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To Avoid Blackouts, Texas Regulators Plan to Artificially Boost Profits for Utilities

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Ten years into the experiment with electric deregulation in Texas, state regulators have reached an interesting impasse. They’ve abdicated almost all their responsibilities as public stewards to the marketplace but face enormous pressure not to allow rolling blackouts to darken the grid this summer. With Texas’ fully deregulated power market, the Public Utility Commission has few tools to bring new power generation online. Other regions in the U.S. use “capacity markets” to make sure that there’s enough power during times of peak demand. But in the magic realm of Texas, no such system exists.

In theory, “price signals” are supposed to spur investors to build power plants when the supply gets thin and blackouts loom. However, that simply isn’t happening. Investors are sitting on the sidelines complaining about the lack of money to be made. The Public Utility Commission is blaming the dilemma on low natural gas prices, which drive the price of wholesale power in ERCOT.

So what’s a Texas regulator to do? 

It appears the the PUC’s solution is to artificially boost prices, almost assuredly driving citizens’ electric bills higher. The Austin American-Statesman reported on a meeting of the PUC commissioners, three Perry appointees, yesterday:

The Texas Public Utility Commission on Wednesday signaled a willingness to address looming electricity shortages by allowing wholesale prices to hit new highs during peak demands for power.

The three commissioners agreed that wholesale electricity prices, now capped at $3,000 per megawatt-hour during peak demand, must be raised to encourage investors to build more generation plants.

They disagreed, however, on how high and how soon.

The state narrowly avoided rolling blackouts during last summer’s historically hot and dry conditions. This summer is projected to be slightly better, but by 2014 the state’s electricity reserves are forecast to diminish in the face of growing demand for electricity unless new plants are built.

Generators have said they can’t attract investment unless wholesale electricity prices go up.

Utility commission Chair Donna Nelson suggested raising the cap to $4,500 by July 1 and phasing in an increase to $7,500 over several years, depending on a study by outside consultants. That study is to be completed by June 1.

“I want to send the market a strong signal so we can get the investment we need,” Nelson said.

Commissioner Ken Anderson Jr. said consultants should study several scenarios, from a low of $4,000 in 2013 to as much as $9,000 per megawatt-hour by 2016 or 2017.

It’s obvious that the PUC sees the power shortage as a long-term problem, and that their solution is to “send the market a strong signal” by padding some corporate bottom lines.

Forrest Wilder, a native of Wimberley, Texas, is associate editor of the Observer. Forrest specializes in environmental reporting and runs the “Forrest for the Trees” blog. Forrest has appeared on Democracy Now!, The Rachel Maddow Show and numerous NPR stations. His work has been mentioned by The New York Times, the Washington Post, the New Yorker, Time magazine and many other state and national publications. Other than filing voluminous open records requests, Forrest enjoys fishing, kayaking, gardening and beer-league softball. He holds a bachelor's degree in anthropology from the University of Texas at Austin.