“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. [1]

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.

[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.

Losing electricity is no fun, whether it is momentary (sensitive equipment can get fried) or for days or weeks, as many of us Houstonians experienced in the wake of Hurricane Ike.

News accounts from Hawaii report that the vacationing President-elect Barack Obama was without power from the early evening until morning due to storms. The Washington Post reported:

Robert Michaels has specialized in electricity and natural gas over the decades, in addition to antitrust law. Professor of Economics at California State University, Fullerton, Dr. Michaels is an adjunct scholar at the Cato Institute and has contributed many posts to MasterResource.

Q. Robert, you have spent decades in the regulatory fields of antitrust and of energy. How did it all begin?

A. Like so many of life’s better stories, it started with randomness.  Around 1980 I moved from Washington, DC to the reality of a southern California mortgage.  At the time I was working on the industrial organization of the mainframe computer market for some academic publications to help me get tenure at California State University, Fullerton.

I got a call from a former classmate about my possible interest in expert work in what would turn out to be a major antitrust case regarding an electric utility.