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Electric Markets Research Foundation Releases Initial Report and Intends to Study Resource Adequacy -- Gets ERCOT Offer Cap Wrong
The Electric Markets Research Foundation released its initial publication, a report by Navigant Consulting, Inc. comparing the development of traditionally regulated electricity markets with more recent restructured power markets often accompanied by retail customer choice.
Link to EMRF's Evolution of the Electric Industry Structure in the U.S. and Resulting Issues
EMRF said that the report, "is meant to educate and define issues rather than to draw conclusions," but is seeking to develop a subsequent report on, "how each power market structure ensures the planning and construction of sufficient generating capacity for utility customers."
Given this resource adequacy focus, it is notable the EMRF's initial report incorrectly lists the ERCOT energy-only system-wide offer cap as $3,000 (see page 52 of the PDF).
Not only is the $3,000 value incorrect, but the SWOC has been increased twice since being set at $3,000 -- first to $4,500/MWh on August 1, 2012, and then to $5,000/MWh on June 1, 2013. The SWOC has already been approved to increase to $7,000 on June 1, 2014 and $9,000 on June 1, 2015.
By listing a much lower SWOC, EMRF's report implies the potential for more "missing money" in the ERCOT market than under actual market design with a higher SWOC.
Furthermore, EMRF states that, "declining reserve margins are forcing a reevaluation of this [energy-only] approach," in ERCOT.
While the PUCT is currently studying resource adequacy, we challenge "declining reserve margins" as the root cause for this study, and would also challenge forecast declining reserve margins as the cause.
Forecasts of declining reserve margins have been present in the ERCOT market ever since the energy-only market was adopted, and as has been noted repeatedly, out-year projections of resource adequacy shortfalls are consistent with a market design which pays resources only when they are needed, and such shortfalls have always been closed by the prompt delivery year.
Prior to 2012, despite these long-standing forecasts of declining reserve margins, there has never been a hint of abandoning the energy-only market, so the mere presence of "declining" reserve margins isn't novel, and cannot be the sole impetus for the reevaluation of the energy-only market (otherwise, such reevaluation would have occurred in 2007 or so).
Rather, we place the blame for the current reevaluation of the energy-only market on what was appropriately described, by former PUCT Chairman Barry Smitherman, as the "rent-seeking behavior" of capacity owners, who are seeking to protect their specific investment against competitive forces.
As previously reported, Bruce Edelston serves as president of the Electric Markets Research Foundation. Edelston was formerly Director of Energy Policy for Southern Company, where he developed corporate policy positions on industry structure and responded to federal and state legislative and regulatory initiatives.
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October 11, 2013
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Reporting by Paul Ring • ring@energychoicematters.com
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