The Influence of Regulation on the Decision to Cogenerate

Abstract

This paper will be primarily on the Public Utility Commission of Texas' Substantive Rules that explicitly address cogeneration (Section 23.66). The original rules, which were implemented following the mandate of the Texas legislature, have undergone substantial change. More specifically, rules have been structured to promote a market for capacity without harming existing and future ratepayers. Discussion will focus on how the existing rules can directly influence the decision to cogenerate. Part One provides a brief history of the Section 23.66 rules. Part Two discusses the pricing methodology adopted by the Commission for "firm" and "as-available" power supplied to a utility. Part Three presents a brief discussion of the wheeling rule that was recently adopted by the Commission. Part Four discusses the importance of standby rates on the decision to cogenerate. A discussion of the problems that may arise from traditional cost allocation methodologies for the design of standby rates is also provided.