The historic heat wave in August 2011 melted about $20 million from Austin Energy’s coffers because equipment failures at some of its generating units forced the city-owned utility to buy replacement power at more than 50 times the yearly average.
In a couple of years, a similar scenario would triple that $20 million emergency bill under new, higher caps on wholesale electricity prices set by the Texas Public Utility Commission. And, under the state’s rules, the $60 million would be due in seven days.
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Capacity market: vs. energy-only market
The Texas Public Utility Commission is debating whether to shift from its existing “energy-only” wholesale electricity market to a capacity electricity market. Here’s a summary of the differences between the two types of electricity markets:
Energy-only market: In the existing wholesale market, power generators are paid only for the electricity that is actually consumed – but are paid higher rates during times of peak demand. Proponents say the wholesale market keeps costs down for consumers, and that market conditions dictate when power generators build plants to add capacity. Opponents say the price spikes during times of high demand are too brief and too infrequent, giving power generators less incentive to build power plants and potentially creating a shortage of electricity reserves in times of extreme weather or extreme demand.
Capacity market: The Public Utility Commission is being asked to mandate the level of electricity reserves and conduct an auction for a capacity market separate from the existing wholesale market. Power providers would bid to provide “capacity” for three years after the auction. Proponents say that guaranteeing a steadier income stream encourages power generators to build more plants, providing power reserves that protect against rolling blackouts in extreme weather or extreme demand. Opponents say the capacity market artificially raises the cost of electricity for everyone because it pays power providers whether their electricity is needed or not.