Stop us if you've heard this before.

Dr. David Cherney, Ethan Paterno and Ryan Hardy have authored an op-ed published by the McAllen Monitor claiming that Texas risks blackouts if it doesn't reform its wholesale market pricing.

"One of the fundamental principles of any competitive market is that producers should have a reasonable opportunity to recover their costs and make a fair market return, otherwise existing producers could go bankrupt and new producers will not enter the market," the trio writes (emphasis on opportunity ours)

No argument there

The trio, however, fails to explain how this is not occurring in Texas

There's no claim from the trio that the $9,000 price cap is inadequate, or that suppliers are unable to make competitive bids at that level when warranted by market conditions (or for small fish, whenever they please). As an aside, we'd welcome true market reforms, such as elimination of the price cap, and elimination of restrictions on bidding behavior (essentially extend small fish swim free to any supplier)

Simply because Texans aren't using enough power -- and sellers aren't willing to exercise their ability to increase prices if current prices aren't sufficient -- isn't a failure of the market design, and does not necessitate any changes.

The trio bemoans the lack of scarcity pricing in the "record" summers of 2015 and 2016. Rather than drawing the common-sense conclusion that this means the market is working, and Texas, despite years of lacking of meaningful occurrences of scarcity pricing, has nevertheless continued to attract an adequate surplus of power which is keeping prices down, the trio warns that somehow Texas is at risk for rolling blackouts -- which is at odds with ERCOT's CDR reports.

Perhaps if this wasn't the 12th time we've heard the sky is falling, the trio could be more convincing.

However, when they write, "It’s likely that during the next several years — as demand for electricity increases and potential power plants retire due to poor profitability — ERCOT’s reserve margin will decline absent the development of new power plants. As a result, the 24 million customers that ERCOT provides power to could face sustained rolling blackouts and high electricity prices," all we can do is laugh, because we heard the same thing in 2011, 2012, 2013, 2014, and 2015

Even TV weather forecasters are more accurate than generators' "chicken little" predictions.

The fear mongering is strong with the trio, who write, "If new electricity producers (i.e. power plants) do not enter the electricity market, electric service to customers could be in jeopardy. This could lead to rolling blackouts like those experienced in 2011 by Texas customers."

Yes, rolling blackouts occurred into 2011 -- because generators were incompetent and did not properly winterize their plants, not because ERCOT had a lack of installed capacity. However, the spun message from the above quote is clear, the 2011 blackouts were caused by a lack of investment in new ICAP, which is clearly not the case.

Ironically, had the preferred capacity market design advocated by Texas generators at that time been implemented, not only would it not have prevented the Feb. 2011 blackouts, but Texas customers would have still been required to pay cleared capacity resources for being offline when needed. Market Principles!

In terms of what the trio would like to see, they are, outside of changes to the ORDC, vague, but you can guess what that really means

"These reforms could include reshaping the Operating Reserve Demand Curve, but may also require new market mechanisms are in line with Texas’ commitment to free market principals," [sic] the trio writes

The trio also seize on a recent transmission-driven RMR agreement in ERCOT, which, as reported previously, is due more to problems with the overly conservative RMR process than resource adequacy. Moreover, RMR agreements in ERCOT are extremely rare, but were commonplace for years in PJM and other ISOs despite the presence of capacity markets. (see Exelon's Eddystone 2 and Cromby 2 RMRs, as just one example)

We read in another analysis recently that the capacity market issue in Texas isn't, "going away." The reason isn't because of any genuine debate on the matter (which has been settled through 15+ years of energy-only market operation), but because special interests continue to spread fear in the name of government intervention. Feel free to check, but we don't think that's a market.

See the op-ed here in the McAllen Monitor

See Also (2013): Crux of NRG Op-Ed: Investors Lost Their Shirt on Last Generation Build-Out, So Now They Need Subsidies (NRG Wants Free Bet at the Table)

See Also (2013): Use of Incendiary Language in Pro-Capacity Market Op-Ed by NRG Leaves Open Flank to Attack Retail Choice

--By Paul Ring

Tags:
Texas   Capacity Market   Energy-Only  

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