AECT comments on the Texas Coalition for Affordable Power’s views on electric prices in the competitive electric market

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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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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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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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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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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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)



TCAPdoesnottakeintoaccounttheoffersavailableincompetitiveareas,whichprovideamoreaccuratepictureofmarketperformance.(see1.4)

Wholesalepowermarketsdontfollowstateboundaries.Anditsthegenerationfuelmixwithinthosewholesalepowermarkets,notthegenerationfuelwithinastatesboundaries,thatisrelevanthere.(see1.6)

TCAPfailstoconsidertheimpactofnewgenerationinTexastomeetpopulationandeconomicgrowth,especiallycomparedtonearbystateswithlesspowerfuleconomies.(see1.8)

TCAPPa e6


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AECTComments:

TCAPdiscountstheeffectofnaturalgasonelectricityprices.(see1.1)


StatewideEIAdataisnotindicativeofpricinginthecompetitiveregions,failingto

reflectthedynamicchangesinthecompetitivemarket.(see1.3)


TCAPsdataendsin2009whichisverymisleading;2010hasseenarapiddecreaseinelectricpricesofferedinthecompetitivemarket.Also,anddespitethelimitationsofTCAPsdatasource,eventhatclearlyshowsthatTexasaveragepricesarenowbelowtheUSaverage.

TCAPhasalsochosentousearangeof6/kWhto14/kWhtoexaggeratethesteepnessoftheslope.

TCAPPage14


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AECTComments:





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AECTComments:


TCAPoftencitesLouisianabecauseitstheonlystateadjacenttoTexasthathasalargepercentageofnaturalgasgeneration.However,mostofLouisianaispartofSERCandSPP,multi-stateelectricgridsthataredependentoncoal.

Further,Louisianahasseenlittlepopulationgrowthandlittleinvestmentinnewindustry,whereasTXhasseenbillionsofdollarsinprivateinvestmentthathashelpedenableoureconomytogrow.(see1.8)

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AECTComments:



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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Documents

AECT comments on the Texas Coalition for Affordable Power’s views on electric prices in the competitive electric market