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Texas Customers Universal in Opposition to Mandated Reserve Margin, Capacity Market
Texas customers filing comments yesterday at the Public Utility Commission of Texas were universal in their opposition to a mandated reserve margin.
It is for customers that the mandated reserve margin is, allegedly, being sought, because customers will not accept a lower standard of reliability (such arguments ignoring that customers have accepted this "lower standard" of a target reserve margin for over 10 years of the Texas restructured market, without complaint).
However, actual customers, not capacity owners purporting to have customers' best interest at heart, were unequivocal in their opposition to a mandated reserve margin.
Specifically, H-E-B, the Texas Industrial Energy Consumers, and the Steering Committee of Cities Served by Oncor (cities with original jurisdiction) were all opposed to a mandated reserve margin. The Texas Coalition for Affordable Power joined in the Oncor Cities' comments.
The only support for a mandated reserve margin came from capacity owners (including municipals and cooperatives owning capacity), or trade associations representing capacity owners, (including generation, demand response, and energy efficiency capacity), with one exception. The only party supporting a mandated definitive reserve margin which did not own capacity (or represent those who own capacity) was Public Citizen. Notably, the Texas Energy Association for Marketers did not voice support for a mandated reserve margin (its comments were silent on the question).
H-E-B's opposition to the mandated reserve margin is the most notable, as it has not previously taken a position in the proceeding, and is an influential end-user in electricity matters, as the largest privately held company in Texas, and with 71,000 employees.
"H-E-B believes that a persuasive case for the adoption of an ERCOT forward capacity mechanism at this time has not been made, and that such a mechanism potentially could harm the Texas economy, and have adverse impacts on Texans as residential users," H-E-B said.
"Unlike most stakeholders, H-E-B is not only concerned with the price and reliability of energy, but most importantly, affordability for our customers and Partners. Concerning price, energy costs typically represent one of a retailer's, including H-E-B's, largest operating expenses, and residential consumers are likely to see significant impact as well. Texas currently has some of the lowest retail prices in the country, but that could change if the Commission adopts market changes that significantly increase power costs. H-E-B is also concerned with the direct impact of increased energy costs on residential, commercial and industrial customers," H-E-B said.
"H-E-B has long recognized that a stable, reliable electric grid, coupled with efficient use of energy, is critical to enabling our state to grow and prosper."
However, unlike capacity owners purporting to speak for customers' economic development siting decisions, "H-E-B believes that the reserve margin should be a target and not mandatory."
"If the Commission were to establish a mandatory reserve margin, it would implicitly have decided to implement a forward capacity market or, at a minimum, some form of backstop mechanism ... In contrast, a target reserve margin is compatible with an energy-only market and would provide a yardstick against which to measure market performance," H-E-B said.
"The energy-only market is an efficient market design that provides proper incentives to both producers and consumers. In our view, the energy-only market has successfully maintained adequate resources and achieved a high degree of reliability at reasonable cost. H-E-B believes that the energy-only market can be adapted as circumstances evolve such that it will continue to provide adequate reserves and reliability. In contrast, H-E-B believes that a forward capacity market could impose additional costs on Texans. On a very basic level, the adoption of a forward capacity market would mean that consumers would incur an immediate increase in energy costs for all ratepayers. Those costs will be determined by administrative fiat rather than by market forces," H-E-B said.
"From an end user perspective, a forward capacity market could complicate the task of acquiring energy to power our facilities. The existing energy only market structure allows H-E-B to effectively mitigate its energy price risk by providing meaningful opportunity to cover its exposure to potentially volatile energy prices," H-E-B said.
Likewise, the Oncor Cities said that a mandated reserve margin is not required.
"Cities first note that significant questions surround exactly what a 'mandated' reserve margin would mean within Texas' deregulated wholesale market construct. Indeed, Public Utility Regulatory Act ('PURA') § 39.001(a) states that '[T]he public interest in competitive electric markets requires that.. electric services and their prices should be determined by customer choices and the normal forces of competition.' Mandating that loads - throughout whatever mechanism - procure capacity in a particular quantity in excess of their expected needs could run counter to this legislative guidance. More fundamentally, in a deregulated market, there is no way to directly mandate that the generation fleet produce a particular reserve margin. What can be done - and what has already been done by the Commission and ERCOT - is to ensure that no impediments are in place that prevent the wholesale market from working properly."
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September 24, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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