter, when extreme cold can stress the grid. But we oppose other approaches (such as a “12CP” system) that would reduce incentives for demand response, encourage unnecessarily curtailment, and discourage economic activity — all without increasing reliability and potentially creating cost shifts to weather-sensitive customers.
Transmission improvements are foundational to delivering the affordable, flexible, fast, and reliable energy that Texas will need to lead in AI and the modern economy. TEBA’s approach will help ensure that Texas creates a fair system that meets our state’s needs.
You can read our comments here.