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Top States for Business Do Not Rely on Capacity Markets
July 30, 2012
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Copyright 2010-
The top states for business in the United States -- as judged by numerous publications -- do not rely on a capacity market, or other non-rate-regulated capacity obligations, to assure resource adequacy -- something which Texas should keep in mind given its concern with attracting jobs.
PUCT Chairman Donna Nelson, in particular, has emphasized that rolling outages are not an option, and are incompatible with Texas' desire to remain a top destination for businesses.
However, the specific mechanism used to assure resource adequacy, as seen in the eastern RTOs, can carry enormous costs which can drive businesses out of such markets, as industrial and other energy-intensive customers in PJM can attest.
Given Texas' concern with creating a hospitable business climate, Matters lists below several recent rankings of the best states for business. Notably absent from any of the three lists below is a state which relies on a capacity market to assure resource adequacy (some states, such as Virginia, have utilities in RTOs with capacity markets, but rely on ratepayer-backed resources for resource adequacy rather than the capacity market).
Matters will note that there are copious different lists of the top states for business, that some might produce different results, and that resource adequacy design is not the sole issue determining the rankings. Nevertheless, the rankings affirm that Texas' current energy-only approach is consistent with its overall attractive business climate and is seen as desirable by business interests. The CNBC and Business Facilities lists were chosen, in particular, because they were recently cited by Texas Gov. Rick Perry.
CNBC Top States for Business 2012 Business Facilities 2012 Best Business Climate Forbes 2011 Best States For Business Since centralized, forward capacity markets were first proposed, businesses have warned of their negative impacts on economic activity and jobs. From the initial joint protest filed against PJM's Reliability Pricing Model capacity market by the PJM Industrial Customer Coalition, Electricity Consumers Resource Council, Illinois Industrial Energy Consumers, Industrial Energy Consumers of Pennsylvania, Industrial Energy Users of Ohio, West Virginia Energy Users Group, and Portland Cement Association, on October 19, 2005:
"Unnecessarily inflating capacity costs through RPM, particularly without any guarantee of increased reliability, will harm businesses' competitive position when compared to other regions of the country as well as overseas," the joint loads had said. The above-rankings appear to bear out the customers' warnings.
Phillip Oldham of the Texas Industrial Energy Consumers provided insight on why businesses oppose a capacity mandate during Friday's Public Utility Commission of Texas workshop, noting that, contrary to the choice currently provided to customers in the energy market, a capacity mandate cannot be hedged by load, and cannot be avoided. TIEC members are unanimous in opposing a capacity mandate, Oldham said.
Oldham said that TIEC believes that one of the advantages that Texas has had over the other states that aren't growing is that Texas does not, "engage in [capacity] mandates that create taxes on the consumption of electricity that cannot be hedged, cannot be avoided, [and] that significantly raise the cost of doing business in some of those places."
Oldham noted that since the introduction of a single control area, the market has historically seen dwindling reserves three years out, which Oldham called the, "hallmark of an efficient market," as this forecast deficiency corresponds to the development time for new conventional generation.
"Carrying reserves we don't need, for black swan events, or creating taxes on consumption that cannot be hedged -- those will cause [manufacturing] plants to look elsewhere," Oldham said.
"We are within percentage points of being where we need to be ... and that has been confirmed by certain statements by even generation owners. We are very close to having this in a situation where the signals can be sent to maintain the traditional level of resources that ERCOT has relied on," Oldham said.
Copyright 2010- 1. Texas
2. Utah
3. Virginia
4. North Carolina
5. North Dakota
6. Nebraska
7. South Dakota
8. Colorado
9. Georgia
10. Wyoming
Link to Complete CNBC Rankings
1. Texas
2. Utah
3. Virginia
4. Florida
5. Louisiana
6. Indiana
7. South Carolina
8. Tennessee
9. Georgia
10. Nebraska
Link to Complete Business Facilities Rankings
1. Utah
2. Virginia
3. North Carolina
4. North Dakota
5. Colorado
6. Texas
7. Washington
8. Nebraska
9. Oregon
10. Iowa
Link to Complete Forbes Rankings
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