The Texas Electric Industry:
A History of Innova9on
Legisla)ve Staff Briefing
December 12, 2014
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
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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.
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AECT Companies Within ERCOT
Transmission and Distribution Utilities
Retail Electric Providers
Generation Companies Total ERCOT Capacity:
>74,000 MW
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AECT Companies Outside of ERCOT
Western Electricity Coordinating Council (WECC)
Southwest Power Pool (SPP)
Midcontinent Independent System Operator (MISO)
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AECT white paper on Texas’ history of innovation in the electric industry
• With the passage of Senate Bill 7 in 1999, Texas created a platform for adoption of some of the most innovative, advanced technologies in the electricity industry.
• Over the subsequent 15 years, state regulators and elected officials have tended the market, allowing it to grow and meet customers’ needs in ways never imagined.
• Several factors will push Texas to innovate further:
• Texas’ population is forecasted to grow • Texas’ economic engine – including the
oil and gas industry – remains strong • Homes and appliances continue to use
electricity more efficiently • New appliances, devices, and uses for
electricity continue to become available • Regulatory pressure will remain to
reduce emissions from electricity generation aect.net i
The Electric Industry in Texas:
Fifteen Years of Innovation, With More to Come December 2014
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Outside ERCOT: A single company provides retail, transmission & distribution and generation services in each area
Power Flow Financial Flow
Regulated
• In fully regulated markets, the PUC sets retail rates charged to end-use customers. • Each of these service areas is part of multi-state electric grids, with differing regulations. In many
cases, vertically integrated utilities purchase wholesale power from certain unregulated entities. • New power plants in these regions can be built by both regulated entities and certain unregulated
entities or qualifying facilities.
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ERCOT: Separate companies provide retail, transmission & distribution and generation services
Power Flow Financial Flow
Regulated
• In the competitive market, 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.
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The Competitive Retail Market in ERCOT
• REPs compete for customers, finding new and innovative ways to differentiate themselves.
• Texas has been recognized for having the best competitive retail electric market in North America for seven consecutive years, according to an annual report released by the Distributed Energy Financial Group.
• Today, most residential and commercial customers in the competitive market have dozens of choices for electric service that offer a wide array of customer benefits.
• Customers can choose based on price, as well as company reputation, renewable power, innovative pricing mechanisms, and the provision of other innovative products and services, like time-of-use rates.
• With these and other growth opportunities on the horizon, Texas’ leading competitive electricity market and the corresponding customer benefits will continue to rise.
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REPs and offers in large competitive regions of Texas
Source: Power to Choose, as of November 19, 2014
AEP Texas North Service Territory
76 One-Year Fixed Price Offers
263 Total Offers
AEP Texas Central Service Territory
72 One-Year Fixed Price Offers
242 Total Offers
CenterPoint Energy Service Territory
88 One-Year Fixed Price Offers
300 Total Offers
Oncor Service Territory
85 One-Year Fixed Price Offers
296 Total Offers
Texas-New Mexico Power Co. Service Territory
72 One-Year Fixed Price Offers
243 Total Offers
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Competitive electric offers are significantly below the last regulated rates of 2001
Service Area
Average Fixed-Price Offer (12-month
term)
Lowest Fixed-Price Offer
(12-month term)
Lowest Price Offer Available
Dec. 2001 prices, not
adjusted for inflation
Dec. 2001 prices, adjusted for
inflation
AEP Texas Central
11.0¢/kWh 8.8¢/kWh 6.9¢/kWh 9.6¢/kWh 12.9¢/kWh
AEP Texas North
11.0¢/kWh 8.8¢/kWh 6.8¢/kWh 10.0¢/kWh 13.4¢/kWh
CenterPoint Energy
10.7¢/kWh 8.7¢/kWh 6.2¢/kWh 10.4¢/kWh 14.0¢/kWh
Oncor
9.7¢/kWh 7.7¢/kWh 5.2¢/kWh 9.7¢/kWh 13.0¢/kWh
TNMP
10.5¢/kWh 8.3¢/kWh 6.6¢/kWh 10.6¢/kWh 14.2¢/kWh
!
Sources: PUC Historical Data, Bureau of Labor Statistics - Consumer Price Index (34.4% inflation since 2001), www.powertochoose.org offers as of November 3, 2014
November 2014 December 2001
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Texas competitive market prices compared with those of other states
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Sources: PowerToChoose.org offers as of August 1, 2014 U.S. Energy Information Administration, latest available data as of November 19, 2014
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Electric prices remain a great deal compared with other products
Sources: Public Utility Commission of Texas (ERCOT electricity data 2001), U.S. Energy Information Administration (U.S. Average Electricity Prices), Power to Choose (Competitive Prices) Bureau of Labor Statistics (All other statistics; data from December 2001 to September 2014 [latest available])
Gallon of Gas 201%
Dozen Eggs 113%
Ground Beef 94%
Ground Coffee 79%
U.S. Average Residen)al Electricity 57%
Hourly Legal Services 56%
Loaf of White Bread 40%
Houston-‐Galveston-‐Brazoria Rent 39%
Dallas-‐Fort Worth Rent 26%
Gallon of Milk 21%
ERCOT Average Lowest Fixed Price Offer -‐18%
ERCOT Average Lowest Available Offer -‐37%
Price Change: December 2001 to September 2014 (Latest Available)
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Continued Transmission and Distribution Investment Needed Throughout Texas
• According to the Texas State Data Center, 10 million new residents are expected in Texas by 2040.
• Though not shown here, areas of Texas located outside the ERCOT grid are also growing, both in terms of population and economic development.
• In the last two years, utilities completed more than $4.0 billion in transmission projects.
• The need for new and updated transmission and distribution infrastructure to meet population and demand growth will require continued investment.
Source: ERCOT, “Report on Existing and Potential Electric System Constraints and Needs,” January 2012 (map) and December 2013 (text)
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Transmission & distribution: Maintaining & modernizing reliable grid infrastructure
• The ERCOT market has substantially advanced over the last 15 years.
• As of November 2014, TDUs in ERCOT have rolled out advanced metering systems (AMS) to over 6 million customers. AMS improves grid reliability through remote reading and the ability to better determine where power needs to be restored following an outage event, such as a storm. It also makes switching to a new REP easier while enabling innovative pricing plans, such as night and weekend rates, when electricity demand on the grid is lower.
• Operational Benefits:
• Improved outage response through automatic notification of customer outage • Enhanced ability to reroute power around an outage, thus improving restoration
time and minimizing the number of customers affected • Reduced vehicle emissions by eliminating need to send crews to execute such
routine orders as turning electric service on and off • Automated meter reading • Remote connect and disconnect
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The modernized electric grid
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Modernizing the grid requires innovative rate mechanisms
• The electric industry is changing, with electric competition, customer engagement models and efforts to promote energy conservation and environmental stewardship affecting the way customers use and receive electricity.
• Regulatory regimes that can timely adapt to the changing market and better align stakeholder interests will succeed in promoting economic growth, innovation, efficiency and investment.
• Many jurisdictions have adopted alternatives to the traditional rate case process to achieve these goals.
• These innovative rate mechanisms provide significant benefits to regulators, utilities and their customers.
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Reliability activities outside ERCOT
• Market participants located outside the ERCOT grid work with the FERC and several regional utility-reliability councils—or “power pools” of interconnected suppliers—to ensure the reliability of their power grids.
• For reliability purposes, the non-ERCOT power pools are electrically interconnected with the nation’s larger grids, but in emergencies they can electrically isolate themselves.
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Electric generation: Meeting the needs of a growing state
• The passage of wholesale electric competition in 1995 and retail electric competition in 1999 helped spur the construction of dozens of new power plants, providing Texas with a reliable source of power.
• Given the ongoing economic growth in the state, reliable generation needs to be in place to continue to attract new businesses and industries.
• In recent years, the state’s electric reserves have fallen as loads have grown and wholesale prices have remained unsustainably low, though relatively mild summers in recent years have helped to avoid reliability concerns in the absence of new generation.
• However, before a summer as hot as 2011 returns, generation investment will be needed to maintain the level of reliability that Texans have come to expect as the Texas population and economy grows.
• Texas remains a leader in low emissions rates, producing less NOx, SO2 and CO2 per MWh of electricity than the national average.
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Fuels used for electricity in ERCOT compared with U.S. average
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 (2013 data for energy; 2014 data for capacity); EIA (2013 data for energy, 2012 data for capacity)
Capa
city
(MW
) En
ergy
(MW
h) ERCOT U.S. Average
Nuclear
Natural Gas
Coal
Non-Hydro Renewables (Mostly Wind)
Hydro
27%
39%
19%
7% 1%
Coal
Nuclear
Natural Gas
Other
41%
37%
12%
1%
Coal
Natural Gas
Nuclear
Wind
56% 23%
6%
13% 1%
Other
Wind
10% Other (Mostly Petroleum)
6%
Nuclear Natural Gas
Coal
Non-Hydro Renewables (Mostly Wind)
42%
29%
9%
7% 5%
Other (Mostly Petroleum)
7%
Hydro
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ERCOT summer resources and firm load forecast: 2015-2024
Source: ERCOT, 2015 Report on the Capacity, Demand and Reserves in the ERCOT Region, December 2014
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Texas remains among nationwide leaders in low emissions rates
States With NOx, SO2 and CO2 Emissions Rates Below the National Average for Electric Generation
Source: EPA Air Markets Program Data (2013, Preliminary Data)
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Water usage In the average household
• Dependable water supplies are essential to the reliable generation of electricity, so electric generators are among the largest owners, builders, and operators of private reservoirs in Texas.
• Electric generators are very efficient in terms of the water, consuming less than or equal to 4 percent of Texas’ total water demand.
• In addition, only about 3 percent of average total household water use is attributable to the generation of electricity used for the home.
Source: Viability and Impacts of Implementing Various Power Plant Cooling Technologies in Texas, prepared for EPRI by Texas A&M University, July 2012
Bathing
Other Household
Uses
Flushing Toilets
Washing Clothes
Washing Dishes
Electric Production Drinking Water
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Key takeaways
1. Over the past 15 years, the competitive electric market has grown and met customers’ needs in ways never imagined.
2. To build their businesses, REPs compete for customers in ERCOT, finding new and innovative ways to differentiate themselves.
3. Maintaining a reliable grid depends on ensuring we have the investment needed to build and maintain the poles and wires to deliver electricity from power plant to customer.
4. While Texas has added significant generation to its fleet over the past 15 years, reliable generation needs to be in place to continue to attract new businesses and industries.
5. Over the years, Texas’ electric generators have used new technologies to lower the emissions rates of NOx, SO2 and CO2.
6. By welcoming all types of technology — including emerging technologies such as energy storage and renewable generation — the Texas electric industry is continuing its role of providing reliable, affordable, and environmentally sustainable electricity.
