Electric competition works – will Texas let it?


It has been 20 years since Texas introduced competition into its electricity market. And except for a few bumps along the way, competition proved wildly successful for consumers. Investors flocked to Texas to build new generation making our electric grid both reliable and affordable.

However, not everyone shares in the satisfaction of Texas consumers. Generators have a times struggled to make money. Then there are the “consumer advocates,” who found that consumers did not listen to them like regulators did.

Some legislators got skittish every time prices did things they could not control. And, finally, regulators and statewide officials started to get nervous because they were no longer in control of keeping the lights on.

Over time, these groups have chipped away at competition in the Texas market. Now, however, there is a widespread push by the groups to eliminate true market competition all together. This would come in the form of a “capacity market,” where consumers pay generators twice; once for simply existing and again for the cost of electricity.

Warren Buffet made the opening move in this gambit. He offered to build about 10 gigawatts of new natural gas plants if Texas consumers would guarantee his company $8.3 billion in return. Next came Texas state Rep. Chris Paddie, whose failed HB 4378 would have transitioned Texas to a capacity market.

Now comes Texas Gov. Greg Abbott and Lt. Gov. Dan Patrick. Both have made calls for a capacity market to some degree. Patrick’s language is the most explicit, pushing for “constructing a managed capacity market where additional plants are built to provide emergency backup power.”

Behind this push is the complaint that the current Texas market failed during the winter storm. But that is not true. What failed Texans is our government.

During the last 20 years that Texas has been promoting competition, it has also been promoting anti-competitive subsidies for generators. Particularly for renewable energy.

For instance, the Texas Legislature adopted a renewable portfolio standard that forced retail electric providers to purchase renewable energy or pay for renewable energy credits. Renewable energy generators have also been given eligibility for local property tax abatements from counties, cities, and school districts. On top of these, the Legislature mandated the building of transmission lines to be used by renewable generators.

The cost of all these subsidies to taxpayers and consumers is tremendous. Since 2006, wind and solar generators in Texas have received about $22 billion from taxpayers and consumers. But that is not the worst part of it.

What has harmed the reliability of the grid is that investors figured out the easiest way to make money in the Texas electricity market was not to compete by building new natural gas plants but by taking government subsidies. Thus most of the investment in new generation recently has gone to renewables; almost 80% of new generation coming on line over the last three years has been renewable.

So criticisms that the “market” or “market prices” as the culprits for the Texas blackouts just do not hold water. Renewables were far less likely to operate at full capacity than traditional generation during the darkest hours of the Texas winter storm.

While renewables, then, are legitimate targets for criticism because of their failure when Texas needs electricity the most, perhaps the best targets for the complaints of Texas are our elected officials; the folks who have been forcing unreliable energy sources on Texans–and making us pay for it.

The cost to Texans will keep growing if Texas politicians continue their push for a capacity market. We estimate that a capacity market will cost Texans $4 billion to $8 billion per year. That would be on top of the $2 billion or so per year we are already paying for renewable subsidies.

One might reasonably ask why our elected leaders feel compelled to make electricity more expensive for us? There are likely several reasons.

First, renewable energy is sexy. Promoting renewables gets politicians good press in the mainstream media.

Second, corporate cronyism. Generators–both renewable and traditional–spend millions of dollars on lobbyists in Texas each year trying to get out of politicians they cannot get out of market competition. Too often they succeed.

Finally, fear. When the lights went out this winter–and almost went out in June–Texas politicians started pointing fingers anywhere they could to keep the voters from understanding that it was their manipulation of the market that caused one of the worst blackouts in U.S. history. So far, their efforts have worked.

Texans should not let them get away with it. While standing up for markets is not very fashionable these days, markets are the only thing standing between Texans and an $8 billion or so price hike.

It is time for Texans to speak up.

Bill Peacock is the policy director of the Energy Alliance, a project of the Texas Business Coalition.

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