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AECT Electricity 101 2019


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An overview of the electric industry in Texas

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AECT Electricity 101 2019

  1. 1. Legislative Advertising Paid For by: Association of Electric Companiesof Texas 1005Congress, Suite 1000,Austin, TX 78701 •512-474-6725• 2019 Electricity 101
  2. 2. Regional Transmission Operators in North America (512) 474-6725 2
  3. 3. Generation Companies Transmission & Distribution Utilities AECT CompanieswithinERCOT (512) 474-6725 3 Retail Electric Providers Total ERCOT Capacity: >78,000 MW
  4. 4. Western Electricity Coordinating Council (WECC) Midcontinent Independent System Operator (MISO) Southwest Power Pool (SPP) AECT COmpaniesOutside of ERCOT (512) 474-6725 4 Total ERCOT Capacity: >78,000 MW
  5. 5. AECT Is Comprised of Investor-Owned Utilities (512) 474-6725 5 AECT does not include Municipally-Owned Utilities or Electric Cooperatives Service Territories of Utilities Represented by AECT El Paso Electric Co. Xcel Energy AEP SWEPCO Entergy Texas CenterPoint Energy AEP Texas Central Company AEP Texas North Company Oncor Texas-New Mexico Power Co. Legend
  6. 6. Overview of ERCOT (512) 474-6725 6 ERCOT: By the Numbers • 90% of the electric load in Texas is in ERCOT • 75% of ERCOT’s load is in the competitive market, including 24 million customers • Over 610 generating units, providing >78,000 MW of generating capacity during peak demand • 46,500 miles of high-voltage transmission ERCOT Responsibilities • System reliability – planning and operations • Wholesale market settlement for electricity production and delivery • Retail switching process for customer choice • Open access to transmission ERCOT region
  7. 7. Steps to Electric Competitionin Texas (512) 474-6725 7 Wholesale competition legislation passed (SB 373) May 1995 Jan. 2002 Retail competition legislation Passed (SB 7) June 1999 Sept. 1999 ERCOT Electric rates frozen Jan. 2005 July 2001 Texas Choice pilot program begins Affiliate REPs allowed to offer non- price-to- beat prices Retail choice begins in ERCOT Jan. 2007 End of price-to- beat
  8. 8. Steps to Competition: WholesaleMarket (512) 474-6725 8 Senate Bill No. 373 enacted in May 1995 – Required utilities to provide non-discriminatory open access transmission to support wholesale competition in ERCOT. – Recognized new, unregulated participants in ERCOT wholesale market.  Exempt wholesale generators  Power marketers – Allowed non-utility wholesale market participants to offer market-based prices in ERCOT. – Deregulated electric cooperative distribution rates. Note: Non-ERCOT areas are subject to FERC jurisdiction for wholesale services, including transmission services.
  9. 9. Steps to Competition: Retail Market (512) 474-6725 9 ERCOT market restructuring legislation, Senate Bill 7, passed in 1999 – Initiated competition in ERCOT retail markets beginning January 2002. – Municipally-owned utilities and electric cooperatives allowed to “opt-in”. – Included environmental and energy efficiency provisions. • Required reduction of nitrogen oxide (NOx) emissions from older power plants by 50%, and sulfur dioxide emission from coal-fired facilities by 25%. • 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. • Electricity rates frozen. • ERCOT develops systems required to support competition. • PUC promulgates competition rules. • PUC determines rate unbundling cases. – July 2001 – Retail competition pilot project begins.
  10. 10. ERCOT: Separate Companies ProvideRetail, Transmission & Distributionand Generation Services (512) 474-6725 10 • In competitive markets, consumers have multiple retail electric providers (REPs) and service plans to choose from. • Wholesale and retail prices are set by competitive market forces, while the PUC sets transmission and distribution rates. Power Flow Financial Flow Regulated
  11. 11. Outside ERCOT: A Single Utility ProvidesRetail, Transmission & Distribution and Generation ServicesIn Each Area (512) 474-6725 11 • In fully regulated markets, the PUC sets retail rates charged to end-use customers. • Each of service area is part of a multi-state electric grid, with differing regulations. In many cases, vertically integrated utilities purchase wholesale power from certain unregulated entities. Power Flow Financial Flow Regulated
  12. 12. The ERCOT CompetitiveRetailElectric Market is Providing Customer Benefits (512) 474-6725 12 Key Facts on the Competitive Retail Market in ERCOT – Price offers are substantially lower than prices available just before competition began – Texas’ national electric price ranking has improved since the market opened in 2002 – Every competitive area in ERCOT has variable and 1-year lock offers available that are far lower than the national average price and nearly all state averages – Among states like Texas that depend heavily on natural gas for power generation, Texas prices compare favorably, with even lower prices available to those in the competitive market
  13. 13. Lower Prices AvailableToday than BeforeCompetition Began (512) 474-6725 13 Service Area Average Fixed-Price Offer (12-month term) Lowest Fixed-Price Offer (12-month term) Lowest Offer Available Dec. 2001 prices, not adjusted for inflation Dec. 2001 prices, adjusted for inflation AEP Texas Central 12.5¢/kWh 6.3¢/kWh 6.1¢/kWh 9.6¢/kWh 13.7¢/kWh AEP Texas North 12.1¢/kWh 5.9¢/kWh 5.5¢/kWh 10.0¢/kWh 14.3¢/kWh CenterPoint Energy 11.9¢/kWh 5.6¢/kWh 5.5¢/kWh 10.4¢/kWh 14.9¢/kWh Oncor 11.1¢/kWh 4.5¢/kWh 4.5¢/kWh 9.7¢/kWh 13.9¢/kWh TNMP 12.1¢/kWh 6.2¢/kWh 5.8¢/kWh 10.6¢/kWh 15.2¢/kWh Sources: PUC Historical Data, Bureau of Labor Statistics Inflation Calculator (43.1% inflation since December 2001); offers as of December 3, 2018 December 2018 December 2001
  14. 14. Texas’ NationalPrice Ranking Has ImprovedSince 2001 (512) 474-6725 14 0 5 10 15 20 25 30 LA WA AR ID TN UT KY OK MS MO WV OR FL OH TX NC NV MT VA GA IL ND WY NE IN SC DE AL CO DC SD KS AZ NM IA MD PA MN WI MI NJ ME VT NY CA NH CT MA RI AK HI Sources: EIA average annual residential rates for 2001 and Sept. 2018 monthly data (latest available information); Power to Choose data as of Sept. 4, 2018 Note: Average lowest available price is for a residential customer using an average of 1,000 kWh per month ¢/kWh¢/kWh 2001 State Ranking (Pre-Competition) September 2018 State Ranking (Latest Available) Average lowest 12- month fixed price offer in competitive market in September 2018: 4.8¢/kWh 0 5 10 15 20 KY WA ID WV OR TN ND NE UT WY MT IN MO AL OK MS SD CO MN KS MD SC AR GA DC VA WI LA NC MI AZ OH IA FL DE IL NM TX NV PA NJ CT CA AK RI MA NH VT ME NY HI
  15. 15. Electric Price Offers Compared WithOther Retail Products (512) 474-6725 15 Sources: Dec 2001 electric rates: Public Utility Commission of Texas; October 2018 electric rates: Power to Choose for 1,000 kWh/usage with no usage fees or credits; All other data: U.S. Bureau of Labor Statistics (October data; latest available) Gallon of Gas 155% Ground Beef 117% Dozen Eggs 79% Hourly Legal Services 77% Houston-Galveston Rent 64% Dallas-Fort Worth Rent 57% U.S. Average Residential Electricity 51% Ground Coffee 47% Loaf of White Bread 27% Gallon of Milk 1% ERCOT Average Lowest Variable Offer -1% ERCOT Average Lowest 1-Year Fixed Price Offer -51% Price Change: December 2001 to October 2018
  16. 16. Average 1-Year Fixed Price Offersin ERCOT Are SignificantlyLower than the National Average Price (512) 474-6725 16 0 5 10 15 20 Louisiana Washington AVG1YRFIXED-DALLAS Arkansas Idaho Tennessee Utah Kentucky AVG1YRFIXED-LEWISVILLE AVG1YRFIXED-HOUSTON Oklahoma Mississippi Missouri AVG1YRFIXED-ABILENE WestVirginia Oregon Florida Ohio AVG1YRFIXED-CORPUSCHRISTI Texas NorthCarolina Nevada Montana Virginia Georgia Illinois NorthDakota Wyoming Nebraska Indiana SouthCarolina Delaware Alabama Colorado DistrictofColumbia SouthDakota Kansas Arizona U.S.AVERAGE NewMexico Iowa Maryland Pennsylvania Minnesota Wisconsin Michigan NewJersey Maine Vermont NewYork California NewHampshire Connecticut Massachusetts RhodeIsland Alaska Hawaii Sources: offers as of September 4, 2018 U.S. Energy Information Administration, latest available data U.S. Average RESIDENTIAL RETAIL ELECTRICITY PRICES All Data from September 2018
  17. 17. Texas Market Compares Favorably to Other States Utilizing Natural Gas as thePrimary Generation Source (512) 474-6725 17 0 5 10 15 20 25 AK RI MA CA NY ME NV TX FL MS LA Sources: EIA average annual residential rates for September 2018 monthly data (latest available information); Power to Choose data as of September 4, 2018 Note: Average lowest available price is for a residential customer using an average of 1,000 kWh per month Average Lowest Available 12-Month Fixed Price Offer in ERCOT Competitive Market (November 2018): 4.8¢/kWh RESIDENTIAL PRICE AMONG NAUTRAL-GAS INTENSIVE STATES All data from September 2018
  18. 18. Protections in the Market for RetailCustomers (512) 474-6725 18 • Make Spanish-language support available to customers • Place customer deposits in interest-bearing accounts and return that interest to customers when the deposit is returned • Follow a mandated timeline for disconnection of customers • Provide notice in case of disconnection • Investigate any customer complaint within 21 days • Provide a Terms of Service Statement detailing contract terms, cancellation penalties, deposit requirements, fees, payment arrangement options, how to cancel service, and other obligations of the REP • Allow a customer to cancel a service agreement within three federal business days after receiving the terms of service • Allow a customer to cancel the switch upon receiving notification that the switch will occur • Register with the PUC and meet financial requirements set by the Commission • Communicate clearly with consumers regarding notice of contract expiration • Demonstrate creditworthiness to purchase power to serve its customers • Demonstrate the technical ability to supply electricity • Maintain privacy of customer information • Not discriminate among customers • Not add charges to a customer’s electric bill for services not requested by the customer • Provide a “Your Rights as a Customer” disclosure • Provide an Electricity Facts Label to allow for an “apples-to-apples” comparison among REPs • Make deferred payment plans available for those expressing an inability to pay Among other requirements, REPs serving residential customers must:
  19. 19. Transmission & DistributionUtilitiesProvide Reliable Deliveryof Electricity (512) 474-6725 19 Role of Transmission & Distribution Utilities – Provide reliable delivery of electricity on a 24-7 basis. – Invest in and build infrastructure (e.g., transmission lines, Smart Grid) to support the needs of Texas’ growing economy. – Manage their transmission networks under the direction of ERCOT; coordinating with ERCOT on transmission planning activities. – Respond to outages (e.g., storms and disasters) that affect the grid and restore service as quickly as safely possible. – Provide key market information, such as premise information and metering services to facilitate successful operation of the ERCOT deregulated market. – Provide regulated transmission and distribution services to facilitate operations of wholesale and retail business entities. – Charge regulated delivery rates to REPs  Rates based on a historical cost of service including a PUC-established return on capital investment  Allocation of ERCOT-wide transmission costs  Non-bypassable charges include the cost to deliver electricity, System Benefit Fund, recovery of true-up costs and nuclear decommissioning expenses for existing nuclear facilities
  20. 20. Timelineof Transmission Line Construction (512) 474-6725 20 • While certain types of generation can be constructed quickly -- often as short as 12-18 months -- transmission lines typically take between three and five years. Generation can be brought into the market more rapidly if the siting takes advantage of the existing transmission infrastructure. • Building long transmission lines can affect many landowners, often requiring a lengthy and extensive easement acquisition effort. • The transmission line siting process must take into account the impact of those lines on environmentally sensitive and historically significant lands. • Utility is not typically allowed to begin recovering costs until year 5 or 6.
  21. 21. Transmission Line Routing Process (512) 474-6725 21 1. The utility files an application with the PUC to obtain a Certificate of Convenience and Necessity (CCN), which is assessed by the PUC • Consideration include: the need for service; whether the route uses existing rights- of-way; parallels other rights-of-way; follows property lines; and conforms with the policy of prudent avoidance to limit overall impact of the line 2. Landowners who would be affected by a new line receive notice; landowners can informally file a protest or formally participate in the case as an intervenor 3. An administrative law judge (ALJ) holds a prehearing conference to set a schedule for the case 4. Parties to the case conduct discovery to gather facts on the case 5. An ALJ hearing is held, with cross-examination of witnesses. The ALJ and the PUC will rely on factual information submitted as evidence filed in the docket and presented during discovery 6. The ALJ makes a recommendation to the PUC, which is called a proposal for decision 7. The PUC Commissioners rule on the case and may approve it, modify it, request further action by the ALJ or deny the case. After the PUC’s ruling, parties may appeal the decision Brochure provided to landowners affected by a proposed transmission line
  22. 22. Continued Transmission & Distributionand Generation InvestmentNeeded Long-Term (512) 474-6725 22 • According to the Texas State Data Center, 5 million new residents are expected in Texas by 2020. • New generation must be delivered effectively and efficiently to population centers of the state. • Areas of Texas located outside the ERCOT grid are also growing, both in terms of population and economic development, requiring transmission investment. Source: ERCOT, “Report on Existing and Potential Electric System Constraints and Needs,” December 2018
  23. 23. (512) 474-6725 23 Technology Threats: Cyber Attacksand Infiltration Avoidance and Preparation o “Good Cyber Hygiene”: Maintain best practices, share information with other utilities and hold regular briefings to avoid human error, such as clicking on a malicious email or installing Trojan horse software o Ongoing briefing and Communications: Communicate with federal agencies regarding grid hacking activities o Investment: Major hardware and software investment specifically aimed at identifying cyber attack activity, plus investment in cyber security divisions staffed with financial industry and military backgrounds Response in case of Major outage o Mitigation: Ensure systems can be segmented from one another to limit the impact of a cyber attack o Recovery: Ensure critical facilities are primed for backup and quick recovery o Restoration, Cooperation and Recovery of Systems: As with other types of outage, utilities are designed to be restored through robust systems, cooperation with government entities and able to be rebuilt
  24. 24. The CompetitiveWholesaleMarket in ERCOT (512) 474-6725 24 Competition Has Brought Greater Efficiency to the Wholesale Market – Generators shoulder the risk of building new power plants, bringing efficient, cost-effective generation to consumers. – New power plants produce more electricity per unit of fuel. – Operational efficiency of a competitive market helps push wholesale prices downward. – The competitive market will continue to bring forward the right mix of technology and fuel type based on environmental choices by policymakers.
  25. 25. Increased Population DrivesFuture ElectricConsumption (512) 474-6725 25 1980 1990 2000 2010 2020 2030 2040 2050 Sources: U.S. Census, Texas Demographic Center, 0.5 migration scenario Texas’ Projected Population Growth (millions) 1980-2050 28.8 25.1 36.6 32.7 20.9 17.0 14.2 To meet increases in electric load created by Texas’ rapid population and economic growth, Texas will require additional power, transmission and distribution, customer demand response and energy efficiency. 40.5
  26. 26. ERCOT Generation Mix: more natural Gas thanU.S. Average (512) 474-6725 26 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. Sources: ERCOT (2017 data); EIA (2016 data) Capacity(MW)Energy(MWh) ERCOT U.S. Average Nuclear Natural Gas Coal Non-Hydro Renewables (Mostly Wind) Hydro 34% 30% 20% 7% 1% Coal Nuclear Natural Gas Other 39% 32% 11% 1% Coal Natural Gas Nuclear Wind 53% 17% 5% 22% 2% Other Wind 17% Other 8% Nuclear Natural Gas Coal Non-Hydro Renewables (Mostly Wind) 44% 25% 9% 11% 7% Other 4%Hydro Other Other Hydro Hydro
  27. 27. Gas on the Margin in ERCOT Nearly Year-Round (512) 474-6725 27 • Nuclear and coal-fired power plants in ERCOT are able to operate approximately 90 percent of the time if economically viable • Some natural gas-fired generation operates at nearly all times to meet demand • Peaking natural gas-fired power plants are ramped on and off, depending upon demand • Wind-generated electricity is only intermittently available, depending on wind conditions Typical August Generation Output in ERCOT Source: ERCOT
  28. 28. 65000 70000 75000 80000 85000 90000 2019 2020 2021 2022 2023 RESOURCES LOAD Long-Term Outlook for ERCOT Generation Resources (512) 474-6725 28 Source: ERCOT, “Report on the Capacity, Demand and Reserves in the ERCOT Region”, December 2018 Reserve Margin 8.1% 10.7% 12.2% 9.8% 7.5% This report includes Recent retirements of coal-fired generation in its calculation of reserve margin ERCOT Summer Resources and Firm Load Forecast: 2019-2023
  29. 29. Strong Environmental Performance by Electric Generators in Texas (512) 474-6725 29 Electric Generators in Texas Use Fuel Efficiently and Effectively Capture Emissions – Texas has NOx and CO2 emissions rates below the national average for electric generation – Texas electric generators have the lowest rate of NOx emissions when compared with neighboring states – New power plants include modern environmental emissions controls. Maintaining Access to Cooling Water is Important to Continued Generation Reliability – Dependable water supplies are essential to the reliable generation of electricity because most electric generation units require the use of water for system cooling. – AECT member companies represent the largest private owners, builders, and operators of private reservoirs in Texas.
  30. 30. How Texas’ Steam Power Plants Use Water (512) 474-6725 30 • The graphic above is a simplified example of a power plant’s use of water for steam generation. • Most power plants heat water in a closed system until it becomes steam, then pressurize that steam to turn a generating turbine. • The steam is then routed to a condenser, where the water is condensed and reused in the steam cycle. Turbine Generator TransformerPump Combustion Water Steam Cooling Water Condenser Fuel Controls Stack Electricity Flow of Power Flow of H2O Flow of H2O
  31. 31. Summary of TaxImpactof AECT MemberCompanies (512) 474-6725 31 AECT member companies pay and collect significant taxes to bolster state revenue – The electric industry is a major source of state and local tax revenue in Texas. – In 2017, members of AECT paid $1.73 billion in state and local levies. On average, this cost is $77,745 per employee. – AECT companies also collected $295.9 million in sales taxes from end-use customers. State and Local Taxes Paid or Collected by AECT Member Companies in 2017 TAXES IMPOSED ON AECT COMPANIES State Taxes Gas, Electric & Water Utility Tax Public Utilities Gross Receipts Assessment State Sales & Use Tax (Paid on Company purchases) State Franchise Tax Local Taxes Property Taxes Local Sales & Use Taxes (Paid on Company Purchases) Municipal Franchise Fees Subtotal, Company Taxes SALES TAXES ON AECT ELECTRIC SALES State Sales & Use Tax (Collected from Customers) Local Sales & Use Taxes (Collected from Customers) Subtotal, Customers’ Taxes TOTAL, STATE & LOCAL TAXES Source: Association of Electric Companies of Texas Millions of Dollars $172.5 21.8 154.1 107.4 674.6 41.0 556.0 $1,727.4 182.3 113.6 $295.9 $2,023.3
  32. 32. How To Reach Us (512) 474-6725 32 For background on electric markets, environmental data and Electricity 101 Regular updates from AECT and its member companies Keep up with pictures and links to latest documents released by AECT @aectnet AECT Advocacy on Facebook An easy way to receive updates from AECT TheAECT App