Texas PUC Considers Incentives for Power Producers

Article first published as Looming EPA Regulations Will Have An Immediate Affect On Your Energy Bills on Technorati.
power_linesChanges will be needed in the Texas electricity grid if it is to be able to keep pace with demand in the near future. The recent period of low electric rates experienced by Texas consumers and the poor economy have contributed to a situation where there is some concern about the state’s ability to keep up with future electricity demand.

The situation is made worse by looming EPA regulations which, according to ERCOT, will result in many of the states older gas burning power plants being shut down. Because Texas has deregulated its electricity market, power producers decide when, and if, to build power plants based on market conditions. The low electricity prices, along with the uncertain economic situation, have made it unprofitable and too risky for power producers to build new plants right now.

At issue is the grid’s ability to support periods of peak demand. Electricity grids must have excess capacity built in to them in order to respond to periods of peak demand, such as heat waves or intermittent interruptions in output because of weather or technical failure. The EPA regulations threaten to wring out enough plants to eliminate Texas’ excess capacity; thus, creating a risky situation with no fault tolerance built into the grid.

For a grid to run optimally, there must be certain plants within the system that are dormant much of the time, but which can be brought online during periods of need. The industry refers to such plants as peakers. The free market doesn’t do a good job of ensuring enough peaker planets because they don’t typically operate enough hours per year to be profitable. Texas is finding itself in short supply of quick start peaker power plants.

To address the situation, the state is considering incentives for power companies to build quick start power plants that can be quickly brought online when needed, and dormant when they are not. Other markets routinely provide incentives for peakers, while Texas does not at this time. Barry Smitherman, Chairman of The Texas Public Utility Commission, says the agency is considering options for incentivizing power producers but has not settled on a particular plan.

With Texas electricity rates currently sitting near historic lows, power companies have next to no spare cash at the moment. And with the current state of the economy, it is next to impossible to borrow funds that are needed to retrofit current plants and build new ones.

If rates stay this low for much longer, we may begin to see additional taxes start to show up on our monthly electricity bills to help pay for the incentives to the power producers. The only way to avoid that is for the electricity companies to hike rates on their own in order increase their revenue to pay for the plants. Either way, Texans should be prepared for higher electric bills later this year.

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