* Optim cites depressed power prices for bankruptcy filing
* Generators, regulators at odds over proposed market reform
* Changes, once seen urgent, stall after recent studies
By Eileen O'Grady
HOUSTON, Feb 12 As the debate over the future of
Texas's $35 billion electricity market enters a third year with
no end in sight, one independent power producer decided not to
wait for an outcome, filing for bankruptcy on Wednesday, citing
depressed market conditions.
Optim Energy LLC, a power generator owned by Bill Gates'
Cascade Investments fund, filed for Chapter 11 bankruptcy in
"The current depressed economic environment of the electric
power industry - particularly with respect to coal-fired plants
- and the debtors' liquidity constraints have resulted in
continuing losses that, simply put, have left the debtors
without alternatives," Nick Rahn, Optim's chief executive, said
in court papers.
Optim owns three Texas power plants: Twin Oaks, a
305-megawatt coal-fired plant; the 600-MW Altura natural
gas-fired power plant and an interest in the 550-MW Cedar Bayou
gas plant, both near Houston.
The plants are expected to continue to operate as Optim
works to restructure its debt.
Optim's filing, and the ongoing financial restructuring at
Energy Future Holdings, parent of Texas' largest power producer,
may rekindle a sense of urgency in a debate that has waned in
recent weeks with the release of two new studies.
Electricity use in Texas has been growing faster than
generation is being built, shrinking the reserve margin, or
cushion of surplus power needed to avoid rolling outages when
supplies are strained, grid operator ERCOT has warned.
A number of proposed new power plants have been scrapped or
delayed because low wholesale prices make it impossible to get
financing, power-plant owners say.
Many generators want regulators to create a so-called
'capacity market', where generators and others are paid for
power to be available in future years, to encourage construction
of new plants.
Some key lawmakers, refinery operators and large retailers,
oppose the change, arguing it will raise power prices too much.
A recent report from the Brattle Group, ordered by the Texas
Public Utility Commission (PUC), said a capacity market would
likely raise customer rates by $1 or $2 per month over the long
term, much less than critics have argued.
That report, along with the grid operator's lower forecasts
for annual electric demand growth, has only widened the
differences between the parties. Even the three-member PUC is
divided over how to address the issue.
"I'm not sure why the debate continues with that minimum of
a cost to achieve the standard of reliability that every other
state has," said John Ragan, president of the Gulf Coast region
for NRG Energy, Texas' second-largest power generator.
Not everyone sees it that way.
"This report helps put to rest the forecasts from electric
generators who argue that blackouts are just around the corner
unless they extract expensive subsidies from ratepayers," said
Randy Moravec of the Texas Coalition for Affordable Power.
The new reports have further convinced PUC member Kenneth
Anderson that the current Texas market is functioning
"reasonably well" and will have sufficient electric resources
until the end of the decade.
It's unclear whether any proposed new generating facilities
will move forward without market reform.
The Texas Public Policy Foundation, a conservative
Austin-based think tank, said pending applications are proof
that generators don't need the capacity market "subsidy."
In a regulatory filing, the group said NRG's plan to build
300 MW of quick-start generation shows the company "expects the
market to work well enough to make a profit".
NRG spokesman Dave Knox called the foundation's filing
"misleading", saying the project is only possible because NRG
wants to move used turbines to Houston to a shuttered power
plant site near existing transmission infrastructure.
"The fact that we have to make as much of an effort to make
this economically viable shows how bad the situation is in
ERCOT," said Knox.
Major power producers in Texas include Luminant, a unit of
Energy Future Holdings - owned by Kohlberg Kravis Roberts & Co
LP, NRG Energy, Calpine Corp, NextEra Energy
and Exelon Corp.