by Andrew N. Kleit, Robert J. Michaels
Texas Public Policy Foundation
October 03, 2013
The Electricity Reliability Council of Texas’ (ERCOT) “energy-only” market relies on competitive market forces to meet the long-term electricity needs of the 23 million Texans in its service area. Competition has worked remarkably well in ERCOT since its introduction about 15 years ago. Billions of dollars invested in generation have provided Texas with a reliable supply of affordably priced electricity. However, recent concerns about the adequacy of generation investment have led to the consideration of imposing a “capacity market” in ERCOT. In a capacity market the government rather than the market determines when supplies of electricity are adequate to meet long-term reliability needs. Our examination of ERCOT’s history and operation brings a conclusion that the costs of instituting capacity markets in its territory will almost surely exceed any benefits they might bring. Those costs have proven substantial in other regions.