Responding to pressure from customers and politicians, the Texas Public Utility Commission has backed away from a radical market design change which would have forced all Texas electric customers to pay billions of dollars in unnecessary subsidies to power generators.
Specifically, Texas Utility Commissioners have now agreed that Texas is not facing any looming power shortages, and that the current market -- which emphasizes customer choice -- is working well.
Under Texas' current "energy-only" market, power plants are only paid when they are "dispatched" -- meaning when they are directed to generate electricity by the state's independent grid operator, known as ERCOT.
The energy-only market appropriately places the risk of plant operations, fuel costs, and wholesale market volatility on power generators -- the way it's supposed to work now that the electric market has been deregulated. This is in contrast to the "bad old days" of monopoly utilities -- where the utility would earn a return on a power plant regardless of whether it generated power. The fact that power plants only get paid when they are dispatched is one of the biggest drivers of savings under electric competition.
Despite this success, generators and investors have complained that the energy-only market does not support investment in new power plants, because energy prices are too volatile, and investors need certainty when building a 40-year asset such as a power plant. Generators had proposed a "capacity" market to provide power plants with a supplemental revenue stream -- essentially subsidizing generators for being around, even if they do not produce power. Generators baselessly warned that without their preferred capacity market, Texas faced blackouts.
In fact, the generators' arguments are not supported by history, nor actual investor behavior. Texas' energy-only market has assured reliability and resource adequacy for more than a decade, and investors continue to devote capital to building new power plants in the state -- despite specious concerns about unpredictable energy prices and the lack of a capacity market.
Notwithstanding the success of Texas' energy-only market, the Public Utility Commission appeared poised to mandate that customers provide some form of supplemental revenue, or subsidy, to power plant owners, as requested by the generators. However, two recent market reports, in addition to consumer and legislative pressure, led the PUC to back off its pursuit of a capacity market last week.
Specifically, the latest load forecasts from ERCOT show that Texas will have enough power generation to meet customer demand past 2020.
This means there is no "crisis" which requires the government to transfer wealth from customers to generators. Texas simply isn't facing blackouts
While the PUC has indicated that it will shelve plans for a capacity market, Texas customers must remain vigilant. Generators have been seeking subsidies from the government since the Texas market was deregulated, and they are not going to go away quietly. Customers must be ready to oppose any bad policies pushed by generators.