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NRG Statement: Capacity Supplier Performance Is "Excused" due to "Gas Unavailability" (Gas Unavailability Major Cause of Most Recent Texas Blackout)
One of the refrains we keep hearing in Texas from capacity market acolytes is that Texas doesn't need to worry about the non-performance issues which have plagued the Northeast capacity markets -- in which capacity is procured but does not produce energy when needed -- because everyone agrees and accepts that Texas will adopt more robust and rigorous performance metrics.
However, a statement by William H. Hieronymus on behalf of NRG Energy filed with the Public Utility Commission of Texas yesterday undercuts such arguments.
Hieronymus' statement included a response to the question, "What qualification, performance requirements, and penalties should be in place for resources?"
Though Hieronymus qualified his response as "relatively high level," in the responses Hieronymus stated:
"Performance requirements relate to whether the capacity is available to produce energy and ancillary services. As noted, a basic requirement for physical capacity resources is that they offer into the day-ahead energy and/or ancillary service markets when available. If they don't meet availability requirements, or do not make themselves available when called in the day-ahead market, they are subject to penalties. There are difficult issues with respect to 'excused absences.' As a general matter, resources are excused for non-delivery that is beyond management's control. Generally, non-delivery because construction of a generator is late or because a DR resource was not signed up by an aggregator is not excused. An example of excused non-delivery is if the cause is transmission outages or gas unavailability. Non-delivery during prescheduled maintenance outages also is not penalized." (emphasis added)
Matters notes that the unavailability of natural gas was a major cause of the most recent rolling outages experienced in ERCOT in February 2011 (which we again stress occurred at a time when installed capacity exceeded the target reserve margin).
An ERCOT review of the incident noted, "ERCOT was advised that some units could generate more power if additional natural gas became available."
Another report prepared for ERCOT noted that, "natural gas supply was impacted as a result of weather and contributed to the loss of generation."
However, if we are to adopt the policy of Hieronymus' statement on behalf of NRG, none of these generators unable to acquire natural gas in February 2011, leading to the rolling outages, would have been penalized -- their inability to produce generation, despite having a capacity obligation, would have been "excused".
An estimated $4 billion in capacity payments, Texans are facing, and the capacity market would not have even prevented the most recent rotating outages, or penalized capacity suppliers for their failure to be available at this critical time.
This is yet another real-world example where the capacity market doesn't, as the proponents claim, assure reliability and prevent rolling blackouts. By design, capacity markets are only intended to assure installed capacity, and do not ensure generation availability, which is what is needed to keep the lights on. While capacity market supporters claim a "Texas-style" capacity market would assure availability, as more details emerge of their desired design, the more it can be seen that what is desired for Texas is the "same old, same old" which left PJM and its capacity market vulnerable to forced load shed just this past summer.
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December 17, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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