A piece by Ed Hirs, Energy Economist, College of Liberal Arts and Social Sciences at the University of Houston, published on Forbes.com, is headlined, "Prepare To Pay More For Electricity In Texas."

Hirs' column is a bit more circumspect with regards to conclusions about future pricing, and as headlines may be written by editors, we won't attribute that declaration to Hirs

However, Hirs does write that, "The low electricity prices enjoyed by most Texas consumers can’t last forever," which is a much more measured argument (as nothing lasts forever), though it's clear from Hirs' piece that the reason for the supposed fleeting nature of the low rates is not the general trend of all things toward entropy, but rather what Hirs sees as a fundamental outcome of the ERCOT market

Specifically, Hirs reasons that most generation developers will not invest based on the potential for short-term scarcity pricing, resulting in only a few small players to take on the risks of new investments

Hirs claims that, "ERCOT’s structure practically ensures that at some time in the future, after the number of 'bet the company' players has grown too small, capital investment will lag behind the growth in demand that inevitably comes from continuing population growth in Texas."

If the ERCOT market were some new experiment, this theory might be legitimate.

However, with over 15 years of operation of the energy-only market, we've yet to see this theorized behavior materialize. Assuredly, there have been projections about resource inadequacy, but developers have actually been able to respond to projected CDR shortages quickly enough such that ERCOT has not faced a resource inadequacy situation, relative to the target reserve margin and the current amount of installed capacity.

Indeed, the cases where there has been elevated retail pricing, aside from short scarcity intervals which have little impact on retail offers, have resulted from factors not specific to the energy-only market -- external market shocks such as the 2005 hurricanes, or market design breakdowns such as the 2008 congestion issues

Moreover, the simple fact that capital investment may lag behind demand does not necessarily mean ERCOT will see scarcity conditions, especially in an increasingly decentralized and distributed market. While installed capacity may lag, there's no reason not to expect that scarcity conditions and associated price spikes will be avoided, due to retail providers' various demand response programs (critical peak rebates, controllable load, etc.) and price response load.

Indeed, that appears to already be happening even with REPs' nascent programs, which likely prevented the occurrence of more intervals of scarcity pricing this summer.

Therefore, even if we accept the premise that generation development may lag actual demand, such outcome, in and of itself, does not necessarily equate to a spike in prices.

Indeed, if true, Hirs' theory should be self-defeating. In other words, since retail providers know that price spikes are inevitable under the mismatch between demand and generation investment, REPs will be doing everything in their power to insulate themselves from such prices spikes. This includes the demand response programs noted above, as well as hedging. Given the great expense to acquire a retail customer, and the capital and credit strains of having to pay $9,000/MWh for spot power, we should expect REPs to do everything in their power to keep ERCOT out of scarcity pricing, and to make sure that the low electricity prices enjoyed by most Texas consumers do last forever

We've heard the refrain that Texas prices are due to spike for years, and we're still waiting for it to be proven true. Even with $9,000 spot prices now possible, retail prices are under 2¢/kWh, admittedly due to pricing gimmicks, but even retail plans without those gimmicks are still only 5-6¢/kWh, basically in the range of historic lows since the market was deregulated, despite the dire predictions made in 2011-12 of the shortages ERCOT was to be facing right now

Make no mistake, electricity markets are cyclical, and we're not saying there won't be some spike that sees Texas prices perhaps repeat the roller coaster of 2005 or 2008. But it's more likely such events will be driven by factors unique to the current environment, and not some fundamental drift in the energy-only market to higher prices.

See Forbes.com for the column