Texas Capacity Market Would "Layer Additional Costs Onto Energy Bills", TCAP Says

The Texas Coalition for Affordable Power has issued an update to its review of the Texas deregulated electric market, and warned that a capacity market would, "layer additional costs onto energy bills."

Link to TCAP's Deregulated Electricity in Texas: A History of Retail Competition

"Policymakers should look for ways to stimulate growth in generation resources other than through price supports and subsidies that are inconsistent with the principles of competition and a free market. Policymakers should reject all proposals for 'capacity markets' in which generators get paid even when they do not operate," TCAP said.

"[S]ome industry insiders now favor regulatory changes meant to increase energy prices — including a move to a 'capacity market' that will add an extra layer of costs onto power transactions," TCAP said.

"This is a bad idea," said TCAP executive director Randy Moravec. "Policymakers should pursue reforms that enhance competition and keep electricity affordable — not regulatory manipulation that increases costs," he said.

"[M]any big electric companies — after spending years arguing against market intervention — now clamor for price supports," TCAP said.

"Capacity markets have been controversial and unpopular in the northeast because they layer additional costs on top of existing energy costs. Another complaint is that capacity markets are extremely complex, opaque, and prone to litigation about their outcomes. They also can lead to windfall revenues for power companies with large generation fleets — whether those power companies invest in new capacity or not," TCAP said.

Of the capacity market, TCAP explained, "It would be akin to paying a supermarket for the groceries you buy, plus an extra fee for the supermarket shelf space."

TCAP also said that, based on EIA all-in sales data (commodity and distribution), during the 10 years prior to the adoption of the deregulation law, residential electricity consumers in Texas paid prices 6.4 percent below the national average. In the most recent 10 years under deregulation (through June 2012), residential consumers paid prices 8.5 percent above the national average, TCAP said.

Consistent with prior recommendations, TCAP recommended that all retail electric providers be required to offer a standard-offer rate product, with terms and conditions set by the Public Utility Commission of Texas. The REPs would be free to set their own price for the standard-offer product, TCAP said.