A Tale of Two States - Deregulation in Texas

Last month, the Texas Coalition for Affordable Power (TCAP) released an update to its regular report on Texas’ deregulated power market. TCAP is a not-for-profit that helps aggregate electricity purchases for dozens of cities in Texas, and so has a vested interest in monitoring the state’s complicated and ever-changing electricity markets. TCAP’s analysis can help you decide whether the Texas deregulation “miracle” is a tall tale.

I became a TCAP fan last summer after identifying them as one of the nation’s few organizations able to discuss “capacity markets” in plain English.

Since Texas is so frequently held up as an example of the virtues of electric wholesale and retail deregulation, it’s worthwhile for other states to track and understand the tale of two populations – the deregulated, largely in the state’s huge population centers, and the unregulated, usually in rural areas served by electric co-ops and a range of towns and cities with community-owned utilities.

Using both Energy Information Administration (EIA) data and in-state resources such as the Texas PUC, TCAP has followed electricity prices and trends since 2002, the first year of deregulation’s implementation.

First the good news – “the 16-year-old deregulated retail electric market in Texas is delivering some of its best results so far for residential consumers.” Some competitive retailers in 2017 and 2018 have developed service packages that will deliver lower prices for some deregulated consumers.

However, as TCAP shows, over the 16 year experiment, “Texans consistently have paid higher average residential electric prices in areas with deregulation, as compared to prices in areas exempt from deregulation.”

Averages and percentages are one thing, but for citizens and policymakers, dollars speak more loudly. A review of “Lost Savings” shows that across the deregulated market, Texans could have saved more than $27 billion in “lower residential electricity bills from 2002 through 2016 had they paid the same average prices as Texans living outside deregulation. In 2016, lost savings amounted to nearly $800 million.

Ok, but Texas is such a big state. Surely those amounts blended over millions of people added up to pocket change? And that loss of pocket change was more than offset by the fun and freedom of choosing your own electricity provider.

Hardly. A “typical residential customer under deregulation (defined as a customer paying average deregulated prices and consuming 1,300 kWh of electricity each month) would have saved more than $5,500” over the fifteen years. For $5,500 saved with compound interest over time, a family could begin to afford a home battery storage system.

The next time PACE takes a tour through Texas, we’ll look at what deregulation and lower reserve margins mean ahead of what could be a long, hot summer.


DOE's Hard Work and Always-On, Clean, Affordable Power

While media attention focuses on events at one end of Pennsylvania Avenue, federal agencies and dedicated employees all over the country are quietly making progress on energy issues. This week, PACE takes a look at just one week’s output of good news from the Department of Energy. Sec. Rick Perry believes in all of the above, while championing renewable energy, and his philosophy shines through in work done each day by DOE divisions and partners.

On May 15, DOE announced a sizable grant of $72 million to “advance high-temperature concentrating solar power (CSP) technologies,” continuing U.S. leadership in the space. CSP “uses mirrors to reflect and concentrate sunlight onto a focused point where it is collected and converted into heat.” CSP is part of the long-term solution to having solar available on demand because it incorporates thermal storage.

A great deal of research and development is required to ensure high enough temperatures (700 Celsius is the goal), reduced risk, and consistent results. Now, five national labs, four universities and other expert organizations can pursue projects that will help advance the technology and reduce costs in hopes of reaching a 2030 goal of 5 cents per kilowatt/hour for baseload.

While valuable R&D continues apace on renewable energy, the world will still need coal-based generation. As Sec. Perry noted on May 16, in remarks to the World Coal Association, “coal produces about 40 percent of the world’s electricity supply.” Nations as diverse as Brazil, India, Japan and South Korea are using U.S. coal. For some, coal is still the least expensive and most reliable baseload energy source. In Asia particularly, where natural gas markets are suddenly rather volatile and some nations are seeing a 3-year high in prices, coal may extend its stay.

So, another DOE announcement also merits attention. Modular plants aren’t just a new nuclear concept. Now, DOE is scoping out plans to develop small (50 to 350 MW) modular coal plants. If all goes well, we could see pilot plants by 2025. While carbon capture research is still worthwhile, small super-efficient plants may make for prudent investments in areas that need coal to ensure affordable and accessible energy.

DOE also partners with utilities to ensure that power is reliable and secured in the event of physical or cybersecurity events that can impact grid infrastructure. A new cyber strategy “identifies the goals, objectives, and activities that DOE will pursue over the next five years to reduce the risk of energy disruptions due to cyber incidents.” DOE has many years of experience helping other federal agencies and the White House understand how cyber defenses integrate with the actual operations of utilities which have “always-on” obligations.

Consumers often don’t know what government is doing to help essential infrastructure and service providers power the economy and improve the environment. Each one of these developments merits more than the 500 words PACE can give here. You can learn more about Department of Energy efforts by following them on Twitter @ENERGY or at their revamped website.


Wolverines Set Shining Solar Example

Last summer, PACE released a report reviewing state solar net metering policies and discussing ideologies that influence some states to over-compensate private solar generators at the expense of every other consumer on the grid. We’ve enjoyed presenting on this topic and appreciate the many positive comments about our report’s readability and usefulness. Combine the strong response to PACE’s report with the uptick in state legislative and regulatory attention to net metering in 2018, and the result is that PACE will update our report later this year.

However, a few recent state developments merit attention before the fall.

First up is the Wolverine State, Michigan. In 2016, Michigan’s legislature enacted PA 342, establishing a new distributed generation program and directing the Michigan Public Service Commission (MPSC) to investigate and rule on costs and tariff design.

While Michigan’s private solar headcount was relatively low (2,155 customers and 2,289 installations in 2015) policymakers could see increased growth over the horizon (2,582 customers and 2,684 installations in 2016 made for 28 percent growth).

After a lengthy and open stakeholder process, MPSC emerged with refreshed policies. The upshot is a move away from retail net metering to “Inflow/Outflow billing.” Since private solar produces almost as many new terms as it does electrons, it’s worth a little ink to explain this commendable approach that attempts to deal with the confusion and inequities net metering often causes.

A MPSC staff report on DG explained “Inflow/Outflow billing”:

“The method separates power inflows from outflows, relying on two distinct and separate sets of meter data to establish consistent and appropriate cost-of-service … rather than netting the two as is done for net energy metering.”

And “[t]he separation of power inflows from power outflows readily allows for rate designs that incorporate traditional cost-of-service study methods, thus ensuring that DG customers are assessed for their fair and equitable use of the grid. It also provides an independent framework for equitably compensating DG customers for excess power injected into the grid.”

In accepting the staff recommendation for Inflow/Outflow billing in its April follow-on order the MPSC observed the following about private solar generators.

“[C]ost and benefit impacts associated with DG customers are not static but can vary based on a multitude of factors including location, utility infrastructure conditions, weather and the number of DG customers on the grid …”

The MPSC further decided that under Inflow/Outflow full retail rates apply to inflow (electrons purchased from the utility) and a rate will be assigned to outflow (extra electrons private solar customers send to the grid). Michigan consumers can continue to provide input as individual utilities address Outflow tariffs to rate cases beginning June 1. Notably, Michigan’s private solar pioneers are grandfathered for ten years.

The MPSC must have gotten something right, because the pro-solar press is exercised, to put it mildly. For example, PV Magazine rated Michigan’s policy shift as a top concern in 2018 and said “[t]his will doubtless wreck the economics of customer-sited solar and kill the state’s nascent distributed solar industry.”

Rather than killing customer-sited solar, the MPSC has provided the rest of the country a fresh approach. Inflow/outflow billing may help consumers see more clearly how a private solar system will perform for their own use and for the community. It may lead to increased AMI deployment. Finally, as more consumers understand solar economics, then more solar electrons may come to the grid from community and utility-scale projects. Add those benefits up and it looks like the MPSC has presented a smarter way forward.