Texas’s power market performance

“The Lone Star State approaches electricity policy—among other things—a bit differently,” wrote the R Street Institute’s Devin Hartman in “Testing Texas power.”

That “differently” is one benefit of the quasi-independent status of the ERCOT grid. While there are benefits to harmonization of rules across regions, there are also benefits to exploring alternatives to whatever currently happens to pass muster among a handful of FERC regulators in Washington, DC.

Hartman’s introduction continues:

The Texas system creates a unique set of investment incentives for power plant and demand-side resource developers. Combined with shifting market fundamentals, this structure has contributed to the best electric industry performance of any state in the past decade, while simultaneously retiring old polluting facilities and ushering in a new wave of clean energy development. More than 5,600 megawatts of fossil-fuel capacity will retire or mothball in the coming year, while 2,200 megawatts of natural gas, wind and solar look to come online this winter, along with growing prospects for energy storage.

Such economic shifts foreshadow political ones…. [Links in source.]

Hartman notes some of the ongoing efforts to refine the pricing mechanism in the ERCOT market, much of it surrounding the price consequences of reliability and other out-of-market steps taken by the grid operator.

Also of note, from Peter R. Hartley, Kenneth B. Medlock, and Olivera Jankovska with the Baker Institute at Rice University, “Electricity Reform and Retail Pricing in Texas.” The abstract:

Electricity market reforms have pursued two main goals, both aimed at increasing economic efficiency. The first is to make prices more reflective of costs so that consumers can make more efficient decisions about where and when to consume electricity. The second goal is to ensure that suppliers minimize the costs of supply. How successful has electricity market reform in Texas been with regard to achieving these goals? We focus on one aspect of this overall set of desired outcomes, namely whether movements in retail prices reflect wholesale market prices and whether reform has delivered cost reductions in the delivery of energy services by retailers. We find clear evidence that retail prices in competitive market areas better reflect wholesale prices and have moved favorably for consumers relative to wholesale prices. The same is not necessarily true for consumers in non-competitive market areas. This suggests that competitive retail markets have delivered cost reductions consistent with electricity service providers reducing their marginal costs. The effort that Texas undertook over a decade ago to introduce competition into the retail electricity supply thus appears to be yielding the benefits to consumers that were intended in competitive areas. Consumers in less competitive areas do not appear to have benefited as much.

In somewhat related news, the city of Lubbock, Texas, is working to shift its municipal utility Lubbock Power & Light (LP&L) from the Southwest Power Pool to the ERCOT power market. City leadership has committed to opting into the competitive electric retail market in Texas once the switch to ERCOT is complete. The linked story suggests a long-term contract with SPP-based supplies could hamper the move, but I suspect it is nothing a little negotiation cannot handle. (More from RTO Insider and the Houston Chronicle).

LP&L would become the first municipal utility in Texas to opt-in to competition in ERCOT, but Lubbock residents enjoyed over 90 years of head-to-head electric utility competition and many residents are eager for it to return. A hearing on the Lubbock effort is scheduled for January 17 and 18, 2018, at the PUCT in Austin.

BACKGROUND and additional links on electric competition in Lubbock available here. The now classic Reason magazine article on Lubbock, “Two utilities are better than one,” from October 1981. See also Walter J. Primeaux, Direct Electric Utility Competition: The Natural Monopoly Myth, which is out of print but can be found for sale used.