The debate over the future of Texas’ electricity market continues, this time in the Austin-Statesman. This past week, the Statesman saw two op-eds hashing out whether the Public Utility Commission of Texas (PUC) should adopt a planning reserve margin, otherwise known as a capacity market. The first, written by the Foundation, reminded the PUC that it should worry more about making the right decision than a fast one and argued that the competitive electricity market is not broken.
The second article took a different approach. Written by Joseph T. Kelliher, a former chairman of the Federal Energy Regulatory Commission, this editorial supported more government intervention and advised Texans, the PUC especially, to take their cues from other regional grids.
Kelliher certainly isn’t the first to suggest that northeastern capacity markets could teach Texas a few things about resource adequacy. So let’s take that leap down the rabbit hole and see exactly what lessons Texas can learn from its northeastern cousins. Here’s a hint: capacity markets won’t solve Texas’ alleged resource adequacy riddle and it certainly won’t do so more efficiently than the energy-only market.
Lesson #1: Capacity Markets Are Expensive
The very purpose of a capacity market is to increase energy costs by tacking on an additional “product” (aka capacity) to a consumers’ energy bill and redistributing it to generating companies. In that, northeastern capacity markets succeed.
Capacity markets cost consumers billions of dollars each year. PJM, the regional transmission organization that serves all or parts of thirteen states in the mid-Atlantic, installed a forward capacity market in 2007. Since that time, capacity payments have totaled approximately $54 billion. Split evenly, that’s around $900 per person.
A Texas capacity market looks like it will fall in the same range. Early estimates have gaged a capacity market costing Texas consumers between $3 and $5 billion per year or, put another way, $180 per year for every man, women, and child in Texas. Let’s not forget that these numbers do not include design and implementation expenses, such as the eventual litigation costs. Capacity markets may be many things, but they’re definitely not cheap.
Lesson #2: Texas Electricity Bill Will Go Up
The increased costs land directly in a consumer’s monthly electricity bill. Capacity payments represented 18 percent of a PJM customer’s wholesale bill. Additionally, the amount consumers paid in capacity payments spiked in congested areas. In New Jersey, capacity payments added $140 per year to the average homeowner’s electric bill. They also added another $1,000 to a retail store’s annual energy costs and $15,000 for an industrial facility. They became just one more barbell weighing down New Jersey entrepreneurs hoping to start a business and share a decent quality of life—another reason why so many northeastern residents moved to Texas for greater economic…Continued here: http://www.texaspolicy.com/center/economic-freedom/blog/grace-puc-texas-goes