Texas' Energy Market

February 6, 2014

New regulatory proposals would only hurt Texas' energy market, says Robert Michaels, an adjunct scholar at the Cato Institute.

Currently, the Texas energy market works like this:

  • The Electricity Reliability Council of Texas (ERCOT) is composed of a group of competitive energy generators.
  • Those energy generators can contract with individual customers and deliver energy (usually, the power is delivered to Retail Energy Providers, who then sell to households and businesses).
  • Or they can sell energy into a market and receive the market price.
  • Sometimes they sell into a market for "ancillary services," which work to ensure reliability and power reserves.

This system has been successful, and the public has benefited from the competition. But there is a movement in Texas to change the existing market by those who think that the system is not sustainable. Proponents of changing the system argue that the energy markets do not produce enough revenue to encourage future energy investments and are advocating for regulations that would impose new energy taxes on consumers.

But investment in energy generators in Texas has actually been very strong. And claims that the market is unprofitable come from a misuse of data. As the Governor's Competitiveness Council reported in 2008, "Many experts and financial analysts view the competitive structure in Texas as a successful example of wholesale and retail competitive electric markets. The ERCOT market has experienced unprecedented investment in the generation sector since restructure [sic], all at the risk and expense of the generation developers."

The existing Texas system is sufficient to create reliability and competitive pricing. Making changes is not only pointless, Michaels says, but would bring complexity and anticompetitive forces into the market. If these new requirements are instituted, power bills will only go up unnecessarily.

Source: Robert J. Michaels, "Texas' Competitive Capacity Market," Texas Public Policy Foundation, January 2014.

 

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