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Pat Wood: Any Texan Paying North of 9 Cents For Power In Houston Is A "Dumb---"

June 09,2017



Anyone in the Houston area with electric choice paying in excess of 9 cents per kWh for power is a, "dumb---", Pat Wood, former Texas PUC Chair, said in remarks at a forum at Rice University’s Center for Energy Studies at the Baker Institute for Public Policy.

The forum, co-hosted by Direct Energy and Texas Monthly, presented the results of a new study that found that residential rates in choice areas of Texas have declined to be on par with rates in non-choice areas (see EnergyChoiceMatters.com for more on the study)

Wood noted that the last regulated rate for the Houston incumbent utility was over 10 cents per kWh. Over 15 years later, Wood noted that on Power to Choose, there are some 100 plans in Houston, all fixed rates with no hidden credits, that are below 10 cents per kWh, at 1,000 kWh usage.

Wood noted he is personally paying 6.9 cents per kWh for a 100% green plan, which is a 24-month contract, with no gimmicks

"My label for anyone in Houston paying a residential electric rate anything north of about 9 cents is a dumb---," Wood said

"So get out there and shop. It's easy, it takes 15 minutes," Wood said, noting the Power To Choose site as well and various comparison sites offered by shopping service providers.

Wood also said that one of the biggest drivers of savings to customers from Texas's move to electric choice is, "from not paying for unused capacity."

Wood noted that while ERCOT has a reserve margin that is forecast to be at or above 18% for several years, under Texas's restructured market, it is investors, not customers, who are paying for this excess capacity.

"The third big pot of savings, besides fuel price and the return [on equity] being compressed, is from not paying for unused capacity," Wood said

"Now, I had actually thought that the extra 15-18% that we used to order the utilities to have on hand would have been burned away by now, by the competitive market, but it's not. It still sits out there. In fact, the latest forecast shows that it's 18+% for the rest of this decade and beyond. I fully expect that to be whittled down; you can't keep that much idle plant on and not get paid for it for that many years. But, we have private investors here in this state -- Calpine, NRG, Dynegy, others -- that are bearing that risk, and I consider this shift of generation investment risk, which is a big bunch of dollars, folks, the shifting of this risk away from a captive customer, who sits there for 30 years and pays for a [ratebased] nuclear power plant, like those poor souls in Georgia get to do for the Vogtle plant, or the poor souls in Mississippi get to do for [the] Kemper experiment that cost $7.9 billion, in clean coal, shifting away from a captive customer to those in the market who are paid to manage it better, that is the greatest single benefit of this enterprise that we engaged in," Wood said

In his remarks, Wood did not opine on the costs of unused capacity in other restructured markets, so we stress the following observations are solely those of RetailEnergyX.com

We at RetailEnergyX.com, however, would ourselves note that customers in other restructured markets do not enjoy this third pot of savings from electric choice identified by Wood, because they do pay for unused capacity, in the form of mandatory capacity payments.

And it's not just the standard 15-18% in excess capacity that customers in capacity market RTOs are paying for. Indeed, capacity markets such as PJM significantly over-procure capacity, and, even more bizarrely, some stakeholders celebrate this fact as beneficial to customers

In a news release concerning its base residual auction for 2020-21, PJM reported that it procured 165,109 megawatts of resources for the period June 1, 2020, to May 31, 2021. According to PJM, the procured capacity provides a 23.3% reserve margin. RetailEnergyX.com would note that this translates into a reserve margin that's 40% higher than the 16.6% reserve margin that is recommended as needed for reliability for PJM

Now, we fully understand FERC, in the infinite wisdom of government regulators, has deemed that the excess capacity, above the 16.6% that is needed for reliability, provides incremental benefits to load, and is therefore somehow just and reasonable. Moreover, we also understand that FERC has accepted the sloped demand curve, which results in the excessive over-procurement of capacity, as beneficial because it provides greater certainty to capacity owners

But as we look back on 15 years of electric choice in Texas, and the admitted problems with the old monopoly system which had prompted change, we ask our readers to consider. Were excessive reserve margins, especially those 40-50% in excess of the reliability standard, seen as acceptable and good for customers under monopoly vertical integration? Or were they a symptom of gold-plating and inefficiency? Why should 23% reserve margins in organized markets with mandated capacity payments be treated any differently?



--By Paul Ring

Tags:
Texas   Capacity Markets  

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