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PUCT Debates Whether Offer Cap Adjustment More Efficient Than NSRS Reforms in Incenting New Generation
August 23, 2011
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PUCT Commissioners yesterday debated whether adjusting the offer cap or Power Balance Penalty Curve may ultimately be a more efficient means of assuring resource adequacy versus changes in Non-Spinning Reserve Service (NSRS) and Reliability Unit Commitment (RUC).
Although Commissioners are still committed to a two-step process to ensure generator revenues accurately reflect grid conditions -- first by addressing short-term issues such as NSRS and then by addressing long-term issues which may include adjustments to the offer cap or Power Balance Penalty Curve -- Commissioner Kenneth Anderson raised a question of what approach would best send a longer-term price signal.
Anderson noted that while energy prices have been strong this year, generation developers (and their financiers) respond that there is no assurance of such weather-supported pricing in the future, and they thus discount such revenues in the forward curves and decisions to invest in new assets.
As a result, Anderson questioned whether adjusting the offer cap or Power Balance Penalty Curve would be more efficient in sending pricing signals that would be reflected in the forward curves, and support new development.
Anderson noted, however, that changes to the offer cap or Power Balance Penalty Curve would implicate issues regarding collateral, and may also require a phased effective to date so as not to impact current bilateral contracts and hedging.
Anderson said that either change could, "potentially have a bigger impact on the risk profile of various market participants."
Texas Industrial Energy Consumers, which does not support the Lower Colorado River Authority compromise NSRS proposal, warned that merely adjusting NSRS to result in higher energy prices during NSRS deployments may not result in the desired result of encouraging new generation.
TIEC noted that many NSRS events are transient, or "random" (reflecting a ramp limit, for example) and questioned whether banks would reflect such random NSRS-impacted prices in the forward curve, or whether the pricing would just represent a windfall to generators without being reflected in the forward curve and thus not supporting new development.
TIEC opposes the offers floors in the LCRA proposal because they produce scarcity conditions for all NSRS deployment, even though many NSRS deployments result from timing issues, and the management of imbalances, rather true scarcity.
The PUCT will further address the issues at its September 1 open meeting.
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