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What’s the price of a reliable Texas grid? $2 extra a month, $1.5 billion or TBD?

Texas generators may try to pass on higher costs, but there are no guarantees.

The average retail price for electricity in Texas has increased sharply, primarily because of the soaring cost of natural gas. An additional expense emerged in the past year — the cost of reliability.

After 2021′s deadly winter storm, Texas regulators added a number of measures to prevent future blackouts. They’re ordering more power plants to stay online to boost reserves, requiring them to be hardened against extreme weather and reducing the pricing scheme to push more electricity onto the grid sooner.

“We thought we had a pretty good grid,” Peter Lake, chairman of the Texas Public Utility Commission, told a House committee in June. “Turns out we didn’t. And it’s going to cost money to get it right.”

It’s not clear how much the upgrades will cost and, importantly, how much will be passed along to customers. So far, the changes are just for the first phase. Up next will be a market redesign aimed at attracting more natural gas plants, and many expect that to drive costs up further.

For the first phase, Lake estimated that households would pay an extra $1 to $2 a month. Carrie Bivens, the independent market monitor tracking the wholesale market, said the total costs would be “maybe $1.5 billion” for 2022.

Who pays? “Eventually, I imagine these costs are passed on to the consumer,” Bivens told the House committee.

She quickly added it’s not dollar for dollar. Texas’ wholesale power market is deregulated, and the costs of boosting reliability are not automatically passed along. They’re rolled into everything else, including maintenance, upgrades and fuel. There are no guarantees that generators will make a return on their spending.

Summer electric bills are up to 70% higher for residential customers in Texas, and for two primary reasons: People are using more electricity because of the heat waves, and high natural gas prices drove up rates.

Brad Jones, interim CEO of Texas grid operator ERCOT, said reliability improvements were likely to account for less than 2% of the increase in summer bills. “Most people would say, ‘OK, for reliability, that makes sense,’ ” Jones said.

One expert had a different reaction: “Show me the math,” said Alison Silverstein, an energy consultant who formerly worked with the Federal Energy Regulatory Commission and Texas PUC.

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Regulators have not provided enough details to determine the true cost for consumers, she said. She believes investments in energy efficiency and demand-response programs would help meet peak demand at a lower price.

In its latest report, the independent market monitor raised doubts about regulators bulking up reserves so significantly. “Although this additional procurement may increase reliability in some hours, the potential reliability benefits are difficult to justify based on the costs,” the report said.

It’s akin to an extremely expensive insurance policy that may not be needed, said Doug Lewin, an Austin consultant who works on energy and climate issues.

The PUC should not talk about reliability at any cost, Lewin said: “The point is to balance it with affordability.”

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