In the summer of 2011, Texas experienced extremely low reserve margin periods throughout the state…causing average wholesale electricity prices to skyrocket to more than twice their normal level.
Given that Texas is expected to add another 14 million to its population between 2010 and 2030,1 these shortages
raise alarms about the state’s ability to meet future energy demand. Success will depend upon finding the most effective way to incent the development of more capacity.
Unlike many other states, Texas has had a competitive retail market for electricity since 2001, replacing the traditional cost of a service-based regulated market. The market requires customers to choose a competitive electricity supplier and allows retail suppliers to set their prices without regulatory interference. However, regulatory action has resulted in caps being placed on system-wide wholesale power prices with the intent of protecting consumers. It is these system-wide offer caps that have limited prices, reduced potential profitability for wholesalers and restrained the development of new generation.