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Legislative Staff Briefing: Update on the Electric Market in Texas






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    Legislative Staff Briefing: Update on the Electric Market in Texas Legislative Staff Briefing: Update on the Electric Market in Texas Presentation Transcript

    • Update on the Competitive Electric Market in Texas Legislative Staff Briefing November 18, 2010 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 • phone 512-474-6725 • fax 512-474-9670 • www.aect.net
    • AECT Principles • AECT is an advocacy group composed of member companies committed to: - Ensuring a modern, reliable infrastructure for the supply & delivery of electricity. - Supporting efficient competitive markets that are fair to customers and market participants. - Supporting consistent and predictable oversight and regulation that will promote investment and ensure the stability of Texas’ electric industry. - Promoting an economically strong and environmentally healthy future for Texas, including conservation and efficient use of available resources. • AECT member companies remain dedicated to providing Texas customers with reliable service and are committed to the highest standards of integrity. The Association of Electric Companies of Texas, Inc. (AECT) is a trade organization of investor- owned electric companies in Texas. Organized in 1978, AECT provides a forum for member company representatives to exchange information about public policy, and to communicate with government officials and the public. For more information, visit www.aect.net. 2
    • AECT Member Companies Within ERCOT Retail Electric Providers Transmission and Distribution Utilities Generation Companies 3
    • AECT Companies Outside of ERCOT SERC Reliability Corporation Southwest Power Pool (SPP) Western Electricity Coordinating Council (WECC) 4
    • Prices in the Competitive Electric Market in ERCOT 5
    • Natural Gas: Key Component of Electricity Prices In ERCOT •  Retail prices are driven by wholesale power prices – no matter how an electric market is structured. •  The ERCOT region is more dependent on natural gas-fired generation than any other electric power region in the nation. •  Thus, changes in natural gas prices result in changes in wholesale power prices, which result in changes in retail power prices. •  With several dozen retail electric providers (REPs) competing for business, the competitive retail electric market in ERCOT helps place downward pressure on retail prices. 6
    • Natural Gas Prices Have Been Volatile Since 2000 •  Through 1999, natural gas prices were relatively stable, but the cost of this key commodity has fluctuated greatly since 2000, with three exceptionally large peaks during the past decade.’ •  While prices have fallen over the past 18 months, natural gas prices today are still double the price of gas in 1999. •  Despite this volatility, consumers have offers available in the market lower than before competition began. 7
    • ERCOT Generation Mix More Gas- Heavy than U.S. Average ERCOT U.S. Average Other Other 6% 10% Natural Gas Energy (MW) Nuclear 12% 21% Nuclear 20% Coal 35% 47% 48% Natural Gas Coal “ERCOT has the highest dependency on natural gas of any other region” - ERCOT Note: Oil-fired generation is negligible in ERCOT, accounting for less than 0.1% of ERCOT capacity and load; numbers may not add up to 100% due to rounding. 8 Sources: PUC(2010 summer data, no wind adjustment), EIA (2008 data, latest available)
    • Regions Outside ERCOT Part of Larger, Multi-State Grids (ERCOT) 9
    • ERCOT far More Dependent On Gas Than Neighboring Power Regions % MWh from Natural Gas % MWh from Coal % MWh from Nuclear % MWh from Hydro % MWh from Other 10
    • Review: Timeline of the 
 Transition to Competition •  ERCOT market restructuring legislation, Senate Bill 7, passed in 1999 •  Initiated competition in ERCOT retail markets beginning January 2002. •  Included environmental and energy efficiency provisions. •  Utilities required to fund energy efficiency programs equal to at least 10% of each year’s annual growth in demand. •  1999 - 2001 – Preparation for retail competition. •  ERCOT develops systems required to support competition. •  PUC promulgates competition rules. •  PUC determines rate unbundling cases. •  July 2001 – Retail competition pilot project begins. •  January 2002 – Market opens in ERCOT, providing a clear point of comparison: regulated rates in 2001 and competitive price offers in 2002. 11
    • Natural gas prices have been volatile, 
 still substantially higher than before the market opened Natural Gas Prices 1992 – 2010 YTD; $/MMBtu Before Electric With Electric ’09-10 Natural Gas Avg: Competition Competition $5.15/MMBtu (+144%) NYMEX Natural Gas, 12-month Strip Annual Average ($/MMBtu) ‘02-08 Natural Gas Avg: $7.14/MMBtu (+238%) ‘00-01 Natural Gas Avg: $4.02/MMBtu (+90%) ‘92-99 Natural Gas Avg: $2.11/MMBtu Source: Frontier Associates LLC, “Energy Efficiency Accomplishments of Texas Investor Owned Utilities, Calendar Year 2009” 12 Source: NYMEX (latest data as of 10/11/10)
    • Competitive electricity prices still track natural gas, but enable customer choice and lower prices Natural Gas vs. Texas Residential Retail Electricity NYMEX Average 12-Month Strip Prices In Areas Now Open to Competition 1992 – 2010 YTD; $/MMBtu and ¢/kWh Average Lowest Offer Before Electric With Electric Average Competitive Offer Competition Competition NYMEX Natural Gas, 12-month Strip Residential Electricity Price Annual Average ($/MMBtu) Annual Average (¢/kWh)1 ‘02-08 Natural Gas Avg: ¢ $7.14/MMBtu (+238%) ¢ ‘92-99 Natural Gas Avg: ¢ $2.11/MMBtu ¢ ¢ ¢ 1 Average annual residential electric prices at 1000 kWh/month in the 5 TDU areas opened to competition in 2002; pre-competition prices based on filed tariffs; post- competition prices based on Power to Choose offerings and PUC data. Sources: NYMEX, PUC, Power to Choose website (latest data as of 10/11/10) 13 13
    • Price offers falling in recent years Offers and Prices – October 2007 – October 2010 Oct-07 Oct-08 Oct-09 Oct-10 # of 1-Year Fixed-Price 33 32 39 69 Price Products Average 1-Year Fixed- 12.7¢/kWh 14.9¢/kWh 11.7¢/kWh 10.0¢/kWh Price Offer Lowest 1-Year Fixed- 11.0¢/kWh 12.8¢/kWh 10.4¢/kWh 8.8¢/kWh Price Offer Lowest Offer Available 10.0¢/kWh 11.5¢/kWh 9.1¢/kWh 7.5¢/kWh in the Market Source: Offer prices averaged from the 5 TDU areas open to competition from www.powertochoose.org (10/22/10) for a residential customer using an average of 1,000 kWh per month 14
    • Recent news and updates on the competitive electric market Shop Now for Cheaper Electric Rates Recent Stats By Jack Z. Smith, October 7, 2010 As of July 2010 (latest available), "There are one-year fixed rates available that are statewide residential electric below what most North Texans were paying just prices in Texas are below the before the majority of the state's electricity national average. market was deregulated nearly nine years ago, on Jan. 1, 2002.” Competition is fierce. For example, there are 51 different •  "Nineteen one-year, fixed-rate plans below 9 cents 1-year fixed-price offers in North per kwh, including two at 8.4 cents, six at 8.5 cents, three at 8.6 cents, four at 8.8 cents and four at 8.9 Texas (Oncor) below 10 cents. cents.” Competition is helping to push •  "Six two-year fixed-rate plans at 9 cents per kwh.” prices down: the average 1-yr fixed price offer in competitive •  "Fourteen all-renewable energy, one-year fixed-rate areas of Texas has fallen 33% in plans below 10 cents, ranging from 8.8 cents to 9.8 the past two years. cents per kwh." 15 Sources: EIA, www.powertochoose.org,
    • ¢/kWh 14 4 0 2 6 8 10 12 16 18 20 LOWEST LEWISVILLE PRICE WA LOWEST DALLAS/FT WORTH PRICE LOWEST ABILENE PRICE ID KY LOWEST HOUSTON PRICE WV U.S. Average AR LA LOWEST CORPUS CHRISTI PRICE LOWEST DALLAS/FT WORTH - 1 YR FIXED OR IN LOWEST ABILENE - 1 YR FIXED LOWEST LEWISVILLE - 1 YR FIXED WY ND UT TN OK MT SD LOWEST CORPUS CHRISTI - 1 YR FIXED LOWEST HOUSTON - 1 YR FIXED MS NE Sources: Energy Information Administration, www.powertochoose.org NC Every Competitive Area in ERCOT Has SC MO Variable and 1-Year Lock Offers Available KS VA AL GA MN that are Lower than the National Average Price IA NM All Data as of July 2010 FL OH CO AZ TX IL US AVERAGE NV Residential Retail Electric Prices WI MI PA DE DC MA MD RI VT ME CA NH AK NJ CT NY HI 16
    • Retail electric price offers have fallen while energy commodity prices have risen Percent change in price December 2001 – October 2010 Sources: Public Utility Commission of Texas; www.powertochoose.org (1,000 kWh monthly usage); EIA (Cushing, OK Oil Future Contract 1 Prices; US All Grades Conventional Retail Gasoline Prices); NYMEX (natural gas 12-month strip); all data as of 17 10/11/10
    • Texas competitive electric prices compare well to the rest of the nation ¢/kWh 2001 State Ranking (Pre-Competition) July 2010 State Price Rank Improved by 6 Spots Average lowest offer in (Latest Available) with Competition Texas competitive areas in Oct. ‘10– 7.5¢/kWh ¢/kWh Average lowest offer in July ‘10 - 8.5¢/kWh Sources: EIA average annual residential rates for 2001 and July 2010 monthly data (latest available information). Average of lowest available prices in the 5 TDU areas open to competition from www.powertochoose.org (10/22/10) for a residential customer using an 18 average of 1,000 kWh per month
    • Texas competitive offers compare favorably
 with prices in neighboring states Then: December 2001 Now: July 2010 (latest available consistent data) Residential Electricity Prices (¢/kWh) Texas OK LA NM AR Texas OK LA NM AR Competitive Competitive Average Lowest Offer 19 Sources: EIA; PUCT; www.powertochoose.org
    • Other Issues 20
    • Electric Consumption Continues to
 Grow in ERCOT Note: The peak in electric consumption in 2000 was Source: ERCOT, “Report on Existing and Potential due to an exceptionally hot summer. Electric System Constraints and Needs,” December 21 2009
    • Generation investment in ERCOT •  The competitive market has steadily added new generation and greater efficiency to the wholesale market. •  Generators in the competitive market shoulder the risk of building new power plants, bringing efficient, cost- effective generation to consumers. 22
    • Nodal Market Design in ERCOT •  The transition to a nodal market design required substantial investment and upgrades to ERCOT’s information technology systems that will allow ERCOT to better monitor and control the real-time information pertaining to each node of the electric grid. •  The ERCOT nodal market will provide benefits to customers by allowing ERCOT to dispatch generation units more efficiently, which will reduce delivered energy costs. •  The nodal market will improve the economic efficiency of the wholesale electric market in ERCOT by improving grid management and providing enhanced system visibility and price signals for the market. •  The nodal market is scheduled to go live on December 1, 2010. 23
    • Texas Has the Most Installed Wind Energy Capacity 27% of the nation’s installed wind generation capacity is located in Texas. Source: American Wind Energy Association, 7/20/10 (www.awea.org/projects) 24
    • Map of Adopted Competitive Renewable Energy Zones (CREZs) 25
    • Status of CREZ Certificates of Convenience and Necessity (CCNs) Approved CCNs Filed CCNs LCRA Cross Texas ETT Silverton to Tesla East Abilene to Putnam Tippet to North McCamey Gray to Tesla Oklaunion Cap Bank Silverton to Tesla Compensation Clear Crossing to Dermott Oncor Gray Reactive Compensation Tesla to Riley Bluff Creek to Brown Gray Substation Riley to Edith Clarke Scurry County South to Edith Clarke to Cottonwood Oncor Tonkawa Clear Crossing to Willow Creek LCRA Dermott to Scurry County Riley to West Krum Kendall to Gillespie South West Krum to Anna Big Hill to Kendall Central Bluff to Bluff Creek Willow Creek to Hicks Lone Star Scurry County South Compensation Newton to Killeen Dermott Compensation Scurry County South to West Shackelford West Shackelford to Navarro/Sam Switch Sweetwater to Central Bluff Scurry County South Station Sam Switch to Navarro Tonkawa to Sweetwater Dermott Station West Shackelford Compensation Riley-Bowman Dermott to Willow Creek Navarro Station Brown Station Brown to Newton/Salado Sam Switch Station Brown Compensation West Shackelford Substation Jacksboro-Willow Creek-Parker Newton Station Additional Reactive Equipment Bowman to Jacksboro Hicks Station West Krum Sharyland Tonkawa Station Expansion Sweetwater East Switch Hereford to White Deer Jacksboro Station Expansion Killeen Station Upgrade Silverton to Cottonwood Bowman Switch Upgrade Willow Creek Station Hereford Compensation Carrollton NW Terminal Parker Switch Upgrade Silverton Compensation Source: PUC, “CREZ Progress Report No. 1,” October 2010 26
    • Advanced Metering Activities 
 in Texas •  The approved deployment plan for CenterPoint Energy calls for installation of advanced meters over five years beginning in March 2009. In 2009, CenterPoint Energy received a Federal Smart Grid Investment Grant that enables the deployment to be completed by late 2012. Through October 2010, CenterPoint Energy has installed 789,857 advanced meters. •  Oncor’s approved deployment plan initiated in late 2008 will have installation of advanced meters completed by the end of 2012. To date, Oncor has installed over 1.4 million meters. •  The AEP Texas deployment plan was approved in December 2009 and installation of advanced meters will be completed by the end of 2013. To date, nearly 5,000 meters have been installed in Portland, Texas, in order to conduct a system acceptance test. 27
    • Benefits for Qualified Low-Income Customers: The System Benefit Fund •  The System Benefit Fund (SBF) was enacted as part of the Texas Electric Choice Act in 1999. It is intended to provide funding specifically for: –  assistance to low-income customers through reduced electric rates; –  weatherization programs; and –  administrative funding. •  During the months of May through September, eligible low- income customers received a discount of up to 20 percent through the “LITE-UP Texas” electric discount program. 28
    • Web: AECT.net Blog: AECTnet.wordpress.com Twitter: twitter.com/AECTnet Facebook: Association of Electric Companies of Texas, Inc. Email: info@aect.net 29