New Report: Generation Company Subsidies Could Cost Billions

Written on: February 25, 2013

As much as $2.3 billion annually. That’s how much Texans can expect to pay in additional energy costs if policymakers adopt a Public Citizen Capacity Reportplan to subsidize the state’s powerful electric generation companies.

The Austin office of Public Citizen, an environmental and consumer advocacy organization, included the multi-billion-dollar calculation in a recent report analyzing proposals for a Texas “capacity market.”  Many of the state’s big generation companies have been pushing for such a market because it would allow them to collect additional money from their wholesale customers.

But the report, prepared for Public Citizen by the Massachusetts-based Institute for Energy Economics & Financial Analysis, concluded that a capacity market was wrong for Texas.   “We’d be better off developing a new market structure that creates incentives for people to use less electricity,” said Tom “Smitty” Smith, director of Public Citizen’s Texas office.

His organization is just the latest to skewer capacity market proposals. Customer organizations, environmental groups, free-market think tanks, conservative coalitions and Texas manufacturers have separately concluded that a capacity market is a costly anti-competitive response to the state’s generation reserve challenges.

Generators have argued that by increasing energy costs in Texas, a capacity market will make it more likely that they’ll invest in new power plants to keep up with demand. But the generation companies offer no guarantees and capacity markets in other states have had mixed results. Those markets also have increased energy costs by billions of dollars. The Public Citizen-sponsored report cited separate calculations that such a market in Texas — if set up in a similar fashion as one already existing in the northeastern United States  — would cost between $1.2 billion and $2.3 billion a year. The report’s authors also concluded that such a market could not be up and running before 2015.

On February 6 the Texas Public Policy Foundation, an Austin-based conservative free enterprise think tank, also concluded that a capacity market will fail to adequately address reliability concerns and that “its costs will almost surely exceed any benefits it might bring.” Earlier this month Public Utility Commissioner Kenneth Anderson concluded that Texas can meet its power demand targets through 2018 without resorting to a capacity market.

The Texas Coalition for Affordable Power, the Steering Committee of Cities Served by Oncor, the Texas Industrial Energy Consumers, the AARP and other organizations also have expressed opposition, concluding that moving to a capacity market will increase electricity prices — perhaps substantially.

– R.A. Dyer

What is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
Menu