Texas Prop 7 is so bad, electric companies didn't want this giveaway

Politicians often give away taxpayer dollars to corporations that claim they can’t live without them, but sometimes, they give our money to industries that don’t want it.

The Legislature is asking voters to approve Proposition 7, which would create the Texas Energy Fund and turn the Public Utility Commission into a commercial bank handing out $7.2 billion in low-interest loans so companies will build natural gas power plants.

Funny thing is, when state Sen. Charles Schwertner asked electric generation companies if they wanted the loans, they said no. Finding financing is not the problem with building new power plants; it’s the low returns and uncertain future that discourage investment.

Texans should vote no on Prop 7 because it will not solve the Texas electric grid’s reliability problems.

Mark Bell, representing the Association of Electric Companies of Texas, started off expressing the industry’s doubts to the Senate Business and Commerce Committee in May.

“We are concerned about government intervention for the construction of new dispatchable generation in the competitive wholesale market. Doing so can create an unlevel playing field in the market and crowd out other private investment,” he said.

Then Bill Barnes, representing energy giant NRG, said the company greatly preferred competitive solutions and that the loans won’t boost reliability.

“History has shown that in other regions, these types of programs create significant distortions in the market and can lead to a need for more subsidies,” Barnes added. “We prefer a market-based approach that creates competition to provide reliability in a more efficient way at a lower cost to consumers.”

A lobbyist for Vistra, a major operator of fossil fuel power plants, explained how a low-interest loan program throws off the calculation for making financial decisions on existing and planned facilities.

“This is a very, very complex structure you’ve talked about,” Sam Siegel said. “As it stands now, any loan program with unlimited money at zero percent interest would still not give those predictable returns on investment.”

Solving the Electric Reliability Council of Texas’ reliability problem requires an overhaul of how Texas prices electricity, not how power plants are financed. What generators need is a wholesale market where prices generate sufficient profits over the power plant’s lifetime to reward shareholders for their investments.

So why is a conservative body like the GOP-dominated Legislature interfering in the world’s freest, most competitive electricity market?

First, the oil and gas industry really wants generation companies to buy more natural gas. A power plant can last 40 years, and by only financing natural gas-powered facilities, the Legislature is guaranteeing long-term demand when other electricity markets are cutting back on coal and natural gas use.

Power companies, on the other hand, want the flexibility to decide what to build when and where. While Texas Republicans may want them to build natural gas plants, a large-scale battery system or maybe a small nuclear reactor may make more sense. As the federal government cracks down on greenhouse gas emissions, investors also worry that new natural gas plants will get shut down prematurely.

Second, industrial consumers do not want to pay more for electricity. If lawmakers created a separate marketplace that paid for dedicated backup power, called a capacity market, consumers would see higher electricity bills. The Texas Association of Manufacturers supported the low-interest program because it would use taxpayer dollars to keep their bills low.

Third, lawmakers don’t want to admit that ERCOT’s unique market design is also its downfall. Texans only pay for the electricity people consume. ERCOT is forbidden from paying or encouraging companies to build power plants, let alone setting up a capacity market, which would guarantee that companies receive reliable income for building emergency capacity.

Most electric grids have some form of capacity market. But Texas lawmakers are immune to common sense, so the electric company lobbyists asked for a convoluted market tweak called a performance credit mechanism.

A PCM would pay a bonus to generators that promise months in advance to provide emergency electricity and then show up when needed. A good PCM would pay for power from any source capable of keeping the lights on and allow companies to compete to offer the best service.

The Legislature authorized the PUC to develop a PCM but then hamstrung it with a $1 billion cap, leaving electric companies less than half-happy.

Do not take my word for it; listen to the private sector experts who say Prop 7 will distort the market and fail to make the grid more reliable.