Texas Staff Proposal for Adoption Would Raise ERCOT Price Cap to $9,000

Staff of the Public Utility Commission of Texas have filed a recommended proposal for adoption which would raise the ERCOT high system-wide offer cap (HCAP) to $9,000 per MWh effective June 1, 2015.

Staff's proposal for adoption, in the long-term resource adequacy rulemaking (Project 40268), would raise the high cap to $5,000 per MWh beginning on June 1, 2013 and $7,000 per MWh beginning June 1, 2014.

Additionally, Staff's proposal for adoption would set the low system-wide offer cap (LCAP) on a daily basis at the higher of $2,000 per MWh or 50 times the daily Houston Ship Channel gas price index of the previous business day.

Furthermore, during an annual resource adequacy cycle, Staff's proposal for adoption would set the peaker net margin at a level less than or equal to a threshold of $262,500 per MW in 2012 or 2013 or the threshold set by ERCOT for a subsequent year.

"By further raising the HCAP and LCAP over time in this rulemaking, the commission will be providing for an economically efficient means of supporting resource adequacy, by increasing the incentives for demand response and increasing the incentives for the construction of new generation and for generation to be available and producing electricity when it is needed most," Staff's preamble said.

"Therefore, raising the HCAP and LCAP should be done regardless of any additional measures the commission takes to support resource adequacy," Staff's preamble said.

"[I]ncreasing the HCAP and LCAP in this rule will not be the only action that the commission will take," to address resource adequacy, Staff's preamble states, noting that, "[t]he commission is contemplating additional changes to the market in Project Number 40000 intended to maintain resource adequacy at appropriate levels."

"Although the commission currently has no intention to raise the HCAP above $9,000, the commission is considering other steps to further support resource adequacy in Project Number 40000," Staff's preamble states.

Staff noted that the proposed Peaker Net Margin threshold amount would allow recovery of more than 2.5 times the annualized fixed costs of a new gas-fired peaking unit, determined to be in the $80,000-$105,000/kW-year range in the IMM's 2011 State of the Market Report.

"Furthermore, the Commission concludes that the PNM should be increased periodically to reflect any increases in costs of construction," Staff's preamble states. "However, instead of directing reliance on a specific measure, the commission directs ERCOT to determine the factors used to calculate annual changes in the PNM threshold, if any, and amends the rule language accordingly. The process to adjust the PNM threshold may result in changes in the PNM threshold that reflect a standard index such as Handy-Whitman or may include other factors that ERCOT determines is appropriate."