Category — Texas
“Renewable energy subsidies harm the reliability of Texas electricity markets by resulting in artificially low sales prices, victimizing conventional energy generators and investors. Why build a new gas-fired plant when spot prices might be below production cost because wind receives a $0.02/kWh federal production tax credit?”
Last month, a cold front propelled Texas to a new record for wind power, according to the Electric Reliability Council of Texas (ERCOT). Wind-generated electricity provided 9,481 MW on Feb. 9, almost 28 percent of the power generated in ERCOT at that time. This surpassed the previous record of 8,667 MW set only two weeks earlier.
Hold the applause. These records are being set because of Texas’s renewable-energy mandate–the strictest in the nation–and a raft of special tax subsidies. This government largesse harms taxpayers, consumers, and businesses as documented in a study released by the Texas Public Policy Foundation (TPPF) last November.
Here are some key points to keep in mind when thinking about renewable energy and related subsidies: [Read more →]
March 12, 2013 6 Comments
“It is well known that Texas is undergoing a major challenge in maintaining resource adequacy due to improper price signals; less well known is that a significant portion of the problem can be laid directly on the doorstep of subsidies for wind generation.”
The federal Production Tax Credit (PTC), which currently provides a $0.022/kWh subsidy to qualifying renewables, is set to expire at year-end. Just the prospect of expiration has dramatically slowed new construction of industrial wind capacity, despite a raft of other subsidies to politically correct energy. 
The Texas Public Policy Foundation has released a new paper looking at the effect of the production tax credit both on taxpayers and consumers. Bill Peacock and I found that PTC continuance puts the Texas electricity market at increased risk of price spikes and blackout by discouraging the construction of new reliable, on-peak generating capacity.
Texans are not only paying for the PTC’s direct annual cost of $622 million; they could pay billions of dollars more from forgone capacity given negative pricing where wind producers generate unneeded electricity just to pocket tax credits.
It is well known that Texas is undergoing a major challenge in maintaining resource adequacy due to improper price signals; less well known is that a significant portion of the problem can be laid directly on the doorstep of subsidies for wind generation.
When wind is bid into the market at a negative price, superior forms of generation must match that price or risk getting knocked off the grid. This decreases the profitability of non-wind generation and makes companies less likely to invest in new capacity. This has already degraded Texas’s resource adequacy, and it could get worse before it gets better. This increases the risk of blackouts if unusual events reduce capacity and/or increase demand. [Read more →]
November 27, 2012 3 Comments
Texas’s Solyndra: Will CREZ Launch Cruz to the U.S. Senate? ($7 billion wind transmission project a defining intra-Republican issue)
“The state’s Public Utility Commission, or PUC, approved the CREZ concept in 2008 in response to a directive [mandate] from the [Texas] Legislature in 2005.”
- Kate Galbraith, “Texas’ Wind Transmission Project Keeps Rolling,” The Texas Tribune, September 8, 2010
“Lt. Governor David Dewhurst was the largest recipient of [CREZ] contractor funds with $419,250 from January 2005 through February 2010. …. The CREZ project has turned out to be a money-making opportunity for many politicians and companies.”
- Dan Byfield, “The Politics of Transmission Lines.” San Angelo Standard Times, June 29, 2010.
A political fight of national import is on in Texas for the U.S. Senate between Tea Party favorite Ted Cruz and Republican-establishment favorite David Dewhurst. Voting this week has put these two in a runoff come July 31st for the Republican nomination. The winner between newcomer Cruz and Lieutenant Governor Dewhurst is widely expected to beat the Democrat on November 6th. 
Candidate Dewhurst has some explaining to do to those of us who advocate free-market capitalism in place of political capitalism (aka crony capitalism). Obama has his Solyndra, the busted solar company to which Obama’s DOE lost $535 million; Dewhurst has CREZ. On paper, at least, CREZ is a thirteen-times-bigger problem for Texas ratepayers than Solyndra turned out to be for federal taxpayers.
CREZ, which stands for Competitive Renewable Energy Zones, is a $5 billion-turned-$7 billion project to get (uneconomic) wind energy from nowhere (where the wind regularly blows) to somewhere (population centers). Some of the wind capacity the line is counting on to carry may never be built due to the low cost of natural gas.  It will cost every Texas electricity ratepayer north of $5 per month for years to come on each electricity bill.
Critics may call the surcharge the Dewhurst electricity tax before this election is over. After all, it was under his direction that the Texas senate in 2005 enacted the mandate to launch CREZ.  [Read more →]
June 1, 2012 6 Comments
The cost of building transmission for expensive wind power in Texas is coming in nearly 40 percent higher than initially promised. Instead of $4.9 billion, as estimated in 2008, the transmission lines are now expected to cost $6.8 billion, according to a report prepared by the RS&H infrastructure consulting firm for the Texas Public Utility Commission. This amounts to approximately $800 per household in the state, or at least $5 per month per ratepayer.
The report states several factors caused the initial underestimate of transmission line construction costs. For example, the initial estimate assumed transmission lines would be built in direct, straight lines from point to point. However, the new report notes transmission lines must often follow roads, fences, terrain features, or property lines instead of direct lines between two connecting points.
The initial cost estimates also failed to account for inflation and financing costs on loans to build the transmission lines.
The report warns the final price tag could rise still higher by the time the project reaches its estimated December 2013 completion date.
More Intervention; Good Money after Bad
The $800 per-household expenditure is merely the cost of building the transmission lines. Wind power is more expensive to produce than conventional power sources, so Texas consumers will also pay electricity premiums every year.
“This is the kind of situation that only happens when government mandates a technology that is not very useful and it’s too expensive for the market,” said Sterling Burnett, a senior fellow with the Dallas-based National Center for Policy Analysis. [Read more →]
November 10, 2011 7 Comments
Perry’s Energy Speech: Part I (Real Energy, Real Jobs–but what about the governor’s windpower baggage?
Texas Gov. Rick Perry is swimming upstream in his quest for the Republican nomination for President of the United States, primarily from his weak performances during several debates. To improve his odds, last Friday he gave his first policy speech, titled Energizing American Jobs and Security.
Energy is that important. And it is a breath of fresh air that Perry’s analysis and prescription is 180 degrees from President Obama’s government-knows-best approach to energy and energy/environment.
The Governor’s plan focused on four objectives that promise economic growth and numerous jobs in America. In Perry’s words:
- “First, we will open several American oil and gas fields for exploration that are currently off limits because of political considerations.”
- “It is equally important that we take a second step: eliminate activist regulations already on the books and under consideration by the Obama Administration.”
- “The third part of my plan is to reform the bureaucracy, in particular the EPA, so that it focuses on regional and cross-state issues, providing scientific research, as well as environmental analysis and cost-comparison studies to support state environmental organizations. We will return greater regulatory authority to the states to manage air and water quality rather than imposing one-size-fits-all federal rules.”
- “The fourth component of my plan is to level the competitive playing field among all energy producers. As the governor of the nation’s leading producer of wind energy, I clearly believe there is an important role for green sources of energy as a part of our generation mix. The fact is, every energy producer receives incentives and subsidies that cost taxpayers and distort the marketplace.”
He finished his address by stating that his plan is focused to “Make what Americans buy, buy what Americans make, and sell it to the world.”
I agree with these proposals. In particular, getting rid of all energy subsidies and tax incentives across the boardwill allow the market to direct the allocation of resources to energy sources that are profitable without government intervention. [Read more →]
October 17, 2011 11 Comments
Rick Perry’s $7 Billion Problem (Texas wind transmission project 38% over budget–$270+ for every citizen in the state)
“He has been a stalwart in defense of wind energy in this state — no question about it.”
- Paul Sadler, executive director of the Wind Coalition, quoted in Kate Galbraith, “As Governor, Perry Backed Wind, Gas and Coal,” New York Times, August 21, 2011, p. 21A.
Texas curtailed electricity customers this Wednesday in the face of abnormally high temperatures and insufficient capacity. And as is to be expected this time of year, windpower is producing at its yearly lows–on Wednesday, about 9 percent of capacity (880 MW out of nearly 10,000 MW capacity), down from 18 percent earlier in the week.
As Texas revs up mothballed plants, one can only imagine how much state-of-the-art, high-utilization capacity the state could have ‘bought’ instead of wind power, which produces most of its juice when it is not needed.
CREZ Transmission Project
New transmission to rescue wind power that cannot reach the cities? That introduces another problem–wildly uneconomic costs where good money has been thrown after bad.
The Competitive Renewable Energy Zones (CREZ) line, authorized in 2005, began at just under $5 billion and is now estimated to cost $6.8 billion upon completion in 2013. This bill comes to $270 for every Texas citizen—man, woman, and child—and counting.
August 26, 2011 16 Comments
Oil Exceptionalism … Houston Exceptionalism … Texas Exceptionalism … U.S. Exceptionalism: Private Oil and Gas for the Social Good (Joe Pratt’s soulful message to the world)
“The social usefulness of well-defined property rights, free exchange, and the system of relative money prices . . . has perhaps been demonstrated most convincingly by the catastrophic failure in the twentieth century of those societies that tried to function without them.”
- Paul Heyne, “Efficiency,” in David Henderson, ed., The Fortune Encyclopedia of Economics (New York: Warner Books, Inc., 1993), p. 11.
“The wildcatters showed their gratitude to their city through their philanthropy. They were not the only ones who supported good causes in our region, but many of the foundations in Houston had their beginning in the oil and gas industries.”
- Joe Pratt, Cullen/NEH Professor in History and Business, University of Houston
George Will invoked the theme of Texas exceptionalism in a recent column pitching the state’s governor Rick Perry for the Republican presidential nomination. Whether or not one thinks Perry is the real thing (judging from his view on (mandated) wind power and tout of (government-dependent) electric vehicles, buyer beware), the point is that Texas has done relatively well because of its marked reliance on private property, voluntary exchange, and low taxation.
Relatively speaking, Texas is a free market state, and certainly Houston (the economic ‘capital’ of Texas) is a free market city. And Houston, despite its sweaty summer heat and humidity, is ranked a top world city–and the city with the lowest cost of living. And did anyone mention that Houston has the world’s top medical center and is a world-class philanthropic mecca?
Houston, not coincidentally, is the city that private oil and gas has done much to build. The nation’s oil capital began with the Spindletop gusher in 1901 in nearby Beaumont. Houston also became the natural gas capital when interstate gas pipelines were built in the middle decades of the 20th century (a story told in my forthcoming book, Edison to Enron: Energy Markets and Political Strategies).
Private oil and gas has accrued to the public good in a way that socialized oil and gas throughout the world has not. Guillermo Yeatts has stressed the general benefits of private mineral ownership, as have other posts at MasterResource.
“Oil and the Soul of Houston” (Joseph Pratt, University of Houston) [Read more →]
July 1, 2011 5 Comments
Editor Note: Part I yesterday examined the property-right and economics problems with Texas wind development.
“The government is using corporations as its arm. They’re not just destroying my land; they’re destroying my heritage. I was taught for as long as I can remember to be a good steward of the land. Now the government has given this company the right to take what they want and do whatever they want with it. Believe me, what they want will damage my land forever. It makes me feel helpless.”
- Mark Cadra, a Wheeler County rancher along CREZ route
As discussed yesterday, Texas landowners are fighting against eminent domain associated with a $4.9 billion (and counting) transmission line project to get the state’s wind generation from nowhere to somewhere. This project is hardly essential and is a case of throwing good money after bad. And government intervention begets more government intervention in the case of securing access to private land.
While projects such as the The Competitive Renewable Energy Zone (CREZ) line are legally obligated to do environmental impact studies, Cross Texas Transmission (CTT) may have opted to instead pay mitigation to the U. S. Fish and Wildlife Service. If so, these monies will likely be used to transfer more land from private ownership into the vast domain now ceded to the federal government. Private land owners generally see this as a system of payoffs that exempts favored companies or political backers from the requirements of the law.
“While no one knows the exact amount, it is reported that Texas remains nearly 97 percent privately owned and that’s a fact the federal government would like to change,” Dan Byfield, CEO of American Stewards of Liberty stated. “When companies like Cross Texas come along, federal land agencies see opportunities to charge fees or collect mitigation that brings huge sums of money into their agency to either regulate private landowners or buy up privately held land.”
Unlike Texas, the national statistics are grim. Federal ownership of land has now reached the 40 percent mark with the latest land grab device being conservation easements. Still, agencies like the U.S. Fish and Wildlife Service argue that government-owned property is entitled to greater protection under the law. [Read more →]
March 9, 2011 6 Comments
Editor Note: Sam Pakan (full biography below) is a rancher and writer living in Wheeler County, Texas. Part II discusses the environmental controversy regarding Texas’s latest wind development push.
The eastern Texas Panhandle, a land of rolling sand hills, tree-lined creek beds and tall grass vistas, may seem a desolate place to outsiders. Still, it has its beauty, especially to the cattle ranchers and wheat farmers who work and live on it. But not for long.
Much of this land–the fragile habitat of the Lesser Prairie Chicken and the Whooping Crane–is scheduled to become industrialized if the Texas Public Utility Commission (Texas PUC), the Department of Energy (DOE) and Federal Energy Regulatory Commission (FERC) have their way. Incongruously, the demolition of this mostly native grassland is being proposed in the name of green energy. And this project is wholly government-dependent in a sector where suppliers do not have to be taxpayer enabled.
The Competitive Renewable Energy Zone (CREZ), a name not without irony, was initiated by $10 million from DOE. In December of 2009, plans were expanded when Secretary Chu joined Jon Wellinghoff of FERC in a Memorandum of Understanding to coordinate efforts to interconnect several transmission lines. The CREZ line, part of the larger Electrical Reliability Council of Texas (ERCOT) system, is to help supply the Dallas/Fort Worth Metroplex with wind-generated electricity from the northern Texas Panhandle.
There are problems, however, with the multi-billion-dollar nowhere-to-somewhere transmission project. Protests from disgruntled landowners have greeted Cross Texas Transmission (CTT), the developer of the Gray-to-Tesla and Gray-to-White Deer lines.
Fanning that resistance, landowners received a “Access Consent Form” the day before Thanksgiving insisting that their lands be made available for survey. With the long weekend, landowners had only two working days to find representation, prepare a response, and still meet CTT’s deadline. [Read more →]
March 8, 2011 16 Comments
[Editor note: Dr. Giberson is an instructor and research associate at the Center for Energy Commerce at Texas Tech University's Rawls College of Business. He blogs on energy economics and other topics at Knowledge Problem.]
On Wednesday morning, The Electric Reliability Council of Texas (ERCOT), operating the power grid for much of the state, called upon local distribution companies to cut power to blocks of consumers on a rotating basis.
The rolling outages produced hardship for millions, and even isolated instances of severe harm. Consumers and policymakers are dissecting what went wrong and what should be done about it. The following is a preliminary analysis based on public data and news reports. A subsequent post will present more details once more complete information becomes available.
In brief, extreme cold weather pushed power demand to very high winter levels. At the same time, fifty of the state’s power plants were offline due to the effects of the cold, and several others were undergoing planned maintenance. The combination of very high demand and reduced supply left the ERCOT grid perilously short of reserves. Rolling consumer outages were employed to protect the system from failing completely.
Some wondered whether wind power was at fault, but wind contributed about seven percent of ERCOT’s power during the emergency – about the same as this time last year.
No power system is immune to hazards. But policy decisions that increase the likelihood of hazards or multiply the resulting damages ought to be given careful reconsideration. In this case, the choice by Texas policymakers to keep ERCOT isolated from surrounding power systems prevented power companies within ERCOT from accessing excess power capacity elsewhere in the state and in neighboring states. Other policy issues also are raised by the emergency, but few solutions are likely to be as cost-effective and technically simple to implement as linking ERCOT to its neighbors.
ERCOT reported that severe weather led to the loss of 50 generation units amounting to 7,000 MW of capacity on Wednesday morning. From news accounts it looks like a few large coal plants failed after water pipes burst. Some natural gas generators found insufficient fuel supplies due to heavy demand for natural gas. Other natural gas generators found their access to fuel curtailed by state rules that give priorities to other customer classes when supplies run short. In addition, a larger than usual amount of generation was off-line for scheduled maintenance – one estimate put this quantity at about 12,000 MW. [Read more →]
February 4, 2011 19 Comments