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New Forecast Should Drive Stake Through the Heart of Proposed Energy Tax

New Forecast Should Drive Stake Through the Heart of Proposed Energy Tax
Peter Ryan

With the appointment of Governor Rick Perry's former chief of staff to the Public Utility Commission, it seemed all but assured that we were headed toward a multi-billion-dollar subsidy for electricity generators -- an energy tax based on questionable assumptions about how much juice Texas will actually need in the future.

Texas' electricity market is pegged to the price of natural gas, now cheap and in overabundance, and has delivered some consistently low-cost energy to Texans. You'd think this would be viewed as positive, the success of the free-market model. In fact, the free market that looked so inviting in the days before the shale boom, when natural gas came from somewhere else and electricity prices were high, now looks like a land of modest profits.

Generators say they can't justify the construction of new power plants, which is a problem, they tell us, forecasts made by ERCOT, Texas' grid-manager, clearly indicate growing demand that can't be met by our current generating capacity. So, the answer they propose is a capacity market, in which consumers shell out as much as $14 billion over the next 15 years to subsidize the construction of new plants, though there's no guarantee that the money won't be used to pay down debt and fire up dirty old mothballed plants that wouldn't otherwise be competitive in today's market.

Two of the three Texas commissioners with oversight here seem to at least be leaning in support of the industry. But a revised demand forecast report should call into question any justification for a capacity market. Public Utility Commissioner Ken Anderson has repeatedly warned that ERCOT forecasts routinely overestimate demand and shouldn't be relied on to make this decision. In response, ERCOT has revised the methodology it uses to predict demand in a couple of ways.

First, economic growth isn't the predictor of demand that it used to be. Peak demand -- or the spike in power usage when we're all getting ready for work in the morning, or when it's really hot or cold -- has only grown about 1 percent a year, in contrast to the 2 and 3 percent ERCOT projects based on economic forecasts and employment statistics. This correlation may be broken now. Other factors, like energy efficiency in particular, have altered this once-reliable trend.

Instead of relying on economic forecasts, ERCOT has created a new model that takes into account the number of households, population, changes in industrial energy use and housing stock in Texas. The result is a 1.3-percent growth in predicted peak demand over the next decade, as opposed to the 2.5 percent in previous forecasts.

For overall annual energy consumption, the number comes to 1.8 percent growth over the next decade, compared with 2.4 percent using the old methodology. These numbers don't look big, but when you're talking about a grid that serves 75 percent of Texas, they're actually huge. And they're ample cause to rethink what our future energy needs are going to look like, and whether they require enormous subsidies.


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