Texas public policy foundation
Competition Still (Barely) Alive in...

The Electric Reliability Council of Texas (ERCOT) last week decided not to increase the target reserve margin for the competitive portion of Texas' electricity market. A proposal before ERCOT's board would have raised the current 13.75 percent reserve margin to 16.1 percent. The reserve margin is the amount of generation reserves (over projected demand) deemed necessary to ensure reliable electricity service.

Texas state Sen. Troy Fraser successfully lobbied ERCOT not to increase the reserve target. In a letter to ERCOT he wrote, "An increase in the target reserve margin of this scale could not help but serve the interests of those advocating for a capacity market, a system which would subsidize existing generation."
Those interests include many generators, investors, and regulators who want to increase the reserve target, and make it mandatory, in order to help pave the way for abandoning our world-class, competitive electricity market and forking over at least $2 billion in annual subsidies for generators through what is known as a capacity market. In a capacity market, regulators would start making decisions that consumers and generators currently make, like how much electricity is needed and how much it costs. Most other states today have a capacity market or something similar. And these interests say we need one too in order to ensure reliable service.
But Texas world class, competitive electricity market is working just fine. At least it would be if left on its own. But government intervention--including renewable energy subsidies, increased regulations, and the regulatory uncertainty caused by the Texas Public Utility Commission's extended dalliance with a capacity market--has led to problems. Unfortunately, too many people want to fix the problems caused by government intervention with more government intervention. But it won't work. The PUC needs to stop its consideration of adding billions of dollars to the electricity bills of Texas consumers through a capacity market.
Texas has the most competitive electricity market in the world; it is also one of the best examples of how to get government out of business of regulating our lives. Texas needs to stick to a free, competitive Texas electricity market.