Although a federal court recently stayed implementation of new federal environmental regulations which threatened Texas with the loss of power generation and rolling blackouts, keeping those megawatts on the grid will not fundamentally change the expectation that Texas electric rates are due to rise this year, particularly for the summer, due to a remaining imbalance in power demand and supply.

The stay of the EPA's Cross-State Air Pollution Rule will mean more electric generation capacity will remain on the Texas grid during the next six to nine months as the regulations are litigated in court.  Already, Luminant has announced plans to maintain the operation of 1,200 MW of generation it had previously said it would close due to the new federal rules.

While keeping this generation online will help Texas make it through the winter and summer without rolling outages, it doesn't mean Texans will have relief from the expected rise in electric prices coming to Texas, for several reasons that discussed a few months ago.

That's because, while the added generation will help Texas keep the lights on, conditions will still be scarce, and supply will still only outpace demand by a small margin.  Essentially, conditions in 2012 will be similar to those in summer of 2011, when Texas risked rolling blackouts on a daily basis due to a lack of available generating capacity.  Under these conditions, wholesale electric rates routinely hit the equivalent of $3 per kilowatt-hour last summer, while the lowest retail electric rates in Texas are currently 8 or 9 cents per kilowatt-hour.  Similarly high wholesale pricing can be forecast to be repeated this summer, which may lead retail electric providers to increase their retail electric rates to account for the higher expected wholesale prices.

Also, most of the generation that was due to retire, but that will remain on the grid under the EPA's stay, was coal-fired generation.  Typically, these units do not set on-peak electric prices in Texas, which are set by gas-fired generation.  The return of these coal units, while displacing some higher-cost generation, won't lead to a fundamental change in the drivers of on-peak Texas electric rates.

The good news is that while electric rates are still under upward pressure, they haven't increased materially yet.  Customers can still shop and find electric rates in the 8-cent range, and choose a plan that lets them avoid the expected rate hikes in the future.

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