Big generation companies want to create a “capacity market” in Texas. Under this complicated regulatory scheme, generators would collect “capacity payments” simply for existing. These payments would be ADDED to the cost of wholesale electricity. In this sense, capacity payments are like billion-dollar taxes — except instead of paying for public services they would end up lining the pockets of the state’s largest generation companies. What exactly is a capacity market and why should you care? Here’s a quick primer. (And for even more about the debate, check out TCAP”s online report, which you can find here.)
What is a capacity market?
Under a capacity market, generators would receive payments both for the energy they produce and for the generation plants they own. The more generation capacity they own, the more money they get. Generators have argued that this extra cash will create incentives to build new power plants. They say these incentives are needed to keep up with the state’s growing energy demands. But generators offer no guarantees and capacity markets in other states have not worked well. The only guarantee is that a capacity market will drive up energy costs.
Did you know?
- The purpose of a capacity market is to INCREASE energy costs. By their very design, capacity markets contribute to higher prices.
- By some estimates, establishing a capacity market in Texas will add as much as $2.3 billion to the annual cost of electricity.
- Under a capacity market, generation companies would receive extra payments simply because they own power plants. This is money that generators would receive simply for existing.
- 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.
- The Public Utility Commission has already worked aggressively to address the state’s reliability concerns, including authorizing changes that will increase prices. It’s important to allow time for these changes to work.
Is a policy analyst consultant for TCAP, a coalition of political subdivisions in Texas that purchase electricity in the deregulated market for their own governmental use. Because energy costs are typically a significant budget item to our members, TCAP is consistently looking for ways to save our members money, through cost-saving contracts, energy efficiency or demand response programs.