You flip a switch, your lights come on. The more power you use, the bigger your bill.

It sounds simple and it is — and yet just below the surface lurks a tangle of engineering constraints, big-moneyed interests and a fantastically complex wholesale power market. And all of that comes to bear on Friday when energy regulators meet in Austin to debate proposals that could impact both the affordability and reliability of electricity in Texas.

The discussions, to be held in a Public Utility Commission work session, are being driven in part by proposals from a new report sponsored by Houston energy behemoths NRG and Calpine. Some of the proposals could increase wholesale energy prices around Houston and in other areas when certain conditions are met. To the extent any of the proposals produce higher wholesale electric prices they eventually also could lead to higher retail electric prices.

NRG, Calpine and the study authors contend that generators need the additional money as a way to incentivize new plant construction — and thus allow them to keep pace with the state’s growing energy needs. They say the current system inappropriately dampens wholesale power prices during periods in which extra power plants come on line for system reliability purposes.

But detractors — including representatives of major industrial electricity users and consumer groups — counter that the changes are unnecessary because the current market is working reasonably well. They say the state’s energy reserve margins are projected to remain at safe levels for the foreseeable future. They say the NRG and Calpine proposals would prop up the companies’ own power plants at the expense of electric customers within the Houston area and at the expense of competing generation companies outside of that area.

Intimidatingly entitled “Priorities for the Evolution of an Energy-Only Market Design in ERCOT,” the NRG/Calpine report includes a menu of arcane changes relating to the wholesale power market overseen by the Electric Reliability Council of Texas. Many would transform the allocation of certain short-term power costs. Others would change the way in which transmission lines are financed. Still others would amend complicated wholesale power pricing mechanisms built into ERCOT’s software.

Here are some of the report’s main proposals:

  • Adjust the parameters of a complicated wholesale market mechanism known as the Operating Reserve Demand Curve, or ORDC. Under the ORDC, generators get paid an “adder” for electricity they sell during periods when other available power becomes scarce. Under the NRG/Calpine proposal, the sliding scale used to calculate that adder would be adjusted in such a way as to favor generators that relieve power scarcity.

 

  • Adjust the allocation of costs associated with transmission line losses. This proposal relates to the engineering of power grids: that is, a certain amount of electricity is always lost during transmission, and that amount is in direct proportion to the length of transmission lines. Under current rules, costs associated with line losses are shared broadly among wholesale users across the ERCOT region. Under the proposed change, charges would be allocated on a more granular, local level — and calculated based upon line distances and associated line losses associated with serving that local area.

 

  • Change policies with regards to the planning and financing of transmission projects, and amend the current rules under which transmission costs are spread out across the ERCOT system.

The Texas Public Utility Commission is expected to take up the proposals during a work session that begins at 9:30 a.m. on Friday, Oct. 13. It will stream live here.

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