Texas Senate Chair Warns Inflated Reserve Margin Target Skews Debate in Favor of Capacity Market

The Chair of the Texas Senate's Committee on Natural Resources has written a letter to ERCOT board members expressing "serious concern" on a recommendation from the Technical Advisory Committee to increase the ERCOT target reserve margin from 13.75% to 16.1%.

"This recommendation incorporates weather data from 2011, the hottest year on record in Texas," wrote Sen. Troy Fraser, Chairman of the Senate Committee on Natural Resources.

"It allows a disproportionately hot year to weight the 15 year average, thereby increasing the demand probability and requiring a higher reserve margin. Both electric end users and I have expressed a desire to exclude extreme years when computing future reserve margins. Any extreme weather fluctuation should be discounted as it represents an anomaly in weather patterns," Fraser wrote.

"The impact of your decision to accept or reject this recommendation will weigh heavily in the ongoing policy debate of ensuring our state's resource adequacy. An increase in the target reserve margin of this scale could not help but serve the interests of those advocating for a capacity market, a system which would subsidize existing generation," Fraser said.

During the recent legislative session, Fraser had introduced legislation ostensibly aimed at curbing any capacity market, by requiring the PUCT to conduct a cost/benefit analysis of market changes expected to cost in excess of $1 billion annually. The proposal, offered as an amendment to various legislation, did not pass.

"With the makeup of the ERCOT Board heavily weighted in the electric industry's favor, any vote to drastically increase the reserve margin appears to be self-serving and could increase electric costs for all consumers," Fraser said.

"I urge you to vote for a revised target reserve margin to account for the exceptional nature of 2011 weather. And, please consider what impact your decision on the reserve margin may have on the wider discussion amongst policy makers," Fraser wrote.