Eventful Week for the Power Grid: nuke shutdown, price spikes, new usage record

The South Texas Project: "human error" apparently caused the partial shutdown of the nuclear reactor on Friday.

It’s been an eventful few days for the Texas power grid. Since last week, prices have spiked in the wholesale electricity market, one of the units of a major nuclear plant tripped off due to “human error,” and Texans broke another record for energy usage. Given the comparatively high electric prices already paid by Texans and concerns over continuing problems with the deregulated market, the developments merit examination.

Here they are, in no particular order:

*On Monday, wholesale electricity that more typically sells for less than $30 per megawatt-hour spiked to more than $2,000. That’s an increase of more than 7,000 percent. Prices also spiked several times to the $1,000 level. A price spike for $2,200 is especially startling, given that the regulatory cap is set at $2,250. That is, the wholesale prices legally could not have gone much higher. In most other jurisdictions the caps are set no higher than $1,000 per megawatt hour.

*According to the organization that manages the power grid, the Electric Reliabiilty Council of Texas, a new record for statewide power use was set on Monday. It was the fourth new usage record in as many weeks. ERCOT reported that the new record was broken at about 4 p.m., when demand spiked to 65,715 megawatts. The usage spike came just as the spot market price was spiking to $2,200 — probably not a coincidence.

*Unit 1 of the South Texas Project apparently tripped off on Friday. The event, first reported in a trade journal SNL Power Daily, was apparently caused by human error. “The NRC said in its Aug. 23 event report that the unit experienced an automatic reactor trip that was caused by an inadvertent turbine signal initiated during testing,” reported SNL's Jay Hodgkins, citing the U.S. Nuclear Regulatory Commission. The publication reported that power was restored by Monday. It’s unclear whether the outage contributed to the price spikes, although that seems likely.

*In response to the loss of a major unit on Friday, ERCOT activated the first stage of its emergency response procedure to prevent blackouts. That means that some industrial consumers that previously agreed to have interruptible service lost their power. It was the third time this year that ERCOT has gone to that stage of its emergency response procedures. The major unit that went down was probably the nuke (as referenced in the SNL Energy article) although ERCOT won’t say for sure. That's because such a disclosure would violate ERCOT's rules for competitive information.

The developments are unsettling, especially given that wholesale prices tend to trickle down to residential consumers. A dysfunctional wholesale market can lead to higher home lighting bills. Already Texans pay more than consumers in Oklahoma, Louisiana and Arkansas. Prices also remain higher than the national average. Prior to deregulation, Texans paid below the national average.

-- R.A. Dyer

Of debt and ring-fencing: EFH in Default

Souder

This just in: The Dallas Morning News reports that the debt rating for Oncor’s parent company, Energy Future Holdings, has been downgraded by all three debt rating agencies. Reporter Elizabeth Souder notes in a blog post that EFH has offered to exchange old notes maturing in 2017 for new notes maturing in 2020 — but that the company is paying debt holders less than 80 cents on the dollar.

“In response to these exchange offers, two agencies, Moody's and Standard and Poor's, downgraded the Company to default because EFH didn't pay the entire loans back,” explained Souder. “Both agencies said the default ratings are temporary. Another agency, Fitch Ratings, cut its rating to CCC from B-.”

You can find a link to her blog post here.

In response to the downgrades, Oncor issued a press release “reiterating its separateness” from EFH’s shaky debt situation. EFH is the majority owner of Oncor, which is the regulated transmission and distribution company that serves the Dallas-Fort Worth area. It appears the press release was intended to dispel fears that EFH’s deteriorating financial situation could threaten Oncor and its ratepayers.

Under the terms of Energy Future Holdings’ 2007 buyout of TXU, there were legally binding “ring-fencing” agreements put in place that are intended to separate and protect Oncor’s ratepayers from the risk created by EFH’s massive debt. As a consequence, EFH’s debt cannot be transferred to Oncor, nor can Oncor have any obligation to support that debt, according to the press release. It also notes that Oncor and its assets are legally separate from EFH, and that EFH’s debt holders cannot initiate any bankruptcy, reorganization, insolvency, liquidation or any like proceeding against Oncor.

The situation merits close attention. Citing the massive amount of debt involved, consumer groups previously have questioned whether EFH’s buyout of the state’s largest electric company was in the public interest. Questions also have been raised about whether “holes” in the ring fence have led to higher-than-necessary rates for Oncor’s ratepayers.

You can check out a copy of the Oncor press release here.

PUC sets new energy efficiency rules

State programs intended to increase energy efficiency — but which also stand to increase consumer bills — will operate under new rules as a result of recent action by the Texas Public Utility Commission.

The PUC last year began the process of revamping its rules for its ongoing Energy Efficiency Implementation Program. Under this program, utilities are required to spend money to encourage energy efficiency at the consumer level. For instance, the program provides funding to encourage the marketing of energy-saving appliances. The rules also establish utility goals for reducing overall energy demand and utilities that meet or exceed their goals become eligible for performance bonuses. But the Energy Efficiency Implementation Program can end up increasing electricity bills because both the cost of administering the program and the cost of the bonuses are recoverable by the utility in rates passed on to the consumer.

Rule changes initially proposed by Commission staff and supported by utilities and environmental groups raised the energy efficiency goals dramatically, with a corresponding increase in the program cost cap and available bonuses. The Steering Committee of Cities Served by Oncor, a coalition of municipalities represented by the Lloyd Gosselink law firm, urged the Commission to consider the cost effectiveness of those proposed changes — and the PUC commissioners echoed those concerns.

The rules ultimately adopted by the PUC commissioners on July 30 attempt to strike a balance between the interest of promoting energy efficiency and the interests of ratepayers. For instance, the Commission agreed that the proposed goals will be raised in the future, although they will be raised at a much lower rate than originally proposed. The performance bonus also will remain at current levels, although the administrative cost cap has been raised to account for the raised goals.

Additionally, the Commission imposed a cost cap for both residential and non-residential customers. For the 2011 and 2012 program years the cost cap will be $1.30 per month for residential customers, or .0001 cents per kilowatt/hour — whichever is higher. The cap increases again in 2013. The Commission also instituted cost protections relating to the method by which the cost cap and the bonuses are calculated. For example, under the new rules the cost of the bonuses are to be included in the cost cap for utilities.

The rules will go into effect December 1.

-- Eileen McPhee

Energy Efficiency at the PUC

Energy efficiency was the topic of the day at the Public Utility Commission during a workshop held in Austin on June 30. The agency is considering changes to the state’s energy efficiency program, which requires transmission and distribution utilities to provide customers with incentives to be more energy efficient.

Here’s a bit of background on the issue: the state’s transmission and distribution utilities do not administer energy efficiency programs for free, but rather are permitted to recover the costs from ratepayers. Additionally, utilities that exceed their demand reduction goals are eligible to receive a bonus. The bonuses awarded to utilities can range anywhere from $5 million to $10 million.

Oncor, a transmission and distribution utility, offered a presentation on the estimated cost of meeting the proposed demand reduction goals. Frontier Associates and Good Company, both consulting firms, gave presentations on the benefits of meeting demand reduction goals and the cost effectiveness of Texas’ energy efficiency program. Representatives from the State Energy Conservation Office and the Texas Department of Housing and Community Affairs reported on federal money being spent within the state on energy efficiency measures, such as weatherization. Finally, the Retail Electric Provider Coalition offered a presentation on the potential cost impact of the proposed amendments to consumers.

Written comments have been previously filed in this project and can be found here. The Commission is expected to make a decision on the rules in July or early August.

 -- Eileen McPhee

New Report: Deregulated Generation Companies Profit During Recession

Electric deregulation was supposed to benefit consumers — that was the promise during the 1990s when several states adopted the market system. But according to a new report, some of the biggest winners last year were the major generation companies.

Released by the American Public Power Association, the May 2010 study finds that generation companies operating under deregulation in the Northeast earned healthy profits in 2009 — despite facing the nation’s worst economic crisis since the Great Depression.

The APPA report also concluded that generation companies under deregulation made much more money than generation companies still subject to regulation. Given the relatively high earnings, it's not surprising that deregulated generation companies oppose any return to regulation. One company warned that if “market deregulation is reversed or discontinued, our business prospects and financial condition could be materially adversely affected.”

Texas implemented electric retail competition in 2002 after authorizing electric deregulation in 1999. Since 2002, rates have remained consistently above the national average Prior to adoption of the deregulation law, rates in Texas were consistently below the national average. Rates in Texas also have increased by a far greater extent than they have in neighboring regulated states such as Louisiana and Oklahoma.

The APPA is a trade group associated with public electric companies such as municipally owned utilities. You can read the organization’s full report here.

CREZ Update: Lines could impact 12 counties

A transmission line project proposed just this week for the Amarillo area is already stirring controversy, according to a news story in the Amarillo Globe-News. Writer Kevin Welch  reports in the newspaper's June 17th edition on the application by Sharyland Utilities to build lines from southern Carson County to southeast Deaf Smith County.  The utility has proposed the route shown above, although that route could change as more landowners express their views at the Texas Public Utility Commission.

"In all the cases we've been involved in, in none of them have the commissioners chosen the preferred route," Lloyd Gosselink attorney Georgia Crump told the newspaper. "They're trying to weigh all the criteria. It's not a science, it's an art." Among Crump's clients is a property owner with lines passing north of Palo Duro Canyon State Park.

Sharyland's application was among three filed by utilities this week for major transmission projects. The lines included in the applications will transmit power from wind generators in West Texas and the Panhandle, and are associated with the state's Competitive Renewable Energy Zone program, or  "CREZ" for short.

The transmission lines proposed by Sharyland could impact property owners in Armstrong, Carson, Deaf Smith, Oldham, Potter and Randall counties. Separately, Oncor filed an application for lines that could impact landowners in Tarrant, Wise and Parker Counties. A third company filed an application for a transmission project near Abilene, with lines that could impact Kent, Dickens and Scurry counties.

With the filings this week, a procedural clock begins at the PUC under which the agency has 180 days to conduct hearings, consider testimony and render decisions.

Power Line Dispute in the Hill Country

A massive transmission line proposed for Central Texas is causing big headaches for the mayor of Kerrville, who fears it could harm his community's economic development.

Speaking to KENS Channel 5 in San Antonio, Mayor David Wampler said his community could lose a half billion dollars because of the line.

“The City of Kerrville has spent about $14 million in infrastructure improvements to bring utilities and roads to areas that would be affected by this line,” he said.

State Rep. Harvey Hilderbran also expressed concern. In letters written to the Public Utility Commission and the Lower Colorado River Authority, Hilderbran called for a change in the proposed route. “We want that line to move away from the Kerrville corridor,” he said.

The PUC already has given the green-light to several transmission projects associated with so-called "Competitive Renewable Energy Zones." The CREZ lines will criss-cross West Texas, the Panhandle and Central Texas -- and potentially harm scenic views and lower property values along the way.

It's possible for affected landowners to block individual routes, but only if they intervene in a complicated legal process at the Public Utility Commission. More information about CREZ and the proposed transmission lines can be found at the PUC website.