TEXAS’ $3.6 BILLION ELECTRICITY TAX
Bill Peacock
Executive Summary
Since 2006, wind and solar generators in Texas have received about $19.4 billion of subsidies in various forms from taxpayers and consumers. As a result, renewable generators are willing to drastically lower their prices, even to the point of negative prices, in order to gain market share and ensure their eligibility for subsidies.
This has led to significantly distorted investment decisions in the Electric Reliability Council of Texas (ERCOT), the electricity market which covers more than 80% of Texas’ electricity consumers. The vast majority of investment in Texas is following the subsidies. Thus, most new generation coming online in ERCOT recently has been either wind or solar. Because generation of electricity from wind and solar is inefficient and unreliable, this has led to significant concerns about the reliability of the electric grid in ERCOT.
Commissioners at the Public Utility Commission of Texas responded to the reliability challenges by instituting a $3.6 billion electricity “tax” on Texans. Unlike most taxes though, the money from the ORDC goes straight to generators as a subsidy. The price increase was done through an administrative price adder known as the Operating Reserve Demand Curve (ORDC), which artificially increases wholesale electricity prices under conditions of scarcity. The ORDC has been in place for several years but was increased about $2 billion by the PUC in 2019. The PUC has also increased the ORDC in 2020. Thus, the cost of the ORDC could increase significantly this year, depending on market conditions.
The ORDC harms Texas consumers without addressing the cause of the market’s reliability problems, renewable energy subsidies. Rather than increase subsidies for generators in an attempt to deal with the problems caused by existing subsidies, Texas policymakers should simply eliminate renewable energy subsidies. Where they cannot do so, as is the case with federal subsidies, they should force renewable energy generators—rather than Texas consumers—to pay for the harm they are imposing on the system.
Key Points
Last year, Texans paid a $3.6 billion electricity “tax”
The charge was imposed by PUC commissioners though an administrative price adder known as the Operating Reserve Demand Curve
The commissioners acted in response to concerns about the harm caused to reliability by renewable energy subsidies
The $3.6 billion is a subsidy that goes directly to electric generators
Rather than increase what Texans pay for electricity, Texas policymakers should eliminate the ORDC and renewable energy subsidies