Imagine you’re a kid starting a lemonade stand. You take on all the risk, using your allowance to buy lemons, sugar and plastic cups. You are prone to market variables, such as the lack of foot traffic from neighbors. Yet you soldier on, craft a somewhat persuasive but mostly adorable sales pitch, and sling enough cups to keep your piggy bank fat and happy for a while.
Then, a child from a wealthy family who lives down the street opens a competing lemonade stand. It uses more expensive lemons, a juicer, nicer cups and fancier signage. It doesn’t get as many customers but it doesn’t matter. The parents are paying for everything, so the wealthy kid needs to sell only a single cup to make a profit.
Not exactly a competitive market.
In the state of Texas, allowing one entity to flourish at the expense of others is supposed to be antithetical to our sacrosanct free market values. Yet if the state Senate has its way, backup power generation would become the province of the state — a taxpayer-backed lemonade stand that we will only need in emergencies, with a guaranteed rate of return even if no one uses the juice.
Senate Bill 6, proposed by state Sen. Charles Schwertner, R-Georgetown, would create a new entity — dubbed the Texas Energy Insurance Program – that would build as much as 10 gigawatts of natural gas-fueled power plants, enough to power millions of homes. The plants would sit idle almost every day of the year, only to be used in instances of extreme weather – such as 2021’s devastating Winter Storm Uri — when energy demand exceeds the supply, threatening mass power outages.
Subsidizing some new backup power generators might sound like a responsible thing to do, except for the cost: $10 billion, according to one of the big companies eligible to land a contract. Half of that would come from the state’s budget surplus and the rest from higher energy costs paid by business and residential customers. Another estimate puts the cost closer to $18 billion.
Although the bill cleared the Senate on a 22-9 vote, its chances of passing in the House appear slim and would also require voters to approve a constitutional amendment. Industry and environmental groups oppose the bill because it would also guarantee generators a 9 percent rate of return. NRG Energy, one of the state’s largest producers of electricity, has been actively lobbying against the bill, warning lawmakers that the company will rethink construction of additional power generation facilities if it passes.
We share the concerns of these strange bedfellows and urge lawmakers in the House to vote against this bill.
Passage wouldn’t just risk a boondoggle, it would put a rather stunning end to Texas’ competitive power market.
Lawmakers’ entire rationale for deregulating the state electricity market more than 20 years ago was that competition and market forces would drive down prices for consumers and allow, the free market — rather than government — to pick winners and losers and give customers a wide array of rate options to choose from.
While the state’s competitive market has had its share of issues with certain participants — R.I.P. Enron —– it can be argued that the freedom of choice has helped keep consumer energy costs relatively low while also fostering innovation. Texas’ major inroads into natural gas, solar and wind power are a direct result of the foresight of companies leveraging the state’s natural resources – in this case, copious gas deposits, sunshine and gusty winds — to eventually become key players in the wholesale electricity market.
Again, these kids with the scrappy lemonade stands may well pack up if big players get guaranteed multi-billion dollar subsidies. And if that leads to fewer legacy generators investing in thermal generation and fewer renewable companies building solar fields and wind turbines, that could lead to an even less reliable grid.
Of course, the competitive market did fail during the cataclysmic freeze in 2021 and hundreds died as a result. Since then, state officials and lawmakers have been tinkering with the power market to ensure that any grid vulnerabilities were shored up. They passed weatherization requirements for gas plants, mapped out a critical supply chain and infrastructure network, and required certain generators to have additional gas supply on site for emergencies.
And yet, the fundamental problem remains: our state’s competitive market still doesn’t reward reliability and backup dispatchable power.
That’s why the Public Utility Commission has proposed the Performance Credit Mechanism (PCM) model. It would essentially preserve the competitive market while paying generators in advance to have power available during peak demand hours and then reward them if they really deliver. We have criticized the plan as being too complex and too expensive at $460 million per year, all without guaranteeing that the lights will stay on. Lawmakers have given it a chilly reception as well.
So where does that leave Texas if two of the biggest solutions are flawed and unlikely to make it to the governor’s desk? While we are holding out hope for lawmakers coming up with a viable large-scale solution to Texas’ dual problems of increasingly high energy bills and soaring power demand, there is a suite of smaller alternatives on the table that would at least move the state in the right direction.
A bill proposed by Sen. Nathan Johnson, D-Dallas, would develop standard backup power generation to be used at critical facilities across the state, be it hospitals, homeless shelters, water towers or fire stations. The state should also invest in energy efficiency, as every megawatt that comes off the grid is one that we don’t have to pay to generate. A bill proposed by Sen. Sarah Eckhardt, D-Austin, would require electric utilities to raise their annual energy savings goals each year. Another bill sponsored by Sen. José Menéndez, D-San Antonio, would allow consumers to sign up for programs to voluntarily curtail their electricity use at times of a shortage.
If lawmakers can’t reach consensus on a power market overhaul, then the focus should shift to achievable, targeted solutions. We don’t need to reinvent the wheel to ensure Texans have a steady supply of reliable, affordable energy for years to come. There probably is a better wheel out there somewhere but we’re pretty sure these two expensive, behemoth plans aren’t it.
