Regional Transmission Operators in North America. (512)

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1 Electricity Legislative Advertising Paid For by: Julia Rathgeber, Association of Electric Companies of Texas 1005 Congress, Suite 600, Austin, TX

2 Regional Transmission Operators in North America 2

3 AECT Companies within ERCOT Retail Electric Providers 3 Transmission & Distribution Utilities Total ERCOT Capacity: >77,000 MW Generation Companies

4 AECT COmpanies Outside of ERCOT 4 Southwest Power Pool (SPP) Midcontinent Independent System Operator (MISO) Total ERCOT Capacity: >77,000 MW Western Electricity Coordinating Council (WECC)

5 AECT Is Comprised of Investor-Owned Utilities AECT does not include Municipally-Owned Utilities or Electric Cooperatives 5 Service Territories of Utilities Represented by AECT Legend AEP Texas Central Company AEP Texas North Company AEP SWEPCO CenterPoint Energy El Paso Electric Co. Entergy Texas Oncor Texas-New Mexico Power Co. Xcel Energy

6 Overview of ERCOT 6 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: By the Numbers ERCOT region 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 550 generating units, providing 77,000 MW of generating capacity during peak demand 46,500 miles of high-voltage transmission

7 Steps to Electric Competition in Texas May 1995 Wholesale competition legislation passed (SB 373) June 1999 Retail competition legislation Passed (SB 7) Sept ERCOT Electric rates frozen July 2001 Texas Choice pilot program begins Jan Retail choice begins in ERCOT Jan Affiliate REPs allowed to offer nonprice-tobeat prices Jan End of price-tobeat 7

8 Steps to Competition: Wholesale Market 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 Steps to Competition: Retail Market 9 ERCOT market restructuring legislation, Senate Bill 7, passed in 1999 Initiated competition in ERCOT retail markets beginning January 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 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 ERCOT: Separate Companies Provide Retail, Transmission & Distribution and Generation Services 10 Power Flow Financial Flow Regulated 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.

11 Outside ERCOT: A Single Utility Provides Retail, Transmission & Distribution and Generation Services In Each Area 11 Power Flow Financial Flow Regulated 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.

12 The ERCOT Competitive Retail Electric Market is Providing Customer Benefits 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 Lower Prices Available Today than Before Competition Began 13 January 2017 December 2001 Service Area Average Fixed-Price Offer (12-month term, no usage fees/credits) Lowest Fixed-Price Offer (12-month term, no usage fees/credits) Lowest Variable Price Offer Available Dec prices, not adjusted for inflation Dec prices, adjusted for inflation AEP Texas Central 9.4 /kwh 5.0 /kwh 7.9 /kwh 9.6 /kwh 12.8 /kwh AEP Texas North 9.4 /kwh 5.6 /kwh 7.9 /kwh 10.0 /kwh 13.3 /kwh CenterPoint Energy 8.8 /kwh 4.8 /kwh 7.8 /kwh 10.4 /kwh 13.8 /kwh Oncor 8.2 /kwh 4.4 /kwh 7.0 /kwh 9.7 /kwh 12.9 /kwh TNMP 8.6 /kwh 5.0 /kwh 7.8 /kwh 10.6 /kwh 14.1 /kwh Sources: PUC Historical Data, Bureau of Labor Statistics Inflation Calculator (33.0% inflation since December 2001); offers as of January 2, 2017

14 Texas National Price Ranking Has Improved Since State Ranking (Pre-Competition) 15 /kwh 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 /kwh Average lowest 12- month fixed price offer (no fees) in competitive market in October 2016: 5.1 /kwh October 2016 State Ranking (Latest Available) 5 0 LA WA AR ID MO TN MS UT NE KY ND OR TX OK GA FL VA MT WY NC WV CO NV AZ SD IN IA OH SC IL AL NM KS MN DC CA PA WI MD NJ DE MI ME VT NY MA RI NH CT AK HI Sources: EIA average annual residential rates for 2001 and March 2016 monthly data (latest available information); Power to Choose data as of October 3, 2016 Note: Average lowest available price is for a residential customer using an average of 1,000 kwh per month; product has no minimum usage fees or usage credits

15 Electric Price Offers Compared With Other Retail Products Price Change: December 2001 to October Ground Beef 115% Gallon of Gas 98% Hourly Legal Services 66% Dozen Eggs 50% U.S. Average Residential Electricity 49% Houston-Galveston Rent 49% Sources: Dec 2001 electric rates: Public Utility Commission of Texas; October 2016 electric rates: Power to Choose for 1,000 kwh/usage with no usage fees or credits; Average Residential Electricity: EIA (Dec 2001 and October 2016); All other data: U.S. Bureau of Labor Statistics Ground Coffee 48% Loaf of White Bread 34% Dallas-Fort Worth Rent 28% Gallon of Milk 14% ERCOT Average Lowest Variable Offer -27% ERCOT Average Lowest 1-Year Fixed Price Offer -49%

16 Average 1-Year Fixed Price Offers in ERCOT Are Significantly Lower than the National Average Price RESIDENTIAL RETAIL ELECTRICITY PRICES All Data from October U.S. Average AVG 1YR FIXED - DALLAS AVG 1YR FIXED - HOUSTON AVG 1YR FIXED - LEWISVILLE AVG 1YR FIXED - CORPUS CHRISTI Louisiana AVG 1YR FIXED - ABILENE Washington Arkansas Idaho Missouri Tennessee Mississippi Utah Nebraska Kentucky North Dakota Oregon Texas (Statewide) Oklahoma Georgia Florida Virginia Montana Wyoming North Carolina West Virginia Colorado Nevada Arizona South Dakota Indiana Iowa Ohio South Carolina U.S. AVERAGE Illinois Alabama New Mexico Kansas Minnesota District of Columbia California Pennsylvania Wisconsin Maryland New Jersey Delaware Michigan Maine Vermont New York Massachusetts Rhode Island New Hampshire Connecticut Alaska Hawaii Sources: PowerToChoose.org offers as of October 3, 2016 U.S. Energy Information Administration, latest available data

17 Texas Market Compares Favorably to Other States Utilizing Natural Gas as the Primary Generation Source RESIDENTIAL PRICE AMONG NAUTRAL-GAS INTENSIVE STATES All data from October Average Lowest Available 12-Month Fixed Price Offer in ERCOT Competitive Market (October 2016): 5.1 /kwh Sources: EIA average annual residential rates for March 2016 monthly data (latest available information); Power to Choose data as of October 3, 2016 Note: Average lowest available price is for a residential customer using an average of 1,000 kwh per month; product has no minimum usage fees or usage credits AK RI MA NY ME CA NV FL TX MS LA

18 Protections in the Market for Retail Customers 18 Among other requirements, REPs serving residential customers must: 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 Provide the LITE-UP discount for low-income Texans during summer months 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

19 Transmission & Distribution Utilities Provide Reliable Delivery of Electricity 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 Timeline of Transmission Line Construction 20 While certain types of generation can be constructed quickly -- often as short as 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 Transmission Line Routing Process 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 rightsof-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 Brochure provided to landowners affected by a proposed transmission line 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

22 Continued Transmission & Distribution and Generation Investment Needed Long-Term 22 According to the Texas State Data Center, 5 million new residents are expected in Texas by New generation must be delivered effectively and efficiently to population centers of the state. Though not shown here, areas of Texas located outside the ERCOT grid are also growing, both in terms of population and economic development. Source: ERCOT, Report on Existing and Potential Electric System Constraints and Needs, January 2012 (most recent update)

23 The Competitive Wholesale Market in ERCOT 23 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.

24 Increased Population Drives Future Electric Consumption 24 Texas Projected Population Growth (millions) 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 million 14.2 million 20.9 million 25.1 million 28.9 million 32.9 million 37.0 million Sources: U.S. Census, Texas State Data Center 0.5 scenario

25 ERCOT Generation Mix: more natural Gas than U.S. Average Capacity (MW) Energy (MWh) Nuclear Nuclear Coal Coal Wind 11% 6% Wind 22% 12% 28% 18% ERCOT 1% 1% Other Other 48% 53% Natural Gas Natural Gas Hydro Non-Hydro Renewables (Mostly Wind) 7% Nuclear 20% U.S. Average 6% 1% Hydro 6% Non-Hydro Renewables 7% (Mostly Wind) 9% Nuclear Coal 9% 26% Other (Mostly Petroleum) 33% 33% 43% Coal Natural Gas Other (Mostly Petroleum) Natural Gas 25 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 (2015 data); EIA (2015 data)

26 Gas on the Margin in ERCOT Nearly Year-Round 26 Typical August Generation Output in ERCOT Source: ERCOT Nuclear and coal-fired power plants in ERCOT operate approximately 90 percent of the time 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

27 Long-Term Outlook for ERCOT Generation Resources 27 ERCOT Summer Resources and Firm Load Forecast: % 19.6% 19.5% 19.0% % Total Resources Peak Load Forecast Reserve Margin This report does not include retirements of any coal-fired generation in its calculation of reserve margin Source: ERCOT, Report on the Capacity, Demand and Reserves in the ERCOT Region, December 2016

28 Strong Environmental Performance by Electric Generators in Texas 28 Electric Generators in Texas Use Fuel Efficiently and Effectively Capture Emissions Texas is one of a minority of states with NOx, SO2 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.

29 Texas is Among Nationwide Leaders in Low Emissions Rates 29 States With NOx, SO2 and CO2 Emissions Rates Below the National Average for Electric Generation Source: EPA Air Markets Program Data (2014)

30 How Texas Steam Power Plants Use Water 30 Steam Flow of H 2 O Water Combustion Controls Stack Fuel Pump Turbine Generator Transformer Flow of H 2 O Flow of Power Electricity Condenser Cooling Water 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.

31 Tax Impact of AECT Member Companies 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 2015, members of AECT paid $1.8 billion in state and local levies. On average, this cost is over $59,000 per employee. AECT companies also collected $339 million in sales taxes from end-use customers. State and Local Taxes Paid or Collected by AECT Member Companies in 2015 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 Millions of Dollars $ $1, $339.1 TOTAL, STATE & LOCAL TAXES $2,136.0 Source: Association of Electric Companies of Texas

32 How To Reach Us 32 AECT.net For background on electric markets, environmental data and Electricity Regular updates from AECT and its member companies AECT Advocacy on Facebook Keep up with pictures and links to latest documents released by AECT