Nelson Proposes "Apples to Apples" Comparison of Costs Under Resource Adequacy Policies, Suggests May Hearing

Public Utility Commission of Texas Chair Donna Nelson has proposed retaining Brattle to conduct an "apples to apples" comparison of costs for various resource adequacy policy options before the Commission.

"I propose that we ask Brattle to work with ERCOT and provide analysis of the various options under consideration by this Commission. Although we sought comment on the issue of cost in our recent round of comments, we have not gathered cost information by customer class. I think it would be helpful to do so. I further propose that before we ask Brattle to conduct this study, we seek comments from the parties on the parameters of the Brattle cost study," Nelson said in a memo filed in advance of today's open meeting.

"Before we move forward with a hearing on market design, I would like to see the results of the Brattle cost study. It is incumbent upon us to conduct a study designed to provide an 'apples to apples' comparison of the various options before this Commission and to have that study before moving forward. In order to allow us sufficient time to set the parameters of the study, to engage Brattle to conduct the study, and to allow Brattle sufficient time to provide the study to the Commission, I propose that we set a hearing for May 15-16, 2014, or other acceptable dates," Nelson said.

Nelson proposed asking Brattle to model the costs of the following four scenarios:

• Scenario A: Current market design with $9,000 SWOC. "This scenario also needs to assume the ORDC and the costs of programs like ERS and TDSP load management programs. The equilibrium reserve margin will be determined by the modeling of the design parameters," Nelson said.

• Scenario B: This scenario would include an energy market with the ORDC in place plus a "forward reliability market." The reserve margin for this scenario will be the same as the reserve margin resulting for Scenario A.

• Scenario C: This scenario would be the same as Scenario B but would assume a 14 percent reserve margin.

• Scenario D: This scenario would be the same as Scenario A but would include a backstop option similar to the Supplemental Reserve Service (SRS) proposal put forth by TIEC, designed to deliver a 14 percent reserve margin.

While an apples to apples comparison is laudable, whether the resulting work-product accurately portrays the costs and resulting reserve margin of various options is a matter of concern.

Brattle had already offered a comparison of energy-only to various alternatives in its prior report, and in such comparison found the energy-only reserve margin "equilibrium" to be about 8% -- an equilibrium not even remotely approached in over 10 years of the energy-only market, and one, according to the latest preliminary revised ERCOT load forecast (click here), is not even on the horizon under the current market design.

Moreover, any comparison must accurately forecast energy prices in an energy-plus-capacity market design. Prior analyses have generally assumed that scarcity pricing would be greatly reduced if a capacity market were introduced, therefore offsetting the newly introduced capacity costs. However, recent experiences in ISO New England, the New York ISO, and PJM have shown that scarcity pricing can still be common even with a "forward reliability market" and therefore any forecast reduction in energy-market prices must not be overestimated.