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Yet Again, Major Texas Competition Advocates Left Behind by Grassroots Choice Movement (Generators Too Busy Seeking Subsidies)
As noted in our related story today, a Texas customer has taken up the fight to introduce electric choice to El Paso Electric, which is the latest example of a disturbing trend in Texas of so-called competitive market advocates not proactively seeking to extend choice to the still significant areas of the state without electric choice.
With the highly successful ERCOT retail market, with most non-choice utility areas already within an RTO, and with a legislature that is as sympathetic as you're ever going to get, it amazes us that, more than a decade since ERCOT has been opened to electric choice, there has been no progress (and indeed, mostly regression) in opening the non-ERCOT areas to choice.
The best example, ironically, is the area of Texas which, in defying the odds, is newly opening to customer choice on May 1 -- the former Cap Rock service areas now owned by Sharyland Utilities.
While these areas were initially excluded by statute from customer choice, both when the territories were a co-op and even for an initial period after they transitioned to becoming an investor-owned utility, that prohibition eventually expired. Yet even as the prohibition expired, there was no serious push by any competitive market advocates to introduce choice to the service area, despite it being the absolutely lowest-hanging fruit of any market in the U.S. -- because Cap Rock was not vertically integrated, owned no power plants, was only serving customer load through wholesale PPAs, and was at general rate parity with competitive retail prices in ERCOT (if not exceeding those prices at certain times). Admittedly, two of the Cap Rock areas were in the Southwest Power Pool, but as seen with the recent transition to choice, this was not an intractable barrier to choice.
Yet, expansion of choice to Cap Rock languished. Various customers wrote the PUCT in a 2008 grassroots movement seeking choice, but it did not result in an immediate proceeding reviewing the issue. The profile for potential choice was raised when PNM Resources initially proposed to acquire the service area (in a transaction later abandoned), but PNM itself did not specifically propose to introduce customer choice.
It was not until Sharyland's parent proposed to buy the Cap Rock service areas that the choice issue was seriously considered, and then, it was only included in the PUCT proceeding reviewing the purchase because the issue of when choice was to be introduced to Cap Rock customers was specifically requested to be reviewed by then-Chairman Barry Smitherman, not because it had been raised formally by other intervenors, such as retail electric providers or other competitive market participants.
It's a similar story in other service areas. Entergy Texas was on a path to implement a transition to competition, which would have seen the territory join ERCOT, paving the way for introduction of customer choice. We understand the legislature clearly put the brakes on any such plan during the 2009 session; however, it's important to remember what the legislature wanted in voting to stop the Entergy transition to competition. Legislators wanted the status quo for Entergy: mainly, it's then-below ERCOT retail rates, which were subsidized by Arkansas and Mississippi ratepayers under the Entergy System Agreement. Cost of transmission to interconnect Entergy Texas with ERCOT also caused sticker shock.
That status quo, however, has ended. With Arkansas and Mississippi exiting the system agreement, Entergy Texas customers are no longer net beneficiaries under the Entergy system agreement. Moreover, independent of any system agreement changes, ERCOT competitive retail pricing became on par with Entergy's regulated rates (and for a time, significantly cheaper). According to PUCT data, a residential customer at Entergy Texas using 1,000 kWh during December paid 11.3¢/kWh -- on par with ERCOT retail rates, with significantly cheaper rates readily available for those in ERCOT who actively shop.
Yet despite these changed circumstances, and the fact that it was clear that the future for the Entergy Texas system as envisioned by the 2009 legislature was no longer tenable due to changes outside of Texas' control, there was no serious push to consider the expansion of retail choice to the territory, or to even consider the impact of any decisions on retail choice, as Entergy Texas moved to the Midwest ISO. In the most significant event facing the Entergy Texas grid since SB 7, competitive market advocates were silent.
While MISO could act as a qualifying power region for purposes of the PURA choice requirements, and while Entergy Texas rates are still high relative to choice rates, the integration of Entergy Texas to MISO creates a huge hurdle for retail choice -- namely, the exposure of customers to federal transmission policy and pricing should Entergy no longer enjoy the exemption granted to vertically integrated utilities. This essentially presents Entergy Texas customers with the following dilemma: avoid runaway federal transmission costs, but give up their right to electric choice in order to do so; or, alternatively, be granted electric choice, but become exposed to FERC's costly transmission subsidization policies. This is why EnergyChoiceMatters so strongly alerted, to no avail, competitive market advocates to the need to raise the alternative ERCOT option as Entergy Texas considered RTOs.
Now, at El Paso Electric, a customer, not a competitive market advocate, has raised the issue of electric choice. Due to the lack of an RTO in the immediate area which El Paso Electric could join (save for ERCOT or SPP integration, each of which is in a different interconnect), prospects for choice at El Paso are some of the dimmest in the state (second only to SWEPCO), but we absolutely commend the customer for raising the issue, and keeping the issue of choice alive. While we understand the barriers to choice at El Paso, competitive market advocates should be engaged in a continuous dialogue of how these barriers may be addressed, and why some Texans are being denied the future envisioned for them under SB 7.
As an initial matter, current statute requires the commencement of a regional transmission organization by the Federal Energy Regulatory Commission for the power region containing EPE prior to the introduction of retail choice, so absent EPE joining an RTO, choice would require legislative changes.
If we were to rank the best prospects among the Texas investor-owned utilities for introduction of choice (with #1 being the most likely to attain choice), they would be:
1. Entergy Texas
2. Southwestern Public Service
3. El Paso Electric
4. SWEPCO
Our reasoning? Despite the transmission jurisdictional issue cited above, Entergy Texas still has rates on par, if not higher, than competitive retail rates in neighboring parts of Houston with retail choice. The end of the system agreement means whatever factors led to the 2009 legislative decision to stop the then-current transition to competition no longer apply. The service area is currently within an RTO (MISO) with experience in accommodating retail choice markets (although not nearly as well as ERCOT or PJM), and competition advocates have an opportunity to point to the lower rates at CenterPoint Energy Houston Electric as what is available through customer choice.
We next rank Southwestern Public Service only because it is currently within SPP, which is in the process of introducing a day-2 market. According to PUCT data, an SPS customer using 1,000 kWh in December 2013 paid 9.9¢/kWh -- certainly not a bargain which needs to be preserved by maintaining the status quo.
We see El Paso Electric as a less likely candidate for choice due to its position in the Western Interconnect. However, competitive market advocates recently spent considerable money in Arizona, whose utilities are not members of an RTO, and it was never definitively proposed whether the utilities would simply join CAISO or create a new RTO out of the current Arizona independent scheduler, if retail choice had been introduced. Therefore, the lack of an RTO at El Paso should not be seen as an insurmountable challenge, especially as the rate disparity would otherwise make El Paso an attractive candidate for choice -- in December 2013, an EPE residential customer using 1,000 kWh paid 10.9¢/kWh.
Finally, we see prospects for choice dimmest at SWEPCO, because of its long-standing rate advantage relative to both ERCOT retail rates and other non-choice utilities in the state (December 2013 residential rate was 8.3¢/kWh). However, to the extent this rate disparity ever evaporates (such as due to costs of recently approved generation), SWEPCO is within SPP, and is owned by a utility (AEP) with choice programs in Ohio and Texas, so certain logistics could support introduction of customer choice.
We understand for most, if not all, of the four service areas listed above, there has been specific legislation governing the suspension of the transition to choice in each area. However, we understand that the legislation generally still leaves authority to transition to retail choice to the PUCT, provided certain statutory conditions are met, and that these statutory conditions are not that different from the original conditions on moving to choice (qualifying power region, etc.)
While competitive market advocates may feel it a poor use of their finite resources to pursue choice in places where the legislature has spoken, if this were always the case, we'd have a stagnant choice landscape. If choice is to grow, competitive market advocates are going to have to change legislators' minds; there's no avoiding that, it's true in any state.
Notwithstanding bills from the 2009 and 2011 sessions concerning suspended transitions to competition, we think Texas lawmakers will be more receptive to opening areas to customer choice than, say, the willingnes of lawmakers in Pennsylvania to end default service, since the Pennsylvania legislature specifically overturned a prevailing market-price default service standard and replaced it with a prudent mix standard, or versus lawmakers in Michigan, who only a few short years ago overwhelmingly imposed a 10% cap on choice.
So the question must be asked. Why, after 10 years, has there been no serious progress in expanding choice to non-ERCOT regions of Texas. Obviously most competitive market advocates have a more important focus, which currently seems to be increasing rates paid by customers within ERCOT through introduction of a mandatory capacity market (which only serves to forestall choice in the rest of Texas). And, of course, competitive market advocates screaming that the ERCOT market faces blackouts, unless the Texas government steps in with price support, isn't going to help the cause of opening new areas to retail choice.
Which do you think competitive market advocates should spend more time on? Lobbying to open an area with 400,000 customers within an RTO and generally higher rates to customer choice (Entergy Texas), or lobbying to change a market design that has worked for over a decade, that has a better record of investment and reliability than eastern RTOs, and which is forecast to have adequate resource adequacy for nearly another decade, to instead provide subsidies to incumbent capacity owners. The answer speaks for itself.
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February 18, 2014
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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