By: William Pentland |
Despite a long and storied history of going its own way on all things energy, the Lone Star State seems to be warming up to at least one model of energy regulation pioneered beyond its borders.
On Friday, the Texas Public Utility Commission Chairman Donna Nelson and Commissioner Brandy Marty expressed support for mandating reserve margins at a regularly scheduled meeting, according to Bloomberg. A third Commissioner, Ken Anderson, opposed the move.
A mandatory reserve margin would require the state’s power companies to have access to a minimum amount of excess capacity for periods of peak demand.
By requiring the state’s power companies to secure access to additional electricity, mandatory reserve margins could set the stage for creating a capacity market that pays generators for having available electricity.
Since deregulation, the Electric Reliability Council of Texas (ERCOT) has maintained an energy-only wholesale market.
In the meantime, grid operators in New England, New York, and the Mid-Atlantic region have implemented capacity markets to supplement wholesale energy markets and as a mechanism for encouraging adequate future supplies.
Although the commission has yet to vote on any proposal, the market responded to the news of an informal endorsement as evidence that it will require mandatory reserve margins.
On Friday, Calpine, the third-largest power generator in Texas, rose 7.3% to $20.99 at 3:32 p.m. in New York, the biggest intraday increase in almost two years. NRG Energy, the second-largest power provider, gained 6.6% to $30.04.
In May, ERCOT forecast 1.9% annual peak demand growth in Texas for the next decade. At that growth rate, gross peak demand would surpass the current operational power generation capacity in Texas by 2016.
Reserve margins provide grid operators with a “reliability” cushion in the event of abnormally high demand or unexpected plant outages.
The North American Electric Reliability Corporation (NERC), which sets . . . , recommends grid operators maintain a 13.75% reserve margin. In May, the NERC noted that ERCOT’s 12.88% forecast summer planning reserve margin could “be a threat to supply adequacy this summer.”
The reserve margin in Texas could fall below 10% by 2018 and shrink to 7% in 2019 “even if current mothballed power plants, planned and permitted new conventional power plants, and switchable generation become available,” according to an analysis by Morningstar Research published in July.
Morningstar suggested that “proposed regulatory fixes could be big wins for Texas power producers such as Calpine, NRG Energy and Energy Future Holdings.”
If Friday is any indication, the market appears to agree.