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February 3, 2014

Electricity report escalates debate over capacity market

New PUC study by the Brattle Group suggests that the state’s largest power grid can achieve higher levels of reliability, but only at increasing cost to users.

A new study of the Texas electricity market suggests that the state’s largest power grid can achieve higher levels of reliability, but only at increasing cost to users.

Brattle Group, in a report for the Public Utility Commission of Texas, said the state’s current deregulated power market will support generation totaling about 11.5 percent more than the estimated peak demand. That’s less than the 13.75 percent reserve margin that the Electricity Reliability Council of Texas now aims for.

The report escalated the debate over whether to adopt a so-called capacity market, in which the state would pay generators to provide necessary power. Under a capacity market, the report said, Texas generators could receive capacity payments of $3.2 billion a year, which could be partly offset by $2.8 billion in lower power costs. The $400 million difference is about 1 percent of ERCOT’s approximately $35 billion cost, Brattle said.

A trade group representing Texas generators, Texans for Reliable Power, said the report supports its case, saying a capacity market is “akin to an insurance policy on a home.”

“The cost of increasing Texas’ electric grid reliability is minimal, while the cost of continuing the status quo is a significant increase in rolling blackouts and major damage to our economy,” said spokesman Eric Bearse.

But Jake Dyer, policy analyst at the Texas Coalition for Affordable Power, said the study shows that Texas’ current market meets several standard measures of reliability.

“This report again raises the question, ‘Where’s the fire?’” said Dyer, whose group includes cities and other power consumers and opposes a capacity market. “Taken with revised load forecasts, it is unnecessary and expensive” to pursue a capacity market, he said, referring to ERCOT’s recent downward revision to its outlook for future peak power demand.

Brattle said it did not take those new estimates into account in its report.

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