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Texas State Senator Pressures ERCOT to Leave Reserve Margins Unchanged

Texas State Senator Troy Fraser, a central Texas Republican, warns that an increase in reserve margin would be seen as a backhanded attempt to bring about a capacity market in Texas.  The Electric Reliability Council of Texas (ERCOT) had been considering a move to raise the state’s reserve margin from the current 13.75% to 16.1%.

The reserve margin is the excess capacity maintained within the state’s grid as insurance against unexpected loss in supply or an unexpected spike in electricity demand such as might occur during extreme weather events.

The scorching summer of 2011 was an example of just such an event.  The unprecedented heat wave put a great deal of pressure on the Texas electricity grid and threatened the state’s electric users with rolling blackouts.

Fraser’s argument against the raised reserve margin is twofold.   He argues that 2011 was an outlier in terms of Texas weather and that any analysis that uses 2011 data to set the future target reserve margin would be overly aggressive.

In his letter to ERCOT he writes:

“Both electric end users and I have expressed a desire to exclude extreme years when computing future reserve margins.”

His second, and perhaps primary, argument is that the contemplated raise in the reserve margin would strengthen the case for the controversial proposal to introduce a capacity market in Texas.  Under a capacity market, ratepayers would pay power producers to build power plants regardless of whether the resulting power is ever sold.  It’s a move that would inevitably result in higher electricity rates in the state.

In his words:

“With the makeup of the ERCOT Board heavily weighted in the electric industry’s favor, any vote to drastically increase the reserve margin appears to be self-serving and could increase electric costs for all consumers.”

In the end, ERCOT chose to leave the reserve margin unchanged as of now.  Deciding instead to wait and see how the policy debate between the PUC and the Texas legislature plays out.

If a capacity market is eventually instituted in Texas, it would be a drastic change for the nation’s largest deregulated electricity market.  Under Texas’ current “energy only” model, producers are only paid for the electricity they sell to the market.

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