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Texas, With Energy-Only Market, Again Only State With Retail Choice in CNBC Top 10 States for Business (Capacity Market States Fare Poorly) Texas, with its energy-only market, is again the only state with retail electric choice rated as attractive to businesses, this time in CNBC's 2013 update to America's Top States for Business, while capacity market states are ranked as among the most undesirable states for business.
Specifically, Texas ranked second in America's Top States for Business 2013, as compiled by CNBC.
It's no surprise, of course, as Matters has previously detailed how Texas, with its energy-only market, consistently ranks among the top states for business and industry across numerous publications (CNBC, Forbes, Business Facilities, Site Selection, Chief Executive), while capacity market states consistently lag outside the top 10.
As always, Matters is not saying that Texas is ranked second solely because of its energy-only market, but Texas' lone presence among restructured states in all of the top rankings (and poor showing by capacity market states) is a dispositive rebuttal to claims that Texas risks its favorable business climate by continuing with an energy-only market, or needs to institute a capacity market to be attractive to business.
Indeed, a capacity market would harm Texas' attractiveness to business, as one of the factors in CNBC's rankings in which Texas already fares poorly is "Cost of Doing Business," due in part to "high utility costs." It is undisputed that a capacity market will increase utility costs paid by Texas businesses, and such increase in cost could, in the aggregate, exceed $3 billion annually (based on 2010-11 PJM pricing).
The highest-ranking state relying on a centralized capacity auction was Massachusetts at #16. We also note that Massachusetts is in a capacity market with a vertical demand curve.
We do not consider non-restructured states within an RTO with a capacity market, but whose utilities are vertically integrated (and thus subject to rate regulation for generation costs), to be capacity market states [e.g. most Midwest states in MISO, where the state (not the RTO or capacity market) still controls the reserve margin level].
Virginia is ranked #5 but its utilities are vertically integrated and while Dominion Virginia Power is nominally a participant in the capacity auction, it relies on ratepayer-backed generation to meet capacity needs (Appalachian Power uses the capacity auction opt-out).
It's quite a drop from Massachusetts at #16 to the next capacity market states in the list, which again are states only partially relying on the capacity auction -- New Hampshire at #27 (PSNH owns significant utility generation); Ohio at #28 (based on the current delivery year, only the FirstEnergy utilities participate in the PJM capacity auction without also owning utility generation); and Michigan at #29 (mix of reliance on utility assets in MISO's simple capacity market or the PJM opt-out).
In fact, the top state in the business rankings that can be said to rely "purely" on the PJM Reliability Pricing Model capacity auction -- the gold standard for capacity market supporters -- is Delaware at #31.
Also notable is that three states which have recently seen strong growth in retail electric choice but which rely on a capacity market for most of their capacity requirements -- Pennsylvania, Illinois, and Maryland -- were among CNBC's "biggest losers" in the 2013 rankings.
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July 19, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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