Grid plan has all the risk, no savings
The final failure of electric deregulation for Texas consumers is almost complete.
The Public Utility Commission recently took the first steps toward removing any doubt that deregulation will ever deliver the benefits consumers were promised. After two years of noodling, it recommended that the best way to fix the market failures that led to the deaths of hundreds of Texans in February 2021 is to make us pay for it all. Or rather, make us pay even more for it.
We’re already paying $2.5 billion to bail out the grid for those costs. So it’s little wonder for all the political blather about fixing the grid’s problems, the PUC has settled on a plan that is more of the same.
The PUC voted in mid-January to adopt a “performance credit mechanism” in which generators commit to producing more power during supply shortages, such as those caused by extreme weather. In exchange, the generators sell credits to retail electric providers — the companies, municipal utilities or coops we consumers buy power from. The credits would give the generators additional revenue that supposedly would justify building new power plants.
In this idyllic world of benevolent generation, retailers and consumers would live happily ever after knowing that price spikes during shortages would be avoided. Never mind that this process is an untested theory that is estimated to result in $5.7 billion flowing from retailers to generators.
Aside from many consumers, retail electric providers are the most financially fragile market participants. They will have little choice but to pass these latest costs on to us, just as they did before.
In choosing to abdicate the hard choices once again, to lay the burden of their failures on those with the fewest financial resources and least lobbying power, the PUC has made a mockery of the very concept of deregulation.
Back in the days of regulated utilities, we paid up front for reliability. A utility, say the old Houston Lighting and Power, made projections about demand and considered the age of its power plants, then went to the PUC and asked to increase rates to cover the cost of a new plant. That ensured the lights would stay on tomorrow, but it was inefficient. If the plant wasn’t needed, demand profiles shifted, or technology became obsolete, we paid anyway.
Proponents of deregulation argued that competition would bring efficiencies to the generating side of the market. Plants would be built based upon need reflected in market signals. If prices went up, a generator would have incentive to build a new plant. They would take the financial risk for the construction, and presumably, reap the reward.
At the same time, consumers would save money because generators would be competing, and those with the most efficient plants — generating the cheapest power — would win.
I have long been skeptical of deregulation’s promises, but this is one area where I always thought consumers would benefit. The idea of placing capital risk with the generating companies rather than consumers was one of the few tangible benefits of the whole deregulation experiment.
It didn’t work, of course. The energy-only market didn’t generate enough incentives for new thermal plants, which contributed to the crisis two years ago.
Now our state leaders are throwing support behind a plan that shifts that risk back to consumers. The difference is that this market they unleashed has no accountability. Even after they saddle us with billions in costs for their failures, there’s still no guarantee that new plants will be built. Our money may go for stock buybacks or fat executive bonuses. Perhaps we’ll be paying for corporate jet trips to Davos as we stay home and freeze to death.
Deregulation in the wellgreased hands of state officials has eliminated all responsibility. So no matter where the money goes, the one thing we can be sure of is that no one in state government has any incentive to ensure it’s used properly.
What’s more, the PUC’s plan adds new layers of risk onto a system that has proven very bad at mitigating it. The processes of transactions, billing, financial oversight and credit have never been tried before. You would think the state that gave birth to Enron might have learned something about the unintended consequences of creating poorly structured financial systems.
But the real danger in PUC’s expensive, risky and potentially game-able “solution,” isn’t the immediate costs. It’s the future ones. Once the precedent is established, consumers become the ATM that the broken system loots every time the market comes up short.
We know our grid can’t be trusted, and faced with the prospect of freezing to death, we might grudgingly pay for the promise of reliability. But not for an untested plan controlled by the very same entities responsible for past failures.
As deregulation enters its final failure, as the cost of this 20-year disaster mounts for consumers, the reality becomes painfully clear.
Billions have been siphoned out of the market at our expense, and our grid is less reliable than it was 20 years ago. It may be the greatest transfer of wealth in Texas history, and it’s working so well that those who have profited so handsomely — and their eager toadies in public office — will do anything they can to keep it going.
Deregulation could have worked if, at any time, our lawmakers or the PUC had put public interest ahead of political patronage. Instead, they’ve managed to turn the old system inside out. We get all the costs of regulation but none of the benefits. Regulation was inefficient, but at least it was built around the concept of the public good.
We no longer pay upfront to keep the lights on tomorrow. If the PUC gets its way, we will pay to hide past failures and invest in delusions for the future.