THE END OF TEXAS’ ENERGY-ONLY ELECTRICITY MARKET

Bill Peacock

Key Points

• PUC’s Market Redesign Increases Costs and Reduces Reliability

• Market Interventions will Cost Texans Close to $8 billion a Year by 2026

• The PUC/E3 Report Doubles Down on the Status Quo

• The Market Design Recommendations in the PUC/E3 Report Will Transfer Billions of Dollars of Wealth from Texas Consumers to Texas Generators 

• Restore Texas’ energy-only market through these steps:

  • Scrap the PUC’s market redesign project

  • Do not adopt a mandatory reliability standard

  • Eliminate/do not renew Chapter 312 and 313 property tax abatements for wind and solar generation

  • Directly address the price distortions caused by renewable resources receiving out-of-market tax incentives from the federal government by requiring either

    • Renewable energy minimum offer price'

    • Firmness of dispatch for renewable energy

  • Require the PUC to model the costs and reliability of competitive energy-only market

Executive Summary

The Public Utility Commission of Texas (PUC) recently released the Energy+Environmental Economics’ (E3) report it commissioned on the market redesign of the Texas electric grid. This was in response to the 2021 blackouts during Winter Storm Uri and direction from the Texas Legislature. Unfortunately, the report follows the lead of the Texas Legislature in failing to address the primary problem behind the reliability problem Texas is facing: the manipulation of market prices by the federal and Texas governments in ERCOT (Electric Reliability Council of Texas), the grid that supplies electricity to about 80% of Texans. The manipulation has occurred through three primary market interventions. First, federal, state, and local renewable energy subsidies. Second, market power regulations designed to reduce competition and market prices. Third, the PUC’s direct manipulation of prices through mechanisms like the Operating Reserve Demand Curve (ORDC) and Ancillary Services.

The primary problem with the PUC’s market redesign project is it seeks to solve the problem of excessive government intervention in the market with more government intervention.  If Texans are going to get out of the continuous dual spiral of regulation leading to higher prices and less reliability, the only path forward is to scrap the PUC’s market redesign effort. Instead, the Texas Legislature and the PUC should repent of their previous efforts that have brought Texas’ once-world class competitive electricity market to its knees by restoring market prices and competition in Texas’ energy-only market.