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Texas Approves Increase in ERCOT Offer Cap to $9,000
October 25, 2012
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Copyright 2010-
The Public Utility Commission of Texas has approved a series of increases in the ERCOT high system-wide offer cap (HCAP) starting June 1, 2013, with the cap eventually reaching $9,000/MWh.
Specifically, the Commission raised the high cap to:
• $5,000 per MWh beginning June 1, 2013,
• $7,000 per MWh beginning June 1, 2014, and
• $9,000 per MWh beginning June 1, 2015
The Commission continues to evaluate competing policy options for long-term resource adequacy, but adopted the higher price caps while such investigation is ongoing in order to send appropriate signals to the market for new generation investment in the interim.
In particular, Chairman Donna Nelson supported the higher caps at this time because she said that it is apparent the Commission is not prepared to adopt a mandated reserve margin at this time.
The adopted rule also sets the low system-wide offer cap (LCAP) on a daily basis at the higher of $2,000 per MWh or 50 times the daily Houston Ship Channel gas price index of the previous business day
Furthermore, during an annual resource adequacy cycle, the rule sets the peaker net margin at a level less than or equal to a threshold of $300,000 per MW in 2012 and 2013.
In subsequent years, ERCOT shall set peaker net margin at not less than three times the cost of construction of a new peaking generation facility, and considering other relevant factors, if any.
While discussing longer-term policy options, Commissioner Kenneth Anderson stressed that Texas' real problem amounts to only 160 hours of the year (four hours on each weekday during eight summer weeks).
The limited nature of this resource adequacy issue calls into question whether a blunt instrument, such as a capacity market which pays generators year-round, is appropriate.
Anderson also agreed that projections of a resource shortfall three years out is expected with an energy-only market, and is a sign of efficiency, in that customers are not paying for capacity that is currently not needed.
While Brattle, during a presentation, criticized the inclusion of certain new, expected resources in the ERCOT Capacity, Demand and Reserves report because such resources have not made any financial commitments, Anderson noted that resources expecting to be constructed to meet future needs would not make any financial commitments so early.
Nelson, however, reiterated her belief that a mandated reserve margin is required. With respect to relying heavily on scarcity pricing to incent new generation, Nelson cited customer dissatisfaction with current West Zone congestion as indicating the unpalatability of sustained scarcity pricing in ERCOT.
Also, in light of the adopted higher caps, Commissioners agreed to revisit the REP certification requirements (see related story)
Copyright 2010-
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