Turner, Davis Urge Caution on Raising ERCOT Price Cap, Cite Impact on REPs May 8, 2012 Email This Story Copyright 2010-12 Energy Choice Matters
Texas State Representative Sylvester Turner and Senator Wendy Davis filed separate letters to the PUCT Commissioners expressing concern with the proposed increase in the ERCOT system wide offer cap to $4,500 effective August 1, citing, in particular, the impact on retail electric providers.
"In 2008 five retail electric providers failed because of price volatility. I ask: what will be the impact if the cap goes to $4,500 per megawatt/hour in August of this year, as has been proposed? What happens if the cap is tripled in the years that follow, as has been suggested? I similarly have concerns about proposed upward adjustments to the power balance penalty curve and other changes designed to increase energy costs," Turner said.
"It takes longer than six months to get financing, to put iron in the ground, to get permitting and to begin operating a new plant. There is no chance -- none whatsoever -- that increasing the cap this summer will lead to new generation construction before 2013. But by moving too quickly -- and without proper consideration of the potential fallout -- your agency could disrupt existing REP contracts and cause other difficulties," Turner said.
Davis similarly said in a separate letter to the Commission, "But some of the quick changes now under consideration -- including a proposal to increase the offer cap for energy to $4,500 in August -- cannot possibly lead to new generation construction in time for this year's peak summer months. It may do other things, such as undermining existing REP contracts. But it will not bring more generation to Texas before this summer." [emphasis added]
"I have watched as electricity prices have gone up over the years - and all the while many within the industry have urged us in the Legislature to not pursue corrective action. But now that prices have come down somewhat, many within the industry now want market intervention. To me, this raises issues of basic fairness," Turner added.
A letter dated April 11 from Ambit Energy and Stream Energy to the Commissioners was also added to the dockets in Projects 37897 & 40268 yesterday.
In the April 11 letter, Ambit Energy and Stream Energy said that they were, "generally supportive of your [the Commission's] proposals and direction," but were opposed to proposals raising the System Wide Offer Cap (SWOC) and the Power Balance Penalty Curve (PBPC) this summer with an effective date of July 1, 2012 [the letter coming before the August 1, 2012 date was proposed at the April 12 open meeting].
"The rapid implementation of any upwards adjustment to both SWOC and PBPC will leave little time for market participants to raise additional capital (if necessary) to cover the incremental costs associated with these proposed increases," Ambit Energy and Stream Energy said.
In the April 11 letter, Ambit Energy and Stream Energy asked the Commissioners to delay the effective date of any new proposals affecting the SWOC and PBPC "beyond the summer of 2012" in order to provide adequate time to digest and understand the impact of any changes, raise new capital (or otherwise meet collateral requirements) as needed and implement necessary cost increases to residential and commercial customers currently under term contracts.