Sen. Troy Fraser, an original supporter of deregulating the state wholesale electricity market in the 1990s, on Monday criticized the Texas Public Utility Commission as lacking authority to redesign the state’s wholesale electricity market.
Fraser, chairman of the Senate Committee on Natural Resources, said he intends to convene a hearing to question the three members of the utility commission about their 2-to-1 decision last week to begin mandating the level of electricity reserves, a first step to possibly redesigning the market.
“For them to suggest a huge market change is inappropriate without asking the Legislature,” Fraser said. “It was never my intention and I don’t think it was anyone’s intention in the Legislature to give the PUC authority to change the market design.”
At issue is that wholesale electricity prices are too low, according to the independent market monitor, to encourage investment in new power plants to meet the long-term electricity needs for the state’s growing economy.
Instead of relying on the private sector to respond to a “target” for electricity reserves, commission Chair Donna Nelson and Commissioner Brandy Marty want the state to mandate the amount of reserves and create a system to meet that level.
Commissioner Ken Anderson opposed the change, saying it would cost consumers billions of dollars without guaranteeing that rolling blackouts wouldn’t occur. He argues that the utility commission’s changes to the existing wholesale market will provide the necessary reserves at a lower cost.
Fraser, R-Horseshoe Bay, said that the Legislature created the wholesale market and its target reserve margin — but never delegated the authority to redesign the market scheme.
Generators, who currently make money only when they sell electricity, are lobbying for additional capacity payments to encourage new investments in power plants. Consumers would be charged for the payments.
The utility commission’s consultants, The Brattle Group, offered four methods for ensuring adequate electricity reserves, including a capacity market which the consultant said it would be the “most efficient” choice.
Fraser disagrees with that. “We’re going to give (generators) billions of dollars and there’s no guarantee we will get steel on the ground,” he said.
It’s an issue that has split the business community and other constituencies.
Bill Peacock with the Texas Public Policy Foundation said the utility commission’s action is a step toward re-regulating the power industry.
“This is the beginning of the end of the world’s most competitive electricity market and one of the great examples of deregulation in the United States,” he said.
He predicted a market change will cost consumers billions through “de facto electricity tax.”
John Ragan, president of NRG Energy’s Gulf Coast region, said he believes the utility commission has the authority and the expertise to address the issue.
“Electricity is so important to the economy of Texas and the quality of life in the Lone Star State that it is strongly in the interest of the PUC to be able to determine what reserve is acceptable and the means to make that happen,” he said.
Marty, who joined the utility commission this summer, said last week’s vote does not bind the commission to a capacity market. She said she is looking for a unique solution that works for Texas.
Fraser also said the utility commission is getting ahead of itself.
He said the agency should have waited for a new December estimate of electricity needs and a January economic analysis of the necessary reserve margins before taking Friday’s action.
“They are on step seven and we should still be talking about steps one and two,” he said.
Not all lawmakers agree.
State Sen. John Carona, R-Dallas, wrote the utility commission last summer supporting their efforts to address the issue. On Monday, Carona — who is chairman of the Senate Business and Commerce Committee — repeated his support.
“The Public Utility Commission is charged with the responsibility of ensuring that adequate energy resources are available for Texas consumers,” Carona said by email. “I have encouraged the Commission to examine the issue closely and do what is necessary to meet this challenge.”
Carona concluded that the commission’s decision to ensure an adequate reserve margin “is a move in the right direction” to help the Texas economy and he would work with Senate colleagues to be sure the utility commission has authority to do what it needs to do.
But Nelson says she wants to resolve the issue shortly after the utility commission gets the economic analysis on Jan. 31. The Legislature doesn’t meet again until a year later.
On Monday, Nelson and Marty did not respond to Fraser’s comments about the limit to commission’s authority to redesign the market, but Anderson said, “I think it’s a legitimate issue. It’s an issue that needs to be examined.”