Texas Commission to Publish Rule Raising Offer Cap Effective

The Public Utility Commission of Texas will publish for comment a proposed rule that would raise the ERCOT system wide offer cap effective August 1, 2012.

Specifically, the proposal for publication would increase the high cap (HCAP) to $4,500 beginning on August 1, 2012. The $4,500 HCAP would terminate on May 31, 2013, or another date, in anticipation of and synchronized with a further increase to be determined in a separate rulemaking (discussed below).

PUCT Chairman Donna Nelson and Commissioner Rolando Pablos voted to publish the rule (in Project 37897), stating that immediate action was needed to provide the correct price signals to ensure reliability this summer, notably through the return of mothballed units. A vote on a subsequent proposal for adoption will be required for the rule to be final.

A memo setting forth Nelson's proposal contemplates that ERCOT would be also directed to raise the Power Balance Penalty Curve to $4,500 (along with changes to the slope previously proposed by Nelson, as discussed here).

Commissioner Kenneth Anderson did not support publication, though Anderson does support a higher HCAP starting in 2013. Anderson cited the disruptive impact that an immediate HCAP increase would have on retail electric providers (including from higher collateral obligations) and loads -- impacts which Anderson said were not justified given that, due to lead times for construction, no new build will respond to a price only in place for a few months in 2012, and investors will instead respond to the HCAP in future years.

Nelson said that the proposed August 1 date represents a compromise from her original proposal of July 1, 2012.

Anderson noted that 1,300 MW of mothballed generation has committed to ERCOT to return, and Anderson expects additional capacity to return from mothballed status; therefore, Anderson felt that an immediate change in the offer cap was neither necessary nor warranted.

Anderson said that since new build will not be responding to the 2012 prices, but rather the HCAP in 2013 and beyond, the anticipated changes in the HCAP for 2013 and beyond will provide the necessary price signals.

Anderson further said that he believes that REPs would be within their legal right to pass costs incurred due to the new HCAP onto customers with fixed rate contracts, under the change in law or regulation provision.

Separately, the Commissioners all agreed to publish for comment a rulemaking (in Project 40268), as drafted by Staff with minor modifications, to establish the HCAP for the period beyond 2012. As previously reported, the Staff draft proposes to raise the HCAP to $5,000 beginning June 1, 2013; $7,000 beginning June 1, 2014; and $9,000 beginning June 1, 2015, though it also provides alternative scenarios (see prior story).

The post-2012 rulemaking will also seek comment on whether the HCAP should ultimately be set at $12,000 or $15,000.

Additionally, the post-2012 rulemaking will address changes and/or elimination of peaker net margin.