Wal-Mart, Valero Oppose Texas Capacity Mandate, Would "Increase Costs and Harm Texas Economy"
November 25, 2013 Email This Story Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
A capacity mandate in ERCOT would increase costs and harm the Texas economy, two large employers, Wal-Mart and Valero, told the Texas Senate yesterday
Wal-Mart, the largest private employer in Texas, is "very concerned with the potential cost impacts of the newly proposed capacity mechanism," said Chris Hendrix, Director of Markets and Compliance for Wal-Mart.
"The capacity market would increase costs and harm the Texas economy. It would have adverse impacts on businesses and our customers," Hendrix said.
"The energy-only market has successfully maintained adequate resources, and has achieved a high degree of reliability at a reasonable cost," Hendrix continued. "Given the decade-plus record of the energy-only market in Texas reliably meeting resource adequacy, Wal-Mart believes that the record is very clear that the dire predictions of ERCOT rolling blackouts has been overstated by capacity market proponents."
"The adoption of a forward capacity mechanism or mandatory reserve margin would mean that consumers would incur an immediate increase in energy costs determined by administrative command and control rather than by free market forces," Hendrix warned.
Noting conservative estimates peg the cost of a capacity market at $2 billion annually, Hendrix said that this would lead to an increase of 18% in current wholesale power prices, which, for Wal-Mart, would mean $6 million annually in higher electric costs.
"We can be certain the capacity mechanism will raise costs to electric consumers, but cannot be certain of any benefits or whether consumers will be protected from runaway costs," Hendrix said
"The capacity mechanism violates the free market principles of Senate Bill 7 ... The proposed capacity mechanism would move the competitive Texas electricity market backwards towards a regulated environment," Hendrix added.
"The Texas energy-only market is an efficient market design that provides proper incentives to both producers and consumers," Hendrix said.
Andrew Dalton, counsel for Valero, also opposed a capacity market.
"The additional costs that could be associated with a program like this are significant and are a major concern," Dalton said, noting the impact for a single company could be up to $25 million.
While capacity market supporters have said that a Texas capacity market would be free from the controversies surrounding Northeast capacity markets, since Texas has a single regulator, Dalton expressed skepticism of this argument. Dalton noted that rather than having state versus state, the Texas capacity market would engender controversies among cities over transmission constraints, and the modeling (or lack thereof) of locational zones, with disparate cities coming before the PUCT and legislature fighting over whether there should be various local capacity zones.
Dalton said that Texas should not adopt a capacity market, which is, "a model that we know is broken, we know is being reevaluated by FERC, and being reconsidered for a variety of reasons."