Texas' Successful Competitive Electric Market: The Big Picture
02/09
Texas’ Successful Competitive Electric Market: The Big Picture Today, after seven years of retail electric competition, customers have dozens of offers to choose from among multiple retail electric providers (REPs). Fierce competition among REPs has maintained downward pressure on electric prices, even as input costs -- most notably natural gas -- have risen. In short, the competitive electric market has been a success. Even beyond prices, the competitive market has done much to enhance the investment in Texas. Over 36,000 MW of new, efficient and cleaner generation has come online since 1995, when the competitive wholesale electric market began. Texas was named the nation’s “Top State for Business” by CNBC in 2008, and in order to maintain our state’s growing economy, we must continue to provide reliable electric supply and service. The Texas Electric Choice Act, which created the competitive retail electric market, also included provisions to kick-start Texas’ renewable energy industry and new energy efficiency programs to help meet electric demand. Those programs have been expanded in recent years and, combined with the competitive wholesale market, have helped Texas become a nationwide leader in wind generation, while creating new investment and job growth in Texas
Key Points •
Natural gas prices peaked on July 1, 2008, then began to steadily fall. The average of the lowest available prices in each region of the state increased at a slower rate than natural gas prices, then quickly followed gas prices as they fell.
•
As of February 6, 2009, the lowest price offers are lower than the inflation-adjusted electric prices available prior to the beginning of competition, even as inflationadjusted natural gas prices have increased by 160 percent over the same time period.
•
In 4 of the 5 competitive service areas of the State, prices are now available that are lower than the pre-competition price—even without adjusting for inflation.
•
Since the opening of the competitive wholesale electric market, Texas has seen an influx of new power plants.
•
Texas’ generators have some of the lowest emissions rates in the nation, especially among states that utilize coal.
•
Texas continues to exceed its energy efficiency goals, and new advanced metering systems that are being deployed will help customers conserve power.
•
Texas leads the nation in wind capacity by a wide margin.
Texas’ Successful Competitive Electric Market: The Big Picture - Page 1 of 1 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Electric Prices in Competitive Areas of the State Performing Well The competitive electric market was designed to establish more efficient pricing for electricity service than available through regulation, while giving customers more choices in the market and maintaining electric reliability. The competitive electric market in ERCOT has benefited customers, especially given the substantial increases and fluctuations in natural gas prices and the rapid load growth in many areas of the state. And customers have responded to the benefits of the market. Since the start of retail competition, more than four out of five eligible ERCOT customers have chosen a new REP or a new product with their existing REP.
Prices Responding Quickly to Changes in Natural Gas Prices Natural gas-fired generation is currently the most expensive commonly-used generation in the state. Fortyseven percent of the electricity generated in ERCOT is powered by natural gas, which is why it has a big influence on wholesale electric prices in the region. However, while natural gas is the chief component of wholesale electric prices, the vibrant competitive electric market in ERCOT has helped push retail prices downward. The twelve-month forward natural gas price peaked on July 1, 2008, then fell through January 2009. However, the average of lowest available prices actually increased at a slower rate than natural gas prices, then quickly followed gas prices as they fell. Between January 2 and July 1, 2008, the natural gas price rose by 61%, while the lowest available electric price rose by only 26%. Between July 1, 2008 and February 6, 2009, the natural gas price fell by 50%, while the lowest available electric price fell by 32%. This is what you would expect from a strong competitive market: multiple competitors pushing electric prices downward. Texas’ Successful Competitive Electric Market: The Big Picture - Page 2 of 2 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Despite Price Increases for Natural Gas, Prices for Competitive Electric Offers Are Lower Today Than at the Start of Competition The competitive electric market opened in ERCOT on January 1, 2002. Thus, December 2001 marks the last time fully regulated pricing was in effect for much of ERCOT, and provides a fair point of comparison to assess the performance of the market. Back in 2001, before the market opened, Texas ranked 14th-highest in average residential electric price. The most recent available data, which fails to reflect increases in other states and the decreases in competitive prices in Texas, ranks Texas 15th-highest, even despite the rapid increase in natural gas. As of February 6, 2009, the lowest available fixed price and lowest available variable price offers are lower than the inflation-adjusted electric prices of December 2001. Meanwhile, even after adjusting for inflation, natural gas prices have increased by 160 percent over the same time period. Thus, even though the main input cost for electric power has nearly tripled in inflation-adjusted dollars, customers have available inflation-adjusted prices less than the electric prices of seven years ago. Even more impressive, customers in the AEP Texas North, CenterPoint Energy, Oncor and TNMP service territories have offers available that are lower than the December 2001 price, even without adjusting for inflation. Customers in the AEP Texas Central service territory have offers that are only marginally higher than prices of December 2001 when not adjusted for inflation.
Lowest Available Offers February 10, 2009 (non-inflation adjusted) AEP Texas Central service territory 12/2001 rate: 9.6¢/kWh Today’s lowest offer: 10.4¢/kWh
AEP Texas North service territory 12/2001 rate: 10.0¢/kWh Today’s lowest offer: 9.8¢/kWh
CenterPoint Energy service territory 12/2001 rate: 10.4¢/kWh Today’s lowest offer: 10.3¢/kWh
Oncor service territory 12/2001 rate: 9.7¢/kWh Today’s lowest offer: 9.5¢/kWh
TNMP service territory 12/2001 rate: 10.6¢/kWh Today’s lowest offer: 9.5¢/kWh
Sources: 12/01 data: PUC 2003 Scope of Competition Report 2/10/09 data: powertochoose.org
Texas’ Successful Competitive Electric Market: The Big Picture - Page 3 of 3 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Electric Choice Has Brought Investment to the State and Impacted Emissions Rates Investment in the Market According to the Texas State Data Center, 5 million new residents are expected in Texas by 2020. To meet increases in electric demand created by Texas’ rapid population and economic growth, Texas will require additional power, transmission and distribution, customer demand response and energy efficiency.
Generation Investment in ERCOT: Before and After Wholesale Competition
Since the opening of the competitive wholesale electric market, Texas has seen an influx of new power plants. That investment is expected to continue. The existing framework of Texas’ competitive wholesale electric market has helped lead generators to invest in and announce additional plans for over 27,000 MW of new generation, including natural gas, coal, nuclear and renewable power. The success of the wholesale market benefits all electric providers in ERCOT. Just as REPs sell power from the competitive wholesale market, the majority of municipally-owned utilities and electric cooperatives rely upon competitive wholesale providers for electricity.
Newer Generation Leads to Lower Emission Rates NOx Emissions Rates by State (lbs/MWh) Due in part to the rapid influx of new generation, as well as retrofitting of existing power plants, Texas’ generators have some of the lowest emissions rates in the nation, especially among states that utilize coal. Moreover, newer power plants are able to generate electricity more efficiently. So a newer power plant requires less fuel to produce the same amount of electricity, saving in both fuel costs and emissions.
Texas’ Successful Competitive Electric Market: The Big Picture - Page 4 of 4 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Conservation and Environmental Benefits from Texas’ Competitive Electric Market Energy Efficiency Programs Texas continues to be an energy leader through policies designed to improve the state’s energy efficiency programs and to bring improved technologies to the electric market. Energy efficiency programs have reduced customer consumption, which reduces the need for new generation.
Total Energy Savings by Investor-Owned Utilities 2003 - 2007
The Texas Electric Source: Frontier Associates, LLC Choice Act required electric utilities to provide energy efficiency programs and incentives, including low-income energy efficiency programs. In 2007, the energy efficiency goal for electric utilities was increased to 20 percent reduction in load growth for 2009 -- a doubling of the previous goal. In 2007 (the most recent data available), utilities in Texas exceeded their statewide legislative energy efficiency goals for the fifth straight year. Utilities achieved 167 MW of peak demand reduction in 2007, which was 23% above their 136 MW goal. Energy savings from standard offer programs and market transformation programs resulted in an equivalent reduction of 650,094 pounds of nitrogen oxide emissions per year.
Advanced Metering Systems Advanced metering systems are an important component of energy efficiency. Advanced meters will help customers better manage their electric usage by making available current information about their energy consumption and opportunities that enable them to control their energy consumption and bills. Advanced meters also will allow for more automation of utility functions such as meter reading and establishment of new service. CenterPoint Energy and Oncor have received approvals from the Public Utility Commission of Texas (PUC) to deploy advanced metering systems (AMS) across their respective service territories. The approved deployment plan for CenterPoint Energy calls for installation of advanced meters over five years beginning in March 2009 while Oncor’s approved deployment plan that was initiated in late 2008 will have installation of advanced meters completed by the end of 2012. Meanwhile, REPs in competitive areas of the state are developing innovative plans and products that will help customers use less energy (e.g., customer education programs, energy audits, Internet-controllable thermostats, etc.) Texas’ Successful Competitive Electric Market: The Big Picture - Page 5 of 5 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Texas Leading the Nation in Wind Power In 2005, the Renewable Portfolio Standard (RPS) was increased to 5,880 MW by 2015. The RPS also specifies a 500 MW target for “nonwind” renewable resources and a target for all renewables of 10,000 MW by 2025.
States With Most Installed Wind Capacity Source: American Wind Energy Association
Texas currently ranks first in the nation in installed wind capacity, indicating that the current competitive market structure is working to support utilization of this generation source. Moreover, nearly all wind farms in Texas were built at the risk and expense of private companies. In just the past five years, wind generation represents over $10 billion of invested capital, creating long-term jobs and hundreds of millions of dollars in state and local tax revenues.
Texas’ Successful Competitive Electric Market: The Big Picture - Page 6 of 6 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
Texas’ Successful Competitive Electric Market: The Big Picture Today, after seven years of retail electric competition, customers have dozens of offers to choose from among multiple retail electric providers (REPs). Fierce competition among REPs has maintained downward pressure on electric prices, even as input costs -- most notably natural gas -- have risen. In short, the competitive electric market has been a success. Even beyond prices, the competitive market has done much to enhance the investment in Texas. Over 36,000 MW of new, efficient and cleaner generation has come online since 1995, when the competitive wholesale electric market began. Texas was named the nation’s “Top State for Business” by CNBC in 2008, and in order to maintain our state’s growing economy, we must continue to provide reliable electric supply and service. The Texas Electric Choice Act, which created the competitive retail electric market, also included provisions to kick-start Texas’ renewable energy industry and new energy efficiency programs to help meet electric demand. Those programs have been expanded in recent years and, combined with the competitive wholesale market, have helped Texas become a nationwide leader in wind generation, while creating new investment and job growth in Texas
Key Points •
Natural gas prices peaked on July 1, 2008, then began to steadily fall. The average of the lowest available prices in each region of the state increased at a slower rate than natural gas prices, then quickly followed gas prices as they fell.
•
As of February 6, 2009, the lowest price offers are lower than the inflation-adjusted electric prices available prior to the beginning of competition, even as inflationadjusted natural gas prices have increased by 160 percent over the same time period.
•
In 4 of the 5 competitive service areas of the State, prices are now available that are lower than the pre-competition price—even without adjusting for inflation.
•
Since the opening of the competitive wholesale electric market, Texas has seen an influx of new power plants.
•
Texas’ generators have some of the lowest emissions rates in the nation, especially among states that utilize coal.
•
Texas continues to exceed its energy efficiency goals, and new advanced metering systems that are being deployed will help customers conserve power.
•
Texas leads the nation in wind capacity by a wide margin.
Texas’ Successful Competitive Electric Market: The Big Picture - Page 1 of 1 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Electric Prices in Competitive Areas of the State Performing Well The competitive electric market was designed to establish more efficient pricing for electricity service than available through regulation, while giving customers more choices in the market and maintaining electric reliability. The competitive electric market in ERCOT has benefited customers, especially given the substantial increases and fluctuations in natural gas prices and the rapid load growth in many areas of the state. And customers have responded to the benefits of the market. Since the start of retail competition, more than four out of five eligible ERCOT customers have chosen a new REP or a new product with their existing REP.
Prices Responding Quickly to Changes in Natural Gas Prices Natural gas-fired generation is currently the most expensive commonly-used generation in the state. Fortyseven percent of the electricity generated in ERCOT is powered by natural gas, which is why it has a big influence on wholesale electric prices in the region. However, while natural gas is the chief component of wholesale electric prices, the vibrant competitive electric market in ERCOT has helped push retail prices downward. The twelve-month forward natural gas price peaked on July 1, 2008, then fell through January 2009. However, the average of lowest available prices actually increased at a slower rate than natural gas prices, then quickly followed gas prices as they fell. Between January 2 and July 1, 2008, the natural gas price rose by 61%, while the lowest available electric price rose by only 26%. Between July 1, 2008 and February 6, 2009, the natural gas price fell by 50%, while the lowest available electric price fell by 32%. This is what you would expect from a strong competitive market: multiple competitors pushing electric prices downward. Texas’ Successful Competitive Electric Market: The Big Picture - Page 2 of 2 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Despite Price Increases for Natural Gas, Prices for Competitive Electric Offers Are Lower Today Than at the Start of Competition The competitive electric market opened in ERCOT on January 1, 2002. Thus, December 2001 marks the last time fully regulated pricing was in effect for much of ERCOT, and provides a fair point of comparison to assess the performance of the market. Back in 2001, before the market opened, Texas ranked 14th-highest in average residential electric price. The most recent available data, which fails to reflect increases in other states and the decreases in competitive prices in Texas, ranks Texas 15th-highest, even despite the rapid increase in natural gas. As of February 6, 2009, the lowest available fixed price and lowest available variable price offers are lower than the inflation-adjusted electric prices of December 2001. Meanwhile, even after adjusting for inflation, natural gas prices have increased by 160 percent over the same time period. Thus, even though the main input cost for electric power has nearly tripled in inflation-adjusted dollars, customers have available inflation-adjusted prices less than the electric prices of seven years ago. Even more impressive, customers in the AEP Texas North, CenterPoint Energy, Oncor and TNMP service territories have offers available that are lower than the December 2001 price, even without adjusting for inflation. Customers in the AEP Texas Central service territory have offers that are only marginally higher than prices of December 2001 when not adjusted for inflation.
Lowest Available Offers February 10, 2009 (non-inflation adjusted) AEP Texas Central service territory 12/2001 rate: 9.6¢/kWh Today’s lowest offer: 10.4¢/kWh
AEP Texas North service territory 12/2001 rate: 10.0¢/kWh Today’s lowest offer: 9.8¢/kWh
CenterPoint Energy service territory 12/2001 rate: 10.4¢/kWh Today’s lowest offer: 10.3¢/kWh
Oncor service territory 12/2001 rate: 9.7¢/kWh Today’s lowest offer: 9.5¢/kWh
TNMP service territory 12/2001 rate: 10.6¢/kWh Today’s lowest offer: 9.5¢/kWh
Sources: 12/01 data: PUC 2003 Scope of Competition Report 2/10/09 data: powertochoose.org
Texas’ Successful Competitive Electric Market: The Big Picture - Page 3 of 3 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Electric Choice Has Brought Investment to the State and Impacted Emissions Rates Investment in the Market According to the Texas State Data Center, 5 million new residents are expected in Texas by 2020. To meet increases in electric demand created by Texas’ rapid population and economic growth, Texas will require additional power, transmission and distribution, customer demand response and energy efficiency.
Generation Investment in ERCOT: Before and After Wholesale Competition
Since the opening of the competitive wholesale electric market, Texas has seen an influx of new power plants. That investment is expected to continue. The existing framework of Texas’ competitive wholesale electric market has helped lead generators to invest in and announce additional plans for over 27,000 MW of new generation, including natural gas, coal, nuclear and renewable power. The success of the wholesale market benefits all electric providers in ERCOT. Just as REPs sell power from the competitive wholesale market, the majority of municipally-owned utilities and electric cooperatives rely upon competitive wholesale providers for electricity.
Newer Generation Leads to Lower Emission Rates NOx Emissions Rates by State (lbs/MWh) Due in part to the rapid influx of new generation, as well as retrofitting of existing power plants, Texas’ generators have some of the lowest emissions rates in the nation, especially among states that utilize coal. Moreover, newer power plants are able to generate electricity more efficiently. So a newer power plant requires less fuel to produce the same amount of electricity, saving in both fuel costs and emissions.
Texas’ Successful Competitive Electric Market: The Big Picture - Page 4 of 4 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Conservation and Environmental Benefits from Texas’ Competitive Electric Market Energy Efficiency Programs Texas continues to be an energy leader through policies designed to improve the state’s energy efficiency programs and to bring improved technologies to the electric market. Energy efficiency programs have reduced customer consumption, which reduces the need for new generation.
Total Energy Savings by Investor-Owned Utilities 2003 - 2007
The Texas Electric Source: Frontier Associates, LLC Choice Act required electric utilities to provide energy efficiency programs and incentives, including low-income energy efficiency programs. In 2007, the energy efficiency goal for electric utilities was increased to 20 percent reduction in load growth for 2009 -- a doubling of the previous goal. In 2007 (the most recent data available), utilities in Texas exceeded their statewide legislative energy efficiency goals for the fifth straight year. Utilities achieved 167 MW of peak demand reduction in 2007, which was 23% above their 136 MW goal. Energy savings from standard offer programs and market transformation programs resulted in an equivalent reduction of 650,094 pounds of nitrogen oxide emissions per year.
Advanced Metering Systems Advanced metering systems are an important component of energy efficiency. Advanced meters will help customers better manage their electric usage by making available current information about their energy consumption and opportunities that enable them to control their energy consumption and bills. Advanced meters also will allow for more automation of utility functions such as meter reading and establishment of new service. CenterPoint Energy and Oncor have received approvals from the Public Utility Commission of Texas (PUC) to deploy advanced metering systems (AMS) across their respective service territories. The approved deployment plan for CenterPoint Energy calls for installation of advanced meters over five years beginning in March 2009 while Oncor’s approved deployment plan that was initiated in late 2008 will have installation of advanced meters completed by the end of 2012. Meanwhile, REPs in competitive areas of the state are developing innovative plans and products that will help customers use less energy (e.g., customer education programs, energy audits, Internet-controllable thermostats, etc.) Texas’ Successful Competitive Electric Market: The Big Picture - Page 5 of 5 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
02/09
Texas Leading the Nation in Wind Power In 2005, the Renewable Portfolio Standard (RPS) was increased to 5,880 MW by 2015. The RPS also specifies a 500 MW target for “nonwind” renewable resources and a target for all renewables of 10,000 MW by 2025.
States With Most Installed Wind Capacity Source: American Wind Energy Association
Texas currently ranks first in the nation in installed wind capacity, indicating that the current competitive market structure is working to support utilization of this generation source. Moreover, nearly all wind farms in Texas were built at the risk and expense of private companies. In just the past five years, wind generation represents over $10 billion of invested capital, creating long-term jobs and hundreds of millions of dollars in state and local tax revenues.
Texas’ Successful Competitive Electric Market: The Big Picture - Page 6 of 6 Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 phone 512-474-6725 • fax 512-474-9670 • www.aect.net
