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Texas Capacity Owners Misstate Position of Independent Market Monitor in Pushing for Capacity Market
Apparently desperate for independent corroboration for a specific capacity market design not supported by any stakeholder aside from capacity owners, Texas capacity owners, in comments filed yesterday with the Public Utility Commission of Texas, misstated the publicly stated position of ERCOT's Independent Market Monitor (IMM) regarding a forward capacity market, as that position was described at the October 8 workshop.
Specifically, a group calling itself the Texas Reliability Assurance Market (TRAM) Advocates said that they, "agree with the Independent Market Monitor that a forward capacity market can most efficiently balance this trade-off and achieve Texas' required level of resource adequacy at the lowest cost." (emphasis added)
One problem.
The ERCOT IMM has never endorsed a capacity market design that the IMM has publicly described as forward as achieving Texas' required level of resource adequacy at the lowest cost, therefore, the TRAM Advocates cannot "agree" with any such non-existent sentiment by the IMM.
The IMM does support, if the planning reserve margin is viewed as a minimum requirement, implementation of a capacity market as the most efficient mechanism to achieve this objective. Furthermore, the IMM has made comments in support of the New York ISO capacity market, which does rely on advance procurements based on a short look-ahead. While this procurement literally occurs on a "forward" basis, and while any capacity market that is not conducted solely on a residual basis may be considered "forward," the term "forward" is not used in market design discussions to describe the NYISO design or other short look-ahead procurements (such as MISO).
In fact, at the October 8 resource adequacy workshop, while expressing support for various facets of the New York ISO capacity market design, Dr. David Patton, President of Potomac Economics, ERCOT's Independent Market Monitor, said that "you don't have to procure forward," when it comes to the capacity market, making it clear that short look-ahead procurements such as NYISO, while conducted in advance, are not typically defined as "forward" in market design discourse.
If anything Dr. Patton offered the NYISO auctions as a contrast to "forward" procurements at the October 8 workshop, not as a type of "forward" procurement
Describing the NYISO auctions, which as noted may literally be forward, Dr. Patton said:
"New York, for example, is essentially a seasonal capacity market that procures just before each month, so they run six auctions for the summer and six auctions for the winter, and they have different amounts that they procure. That works perfectly fine. The only downside is a new resource can't explicitly offer into that market, but as I've said I'm not sure any capacity market is really a good facilitator of the actual decision to invest. But if you set up a short look-ahead capacity market, what you get is a much more accurate depiction of what your requirement is, a much more accurate price based on what supply and demand is. If one of your units blows up, and the market is tighter than you expected, that's going to immediately show up in the monthly prices. And if that market is well-functioning, and people understand it, and you can forecast the prices, then it will facilitate the sort of forward contracting that actually does get plants financed. So you can sign a 10-year forward contract that includes capacity and energy. So you don't have to procure forward. I think if I were in your shoes, I would certainly let a lot more data come in on whether it's a good idea to have it be forward, because you can always move the procurement period later," Dr. Patton said (emphasis added).
While the NYISO procurements may be in advance (literally forward), with statements from Dr. Patton such as, "So you don't have to procure forward," and, "I would let a lot more data come in on whether it's a good idea to have it be forward," we don't think the IMM can be characterized, as TRAM has done, as agreeing with a "forward" procurement, even if the IMM has endorsed advanced short look-ahead procurements. Note, in particular, Dr. Patton's urging of more research on the question of whether the PUCT should have the capacity market "be forward", (emphasis added), not on the length of this forward procurement.
To be clear, the IMM has not completely repudiated forward procurements, but raised serious questions as to whether forward procurement -- particularly a three-year forward procurement -- is appropriate. Even if the IMM can be said to be open to consideration of a forward capacity procurement, such is a far cry from the sentiment to which TRAM is "agreeing" in the quote above
The only support TRAM offers for its assertion that the IMM favors a forward capacity market is a quote from the IMM which wholly does not address the forward nature of any capacity construct.
"Hence, consistent with Brattle's findings, it is our view that if the planning reserve margin is viewed as a minimum requirement, implementation of a capacity market is the most efficient mechanism to achieve this objective," TRAM accurately quotes the IMM as stating (in the 2012 SOM report), a quote in which any endorsement of a forward capacity market is distinctly absent.
And TRAM is specifically seeking a forward procurement -- a "minimum" three-year forward procurement, to be precise.
If TRAM misstates the IMM's publicly stated position, what stock can be put into TRAM's other assertions and claims?
TRAM cannot feign ignorance at the IMM's stance regarding whether a capacity market should be forward, given the IMM's explicit concerns regarding a forward procurement at the October 8 workshop. That TRAM attempted to bury the IMM's publicly stated concerns, and tried to align the IMM with a position that the IMM has not taken, speaks volumes of the depths capacity owners are willing to go to return customers to the serfdom of government-directed investment in capacity, in place of the empowering choice customers now enjoy in the ERCOT market.
TRAM Advocates include Calpine Corporation; City of Austin; Comverge, Inc.; Consert; Earth Networks, Inc.; EnerNOC, Inc.; Exelon Generation Company, LLC; Johnson Controls; Luminant Energy Company, LLC; Luminant Generation Company, LLC; NextEra Energy Resources, LLC; North America Power Partners; NRG Energy, Inc.; and South Texas Electric Cooperative -- all of whom are owners of various forms of capacity (generation or demand response), or vendors who would serve such capacity owners.
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