Texas Capacity Owners: Capacity Market Offer Floor Not Needed -- Until Later (When Less Controversial)

Eager to have their desired mandatory capacity market meet the Public Utility Commission of Texas' approval, several capacity owners in ERCOT said that they agree with Brattle's recommendation that a Minimum Offer Price Rule (offer floor) would not be required in ERCOT's capacity market, before quickly adding that the lack of an offer floor can be, "revisited as warranted."

In other words, capacity owners know that the offer floor is unpalatable because it prevents new entry of capacity -- the very purpose of the market -- and are willing to wait and seek the offer floor in the inevitable "version two" of any adopted capacity market.

Indeed, the predictability of the comments is comedic, and fits the pattern witnessed in the Northeast capacity markets.

Specifically, PJM and ISO New England created their capacity markets through stakeholder settlements; settlements under which capacity owners accepted less restrictive offer floors (or buyer-side mitigation) in turn for getting the new markets put in place. But shortly thereafter, capacity owners rushed to FERC seeking to change the offer floor rules to be more favorable to incumbent generation, in contravention of the settlement market design.

Texas can expect the same pattern, should it adopt a capacity market. What capacity owners say is efficient and acceptable today will suddenly become "unjust and unreasonable" once the market is in place, and they no longer need to barter for support of the initial market design.

Of course, this pattern is not limited to the offer floor, but includes all administratively designed aspects of the capacity "market." In the Northeast, despite the markets being the creation of professed settlements, generators have sought "reforms" to obtain: more favorable Cost of New Entry determinations; more favorable shapes for demand curves; and elimination of key market designs originally offered as concessions to load (such as the "holdback" provision which keeps a subset of demand out of the initial three-year out auction, which serves to discipline pricing).

Specifically in ERCOT, Calpine Corporation, Exelon Generation Company, LLC, and Next Era Energy Resources, LLC said in a joint filing that they, "support two recommendations by Brattle: (1) The Texas Capacity Market should be a single-market and (2) a Minimum Offer Price Rule ('MOPR') is not needed."

"The Advocates agree with the reasoning behind the Brattle recommendation and believe by adopting both recommendations the Commission will ensure a more efficient implementation of the new market design. Moreover, if the Commission approves the Texas Capacity Market, both of these issues can be revisited as warranted by a maturing market," the capacity owners said [emphasis added]

To its credit, NRG Energy, Inc. advocates for a Minimum Offer Price Rule in the initial capacity market design, rather than purportedly endorsing one policy but then immediately saying it should be revisited.

"As NRG has urged in previous comments, we recommend that all new resources be required to bid at levels based on their full economic cost, net of expected energy and ancillary service revenues, without regard to any underlying contract or arrangement," NRG said.