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Priorities: With 30 States Having No Electric Choice, Compete Coalition Decides to Air Ads in -- Texas?? (Compete "Reliability" Radio Ads Warn of Texas "Power Shortages")
There's some 30 states in the United States which offer customers no electric choice, and a handful more that severely limit electric choice, so it's only natural that the Compete Coalition, an organization which, "support[s] well-structured competitive electricity markets for the benefit of our country," would focus its time and resources on states where there are not well-structured competitive electricity markets, such as Texas.
Wait, what?
That's right. Even as the expansion of retail choice languishes across the nation, Compete has decided that its time and resources should be devoted to airing radio ads in Texas. And lest you think these ads are Compete leading the non-existent charge to get utilities such as Entergy Texas, El Paso Electric, Southwestern Public Service, or even more unthinkable, the Texas munis and cooperatives, to join the ERCOT investor-owned utilities in offering retail choice, no, that is not the case.
Instead, Compete's Texas radio ads deal with the issue of "reliability," as Compete inserts itself into a debate where, frankly, it is not needed.
The text of the radio ads Compete is airing in Texas is as follows:
"It's no secret that the Texas economy is growing fast, adding families, jobs and businesses. That's good.
But energy experts predict Texas electricity demand will see double-digit growth in the next decade. And electric supplies are not keeping pace. That's bad.
This could lead to power shortages that are not good for Texas families or businesses.
Fortunately, experts at the Public Utility Commission of Texas are working to encourage more energy resources in Texas through the competitive electricity market. Including new resources that will use clean-burning natural gas produced right here in Texas.
Let's support the Texas Public Utility Commission's work to strengthen the competitive electric market. Improve reliability. Encourage the electric resources Texas needs to power jobs and opportunity. And keep the lights on.
For more information go to CompeteCoalition.com."
Although the ads do not advocate for specific policies, and attempt to use innocuous language, the ad does adopt a narrative that (though not in so many words) the current market design in Texas isn't working.
Specifically, the ad states that, "supplies are not keeping pace" with increases in demand, and that this is "bad." As discussed further below, this amounts to speculation, not fact, and is a view not supported by the history of the Texas energy-only market.
While not including a specific call to action, we consider it undisputable that the ad seeks some type of change in Texas market design, though what this change would be is not mentioned. But clearly, some change is needed, under the ad's logic. If, as the ad says, the PUCT must engage in "work" to "strengthen the competitive electric market," "[i]mprove reliability," and, "[e]ncourage the electric resources Texas needs," then clearly a change from the status quo is needed. We don't know what "work" the PUCT could accomplish without adopting some sort of change (again, we stress no specific policy is advocated in the ad).
More broadly, however, it is, in a sense, immaterial as to whether the ad used specific words like "mandated reserve margin" or "capacity market," or took a more nuanced approach. The tenor of the ad is clear. The current market design is leading to "shortages"; changes are needed.
We first learned of the ad through a Reuters article, in which Reuters described Compete as, "a national coalition representing both power suppliers and consumers."
This immediately troubled us, because knowing where the vast majority of Texas customers are on the issue of "reliability" (resource adequacy, mandated reserve margin, etc.), we do not think the Compete ad can be said to speak on these customers' behalf. As noted by Matters previously, no customer or load representative supported a mandated reserve margin in the most recent round of comments to the PUCT, and such customers do not agree that Texas is facing "shortages" under the current market design.
Upon receiving the text of the ad from Compete, we were gratified that the ad itself does not presume to speak for any particular groups, although if one did visit the Compete website at the ad's behest, one would get the impression that Compete represents hundreds of customers.
The ad, however, was not reviewed by Compete's full 700+ members, the vast majority of whom cannot vote on matters before Compete. Rather, policy and strategy are dictated by Compete's Board of Directors, consisting of nine members which provide the funding and strategic direction of the organization.
Compete said that the Texas ad was reviewed by its Board of Directors. Compete confirmed that only two end-users serve on the Board of Directors. Upon information and belief, these are Wal-Mart and Safeway (these two were Board members in 2012, Leggett & Platt was formerly a board member but Leggett & Platt confirmed to Matters that no one at Leggett & Platt is currently a board member of Compete).
Upon information and belief, the vast majority, if not all, of the other seven Compete board members are capacity owners (either capacity owners themselves, affiliates, or parents).
In its IRS Form 990 for fiscal 2012, which must be made public under Compete's elected form of organization, Compete listed its board as including individuals from, among others, the following companies (or parents or subsidiaries of the following companies): Calpine, Exelon, TXU, PSEG, PPL, FirstEnergy, and BP Energy. Another Board member appeared to represent a metering/technology company, but we do not aver to such representation.
It is unclear how many of those companies are currently on the Compete Board. What is clear, however, is that end-users are in the minority on the Compete Board.
We do not mean to imply in any way that the two current end-users on the Compete Board opposed the Texas ad (we reached out to both Wal-Mart and Safeway for comment but neither had responded as of publication time), but merely point out that most voices on the Board own capacity, and that only the Board reviewed the Texas reliability ad.
Compete said in a statement to Matters that its Board, "is diverse, reflecting the diversity of the Coalition membership."
While only the 9-member Board reviewed the Texas reliability radio ad, Compete said that the ad's text was based on a set of resource adequacy principles (click here), "that was approved by the entire Coalition membership." The principles do state that electric markets, "can include a capacity construct where needed."
However, these resource adequacy principles reviewed by the entire Compete membership do not address any state-specific facts such as those presented in the radio ad.
Accordingly, it seems that conclusions in the ad such as that Texas "electric supplies are not keeping pace," and that this "could lead to power shortages," and that work should be supported to "strengthen the competitive electric market" and "[i]mprove reliability" were never vetted or brought before, even at a high level, the full 700+ Compete membership. Rather, it seems that these conclusions were from the Compete Board alone, and remaining members must now decide if such conclusions still align with their own beliefs.
Before we get to that question, however, let's ask why Compete, which attempts to portray itself as a grassroots organization driven by its 700+ members who embrace competition, would choose to wade into a fight over Texas "reliability," when by any standard Texas has the leading competitive wholesale and retail markets in the U.S., if not world.
The answer, we feel, lies in Compete's Board, and its attempt to leverage Compete's grassroots brand for the gain of individual Board members, and not the benefit of the full 700+ membership.
Specifically, given the diversity of Compete's membership, and the wealth of end-users and end-user representatives (namely brokers) who comprise Compete's membership, we think, had Compete taken the Texas ad for a full vote of its members, it would not have been supported by most members. Even those members who may agree with the content of the ad, we feel many of them would have felt it better to show restraint, and keep the Compete brand out of an intramural fight between two sides both of whom support competition (Texas end-users and Texas capacity owners) but who are on opposite sides of a Texas-specific issue of how to design the market.
Indeed, we don't see why it was imperative for the Compete brand to engage in the Texas "reliability" debate.
If Compete's nine Board members -- or a subset of Board members -- wanted to run radio ads in support of a specific position on Texas reliability, they could have done so themselves, without the Compete branding.
However, there's an obvious problem there. A radio ad by Exelon, Calpine, or TXU essentially asking for billions of dollars from Texas ratepayers isn't going to go over too well.
Using the Compete brand gave any Board members supporting the radio ad -- and market design changes to enhance "reliability" -- cover, so that it would appear that these radio ads were from a neutral, benign organization and the goal was some noble public policy, not simply more profit.
To be clear, we don't oppose the Board members' right or prerogative to do this together, through an organization such as Compete. Board members pay the freight, they can run the organization as they see fit.
However, if the Board is going to take Compete in this policy direction, then the pretense that this organization represents some 700+ members, including hundreds of customers, must be dropped. Compete should not be able to cloak itself behind this diverse membership when the Board represents about 1% of total membership, and is dominated by one industry segment -- capacity owners.
If the Board wants Compete to be a tool for its narrow preferred policies, again, we don't oppose that, but then Compete's status should be relegated to groups such as EPSA, P3, etc, which are simply mouthpieces of a single industry segment. Compete, we had hoped, had risen above this by having real buy-in from multiple industry segments which, at times, are on opposite sides of the table, but had a common view concerning the benefits of electric competition. Although sharing this broad goal, members, coming from different backgrounds, were going to differ on how to implement this goal at times, on specific policies. Compete's role never has been to insert itself into these fights, but rather to bring the message of the benefits of competition to new audiences, or affirm the benefits of competition to those considering abandoning it.
True, the Compete ad doesn't advocate for a specific policy, but it doesn't have to. Merely inserting itself into the Texas "reliability" debate is an incendiary action, and as noted above, the Compete ad cannot be interpreted in any way other than supporting some type of change in Texas market design. While reading the Texas ad, you may conclude Compete has not taken a side in the debate, and therefore has not betrayed its membership, but advocating for change, as the ad does, is a side in this debate. Many Compete members are satisfied with the currently designed gold-standard Texas electric market as the status quo, and to air an ad saying this current market design is going to lead to shortages -- that is taking a side.
More to the point, is Texas, with its gold-standard electric market, the place where a national trade group representing diverse stakeholders supporting competition should be focusing its time, resources, and presumably money? We did ask Compete if it had aired radio ads, or engaged in TV or print ads, in any other states in 2013. It did not provide a response. We are aware Compete has engaged in running ads in other states in the past (Maryland/DC area comes to mind). However, of the universe of problems facing customer choice across the U.S, the current situation in ERCOT would not even rank as a problem on our list. This again suggests that choosing Texas, of all places, to air radio ads is not about Compete's broad-based, bottom-up mission of expanding electric competition, but rather amounts to picking a specific side in a fight that isn't about whether Texas should have a competitive market. Again, that's Compete's prerogative, but we feel it narrows Compete from representing 700+ stakeholders to a select few who favor granular policy outcomes which benefit them, rather than bringing competition to customers.
Several Compete members have already distanced themselves from the ad.
Michael Harris, CEO of Unified Energy Services, a Compete member, said that, "We don't see the justification [for the ad's claim that] the supply is not meeting demand. We have had low volatility this year and, however inconsistent with continuous governmental forecasts that in a few years we will not have enough supply, [Compete's shortage claim] has not been the reality."
Harris, who has been in the business since 1998, said that he has never seen a point in time where forecasts were not projecting, several years out, a "disastrous" situation in terms of how much generation would be available. Yet despite constant predictions that Texas is "going to run out of power," the Texas grid has never had a resource adequacy-related outage since retail choice was introduced (any outages which have occurred came at times when the reserve margin was well in excess of the target).
Harris also serves as President of The Energy Professionals Association (TEPA), another Compete member.
Although the Compete ad did not advocate for specific policies, Harris, speaking for TEPA, wished to make clear that, "We don't believe creating a capacity market is going to add more reliability to the grid because we haven't seen that in the Northeast. We don't think the expense associated with a capacity market is justifiable based upon the very well-running, well-operated market here in Texas.
Speaking as CEO of Unified Energy Services, Harris questioned why Texas would take on a capacity market, "when we've had nothing but failures associated with capacity markets in the Northeast."
Harris, as CEO of Unified Energy Services, also said that a capacity market would funnel additional dollars to existing generating facilities, rather than incentivizing new generation
As to the claim in the ad that "electric supplies are not keeping pace," we merely recite the previously reported summation from TIEC:
"Since the Commission began addressing resource adequacy concerns two years ago, more than 5,000 MW of new generation has been added to the resources included in ERCOT's Capacity and Demand Report (CDR). In addition to the well-publicized Panda plants, which add roughly 2200 MWs of efficient gas-fired generation, recent CDR Reports also include new thermal generation projects by NRG, Calpine, Golden Spread, LCRA, and others totaling 1,649 MWs. This does not even include the significant amount of renewable generation (wind and solar) that has been added to the CDR Report since May of 2012," TIEC has reported.
"And this is just the tip of the iceberg," TIEC has said. "Public announcements and greenhouse gas (GHG) permit filings reveal that GDF Suez is constructing 134 MW of uprates, Invenergy is planning 330 MWs of peaking capacity, Southern Company is planning a 530 MW combined-cycle plant, MinnTex is pursuing 650 MWs of peaking capacity, Indeck is planning 650 MW of peaking capacity, STEC is constructing 225 MW of peaking capacity, Frontera is constructing 45 MW of uprates, and Tenaska and the Brownsville Public Utilities Board (BPUB) are jointly developing 800 MW of combined-cycle capacity in South Texas. These projects alone would add more than 3,500 MW to ERCOT's resources. While TIEC acknowledges these projects may not all be constructed, conservative projections that account for all available resources (including mothballed generation) indicate that ERCOT would not fall below the current 13.75% target reserve margin for many years."
Related Story Today: Compete Coalition Tarnishes Brand by Wading into Texas "Reliability" Fight
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October 4, 2013
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