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Overhaul of Texas electricity market put off by new forecast on power demand

An overhaul of Texas’ deregulated electricity market, which appeared to be well underway as recently as late last year, has hit a wall and action now appears months if not years away.

Momentum had been strong for major changes designed to assure there’s enough power to meet growing demand in the state. The principal option was a move to a so-called “capacity market,” in which generators are paid upfront to provide supply to meet a desired level that provides reliability.

But with the latest forecast by the Electric Reliability Council of Texas, which suggests the state’s largest power grid will have a comfortable margin of supply for at least the next few years, that trend not just waned but stopped.

That view was expressed by a panel examining the Texas power market at the CERAWeek energy conference here and by policymakers around the state.

“This summer, if things are fine, I imagine there isn’t going to be a lot of momentum to do something,” Steven Schleimer, senior vice president of government and regulatory affairs at Houston-based Calpine Corp., said Thursday. Calpine, which recently closed a $625 million purchase of a power plant near San Antonio, is the state’s third-largest generator with more than 8,000 megawatts.

“We don’t have a crisis. The system’s not broken,” said state Sen. Troy Fraser, R-Horseshoe Bay, who chairs the Senate Natural Resources Committee and is an influential voice on the state’s power market. Last year, he asked the Texas Public Utility Commission to pull back its move toward a capacity market, saying the PUC had “broad authority to keep the lights on,” but not “unbridled authority to do an entire redesign.”

Judging by recent projections, he said Thursday in an interview from his Austin office that the state’s biggest power grid doesn’t face a potential shortage of electricity “until 2020, and even then that doesn’t count new power plants” that probably will be added.

John Fainter, who heads the Association of Electric Companies of Texas, agreed that there’s not support for a capacity market today, but said that doesn’t necessarily mean it’s a dead issue.

“When you look at it, the time is stretched out some,” Fainter said, but the issue of adequate power supply still needs to be addressed.

Terry Hadley, spokesman at the Public Utility Commission of Texas, said it’s fair to say the PUC has shifted from a decision-making mode to an information-gathering mode. The agency has scheduled a workshop in May to examine what kind of reliability standard the state should pursue.

“The next benchmark will be the 2015 session” of the Texas Legislature, Hadley said. “This lengthens the decision-making process, but none of the concepts have been taken off the table.”

While the chances of adopting a capacity market have faded, it wasn’t the only measure policymakers pursued to encourage more investment in new supply.

The Public Utility Commission of Texas has raised the maximum price caps for wholesale power in the state in a separate effort to give generators another opportunity to earn better returns.

That price cap, now at $5,000 per megawatt-hour, rises to $7,000 per megawatt-hour in June and goes to $9,000 next year.

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