In our most recent newsletter I wrote about important electricity-related legislation at the state Capitol. With the legislative session recently concluded, I now turn my attention to an issue facing state regulators: the proposed creation of a capacity market. With apologies to Woody Allen, taking a quote from his 1971 movie, Bananas, a capacity market would be a “travesty of a mockery of a sham of a mockery of a travesty of two mockeries of a sham.” In short, it would be an admission that Texas’ experiment in deregulated electric power is a failure.
Many of the state’s largest generators are pressing for a capacity market, which, by its very design, will increase power costs. Generators say they can use this extra cash to build more power plants. But they offer no guarantees, and a capacity market will result in new mandates and likely cost Texans more than $2 billion annually.
Creating a capacity market has been debated for more than a year at the Public Utility Commission, which has entertained the concept due to concern for having sufficient generating capacity to meet peak demand during hot Texas summers. Commissioners Donna Nelson and Ken Anderson have are deadlocked on the issue. But that may change when Gov. Rick Perry fills a vacancy at the agency, which could happen soon. In the meantime the PUC has taken other steps to encourage generation development.
The Texas Coalition for Affordable Power and a variety of organizations on both sides of the political spectrum oppose creating a capacity market in Texas. You can find plenty written about the issue on the TCAP blog . I also recently penned a letter that appeared in the Houston Chronicle. In it, I enumerate many of the reasons for TCAP’s opposition. You can find that letter here.
How would a capacity market work? Under most capacity markets, big generation companies would receive extra payments based on the number and size of power plants they own. That is, generation companies would collect extra money simply for existing. This money ultimately comes from residential and business customers. In this way, capacity payments have been likened to a tax.
It’s also important to note that capacity markets do not exist for other industries. For instance, grocers don’t pay an extra charge for “chicken capacity.” They simply pay for eggs. And then there’s the question of basic fairness. For years when energy prices in Texas were high, generators argued against market intervention. Now that prices have come down, they’re clamoring for subsidies.
The Texas Coalition for Affordable Power continues to oppose a capacity market in Texas and has called upon the Public Utility Commission to conduct a detailed cost-benefit analysis before moving forward. TCAP has supported and continues to support other technical fixes to help address the state’s reliability concerns, but not at the expense of affordability. I’ll keep you informed as the debate continues.