Peacock: Market designs recommended in PUC/E3 report will cost Texans billions

Energy Alliance Executive Director Bill Peacock sounded the alarm for electric grid prices, noting that the public, politicians and the media have no foundation of how an electric grid ruled by market prices rather than a “market-based” government intervention would stack up to scenarios envisioned by Energy and Environmental Economics Inc. (E3).

According to the Texas Public Utilities Commission, E3 is a San Francisco-based energy consulting firm the Public Utility Commission (PUC) reached a $364,000 deal with to review proposals, including its own.

Peacock, who is the policy director of The Energy Alliance, according to its website, conducts research for the Alliance on issues related to energy policy, including federal and state regulation of electricity markets, the Texas electricity market, renewable energy, federal, state and local energy subsidies and the relationship between free markets, regulatory policy and economic prosperity. Drawing on his experience, he noted that E3’s projections in the report could end up costing Texans billions as the price of power skyrockets. He also noted E3 is a business permitted to offer a plan to create a new power market.

"E3 suggests that its options for redesigning the Texas market will result in an incremental increase in costs to Texans of $460 million per year,” he said in a statement. “This is simply not true; the costs will be much higher. E3 is able to claim the $460 million figure by comparing the proposed market redesigns to its status quo scenario.”

Peacock also noted in his statement that just the status quo scenario could contain billions of dollars of current and future cost increases that already have been included in the electric bills of consumers by the PUC of Texas, without considering any costs for renewable energy subsidies Texas consumers must pay through income and property taxes.

“E3 compounds its fault by refusing to show the costs of the PUC's current and planned market interventions, claiming that to do so would be too difficult,” Peacock said in his statement. “But there are actually more costs to consider. When adding the cost of current government subsidies and manipulations of market prices ordered by the PUC, which include the Operating Reserve Demand Curve (ORDC) and a variety of ancillary services to the proposed costs in the E3 report.

“Texas consumers will have to pay about $6.4 billion a year above the market price of the electricity they purchase. And almost all of that will go into the pockets of generators in Texas with multi-billion-dollar market caps,” Peacock said in his statement. “This represents a tremendous transfer of wealth from Texas consumers and taxpayers to the officers, employees and shareholders of these companies.”

According to retail electric service rate data on the PUC website, this year many Texas residential consumers have seen their power rates more than double, noting that a Houston consumer using 1,000 kWh per month was paying Reliant Energy about 26 cents per kWh in June, while having paid just 12 cents per KWh during the same month in 2021, according to the website.

In a 2021 letter, Texas Gov. Greg Abbott prompted the Texas PUC to take action to improve the reliability of the state’s power grid, with actions to be taken in the short-term to include streamlining incentives within the Electric Reliability Council of Texas (ERCOT) market to drive development and maintenance of sustainable power options, including nuclear power, coal and natural gas.

Abbott also directed the allocation of costs for power generation sources that are not as reliable, including wind and solar power. According to the letter, Abbott instructed ERCOT to set up a schedule for maintenance of electricity generators to ensure a steady service stream for consumers. Abbott also directed ERCOT to speed up development of transmission projects to get power to areas where it is needed.

In a Nov. 10 report issued by the PUC and written by E3, the company performed a quantitative and qualitative review on several potential market designs. According to the documents, its report offered an independent assessment of potential long-term market reform proposals.