A better path to power

12/07/2013 12:00 AM

12/06/2013 5:47 PM

Every Texan’s access to affordable, reliable electricity is threatened by a proposal under serious consideration by the Public Utility Commission in Austin.

It’s easy to get lost in technical terms like “forward capacity markets” and “market-based regulation,” but what’s at stake is something we can all understand: It’s imperative that our electricity bills remain affordable.

In today’s Texas electricity marketplace, generators are paid for energy they actually sell to users. This is known as an “energy-only market,” a successful model that continues to attract new power generation to meet the state’s power needs.

A few special interests continue to press for an ill-conceived switch to a forward capacity market, which would force all Texans to pay power generators billions of dollars more for just being there, regardless of their performance or the actual demand for the power they generate.

In fact, heavily regulated capacity markets in the Northeast have cost consumers billions more for power without any guarantee that new generation facilities would be constructed.

It’s no wonder manufacturers large and small, environmental groups, retailers and cities oppose the PUC moving to a capacity market.

The idea that a capacity market is the only way to address power reliability concerns is off-base and fueled by generators who would benefit from subsidies. If the PUC insists on tweaking the successful energy-only market in Texas, far better alternatives exist.

For example, so-called “Supplemental Reserve Service” can deliver certainty in our state’s power reserves while ensuring the benefits of competition and choice aren’t compromised.

Supplemental Reserve Service is like an insurance policy that provides for additional power in the market that is purchased only when an actual shortfall is predicted.

SRS energy would be deployed to the power grid only in place of rolling outages and would avoid displacing any competitive generation in the market.

With SRS in place, the Electric Reliability Council of Texas (ERCOT), which oversees the state’s largest power grid, would determine the amount of additional power that needs to be purchased — say, during the summer — and would provide payments only to those generators who provide the additional power.

Generators providing power as part of the SRS would be subject to operational, credit and reliability requirements to ensure they can dependably provide the power reflected in ERCOT’s predictions.

Conversely, a capacity market assumes worst-case, hypothetical scenarios and all existing power generators receive the same subsidy payment, regardless of whether their power is ever needed or used.

SRS preserves the features of the energy market that are working. It’s market-based and allows generators to bid to provide additional power in anticipation of an energy shortfall.

Most important, SRS provides better assurance that a certain level of power reserves will be available at much lower costs than a mandated forward capacity market — 10 and 20 times lower.

Recent analyses show that SRS would cost approximately $2.2 billion over 20 years, while a mandated capacity market would cost customers between $25 billion and $46 billion over the same period.

That discrepancy is staggering. With sound alternatives available, it’s hard to imagine why the PUC would even consider a mandated capacity market.

At a recent hearing of the Senate Natural Resources Committee, lawmakers pressed PUC commissioners to look squarely at the consequences of a capacity market and wisely asked them to tap the brakes on this costly approach.

There’s clearly a better path forward for our electricity market that doesn’t cripple the economy or abandon competition, but still keeps plenty of power on the grid.

Tony Bennett is president of the Texas Association of Manufacturers.

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