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Texas Power Providers Seek Fees to Boost 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 to keep the lights on 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., the third-biggest power provider in Texas; CPS Energy, the nation’s largest municipally owned gas and electric company; and EnerNoc Inc., the largest demand-response provider, supported the payments before the commission today. Groups representing industrial consumers, such as independent oil refiner Valero Corp., 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.”

Natural Gas

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. Wholesale electricity for next-day delivery at Ercot’s North hub, which includes deliveries to Dallas, have averaged $37.51 a megawatt-hour so far this year on the Intercontinental Exchange, down 55 percent from the average of $82.70 for the same period in 2008.

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.

Providing Certainty

The three commissioners didn’t say when they would decide an issue that they have already been considering for two years. Chairman Donna L. Nelson did say that the commission should end the debate soon to provide certainty to the marketplace.

“Just having this issue open is creating some uncertainty,” Nelson said. “Once and for all, we need to close this loop and finish the dialogue.”

A simple majority of two votes is needed to establish a reserve-margin requirement and a capacity market in Texas.

Nelson and Commissioner Kenneth W. Anderson Jr. said there were merits to what the generators have been saying about the risk of supply disruptions if nothing is done. They also said they are listening to the concerns of consumer groups. Commissioner Brandy Marty, the newest member of the panel appointed by the state governor, said very little to indicate which way she might be leaning.

Perry’s Term

Governor Rick Perry, who has said Texas’s continued growth is likely to require expanded power capacity in years to come, leaves office in January 2015. He has said he will not seek another term.

Anderson said after the day-long meeting that it’s unlikely a decision will be reached before the end of the year because more analysis still needs to be done. He also said that if a decision to move forward with a capacity market were made next year, the market would not be in place before Perry leaves office because it’s a two-year process.

“I do believe in the summer of 2011, our reserve margin kept us from having rolling outages,” Nelson said. “Really the central question is do we plan for a summer of 2011? To me, that is the crux of the issue. Or, do we plan for those average weather years?”

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