Texas regulators advance plan to raise prices when supplies tighten

August 29, 2013
Eileen O'Grady

Aug 29 (Reuters) – Texas utility regulators on Thursday directed the state grid operator to create draft rules for a market reform that would raise wholesale electric prices at times when high consumption strains generating supply.

Electric use in Texas is growing faster than generation is being built, shrinking the state's reserve margin and increasing the prospects for rolling outages in future years, the grid operator has warned.

The three-member Public Utility Commission directed the Electric Reliability Council of Texas (ERCOT), the state's primary grid agency, to create a draft rule, but the framework will leave many specific details open for future debate.

The commission's move "is an excellent first step toward the establishment of a better investment environment for power generators and thus, more predictable prices for consumers and benefits for the entire state economy," said Stefaan Sercu, president of GDF Suez Energy Marketing, North America, one of the firms supporting the reform.

Donna Nelson, chair of the commission, also called for a public workshop to be held in early October to revive discussion on related "resource adequacy" topics.

She asked for public comment on several issues, including how large a cushion, or power reserve, ERCOT should maintain to avoid a blackout; should ERCOT's reliability standard be re-evaluated; and how to develop more accurate future load forecasts.

"My goal is to address these concurrently," Nelson said. "What is the answer to resource adequacy?"

Commissioner Kenneth Anderson said Texas' growing economy and a short spell of hot weather this summer resulted in lower electric consumption than forecast by ERCOT, calling into question how projections are developed.

"Whatever the reason, there is something going on recently that affects the forecast and that affects a lot of things that need to be part of our study around the reserve margin," he said.

Industry sources hope a new addition to the three-person panel, Brandy Marty, can help the divided commission address the state's looming power supply crunch.

Marty, Texas Governor Rick Perry's former chief of staff, was appointed to fill an unexpired term that ends Saturday. She is expected to be appointed to a full six-year term by Perry.

Texas' $29 billion electric market is struggling with problems common in other U.S. power regions: attracting new supply; reliance on natural gas-generation and price volatility, stricter environmental regulation and renewable energy integration," said Travis Miller, director of Morningstar's utility analysis.

"Texas is dealing with several issues whereas other states are dealing with only one or two," said Miller. "To the extent Texas figures out the best way to handle any one of those issues, other regions and states could learn how to manage their issues."

Power plant owners in the state include Luminant, a unit of Energy Future Holdings, which is owned by Kohlberg Kravis Roberts & Co LLP and several private equity firms; NRG Energy; Calpine Corp; NextEra Energy Inc and Exelon Corp.

<- Go Back