We’ll address the questions later in another post. Here, we’ll note that the questions are asked in regards to a ‘reliability’ market rather than a ‘capacity’ market.
No doubt this name change is because capacity markets are getting a well-deserved bad name in Texas. For instance, in its first five years PJM’s capacity market cost consumers over $50 billion in capacity payments to generators.
In Texas, the cost of a capacity market is estimated to run from $3 billion to $5 billion a year. So the effort to distance the PUC’s actions from what they really are—the adoption of a capacity market—is not surprising.
This name change was foreshadowed in the recent PUC hearing where a majority of the commissioners made it known that they were in favor of mandating a reserve margin. Much of the discussion from the majority centered around the idea that by adopting a mandatory reserve margin did not mean that we would also adopt a capacity market. “This is Texas,” went the discussion, “and we’ll do things our way.”
However, it is hard to see how using the principles of ObamaCare to run our electricity market is in keeping with the principles that have made Texas the number one producer of jobs in the United States.
Make no mistake about it: when the PUC commissioners vote to adopt a mandatory reserve margin, they will be voting to adopt a capacity market.
A mandatory reserve margin is nothing more than a mandate for a certain amount of generation capacity in the market. Texas might set itself apart by making its capacity market somewhat different from PJM’s capacity market. But it won’t be able to avoid the two essential features of a capacity market: a mandated level of generation capacity and billions of dollars of capacity payments to generators, i.e., corporate subsidies.
Commissioners in favor of a capacity market will also be voting to turn away from competition and to abandon the world’s most successful effort to deregulate electricity markets.
There is nothing Texas about a capacity market. The Texas Legislature didn’t bow to centralized control of our healthcare market—it stood up to Washington, D.C. and did not expand Medicaid or set up a state ObamaCare exchange. Nor have corporate subsidies been a hallmark of Texas’ economic policies.
Levying a $4 billion a year electricity tax on consumers to fund centralized control of our electricity market will be the biggest expansion of Texas government since 1984 when the state took control of our local schools. Beyond that, we’d probably have to go back to the state’s adoption of Medicaid.
Calling a capacity market a reliability market won’t hide these facts.