Tag Archives: Texas Capacity Market

Stakeholders line the hall at PUC to file comments on proposed changes to Texas’ s Energy Market

A variety of stakeholders lined the hall on Floor 8 of the Travis Building north of the Capitol in Austin today to file comments with the Public Utility Commission on what changes — if any — are needed in Texas’s energy market to help keep the lights on. With suggestions that electricity demand is growing, and supplies dwindling, and a couple of high-profile incidents in 2011 when Texas came close to brown-outs or black-outs, stakeholders have been discussing these issues at the PUC and ERCOT — which runs Texas’ electrical grid and market — for a couple of years. And there are at least two camps. On one side, are a majority of the generators — Luminant, NRG and Calpine, but also Austin Energy and Xcel — who argue that without a new Forward Capacity market to pay generators not only for the energy they produce when they produce it, but also for the capacity they have or promise to have, there will be no incentive to build new generation to meet demand. Many markets in the US have such a capacity market, and it does provide extra cash to generators (as well as to demand response to lower demand), though actual new construction has been limited in most markets. On the other, are environmental and consumer organizations like the Sierra Club, Public Citizen, EDF and AARP, large industrial and municipal  consumers like HEB,  Shell, the Texas Industrial  Energy Consumers and the Steering Committee of Cities Served by ONCOR — who are concerned about higher electricity prices and the potential that a capacity market will only help keep older generation units on longer, but not guarantee new generation. And perhaps another group — like CPS Energy, Golden Spread Electric Cooperative and GDF Suez Energy — who are not convinced a capacity market is needed, but are not opposed to some additional changes. Today was the deadline to respond to literally dozens of questions from Chairman Nelson and Commissioner Anderson — one a capacity booster the other a skeptic — on what we all thought.

The Sierra Club did file comments — some 25 pages long — that said: No capacity market needed — too expensive, too complicated and no guarantees. But we do think that some changes may be needed, and the best way is to do short-term competitive contracts through the Ancillary Service market at ERCOT. Since most of our “problem” is for a few hours a year on a cold winter morning or hot summer day, an extra Supplemental Reserve Service contracted a year in advance could help both those building peaking plants, or providing solar plus storage capabilities or those able to turn down demand could participate, helping to avert any issues before they arise. Other changes already occurring at ERCOT — such as allowing “loads” to bid into the energy market — and turn down demand when prices spike — should be allowed to move forward. The Comptroller of Public Accounts must begin rulemaking to adopt 2012 energy codes so that new buildings in Texas are energy efficient. PUC should adopt new rules on interconnection of distributed solar and require that excess energy be paid a fair market rate.

indeed, ERCOT is in the middle of redoing both their ancillary service market and their demand and supply forecasts and it may well turn out that there really is no big crisis at all. Actually the real crisis is that energy companies like luminant, NRG and Calpine are not making as much money as they would like!

Stay tuned for more in this ongoing saga. For a copy of our comments, see here..

Concerns about potential capacity market becoming a bi-partisan affair – Wendy Davis and Leticia Van De Putte enter the discussion

The ongoing discussion at the Public Utility Commission about whether Texas needs to add a “capacity market” to its “energy market” to ensure there will be enough power to keep the lights on during cold summer mornings or hot summer afternoons is raising concerns among a variety of stakeholders.

 At a recent interim committee hearing of the Senate Committee on Natural Resources held November 25th, Chairman Troy Fraser was unabated in his criticism of the decisions by the Utility Commission to consider such a market, arguing it would be equivalent to “an energy tax.” The conservative chairman argued that such a capacity market went against Texas tradition since 1999 of an energy-only market, and more importantly, was a decision the legislature – not the commission should make.

Others raising concerns have included the Sierra Club, Public Citizen, the Cities served by Oncor, the Texas Manufacturing Association, the conservative think-tank Texas Public Policy Foundation, the AARP and some retail electric providers like Direct Energy. Others – like generators Luminant, NRG and Calpine – have been bullish in their support for the need for a capacity market.

The latest to voice their concerns are the two senators now vying for the State’s top political positions, Governor and Lieutenant Governor. Wendy Davis, State Senator from Fort Worth, wants to be the next Governor. Leticia Van De Putte, State Senator from San Antonio, wants to beat David Dewhurst and become the head of the senate as Lt. Governor. Both raised concerns in letters sent to the Public Utility Commission this week.



Photo of Van De Putte and Davis campaigning in San Antonio — photo from San Antonio Express News 

In her comments, Senator Van De Putte wrote: 

“At the November 25, 2013 Senate Committee on Natural Resources hearing on resource adequacy you stated that the Public Utility Commission would only make changes if it made sense from a cost benefit standpoint. I was pleased to hear that but remain concerned that the cost benefit analysis may not contain a breakdown of costs for the different types of consumers including residential, commercial, and large industry.

I strongly urge you to include a cost analysis for the different types of customers and I would appreciate a response on the methodology of the cost benefit analysis. I also appreciate your willingness to have a complete cost benefit analysis before any decisions are made. I stand ready to work with you and the members of the Public Utility Commission to ensure reliable, efficient, and affordable electricity for our state.”

For her part, Senator Davis from Fort Worth, running to be the state’s governor, asked the Commission to conduct the analysis and answer three basic questions:

In the Senate Committee on Natural Resources hearing on November 25, 2013, you stated that you were “absolutely in favor of doing a cost/benefit analysis” relative to a potential change to

a capacity market. I am writing this letter to urge you to proceed with such an analysis and to consider the following as you engage in that analysis:

  • “What would the impact be on the costs of electricity to the average residential ratepayer, the average commercial ratepayer, and the average industrial ratepayer?
  •  What guarantee can be provided that switching to a capacity market will result in the construction of new generation, eliminating the specter of future capacity shortfalls?
  •  What might the impact to our state’s economy be were such a shift to occur, measured particularly by potential impact to the costs of doing business in the state and the subsequent impact that might occur to our state’s continued ability to attract and grow business? In this regard, I am particularly interested in determining the potential impact  that added costs might have to the energy production sector of our state’s economy? “

 And also filing comments were PUC Commissioner Ken Anderson, who is opposed to the capacity market, even as his two other commissioners express at least partial support for the concept. For his part, he had his staff conduct an analysis of a report filed by the  Charles Rivers Associates, on behalf of energy giant NRG, which found a capacity market would cost money — some $4 billion per year – but over several years would lead to more stable energy prices and ultimately cost a small fraction of that amount in return for reliable electricity service and little cost because of brown-outs or black-outs. The analysis by Anderson’s staff criticized the methodology used by the River Associates outfit, stating that they overestimated the cost of any brown-outs or lost opportunity for energy. The report concludes: “Based only on errors …., the CRA Study is 23.2 times too high in its value of dollar per un-served kWh.” A copy of the memo/study by Anderson can be found here

Comments from other stakeholders — including the Sierra Club — are due on December 16th. Stay tuned for more info!


Senate Natural Resource Committee and Witnesses Grill Utility Commission for decision to consider “Capacity Markets”

Yesterday, November 25th, in a fairly contentious day at the Capitol, Senate Committee on Natural Resources Chair Troy Fraser grilled the two Public Utility Commissioners that made a decision earlier this year to require a mandated reserve margin which could lead to the implementation of a “capacity” market in Texas. He was joined both by conservative Senators like San Antonio Senator Donna Campbell and more liberal senators like Senator Rodney Ellis and Senator and Lt. Governor candidate Leticia Van De Putte (D-San Antonio), who all questioned the wisdom and authority of the PUC to consider major changes to the wholesale energy market.

For a pretty good report on the days events courtesy of  the Texas Tribune, see here.

So what is it exactly that had the Senators — conservative and less-so — so riled up, as well as one of the three PUC commissioners, and many of the invited witnesses, including the American Natural Gas Alliance, Valero, the Texas Association of Manufacturers, the Cities served by ONCOR, Walmart and the Texas Public Policy Foundation, among others? A preliminary decision by two of the three PUC commissioners — Chair Donna Nelson and newbie Brandy Marty — to declare in a non-binding vote that they were in favor of a required reserve margin, and the suggestion by Nelson and many electric generators that the best way to get there is by the imposition of a forward capacity market — which pays generators (and also potentially companies reducing energy demand through demand response) money for having the capacity to deliver energy as well as paying them for any energy they actually produce. This is common in some other markets in the United States. Analysis shows that such a market could be very costly — upwards of $4 billion per year — with no actual guarantee that it would lead, as Fraser put it, to “new steel in the ground.” Instead, existing resources like large inefficient dirty coal plants could get paid for just hanging around.

In addition to the cost and effectiveness of a capacity market, Fraser and even PUC Commissioner Ken Anderson — a capacity market critic — questioned whether PUC had the authority in statutes to change the market structure without legislative direction to do so. Both Marty and Nelson argued they did since they were charged with protecting consumers and insuring reliability, but Fraser stated that previous discussions on the subject had led to an understanding that the Energy-only Texas market decision was made in 1999, and only legislative action could change it. All Senators who spoke told the PUC to tread carefully and seek legislative guidance before adopting changes. Fraser in particular admonished Nelson and Marty for not “picking up the phone” before their vote to require a reserve margin. (Note; The vote was really an indication of their preference and no actual changes have been made to create a required reserve margin — still it was an indication of their preferences.)

In the meantime, the Commission has asked stakeholders for public input on a variety of questions, and will be holding a workshop on January 29 and 30th. The Sierra Club has been involved in the discussion, and has argued that a capacity market is not needed and that relatively minor changes to the energy-only market can help move Texas toward a clean energy future. One of our main efforts has been to change the way ERCOT – the Electric Reliability Council of Texas — projects our supply and demand of energy. We argue that ERCOT often overestimates demand — in part because they have not incorporated the gains made through energy efficiency and demand response — and underestimates supply — the amount of energy produced by wind and distributed solar to the grid during peak times of use. ERCOT is slowly changing its projections because of our and other efforts and it could be Texas discovers our supposed crisis in reliability has more to do with the amount of money big companies like Luminant want to make to pay down their debts, and less about ensuring the reliability of our energy markets. In the meantime, development of new rules and protocols to help loads, demand response, energy efficiency, solar and energy storage to participate more actively in our energy-only market can help meet our demand.