Press Release: Proposed Electric Market Changes Would Cost Texans Tens of Billions More — Without Doing Enough to Improve Reliability
A proposed California-style redesign of Texas’ electricity market would cost Texans an additional $22.8 billion from 2025 to 2030 — including $8.5 billion more in 2025 alone — but would not make the state’s power grid significantly more reliable, according to a study released by the Texas Consumer Association on Wednesday.
The Association study, authored by the consulting firm ICF, offers a detailed analysis of three Phase 2 proposals that are now before the Public Utility Commission of Texas (PUCT) to redesign the state’s electricity market. The study also analyzed Phase 1 policy changes that have already been implemented.
The most expensive Phase 2 alternative, by far, is known as the Load-Serving Entity Obligation (LSEO). It is similar to California’s electricity market, where consumers pay more for power plants that may not operate, and where government regulators have significant authority over the market. Some state officials in Texas have expressed a strong preference for this alternative and have signaled they are moving to implement it.
The report shows that this option would increase the cost of Texas electricity by $22.8 billion over the second half of this decade. Texas consumers — already struggling to pay for cost increases driven by recent PUCT policies, rising gas prices, and charges related to 2021’s Winter Storm Uri — will ultimately bear those additional costs.
Further, the study found that the LSEO option would significantly enrich existing energy generators’ earnings more than the other alternatives — it was initially proposed by two large private-sector power generators, NRG and Exelon — but would bring little new fossil fuel-generated electricity online. The proposal would not prevent any existing gas and coal generators from retiring, the study also shows, and it could be manipulated to inflate the amount of customer money paid to generators.
“Our study shows that state leaders need to hit the brakes on this proposal. Texas should not take on the higher energy prices that come with California’s model,” said Texas Consumer Association president Sandie Haverlah. “Just looking at other alternatives on the table, there are better ways to protect Texans from blackouts and to strengthen the state’s power grid.”
The study also analyzed an alternative proposal, called the Backstop Reliability Service, that would pay some older existing power plants to remain available solely for emergency operations. It would cost roughly 90% less than the LSEO and do more to increase the reliability of the state’s power grid.
Regarding reliability, researchers found that policies already implemented over the last 18 months by the PUCT have only slightly increased the reliability of the Texas grid: Texans should now expect five widespread power outages every 10 years, the analysis found — down from an expectation before the changes of six outages per 10 years.
The Backstop Reliability Service alternative would leave the state’s grid facing only two major outages per decade. The LSEO would double that rate, with an expected four outages per decade — only slightly better than current conditions.
In addition to the LSEO and the Backstop Reliability Service, the report analyzed a third alternative being considered by the PUCT: the Dispatchable Energy Credit, which would pay for fast, flexible generation and battery units that improve grid operation and expand resource capacity. This would improve reliability particularly in summer months with low incremental costs and potentially even savings for customers.
The Backstop Reliability Service alternative delivered the most reliability benefit at a cost of $2.6 billion from 2025-2030, about 90% less than the LSEO. The Dispatchable Energy Credit proposal would deliver similar reliability benefits as the LSEO, but at a net negative cost to Texans — creating consumer savings of $8 billion from 2027-2030.
While the PUCT has not yet released any detailed analyses of the costs or reliability impacts of these market redesign proposals, some state leaders have signaled that the agency is moving to implement an LSEO model. In May of this year, the PUCT hired the firm E3 Consulting to analyze market redesign proposals. E3 is the firm that designed and proposed the LSEO model in October 2021 on behalf of NRG and Exelon.
The PUCT has scheduled a Market Design Meeting for Jan. 12, just two days after the Legislature convenes the 88th Texas Legislative Session.
“Texans need a clear view of these proposals that is not stained by conflicts of interest,” Haverlah said. “The state needs to focus on consumers, costs and reliability, not schemes that needlessly take billions of dollars from Texans’ wallets and give them to big power companies.”