Big generation companies are clamoring for billion-dollar subsidies, arguing they need the free money to keep with up with energy demand. Consumer groups believe these subsidies will needlessly drive up costs, are anti-competitive and unnecessary.

Last week we wrote about the flawed economic forecasts generation companies employ to defend these controversial proposals. This week we’ll touch upon another important issue — this one relating to the damage these subsidies would cause to the competitive retail energy market.

As noted in a recent article by Nicholas Sakelaris of the Dallas Business Journal, it would be the state’s retail electric providers — the companies that serve you and me with electricity — that would pay the subsidies. The total cost of these payments has been estimated north of $4 billion, annually.

But independent retailers fear the subsidies will undermine their position in the market. Why? Because some of their competitors — companies like TXU Energy and Reliant — are affiliated with generation companies. TXU’s and Reliant’s parent companies stand to benefit from these subsidies, given that their generation companies will reap millions from the subsidy payments.

Nicholas Sakelaris Dallas Business Journal

Nicholas Sakelaris
Dallas Business Journal

But independent REPs — companies like Source Power & Gas — will receive no such benefit because they have no affiliation with generation companies. In fact, independent REPs would be put in the unenviable position of making capacity payments that potentially benefit their competition.

This creates an uneven playing field, gives a competitive advantage to the state’s biggest REPs, and could potentially drive independent REPs out of business. “If they get (these subsidies), that is all free money,” Source president John Werner told the Dallas Business Journal. “They have a severe conflict of interest. They can use that money to undercut me and Source Power and Gas and others to the point where it’s more difficult to do business.”

By contrast, a spokesman for TXU Energy told the Dallas Business Journal that systems to deliver these subsidies to generation companies  “tend to be good for consumers.”

TXU is affiliated with Luminant, a generation company that’s in line to make millions under these proposals. So does TXU really believe the subsidies are “good for customers” or just good for TXU’s bottom line?

These subsidies, by their very design, will increase what all of us pay for electricity. If energy prices don’t go up, these subsidies aren’t working.

It’s hard to see how that equates to “good for customers.”

— R.A. Dyer

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