At the January 17, 2019 Open Meeting, the Public Utility Commission of Texas (Commission) addressed several highly contested issues, including storage, Operating Reserve Demand Curve, Real-Time Co-optimization, and Marginal Losses. First, in Project No. 48023, Rulemaking to Address the Use of Non-Traditional Technologies in Electric Delivery Service (the Battery Project), dealing with utility ownership of battery storage, the Commission decided to defer further action until Texas Legislature’s regular session concludes. This decision comes after 63 comments were filed with the Commission, expressing widely varying views on whether a transmission and distribution utility within ERCOT may legally own and operate battery storage facilities. The Commission previously submitted through its Scope of Competition Report a request for the Legislature to enact legislation clarifying this legal point.

The Public Utility Commission of Texas has finalized the recommendations it will include in its upcoming 2019 Report on the Scope of Competition in Electric Markets in Texas to the 86th Texas Legislature, which goes into session January 8, 2019. The Commission voted on the recommendations at its December 20, 2018 meeting; the most significant…

On August 21, 2018, the Environmental Protection Agency (EPA) released a prepublication copy of its proposed Affordable Clean Energy (ACE) rule. If adopted, the rule would (1) establish emission guidelines for greenhouse gas emissions from existing electric utility generating units (EGUs); (2) revise the regulations governing how states implement the emission guidelines; and (3) revise the New Source Review (NSR) program to allow modification to existing EGUs without triggering permitting requirements.

The Clean Power Plan regulations adopted by the Obama administration would have limited GHG emissions by directing states to reduce emissions by applying a combination of three “building blocks” as the best system of emission reduction (BSER), which consisted of:

1)    Improving heat rate at affected coal-fired steam generating units;

2)    Substituting increased generation from lower-emitting natural gas combined cycle units for decreased generation from higher-emitting affected steam generating units; and

3)    Substituting increased generation from new zero-emitting renewable energy generating capacity for decreased generation from affected fossil fuel-fired generating units.

Potomac Economics, the Independent Market Monitor (IMM) for the ERCOT market, released its “2017 State of the Market Report for the ERCOT Electricity Markets,” which contains several important insights for market participants and offered seven recommendations for market improvements.

Prices and Demand Move Higher in 2017

First, the IMM found that energy prices increased 14.7% over 2016, to $28.25 per MWh. This price is still significantly less than 2011’s average annual price of $52.23 per MWh and even 2014’s average annual price of $40.64 per MWh. The 2017 price increase correlates with a 22% increase in the cost of natural gas, the most widely-used fuel in ERCOT, as fuel costs represent the majority of most suppliers’ marginal production costs.  The IMM also found price convergence to be very good in 2017, with the day-ahead and real-time prices both averaging $26 per MWh.  However, the absolute difference between day-ahead and real-time prices still increased from $7.44 per MWh in 2016 to $8.60 per MWh in 2017.

Average demand also increased, rising 1.9% from 2016, with demand in the West Zone seeing the largest average load increase at 8.3% (possibly due to oil and natural gas production activity in that zone). Despite this increase in average demand, peak demand in ERCOT reached 69,512 MW on July 28, 2017, which is lower than the ERCOT-wide coincident peak hourly demand record of 71,100 MW, set on August 11, 2016.  Even with general price and demand increases, market conditions were rarely tight as real-time prices didn’t exceed $3,000 per MWh and exceeded $1,000 per MWh for just 3.5 hours in all of 2017.

Congestion Costs Skyrocket

Surprisingly, the IMM found congestion in the ERCOT real-time market increased considerably, contributing significantly to price increases in 2017 with total congestion costs equaling $967 million – a 95% increase from 2016.  The IMM stated that this increase is due to three main factors: (1) limitations on export capacity from the Panhandle; (2) planned outages associated with the construction of the Houston Import Project; and (3) the aftermath of Hurricane Harvey.

While congestion was more frequent in 2017 than in 2016, congestion on the North to Houston constraint declined after June due to the completion of a new 1,200 MW combined cycle generator located in Houston. The completion of the Houston Import Project in 2018 should reduce congestion in this area even further.

It appears the Texas Legislature has taken note of the several news articles and industry insiders sounding the alarm bells for ratepayers to brace for record high electricity prices this summer in a market applauded for its consistently low prices. The Committee convened because the Lt. Governor charged it to study/respond to the reserve margin…

U.S. Environmental Protection Agency’s January 25 change to its “once in always in” policy will allow facilities that have historically been regulated as “major sources” of hazardous air pollutants to be reclassified as “area” sources if they have reduced their potential to emit to below major source thresholds. This is important because companies that are…

On January 25, 2018, the U.S. Environmental Protection Agency (“EPA”) withdrew its 1995 “once in always in” guidance. Under that guidance, facilities classified as “major sources” of hazardous air pollutants (“HAP”) as of the “first compliance date” of a maximum achievable control technology (“MACT”) standard under Section 112 of the Clean Air Act are required to comply permanently with the MACT standard. Now, EPA’s current policy is that a major source that limits its potential to emit (“PTE”) to below major source thresholds can become an area source and will no longer be subject to the major source MACT.

The Clean Air Act defines “major source” as “any stationary source or group of stationary sources located within a contiguous area and under common control that emits or has the potential to emit considering controls, in the aggregate, 10 tons per year or more of any hazardous air pollutant or 25 tons per year or more of any combination of hazardous air pollutants.” This definition expressly allows PTE to be calculated “considering controls,” and does not address the timing for when a source will be classified as a major source. As a result, EPA found that its “once in always in” policy “created an artificial time limit” contrary to the plain language of the Clean Air Act and must be withdrawn.

On the heels of last week’s Hearing on the Merits, the proposed transition of Lubbock Power & Light (“LP&L”) from the Southwest Power Pool (“SPP”) to the Electric Reliability Council of Texas (“ERCOT”) was back on the agenda at this week’s Public Utility Commission of Texas (“PUCT” or the “Commission”) open meeting.

During last week’s hearing Chairman DeAnn Walker instructed representatives of LP&L and ERCOT to finalize an agreement in which LP&L pays to help counterbalance some of the transmission infrastructure costs that may be incurred by ERCOT customers as a result of the transition. Walker also advised LP&L and SPP to try to reach a similar agreement for the benefit of the ratepayers in that region.

In response to that directive, LP&L, the Commission Staff, the Office of Public Utility Counsel (“OPUC”), and the Texas Industrial Energy Consumers (“TIEC”) have reached an agreement in principle that would, if approved by the Commission, resolve the outstanding ERCOT issues. A letter summarizing the terms of the agreement in principle filed in PUCT Docket No. 47576 last week states that LP&L will pay $22 million each year for five years to ERCOT wholesale transmission customers through the tariff proposed by Commission Staff to shield ERCOT ratepayers against the expected financial impacts of LP&L’s requested transition, and that LP&L will pay SPP’s study costs of approximately $172,000.

Discussions with ERCOT continued this week regarding what terms the final transition agreement will need to contain to satisfy ERCOT’s concerns. LP&L has completed a draft settlement agreement with ERCOT’s guidance in mind and circulated it to all parties the day before the open meeting. LP&L’s attorney conducted preliminary conversations with the parties regarding the draft and the settlement discussion is ongoing; LP&L expects to gain more guidance from the parties over the course of the next several days.