It appears the Texas Legislature has taken note of the several news articles and industry insiders sounding the alarm bells for ratepayers to brace for record high electricity prices this summer in a market applauded for its consistently low prices. The Committee convened because the Lt. Governor charged it to study/respond to the reserve margin issue. Approximately 5,600 megawatts (MW) of electric generation have recently retired in Texas causing a concern over whether enough reserve capacity exits to avoid rolling blackouts during the peak summer heat. On May 1, 2018, the Texas Senate Committee on Business and Commerce (Committee) held a meeting to discuss concerns amongst the Senators whether the Electric Reliability Council of Texas (ERCOT) had all of the tools necessary to address the lower reserve margins.  The speculation over what might occur this summer began with ERCOT’s Winter Capacity Demand Report estimated the reserve margins in ERCOT as 9.3% for the summer.

During the hearing, both the Public Utility Commission of Texas (PUCT) Chairman Walker and ERCOT representatives promoted ERCOT’s preparation for the summer and insisted ERCOT had all of the tools necessary to respond to system shortages. PUCT Chairman Walker specifically pointed to ERCOT’s demand response tool, where large customers come offline at times of high system demand.  In addition the low reserve margin reported at 9.3% a few months ago resulted in 525MW of generation coming back online.  The current reserve margin going into summer is now approximately 11%.  ERCOT stated that most of the megawatts coming back online were from mothballed units and that it is likely the possibility of higher prices this summer has made these units economical to run, and can be viewed as an indication the market is functioning as expected.

While the primary concern of the Committee was the potential for record high electricity prices, the Committee also discussed capacity markets more generally and what has changed in the market since the last time the topic of a capacity market was brought up in the Texas Legislature. To respond, PUCT Chairman Walker emphasized her strong belief in the ERCOT market and any changes regarding price fluctuations are merely a result of the cyclical nature of the market.  Chairman Walker pointed to the high prices and low capacity experienced by the market in 2005 and 2006 that encouraged more generation investment was made as a response to these price signals.  PUCT Chairman Walker also reiterated her support of the energy only market and her belief that it will work this summer.

The Committee also spent time discussed the impacts of the Federal Production Tax Credit (PTC) on the ERCOT system, the transparency of the prices in the Texas Government Land Office (GLO) contracts, and presentations from Austin Energy and CPS Energy on successes and failures for both of these municipally owned utilities. From the broad discussions taking place at the meeting it is safe to assume the Texas Legislature will be watching the ERCOT market this summer and energy is likely to be a topic of debate in the coming legislative session.

If you have questions about this or other related matters please contact Chris Reeder, Chris Hughes, Maria Faconti, Jessica Morgan or Mark Vane.