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<br /> <br />Important Policy Issue for 80th Legislative Session: <br /> <br />Texas Municipalities Urge Reform of Uniform-Price Energy Auction <br />That Produces Unwarranted Windfall Profits for Generators <br /> <br />Imagine that you are the owner of a barbeque restaurant in Austin. You ask your supplier <br />to purchase three cords of special fire wood. Your supplier reports that one rancher has <br />one cord for $120 while another rancher could part with a cord for $140. But the only <br />other rancher willing to supply the last cord charges $500. Then your supplier tells you <br />that because he has to pay $500 to the third rancher, a quirk in the state law requires him <br />to also pay the first two ranchers $500 even though they were willing to take less <br />originally. <br /> <br />Crazy? That is exactly what is happening in the ERCOT deregulated wholesale market in <br />Texas. And it is costing Texans. <br /> <br />Under the mechanism known as the "unifonn-price auction," every generator is paid at <br />the highest price ERCOT was required to accept to meet demand regardless of what <br />portion of the purchase required that price. <br /> <br />In other words, if power generators A, Band C bid an average price of $81 per MWh for <br />90 percent of the. energy demand, but generator D demanded $285 per MWh for the final <br />10 percent of the order, all four bidders would be paid $285, even though generators A, <br />B, and C all offered much lower prices. <br /> <br />CAPP members urge action to reform this unfair system that produces windfall profits for <br />generators and needlessly inflates energy cost to Texas businesses and consumers. <br /> <br />*Cities Aggregation Power Project (CAPP) is a political subdivision corporation and registered <br />aggregator for its almost 100 member cities and utility districts, all of whom are located in the <br />areas of Texas that are open to retail electric competition. CAPP's members are concerned about <br />the effect of rising energy costs on their own budgets as commercial consumers, but are also <br />troubled by the prospect that Texas's increasingly expensive electric rates may compel large <br />energy consumers to locate their businesses in other states or countries, taking with them needed <br />jobs, tax revenue, and the potential for further economic development. <br /> <br />r' -. ,-.. <br />