Rate freeze plan, relief check idea could come with unintended higher costs

AUSTIN, Texas - Addressing affordability was a big promise on the campaign trail, but making good on that promise may actually end up costing you, and definitely cost the state, some money. 

Freezing electricity rates for homeowners and renters is an attempt to make good on a pledge regarding affordability. 

Electricity rate freeze

What they're saying:

Energy expert Ed Hirs, from the University of Houston, doubts the idea will work.

"No, the Governor elect, you know, proposing a price cap or a price freeze on current electricity rates. That's not the way to go about this," said the UH Energy Fellow.

A quick fix, to help with relief, is also doubtful according to Hirs. Power rates in Texas are influenced by how ERCOT and the Public Utility Commission manage power generation. Under the current model, prices increase when demand increases. In theory, extra profit is to encourage the construction of new power plants. Past attempts to change that financial model have failed.

"As we remember in 2021, Governor Abbott appointed Peter Lake to be chairman of the Public Utility Commission. In his first public statement, he said that the ERCOT market model needed to be scrapped, and no one liked his proposal. The legislature and Governor Abbot refused to go with it. So, he resigned. Finally, this past year, Pablo Vegas, the CEO of ERCOT says the market model needs to be changed. We know that," said Hirs.

Hinojosa's promise to declare a High-Cost Emergency Declaration may backfire during a major weather event. Analysts, like Hirs, warn the Executive Order cap may trip an energy shortage and even rolling blackouts. Local utilities, which are dealing with higher prices for wire and transformer equipment, according to Hirs, may be forced to cut back on maintenance and expansion projects.

"We could have some really tough times January, February," said Hirs.

The solution to the power pinch, according to Hirs, is to rewrite the financial model and find a way to get more power generation built. The goal, Hirs argued, is to provide consumers with a more direct link to the generator.

"That's what California eventually came down to, following its critical summer of 2020," said Hirs.

Relief checks to each Texas household

By the numbers:

A different kind of state payout is the other promise: a $1500 check from Hinojosa to every Texas household. That extra cash could be considered extra income and taxed by the IRS. 

Hinojosa's affordability emergency declaration may help prevent the tax hit, but SMU political analyst Matthew Wilson pointed out that kind of tax break is typically done for natural disasters.

"The conditions that we face right now would not fall under most people's definition of an emergency," said Wilson.

Defining what an emergency is gets into the larger debate over Emergency Powers and the Governor-elect. 

"What we've seen in recent decades, in fact, is a tendency of executives and by executives, I mean from the president to governors to mayors, increasingly making use of emergency powers to enhance the authority of their office," said Wilson, who agreed it could come down to a semantical political game.

Legislation was filed by state Sen. Roland Gutierrez (D-San Antonio). It's estimated 11 million households would be eligible, including undocumented migrants living in Texas as SB 297 is currently written. The Bill has a $17 billion price tag. The money would come out of the state's Rainy Day Fund and the current $27 billion balance would drop to about $10 billion.

"I do think there is some cause for wariness about what really does constitute an emergency, a truly exceptional circumstance, and what really is just politics as normal," said Wilson. 

Passing the relief check idea would require a two-thirds vote in both the House and the Senate. Democrats will be in the majority under the Capitol dome in 2027 but would still need several Republicans to sign on.