Following the political fallout from last year’s blackouts across Texas, the Texas Legislature took steps to divert attention from its contributions to the electric grid’s failure. In addition to passing several bills, it ordered the Public Utility Commission of Texas (PUC) to revamp the Texas electricity market.
The problem with this is that the blackouts were not caused by a failure of the electricity market itself but by the massive interventions in the market authorized by the Legislature. This included billions of dollars of subsidies going to traditional and renewable energy generators plus the PUC’s decision to raise prices last year, which cost Texans as much as $38 billion.
It is in this light the PUC’s recent efforts to find a consultant to “to assist in the analysis, development and implementation” of an updated market should be viewed. Once again, it appears Texas leaders are putting generator profits over consumers’ best interests.
The Texas Legislature began subsidizing renewable energy in 1999. It then upped the ante in 2005 when it forced the PUC to build transmissions (CREZ) lines to transport wind energy from West Texas. These and other subsidies for renewables have already cost Texans more than $12 billion.
Following the lead of Texas legislators, in 2019 PUC commissioners manipulated the market by expanding the Operating Reserve Demand Curve (ORDC), a mechanism designed to artificially increase wholesale prices. The changes resulted in a $3.6 billion windfall for Texas generators.
The Texas Tribune reported at the time: "Texas Public Policy Foundation — the conservative, fossil fuel-funded think tank that is fighting the proposal alongside liberal watchdog groups like Public Citizen — show the average family of four would pay $233 more for electricity per year. The foundation also points out that there would be indirect costs as businesses facing higher power prices pass their cost down to consumers."
While the PUC's actions meant that Texans were paying more, generators struck it rich. L.M. Sixel, with the Houston Chronicle, reported: "NRG Energy, one of the state's biggest generators, reported that higher power prices in Texas contributed $213 million or about 40 percent of the $524 million the company earned from its generation business before taxes, interest, depreciation and amortization for the quarter ending in September. The higher prices helped convert a $72 million third $372 million profit for the same period in 2019.quarter loss in 2018 into a Vistra Energy of Irving, the state's biggest power seller, reported third quarter income from generation increased $226 million in Texas before taxes and other factors, offsetting lower generation prices in other markets."
The PUC is doing the same thing today in its market redesign effort. There appears to be no price too high for consumers to pay if Texas politicians can claim they solved the problems they caused that led to the 2021 blackouts.
In the PUC’s recent effort to find a consultant, two companies responded. One of them, E3 Consulting, has already done work for two Texas generators, NRG and Excelon, to develop a market mechanism known as the Load Serving Entity Reliability Obligation (LSERO).
Despite the fact the E3 Consulting appears to have a conflict of interest--working for both generators and the PUC on the same issue, it appears to be the favorite to receive the contract because PUC Chairman Peter Lake and generators that stand to see sizable increases in profits favor implementing the LSERO.
If the PUC decides to use the LSERO concept, Texas consumers may be forced to pay another $1.5 billion per year to generators. The generators like this because they do not like having to compete for consumers' business. For years, generators have been complaining about not making enough money in the Texas market. But what they really have been complaining about was that making money by competing was just too hard.
In one sense, that is understandable; why would companies want to work hard to compete for consumers' dollars when the government will simply give consumers' money to them? The bigger question is why the Texas Legislature and leaders like Gov. Greg Abbott, Lt. Gov. Dan Patrick, Texas House Speaker Dade Phelan, and the rest of the Texas Legislature would go along with this? While ignoring the primary cause of the poor reliability on the Texas grid, subsidies for renewable energy?
Ending energy subsidies would save Texans billions. Consumers would also save if the PUC required renewable generators to pay for the costs their intermittency imposes on the grid. Yet the PUC seems focused on giving more money to generators--at the expense of Texans--rather than less. Texas voters should let their legislative leaders know they are tired of being used to pad the pocketbooks of Texas generators.