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Hollow Words, or Change of Heart? Long-Time Capacity-Market Supporter Direct Energy Embraces "Freedom" for Texas Electric Market, Says "Choice" Fundamental
"We love freedom in Texas ... and as I sit here today our focus is on freedom," Andrew Sunderman, Chief Financial Officer of Direct Energy, said in a keynote at the Gulf Coast Power Association spring conference.
"Freedom to choose, freedom for the customer to act or not to act, freedom for the customer to control their own home or business budget, freedom to spend your time on more important things than your energy bill or your HVAC maintenance," Sunderman said.
However, the vision espoused by Sunderman is wholly inconsistent with the position repeatedly taken by Direct Energy in PUCT Project 40000, where Direct Energy has repeatedly championed a centralized capacity market -- a design which relies on administrative determinations, not customer choice, for demand and prices.
We have not seen Direct Energy in any public filing repudiate its earlier support for a capacity market, but the vision championed by Sunderman certainly isn't consistent with a capacity market.
ADVERTISEMENT Indeed, Sunderman said that he wanted to distinguish between, "a customer and a captive ratepayer."
"Competition and choice are fundamental; they are fundamentally American and are fundamentally Texan, and I like making my own choices," Sunderman said.
However, the capacity market would essentially force all ratepayers to return to being captive customers of the administrative capacity market.
And lest you think we are harping too much on esoteric words such as "freedom" and "choice", the specific future envisioned by Sunderman would also be challenged in a capacity market environment.
Sunderman spoke of customers being engaged to respond to peak prices, and using efficiency, conservation, and customer response to manage and reduce peaks.
Such behavior is simply inconsistent with a capacity market, for several reasons:
• With the 12-month capacity tag, customers are not rewarded for reducing peak demand immediately (and must continue to pay for their original PLC), depressing customer willingness to engage in such behavior
• In theory, the grid should never enter scarcity pricing with a capacity market, since "resource adequacy" has been assured (realistically, as seen in the eastern RTOs, this is simply not true, but that is all the more reason, if the goal is to eliminate "volatility" in the energy market, not to waste billions on a market design that does not actually reduce volatility). However, sticking with the theory, customers will have little incentive in a capacity market to manage their peak, because peak power prices are being subsidized across all customers. With all customers forced to pay the fixed costs of peak power plants, not just those users who use the most energy at peak, peak power prices will be depressed, making it less economic for individual customers to manage their peak. This, ironically, will actually lead to "peak creep", as unlike in the energy market, individual customers do not see their actual costs of being served at peak times due to distortions from capacity subsidies.
"Getting serious about energy conservation means that consumers must anticipate the true cost of energy, and conservation must be in the hand of the consumer," Sunderman said. This does not happen with a capacity market, where peak power prices are subsidized and depressed (due to the excess reserves), while any actions taken by the customer to manage their peak are not immediately rewarded
Sunderman said that focus must be on finding ways to, "change consumers' thought patterns and to reduce the overall peak need and peak usage of power in Texas."
The capacity market, with its subsidized peak electric prices and muted real-time signals to customers, is simply ill-equipped to achieve these goals.
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April 2, 2014
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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