Oil and Gas Industry Opposes Energy Market Overhaul

The Texas Oil and Gas Association, the state’s largest and oldest petroleum organization, says it does not want regulators to overhaul the wholesale energy market, adding its name to the proposal's growing list of opponents and pitting itself against a longtime ally: the electric utility industry. 

In a letter sent last week to the Public Utility Commission, TXOGA said it opposes a shift to the state’s current “energy only” market to a “capacity" model that would pay electricity providers billions of dollars to maintain excess generating capacity.

Such a market would prove too complicated to maintain, the group said, and it would shift power away from consumers and toward state regulators. 

“TXOGA supports the current energy-only market in ERCOT, which has led to unprecedented generation development while maintaining competitive electricity prices,” the letter said. “In contrast, a move to a centralized, mandatory forward capacity market would be a significant step backwards for Texas. TXOGA has seen increasing evidence that centralized forward capacity markets do not work as intended and never can.”

The petroleum group said it believes that the Legislature, not the PUC, has the sole authority to redesign the market, echoing a contention made by several lawmakers, including state Sen. Wendy Davis, D-Fort Worth, her party's presumptive nominee for governor.

The PUC has not formally proposed a market overhaul, but observers consider its recent nonbinding vote to mandate an electricity reserve margin as a step toward bigger changes.

The idea, discussed for more than two years, has surfaced amid concerns that Texas will not have enough generation to meet its future energy needs, as the state gets hotter and its population surges. It has touched off a debate that has largely pitted electric utilities and advocates against industrial energy users.

Under current market conditions, electricity generators say, the status quo provides little incentive to invest in capacity that would probably sit unused and be turned on only during peak-demand days. That generally includes the summer’s most blistering days, but rare cold snaps, like those that overtook Texas early this week, have also strained the grid and stirred fears of temporary rolling blackouts.

Consumers would ultimately bear the costs of a market shift, which some analyses have pegged at $4 billion per year. Capacity market proponents, however, say the switch would drive down prices in the long run. They say it would boost reliability, lower the costs of outages and stabilize the market, lowering the costs of capital.

In its letter, TXOGA said that regulators should focus more on leveraging “smart grid” technology that the Electric Reliability Council of Texas, the state’s grid operator, has recently installed. 

“Such efforts, in TXOGA’s opinion, would be a far better use of time, money, and effort than giving existing generation owners billions of dollars each year without a guarantee that new generation would be built.”