I ran across an article on the Houston Chronicle’s Fuel Fix Blog this morning. Normally, this is a great blog with lots of interesting articles that I read on a very regular basis. Today’s entry, however, by Loren Steffy, is one of the more backwards and lazy efforts I’ve seen on the Texas deregulated electricity market and the new EPA changes that I’ve seen to date. It’s so odd, I’m wondering if Steffy is being contrarian to get attention. Lets break down my thoughts below.
First, I’ll give a quick summary of the article for those that chose not to read it for themselves. The article claims that the 500 jobs being lost by Luminent employees because of the new EPA changes aren’t the fault of any new federal rules being enforced. Instead, Steffy says the real culprit for the job losses is electricity deregulation. His reasoning, which is specious as best, is that deregulation has left the power generators weakened.
It’s unlikely Luminant has the cash to make the sort of investments it needs to reduce its coal-fired pollution. Its parent company, Energy Future Holdings, is struggling with mountains of high-priced debt from its ill-timed $43 billion buyout by two private equity firms in 2007.
“They couldn’t afford to switch,” said Ed Hirs, a professor of energy economics at the University of Houston. “A coal plant is a sunk cost.”
Meanwhile, NRG, the second-biggest generator in the state, said it expects to comply with the EPA regulations without any jobs cuts, plants closing or material financial impact.
So if I’m understanding correctly, Steffy is claiming that the problem here is that since deregulation tied electricity prices to natural gas, and coal became a cheaper option, it’s Luminent’s fault for investing heavily in coal plants to make money? First off, businesses and companies are, by their definition, in existence to make money. It has nothing to do with a regulated or deregulated market. Otherwise, how can anyone explain why many of the REGULATED energy companies in other states are publicly traded on the stock market? And Steffy is choosing to blame Luminent for working within the accepted state guidelines at the time? I find that kind of silly. But we’ll go ahead and ignore that glaring omission. Instead, lets focus on what Steffy writes in his very own article: Luminent stuck with coal plants because they are riddled with debt because of bad business decisions by their parent company, Energy Future Holdings. So the REAL problem is that Luminent and their parent company made some horrible business decisions, are riddled with debt, and can’t afford to upgrade their coal plants? This sounds like a business issue, not an issue with the deregulated electricity market to me, and it sounds like Luminent is being punished for those decisions which is exactly how a free market economy is SUPPOSED to work. Steffy’s claims that deregulated electricity is the culprit look EVEN MORE ridiculous when he praises NRG Energy for having the flexibility to adopt the EPA changes without having to shut down any plants or layoff workers. And this is DESPITE the fact that NRG has been operating IN THE EXACT SAME DEREGULATED ELECTRICITY MARKET as Luminent! Yet this is somehow the fault of the deregulated electricity market? That makes zero sense. You can’t praise NRG for being ahead of the game and being able to adopt the changes while giving Luminent a pass and blaming the marketplace. They is Hypocrisy 101.
Lets take a look at some other choice quotes:
In Texas, though, it means more of the same. Having created a system of misplaced incentives, deregulation has left us with higher prices, lower reliability and, now, more expensive and dirtier coal generation.
1.) To what system of misplaced incentives is Steffy referring? Companies attempting to make a profit or pay their debts by using coal? As I’ve mentioned before, this is America and this would be happening regardless of regulation or deregulation. It’s called the free market. There’s a reason that plenty of regulated utilities in other states are publicly traded companies – they exist to make a profit. Faulting any company for attempting to do that and blaming it on deregulation is not only wrong, it’s willfully naive.
2.) Deregulation has not left Texas with higher prices. Prices in Houston and Dallas are the same or cheaper than they are in Austin, currently, as quoted by a member of Austin’s very own city council. And they’ll be MORE expensive in Austin when the subsidies are removed next year and the estimated 20% rate hike goes into effect for customers of Austin Energy, which I’m sure you know, is a regulated entity. So prices are not higher. And if you really want to talk about higher prices, compare Texas with the rest of the country. It’s hard to make an apples to apples comparison, but when you crunch the numbers, Texas electricity is as cheap as it comes. If you don’t believe me, I’ve written about it extensively in the past, which you can read Here.
3.) Steffy claims in the beginning of his article that “consumers worrying about blackouts” is a result of deregulated electricity. What does deregulation have to do with Low Reliability? I’m not even sure what Low Reliability he is referring to, quite frankly. Does he mean the grid operation this summer and energy shortages because of the heat? Because the generation of electricity is the same as it always was during regulated or deregulated eras. And by the same token, any lack of reliability of the grid would be consistent regardless of deregulation. Steffy has failed to support his claim with any kind of fact. Instead he has just thrown out a baseless accusations. And I find it laughable that he has chosen to cite the fear of rolling blackouts as a problem of deregulation but completely IGNORES the fact that the EPA changes being forced upon Texas have removed at least 1,200 megawatts from the grid, will admittedly RAISE our electricity prices, and generally make our grid even LESS reliable. In short, the EPA changes will directly be doing every single thing he has erroneously blamed on deregulation.
It’s easy – and politically feasible – to blame the EPA, but the 500 jobs Luminant is cutting aren’t being lost to higher air quality standards. They’re simply the latest victims of deregulation’s failed legacy.
Actually, deregulation has not a failed at anything. For starters, deregulation works, and there’s a reason other states are adopting it and using Texas for a model. Ask residents of New York and Chicago how much they’ve enjoyed their drastically lower bills. As for the other part of Steffy’s claim, it’s pretty simple cause and effect. Those jobs were safe until the EPA changes, which MANY people think are unrealistic, questionable, and have impossible timeline expectations. Then the EPA made changes, and the jobs were lost. That is simple cause and effect. In fact, you can take it a step further and say that those 500 jobs might not have existed in the first place except FOR deregulation. If he wants to make unfounded claims about how energy generation works in Texas, I see no reason why I cannot do the same. Steffy seem to think it’s Luminent’s fault for not being able to predict the future and timing of these unexpected changes (Texas was a last minute addition and a borderline admission to the EPA rules in terms of qualifying) and them not being able to predict the future is their own fault. I didn’t realize that it has come to a point now where acceptable excuses being made for some of the decisions by our government and their rules, policies, and decisions now include claiming that everyone should have been able to accurately look into their crystal ball and divine the future. How sad.