Texas electric prices cap to double over 3 years

AUSTIN, Texas (AP) -- The Texas Public Utility Commission voted Thursday to double the cap on wholesale electricity prices over the next three years.

The commission said raising prices is necessary to encourage more plant construction and prevent power outages in areas served by the Electric Reliability Council of Texas. The maximum wholesale rate will rise from $4,500 a megawatt hour now to $5,000 in June 2013, $7,000 in June 2014 and $9,000 in June 2015.

In Texas's minute-by-minute market, the cap was reached only once this year and prices are normally much lower. Yet consumer groups complain that wholesale price increases can trickle down to monthly household electric bills for most Texans.

PUC Chairwoman Donna Nelson said the market needs higher prices to guarantee there is enough electricity during peak periods. She said she would also like to see the commission to establish a required minimum reserve of electricity to prevent outages, but that she did not have the support of the full three-member board.

State officials have warned that higher prices are needed to encourage companies to build more power plants as the Texas population grows. Industry experts say companies that operate the state's power plants are losing money because prices are too low for most of the year and they only make money during the hottest summer and coldest winter months.

Texas customers only pay for electricity that reaches the grid, not for companies to keep spare capacity available in case of an emergency. ERCOT tries to maintain a 13.75 percent reserve, but with more demand and less generation, that will become increasingly difficult in the future.

Nelson said Thursday's vote was only an interim step and that Texas may eventually have to adopt a system that pays power plants to maintain excess capacity, even if it's not immediately needed. Most states have some sort of system to encourage power companies to maintain a minimum level of capacity.

Commissioner Kenneth Anderson expressed skepticism that Texas needed a system to pay for capacity. He said he preferred a system that paid customers to decrease their demand for electricity during peak periods. He pointed out that Texas only nears a dangerous level of electricity demand for 160 hours a year.

Sam Newell, a PUC consultant with the Brattle Group, told the commission that raising the maximum wholesale price to $9,000 will only guarantee an 8 percent reserve capacity, increasing the risk of outages. If the commission wants to guarantee a higher reserve, it will to make more drastic changes to the market.

Establishing a so-called capacity market would also increase costs, Newell said, but it would also increase reliability. He said it was up to the commission to strike the balance between the two factors.

The Texas Coalition for Affordable Power, a group of cities that purchase power on the deregulated market, welcomed the PUC decision, saying the price hike will hurt consumers less than a move to a capacity market.

"We urge the commission to assess carefully the impact this decision will have on Texas ratepayers and the electricity market, and to avoid increasing costs even more through the creation of a complicated capacity market," said Dr. Randy Moravec, the group's executive director. "It's important that policymakers consider system reliability and costs because both directly impact the Texas economy and the welfare of its citizens."

The commission has oversight only over ERCOT, which covers most of Texas, except for the El Paso region, the Panhandle and far southeast Texas.