Steffy: Perry can recharge the Public Utility Commission

It’s time to recharge the Public Utility Commission of Texas.

Commissioner Rolando Pablos’ announcement last week that he’s resigning March 1 gives Gov. Rick Perry a chance to inject some much-needed leadership into the state’s muddled electricity market.

For too long, the commission has dithered as a power supply shortage looms.

Commissioners voted last year to raise limits on wholesale prices, but that failed to encourage generators to build new power plants. Now, the commission wants to raise prices again and has discussed adding other expensive alteratives to ensure the lights stay on – or more importantly, that air conditioners keep running in August.

At every turn, the commission has opted for short-term responses that favor generating companies rather than the consumers who were supposed to be the beneficiaries of deregulation.

Based on recent speeches and public comments, the commissioners themselves disagree on the direction the market needs to take. Pablos, for example, favored renewable initiatives, including a 2005 mandate to develop solar generation.

Chairman Donna Nelson, meanwhile, has opposed solar projects and has supported a plan that would pay generators to build new plants in addition to what they charge for electricity.

Pablos opposed that plan, as has Commissioner Ken Anderson, who has criticized its cost to consumers. Anderson has also questioned whether the state’s capacity shortfall is as dire as a recent study predicted, saying it may not be a problem until 2018.

Power vacuum

The conflicting mess-ages have created a power vacuum that’s essentially left generators in charge.

“The only people who know what they’re doing is the generators, and they’re acting like a cartel,” said Ed Hirs, a professor of energy economics at the University of Houston. “They’re limiting competition, they’re limiting capacity. They know once they hit these shortages, they’ll have rocketing prices.”

The nature of the Texas market means that generators typically sell power on one-year contracts, and as a result, they can’t guarantee enough revenue to get financing for new plant construction. Most finance companies require revenue projections for five years or more. To meet rising demand, the state relies on generators to return older, mothballed plants to service every year.

The problem is compounded by the structure of the state’s grid operator, the Electric Reliability Council of Texas. The council is composed of “stakeholders” that include representatives from generators, marketers, retailers and consumers. Too often, the competing interests of the board members’ constituencies have stymied its decisions on reliability.

Meanwhile, consumer concerns – which ought to be the driver of the competitive market – are getting trampled by the other stakeholders, all of whom have a better understanding of the arcane intricacies of the market.

It’s already too late to build enough new generation to meet peak needs this summer, and simply raising wholesale prices more isn’t likely to change that.

Short-term help

The commission, though, has some options, some of which would be easily and relatively quick to implement.

One example: It could require the grid operator to consider plans for managing demand at the residential level. This would basically extend to consumers provisions already available to commercial customers that allow them to receive a lower rate in exchange for agreeing to suspend use on short notice during peak usage. In other words, consumers could lower their bills by agreeing to shut off their air conditioning, for example, during the afternoons when the need arises.

For some people, the potential inconvenience would be worth the savings.

The qualifications

Perry needs to appoint a commissioner who can give direction on reliability issues and put consumers’ needs ahead of generators’.

His pick should be someone who can bridge the differences on the commission and cut through the competing interests that have prevented the grid operator from addressing short-term reliability concerns.

Without some leadership, we’re likely to face another summer in which keeping the lights on becomes a day-by-day challenge, one that will become harder to meet as the state’s population continues to grow.