POWER August 2013 - 57

ENERGY POLICY
their customers. In many parts of ERCOT,
however, generators have no mechanism by
which they can pass those costs along because
customers are free to choose another
provider at any time.
Development of new generation in Texas
has also been rendered more difficult because
of the recent changes in federal environmental
regulations and Texas's legal
challenges to EPA actions. Developers
seeking to build new large fossil-fueled
power generation facilities must ordinarily
obtain a Prevention of Significant Deterioration
(PSD) permit under the federal Clean
Air Act. PSD permits can be issued by the
EPA; however, if a state is willing, the EPA
may delegate its authority to the state. Alternatively,
in accordance with a concept
referred to as " cooperative federalism, " if
a state develops and the EPA approves a
state implementation plan (SIP), which in
this context is basically an air permitting
program sufficiently similar to that of the
EPA, federal law allows the state to run its
own PSD permitting program.
In late 2010, the EPA decided that SIPs
that did not address GHG-emitting sources
were inadequate. At that time, the EPA concluded
that 13 states' SIPs did not include
GHG permitting. Twelve of those states either
revised their SIPs consistent with the
EPA's nascent GHG permitting program or
sought delegation of the EPA's authority.
Texas, however, refused. In response,
the EPA imposed a federal implementation
plan that purportedly put the EPA directly
in charge of issuing a part of the PSD permit
related to GHG emissions in Texas.
As a result, the PSD permitting process
became bifurcated between Texas and the
EPA, and developers of new power plants
are now required to obtain two permits
(one from the state of Texas and another
from the EPA).
This bifurcation has caused a fair amount
of regulatory confusion, which has resulted
in a significant increase in the time needed
to get full authorization to proceed with
new power projects, especially considering
the additional requirements imposed
by other federal laws, such as the Endangered
Species Act, when the EPA is the
issuing agency. Furthermore, regardless
of which agency is responsible for issuing
PSD permits, controlling GHG emissions
under the general legal requirement that
facilities must apply Best Available Control
Technology where no reasonably economic
control technology exists for carbon
dioxide and other GHGs has introduced
substantial uncertainty into the permitting
process. These added requirements,
bureaucracy, and " technical " uncertainties
have substantially contributed to the chilling
of new development.
Market Weaknesses
In a market where long-term supply contracts
are extremely rare, forward pricing
plays a significant role in determining
whether an investor will be willing to build
a new facility. With most forecasts anticipating
low gas prices for the foreseeable
future, the market is not currently sending
the necessary pricing signals to those power
plant developers/investors that might
take the risk of building without a longterm
contract.
Unlike other regions in the country, ERCOT
does not have an organized capacity
market (pursuant to which generators can
be compensated for having available generation
regardless of whether or not such generation
is actually producing power). Many
market participants in ERCOT believe that
the development of a capacity market could
help to mitigate the impending supply
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