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. Continue Reading ERCOT’s State of the Market Report

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 issue. Approximately 5,600 megawatts (MW) of electric generation have recently retired in Texas causing a concern over whether enough reserve capacity exits to avoid rolling blackouts during the peak summer heat. On May 1, 2018, the Texas Senate Committee on Business and Commerce (Committee) held a meeting to discuss concerns amongst the Senators whether the Electric Reliability Council of Texas (ERCOT) had all of the tools necessary to address the lower reserve margins.  The speculation over what might occur this summer began with ERCOT’s Winter Capacity Demand Report estimated the reserve margins in ERCOT as 9.3% for the summer.

During the hearing, both the Public Utility Commission of Texas (PUCT) Chairman Walker and ERCOT representatives promoted ERCOT’s preparation for the summer and insisted ERCOT had all of the tools necessary to respond to system shortages. PUCT Chairman Walker specifically pointed to ERCOT’s demand response tool, where large customers come offline at times of high system demand.  In addition the low reserve margin reported at 9.3% a few months ago resulted in 525MW of generation coming back online.  The current reserve margin going into summer is now approximately 11%.  ERCOT stated that most of the megawatts coming back online were from mothballed units and that it is likely the possibility of higher prices this summer has made these units economical to run, and can be viewed as an indication the market is functioning as expected.

While the primary concern of the Committee was the potential for record high electricity prices, the Committee also discussed capacity markets more generally and what has changed in the market since the last time the topic of a capacity market was brought up in the Texas Legislature. To respond, PUCT Chairman Walker emphasized her strong belief in the ERCOT market and any changes regarding price fluctuations are merely a result of the cyclical nature of the market.  Chairman Walker pointed to the high prices and low capacity experienced by the market in 2005 and 2006 that encouraged more generation investment was made as a response to these price signals.  PUCT Chairman Walker also reiterated her support of the energy only market and her belief that it will work this summer.

The Committee also spent time discussed the impacts of the Federal Production Tax Credit (PTC) on the ERCOT system, the transparency of the prices in the Texas Government Land Office (GLO) contracts, and presentations from Austin Energy and CPS Energy on successes and failures for both of these municipally owned utilities. From the broad discussions taking place at the meeting it is safe to assume the Texas Legislature will be watching the ERCOT market this summer and energy is likely to be a topic of debate in the coming legislative session.

If you have questions about this or other related matters please contact Chris Reeder, Chris Hughes, Maria Faconti, Jessica Morgan or Mark Vane.

The Texas Commission on Environmental Quality (TCEQ) is in the process of renewing its General Permit to Discharge under the Texas Pollutant Discharge Elimination System Permit, Permit No. TXR150000, issued on February 19, 2013 and effective on March 5, 2013, which authorizes discharges from construction sites into surface water in the state.  The new permit will go into effect March 5, 2018 and will expire five years from the effective date.

Developers and other parties that currently hold an authorization to discharge stormwater under the existing permit will want to take note of the provisions in the new permit for obtaining renewed authorization to discharge; for large construction activities: Continue Reading Texas Developers, Mark Your Calendars for March: Changes Coming for Texas Stormwater Permit

On October 25, 2017, Commissioner Keith Anderson of the Texas Public Utility Commission (PUCT) released a memo regarding the draft Preliminary Order in which he expresses concerns over the application submitted by Sempra Energy to purchase Oncor Electric Delivery (the state’s largest utility) for $9.45 billion.  The memo, which results from Commissioner Anderson’s continued concern regarding the financing of the deal, requested that the Commission add to their preliminary order in order to require Sempra to clarify several issues during the hearing on the merits.

In the memo, Commissioner Anderson states Continue Reading Texas Regulators Seek Additional Clarification on Sempra/Oncor Deal

On September 1, 2017, after two years of extensive studies conducted by multiple stakeholders, Lubbock Power & Light (“LP&L”) submitted its formal application to the Public Utility Commission of Texas (“PUCT”) requesting to leave the Southwest Power Pool (“SPP”) and join the Electric Reliability Council of Texas (“ERCOT”). Because the City of Lubbock is one of the largest municipalities ever to leave another power region and attempt to join ERCOT, the transition has been an important topic in Texas since its introduction in 2015. Continue Reading LP&L Files Formal Application to Join ERCOT

As you are all aware, hurricane Harvey had a major impact on Texas and has left many residents without power.  On August 28th, in order to facilitate the monitoring of the effects of the hurricane, the PUCT opened PUC Project 47552 – Issues Related to the Disaster Resulting From Hurricane Harvey.  At today’s open meeting, PUC commissioners discussed this project as well as impacts the hurricane has had on central and southeast Texas.  During this discussion, Commissioner Anderson noted that he would like more detailed information from every entity affected by the hurricane.  Because of this statement, we urge you to maintain detailed information as to how the hurricane might have affected you and your provision of service.  Also, be prepared to answer questions from the commission and possibly ERCOT/TRE detailing any storm related damages or outages as well as how you have handled any damages.

Contract our Texas regulatory attorneys, Chris Reeder or Maria Faconti, if you have any questions.  We sincerely hope you have not been affected by the hurricane.

Part 4:  Lessons from Existing Storage Applications

2000px-Texas_flag_map.svgParts I, II and III of our examination of the Texas energy storage market review various operating technologies in the state, including compressed air energy storage, battery storage, thermal storage, and flywheels. Perhaps, more importantly, is the diverse range of applications of electric storage technology being illustrated at the utility, microgrid and community levels.

Texas has become a leading example of the economic value of storage through innovative applications such as Continue Reading The Texas Energy Storage Market: A Four-Part Examination

Part 3:  Other Innovative Storage Technologies2000px-Texas_flag_map.svg

Part 1 of this examination of the Texas energy storage market reviewed utility-scale applications in the state, while Part 2 highlighted several of the smaller-scale microgrid and community applications.  This post discusses the other innovative storage technologies being used throughout the state. Continue Reading The Texas Energy Storage Market: A Four-Part Examination

Part 2: Microgrid and Community Storage Applications

2000px-Texas_flag_map.svgPart 1 of our examination of the Texas energy storage market reviewed utility-scale applications.  This post highlights several of the smaller-scale microgrid and community applications operating in the state.

Lithium-Ion Battery Technologies

A number of utilities are utilizing lithium-ion battery technologies for these applications, including: Continue Reading The Texas Energy Storage Market: A Four-Part Examination

Part I: Texas assumes a leading role in defining the value of storage

2000px-Texas_flag_map.svg

This first of four posts examining energy storage in Texas provides an introduction to storage technologies and describes the numerous utility-scale battery technologies currently operating in the state. The storage of electric energy is often called the “holy grail” of the future electric grid.  While Massachusetts, California and Oregon have led in storage development through mandates and financial incentives, Texas is assuming a lead role in the nation through its innovative application of storage that further defines the vital role storage can play in enhancing grid reliability and lowering rates. Continue Reading The Texas Energy Storage Market: A Four-Part Examination