At the end of October, several electricity generators asked the Public Utility Commission of Texas (PUC) to impose an electricity “tax” on Texas consumers of up to $4 billion a year in order to increase their revenues. The money would go to coal, natural gas, wind, solar, and nuclear generators.
The PUC commissioners may act on this request as early as this Friday, December 7, though it is not clear whether they will agree with the $4 billion request. They might offer less, or even seek a different solution.
Why is this happening?
Well, generators want the tax because don’t think they make enough money.
Regulators may want to adopt it because they don’t want the lights to go out on their watch and, well, because regulators like to regulate.
Both generators and regulators are relying on research from consultants that have consistently offered incorrect projections about and supported increased intervention in the Texas electricity market.
What is best for consumers, though—big and small, seems to be left out of the conversation.
The bottom line is that the tax will be given to generators to increase their profits and allow regulators to feel less vulnerable to criticism while consumers get stuck with a multi-million or multi-billion dollar price hike.
Whatever the cost is, though—be it $500 million or $4 billion, it won’t fix the problem.
Reserve margins in the Texas electricity market are tight, but not critically so. In fact, perhaps the main reason they are tight is because the market is working; lower prices in the past have led to less new generation today.
The reason the market might not rebound strongly from the current situation, however, is because of two types of government intervention in the market.
The first is renewable energy subsidies. Renewable generators in Texas have received more than $15 billion in subsidies since 2005. Because of the intermittency of renewables, i.e., the wind doesn’t always blow and the sun doesn’t always shine, subsidies are causing the Texas electricity market to experience less reliability and higher costs.
The second is excessive regulation of the market. For instance, at the same time generators are complaining about low prices, Texas has regulations that cap wholesale prices and can result in fines for generators that charge more than regulators think they should. Go figure.
However, rather than pushing the PUC and the Texas Legislature to eliminate to eliminate the subsidies and regulations that cause them to lose revenue, generators decided to ask for more subsidies. After all, it is a lot easier to increase profits through subsidies rather than through competition.
While the generators will benefit from them, the subsidies will not improve the reliability of the electric grid. Subsidies to generators in the northeast and other places have not made those markets any more reliable than Texas’. But they have made them more expensive.
If Texas policymakers and consumers want to maintain a reliable, affordable supply of electricity, there is only one path forward. The PUC must abandon any effort to increase electricity prices in Texas by giving subsidies to generators and join with the Texas Legislature to remove excessive regulations and eliminate renewable energy subsidies in 2019.