Most people don’t like to compete.
Athletes sometimes doctor their equipment to gain an edge in winning their games. Politicians gerrymander their districts rather than compete with their opponents for votes.
In the case of businesses, many of them go to the government get more profits from taxpayers than they could by competing for consumers. This is happening in the Texas electricity market today.
Recently, electricity generators (both conventional and renewables) 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.
Their reason for asking for this tax is simple—they don’t think they are making enough money.
This claim is nothing new. Back in 2012, generators were making the same claim while telling whoever would listen that if they didn’t get more money, the lights in Texas would go out. And soon.
In fact, you can see above the ad the generators ran in the Austin American-Statesman in January 2014 suggesting that the lights could go out over the entire state of Texas with “regular rolling blackouts in just a few short years.”
Of course, those few short years have passed, and the lights didn’t go out. But with reserves in the market today somewhat tighter today, generators have decided to take another shot at it. And you have to appreciate their consistently: the proposed tax was $4 billion back then and is still $4 billion today.
The $4 billion is really just the tip of the iceberg, though, added on top of more than $15 billion in subsidies since 2006 for Texas generators using renewable energy.
For instance, Texas built $7 billion worth of “CREZ” transmission lines to benefit wind and solar farms located far from population centers; Texas electricity customers pay down this debt every month, with interest, on their electric bills. Mandates to purchase renewable energy have added another $500 million. We’ve also paid close to $1 billion more to connect renewable generators to the grid.
Then there are the local tax abatements (Chapters 312 and 313) that have reduced property tax revenue by more than $500 million. And the cost of federal subsidies (stimulus payments and the Production Tax Credit (PTC)) to renewable generators in Texas have topped $6 billion.
Generators that have received PTC subsidies include NextEra Energy (leading the way with eligibility for $5.7 billion of tax credits since 2008), NRG Energy ($1.1 billion), BP ($913 million), and Exelon ($528) million.
Besides the moral dilemma of forcing American taxpayers to subsidize generators with a combined market cap of $278 billion, these subsidies are also one of the main challenges facing the Texas market today. Companies that depend on renewable energy subsidies to provide their profit margin are less likely to build new generation in Texas, especially as these subsides reduce the price—but not the cost—of electricity in Texas.
The clear path forward to ensuring Texas’ competitive electricity market continues to provide an abundant supply of reliable, affordable electricity is to end renewable energy subsidies, not to heap a $4 billion a year electricity tax on top of them.
The PUC may (or may not) have the legal authority to impose this tax and take other measures to subsidize generators. But it doesn’t have the moral authority to do so. If Texas is going to abandon its world-class competitive electricity market, that is a decision that the Texas Legislature and our governor should make.