PUCT's Anderson "Unalterably Opposed" to PJM-Style Capacity Market

Stressing that meeting a mandated reserve margin, which would require additional costs to be imposed on customers, does not guarantee that customers will never experience a capacity-related load shed, Texas Public Utility Commissioner Kenneth Anderson said on Friday that he is, "unalterably opposed" to a forward capacity market in the style of PJM.

Chairman Donna Nelson, whose thoughts were contained a memo in advance of Friday's meeting, has stressed Texans', and especially businesses', expectations for an adequate supply of power, and said in her memo that, "the market should be designed to meet the specified reserve margin."

Anderson stressed, however, that meeting a mandated reserve margin is not a guarantee that ERCOT will not experience involuntary load shed due to a shortage of available generation, and thus the expense of meeting such a margin must be evaluated in light of this lack of a guarantee.

"To create a false impression that you guarantee that there'll never be [rotating outages] is a fool's errand," Anderson said.

"A reserve margin does not prevent the black swan events," which have been the only times during which ERCOT has experienced rotating outages in the past, Anderson noted.

Anderson reiterated, as he had noted during the most recent resource adequacy workshop, that in the only two instances in which ERCOT has previously had to involuntarily shed load, the reserve margin was in excess of the levels currently being debated as a potential mandate that load would be required to meet. Furthermore, Anderson reiterated that in 1989, at HL&P, there were rolling brownouts despite an HL&P reserve margin of 30%.

Nelson said that while not a guarantee, meeting a reserve margin reduces the risk of capacity-related load sheds.

Anderson continued, "We need to be, I think, very sensitive not to throw out the really effective energy-only market, and efficient and transparent [energy-only market], for something that is expensive and that doesn't guarantee actually getting new generation."

For that reason, "I am unalterably opposed to a forward capacity market a la PJM," Anderson said.

Additionally, Anderson also expressed skepticism with mandatory capacity obligations for LSEs under a mechanism without a centralized auction, such as Option 4 in the Brattle Report (which is used in California), as Anderson noted this mechanism has not assured resource adequacy in California.

Anderson also said that any solutions need to be "market-based incentives as opposed to administrative mandates," and should not damage the incentives created by the energy-only market.