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ERCOT to City Council: Keeping the Lights On Means Sending the Right "Price Signals"

Council member Delia Jasso is officially disturbed by ERCOT's charts, particularly the bar graph showing a big gray empty space between the reserve margin we need to make sure the lights stay on during hot summer afternoons and the colored part that indicates how much generation capacity we'll actually have in 2014. Hint: The two aren't even close to meeting.

"When you look at this chart, you have to gasp," Jasso said during Wednesday's council briefing on keeping our lights on. "In two years we have this gray spot with no electricity."

At the State Affairs Committee hearing last week, ERCOT CEO Trip Doggett told chairman Byron Cook straight-up: We can't ensure the stability of the electricity grid if new power plants don't get built.

But because natural gas prices -- which set the marginal price for electricity in ERCOT -- are so low, nobody's making any money. And because nobody has much cash, nobody's building power plants. So what's the solution? According to ERCOT and basically everyone in the industry, it's all about "sending the right price signals."

"One of the discussions we're having is whether to raise the price cap," ERCOT system planning director Dan Woodfin told the city council. "Whether to let the wholesale market prices go up to a higher level or not."

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He's referring to the $3,000-per-megawatt-hour ceiling the Texas Public Utility Commission set as a cap on what generators can charge for electricity, even during times when demand on the grid strains capacity. When he talks about "sending the right price signals," he means removing that cap so prices can soar, reflecting the scarcity of supply. That's how the architects of ERCOT's energy-only, deregulated system predicted scarcity would spur private investment in more power plants.

Low gas prices have all but guaranteed that won't happen (except for, uh, public utilities). The theory, then, is that if you remove that cap and let these guys rake it in, Texas utilities will be in the money again. They'll build stuff. That's the free market at work, I guess.

As a ratepayer myself, though, it leaves me with one prickly question: If the only surefire way to keep the lights on in Texas is to raise prices, what the heck was the point of deregulation in the first place? Was the intent ever to benefit Texans? Did I just answer my own question?

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