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NRG study: Texas will see outages, $14 billion in losses under current electricity market

By: James Osborne |

A study sponsored by Houston-based power company NRG Energy projects that Texas will suffer $14 billion in losses through power outages over the next 15 years under the current market system for electricity.

The study, which was filed with the Texas Public Utility Commission Tuesday afternoon, reports that by 2016 Texas could see spiking electricity prices and as many as four outages a year – compared to three over the three last decades – resulting in lost revenues for businesses from restaurants to office buildings.

Power generation companies like NRG are in the midst of a vigorous campaign to switch Texas to a so-called capacity market system under which companies would receive a fixed subsidy for building new power plants.
With more than 1,000 new residents moving to Texas every day and power plant construction slow, the margin between capacity and demand is expected to shrink in the years ahead. But exactly how much is the subject of fierce debate.

“The debate has been going on for a year and a half and we haven’t really talked about the economic impacts,” said John Ragan, NRG executive vice president. “I’d hate to see our economy here take a turn. It’s extremely strong right now.”

Ratepayer advocates and some electricity retailers have pushed back, arguing the system
championed by generators would come at too great a cost to ratepayers. Analysis by the financial services company UBS projects a capacity market could amount to a $2.3 billion in rate increases for Texans.

Former Electric Reliability Council of Texas Chairman Mark Armentrout, who now works as a consultant, said it was unclear under the current system whether power companies will start building again with the natural gas shale boom pushing down electricity prices.

“People are all over the map on that question,” he said. “The economics on new plants is really tough right now. What’s different about ERCOT is we have so little coal and natural gas really drives the prices here.”

The utility commission is expected to make a decision this fall. And with commissioners Donna L. Nelson and Kenneth M. Anderson, Jr. seemingly split on the issue, all eyes are on Gov. Rick Perry’s new appointment Brandy Marty.

Marty, Perry’s former chief of staff, has yet to comment on the looming decision.

Within the power industry, companies are eager to see a decision.

“We need to have the debate come to a conclusion, so as we roll into 2014 we all know what direction we’re headed in,” Ragan said.