Presumptive Nominee for Texas Gov. Says PUCT Should Wait for Legislative Input, Cost/Benefit Analysis On Capacity Market Change

State Senator Wendy Davis, the presumptive Democratic nominee in the 2014 Texas gubernatorial election, said in a letter to Public Utility Commission of Texas Chair Donna Nelson that, "the PUC must not make any changes to the electricity market that would burden hardworking Texas families and the businesses that employ them with billions of dollars in additional costs that such a shift might cause."

"I trust that you will agree with me that Texans should not have to tolerate an outcome from your Commission's decision-making that would raise their utility rates while simultaneously failing to ensure a better guaranty that our lights will come on when we flip a switch," Davis wrote in the letter to Nelson. "As you are aware, on October 25th, 2013, the Public Utility Commission (PUC) took a step toward changing the construct of Texas' electricity market from an energy-only market to a forward capacity market. Putting aside the yet unanswered question as to whether the PUC has the proper statutory authority to make such a dramatic shift, the PUC must not make any changes to the electricity market that would burden hardworking Texas families and the businesses that employ them with billions of dollars in additional costs that such a shift might cause," Davis said.

Davis continued:

"In the Senate Committee on Natural Resources hearing on November 25, 2013, you stated that you were 'absolutely in favor of doing a cost/benefit analysis' relative to a potential change to a capacity market. I am writing this letter to urge you to proceed with such an analysis and to consider the following as you engage in that analysis:

"• What would the impact be on the costs of electricity to the average residential ratepayer, the average commercial ratepayer, and the average industrial ratepayer?

"• What guarantee can be provided that switching to a capacity market will result in the construction of new generation, eliminating the specter of future capacity shortfalls?

"• What might the impact to our state's economy be were such a shift to occur, measured particularly by potential impact to the costs of doing business in the state and the subsequent impact that might occur to our state's continued ability to attract and grow business? In this regard, I am particularly interested in determining the potential impact that added costs might have to the energy production sector of our state's economy."

"The families I represent in Senate District 10, along with business leaders in our state who are working to create and grow jobs here, deserve and demand real answers. We cannot risk a negative impact to Texas' thriving economy that a rushed decision on this very important issue might bring," Davis said.

"Before taking any further action in moving Texas toward a capacity market, I urge you and your fellow commissioners to await results of an in-depth cost/benefit analysis, closely weighing the impact of such a decision on the average Texan and on Texas' businesses, large and small. I would also urge you to await moving forward absent adequate input from the legislature after we too have had an opportunity to review such a cost/benefit analysis and to receive input from impacted Texans," Davis said.

"I am sure you would agree that, together, we must ensure that any proposed shift does not hurt the Texas economy and that it be thoroughly reviewed and vetted in an open, public process," Davis said.

RealClearPolitics' average of several polls has Davis trailing presumptive Republican nominee Greg Abbott, current attorney general, by 10 points.

We will note that certain capacity market supporters have said that while they concede an energy-only market with scarcity pricing is more efficient, it is not politically sustainable.

Like all capacity market claims, this one never held any water, and it is now further unraveling. A decade of the energy-only market, including the 2008 congestion-related price spikes, and two rotating outages (not caused by the failure to meet a reserve margin, we stress) did not cause any serious legislative problems for the market.

In contrast, more than half a dozen states subjected to centralized capacity markets have taken non-market administrative actions, through state agencies or the legislature, to separate themselves from the yoke of the capacity auction. This has included state-sponsored or utility-supported generation, as well as other administrative actions meant to depress capacity prices (increased non-market ratepayer funding for peak reduction/energy efficiency specifically to eliminate constrained capacity zones), in not just Maryland and New Jersey but also New York, Connecticut, Maine, and even Ohio. To a lesser extent, long-term utility contracting initiatives in Delaware were driven in part by high capacity prices, as PSC Staff noted in 2009 that, "capacity prices for much of Delaware are likely to remain high for some time, and that the net benefits from utility-owned or utility-contracted generation in the DPL region are increased because the value of capacity will be relatively higher in 2012-2013 than anywhere else in PJM."

So which market design has the better record of being politically sustainable?