Debate intensifies on state’s power reserve needs

Public Utility Commissioner Brandy Marty says she wants the state to set a mandatory cushion of electric power generation capacity but is waiting for more information to decide whether the power market needs a more fundamental overhaul.

In a non-binding vote last Friday, she and Utility Commission Chair Donna Nelson supported setting a mandatory reserve margin — a percentage of generating capacity beyond what Texans use on days of highest power demand, typically on summer afternoons.

The third commissioner, Ken Anderson, strongly objects to a mandatory reserve margin.

Brattle Group study

Setting a specific amount for the margin will require more information, Marty said in an interview with FuelFix on Wednesday.

She said that a study for the commission by the Brattle Group consulting firm, set for release by the end of the year, will propose a suggested reserve percentage to balance the need for reliable electricity with associated costs.

But Marty disagreed with suggestions that Friday’s informal vote was the first step toward an arrangement called a capacity market, which pays generators for maintaining power plants that only fire up a few days a year to meet peak demand.

Texas now has what’s called an energy-only market, in which power plants are paid only for electricity consumers use. Their incentive for maintaining excess capacity is that wholesale prices rise dramatically as demand approaches the peak.

Marty said the Brattle study and other information will guide the commission’s decision on what changes it may need to make in the state’s power market.

“It may have a capacity component, but it’s premature to say that now,” Marty said. “We need to do a lot of work before we determine what is right for Texas.”

The Electric Reliability Council of Texas, which manages most of the state grid, now sets a target — but not mandatory — 13.75 percent reserve margin.

The council forecasts that electricity reserves will hover just above that margin as early as next summer, with the reserve falling to 9.4 percent by 2018 and to 4.5 percent by 2023.

But the grid operator’s analysts are reviewing the projections in the face of persistent suggestions that they may overstate future power demand.

Objection

In objecting to the mandatory reserve proposal, Anderson said that any such decision should have waited for the study’s results.

“Deciding on a mandatory reserve margin before we know there is a problem is putting the cart before the horse,” Anderson said in an interview earlier this week.

He said a mandatory margin “is putting us on a slippery road toward having to implement some sort of capacity mechanism,” in which consumers would pay billions of dollars to support generators’ excess capacity.

Nelson declined to comment on her vote last week.

Authority questioned

Meanwhile, a state lawmaker questioned Wednesday whether the Public Utility Commission has the authority to establish a capacity market on its own.

“The PUC is a regulatory body,” said state Sen. Troy Fraser, R-Horseshoe Bay, who chairs the Senate Committee on Natural Resources and co-sponsored the original legislation that established the existing market structure.

He said he plans to hold a hearing on the matter.

“We did not give them the authority to change the design of the market that we had set up by statute,” Fraser told FuelFix on Wednesday. “Anything that will drive a cost of billions of dollars to taxpayers should not be a PUC decision. It should be made by the Legislature.”

In capacity markets elsewhere in the country, power plant operators receive payments based on their total generating capacity, regardless of when they added it to the grid. Opponents have argued that because these payments all go to existing generation, they do little to encourage new plant construction.

Anderson also noted that two power shortfalls that have occurred in Texas since the system was deregulated in 2002 were not caused by insufficient reserve margins.

“We have had two involuntary curtailments at times when we had fat reserve margins,” Anderson said. The most recent was Feb. 2, 2011, when an unexpected cold snap combined with numerous plant outages led to rolling blackouts, even though the reserve margin at the time was 16 percent.

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