Battle over power capacity in Texas heats up
AUSTIN, Oct 1 (Reuters) - Texas regulators are struggling to attract new power plants and other resources so the state's electric supply will keep pace with its growing economy.
Over the past two years, the Texas Public Utility Commission (PUC) and grid operator Electric Reliability Council of Texas (ERCOT have raised wholesale price caps and taken other steps to signal a shrinking supply of generation, but developers and others say more changes are needed.
The PUC directed the ERCOT last month to move forward with a proposal that would implement a demand curve that would allow wholesale prices to rise as power reserves tighten as a way to increase generator revenue.
The big question is whether Texas will follow other U.S. power markets to implement a "capacity" market. The existing Texas "energy-only" market only pays generators when they produce power.
Akin to an insurance policy, a capacity market pays generators and others to be available to supply future electric demand.
A newly appointed third member of the PUC is expected to end the stalemate between two existing commissioners over whether a capacity market is a necessity, or a radical departure from the current market design.
The state's 10-year-old, competitive power market needs to evolve to continue to meet the long-term needs of families and industry, said William Von Hoene Jr., senior executive vice president of Exelon Corp, one of the largest U.S. power companies.
Exelon subsidiaries own more than 5,000 megawatts of generation in Texas and sell power to 25,000 business customers and 130,000 residential customers.
"Exelon and other energy companies would very much like to increase their presence and participation in ERCOT," Von Hoene said at the Gulf Coast Power Association conference Tuesday.
However, companies are reluctant to invest "because the market is failing to provide a clear price signal," Von Hoene said.
Von Hoene said Texas needs to set a formal reserve margin to determine how much supply is needed as a cushion in the event of extreme weather or forced power plant outages, then create a forward capacity market.
"Not only will this give consumers and businesses more confidence in long-term system reliability, but will provide the regulatory certainty and market signals participants require to make long-term investments in future resources," Von Hoene said.
While most power plant owners support capacity markets, the Sierra Club and some large industrial power consumers in Texas oppose the concept, saying that recent market rule changes should be allowed to work.
National power groups are also watching Texas.
Joel Malina, executive director of COMPETE, a national coalition representing both power suppliers and consumers, is airing radio ads talking about electric reliability.
"With a new commissioner, this is the beginning of what will be a focused effort to look at the issue," Malina said. "We want (Texas regulators) to continue to do the hard work, looking at options to hopefully take consumers in a direction that will meet reliability needs."
Power companies in Texas include TXU Energy and Luminant, both units of Energy Future Holdings, which is owned by Kohlberg Kravis Roberts & Co LLP and other private equity firms; Tenaska, NRG Energy ; Calpine Corp ; CenterPoint Energy and NextEra Energy.
(Editing by Leslie Gevirtz)