Texas should enjoy surplus electricity over the long-term — even without paying expensive subsidies to power generators.

That’s the conclusion of a highly-anticipated consultant’s report that also has determined that the Texas energy market should meet or exceed a number of standards over the long-term.

“This report helps put to rest the forecasts from electric generators who argue that blackouts are just around the corner unless they extract expensive subsidies from ratepayers,” said Dr. Randolph Moravec, executive director of the Texas Coalition for Affordable Power.

Dr. Randy Moravec TCAP Executive director

Dr. Randy Moravec
TCAP Executive director

“When considered with other energy market data, it becomes clear that new government mandates and expensive subsidies for electric generators are not in consumer interests,” he added.

Released last week by the Texas Public Utility Commission, the report focuses on technical questions relating to the state’s targeted “reserve margin,” which is a measurement of reliability and reserve power in the state’s electricity market.  The report was authored by the Brattle Group, a Cambridge-based consulting group. The report’s take-away finding is that Texas can maintain a cost-effective level of energy reserves without a complicated and expensive departure from its competitive energy-only market.

The issue is important because the state’s largest electric generators have been lobbying hard for ratepayer-financed subsidies, which the companies claim are needed for them to keep pace with electricity demand.

The Texas Coalition for Affordable Power, other consumer groups, as well as business and free market organizations have argued that the generator proposals would needlessly cost electricity consumers, lead to more government mandates, and signify a retreat from the free-market principles upon which the state deregulated its electricity market.

The new report acknowledges that the electricity system in Texas, as currently configured, will not produce energy reserves that match a target set by ERCOT, the state’s primary grid operator. But the report also notes that the ERCOT target is higher than that which is economically optimal. The consultants noted that the ERCOT reserve target also is higher than the target employed in other jurisdictions.

A new consultant

A new consultant”s report raises questions about the need for expensive ratepayer-financed subsidies for generators.

These distinctions are important. That’s because the Brattle consultants stress that the existing wholesale power system in Texas — even without new subsidies to generators — will produce energy reserves that meet or exceed targets considered economically-optimal as well as targets found reasonable in other jurisdictions.

“This important finding suggests that the current market design will support sufficient reserve margins from an economic perspective,” the Brattle Report says.

A separate report from ERCOT significantly reduces estimates of peak demand in future years, meaning that energy reserves in Texas will meet or come very close to meeting ERCOT’s higher-than-optimal reserve margin targets through at least 2019. Taken together, the data appears to dispel claims by generators that Texas faces a looming energy crisis.

“It really says we don’t have a problem,” said PUC Commissioner Ken Anderson, speaking recently to the Texas Tribune.

The new Brattle report also raises questions about the complexity of the generator’s proposed market overhaul, noting that it would require a number of difficult and contentious administrative policy changes.  The report said there would be considerable short-term transition costs as well as long-term costs at approximately $400 million per year.

Moravec, of the Texas Coalition for Affordable Power, said that experience has shown that such market overhauls can be very costly to consumers — even more costly than the estimates put forth by the Brattle consultants.

“It’s clear from experts in the field that creating a system to pay capacity subsidies to generators makes no economic sense and would be a bad move for Texas,” said Moravec. “These proposed subsidies will lead to higher costs, more regulatory headaches, more government mandates and simply are not needed. Instead of mandating subsidies for big generators, we should let the free market work for consumers.”

— 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.