Ann de Rouffignac
AUSTIN, Oct. 2, 2001 – Real time electricity pricing and demand management aren’t high on the agenda when Texas deregulates its power markets next year, industry representatives said here Tuesday.
Tom Payton, director of power purchasing at Occidental Energy Ventures Corp., Houston, said the Electric Reliability Council of Texas (ERCOT) hasn’t closed the door on demand response programs. But demand management is not an ERCOT priority, Payton said at the Gulf Coast Power Association fall conference.
Even large industrial customers won’t have many opportunities to respond to price signals by cutting back on electricity use and reaping any financial benefits. ERCOT’s market design doesn’t allow customers to see price signals, and there is no mechanism for rewarding customers interested in curtailing load at peak demand periods, speakers said.
Hence one of the most powerful incentives for conservation – price – is not included in the ERCOT market design. “These responses stabilize the market, improve liquidity, and increase competition for power,” Payton said. “If there is a price spike, you will get load response that should lower electricity costs and reduce volatility.”
But at present the only way buyers can respond to prices is contractually with a seller. Each customer would have to cut an individual contract with a retailer specifying how to share the benefits of reducing demand.
During peak demand period, a customer could cut agree to cut load, the retailer could sell the surplus electricity, and the benefits could be shared. But when bilateral contracts dominate a market, there are no reference prices, Payton said. And the reality is that ERCOT is a bilateral market. “There is no public pricing mechanism,” he said.
Some large industrial companies have responded by filing applications to become retailers and serve their own load. This gives them added flexibility, including the ability to sell surplus electricity to another user and reap the benefit without having to share it with another retailer.
“This is an issue that needs to be recognized and resolved in Texas,” said David Kathan, of ICF Consulting, Fairfax, Va. “The issue is access to the market.” He said the market is hampered by layers of schedulers and retail electric providers (REP). “An individual with load can’t respond directly without working through the REPS,” he said.
Payton said that ERCOT and some market participants formed a task force to address the issue but reached no conclusions. “The way the market is designed. How can you do it?” he said.
The Texas grid operator is still trying to resolve problems in the wholesale market in anticipation of full- fledged competition in January and has yet to fully implement a retail pilot. With a reserve margin approaching 20-25%, discouraging demand isn’t one of ERCOT’s top priorities.