Texas RPS Carve-Out Would Cost $2.5 Billion, TXU Calculates

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February 23, 2011  

A Texas proposal for publication for a 500 MW non-wind RPS carve-out would cost $2.5 billion over the life of the proposal, TXU Energy said in comments to the PUCT (35792).

As previously reported, the proposal would create carve-outs for new solar, biomass, and geothermal resources (see 12/10).

TXU pegged the cost of the carve-out at about $200 million per year, based on the initial capacity conversion factors for solar and biomass/geothermal resources stated in the proposed rule, assuming the stated alternative compliance payments represent the subsidy (REC price) that would be required for a developer to install solar or biomass/geothermal resources, and assuming a reduction in wind RECs procured (and thus cost) for each required solar and biomass/geothermal REC.

The Texas Industrial Energy Consumers separately provided similar estimates for the cost of the carve-out: more than $187 million in costs to Texas customers in the first five years of the rule's adoption, and an additional $201 million each year after that.

TIEC took issue with the proposal's statement that, "there will be no adverse economic effect on small business or micro-business ... because they may pass the costs of purchasing renewable energy credits or making alternative compliance payments to their customers, like all other businesses required to comply with the amendments."

"This is patently false," TIEC said. "Texas businesses compete with businesses in other states and in the global economy. To the extent that other states (and nations) do not have these types of mandates, Texas business is put at a competitive disadvantage. To say that Texas businesses can simply pass along all cost increases to their customers is incorrect and a complete misunderstanding of the current global economy. These cost increases will affect Texas businesses and could result in a loss of jobs," TIEC added.

TIEC further argued that there is evidence demonstrating that the market itself may meet the 500 MW non-wind target by 2015 without Commission action, citing a November 2010 ERCOT report which indicated that there are approximately 1,180 MW of solar capacity being developed in Texas, and nearly 200 MW of biomass capacity.

In separately filed comments, TIEC and the Alliance for Retail Markets both repeated legal arguments against a mandated carve-out, stating that the PUCT has previously concluded that the 500 MW non-wind target is not a mandate.

TXU and ARM also argued that governmental end users should not be exempted from any mandated RPS carve-out, noting that PURA does not provide for any such exemption to governmental customers, in contrast to the express exemption in PURA that allows transmission-level voltage customers to opt-out of the RPS program.

"ARM firmly contends that any new requirements to acquire RECs should apply to all retail entities and ultimately be borne by all customers in a non-discriminatory manner within the parameters of the statute. PURA § 39.904 does not include a specific carve-out for retailers serving state and governmental customers, including educational entities. Therefore, no such exemption can be incorporated into the rule as a matter of law. Furthermore, no such exemption should be adopted as a matter of policy either. As a general rule, exemptions from regulatory mandates create subsidies, which mask the true costs of retail electric products and services, hamper efforts to promote energy efficiency, and thwart participation in energy conservation efforts," ARM said.

The Texas Renewable Energy Industries Association said that the 500 MW carve-out is too low, and requested that the mandate be increased to 1,500 MW.

TREIA also requested an accelerated phase-in schedule such that the initial 500 MW mandate would be required as of 2015, rather than 2019 as under the draft.

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