Texas PUC Approves Doubled Wholesale Price Cap to Spur Power Plant Construction

In a bid to encourage construction of new power plants in power-strapped Texas, the state’s Public Utility Commission (PUC) last week voted to double the wholesale price cap for electricity prices by the summer of 2015.

The action raises the cap from the current $4,500/MWh to $9,000/MWh by June 2015. Interim increases call for the cap to be raised to $5,000/MWh in the summer of 2013, and to $7,000/MWh by the summer of 2014. This June, the PUC voted to increase the cap from its previously limit of $3,000/MWh to $4,500/MWh.

The vote comes on the heels of a June report from consultants at the Brattle Group that found new investment in the state was impeded by low wholesale power prices due to low natural gas prices. However, the report found that increasing peak wholesale power prices to $9,000/MWh would only raise the region’s reserve margin to 10% above peak demand—much less than the 13.75% reserve margin recommended by the Federal Energy Regulatory Commission. The authors recommended instead that either the market design be adjusted or reliability objectives revised.

The Electric Reliability Council of Texas (ERCOT) has said it expects its reserve margins to plunge to 9.8% as soon as 2014, to 6.9% in 2015, and to a negative margin by 2022—well below the grid operator’s 13.75% target for electric generation capacity that exceeds the forecast peak demand on the grid.

Sources: POWERnews, PUC

—Sonal Patel, Senior Writer (@POWERmagazine)