A proposal designed not to limit the price of electricity – but to actually increase it during certain periods — could face Public Utility Commission scrutiny in 2010, according to some market watchers.

Extremely costly to consumers, the proposal would create a process whereby generators would receive payments for their wholesale power that would be substantially higher than prices dictated by the market. The process would kick in during periods when wholesale power on the ERCOT grid is running in relatively short supply.

Cities and other consumer representatives have argued against the policy, and it was rejected during proceedings earlier this year at ERCOT. But it retains support both from electric generators and by the Independent Market Monitor of the ERCOT market, leading many to believe that the PUC will take up the issue again this year.

The IMM and industry groups say the price supports are needed to encourage the further development of generation in Texas. Cities and consumer groups have noted the fundamental inconsistency of price supports within the context of the state’s deregulated market, a market supposedly based upon the premise that competitive forces should dictate prices.

Cities also note the extreme cost of the proposal — up to approximately $750 million per year, by some estimates. The expense would obliterate any supposed savings industry advocates have claimed will come from the nodal market redesign, or from improved ERCOT operations. The proposal also would put further upward pressure on retail prices — that is, the electricity prices customers actually pay — which have remained consistently above the national average ever since the state’s transition to deregulation.

— R.A. Dyer