Christmas may come early for a handful of Texas generators asking the state to subsidize their power. The state’s Public Utility Commission (PUC) is set to meet on Friday, and on its agenda (Project 48551) is a proposal that could result in billions of dollars in higher electricity prices for consumers.
The issues involved are highly technical, but are important nonetheless. Since electricity cannot be stored on a large scale, a functioning grid requires that there be enough capacity to meet demand at all times. This means that for most of the year, a significant amount of generating capacity has to be kept in reserve, only to be used during times of peak demand (which in Texas is in the summer). How to ensure that there will be enough capacity has been a matter of much consternation and controversy.
Many jurisdictions operate separate “capacity markets” that effectively pay power plants to sit idle, waiting to be called upon when power demand is high. By contrast, Texas operates an “energy-only” market that relies on price signals to encourage new generation to come online during periods of scarcity.
The Texas model has worked well. During the summer of 2018, for example, the state reached 14 new demand peaks, yet made it through without having to take emergency actions. In fact, price spikes during the hottest periods were relatively subdued, indicating that the grid had more than enough electricity to go around.
The lack of higher prices would ordinarily seem like a good thing. But some generators who bank on price spikes view it as a problem. A few years ago, generators tried to get the PUC to institute a capacity market. Those efforts failed after concerted opposition from a combination of conservative and green groups who saw the idea as corporate welfare.
Now, however, it seems like advocates of a capacity market may get their wish, after a fashion. In October a group of generators asked the PUC to order technical changes to something called the operating reserve demand curve (ORDC). The details of the proposals are technical, but the upshot is that the change would add a kind of tax to the price of electricity during periods of high demand that could add $4 billion a year to Texas electrical bills.
It’s unclear whether the PUC commissioners are inclined to go along with this plan. What is clear is that the proposal would transfer billions of dollars from consumers to generators despite the fact that the grid has been delivering top-notch performance. That would be a big step backwards for the Texas electric market, and for Texans’ pocketbooks.