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52 Infrastructure 1 (2012-2013)

handle is hein.journals/infrastr52 and id is 1 raw text is: AB  SECINO  PU LI  U I; C M U ICAT ION   AND  TRN P RI ON A
Vol. 52, No. 1, Fall 2012
Texas: Will the Lights Go Out?
By Casey Wren

Editor's note: This is the first of a serie
in this issue to examine electricity market
structures as they affect resource adequacy
subjects in five systems in the United States
factors, problems, and outcomes differ sigr
the various areas.

s of articles
design and
and related
The relevant
ificantly in

n the late 1990s, under the leadership of former
President George W. Bush when he served as gov-
ernor, Texas adopted legislation to restructure its
electric industry. The state cast aside the traditional reg-
ulatory bargain, in which utilities were permitted to
operate as a monopoly in exchange for a legal duty
to serve and cost-of-service rate making. Instead, like
other states, Texas adopted a more competitive model.
The wires function remained a heavily regulated util-
ity, but the power generation and retail sales functions
were deregulated. The term deregulated is ambigu-
ous; it can mean many things in many different contexts
of electric restructuring. In the case of Texas, how-
ever, deregulation meant the adoption of a so-called
energy-only business and regulatory model with only
minimal administratively determined add-ons, or regula-
tory interventions. The investor-owned electric industry
in ERCOT, which covers about 75 percent of the electric
market in Texas, was fully restruc-
tured using the energy-only model,
while utilities in the border areas
of the state outside of ERCOT, as
well as coops and municipal utilities
within ERCOT, have carried on their
business using the traditional util-
ity model. Now, almost 15 years into
restructuring, Texas is at crossroads,
facing potential resource adequacy
issues in one direction and scarcity  Case Wren

pricing concerns
in the other. Ulti-
mately, the path
that Texas follows
will depend on
how Texas regula-
tors sort through
and resolve the
trade-offs inherent
in various market
design options.
tive add-ons,
in concept, can
cover a wide
range of possi-
ble administrative
interventions in
the market. The Texas model has been characterized as
having fewer such add-ons than any other state regula-
tory model, comparable in this regard only to Alberta
and Australia. For example, in Texas there is no admin-
istratively determined reliability standard, such as the
one day in 10 years outage standard that applies in
some areas. So, in Texas there is no reserve requirement
applicable to load-serving entities and no administra-
tively monitored or regulated forward capacity market
to ensure resource adequacy. In these circumstances,
resource adequacy is mostly a matter of customers
and suppliers arranging their commercial relationships
according to the incentives of the market, there being
few administrative back-stops to ensure continuity of
supply. The result is a short-term focus on commercial
opportunities, needs, and risks. Residential customers
are not interested in long-term contractual relation-
ships with retail electric providers, so their promises of
customer loyalty extend no longer than a few months
in many cases and a few years at most. Commercial
continued on page 3

.1LSOI II  :g  N I   P  ALI ORNI  M A IMS     l   PJ1  MAKR F ORM

Casey Wren is a partner witb Duggins Wren Mann & Romero,
LIP in Austin, Texas.

o j ,,

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