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Texas Employer: Capacity Market Would be "Serious Mistake", Endanger Economic Prosperity
Introduction of a capacity market in Texas would be a "serious mistake" and endanger the economic prosperity that Texas has enjoyed, Nucor Steel - Texas warned the Public Utility Commission of Texas.
Writing on behalf of the company's over 1,100 teammates in Texas and their families, John Farris, General Manager and Vice President of Nucor Steel - Texas informed the PUCT that adopting a forward capacity market would be a, "serious mistake." Nucor scrap metal and rebar fabrication subsidiaries in Texas also employ an additional 225 Texans.
"In my career with Nucor, I have worked at mills located in regulated electricity markets, in addition to our energy-only market in Texas. I have seen first-hand the effect burdensome and taxing regulations have on economic development, especially in manufacturing, in our country. It is with this experience that I wish to convey my deep concerns about the possibility of Texas moving away from an energy-only market to a forward capacity market," Farris said on behalf of Nucor.
"Nucor believes that implementation of a forward capacity market in Texas would be a serious mistake. Since 1999, ERCOT in an energy-only market has managed to construct far more new generation than has been constructed in PJM during the same period, notwithstanding that PJM has more than three times ERCOT's aggregate load. There is absolutely no assurance that implementing a forward capacity market in ERCOT will spur the building of new generating plants. In fact, the experience in other forward capacity markets suggests the opposite," Farris said on behalf of Nucor.
"In the case of PJM, their forward capacity market is widely recognized as an abysmal failure," Farris said on behalf of Nucor. "Despite burdening their consumers with administratively imposed non-market based capacity payments, PJM has totally failed to significantly ameliorate their longstanding shortage of new generating capacity."
"My biggest concern for Texas is the chilling effect high electricity rates would have on our state's economy and on the continued economic prosperity of all Texas consumers. Everyone agrees that Texas needs plentiful and affordable electricity. A forward capacity market, however, is in my opinion the worst possible way to seek to ensure that objective. The key to Texas' success has been, and continues to be, to let competitive markets work while minimizing intrusive government intervention in those markets. Out of market subsidization of any Texas industry without regard to the thrift, business acumen and prudence of the subsidized businesses is nothing more than corporate welfare, which causes far more harm than good. The administrative imposition of capacity payments upon all Texas consumers is the equivalent of a new energy tax, and more taxes will not contribute to the future prosperity of this state. Under a forward capacity market, Texas consumers will in the future pay literally billions more in electricity with no assurance that a single additional megawatt of capacity will be built," Farris said on behalf of Nucor.
"It is critical that Texas not lose its economic advantage due to high electricity rates. The cost of electricity drives the locational decisions of energy intensive industries. Where Nucor is concerned, it would be history repeating itself. In 2007 Nucor considered several states, including Texas, for new construction and expansion projects valued at $2 billion. But because of the then high electricity rates in Texas -- our Texas electricity rates at the time were the highest of our sister Nucor bar mills in other states -- Texas was passed over for other states. Those investment dollars instead went to Louisiana and Arkansas," Farris said on behalf of Nucor.
"Please allow the present energy-only market to continue to work. New generation continues to be built, and we should allow recent actions, like the adoption of an operating reserve demand curve and the raising of the system-wide offer caps, to be fully implemented and observe their impact on our market before even considering fundamental changes in market structure that could have severely disadvantageous and unforeseeable impacts on our state's economy. There is no need to abandon the current market structure that has powered our state's economy during the recent recession," Farris said on behalf of Nucor.
However, to the extent regulators feel compelled to make a change, Farris suggested lower cost alternatives to a capacity market which are more efficient, such as the TIEC Supplemental Reserve Service (SRS) proposal, a longer-term ancillary service that would only be purchased when an actual reserve margin shortfall is predicted.
"The net present value cost of SRS would be $2.2 billion over twenty years. In comparison, a mandated forward capacity market would create between $25 billion and $46 billion in costs over the same period. Quite simply, SRS provides the same or better assurance that a certain level of reserves will be available at a much lower cost than a forward capacity market," Farris said on behalf of Nucor.
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November 22, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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