Report: Texas Capacity Market a "Retreat from Competition"; Would Result in Higher Bills, More Regulation
November 19, 2013 Email This Story Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
A capacity market would increase Texas electric bills, but without any clear benefit to consumers, concludes a report from the Texas Coalition for Affordable Power and the Steering Committee of Cities Served by Oncor
"Similar subsidy mandates in other jurisdictions have not worked well. Even those who stand the most to gain financially — generation owners — have noted serious challenges in other regions," TCAP and Oncor Cities noted.
Indeed, the report points out that NRG CEO David Crane has said merchant generation development is "nearly impossible" anywhere given the current low gas price environment -- even in regions with a capacity market (see prior story).
"Although generation companies could reap billions of dollars each year in capacity subsidies, most of that money won't be for building new power plants," the report notes. "This is because most capacity payments will reflect the value of existing power plants capacity, not new construction. Capacity subsidies may end up with generation company shareholders or for any number of purposes unrelated to resolving resource adequacy challenges."
While noting cost estimates of a Texas capacity market of nearly $5 billion, "Whatever the figure, it's big," the report notes.
"And all that extra money will benefit generators, at the expense of residential and business consumers. Much lip service has been given to the potential economic fallout from blackouts, but very little attention has been devoted to the economic fallout of a multi-billion-dollar annual increase in statewide electric costs," the report notes.
"The creation of a capacity market in Texas raises questions of basic fairness," the report continues. "For many years under deregulation, retail electric prices in Texas were at levels significantly higher than the national average. During these years many in the electric industry warned against any market intervention to relieve consumers. But with residential prices now subsiding (the indirect result of declines in natural gas prices) generators now want subsidies — subsidies ultimately to be paid for by electric customers. In effect, generators are calling for retreat from the principles of the free market in order to enhance their profits. It's a heads-they-win, tails-we-lose vision of deregulation."
The report also notes that those calling for these subsidies have premised their arguments on speculative technical projections that have consistently proven to be incorrect.
The report notes that even Brattle principal Sam Newell has said, "We are not talking about the doomsday scenario that we've seen described in the press that Texas is on the verge of having, you know, constant rolling blackouts — that's just an extreme exaggeration."