Brattle: Current Texas Energy-Only Market Can Maintain Optimal Reserve Margin

"[T]he current energy-only market design will sustain a reserve margin of approximately 11.5%, which is 1.3 percentage points above the risk-neutral, economically optimum level of approximately 10.2%," The Brattle Group said in a report on the economically optimal reserve margin prepared for the Public Utility Commission of Texas

Brattle's study is an estimate of the economically optimal reserve margin that minimizes total system capital and production costs. "We estimate that economic optimum to be an approximate 10.2% reserve margin under our Base Case assumptions," Brattle said.

"[M]andating a higher reserve margin could cause a significant increase in total customer costs over the next few years relative to the energy-only course, with these near-term cost increases exceeding the long-run equilibrium cost differential that we have estimated in this study," Brattle said.

Nonetheless, Brattle continues to push its fantasy that implementing a capacity market would not appreciably raise Texas rates, because somehow nearly all of the capacity costs would be offset by mythical energy market savings.

"Although multiplying our estimated capacity price by projected peak load (plus reserve margin) suggests roughly $3.2 billion per year in capacity payments, these costs would be largely offset by a $2.8 billion reduction in annual energy-market costs, for a net customer cost increase of about $400 million relative to the energy-only market design at the 11.5% equilibrium reserve margin," Brattle said.

We'd suggest asking loads in the Northeast RTOs who are now being compelled to pay make-whole payments to generators with a capacity supply obligation about the energy market "savings" associated with having a capacity market.

Brattle specifically said that gas price changes, "have not [been] evaluated in this study."