The following article was written by Polly Ross Hughes, editor of the Texas Energy Report. It is reprinted with permission.

AUSTIN (March 8) The Texas Public Utility Commission grappled again Wednesday with the vexing issue of how to provide better incentives for more electric generation to be built to ensure reliability without undermining consumer benefits of a competitive electric market.

Put another way, how can the PUC and the Electric Reliability Council of Texas ensure adequate supplies of electricity this summer and beyond without sending electric bills soaring, especially for smaller commercial and retail customers?

In a five-page memo on electric resource adequacy and shortage pricing, PUC Chairman Donna Nelson suggested raising the system-wide price cap for wholesale electricity bids from the current ceiling of $3,000 per megawatt hour to $4,500 per mwh, as early as July 1.

She also outlined, among many other moving parts to the puzzle, the idea of eventually letting that price cap rise as high as $7,500 per mwh.

“While the resource adequacy problem is easy to describe, it has proven difficult to solve in a manner that stays true to the competitive wholesale market we have established in Texas,” Nelson wrote. “We must be mindful of the need to solve problems without unintended consequences that create additional problems.”

Commissioner Anderson questioned whether taking action in 2012 would give enough time to vet changes.

In Wednesday’s PUC meeting, Nelson stressed her concern that wholesale market fixes be made sooner rather than later, noting that Texas would face shortages this summer if there is a repeat of last summer’s ongoing heat wave or greater than expected generation outages.

“I guess my concern is we need to move quickly. In my opinion, this is our number one priority,” she said.

Commissioner Kenneth Anderson noted that some market experts would like the chance to assess the effects of earlier tinkering by the commission to help ensure adequate electric supplies before taking even larger steps. He questioned whether taking action in 2012 would give enough time for suggested changes to be fully vetted.

However, Anderson said he favored proposing market rules this spring so that the Brattle Group – hired by the Electric Reliability Council of Texas to study factors influencing investment decisions for new electric generation – would be able to analyze various options. The Brattle Group’s report is due on June 1.

Nelson said she’s concerned that the grid-operator, ERCOT, could face another challenging summer sooner rather than later. That’s a good reason, she argued, for taking decisive action right away.

“I want to send a really strong signal to markets to fix this issue,” she said.

The PUC plans to take the issue up again at its next public meeting on March 22, and Anderson said he would write his own memo outlining various options.

Commissioner Rolando Pablos said he needs time to absorb the potential impact of changing market signals for generation companies.

Randy Moravec

“We’ve got to make the right moves to ensure we get through this summer,” he said, “but at the same time we’ve got to consider the unintended consequences of our actions and that takes some time.”

Meanwhile the Texas Coalition for Affordable Power, a group of 160 cities and other political subdivisions that purchase power in the deregulated market, urged caution.

“TCAP appreciates the PUC’s consideration of these very complex resource adequacy issues. Already, the agency and ERCOT have taken steps meant to encourage generation investment in Texas,” said Randy Moravec, the group’s executive director.

“However, TCAP remains concerned that increasing the offer cap at this time risks an over-correction,” he added. “TCAP believes the impact of other recent market changes authorized by the PUC and ERCOT should first be assessed before proceeding with actions that could increase customer electric bills.”

Copyright March 07, 2012, Harvey Kronberg, All rights are reserved. Reprinted with permission of Quorum Report.