Texas PUC rules on capacity auctions


Ann de Rouffignac
OGJ Online

Over objections of potential players in the Texas electricity market, the Texas Public Utility Commission issued final rules governing availability of electric generation to competitive electricity suppliers when the market is deregulated in 2002.

Incumbent utilities, which will be separated into generation, retail, and transmission and distribution units, must auction a certain amount of their generation to competitive providers. The rules do not allow the generation to be auctioned to a utility's retail affiliate.

Under the rules, a utility will not actually sell 15% of its capacity but only auction the capacity in four product forms for terms varying from 1 month to 2 years. The generation capacity will be auctioned for the period of Jan. 1, 2002-Jan. 1, 2007 or until 40% of a utility's residential and small commercial electricity load is served by competitors.

AES NewEnergy, a unit of AES Corp., and Enron Energy Services, a unit of Enron Corp., objected to a tolling arrangement under which retailers would have to supply fuel to a plant and take the produced power to sell, according to a transcript of the commission meeting.

NewEnergy, and six others, wanted a finished block of electricity to be auctioned in various times and amounts so retailers could serve their customer load. But the commission, utility affiliates, and large wholesale marketers and traders supported the tolling arrangement.

Fuel price risk
The auctioned capacity would be for a specified heat rate and specified time period. Certain plants will be made available to winning bidders of the capacity for a given time period. They will then take responsibility for supplying the fuel and will take title and dispatch the produced electricity.

Some retailers object to this type of capacity auction because they must bear the pricing risks of the fuel and will need an organization capable of hedging future fuel costs, or they will need to hire a third party to manage that risk.

A few retailers, including affiliates of the incumbent utility, have access to sophisticated trading and marketing organizations, or they are already large players capable of hedging future fuel costs. But capacity auctions will place an extra burden on smaller retailers by introducing a middleman, raising costs, and therefore retail prices, some potential retailers said.

Commission staff argued a capacity auction as described may hurt a smaller retailer.

�We�ve come up with products that are probably more attractive to wholesalers than retailers. It may take some finishing to have that sold to smaller REPs (retailers) who don�t want to be involved with hedging and the things it will take to serve the retail load,� Brian Lloyd, commission staffer, said at the meeting.

�This is a very disappointing ruling,� says Sara Ferris, assistant public counsel for the Office of Public Utility Counsel. �We had hoped to get a product that would bring in more competition on the retail side.�

In addition, the auction of capacity without fuel will have a lower value than an auction of electricity, affecting estimates of stranded cost payments due Texas utilities. The results of a capacity auction will be used to estimate the market value of the power plants and then used to estimate stranded costs.

If the capacity auction yields lower values, observers point out, the amount of stranded costs will rise benefiting the utilities and making it difficult for companies to compete.

�There will be less demand for these auction products so the value will be less,� says Ferris. �This means that stranded costs could be artificially inflated later. We are hoping that the commission will keep a watchful eye on this.�

Related Articles

Petrobras finds oil accumulations with Campos basin’s Basilisco well

02/05/2015 Petroleo Brasileiro SA (Petrobras) has discovered heavy oil accumulations at reservoir depths of 3,190 m and 3,521 m while drilling its Basilisco w...

Chevron unit farms into Mauritania offshore blocks

02/04/2015 Chevron Mauritania Exploration Ltd., a wholly owned subsidiary of Chevron Corp., has agreed to acquire 30% nonoperated working interest in Blocks C...

Petrobras confirms extent of Farfan area discovery, finds reservoir

02/02/2015 The drilling of a third extension well in the Farfan area in the ultradeepwater Sergipe basin confirmed the extent of the 2013 light oil and gas di...

Antero trimming, delaying Marcellus drilling

02/02/2015 Antero Resources Corp., Denver, has announced a $1.8 billion budget for 2015, which is down 41% from 2014. The independent said it plans to defer c...

Fluid typing extends production in Chinese gas reservoir

02/02/2015 Comprehensive evaluation and classified recognition (CECR) of fluid typing and zonation (FTZ) is a prerequisite for developing multilayer sandstone...

Santos acquires interest in block offshore Malaysia

02/02/2015 Santos Ltd. has acquired 20% interest in a deepwater permit offshore Sabah, Malaysia. The company will take 10% from each of Japan’s Inpex and oper...

Mud volcanoes show gas hydrates potential in India's Andaman Islands

02/02/2015 Minutes after the M9.0 Sumatra-Andaman earthquake in 2004, mud volcanoes erupted on Diglipur Island in North Andaman. The eruptions resulted in an ...

OGJ Newsletter

02/02/2015

International news for oil and gas professionals

The ANWR blitz

02/02/2015 Deception begins with a 58-sec video on the White House web site in which President Barack Obama says he'll ask Congress to make the whole Arctic N...
White Papers

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected