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Texas regulators decline to make major power market rule changes ahead of summer

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Texas regulators decline to make major power market rule changes ahead of summer

A summer with potential power shortages and high prices looms over Texas' wholesale power market, but state regulators declined to make major changes to rules governing power price formation before watching how the market responds.

"I don't know that there is anything that we should do before the summer comes," Public Utility Commission of Texas Commissioner Brandy Marty Marquez said during a Feb. 15 open meeting. "We are prepared for what the summer is going to bring, which is high prices. The questions we've got to ask ourselves are what are the signals that we want to send going into the summer and is there any signal that could change anything … at this point?"

Texas' energy-only wholesale power market is designed so that when the market is short generating capacity, prices spike, which provides an incentive for generators to invest in new capacity.

In 2011, the market experienced high prices during the winter and summer due to generation shortages, and regulators responded with market rule changes, including stepping the market price cap from $3,000/MWh to the current cap of $9,000/MWh and implementing an operating reserve demand curve, or ORDC, that values diminishing reserve capacity in real time.

The market reforms kept generators in the market that were hoping to profit from price spikes, but high prices never materialized, leaving the market oversupplied until low natural gas and power prices finally drove some capacity to exit the market.

In December 2017, the Electric Reliability Council of Texas, the state's grid operator, projected tight summer market conditions through 2022, blaming retirements announced by Vistra Energy Corp. subsidiary Luminant Generation Co. LLC totaling 4,200 MW. Analysts have said the coal plant retirements could "be worth billions to the market in 2018."

The upcoming summer is the first season for which ERCOT projects its reserve margin will fall below the target 13.75% since implementing higher price caps and the ORDC.

Stakeholders have been debating a slate of proposals that would alter price formation in ERCOT, but even as the potential for shortages and high prices has drawn the attention of state legislators, the only change the PUCT will entertain before the summer would remove reliability unit-commitment and reliability must-run capacity from the ORDC.

Proponents of doing so argue that units committed to providing service through out-of-market action distort price formation.

Excluding the capacity from the ORDC could push power prices higher whenever the market relies on reliability unit-commitment and reliability must-run capacity, but stakeholders representing retail electric providers understand the rule change to have a relatively small overall impact on prices.

Still, they asked the commission to study the issue before pushing through a rule change.

"The principles of needing advanced notice of these changes is a principle we have advocated for and continue to advocate for in this project," said Catherine Webking, an attorney representing the Texas Energy Association for Marketers. "This one particular change is difficult to quantify but not as drastic as some would be in this short a time frame. We would not be screaming bloody murder but do think it violates the concept of giving time so that there are not interim changes made while a [power purchase contract] is still pending."

The PUCT commissioners agreed and directed ERCOT to provide an impact analysis for the rule change ahead of its March 8 open meeting.

If the PUCT decides to order the rule change at that meeting, the grid operator would still have time to implement it by July following the required ERCOT board approval in April.