Here we are, some 10 years into the deregulation of the Texas electricity grid, and a crisis approaches. Supply, it is predicted, will not keep pace with demand in the very near future. Generators say electricity prices are simply too low to justify the financing of new power plants. In fact, in at least one case, they've said prices are too low to justify even running existing power plants.
Back when Enron and others were peddling deregulation, we were told that introducing competition into the electricity market would drive prices down. But now those low prices are seen as a problem: Regulators raised the price cap for electricity by 50 percent on Thursday, hoping to entice investment in new power plants by allowing the companies that make the power to charge more.
Of course, in a truly free market there is no such thing as a cap. The price is simply what the market will bear. But electricity isn't just some commodity either, and the idea of prices rising endlessly must induce in state politicians a most generous flop sweat.
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During periods of average demand, the price can be as low as $50 per megawatt hour. Prices are capped in times of peak demand, when the supply is strained by a heat wave or weather-related outages. The idea is to keep generators from gouging when nature delivers crisis to the grid. But over the course of this year, that price cap has tripled, to $9,000 per megawatt hour. In other words, the price can now soar to levels you can bet will be noticeable on your utility bill.
Lest there be any doubt, Texas Public Utility Commissioners can provide absolutely no guarantee that this will spur plant construction. There is nothing keeping generators from pocketing the extra dough. Because where is the incentive? If scarcity keeps prices high, then scarcity is good.
Question is, where do we go from here? My bet would be a capacity market, where instead of producers getting paid for the electricity they generate, we essentially pay them to build the new power plants. Most generators are apparently lobbying pretty hard for that. Especially Dallas-based Energy Future Holdings, which market analysts think is technically insolvent.
If the Public Utility Commission institutes a capacity market and we hold on to that $9,000 cap, bend over, consumer. The electricity companies got bailed out, and you got screwed.