The long-awaited Brattle Group report just came out, confirming what we at the Texas Public Policy Foundation have said since the beginning; that Texas is not running out of electricity and that regulators need not overhaul the competitive market:
The 11.5% equilibrium reserve margin that the current energy-only market design is likely to achieve slightly exceeds the 10.2% risk-neutral economically optimal reserve margin. This important finding suggests that the current market design will support sufficient reserve margins from an economic perspective, unless political perceptions or reactions have adverse economic consequences for which we have not accounted.
In addition, the report conceded that imposing a capacity market onto Texas would incur a hard, unavoidable cost of $3.2 billion per year in capacity payments alone. Although the report demurs on this point, alleging that the costs of reregulation would be offset by a “$2.8 billion reduction in annual energy-market costs,” even with this optimal (and unlikely) scenario, the Brattle report acknowledges that the capacity market would cost Texas consumers at least $400 million per year.
Brattle’s findings mirror the conclusions of other policy reports, including those conducted by the Foundation, as well as evidence from East Coast capacity markets, which suggest that capacity markets are expensive and uneconomic.
Taxpayers should not be forced to bear the costs of unnecessary regulation, especially when the evidence shows that the competitive market satisfies consumer demand and that the change would only impose additional costs for at best a negligible gain; most likely, a capacity market would harm reliability.
For more information, visit the Foundation’s website to learn about how the Texas energy-only market meets Texas’ resource needs (here, here, and here) and about the high costs of the proposed capacity market (here).