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Experts have thrown up their hands, blaming hot weather and price spikes in a volatile wholesale power market. But the experiences of these business owners and others raise real questions about whether policymakers in Austin are doing all they can to keep a lid on electric prices — especially for us here in the Valley, where we already pay too much for power. For some of our families in the Valley, it is not just an issue of increased costs but a matter of basic health and welfare in choosing between food, electricity and paying for gas to get to work.
As Benny Rodriguez, Jr., manager of Bob Stark’s Beef Shop in McAllen, said: “What had changed in 10 days ... hadn’t changed in 40 years.” With our hot summers, business owners expect to pay higher electric bills — but not like this. It’s always been warm in South Texas, so what’s so different now?
Much of it boils down to decisions being made in Austin, especially the granddaddy of them all, the decision to deregulate the state’s electricity market. As the Wall Street Journal recently noted, Texas built its new market on a transmission system that’s simply not up to the task. What we have is a power grid intended for the regional needs of the old regulated world, not one designed for moving energy across wide swaths of territory under deregulation. So transmission lines get congested. Prices spike.
Congestion problems and price spikes are particularly acute during the summer when power needs peak. In May, wholesale prices on the spot market shot up nearly 500 percent. The prices spiked again in June. Rodriguez and owners of other Valley businesses that pay rates pegged to wholesale prices got caught in the middle. Volatility in the wholesale market also puts upward pressure on prices generally, and has contributed to the abrupt departure of several electric retailers.
Regulators in Austin, knowing full well that there are limitations to the power grid, nonetheless intentionally allow for the price spikes. While most of the nation’s other deregulated markets cap wholesale power prices at $1,000 per megawatt-hour, Texas allows its generators to seek as much as $2,250. Next year, the price cap goes up to $3,000. And these astronomically high price caps are for energy that typically sells at less than $100 per megawatt-hour. Apparently, the thinking is that the occasional sky-high price gives companies a profit incentive to build more generation. But it hasn’t turned out that way. The amount of available surplus power in Texas has gone down under deregulation, not up, which is putting even more pressure on prices. And the crowning irony is that these wholesale caps, already set at a ridiculously high level, haven’t even worked as envisioned. On more than one occasion, prices have shot well past the $2,250 mark and into the $4,000 territory.
So, how can policymakers remedy this situation? For residents in South Texas, it seems pretty clear. If regulators won’t take action to control wholesale price volatility, then they should at least improve the transmission system that carries power into South Texas where it is desperately needed. Building new lines for South Texas ought to be a relatively straightforward way of doing that.
More lines means a more efficient system, which in turn should help keep prices under control.
And indeed, the Public Utility Commission in July authorized the construction of $4.9 billion in new transmission lines — a staggering amount given that the entire value of the existing system is about $10 billion. The problem is that these miles and miles of new wires won’t be built anywhere near South Texas, but rather to West Texas and the Panhandle. The lines will support wind generators that provide power only when the wind blows and typically not even during the hottest part of a summer day. Adding insult to injury, all ratepayers in the deregulated market are going to pay to build these transmission lines. The cost to the typical South Texas resident? About $75 to $100 each year. And there’s no guarantee that South Texans — or anyone paying an electric bill for that matter — will benefit one iota from offsetting savings that may result.
Regulators in Austin likewise have authorized the creation of a so-called “nodal” market, which supporters say should help keep a lid on prices statewide when it is expected to debut sometime next year. But the study relied upon by the regulators to approve the nodal market shows that this complicated overhaul (which is already very much over-budget and behind schedule) will do nothing in the short term to lower costs in South Texas and could actually make the situation worse.
None of this should come as good news to residents here in the Valley. That’s why we applaud our local valley state representative and senators for taking on these issues. We can always endure hot summers, and we already pay high electric bills in part due to the deregulation process. We just shouldn’t have to pay unfair ones.
Jim Darling is the chairman of the South Texas Aggregation Project (STAP). STAP is a coalition of 47 cities and utility districts that have banded together to negotiate better electric prices in areas of Texas open to retail electric competition. STAP members include: Beeville, Edna, Fulton, George West, Lavaca-Navidad River Authority, Point Comfort, Port Lavaca, Refugio, Rockport, Victoria, and Woodsboro.