1. State Association Notes Capacity Markets’ Chilling Effect, Urges PUC to Consider Alternatives
2. Release Date: November 25, 2013

AUSTIN, TEXAS – During testimony before the Texas Senate Natural Resources Committee today, the Texas Association of Manufacturers (TAM) strongly urged the Public Utility Commission (PUC) to resist calls to adopt a highly-regulated “capacity electricity market,” which would cost Texans billions of dollars a year for energy they may not even need.

“A capacity market would have an unmistakable chilling effect on economic growth in the state with a tremendous, long-term negative impact on Texas energy consumers,” said Tony Bennett, president of TAM. “The idea that a ‘capacity market’ is the only way to address power reliability concerns is off-base and is fueled by generators who would benefit from a subsidized market. Far from the only option, a capacity market would be more financially devastating than other alternatives – if change is even warranted – that should be considered.”

“Residential, municipal and industrial energy consumers will pay billions more for electricity in a capacity market,” said Bennett. “Capacity markets subsidize power generators who promise to meet projected future electricity requirements even if we don’t actually need the amount of electricity contemplated in the hypothetical scenarios.” Bennett also noted that a recent study of existing capacity market systems showed that well over 90 percent of the capacity payments went to existing power plants – not new generation facilities – effectively buying consumers nothing.

Beyond manufacturers, several environmental groups, commercial customers, and cities oppose the PUC moving to a capacity market.

Electricity capacity market mandates elsewhere have cost customers in Pennsylvania, New Jersey and Maryland tens of billions of dollars since 2007. In comments before the Federal Energy Regulatory Commission, the American Public Power Association (APPA) described a “fire hose” of market rule revisions, contested proceedings, and court proceedings associated with capacity markets. Specifically, the APPA stated, “…the basic capacity procurement construct is flawed, and has been since inception. The basic construct is not a ‘market’ in any meaningful sense of the word.”

“The Texas Association of Manufacturers has offered an alternative if the PUC must tweak what our association believes is a successful energy market, which continues to attract new generation sources to meet the state’s power needs. There are far better ways than a capacity market to maintain a reliable and affordable electricity grid without unnecessarily adding billions to Texans’ electricity bills,” said Bennett.

One such alternative is a “Supplemental Reserve Service” (SRS), a form of longer-term ancillary service that is only purchased when an actual reserve margin shortfall is predicted. SRS is more effective, narrowly tailored, and less costly approach than a mandated forward capacity market.

“SRS provides a form of insurance against rolling outages without scrapping Texas’ exceedingly reliable and competitive electricity market,” said Bennett. “Competitive markets work better than heavy-handed government regulation. We need to look for ways to build upon the successful competitive energy marketplace, not backtrack toward a system that’s costly and saddles consumers with mandates and taxes for energy we may never use.”

Media contact: Gretchen Fox, gfox@gfoxconsulting.com, 512-694-4326