Continuing to examine how Texas capacity market supporters are undercutting all of their arguments against a high energy market offer cap and in support of a Texas capacity market, we take a look at Exelon's comments on how generators should be incented to ensure operation of their power plants during extreme weather.

Back in February 2011, when ERCOT was forced to implement rotating outages despite installed capacity on the grid well in excess of the reserve margin, generators attempted to spin the issue as one of resource adequacy. The argument never caught on, for the obvious reason that Texas had thousands of megawatts of installed capacity which was sitting offline, and simply paying generators to hold installed capacity wouldn't have changed this (something confirmed by this year's polar vortex where generators were rewarded for non-performance).

Still, generators continued to press the theme that a capacity market could have prevented the February 2011 load shed.

Specifically, Exelon, in October 2011 comments to the Public Utility Commission of Texas, said, "For example, capacity payments in ERCOT might have resulted in better weatherization investment." Other than asserting this, Exelon did not provide support for this claim.

Now, however, in the eastern RTOs with capacity markets, Exelon feels that a supplemental energy-market payment is needed to ensure generation availability during extreme weather, according to comments filed this month at FERC regarding "reforms" to the current organized markets.

Specifically, Exelon said (all emphasis added):

"Another mechanism that would incent improved reliability is a supplemental energy market payment that would be added to energy market clearing prices during pre-defined times of system stress (e.g., when there are extreme temperatures or other severe weather, high gas demand situations, or other trigger is satisfied). Resource owners will be driven to make reliability upgrades in order to capture the benefit of such a supplemental payment. The supplemental payment could be based on a fixed amount, a sliding scale (that reflects the severity of the extreme weather event), or some other metric. This type of mechanism could be implemented in addition to one of the more capacity-focused constructs mentioned previously. An energy-side solution like this one is more likely to incent improved performance of existing resources and is less likely to result in overbuild situations as can happen with capacity-focused solutions."

So if an "energy-side solution" is more likely to incent improved performance of existing resources, why did Exelon tell Texas in October 2011 that, "capacity payments in ERCOT might have resulted in better weatherization investment."