aect comments on the texas coalition for affordable power’s views on electric prices in the...
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7/27/2019 AECT comments on the Texas Coalition for Affordable Powers views on electric prices in the competitive electric
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7/27/2019 AECT comments on the Texas Coalition for Affordable Powers views on electric prices in the competitive electric
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Legislativeadvertisingpaidforby:JohnW.Fainter,Jr.,PresidentandCEOAssociationofElectricCompaniesofTexas,Inc.1005Congress,Suite600Austin,TX78701phone512-474-6725fax512-474-9670www.aect.net
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ERCOT Energy Use More Dependent onNatural Gas Than the U.S. Average
Residential Electricity Prices Tend to FollowChanges in Natural Gas Prices
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7/27/2019 AECT comments on the Texas Coalition for Affordable Powers views on electric prices in the competitive electric
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1.2TCAPChoosesitsBaselineDatatoPre-EngineerItsFindingsTCAPprovidesnoreasonablejustificationforusing1999asthebaselinetomeasureelectricitypricesinseveralofitsanalyses.TCAPsuggests1999isanappropriatestartingpointformeasuringelectricityprices,basedonthetimingoflegislativepassageoftherestructuringlaw(SB7).
Thefactis,1999wasthetailendofaperiodofgreatstabilityinthenaturalgasmarketasshownbelow.
Wellhead Natural Gas Prices Have Been Volatile Since 2000
Source:EnergyInformationAdministration
Itisdifficulttochooseayearlessrepresentativeofthecostofgasoverthepastdecadethan1999.Toputitinstarkerterms,theaveragewellheadNYMEXgaspriceperyearisshownbelow(source:EIA).
Year NYMEXAverageGas
Price($/MMBtu)Increasefrom
19991999 2.19 ---2000 3.68 68%2001 4.00 83%2002 2.95 35%2003 4.88 123%2004 5.46 149%2005 7.33 235%2006 6.39 192%
2007 6.25 185%2008 7.97 264%2009 3.67 68%2010 4.48 105%2011 3.95 80%
2012(Sept.) 2.71 24%
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7/27/2019 AECT comments on the Texas Coalition for Affordable Powers views on electric prices in the competitive electric
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Legislativeadvertisingpaidforby:JohnW.Fainter,Jr.,PresidentandCEOAssociationofElectricCompaniesofTexas,Inc.1005Congress,Suite600Austin,TX78701phone512-474-6725fax512-474-9670www.aect.net
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TCAPselectivelychose1999asastartingpointbecausenaturalgasandelectricitypriceswereverylow.ThisallowsTCAPtopre-engineeritsfindingstosupportitsanti-competitiveagenda.ManycomparisonsthatTCAPprovidesarebasedonpriceincreasessince1999,thelast
yearofsustained,lownaturalgaspricesthathaslittlecorrelationwiththecommodityduringthe2000s.Infact,Texas'annualstatewideaveragepricein1999wasthelowestofanyofthepast20years.Moreover,TCAPsstartingpointforitssubsequentanalysisconspicuouslyavoidsthereality,orevenmentionof,thevolatileswingsinnaturalgaspricesbeginninginlate2000orthemassiveinfrastructureinvestmentrequiredtosupportTexaseconomicgrowth.Regardingthetimingofwhencompetitionbegan,therelevantdateisNOTwhentherestructuringlaw(SB7)waspassed.Instead,themorerelevantdateiswhenthelawwaseffectiveandimplementedforretailpricing.
Retailpowerpriceswerestillfullyregulatedin1999,2000,and2001.Atthetime,utilitieswereauthorizedtoadjustthefuelcomponentoftheirpricestwiceperyear.But,theywererequiredtofilespecialexceptionstoadjustpricesmorefrequentlytorecovertheincreasedcostfornaturalgas.TCAPsanalysisofthecompetitivemarketcapturesincreasedpricesresultingfromincreasedwholesalepowerprices,whichwerefueledbyrisingnaturalgascoststhatoccurredinastill-regulatedmarket.ThetransitiontocompetitionforresidentialcustomersstartedinJanuary2002.Any
comparisonofpricespriortothestartofcompetitionshoulduselate2001asastartingpoint.Thetransitiontocompetitionwascompletedin2007withtheexpirationofthemandatoryPricetoBeat,whichwasapricingmechanismapprovedbythePUCthateachREPformerlyaffiliatedwiththeregionstransmissionanddistributionutilitywasrequiredtooffer.Inessence,thePricetoBeatwasaregulatedpriceinthemarketplace.
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7/27/2019 AECT comments on the Texas Coalition for Affordable Powers views on electric prices in the competitive electric
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1.3TCAPOftenReliesonEIAStatewideDataforItsComparisonsStatewideEIAdataisnotindicativeofpricinginthecompetitiveregionsofTexas,whichareasubsetofthestate.StatewideEIAdatasimplyandonlyreflectstheretailrevenueratesacrossthevariousmarketmodels,i.e.competitive,regulated,municipaland
cooperative,andwholesalepowermarketsincludedwithinourstatesborders.StatewideEIApricedataissimplyasumofrevenuesdividedbysalesvolumesacrosstheentirestate.Asshownbelow,thecompetitiveareasofTexasdonotcomprisetheentiretyofthestateinfact,competitiveretailelectricproviders(REPs)servejustover60percentoftheresidentialloadinTexas.
CompetitiveAreasofTexas
EIAsapproachisnotanunreasonablewaytostudyregulatedmarketswhereallcustomerspayessentiallythesamerate.But,itisneverrepresentativeofcurrentpricesintheERCOTcompetitivemarketorcurrentmarketconditions.TheEIAelectricpricedatareflectshistoricprices,nottheoffersavailableinadynamic,competitivemarketthatfrequentlychangeandwherecustomerscanchooseoffersandproductsthatsuittheirspecificneeds.
1.4TCAPDoesNotTakeIntoAccountOffersAvailableinCompetitiveAreasItsrelativelyeasytosurveypricesinregulatedareaswhereeveryonepaysthesamerate.Toassessacompetitivemarket,however,theanalysismustbebuiltontheobservableofferpricesavailabletocustomers.In,Texas,thoseoffersareeasilyfoundat
www.PowertoChoose.org,thePUCselectricchoicewebsite.Thepricethatcustomerspayforelectricityinacompetitivemarketistheresultofnumerousindividualdecisionsbasedonavarietyofindividualpreferences.Tryingtodistillthatdistributionofchoicesdowntoasingleaveragenumbertellsuslittle.Webelievetheoffersavailableinthecompetitivemarketandchangesinofferpricesprovidethemosteffectivesnapshotofitsperformance.
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1.5TCAPDoesNotAccountFor,OrEvenEvaluate,StructuralDifferencesBetweenCompetitiveandNon-CompetitiveAreasofTexasTCAPusessomedataintheirreportwhichpurportstoreviewthepricesoftwogroupsareasofTexaswithderegulationandareasoutsidederegulation.Wepresumetheyare
tryingtodrawadistinctionbetweencompetitiveretailareasofTexasandotherareaswhichareservedbyamixofmunicipalutilities,co-ops,andintegratedutilitiesoutsidetheERCOTregion(i.e.,non-competitiveareas).However,therearesignificantissueswiththiskindofgeneralizedanalysis.Forinstance,thedataTCAPutilizesfromEIAisquitelaggedandtheseotherentitiesdonotallowtheircustomerstochoosetheoffersandprovidersthatbestmeettheir needs. Also, the approach does not make an apples-to-apples comparison due tostructuraldifferencesamongthevariousprovidersasdiscussedfurtherbelow.IntegratedutilitiesoutsideERCOTparticipateindifferentwholesalemarketswherethefuelmixforgenerationismoredependantuponcoal.ThesealsotendtobelowergrowthareasthantheERCOTregionsolowerinvestmentisrequiredtomaintainreliableelectricsupply.
Additionally, there is an inherent regulatory lag in these areas which results in sloweradjustmentstomarketconditionsvis--vistheERCOTregion.Whensummedtogether,theseareas are not a good comparison to competitive areas nor are they a proxy to whatcompetitiveareasofthestatewouldhavedoneoutsideindustryrestructuring.Themunicipalproviders(munis)andco-opswithinTexasareanothergroupthatcannotbeeasilycomparedtothecompetitivemarket.
Some munis and co-ops have a different generation mix with more emphasis oncoal.Similarly,someoftheseentitiessecuredlong-termsupplyarrangementswithbaseloadcoalandnuclearplantsatpricesbelowcurrentmarket
Co-ops can be eligible for federal USDA Rural Utility Service programs, such asgrantsandsubsidizedlowornointerestloanswithgenerousprincipalrepaymentdeferralterms.
Manymunisand co-ops are exempt from propertytaxes, sales taxes and severalregulatorycostslikeSystemBenefitFundandfranchisefees.Theyarealsonotforprofitentities.
Munishold a preferential city zoning approvalpositionand the abilitytobenefitfrom cross-subsidies by sharing facilities, services and personnel with other citydepartments.
Munis andco-ops maybenefit from generation contractsfromothergovernmentandnon-profitentities,whichalsobenefitfromthesamefinancialandregulatoryprivilegesasmunisandco-opsthatdistributepower.
Munis and co-ops have captive customer bases. This allows them to enter intolong-termhedgingcontractswhiletheircustomersholdassociatedrisks.Theycanalsoprovidesubsidiesamongthecustomerclassesif desiredandreduceservicingcostsastheydeemappropriate.
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7/27/2019 AECT comments on the Texas Coalition for Affordable Powers views on electric prices in the competitive electric
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Legislativeadvertisingpaidforby:JohnW.Fainter,Jr.,PresidentandCEOAssociationofElectricCompaniesofTexas,Inc.1005Congress,Suite600Austin,TX78701phone512-474-6725fax512-474-9670www.aect.net
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Intruth,therangeofpricesinareasofTexasthatnowhaveretailcompetitionandthosethatdonotwasverybroadpriortoelectricrestructuring.Today,andoverthepastseveralyears,surveysshowthatcompetitivepricesinTexascomparefavorablytonon-competitiveareas.
Simplyput,samplesofTexasnon-competitiveareasrevealthatseveralhavepricesconsistentwithorhigherthanthoseavailableinthecompetitivemarket.AreviewofthePUCsPowertoChoosewebsitehelpscustomersassesstheircompetitivepricingoptions.Today,someofthelowestpricesinTexasareavailableincompetitiveareasandtheaverageTexascompetitiveofferpriceisnearly2/kWhbelowthelatestTexasstateaveragepriceavailablefromTCAPsdatasource(EIA).ItmustberememberedthatEIAdataisneverrepresentativeofcurrentpricesintheERCOTcompetitivemarketorcurrentmarketconditions.TheEIAelectricpricedatareflectshistoricprices,nottheoffersavailableinadynamic,competitivemarketthatfrequentlychangeandwherecustomerscanchooseoffersandproductsthatsuittheirspecificneeds.
1.6TCAPMistakesStateBoundariesforPowerMarketBoundariesWhile85percentofTexasloadisservedbyERCOT,nearlyeveryotherelectricgridindependentsystemoperator(ISO)coversallorportionsofmultiplestates.Forexample,theWesternElectricityCoordinatingCouncil(WECC)gridrunsfromwestofElPasotoCaliforniaandnorthtoBritishColumbia.Somestates,likeLouisianaarepartofmorethanoneelectricgrid,whichincludesallorpartofoveradozenSoutheasternandMidwesternstates.Thiscomplexityamongmulti-stateISOsaffectshowyouassesselectricpricesandespeciallythefuelmix.WhileLouisianaprovidesalotofnaturalgasgeneration,coalisthepredominantfuelsourceinboththeSERCReliabilityCorporationandtheSouthwestPowerPool(SPP),whichcoverthestate.OklahomaisalsoamemberoftheSouthwestPowerPool(SPP)andsharesitsfuelmix.
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Regions Outside Texas Part of Larger, Multi-State Grids
Regions That Include Adjacent StatesFar Less Dependent on Natural Gas
Sources: ERCOT, 2011 data; US Average, EIA, 2010 data
(ERCOT)
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1.7TCAPIgnoresOtherBenefitsofChoiceintheCompetitiveMarketWithdozensofREPscompetingforresidentialbusiness,theERCOTmarkethasawiderangeofproductsincludingrenewablesourcesofenergy,varyinglengthsofagreements,andotherproductswhichallowacustomergreatercontroloftheirusage.
Inaddition,thecompetitivemarkethasencouragedtheadoptionofrenewablegenerationespeciallywindanditiswell-positionedforcustomerstobenefitfromREPsprovidingproductsthatusethesmartgrid.CustomersinERCOThavefullyembracedthegoalsofcompetitivemarket:thefreedomtochoosecompetitivelypricedproductsandservicesthatbestsuittheirneedsratherthanone-size-fits-allsolutionsofstrictlyregulatedmarkets.
1.8TCAPFailstoConsidertheImpactofNewInvestmenttoMeetPopulationandEconomicGrowthTexasisafast-growingstate.Itleadsthenationinnewresidentsandeconomicdevelopmentbothofwhichrequireelectricity.GeneratorsinTexashaveinvestedover$40billioninthestatesince1999tobuildnewelectricgeneratingfacilities.ManyofTexasoldergenerationplantshavebeenreplacedwithcleanergeneration,whileretrofittingothersensuretheyexceedstateandnationalclean-airrequirements.RetailelectricprovidershavealsoinvestedincustomersystemsandmarketingchannelstomeettheneedsofTexasconsumers.Privateinvestors,notratepayers,haveassumedtherisksofthesemassivegenerationandretailinvestments.Thatprotectscustomersfromrisksassociatedwiththeseprojects(e.g.costoverrunsoroutdatedtechnologies).Similarly,
utilitieshaveinvestedheavilytokeepupwithrisingelectricdemand.TCAPsanalysisdoesnottaketheseinvestmentsintoaccount.
SummaryTCAPsanalysisisdeeplyflawedinthewayitdepictspricesinthecompetitiveTexaselectricitymarket.Thefactis,inamarketwhereconsumershavechoiceandcontrol,aquickreviewofPowertoChoose.orgdemonstratesthattherearenumerouspricesavailabletodaythatarelowerthanthelastregulatedrates.Moreimportantly,consumerscanchoosetheprovider,theplanandthepricethatbestmeetstheirindividualneeds.
Therealpromiseofcompetitionprovidesconsumersachoiceofcompetitivelypricedelectricityandunlocksinnovationofproductsandservices.Thatpromisehasbeen,andcontinuestobe,kepteveryday.
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7/27/2019 AECT comments on the Texas Coalition for Affordable Powers views on electric prices in the competitive electric
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Section2:NotesonTCAPSummaryStatementsinTheStoryofERCOT(page10)TCAP:TexansinderegulatedareasconsistentlyhavepaidmoreforpowerthanTexansoutsidederegulation.(Page2)AECTComments:
ThestatementbyTCAPdoesnotaccountfortheeffectofnaturalgasonelectricityprices.(see1.1)
TCAPhaschosenabaselineyearof1999thatisnotreflectiveofthemarket,andisusedtopre-engineerTCAPsfindings.(see1.2)
StatewideEIAdataisnotindicativeofpricinginthecompetitiveregions,failingtoreflectthedynamicchangesinthecompetitivemarket.(see1.3)
TCAPdoesnottakeintoaccounttheoffersavailableincompetitiveareas,which
provideamoreaccuratepictureofmarketperformance.(see1.4) Wholesalepowermarketsdontfollowstateboundaries.Anditsthegenerationfuel
mixthatcanbeaccessedviapowermarkets,notthegenerationfuelwithinastatesboundaries,thatisrelevanthere.(see1.6)
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TCAP:Hadresidentialpriceskepttothenationalaverageafterderegulation,Texanswouldhavesavedmorethan$10billion.(Page3)AECTComments:
Giventhatthepredominantfuelforgeneratingelectricityintherestofthenationis
coal,itismisleadingtocalculatesavingsbasedontheassumptionthattherewasanypossiblewayTexascouldhavehadpricesequaltothenationalaverageduringthepast9yearsofvolatilegasprices.(see1.1)
TCAPreliesentirelyEIAstatewidedata,whichisnotindicativeofthecompetitivemarketandignorespricesavailableinthecompetitivemarketforitscomparisons.(see1.3and1.4)
TCAPignorestheotherbenefitsofchoiceinthecompetitivemarket,aswellthebenefitofinvestmentinnewinfrastructuretomeetgrowthneeds.(see1.7and1.8)
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TCAP:Residentialelectricitypricesremainedconsistentlybelowthenationalaveragebeforetheretailelectricderegulationlaw,andconsistentlyabovethenationalaverageafterderegulation.(Page3)AECTComments:
TCAPdiscountstheeffectofnaturalgasonelectricityprices.(see1.1) StatewideEIAdataisnotindicativeofpricinginthecompetitiveregions,failingto
reflectthedynamicchangesinthecompetitivemarket.(see1.3)
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TCAP:TexasLeadsMostDeregulatedStatesforPriceIncreasesforPriceIncreases,1999-2012.(Page6)AECTComments:
ThestatementbyTCAPdoesnotaccountfortheeffectofnaturalgasonelectricity
prices.(see1.1) TCAPhaschosenabaselineyearof1999thatisnotreflectiveofthemarket,andis
usedtopre-engineerTCAPsfindings.(see1.2) StatewideEIAdataisnotindicativeofpricinginthecompetitiveregions,failingto
reflectthedynamicchangesinthecompetitivemarket.(see1.3) TCAPdoesnottakeintoaccounttheoffersavailableincompetitiveareas,which
provideamoreaccuratepictureofmarketperformance.(see1.4)
Wholesalepowermarketsdontfollowstateboundaries.Anditsthegenerationfuelmixthatcanbeaccessedviapowermarkets,notthegenerationfuelwithinastates
boundaries,thatisrelevanthere.(see1.6) TCAPfailstoconsidertheimpactofnewinvestmentinTexastomeetpopulation
andeconomicgrowth,especiallycomparedtonearbystateswithlesspowerfuleconomies.(see1.8)
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Section3:NotesonTCAPChartsinDeregulatedElectricityinTexas:AHistoryofRetailCompetition Note:TCAPincludesseveralotherchartsthatusethesamedatainsimilarways.
AECTComments:
ThestatementbyTCAPdiscountstheeffectofnaturalgasonelectricityprices.(see1.1)
TCAPhaschosenabaselineyearof1999thatisnotreflectiveofthemarket,andisusedtopre-engineerTCAPsfindings.(see1.2)
StatewideEIAdataisnotindicativeofpricinginthecompetitiveregions,failingtoreflectthedynamicchangesinthecompetitivemarket.(see1.3)
TCAPdoesnottakeintoaccounttheoffersavailableincompetitiveareas,whichprovideamoreaccuratepictureofmarketperformance.(see1.4)
Wholesalepowermarketsdontfollowstateboundaries.Anditsthegenerationfuelmixwithinthosewholesalepowermarkets,notthegenerationfuelwithinastatesboundaries,thatisrelevanthere.(see1.6)
TCAPfailstoconsidertheimpactofnewgenerationinTexastomeetpopulationandeconomicgrowth,especiallycomparedtonearbystateswithlesspowerfuleconomies.(see1.8)
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AECTComments:
TCAPdiscountstheeffectofnaturalgasonelectricityprices.(see1.1)
TCAPhaschosenabaselineyearof1999thatisnotreflectiveofthemarket,andisusedtopre-engineerTCAPsfindings.(see1.2)
StatewideEIAdataisnotindicativeofpricinginthecompetitiveregions,failingto
reflectthedynamicchangesinthecompetitivemarket.(see1.3)
TCAPdoesnottakeintoaccounttheoffersavailableincompetitiveareas,whichprovideamoreaccuratepictureofmarketperformance.(see1.4)
TCAPsdataendsin2009whichisverymisleading;2010hasseenarapiddecreaseinelectricpricesofferedinthecompetitivemarket.Also,anddespitethelimitationsofTCAPsdatasource,eventhatclearlyshowsthatTexasaveragepricesarenowbelowtheUSaverage.
TCAPhasalsochosentousearangeof6/kWhto14/kWhtoexaggeratethesteepnessoftheslope.
TCAPPage14
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AECTComments:
TCAPdiscountstheeffectofnaturalgasonelectricityprices.(see1.1)
TCAPhaschosenabaselineyearof1999thatisnotreflectiveofthemarket,andisusedtopre-engineerTCAPsfindings.(see1.2)
StatewideEIAdataisnotindicativeofpricinginthecompetitiveregions,failingtoreflectthedynamicchangesinthecompetitivemarket.(see1.3)
Wholesalepowermarketsdontfollowstateboundaries.Anditsthegenerationfuelmixwithinthosewholesalepowermarkets,notthegenerationfuelwithinastatesboundaries,thatisrelevanthere.(see1.5)
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AECTComments:
Wholesalepowermarketsdontfollowstateboundaries.Anditsthegenerationfuelmixwithinthosewholesalepowermarkets,notthegenerationfuelwithinastatesboundaries,thatisrelevanthere.(see1.6)
TCAPoftencitesLouisianabecauseitstheonlystateadjacenttoTexasthathasalargepercentageofnaturalgasgeneration.However,mostofLouisianaispartofSERCandSPP,multi-stateelectricgridsthataredependentoncoal.
Further,Louisianahasseenlittlepopulationgrowthandlittleinvestmentinnewindustry,whereasTXhasseenbillionsofdollarsinprivateinvestmentthathashelpedenableoureconomytogrow.(see1.8)
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AECTComments:
TCAPdiscountstheeffectofnaturalgasonelectricityprices.(see1.1)
TCAPdoesnottakeintoaccounttheoffersavailableincompetitiveareas,whichprovideamoreaccuratepictureofmarketperformance.(see1.4)
TCAPdoesnottakeintoaccountstructuraldifferencesbetweencompetitiveandnon-competitiveareassuchasgenerationfuelmix,supplyagreements,investmentrequirements,cross-subsidies,taxes,andcompetitivemarketdynamics.(see1.5)
TCAPignoresthebenefitsofcompetitioninthemarket,includingtheabilityofconsumerstochooseproductsthatmeetindividualneeds,aswellaspromotionof
renewablegeneration,smartmetersandotherinnovations.(see1.7) TCAPfailstoconsidertheimpactofnewgenerationinTexastomeetpopulationand
economicgrowth,especiallycomparedtonearbystateswithlesspowerfuleconomies.(see1.8)
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