Texas Coalition for Affordable Power http://tcaptx.com Make a Powerful Choice™ Wed, 23 Dec 2015 17:00:45 +0000 en-US hourly 1 Consumer Risks? More Questions About Oncor Deal http://tcaptx.com/regulatory-action/consumers-beware-oncor-deal-raises-more-questions http://tcaptx.com/regulatory-action/consumers-beware-oncor-deal-raises-more-questions#comments Wed, 25 Nov 2015 17:09:32 +0000 http://tcaptx.com/?p=13094 Oncor-SaleI’ve been writing lately about the proposed sale of Oncor, the state’s largest transmission and distribution utility — and especially the risks such a transaction may pose for consumers. A consortium of investors led by Dallas billionaire Ray L. Hunt wants to acquire Oncor. Is the deal in the public interest? It’s now up to the Public Utility Commission to decide.

Not surprisingly, Hunt’s take-over bid is stunningly complicated. It involves billions of dollars in debt, ring-fencing and tons of moving parts. One key component is the “Real Estate Investment Trust,” or REIT, a complex corporate structure that would divide Oncor into two separate entities.

I’ve written about this earlier, but here’s the Cliff Notes version: a Real Estate Investment Trust would place Oncor’s lines and equipment into one company — we’ll call it the “AssetCo” — but leave Oncor’s operations to a second company, which we’ll call the “OperatingCo.”  Under the REIT structure, the OperatingCo leases lines and equipment from the AssetCo. Hunt has proposed the REIT as a way of reducing federal tax liability.

In my earlier post I enumerated several concerns about this plan, among them its sheer complexity. A REIT structure has never been tried on such a massive utility scale. Will it work? Who knows.  In order to find out, millions of captive Oncor customers will have to become REIT guinea pigs.

Other major concerns relate to Oncor’s parent company, Energy Future Holdings, which declared bankruptcy in 2014. To understand these concerns, it’s necessary to take a step back.

EFH was formed in 2007 through the massive leveraged buyout of TXU, the North Texas energy giant. EFH amassed billions of debt in that takeover, but then was unable to service that debt when wholesale energy prices began falling after 2008. EFH declared bankruptcy on April 29, 2014 and its creditors are now haggling over the company’s obligations in a bankruptcy court in Delaware.

In a Sept. 24 memo, PUC Commissioner Kenneth Anderson raised various important questions relating to the interplay of the EFH bankruptcy, the company’s massive debt and the proposed REIT.

For instance: some unsecured creditors of EFH likely will become part owners of the REIT and “certain of these investors do not have a reputation of (being) either long-term or particularly patient investors,” according to Anderson.

So “what happens if OperatingCo fails to make a payment … relating to the REIT lease agreement of the (EFH) debt?”

Likewise, Anderson asks “what would happen if the OperatingCo were required to reduce substantially payments to the AssetCo, either because of storm damage or because of Commission-required investment?”

And another question: “if OperatingCo is unable to satisfy a payment obligation related to the 2007 buyout debt, what rights, if any, will the 2007 buyout debt creditors have to control the assets of AssetCo?”

In his memo, which is posted on the PUC website, Anderson also zeroes in on questions relating to storm damage.  Oncor operates 119,000 miles of transmission and distribution lines. Not surprisingly damage from a massive storm can impact — at least temporarily — the company’s revenues.

Anderson wrote that when this happens, Oncor currently can react by lowering its dividend payments upstream to Energy Future Holdings. But it’s a bit unclear whether such a response is possible under a REIT structure. “A major storm (or series of storms) may interrupt Oncor’s revenue stream, which could affect the REIT’s lease agreement rent obligation or the 2007 buyout debt payment obligations,” he states in his memo.

Because Oncor is a public utility, the PUC is charged with determining whether the change in ownership serves the public interest. The Texas regulatory agency will make a decision by early next year. According to published reports, the success or failure of the EFH plan to exit bankruptcy largely in part on the PUC’s ruling.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

R.A. Dyer is a policy analyst for TCAP, a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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Oncor’s Ring Fence: Why 10 Million Texans Should Care http://tcaptx.com/regulatory-action/oncors-ring-fence-why-10-million-texans-should-care http://tcaptx.com/regulatory-action/oncors-ring-fence-why-10-million-texans-should-care#comments Tue, 10 Nov 2015 22:19:54 +0000 http://tcaptx.com/?p=12960 Oncor-SaleOncor, the state’s largest electric transmission and distribution utility, could soon have new owners. A consortium led by billionaire Ray L. Hunt has made a bid to acquire the giant company — and it’s now up to Texas regulators to decide whether Hunt’s offer is in the public interest.

Oncor serves 10 million Texans. It’s also a regulated monopoly. That means that if Oncor’s rates go up or its service falter, then it’s the customers who suffer. They’re captive. They have nowhere else to turn.

I recently wrote about a complicated “Real Estate Investment Trust” structure that the Hunt consortium wants to use in the transaction. You can read that report here.

Today I want to focus on something called the “ring fence” — which already exists as part of Oncor’s current corporate structure and which should continue in some fashion if Hunt acquires Oncor. The ring fence is crucial because the proposed deal involves debt. Lots of it.

What’s a ring fence?  The explanation from Wikipedia is as good as any: “Ring-fencing occurs when a portion of a company’s assets or profits are financially separated without necessarily being operated as a separate entity.”  This strategy makes sense for a number of reasons, such as when business owners use a ring fence for tax sheltering purposes. But ring-fencing takes on special meaning when it comes to regulated utilities.

Again, from Wikipedia: “One common form of ring-fencing is when a regulated public utility financially separates itself from a parent company that engages in non-regulated business. This is done mainly to protect consumers of essential services such as (electric utility service) … from financial instability or bankruptcy in the parent company resulting from losses in their open market activities.”

Get that? Oncor, a regulated utility — a company that transmits electricity across approximately 119,000 miles of transmission and distribution lines — was ring-fenced in 2007 to protect it from the financial ups and downs of its parent company, Energy Future Holdings. And Energy Future Holdings went bankrupt in 2014, so … good thing.  It’s now very important that the 2007 ring fence hold — and that another strong one replace it as part of the Hunt deal to acquire Oncor.

The ring fence around Oncor exists today, in part, because cities and regulators insisted upon it. The ring fence was created as part of the deal eight years ago under which the former TXU Corp. was acquired by a group of investors led by Kohlberg Kravis Roberts, and from which Energy Future Holdings was born.

Energy Future Holdings is comprised of Oncor, the monopoly utility, as well as the Texas Holdings Group that includes its competitive wholesale and retail power units — Luminant and TXU Energy respectively. The ring-fencing measures mitigate the company’s credit exposure and reduce the risk that Oncor’s assets would be consolidated into the EFH bankruptcy now proceeding in a Delaware court.

According to a recent Oncor 10-K report, the ring-fencing provisions include:

  • Oncor’s sale of a 19.75% equity interest to a separate entity in November 2008.
  • Maintenance of separate books and records for the Oncor Ring-Fenced Entities.
  • Oncor’s board of directors being comprised of a majority of independent directors.
  • Prohibitions on the Oncor Ring-Fenced entities providing credit support to, or receiving credit support from, any member of the Texas Holdings Group.

Also, according to the 10-K:  “the assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of the Texas Holdings Group, including TXU Energy and Luminant, and none of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or contractual obligations of any member of the Texas Holdings Group.  Oncor does not bear any liability for debt or contractual obligations of the Texas Holdings Group, and vice versa.  Accordingly, Oncor’s operations are conducted, and its cash flows are managed, independently from the Texas Holdings Group.”

These are complicated details, but they’re important details.  The failure of that ring fence — the one created in 2007 — would have created uncertainty and instability with Oncor. Rates could have gone up to satisfy the debts piling up in other parts of Energy Future Holdings. Theoretically, Oncor could have been sold off piecemeal to satisfy those debts.

The ring-fence also has kept Oncor out the bankruptcy proceedings in Delaware. Our experiences with EFH make it clear that a strong ring-fence must remain in place as part of the proposed Hunt transaction. Ratepayers must be protected against future economic upheaval.

One key regulator already has focused on this issue. In a recent memo, Texas Public Utility Commissioner Kenneth Anderson stated that about $5.5 billion in borrowed money will remain with the restructured utility.

“Throughout EFH’s travails, the Oncor Ring Fence has been successful in protecting Oncor’s financial integrity and its ratepayers,” he wrote Aug. 20. “The (Hunt buyout plan) contemplates that a substantial amount of debt that was created to finance or refinance the purchase of TXU Corp. in 2007 will remain. … This strongly suggests that the Oncor Ring Fence must continue and even be strengthened irrespective of how Oncor may itself be restructured.”

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

R.A. Dyer is a policy analyst for TCAP, a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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Massive Oncor Up For Sale: Answers to 6 Important Questions http://tcaptx.com/regulatory-action/largest-electric-utility-in-texas-up-for-sale-7-important-questions-answered http://tcaptx.com/regulatory-action/largest-electric-utility-in-texas-up-for-sale-7-important-questions-answered#comments Thu, 05 Nov 2015 20:58:51 +0000 http://tcaptx.com/?p=12873 Oncor-SaleOncor Electric, the state’s largest transmission and distribution utility, could soon change owners.

Why should you care? Because approximately 10 million Texans absolutely depend upon the utility for electric service.

A consortium of investors led by Ray. L Hunt proposed the deal in September and now the Texas Public Utility Commission must decide whether it’s in the public interest. The PUC should make a ruling early next year.

Not surprising, the deal is complicated. In the next few weeks we’ll take a look at some of its key provisions. Today we examine one of the most controversial — Hunt’s proposal to place Oncor in a “real estate investment trust.”

What is a REIT?

Real Estate Investment Trusts are corporate entities that own income-producing real estate, such as shopping malls. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.  The Hunt consortium wants to place Oncor into a REIT.

 How would the REIT work in Oncor’s case?

The plan is for Oncor’s assets to be placed in a REIT, which would be publicly owned but controlled by Hunt. In addition, a separate operating company would be created. This separate operating company would maintain the Oncor name, but own none of Oncor’s current assets. Instead, the REIT would lease the utility’s substations, transmission and distribution towers and other equipment to this separate Oncor operating company. Oncor’s existing management team and employees also would be transferred to the newly formed operating company. Hunt will have control over both the REIT and the operating company.

Are there risks for ratepayers?

Very possibly. Some critics warn that employing a REIT structure for Oncor creates a corporate structure that is unnecessarily complex and that increases the potential for higher rate requests by the utility in future PUC proceedings.  Questions also have been raised about the Hunts’ ability to manage a utility the size of Oncor. PUC Commissioner Ken Anderson has warned that ratepayers must not shoulder an undue amount of risk in the Hunt/Oncor deal.

Are there other consumer concerns?

Yes. The REIT structure has been proposed as a method for the utility to reduce its federal tax payments. Oncor’s ratepayers should expect a fair share of that tax savings in the form of discounted rates.

Has a REIT structure been employed previously with a utility the size of Oncor?

No. REITs more typically involve less substantial real estate holdings, such as shopping centers or hotels. The only other electric utility that has employed a REIT is Sharyland, also controlled by Hunt. But Sharyland, with fewer than 12,000 miles of transmission and distribution lines, is much smaller than Oncor. Oncor has a wires network ten times larger.

How long have REITs been around?

REITs were created by the U.S. Congress in 1960 to encourage individuals to invest in large-scale real estate projects. The idea of employing a REIT structure for utility holdings has been credited to Kirk Baker, the former general counsel for Hunt Consolidated. Baker now serves as board chairman for the Sharyland REIT. The Texas PUC approved that unusual Sharyland REIT arrangement in 2010.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

R.A. Dyer is a policy analyst for TCAP, a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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TCAP Report: Electric Complaints Fall to Post-Deregulation Low http://tcaptx.com/press-releases/tcap-report-electricity-complaints-fall-to-post-electric-deregulation-low http://tcaptx.com/press-releases/tcap-report-electricity-complaints-fall-to-post-electric-deregulation-low#comments Wed, 21 Oct 2015 14:53:27 +0000 http://tcaptx.com/?p=12698 TCAP-FiledComplaints-SquareElectricity complaints filed with regulators have dropped to a new post-electric deregulation low, according to a new report by the Texas Coalition for Affordable Power.

All told, Texans during the 2015 fiscal year filed 6,973 electricity-related complaints or inquires with the Texas Public Utility Commission. The previous low during the state’s electric deregulation era came in FY 2013, when the tally stood at 7,129. The state deregulated most of its retail electricity market in 2002.

But despite the encouraging numbers, complaints remain more numerous today than they were prior to retail electric deregulation. Also less encouraging is the dramatic uptick in complaints filed in FY 2015 against a single electric company — Dallas-based Sharyland Utilities.

These findings and more are part of the latest Snapshot Report from the Texas Coalition for Affordable Power, which is a coalition of cities that have banded together to purchase power for their own governmental use. The coalition, as part of its mission, also promotes affordable energy policies.

The new Snapshot Report suggests that Texans may be feeling more comfortable with the state’s deregulated market, said TCAP executive director Jay Doegey.

“Complaints have come down since the early years of electric deregulation — and that’s good news,” said Mr. Doegey. “This report shows that Texans are becoming more comfortable with their electricity providers. It also follows generally improving trends we’ve seen relating to power prices. However, challenges remain.”

For its analysis, TCAP reviewed 18 years of complaint data at the PUC, the state agency that oversees the Texas electricity market. TCAP considers both complaints and inquires in order to gauge general consumer sentiment and also to maintain a uniform methodology across the study period.

The analysis reveals that Texans filed 2 percent fewer electricity-related complaints and inquiries during FY 2015 than they filed in FY 2013, which was the previous low-water mark under the retail electric deregulation law. The highest number came during the second year of deregulation, in FY 2003, when Texans filed 17,250.

This year’s analysis also reaffirms previous findings that there were fewer filed complaints prior to retail electric deregulation. Although population growth and other factors can explain some of that disparity, it’s unlikely that those factors alone can account completely for the greater number of complaints under deregulation — particularly the relatively high number of complaints registered during the early years of the deregulated market.

The report likewise shows more than nine times the number of complaints and inquiries against Sharyland Utilities in FY 2015 as were registered against the Dallas-based company in FY 2014. Sharyland serves retail customers in West Texas. The company is owned by the same party seeking to take control of Oncor Electric utility as Oncor’s parent, Energy Future Holdings, emerges from bankruptcy.

Texans can find complaint data for individual companies at the state’s electricity shopping website, powertochoose.org. TCAP recommends that consumers always check powertochoose.org when shopping for electricity.

Electricity customers wishing to file complaints can do so through the PUC’s Office of Customer Protection, which can be reached at 1-888-782-8477, by email at customer@puc.state.tx.us, or online at http://puc.state.tx.us/consumer/complaint/Complaint.aspx. When appropriate, the PUC will investigate such complaints, and may sanction companies if a rule violation is found.

What is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 165 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.

 

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Regulators Approve Nearly 20 Percent Fee Hike for Electric Grid Operator http://tcaptx.com/uncategorized/ercot-gets-approval-for-double-digit-fee-hike-look-for-trickle-down-in-bills http://tcaptx.com/uncategorized/ercot-gets-approval-for-double-digit-fee-hike-look-for-trickle-down-in-bills#comments Fri, 09 Oct 2015 16:56:23 +0000 http://tcaptx.com/?p=12557 ERCOT FEE REVENUESRegulators this week hiked by nearly 20 percent the fee that supports the state’s principal electricity grid operator.

In a 3-0 vote Thursday, the Texas Public Utility Commission agreed to raise the “System Administration Fee” From 46.5 cents to 55.6 cents per megawatt hour. The fee supports operations at the Electric Reliability Council of Texas, or ERCOT, which oversees the transmission grid in about 85 percent of the state.

The nine-cent fee hike, the largest since at least 2009, will be applied to wholesale power purchases, meaning that it won’t go directly into home bills. But it’s sure to trickle down anyway, and could increase your energy costs by 10 cents or more each month.

Each of the three PUC commissioners expressed dismay at raising the ERCOT fee, but said the hike was necessary to finance technology improvements and to comply with new directives.

“We don’t like to see fee increases (but) this was necessitated by a big investment in IT,” said PUC chairwoman Donna Nelson.

“I don’t want to see double digit increases in the future — this is a one-time deal,” said Commissioner Kenneth Anderson.

Besides new technology-related projects and other new responsibilities — including those mandated by federal regulators — ERCOT also claimed it needs extra money to keep up with inflation.ERCOT System Fee

But the fee, like a sales tax, is attached to energy consumption. So just as state revenues increase when more goods are sold statewide, so too do ERCOT revenues go up when energy consumption rises. The fee itself also has increased over the years — from 33 cents per megawatt hour in 2003, then later to 41.7 cents, and most recently to 46.5 cents.

This means that ERCOT is already raising more money today from this fee than raised in previous years.

Consider that in 2009, when the fee was set at 41.7 cents, it generated about $128.5 million for ERCOT. In 2015, with it set at 46.5 cents, it’s estimated to have generated about $159.5 million. That’s about a 24 percent revenue jump.

The new fee structure would lead to about $193.9 million in revenues during 2016 and $197.5 million in 2017, according to ERCOT’s budget documents. That equates to a more than 50 percent increase in fee-generated revenues in less than 10 years.

The nine-cent increase also represents a more than 65 percent increase from the 2003 rate.

ERCOT recognizes that this hike is substantial, but it insists it has — and will remain — a faithful steward of ratepayer money.

“ERCOT knows that it must manage resources carefully on behalf of market participants and Texas consumers who pay to support ERCOT’s operations,” it wrote in a filing at the PUC.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

R.A. Dyer is a policy analyst for TCAP, a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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The Texas $5 Billion Battery Plan: What Went Wrong? http://tcaptx.com/policy-and-reform/the-texas-5-billion-battery-plan-what-went-wrong http://tcaptx.com/policy-and-reform/the-texas-5-billion-battery-plan-what-went-wrong#comments Wed, 07 Oct 2015 22:10:46 +0000 http://tcaptx.com/?p=12526 OncorThumbLast November Oncor Electric, the state’s largest transmission and distribution utility, floated an ambitious plan to invest up to $5.2 billion in battery storage technology. In theory the new batteries would bolster the state’s main power grid and — at least potentially — lower costs for electric consumers.

But now, nearly a year later, there’s been no statutory change to clear the way for the plan and no proceeding at the Texas Public Utility Commission to move it forward.

So what went wrong?

In a word: politics.

Oncor’s proposal was to deploy up to 5,000 megawatts of energy storage, or roughly the equivalent of four nuclear generating units. The batteries would be placed where transmission and distribution lines come to dead ends or near feeders that historically have consistent outage problems. Oncor commissioned a report from the Brattle Group consulting firm to support its plan.

Oncor says it has had discussions with Tesla, the California-based electric car company, about manufacturing utility-scale batteries.

Oncor says it has had discussions with Tesla, the California-based electric car company, about manufacturing utility-scale batteries.

The sticking point is that under the Texas electric deregulation law, transmission and distribution electric utilities like Oncor cannot own generation assets. That prohibition creates a legal barrier for Oncor because batteries, besides storing power, also act like generators by releasing energy.

Oncor sought to unstick this sticking point by changing the law. And that’s where its plan fizzled.

“The competitive market participants, especially the generators — they really dislike the storage idea because they feel this is more competition,” noted Hannes Pfeifenberger, co-author of The Brattle Group report, quoted on the Utility Dive website. “The large industrials didn’t like [it either] because it’s not benefitting large industrial customers. So the combination … kind of torpedoed the hope of legislative changes.”

Oncor lobbied extensively in Austin but without success: the 2015 legislative session ended in June with no changes to relevant market rules. Likewise the Public Utility Commission has not thus far embarked on any proceeding to allow Oncor or other electric utilities to go forward with such plans.

Is this good news or bad news for consumers? That’s hard to say.

The consultants hired by Oncor touted the reliability benefits of battery storage and its potential to increase grid stability. They said Oncor’s plan could have saved customers 34 cents off an average $180 household bill.

But without more detailed plans, clarity regarding future statutory changes and an impartial cost-benefit analysis, it’s impossible to judge the accuracy of such forecasts.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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Texas Wind Breaks Records http://tcaptx.com/policy-and-reform/texas-wind-breaks-record http://tcaptx.com/policy-and-reform/texas-wind-breaks-record#comments Wed, 16 Sep 2015 22:20:46 +0000 http://tcaptx.com/?p=12396 Wind_turbine CommonsThe winds have been blowing hard lately  — so hard in fact that records are getting broken.

According to the organization that manages the state’s main power grid, wind farms generated 11,467 megawatts of electricity on Sept. 13th — or enough electricity to serve nearly 30 percent of all electricity consumed on the grid at that time.

That’s a lot of power, especially given that a single megawatt is sufficient to power 200 homes during a high-use period.

That September peak beat the previous wind record of 11,145 MW, which had been set on Feb. 19. This September peak also helped send wholesale spot energy prices briefly into negative territory. (This can occur during overnight hours when certain generators, like coal plants, bid slightly negative prices to avoid costly shutdowns.)

And then the record was broken again: this time on Thursday, Oct. 22. At about 1 a.m. wind generation reached 12,238 MW. That was enough generation to meet nearly 37 percent of demand at that time.

In separate reports, which you can find here, the organization that manages the state’s main power grid also projects that available generation — wind and otherwise — will be sufficient to meet forecasted peak demands during the fall and winter.

“As we head into the fall and winter seasons, ERCOT expects to meet systemwide peak demands in a broad range of operating conditions,” said Warren Lasher, system planning director for the Electric Reliability Council of Texas.

You can find more information about ERCOT, the organization that manages the power grid, in this 2011 TCAP report, found here.

For background about Texas wind power, check out this 2012 TCAP report found here.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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ERCOT Market Monitor: Wholesale Energy Price Increases 21 percent http://tcaptx.com/policy-and-reform/ercot-market-monitor-wholesale-energy-price-increases-21-percent http://tcaptx.com/policy-and-reform/ercot-market-monitor-wholesale-energy-price-increases-21-percent#comments Thu, 10 Sep 2015 18:26:24 +0000 http://tcaptx.com/?p=12350 By Chris Brewster

Each year, the ERCOT market’s Independent Market Monitor, or IMM, publishes a “State of the Market Report” for the previous year. The IMM is an office intended to act as an independent “watchdog” over the wholesale electric market. This role encompasses both watching the market for malfeasance — market manipulation and market power abuse — as well as making general diagnoses of how the market is performing, and how it might be improved.

This year’s State of the Market Report, issued on July 29, contains both these elements. Overall, the IMM concludes that the market performed competitively in 2014 and was not impaired by market manipulation.

Key conclusions are:

Wholesale Energy Prices Increased

As the IMM notes, wholesale energy prices in the ERCOT region increased 21% in 2014 relative to 2013. On an ERCOT-wide, load weighted average basis, 2014 saw a pricing at $40.64 per megawatt hour, compared to $33.71 per MWh in 2013. The IMM attributes this mostly to higher natural gas prices; natural gas is a key fuel in the ERCOT generation fleet, and frequently fuels the “marginal“ power plants in the market—the plants that typically set market prices. The IMM noted that natural gas prices increased 17% in 2014 compared to 2013. All else equal, these wholesale price increases would have been reflected in retail prices in 2014.

Congestion Costs Increased

Congestion occurs when more power is demanded over a transmission line than it can safely carry. ThatErcot_logo congestion is resolved by “dispatching” a different set of power plants to operate so as to reduce the need to use the line. The total cost of that re-dispatch over the total cost of what would otherwise be the most efficient plant dispatch is the cost of congestion. In 2014, the IMM notes that congestion increased 52% over 2013 levels. That congestion was mainly centered in the Houston area and in the Rio Grande Valley. ERCOT and the relevant wires utilities are both addressing this persistent congestion with large-scale transmission projects in these regions. Indeed, in the Rio Grande Valley in 2014, congestion was often caused by transmission outages that were necessitated by construction of transmission upgrades. As a result, while increased congestion costs are not good news (in that they ultimately can increase the retail rates that customers pay), the remedy for high 2014 congestion costs is already in progress.

Market Manipulation Did Not Occur in 2014

The IMM found that on a big-picture basis, the market performed competitively in 2014, and “very little evidence of potential physical withholding was found.” The IMM reached this conclusion through an analysis which showed that, when it was profitable to do so, power plants in the ERCOT region generally ran. As a result, the IMM concluded that sellers were not attempting to increase market prices by withholding power from the wholesale market.

About Chris Brewster

Mr. Brewster, an attorney for the Lloyd Gosselink law firm in Austin, represents the interests of cities at the Electric Reliability Council of Texas.

 

 

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Is Texas lagging in an area of energy policy? Find out what the experts say http://tcaptx.com/policy-and-reform/is-texas-lagging-in-an-area-of-energy-policy-find-out-what-the-experts-say http://tcaptx.com/policy-and-reform/is-texas-lagging-in-an-area-of-energy-policy-find-out-what-the-experts-say#comments Thu, 03 Sep 2015 15:27:02 +0000 http://tcaptx.com/?p=12304 Solar arrays can provide distributed energy.

Solar arrays can provide distributed energy.

Texas likes to pride itself on a well-functioning electricity market. Residential prices have dipped below the national average. Customer complaints have fallen from previous years.

But when it comes to one area in particular — “distributed energy” — some experts believe Texas is falling behind. Distributed Energy, or DE, is defined as energy generated on the customer’s side of the electric meter. Think, for example, of electricity coming from small-scale diesel generators that otherwise provide backup power for large buildings. Rooftop solar panels also can provide distributed energy.

ERCOT, the organization that operates the state’s primary power grid, has begun considering ways to improve the use of distributed energy generation in Texas. ERCOT also wants to know how such generation can be incorporated into the complex, computerized system that it manages.

A recently released draft paper on Distributed Energy Resources could foreshadow the creation of new rules at the organization, also known as the Electric Reliability Council of Texas. The draft was released earlier this month. You can read it here.

While distributed energy generation can be used solely as backup power, its potential is broader and many owners of distributed energy generators envision a day when they can offer their power into the wholesale electricity spot market just like power from more traditional generation plants.

But this form of generation has been difficult for ERCOT to contend with, and some critics say Texas lags behind other states in developing programs that would allow customers to benefit from small-scale generators at their homes or businesses.

One of the key obstacles is that ERCOT actually knows very little of what occurs behind the customer’s meter. To address this problem, the white paper recommends collecting more detailed distributed energy data from Transmission & Distribution Service Providers and mapping all distributed energy generation sites to ERCOT’s model of the transmission grid.

According to ERCOT, this data will eventually be necessary to support effective reliability studies. Additionally, the paper recommends that ERCOT publicly post more detailed non-confidential distributed energy resource data, which would help operators, planners, and other market participants in making informed decisions.

Whether the paper will result in additional distributed energy rules remains to be seen. Again, you can read the paper yourself, at this link. But be warned. It’s dense.

What is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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Oncor to Change Owners? Two BIG Reasons Why You Should Care http://tcaptx.com/regulatory-action/oncor-changes-owners-two-big-reasons-why-you-should-care http://tcaptx.com/regulatory-action/oncor-changes-owners-two-big-reasons-why-you-should-care#comments Thu, 27 Aug 2015 16:35:31 +0000 http://tcaptx.com/?p=12213 Oncor-SaleIf Oncor raises rates, more than 3 million Texas customers feel it. If Oncor can’t serve those homes and businesses, there’s nowhere else for them to turn.

That’s why North Texas electric ratepayers have a giant stake on Oncor’s potential sale. Even though the Dallas-based company serves an area with retail electric choice, Oncor is a regulated monopoly. Its customers have no choice but to use its services.

A consortium led by billionaire Ray L. Hunt has made a bid to acquire the transmission and distribution utility, the state’s largest. The proposed deal is part of the ongoing Energy Future Holdings bankruptcy (the company filed for Chapter 11 protections last year) and not surprisingly, it’s stunningly complicated.

But here are two issues you should care about.

Kenneth Anderson

PUC Commissioner Kenneth Anderson

First, Hunt and EFH want to continue using a lot of debt in this transaction. This has drawn the attention of at least one key regulator. In a recent memo, Texas Public Utility Commissioner Kenneth Anderson stated that about $5.5 billion in borrowed money will remain with the restructured EFH. As a result, he said, certain protections must remain firmly in place to protect Oncor ratepayers.

Second, Hunt proposes to employ a complicated “real estate investment trust” structure in the transaction. The problem here also is risk. A REIT is a gimmicky corporate device intended to create tax savings for the business owner. However, a REIT has NEVER been used on such a massive utility scale.

The REIT proposal also has been cited in a recent Moody’s report as a potential source of continued regulatory haranguing at the PUC and a potential drag on Oncor’s credit ratings.

For these reasons, the REIT proposal is setting off alarm bells for consumer groups. Anderson says he wants to take a closer look.

“Oncor’s ratepayers ought not to bear any real risk associated either with the pre-existing EFH debt or the proposed REIT structure unless they receive at least commensurate benefits over the long-run,” he stated in an Aug. 20 memo.

The PUC is required by state law to ensure that Oncor’s change-of-ownership does not violate the public interest. Consumer and municipal groups — such as the Texas Coalition for Affordable Power and the Steering Committee of Cities Served by Oncor — have encouraged the PUC to take a hard look.

Geoffrey Gay, general counsel for the Steering Committee of Cities Served by Oncor, said the REIT proposal is particularly troubling. “The acquisition of Oncor merits a thorough regulatory review, and the interests of ratepayers must be a top priority,” he said.

— R.A. Dyer

What is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.
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