Dear Texas Client,
Please read this email due to the direct effect it has on your future energy costs in Texas. If a capacity market is implemented, your energy costs will rise.
As the State of Texas considers the most significant change to the deregulated energy market since its start in 2002, your opinion and action is necessary. RPM has devoted significant resources into deciphering the pros and cons of Texas moving to a capacity based market. From what we have gathered, creating an additional layer of government regulation and increasing end-user cost for a false market created by regulators is not in the best interest of our clients.
Electricity generation in Texas has functioned under a non-binding target reserve margin of 13.75% to ensure stable grid operation. A mandatory capacity reserve margin could result in excessive unnecessary, unavoidable costs. A reserve margin refers to the amount of available power capacity above the capacity needed to meet normal peak demand levels. That is, the amount of power available above and beyond the normal usage in Texas. The target reserve margin is set by the Public Utility Commission (PUC) in an effort to avoid rolling blackouts during extreme weather circumstances. The PUC is governed by an appointed board of three members.
Recent hearings at the PUC have indicated that two of the three board members may support the implementation of a mandatory reserve margin – meaning a capacity market would be implemented. In basic terms, a capacity market provides guaranteed payments to electricity generators, outside of free market forces, to encourage additional generation investment.
Currently, generators are paid based on the electricity they produce. A capacity market would pay generators regardless of whether they produce power or not.
Why is RPM against a capacity market and for the current energy-only market?
1) Texas consumers are adverse to additional taxes or fees on their electricity bill.
2) The current energy-only market has provided sufficient reserves even during the period of rapid growth in the population and Texas economy.
3) The free market will encourage additional generation when needed.
4) Encouraging fewer regulations/ barriers-to-entry for electricity generators could spur additional investment without raising costs for consumers.
5) Mandatory reserve margins will not guarantee the prevention of rolling blackouts during extreme weather conditions. Additionally, ERCOT has never experienced a grid collapse, unlike many other parts of the US where capacity markets are used.
6) Energy efficiency programs remain in their infancy and such programs have significant room for growth.
7) Innovative, free market solutions like Demand Response programs are just gaining momentum and a great way to deal with times when demand is high.
8) ERCOT will not dip below its 13.75% target reserve margin until after 2018. Please see page 14 of the presentation given by Commissioner Kenneth W. Anderson here.
9) Renewable energy costs continue to decline and implementation continues to grow.
10) Smart meter technology will allow Retail Electric Providers the ability to provide time-of-use pricing for consumers, providing an additional free market option to reduce peak demand.
In addition to the points listed above, please find two links below which dive deeper into the issue.
If you agree with our assessment and the information found in the linked articles below, please take action immediately by contacting the PUC and your local legislator. If you have additional questions or concerns, please call your RPM Energy Manager for further discussion on this important, albeit complicated, issue.
Who Represents Me in the Texas Legislature?
Supporting articles on the subject:
November 2013 Capacity Report: A Retreat From Electric Competition: