Lawmaker says Texas agency moving too fast on power market reform

Reuters

HOUSTON, Nov 25 (Reuters) - A powerful Texas legislator toldstate regulators at a hearing on Monday that they are moving tooquickly to reform the $29 billion wholesale power market, sayingthey should not take major steps without input from lawmakers.

Texas Sen. Troy Fraser, chairman of the Texas SenateCommittee on Natural Resources, urged the three-member TexasPublic Utility Commission (PUC) to "slow down."

Fraser called the hearing after the PUC late last month tookan initial step that observers believe will lead to creation ofa so-called "capacity market" to bolster state electric reservesat an annual cost of $4 billion or more, Fraser said.

After months of delay, two of three PUC commissioners saidthey support a mandatory reserve margin as a cushion againstblackouts, rather than the current "target" reserve of 13.75percent.

"I am asking the PUC to slow down," Fraser said at the endof Monday's hearing. "You are making votes you should not bedoing. The Legislature needs to weigh in."

Capacity markets are used in other U.S. power markets andmany power generators say Texas needs such a construct to raisewholesale prices to the level needed to allow construction ofnew power plants.

Creating a capacity market in Texas would mark a majorchange from the existing "energy-only" market that paysgenerators only when they produce power.

Fraser said he doesn't believe the PUC has the authority to drastically reform the current market. "Where they are goingnow, they have totally left the Legislature out and are workingin a vacuum," he said.

He said a capacity market would not only add unneeded cost,but be complex and time-consuming to implement.

PUC members agreed to do a cost-benefit analysis beforefinalizing other market changes.

"My request is to have regulatory tweaks that are easy toput in place and see if they work," Fraser said.

Calling the capacity market a "subsidy" for generators,Fraser suggested Texas could follow the lead of New Jersey andother states that have proposed building power plants outsidethe capacity market. Those efforts are tied up in legalchallenges.

"State-owned facilities in a competitive market do adisservice and distort the market," said John Fainter, presidentof the Association of Electric Companies of Texas, whichrepresents power-plant owners. "That's not sound policy."

The state's power industrial sector, including petrochemicalcompanies, oppose capacity markets. Representatives from ValeroEnergy Corp and Wal-Mart Stores Inc testifiedMonday.

"A convincing argument for the capacity market has not beenmade," said Chris Hendrix, who oversees electric procurement for Wal-Mart. "The dire warnings of (the grid agency) aboutblackouts are overdone."

"We don't want to import a model that has failed," said TonyBennett, president of the Texas Association of Manufacturers(TAM), following the hearing.

TAM has proposed another less drastic measure to address areserve margin shortfall in a less costly manner, Bennett said.

Power plant owners in the state include Luminant, a unit ofEnergy Future Holdings, which is owned by Kohlberg KravisRoberts & Co LLP and other private equity firms; NRGEnergy, Calpine, NextEra Energy Inc andExelon Corp.

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