Texas Regulators Support Mandatory Reserves for Power Market

Texas regulators voiced support for requiring the state’s power companies to have access to extra electricity during times of peak demand, changes that may lead to additional payments for generators.

Public Utility Commission Chairman Donna Nelson and Commissioner Brandy Marty agreed at a regularly scheduled meeting today in Austin, Texas, that the commission should mandate reserve margins, according to a video of the meeting posted on the agency website. Commissioner Ken Anderson, who holds the third vote at the agency, opposed the move.

“It appears quite clear two commissioners support the policy of a mandatory reserve margin, which is perceived by many to be the first step on a road to a centralized capacity market,” Paul Patterson, a New York-based analyst with Glenrock Associates LLC, said in a phone interview.

The commission didn’t vote on any proposal today, saying it would await a power market resource adequacy report due in January. A reserve margin would require a minimum amount of excess capacity for peak-demand periods and may lead to the establishment of a so-called capacity market that pays generators for having available electricity. Other regional power organizations, including PJM Interconnection LLC, have installed capacity markets to encourage adequate future supplies.

Supporting Investment

The consensus at the commission “supports our view that Texas is the only power market that supports investment,” Daniel Ford, an analyst at Barclays Capital Inc. in New York, wrote in a research note today.

Generator owners including Energy Future Holdings Corp.’s Luminant unit, NRG Energy Inc. and Calpine Corp. have lobbied for capacity payments, saying market prices don’t support investment in additional power plants. Consumer groups and Texas cities have raised concerns that such payments would boost customers’ bills without a guarantee of more reliable service.

“It’s the first step on a very slippery slope that has the potential to destroy the economic engine that is Texas,” Anderson said in the video. “It could lead to a huge tax on consumers that will not ensure reliability.” He favors market-based approaches to encourage conservation or new generation, rather than a power-capacity market as adopted in some U.S. power markets.

“That’s 20 steps down the road,” Commissioner Marty said. The commissioners aren’t yet deciding how the reserve level would be mete.

Calpine, the state’s third-largest generator, rose 6.9 percent to $20.92 at the close in New York, the biggest increase in more than four years. NRG Energy, the second-largest power provider, gained 6.8 percent to $30.11. Luminant is the largest power generation owner in Texas.

Energy Future’s $15.4 billion term loan due in October 2017 was quoted at 68.4 cents on the dollar up from 66.6 cents yesterday, according to prices compiled by Bloomberg.

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