Regulators Double Cap for Electricity Prices

Wholesale electricity prices on the Texas power grid will be allowed to go twice as high as is currently possible, following a vote Thursday by the Texas Public Utility Commission.

Over the next few years, the cap on wholesale prices will be allowed to rise from $4,500 per megawatt-hour toward a new level of $9,000 per megawatt-hour. Normally power prices do not reach anywhere near the cap, but during a power crunch, prices can temporarily hit it.

The move is aimed at ensuring that Texans will have enough power in the future because, as the theory goes, higher prices give power companies more incentive to build new power plants. Texas officials say that the state needs more power plants in the coming years to avoid blackouts while meeting the needs of the growing population and economy.

The three commissioners voted unanimously to raise the cap. However, Donna Nelson, the agency’s chairwoman, characterized the move as an “interim step.” Her long-term inclination, she said, is to alter the structure of the Texas power market, something the commission will weigh in the coming months.

Such a change, as envisioned by Nelson, would mean changing from an “energy only” market — a system in which companies are paid just for the energy they generate — to a more common system in which power companies are also paid to have backup power at the ready.

Earlier at Thursday's PUC meeting, Sam Newell, a principal for the Brattle Group, which is providing advice on the Texas electricity market, outlined possible long-term solutions, such as paying for backup power.

“The whole reason we’re here is to make sure the market can deliver energy reliably at the lowest possible cost,” Newell said.

The commission’s vote to raise the wholesale price cap came four months after it voted for another increase of the cap, from $3,000 per megawatt-hour to $4,500. That increase took effect in August. Since then, prices have hit that cap just once — for five minutes on Sept. 27, according to Terry Hadley, a commission spokesman.

The cost to consumers of Thursday’s move is difficult to assess. A filing earlier this year by the Texas Industrial Energy Consumers suggested that if the $9,000 per megawatt-hour cap had been in place during the blazingly hot summer of 2011, the total cost to Texas electricity users would have amounted to more than $13 billion. (That translates to, very roughly, $48 to $50 per month for an ordinary Texas household.)

However, Newell of the Brattle Group has said that a $9,000 price cap would be more likely to increase Texans’ bills by merely “a couple of percent.”

Each person’s situation is likely to be different, because most Texans are supposed to choose their power provider from among an array of companies peddling different pricing options.

Randy Moravec, the executive director of the Texas Coalition for Affordable Power, which advocates on behalf of cities for affordable pricing, said in a prepared statement that the decision Thursday “could significantly influence the pricing of electricity.” He urged the commission to “assess carefully the impact this decision will have on Texas ratepayers and the electricity market,” and also move carefully on further changes to the way the Texas power market works.

Nick Swartsell contributed reporting.