Texas’ electricity market is working. But these companies want to change the rules to benefit themselves.
Texas’ two largest natural gas electricity generators are pressing state officials to implement a self-serving policy change that would significantly impact how wholesale electricity is priced in Texas.
Calpine Corporation and NRG Energy are pushing for “marginal losses” – a way of accounting for electricity that is lost on transmission lines as it moves from power plants to homes and businesses – when figuring the price that power plants get paid for electricity as retailers and public utilities buy it to serve their electricity customers.
The proposal is a penalty system that would benefit a few electricity generators at the expense of the rest of the state. Moreover, it has the potential to stifle the growth of clean energy and cause Texas to forgo the nearly $5 billion in energy cost savings that is projected to result from that growth.
Current approach is working
Since its inception, the Electric Reliability Council of Texas (ERCOT), Texas’ electricity system operator, has accounted for lost electricity using averages of electricity actually lost across the state’s grid during transmission and distribution. Using those averages, ERCOT then charges electricity providers – like retailers and publicly-owned utilities – for a percent of the total power lost in proportion to the amount of the grid’s electricity that the provider sells to its customers.
The current approach allows for power plants to be built away from highly-populated areas in the state, including away from areas with tough air-quality challenges, as well as in West Texas where solar and wind resources are strong.
Calpine’s and NRG’s proposal takes a different approach. Transmission losses and the related charges would be based on a “penalty factor” – a calculated amount of transmission losses based on a power generator’s distance from a regulatory reference point (known as a “reference bus”). The generator would be charged for the calculated losses. Generators include any company that produces power, including both fossil-fuel (like coal and natural gas power plants) and renewable-energy projects.
The penalty would add more transmission losses the farther a coal plant or wind turbine is from the reference point. Conversely, the penalty would add less transmission losses the closer the generator is located to the reference point.
In Calpine and NRG’s current marginal-loss proposal, the reference point would be selected to represent the “center” of the state’s electricity use, i.e. near Houston – where both Calpine and NRG have headquarters.
ERCOT projects that power plants around Houston and South Texas would increase their revenues if the proposed marginal-loss method were implemented. On the other hand, the proposal would penalize generators – whether in Dallas, East Texas, West Texas, or the Permian Basin – just because they’re not near Houston.
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The ERCOT market is working well and providing reliable service to customers, even during the hot summer days of 2018. There’s no need to dramatically change the market to benefit the two companies sponsoring the marginal-losses proposal.