Policy Documents

Reforming Texas Electricity Markets

Andrew N. Kleit, Robert J. Michaels –
July 8, 2013
In the United States and around the world, electricity restructuring is converting regulated monopolies into market regimes. The characteristics of those markets, however, are critical determinants of their performance and remain the subjects of active policy debate. One important issue is whether electricity markets can—without government intervention— provide adequate generation to reliably power society’s needs. This article reviews the rationales for capacity markets recently proposed for the Electricity Reliability Council of Texas (ERCOT). Some have argued that low levels of investment in generation on ERCOT are reducing reserve margins to levels that threaten reliability. Others believe that ERCOT’s “energy-only” regime can suffice to incentivize adequate investment.