The Public Utility Commission could raise electricity bills by $4 billion in the coming weeks if members acquiesce to demands from generators who insist power in Texas is too cheap.

Electric companies, led by Exelon and Calpine, want the three commissioners appointed by Gov. Greg Abbott to change how the Electric Reliability Council of Texas determines prices on the wholesale market.

Generators say that if the commissioners do not shift the so-called Operating Demand Response Curve to guarantee higher revenues, they will not build new power plants. This is the second time they have asked for a change that would put $4 billion more a year in their pockets.

“After seven years of very depressed energy prices, prices have to go up. They do!” Bill Berg, vice president wholesale market development for Exelon, told the commissioners in October. “And they have to go up in a material way to support the investment that I think we need.”

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Lobbyists for power customers, though, asked the commissioners to reject the demand and allow the competitive market to work. When electricity demand threatened to overwhelm supply during peak hours last summer, ERCOT’s prices rose and encouraged more generation.

Consumers also reduced demand. ERCOT, which manages the grid for 90 percent of Texans, did not suffer any blackouts from insufficient generation.

“We are not afraid of high prices when we think they are justified,” Katie Coleman, representing Texas Industrial Energy Consumers, told commissioners. “We think the market performed well this summer. … We think you can expect that level of performance to continue because that is what our market is designed to do.”

The ongoing debate over price between generators and consumers is as old as the electricity business. The commission’s fundamental duty is to balance consumers’ desire for low prices with their expectation of 100 percent reliability.

Little is more difficult, though, than predicting the future and designing efficient markets that will encourage independent companies to invest.

In a regulated system, the state decides when a community needs a new power plant, determines how much it should cost to build and operate, calculates an acceptable profit and authorizes a utility to construct it. Companies don’t make huge profits, but they are guaranteed.

In Texas, the PUC oversees a competitive market and cannot order a generator to build a plant. But commissioners can tell ERCOT to tweak its highly complicated system of price curves, adders and administrative measures that determine how much customers pay depending on supply and demand.

ERCOT is the only electricity market that pays generators only when they produce electricity for the grid. ERCOT does not pay companies to maintain excess capacity, and as a result, Texas has some of the lowest wholesale prices in the country.

Generators, though, don’t make as much money as they would like. Texas generators own a lot of uneconomical power plants from the regulated days that they would rather not shut down. Which leads us to October’s hearing on the Operating Reserve Demand Curve.

Exelon, Calpine and First Solar representatives told the commissioners they need to move fast because current prices are not high enough to encourage companies to build more plants. But many question that assertion. The independent company hired by the PUC to make sure no one cheats the market does not see a problem.

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Among those opposing PUC intervention is the conservative Texas Public Policy Foundation, an advocate for free markets.

“The low electricity prices that Texas is still experiencing are the best evidence that Texas has an adequate supply of electricity,” the foundation said. “Texas can ensure sufficient generation of electricity for years to come and improve reliability by letting competitors compete and reducing intervention in the market.”

There is no requirement for PUC members to make a decision when they discuss electricity prices at this Friday’s meeting or when they meet again on Dec. 20. But the rules around price curves are so loose, the commission could tell ERCOT to raise prices with little warning.

The Legislature should not have granted three political appointees the power to impose $4 billion in additional costs on Texans without publishing a formal proposal and public hearings. Even a small price hike can have a dramatic effect on a business or the poor. Texas needs a more transparent system for raising prices.

Consumers who want their voices heard should contact the commission at customer@puc.texas.gov, as well as their state lawmakers. Do not let a handful of lobbyists and bureaucrats in Austin make these decisions without your input.

Chris Tomlinson writes commentary about business, economics and policy.

chris.tomlinson@chron.com

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