Capacity Market Called "Tax" on Texas Customers

Introducing a capacity market into ERCOT would subject customers to an unavoidable "tax," an industry panelist said yesterday at an Infocast conference.

"A capacity market is basically a tax that is difficult to avoid, doesn't give you the flexibility to choose a reliability level that meets your needs, and creates costs that you can't avoid," said Katherine Coleman, an Associate at Andrews Kurth, LLP, who typically represents load interests.

Coleman was speaking at Infocast's ERCOT Market Summit 2013, held in Austin.

Coleman noted that different customers have different appetites for the level of curtailment they are willing to tolerate. The energy-only market allows customers to express these preferences by responding to price signals.

Furthermore, Coleman said that appropriate scarcity pricing will lead to the same level of resource adequacy as a capacity market.

"You can really get to any outcome through appropriate scarcity pricing; I don't think there is any reason why you need a capacity market to get to a certain level of generation development," Coleman said.

A capacity market isn't needed to create forward contracting, which is said to be needed to support new generation, Coleman added. The threat of scarcity pricing will incent load to contract to avoid scarcity pricing, and Coleman has heard of contracts of four to five years now being signed in light of the coming increase in the ERCOT offer cap to $9,000.