A high-level showdown on energy costs

Posted Tuesday, Jul. 16, 2013  comments  Print Reprints
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The Electric Reliability Council of Texas, manager of the power grid that covers most of the state, decided not to decide Tuesday on a proposal that could result in consumers paying power companies to build more generating capacity.

Indecision can be a smart move, especially when ERCOT had a powerful state senator breathing down its neck and warning against the far-reaching policy change.

The broad issue that ERCOT’s 16-member board was trying to face is a crucial one, and it has been the subject of a years-long policy debate before the Legislature and the Public Utility Commission.

It’s called “resource adequacy,” a reference to whether the state has enough generating capacity to avoid rolling blackouts during peak demand, mostly on hot summer days when Texans are running air conditioners full blast.

The board’s technical advisers, including power industry representatives, proposed an increase in the “target reserve margin,” the amount of generating capacity in excess of predicted need. The current target, a 13.75 percent reserve margin, would be raised to 16.1 percent.

Sen. Troy Fraser, R-Horseshoe Bay, was polite in a letter to the ERCOT board on Monday, but there was no missing his message that ERCOT should back off.

Fraser, who represents a 17-county portion of central Texas, expressed “serious concern.” He’s been a key player in decisions about electricity in Texas since the state’s power market was deregulated in 1999.

He said the proposal was too heavily influenced by weather data from the record-hot summer of 2011. He called that heat wave an anomaly that should not push policy decisions to such a degree.

But what Fraser was really telling ERCOT was to butt out of an even more intense policy debate.

“An increase in the target reserve margin of this scale could not help but serve the interests of those advocating for a capacity market, a system which would subsidize existing generation,” he wrote.

“With the makeup of the ERCOT Board heavily weighted in the electric industry’s favor, any vote to drastically increase the reserve margin appears to be self-serving and could increase electric costs for all consumers.”

Drawing links between the power industry, the proposed reserve margin increase and a “capacity market” was like brandishing a sword in the board’s face.

Since deregulation, Texas electricity has been what’s called an “energy only” market. That is, customers pay only for the power they use.

The enticement for power companies to play in this deregulated game is their ability to increase wholesale prices in periods of peak demand. The PUC last year decided to allow even higher price spikes.

But the high-level debate now is on whether to change the “energy only” market to a “capacity” market. In that case, consumers would pay extra each month, with the increase meant to entice power companies to invest in more generating capacity.

A key consultant’s report to the PUC last year said calculations of needed reserves may already be too high. The Brattle Group’s report said normal distribution-related power outages (interruptions due to storms, for example) “cause customers to lose power 100 times more often than do generation resource shortages …”

Fraser made a strong stand at the right time. Decisions like this should be left to legislators and the PUC.

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