One of Texas' Biggest Power Generators Just Admitted Deregulation Is a Colossal Failure

A bigwig at NRG, Texas' second-most prolific electricity generator, took to the editorial page of the Houston Chronicle the other day, and the result was remarkable -- a tacit admission from one of the sector's biggest players that deregulation simply does not work.

As we noted recently, Texas' power grid is far and away the one most likely to run out of juice this summer. To meet summer demand, NRG Gulf Coast sector President John Ragan notes that his company is helpfully dusting off four of its oldest 1950s-era plants. "That's like putting your family in a very, very old car with an odometer that has rolled over too many times and then trying to drive across the country," he adds. This isn't a sustainable solution, he admits.

So, he proposes one: "As our reserve margin dwindles, we face two choices: Hope for mild weather or move to a capacity market, which has brought new generation to electric grids in states across the country."

This being Texas, the former is clearly absurd, so he must being leading us toward the other.

By a capacity market, Ragan means one in which ratepayers -- you and me -- subsidize the construction of power plants to ensure adequate generation. Which is curious, because a capacity market is basically the opposite of what deregulation was intended to accomplish -- allow competition and profit-seeking in an arena where customers were once captive and earnings were regulated.

Ragan isn't shy about admitting the delusional, optimistic bet his industry made. They thought natural gas prices -- and the electricity rates most often pegged to them -- would just keep soaring forever and ever. They didn't bet on the U.S. becoming the Saudi Arabia of natural gas. Natural gas glutted the market, prices fell and so did energy rates. Over-leveraged companies like Dallas-based Energy Future Holdings can't earn enough to pay off their gargantuan notes, and are currently preparing for bankruptcy.

Now, of course, they all want a bail-out. But it's actually worse than that. What they're asking for is a grotesque, Frankensteinian hybrid of Texas' current market regime. Generators like NRG don't want to give up the insane revenues they realize when Texans are running for their thermostats and driving electricity rates ever higher. That's good money. But they also want you and me to cover their fixed costs through a capacity when the money's not so good.

They literally can't lose!

Or, as Paul Ring over at EnergyChoiceMatters.com puts it, they want "a free bet at the table."

They want all of the reward of an energy-only market, and none of its risk. And, if I were a betting man, I'd lay money on the odds that they'll get what they want. As I noted yesterday, four of the top five lobbying clients last year were in the electricity sector. Energy Future Holdings spent more than $6 million on lobbying, despite the fact that it's losing billions.

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