Restoring Sanity, Reliability, and Affordability to the Texas Electric Grid – Watts Up With That?

From MasterResource

By Bill Peacock

“Texas politicians have added at least $38 billion to the cost of electricity through higher bills or higher taxes since 2019…. Retail rates haven’t reached the level of New York ($0.24 per KWh) or California ($0.32), but Texas’s rising $0.15 rate is disconcerting.”

With its grid overwhelmed by renewable energy, Texas is putting natural gas back in the game. The Public Utility Commission of Texas (PUC) has received 125 notices of intent that propose more than 55,000 megawatts of new generation, most of it gas-fired.

Texans should not be surprised at this turn of events. Generators are simply following the money. Taxpayer money, that is.

Background

After Winter Storm Uri, public pressure forced Texas politicians to wake up to—though not confess—the damage they had caused by throwing billions of taxpayer dollars at generation that only works when the weather permits. But rather than restoring grid reliability by ending subsidies for wind and solar farms, they started flinging taxpayer money at natural gas and other dispatchable generation.

It is not going to work. The explosion of renewables continues unabated despite the well-known fact that the reliability value of renewable energy declines as its grid penetration increases. Subsidies for new natural gas generation and batteries may serve as a temporary band aid on ERCOT’s reliability problem, but the only permanent result will be to make electricity more expensive for Texans.

In fact, that is already happening. We are more than five years into an effort to make Texans pay higher rates to improve profits for generators, who have been trying since 2013 to convince policymakers that higher profits for them means more reliability for the grid. They got their first big payout in 2019 when the PUC made changes to a price adder (ORDC) that artificially increased electricity prices by almost $4 billion. Since then, the ORDC has added another $7 billion to electricity rates.

The PUC struck again when its commissioners irrationally, and perhaps illegally, intervened in the market during Uri to raise electricity prices to $9,000 per MWh when prices were about $2,400. This cost consumers at least $10 billion. Either Gov. Greg Abbott or the Texas Legislature could have stopped or reversed this, but both failed to act.

Last year was the most expensive yet for Texans. Another PUC market intervention (ECRS) created artificial shortages that caused prices to jump by $12 billion. Then the Texas Legislature created, and Texas voters approved, the Texas Energy Fund using $5 billion of the budget surplus (another $5 billion may be on the way next year). The Energy Fund is what has generators lined up at the PUC’s doors to get billions through low interest loans, grants, and bonuses.

Cost, Rate Inflation in Texas

Add it all up, and politicians have added at least $38 billion to the cost of electricity through higher bills or higher taxes since 2019.

Electricity prices confirm the cost of these measures to Texas businesses and consumers. In the five years prior to 2019, wholesale electricity prices averaged $31.18 per MWh. Since then, prices averaged $76.14, or $53, removing the effects of the PUC’s actions during Storm Uri.

Retail prices show the same trend. From 2014–2018, the average price for residential customers was 11.3 cents per kWh. For the last five years, prices have averaged 12.72 cents. The latest data show March prices at 14.92 cents, up 27% from 11.71 cents before Uri. Rates haven’t reached the level of New York ($0.24 per KWh) or California ($0.32), but Texas’s rising $0.15 rate is disconcerting.”

The recovery community defines insanity as continuing to do the same thing, while expecting different results. Since 2014, the reliability of the Texas grid has collapsed as federal, state, and local subsidies for renewables averaged $2 billion a year. Over the next five years, subsidies for traditional and renewable subsidies are expected to average at least $6.4 billion.

Policy Reform

The first step toward improving grid reliability is for the Texas Legislature to admit that the grid has become unmanageable, and making Texans pay more for electricity to increase the profits of generators will not fix the problem. From there, the solution is straightforward.

The Legislature must demand that the PUC and ERCOT stop manipulating energy prices. They must end state and local subsidies for all sources of energy. Then they must require renewable energy generators to pay for the costs they are imposing on the grid because of federal subsidies. In other words, they must let competition work in the Texas electricity market.

These measures will restore sanity, reliability, and affordability to the Texas grid. Texans would save billions, and one day would no longer be bothered by alerts to conserve electricity to keep the lights on when the wind stops blowing or the sun stops shining. We just have to take it one step at a time.

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Bill Peacock is the policy director of the Energy Alliance. He has worked in and around the Texas Legislature for more than 30 years.