Texas Regulators to Double Electricity Price Cap in 2015

The Public Utility Commission of Texas voted to double the price cap for wholesale electricity in 2015 to spur investment in new generation.

The commission approved the increase 3-0 in a meeting today in Austin, Texas. Prices on the state’s main electricity grid, operated by the Electric Reliability Council of Texas, are currently limited at $4,500 per megawatt-hour, according to the commission.

The cap, which is typically reached during the hottest days or a sudden shortage of supplies, will be raised to $5,000 a megawatt-hour on June 1, 2013, $7,000 a megawatt-hour on June 1, 2014, and $9,000 a megawatt-hour on June 1, 2015, according to the approved proposal.

Generation reserves may fall below the amount needed to prevent blackouts in three years, according to an Oct. 22 report by the Electric Reliability Council of Texas, whose grid serves 85 percent of the state’s electricity demand.

“We are behind the eight ball,” Chairman Donna Nelson said at today’s meeting “We need to do something to send the right signal to the market.”

State regulators are considering redesigning the Texas market, where generators are only paid for the electricity they produce. A slump in gas and power prices have reduced investments in new generation projects, the commission has said

Nelson said the cap increase was an “interim” step and she supports setting a required generation reserve target to prevent blackouts.

Generator owners including Energy Future Holdings Corp., NRG Energy Inc. (NRG) and Calpine Corp. (CPN) supported lifting the price cap. Lawmakers, cities and industrial and consumer groups said the increase may lead to rate increases for customers.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net