Texas Power Struggles Underscore Failure of Deregulation

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Back in April, Energy Fairness brought to your attention the increasingly dire reliability situation facing much of Texas as the Lone Star state headed into the hottest months of the year.  None other than the chairwoman of the state’s PUC, DeAnn Walker, called the situation “very scary.”  Unfortunately, the reserve margin situation facing much of the state has, if anything, worsened, with industrial and residential customers in Texas’ deregulated marketplace now wondering if they will have reliable power and whether prices will go through the roof.

Since the Electric Reliability Council of Texas (ERCOT) first raised concerns about the potential summer electricity crunch facing the state, the alarm bells have continued to sound as the state heads into its traditionally hottest period.

In its June Summer Reliability Assessment report, for example, the North American Electric Reliability Council (NERC) – the grid regulator for much of North America – warned  that “…resource adequacy challenges in Texas…increase the likelihood of grid emergency procedures this summer.”  NERC’s projection for the rest of the continent was much rosier, stating that “all other areas exceed reference margin levels and have sufficient electricity supply resources for anticipated conditions.”

So why are ERCOT and NERC predicting such a dire electricity crunch for Texas?  For one thing, there’s no debating the fact that the state’s population continues to boom, highlighted by the fact that it is expected to pick up at least two congressional seats (maybe even three!) if migration trends from other states continue. The gain in congressional seats indicates population growth of more than two million people since the most recent census of 2010.  The increased residential load from a growing population, coupled with the fact that Texas is rated as the third best state in the country for business (first overall for growth), has pushed the state to break electricity demand records nearly every year due to this combined residential and industrial load growth.

Unfortunately, as electricity demand continues to grow in Texas, key baseload assets critical for grid reliability are retiring. Just this month, the Texas Municipal Power Agency filed the final paperwork to permanently close its 470 Megawatt Gibbons Creek Generating Stationafter announcing last October that the plant would be mothballed and not available to help meet this summer’s projected demand. This much anticipated announcement comes on the heels of Vistra Energy closing three of its coal plants, resulting in the loss of more than 4,000 megawatts of capacity, enough electricity production to power 800,000 Texas homes.

Increased consumer demand on two fronts and fewer traditional powerplant assets to call upon have led to a situation where reliability is in jeopardy and affordability is a question mark.  On July 2nd, as unbearable heat blanketed Texas, electricity prices spiked 25 fold to $920.48/hour.  If this spike weren’t bad enough, the cap on what it could have been is $9,000/hour. Without a doubt, this price spike calls into question whether or not the deregulated market of Texas is going to provide the affordable power promised by proponents like former Federal Energy Regulatory Commission Chairman, Pat Wood, 20 years ago.

For a decade, Energy Fairness has demanded that consumers have access to affordable and reliable energy. This starts with facilitating the conversations necessary with and among policymakers to make that demand a reality. With deregulation proponents urging lawmakers in Virginia and the people of Florida to vote for the “Texas model,” calling it “energy choice,” it’s only fair to examine what this model has meant to Texans. That’s bad news for them. Based on the ERCOT and NERC warnings this year about reliability, and judging from the price spikes we saw on July 2nd, deregulation doesn’t mean reliability and it certainly doesn’t mean lower power prices.