Texas might be the home to a multitude of oil and gas development and other energy development, but heading into this summer, it could also be known for rolling blackouts and skyrocketing electricity rates.
The Electric Reliability of Texas (ERCOT), the grid operator for most of Texas, recently sounded the alarm about the amount of reserve margin – or reserve power — available to the Lone Star State during the hottest months of the summer. ERCOT expects the peak summer electricity demand to be 72,674 Megawatts. The total amount of power available during this period is forecast to be 78,154 Megawatts. These two statistics put the reserve margin at 7.5%. The preferred reserve margin is 13.75%.
The Chairman of the Texas Public Utilities Commission, DeAnn Walker, referred to the reserve margin situation in Texas as “very scary.” It is very scary and what’s scarier still is that it has come to fruition during the “golden” years of electricity deregulation in the state.
Our mission at Energy Fairness is to have an honest conversation with consumers and policymakers about legislative and regulatory decisions affecting an affordable and reliable supply of energy. The reserve margin shortfall facing Texas calls into question both the affordability and the reliability of power in the state.
The electricity crunch facing Texas this summer has put into question not only the availability of affordable and reliable power, but also whether or not Texas’ consumers have truly benefited since the state deregulated 85% of its marketplace in 2002.
Last summer Texas suffered through three of its hottest days on record on July 19, 20, and 23. Luckily, pleas from electric utilities to industry and consumers to reduce power consumption until after 8:00 pm allowed the state to skirt by without resorting to importing power from Mexico as it had to in 2011. In February 2011 the state had to import 300MW to stabilize the grid during an unseasonable bout of cold weather.
The reliability issue facing Texas during periods of extreme cold and hot temperatures has become the norm rather than the exception. In 2001, just one year prior to Texas memorializing deregulation into law, the chief proponent of deregulation in Texas, PUC Chairman Pat Wood, boasted that the state had largest reserve margin in North America at 25%.
He needed to boast about this margin due to the fact that legislators were concerned with the effect that deregulation had had on California’s reliability during the cataclysmic blackouts of 1998. Unfortunately, by 2011, and according to the North American Electric Reliability Council, Texas’ had the lowest reserve margin in the country at 14%.
If something goes down, the law of balances states that something else must go up. Unfortunately for Texas consumers, prices for power have gone up at the same time reliability has come down. Between 2002-2016 “Texans consistently have paid higher average residential electric prices in areas with deregulation, as compared to prices in areas exempt from deregulation.”
And those higher average prices are quite startling. Over a 12-year period, the average Texas household in the deregulated areas of the state paid $5,100 more, or $25 billion total, than families living in the regulated areas.
The Texas story over the past fifteen years is a story of higher prices and lower reliability. And it is a word to the wise on the perils of a deregulated electricity marketplace and its effect on affordable and reliable power.