RPT-UPDATE 1-Texas regulators vote to double wholesale power cap

Fri Oct 26, 2012 7:38am EDT

* Texas grid operator warns of blackouts without more supply

* Cap to rise incrementally, hit $9,000 in 2015

By Eileen O'Grady

AUSTIN, Oct 25 (Reuters) - Texas electric regulators voted Thursday to double the price cap for wholesale power by the summer of 2015, with a series of interim increases in the meantime, in a bid to draw more generation to feed the state's growing electricity demand.

The Public Utility Commission of Texas voted to increase the market cap when supplies are tight to $9,000 per megawatt-hour as of June 1, 2015, versus the current cap of $4,500 per MWh, to encourage new investment in power plants to supply the $34-billion wholesale market.

In the meantime, the cap would rise to $5,000/MWh when supply is tight for the summer of 2013 and to $7,000/MWh for the summer of 2014.

The Electric Reliability Council of Texas (ERCOT), which oversees the power grid serving most of the state, has warned that there will likely be more rolling blackouts in the coming years as power supply struggles to keep pace with demand.

In 2011, Texans consumed a record amount of electricity, particularly over the summer when air conditioners ran for extended periods during the hottest summer on record. ERCOT declared emergencies on a half dozen days in August 2011, narrowly avoiding the need for rolling power outages.

The new cap could give new incentives for power producers in Texas, which include Luminant, a unit of privately held Energy Future Holdings, NRG Energy, Calpine Corp , NextEra Energy and Exelon Corp.

Power emergencies during extremely hot and cold weather in 2011 have added urgency to the industry debate, but the three Texas commissioners are divided over a long-term solution that provides an adequate supply to keep the lights on.

"I consider this an interim step to send better signals to potential resource developers," said PUC Chairman Donna Nelson. "My preference would be to set a required reserve margin, but it is clear to me that the commission is not prepared to do that."

Nelson said the commission will continue to work on a long-term solution in coming months.

After a boom in power-plant construction in the early 2000s, the Texas grid agency has warned that available power generation to serve the state's major cities will fall below a 13.75 percent reliability target by 2015 or 2016, increasing the likelihood of rolling outages or a widespread blackout.

Cheap natural gas prices and tight financial markets forced a number of developers to delay plans for new power plants.

According to ERCOT, too few megawatts are being added to meet growing electric demand and to replace inefficient and dirty power plants that may be forced to shut under proposed federal pollution mandates.

Commissioners are weighing two general options: modifying the existing "energy-only" market design to incorporate programs that pay customers to curtail electric use when supplies are tight or creating a so-called "capacity market" that pays generators to be available in future years.

Existing power plant owners and developers generally favor the capacity market option while the state's largest power consumers - industrial and manufacturing interests - oppose the idea.

The Brattle Group, hired by the PUC to evaluate the state's options, calls the energy-only design the most efficient market, but favors a capacity market as the best option to address supply in a competitive, market-based fashion if state leaders desire more generation as a cushion against potential power disruption.

Nelson favors creation of a capacity market while Commissioner Kenneth Anderson is against the idea. The third commissioner, Rolando Pablos, has called for more time to study the options.

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