Energy Insider Blog

Texas PUCT: Will Power Market Structure Shift With New Appointee?

Posted by Dennis Vegas on Sep 9, 2013 7:05:00 AM

On August 21, Governor Rick Perry appointed Brandy Marty to the third seat on the Texas Public Utility Commission that was vacated for six months ago. Ms. Marty, who is an
attorney, has held several positions on Governor Perry’s staff, including chief of staff, deputy chief of staff, and director of Budget, Planning and Policy, among others.

Ms. Marty takesthe seat of the previous commissioner, Rolando Pablos, who resigned in February 2013. Before Pablos resignation, the PUCT was split on Market Structure changes.
Chair Donna Nelson has had a long term inclination to change the power market structure moving from an energy only market to one that includes a capacity component. Commissioner Ken Anderson has been skeptical of the idea, and Rolando Pablos questioned whether ERCOT’s grid reliability was truly at risk through 2015.

Ms. Marty, as the third commissioner will face decisions that will shape the future of the
Texas power market. Ms. Marty could be the deciding factor as to what Market Structure the Texas PUCT adopts.  The new commissioner comes from outside the industry, and there is a steep learning curve to figure out how to find ways to incentivize new electricity generation
development to mitigate the risk of rolling outages.

The purpose of this blog is simply to lay out what we view as the most pressing issues
rather than to advocate any particular solution or position.  With that being said, below we list three critical issues facing the Texas PUCT in the electric industry:

Market Structure & Resource Adequacy

Much debatehas taken place on whether there are sufficient generation resources to meet
the future power needs in the State of Texas. The critical issue of ensuring that there is adequate investment in generation to meet peak electricity demand is to maintain a balance between reliability, and competitive electricity costs. The generation sector will argue, with some cause, that there is a need to move to a capacity market because they need a guaranteed return on their investment.  Moreover, they argue that a capacity market will provide a long term investment planning horizon. Of course, on the other side, consumer advocates and large users will argue that moving to a capacity market will just increase the costs for power withoutnecessarily solving the problem of having sufficient generation capacity to meet future power needs.  Anything thatcorrupts the free market, the argument goes, will only serve to hamper the competitive environment and put Texas businesses at a competitive disadvantage. Of course, this is the exact anti-thesis of why Texas decided to deregulate its power market in 2002.

Congestion in the West Zone of ERCOT

While this is an issue that has been around for a couple of years, it continues to pose
significant problems, costing customers in West Texas literally millions for
power costs.  Due to the recent explosive growth in oil and gas production in the West Texas area, power demand has put significant strain on the existing power grid infrastructure in this sparsely populated yet economically valuable area of the State.  As a result of this unanticipated spike in power demand, end users in West Texas, including the oil and gas and
agricultural industries, are facing much higher power costs than they have in
years.  Unfortunately, this is not a problem that can be resolved easily with a simple decision from the PUCT. Rather, this is a problem that will take coordinated efforts from the PUCT, the local distribution and transmission companies, and affected customers to resolve. In
the past the PUCT has taken steps to not only increase renewable energy portfolio standards, but also review and enable the development of transmission projects that integrate renewable energy assets to the grid in a cost-effective manner. In 2005, the Texas legislature approved the Competitive Renewable Energy Zones (CREZ) transmission projects. With an estimated price tag of $6.9 billion, CREZ includes 186 projects (see map below) that are meant to relieve congestion from wind generated electricity in the West Zone and the Texas Pan handle to
populated metropolitan areas of the state.. Another benefit from CREZ has been the reduction in wind curtailment which has dropped from 17% in 2009, to ~4% in 2012. As more wind generation continues to be added in ERCOT, the PUCT will need to review additional transmission projects required to ensure a steady and reliable supply of electricity in the state. Based upon information provided by transmission service providers, at the time, the estimated schedule completion date for the last project in the CREZ Program is December 31, 2013.

Marty Brandy Blog PUCT 9 6 13


The Role of Demand Response

While a lot of the challenges facing the Texas electricity market appear to be on the
supply side, this is only one half of the overall equation. In fact, as the Brattle Report noted, the growth of demand response in Texas will be crucial to meeting future power reliability needs. While great strides have been taken to encourage growth in this area, the potential of demand response remains largely untapped.  Recognizing that integrating demand
response into the market will take time, the PUCT can implement policy decisions to encourage the growth of this market and such advancement would be beneficial for all Texans. Moreover demand response and demand side management should be taken into consideration when evaluating a market structure with a capacity market component.

We conclude by mentioning that on 8/29/13, the PUCT directed ERCOT to create a draft rule
for market reform that would raise wholesale electric prices at times when high consumption stresses the grid capacity. Chair Nelson called for public workshops to be held early in October 2013 to discuss resource adequacy issues. In short, it does not seem that a long term solution will be reached anytime soon.

Besides the itemsdiscussed above we would like to close by listing the PUCT’s responsibilities to further illustrate the steep learning curve for the new commissioner:

  • Regulating
         rates and terms for intra-state transmission service and for distribution
         service in areas where customer choice has been introduced.
  • Oversight of the Electric
         Reliability Council Of Texas (ERCOT) market, including market monitoring
         and ERCOT administration fees.
  • Adopting and enforcing rules
         relating to retail competition, including customer protection and the
         renewable energy goal.
  • Licensing of retail electric
         providers and registration of power generating companies, power marketers and
  • Reviewing proposals for the
         construction of new transmission facilities.
  • Regulation of rates and
         services for integrated utilities

We have every confidence the new commissioner will get up to speed quickly as Texas needs her too, especially since the issues are big, challenging and will have far reaching implications for residential and business customers in to the future.

Download Whitepaper On  Energy Congestion Problems

Topics: ERCOT, energy sourcing, demand response, energy reliability, CREZ


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