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H-E-B, Shell Oppose Texas Capacity Market
A persuasive case for the adoption of an ERCOT forward capacity mechanism has not yet been made, H-E-B cautioned Texas policymakers, warning against, "changing the current market structure in ways that could have significant and likely irreversible, long-term consequences."
"As a substantial energy user, a company that serves all Texans and the largest private employer in the state, H-E-B is very concerned with the potential impact of the decisions the Commission may make in this proceeding. H-E-B does not often nor easily take positions on policy matters such as those at issue in this proceeding, but we believe that the issues in this proceeding impact all Texans and should be thoroughly considered," H-E-B said to preface its comments.
"[T]he Commission should continue its thoughtful, deliberative process prior to changing the current market structure in ways that could have significant and likely irreversible, long-term consequences," H-E-B said
"H-E-B does not believe that a persuasive case for the adoption of an ERCOT forward capacity mechanism has yet been made. If, however, the Commission decides to modify the current ERCOT energy-only wholesale market structure, it should select a solution that is (a) tailored specifically to the unique circumstances of ERCOT, rather than following flawed models from other regions, and (b) provides demonstrable reliability improvements at a reasonable incremental cost," H-E-B said
Specifically, H-E-B said that, "The Commission's Resource Adequacy decisions should not be addressed on a conceptual level, but only in the context of specific, well-defined proposals. Only in that context can the true costs and benefits of a proposed market modification be evaluated. Moreover, any market modification, such as a mandatory reserve margin requirement or a forward capacity market, must be fully refined prior to implementation, and not followed by a series of disruptive administrative fixes."
"Prior to deciding whether to implement a mandatory reserve margin - and H-E-B believes that the reserve margin should be a target and not mandatory - the Commission should obtain a more accurate picture of expected ERCOT resource additions and forecasted load than currently exists," H-E-B said, noting improvements needed in the CDR report.
"Decisions concerning a forward capacity mechanism should not be made on a purely conceptual basis. That is, the Commission should not decide to implement a forward capacity market and then decide on the details of that market. Absent a well-defined proposal, it would be impossible to fairly evaluate the costs and potential benefits of an ERCOT forward capacity mechanism. H-E-B believes that an accurate analysis is critical because a forward capacity market could impose additional costs on Texans. On a very basic level, the adoption of a forward capacity market would mean that all consumers would incur an immediate increase in energy costs. Those costs would be determined by administrative decision rather than by market forces," H-E-B said
"A forward capacity market could complicate the task of acquiring energy to power our facilities. The existing energy-only market structure allows H-E-B to effectively mitigate its energy price risk by providing a meaningful opportunity to cover its exposure to potentially volatile energy prices. While we believe this opportunity may still exist in a forward capacity market, the uncertainty concerning the actual cost of capacity and the volatility associated with capacity charges that has been observed in other markets will create considerable budgeting uncertainty without any guarantee that rolling blackouts will not occur," H-E-B said
Shell Energy North America (US), L.P. offered the following comments:
"From Shell Energy's perspective, centralized capacity markets in other regions of the United States have not been success stories. Such markets have had (at best) mixed results in encouraging the construction of new generation capacity, but have been expensive to consumers, needlessly complex to market participants and have required extensive regulatory intervention. There have been dozens of proceedings at FERC related to the centralized capacity markets under its jurisdiction, and the end is not in sight. In fact, now, a decade after the advent of centralized capacity markets, FERC has started a reassessment of capacity markets in the Northeast United States."
"Moreover, the development of these markets and even their routine administration, for example, setting the cost of new entry ('CONE'), have proven to be difficult and controversial. As soon as one capacity auction is completed, market participants and regulators turn to the debate on the 'assumptions' for the next auction. This continual state of flux is a clear sign that the auctions don't reflect competitive conditions. Capacity prices are more driven by negotiated changes in rules than by supply and demand. This is not a model for Texas to follow," Shell Energy said.
"Shell Energy recommends that the PUCT stay the course and proceed with implementation of ORDC. This recommendation grows from Shell Energy's experience, which has proven that ERCOT's 'energy only' wholesale power market design is superior to that in any other organized power market. The energy-only market provides rational competitive outcomes with less administrative encumbrance and cost than that in the other ISOs. These attributes result in direct benefits to end-users," Shell said.
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December 17, 2013
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Reporting by Paul Ring • ring@energychoicematters.com
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