Texas Electricity and Capacity Markets: A Primer

Posted on Posted in Consumer Advocacy, PUC/ERCOT, Texas Electricity, Texas Electricity News

The agenda by the power generators who create Texas electricity for a Capacity Market is being pushed harder and harder these days, and it looks like things might be coming to a head. This article by Tony Bennett, who is the President of the Texas Association of Manufacturers, is one of the most basic and straightforward explanations of a Capacity Market as I have seen. It’s also one of the most straightforward and easy to understand articles illustrating why a capacity market is a horrible idea that will only do one thing: rob from Texas consumers and give to big power generation companies. And for anyone who might question Tony Bennett and his credentials to discuss electricity, keep in mind in this article he is basically saying that Texas manufacturers have, by and whole, been thrilled with the low Texas electricity rates the past few years, which should also disabuse anyone of the notion that our rates have been higher the past few years, because the companies themselves weren’t complaining. Here’s some notable quotes from the article:

Switching Texas from a competitive, deregulated electricity market to a capacity market would create an electricity tax that will hit everyone with an electric meter. It would threaten competition, choice and access. Nonetheless, some special interests are pressing the Texas Public Utility Commission to make such a move. Replacing our existing system with a capacity market means that Texas would be subsidizing power generators that promise to meet projected future electricity capacity requirements — even if it turns out we don’t actually need the amount of electricity contemplated in the hypothetical scenarios used to determine capacity requirements.   If regulators flip us back to a mandated, government-run system, everyone will pay more by way of this electricity tax on top of our direct energy costs. Electric customers will pay billions per year while power generators — even the most unreliable and inefficient — would receive large sums of money for just being there, regardless of their performance or the demand (or lack thereof) for their power. In fact, with a capacity market in place, the money doesn’t even go toward new power plants for Texans. As a recent study showed, well over 90 percent of the money in a capacity market went to existing power plants, effectively buying consumers nothing.   Switching Texas from a competitive, deregulated electricity market to a capacity market would create an electricity tax that will hit everyone with an electric meter. It would threaten competition, choice and access.

Texans obviously need someone to stand up for them against greedy power generation companies, and the good news this week, per an article in the Ft. Worth Star-Telegram, is that we might have one in the form of Texas Senator Troy Fraser. Fraser wrote a letter to ERCOT last week, addressing their vote to raise the reserve margin from 13.75% to 16.1%. Texas is already flirting dangerously close to the 13.75% reserve margin, so increasing the margin to 16.1% would make luring new investment in generation, by whatever means, an almost legal necessity. Senator Fraser said as much:

Sen. Troy Fraser, R-Horseshoe Bay, was polite in a letter to the ERCOT board on Monday, but there was no missing his message that ERCOT should back off. He said the proposal was too heavily influenced by weather data from the record-hot summer of 2011. He called that heat wave an anomaly that should not push policy decisions to such a degree.

“An increase in the target reserve margin of this scale could not help but serve the interests of those advocating for a capacity market, a system which would subsidize existing generation,” he wrote.   “With the makeup of the ERCOT Board heavily weighted in the electric industry’s favor, any vote to drastically increase the reserve margin appears to be self-serving and could increase electric costs for all consumers.”   Drawing links between the power industry, the proposed reserve margin increase and a “capacity market” was like brandishing a sword in the board’s face.

The 16 person ERCOT board is already weighted in favor of the power industry, and on top of that many of their technical advisers are industry power representatives. So it’s not in any way surprising that they’d be recommending a plan of action that would pave the way for their industry to make a lot more money at the expense of Texans. One final interesting note from the article in the Star-Telegram:

A key consultant’s report to the PUC last year said calculations of needed reserves may already be too high. The Brattle Group’s report said normal distribution-related power outages (interruptions due to storms, for example) “cause customers to lose power 100 times more often than do generation resource shortages …”

So our reserve margin might already be too high, and 99% of the time generation problems are due to distribution related plant outages. But one 200 year record summer comes along and that should drive all our data and decision making for new power generation? Step away from the ledge, PUC, and please stop brandishing our wallets. A capacity market is a terrible idea.

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