A report from an industry consultant recommends that the wholesale electric price cap in the Electric Reliability Council of Texas (ERCOT) -- which covers 85% of the state -- should be increased to $9,000 per megawatt-hour (MWh) in order to ensure that new investment in power plants occurs.
As SaveOnEnergy.com has noted recently, the Texas electric grid is currently strained because of Texas' growing electric demand, and the lack of new power plants. This demand/supply imbalance has been exacerbated by federal environmental rules which have forced needed generating capacity to shut down.
Texas regulators have proposed increasing the wholesale electric price cap -- the limit on what generators can charge for power -- to $4,500/MWh this summer, with future increases starting in 2013, to assure investors that they will have an opportunity to recover the costs of any new power plants.
The current price cap is $3,000/MWh.
However, industry consultant The Brattle Group, at the request of ERCOT, examined the current "resource adequacy" situation in ERCOT, and concluded that the price cap would need to increase to $9,000/MWh to avoid rolling blackouts.
Though Brattle offered no formal recommendations, Brattle said that raising the cap to $9,000/MWh could bring the reserve margin up to 10%. The reserve margin is the extra cushion of power available above forecast peak demand, and is needed in case generators unexpectedly trip offline due to maintenance problems, or peak demand exceeds the forecast.
A 10% reserve margin would be lower than the current requirement of 13.75%, but Brattle noted that the 10% level could be justified under several scenarios.
When the Brattle report was announced, Public Utility Commission Chair Donna Nelson said that the report, "confirms that we are moving in the right direction."
While Nelson did not get into specifics, it seems clear that the Public Utility Commission will approve a drastic increase in the wholesale electric price cap consistent with Brattle's recommendation.