Report on the Capacity, Demand and Reserves in the ERCOT Region

A new report released in Austin this week includes some dire predictions about the state’s future. Energy reserves could drop below safe levels by 2014, according to the analysis. Reserves could dip even lower after that. This potentially can  contribute to rolling blackouts.

These are serious concerns, to be sure — and the report has rightfully captured the attention of lawmakers, regulators, journalists and the public. But the doom and gloom also should be placed in its proper context. For instance: while the report shows reserves dropping to worrisome levels after 2013, it also shows better-than-expected reserves next year. This should give Texas policymakers more time to consider their options. Also keep in mind that out-year projections almost always overstate the problem. This year, for instance, Texas should have about twice the generation reserves as had been predicted in an earlier report. The same was true for the generation reserves that eventually came online in 2011.

Why should you care? Because there are moves afoot at the Texas Public Utility Commission to address these challenges by quickly increasing wholesale electricity costs. The theory is that if revenues go up for big generation companies, those same companies will build more power plants. But this strategy also will mean higher light bills for home consumers, and more expenses for Texas businesses. Blackouts are bad for the economy. So are price hikes.

Under one proposal a ceiling on some wholesale electricity prices would go up by 50 percent before August. Various price floors linked to that cap likewise would go up. But the price cap is already the highest in the nation and it’s set at a level well above typical energy prices. Raising the cap could lead to more dramatic price spikes during the hottest days of summer and possibly undermine retail electric contracts.

Robert McCullough

Portland-based economist Robert McCullough also warns that raising the cap could have the opposite effect of that which is intended. Speaking to a reporter for National Public Radio, McCullough said a dramatically higher cap may discourage power companies from building more power plants because they would benefit more from higher prices allowed under the new cap if generation remains scarce. “Not only are we creating an incentive not to build new plants, we’re creating an incentive that might lead some traders to create artificial shortages,” he said.

Randy Moravec, executive director of the Texas Coalition for Affordable Power, said there has been no effort to understand how the potentially higher prices will impact the Texas economy. “Although we have seen many reports such as the one released [this week], there has been no related analysis that focus on electricity prices,” he said. “It’s important to understand how higher prices from these proposals will impact homes, businesses and the overall economy. We would urge policymakers to examine these questions before going forward.”

It’s a tough issue to be sure, and one that could impact all Texas residents and businesses. Blackouts: bad. Higher prices: also bad. You can read more about the dilemma facing the PUC in articles posted here and here at the Recharge Ratepayer Report. You can also offer advice to the Texas Public Utility Commission by writing the agency at PUC Central Records, P.O. Box 13326, Austin, TX, 78711-3326. Be sure to reference Projects #37897 and #40268.

— R.A. Dyer