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Texas Power Providers Seek Fees to Insure Generation Reserves

Electricity providers in Texas say they should be paid by households and businesses to be sure there’s enough generation capacity held in reserve for days when demand is highest.

The Texas Public Utility Commission is considering rules that would overhaul how the main state power market managed by the Electricity Reliability Council of Texas Inc. operates. Instead of relying solely on electricity prices for profits, providers would also receive fixed payments from consumers to build and maintain supply. These so-called capacity payments would largely go to plant owners.

Executives of Calpine Corp. (CPN), the third-biggest power provider in Texas; CPS Energy, the nation’s largest municipally owned gas and electric company; and EnerNoc Inc. (ENOC), the largest demand-response provider, supported the payments before the commission today. Groups representing industrial consumers, such as independent oil refiner Valero Corp. (VLO), oppose the move.

“Capacity markets don’t cost more, are far more reliable and stable than other market designs,” Thad Hill, president of Calpine, told the three commissioners in Austin today. “Calpine would not invest hundreds of millions of dollars into brand new capacity. We think that is true of other investors as well.”

Generators have been seeking a capacity market as a way to recoup costs following a 73 percent drop in the price of natural gas, a power-plant fuel, over the past five years, which drove electricity prices lower. Last year, the Texas utility commission responded by raising the cap on wholesale power prices to $4,500 a megawatt-hour from $3,000 with the limit rising to $9,000 in June 2015.

“We urge the commission not to think there is a crisis, because there really isn’t,” said Phillip Oldham, a representative of Texas Industrial Energy Consumers, a coalition of members, including Valero, that purchase more than 1.3 billion kilowatt-hours a year. “We want reliability, but we want it at reduced costs.”

Chris Brewster, an attorney for the Steering Committee of Cities Served by Oncor, the state’s largest utility, said a mandatory reserve margin “produces increased regulation and litigation and a much less streamlined and efficient process.” The cities oppose capacity payments.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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