Consultants update cost benefit analysis of proposed Texas ERCOT nodal market conversion

Boston, MA, Jan. 8, 2009 — Consulting firms CRA International Inc. and Resero Consulting announced their role in providing an updated cost-benefit analysis for the proposed Texas ERCOT nodal market conversion. The firms were retained by the Public Utility Commission of Texas (PUCT) to prepare an update on the 2004 cost-benefit assessment (CBA) of the Texas nodal market and to analyze the incremental costs and benefits given changes that have transpired since the 2004 assessment and the commission’s subsequent decision to implement a nodal market.

The new analysis, titled “Update on the ERCOT Nodal Market Cost-Benefit Analysis”, was developed by the same consulting team that conducted the 2004 analysis. The latest findings were released on December 18, 2008 by the Public Utility Commission of Texas (PUCT). Despite rising conversion costs, the new analysis shows potential consumer cost savings of $5.6 billion from shifting to fully locational pricing of wholesale electricity in ERCOT.

Currently, Texas uses a “zonal” design for its wholesale electrical market in which prices are determined over relatively large geographic areas within which out-of-market redispatch is used to manage localized transmission congestion.

The proposed “nodal” design would allow for spot energy prices at a much more granular level that better reflect actual costs for producing and delivering energy to various locations on the grid. Nodal markets are used in the Northeast, Mid-Atlantic and Midwest regions and proponents of nodal markets believe they provide more accurate, realistic economic signals that in turn guide the operating and capital investment decisions made by electricity producers and consumers.

The updated 2008 cost benefit analysis concluded that:

* Energy savings have declined somewhat since the 2004 CBA, partly because of new transmission upgrades that have been completed and lower forecasts for growth in electricity demand.

* The overall production cost savings resulting from a Texas nodal market are estimated to be $520 million (vs. an estimate of nearly $675 million in 2004).

* In comparison, net costs yet to be spent to complete and operate the Texas nodal market through year 2020 are estimated to be $222 million.

* During the first ten years of operation of the Texas nodal market, the savings to consumers are estimated to be approximately $5.6 billion (vs. an estimate of $7.3 billion in 2004).

* There are other benefits not readily quantified that are likely to be greater than estimated in 2004 due to the summer 2008 price spikes, the addition of significant wind resources and other events that have transpired in ERCOT since 2004.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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