Texas

February 25th, 2014

Texas Capacity Market Argument Shelved

Dear Clients,

Congratulations!

Your efforts have contributed to Texas staving off another layer of government.

Debate and talks around ERCOT implementing a capacity market have been halted. Commissioners Kenneth Anderson, Donna Nelson and Brandy Marty met Friday, February 21 to discuss resource adequacy and shifted their focus from capacity to alternative ways of crafting appropriate reserve margins.

Rapid Power Management thanks you for any effort put forth in contacting the commissioners either by phone call or email. We truly believe this is the best option for the ERCOT market -  we are in the clear for now, but it does not mean the issue won’t be considered again.

Click here for a short article on the matter. We will keep you informed of any new updates as they come.

Thank you,

The Rapid Power Management Team

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December 2nd, 2013

Texas Power Consumers – Your Action is Needed!

If you agreed with RPM’s assessment of the current and future market situation in our last Energy Buzz, please take the time to write our commissioners. Below is an letter drafted for you to use. You may either directly mail your letter and/or email the commissioners individually.

 

Public Utility Commission of Texas

1701 N. Congress Avenue
PO Box 13326
Austin, Texas 78711-3326

 

Re: Petition Against the Introduction of a Capacity Market in ERCOT

 

Dear Commissioners,

I am writing this letter to you on behalf of my company, (your company name), its employees, and our partners. As a Texas power consumer, it is my belief that the implementation of a capacity market would be a large mistake for the ERCOT grid.

Using other capacity markets like PJM as an example, it is clear that the regulations will raise the price of electricity. Texas leads the nation in economic success and job creation and those high rates will in turn burden the current prosperity of the Texas economy. As John Farris with Nucor Steel stated, “there is no need to abandon the current market structure that has powered our state’s economy during the recent recession.”

Additionally, there is no guarantee that a capacity market will prevent rolling blackouts during extreme weather demands or spur new generation growth in our state. These seem to be the main arguments for a capacity market but ERCOT remains the only grid to never have experienced collapse and PJM has actually seen less new generation built than Texas.

Our current energy-only market has provided sufficient reserves year after year. Capacity markets are not the answer and I urge you to keep my and other citizens’ opinions in mind before making a decision.

Sincerely,

(Your Name)

 

PUC Chairs
Name Phone Email
Donna Nelson 512-936-7015 donna.nelson@puc.texas.gov
Kenneth Anderson 512-936-7005 kenneth.anderson@puc.texas.gov
Brandy Marty 512-936-7025 brandy.marty@puc.texas.gov
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November 19th, 2013

Texas Power Consumers – Your Action is Needed!

Dear Texas Client,

Please read this email due to the direct effect it has on your future energy costs in Texas. If a capacity market is implemented, your energy costs will rise.

As the State of Texas considers the most significant change to the deregulated energy market since its start in 2002, your opinion and action is necessary.   RPM has devoted significant resources into deciphering the pros and cons of Texas moving to a capacity based market. From what we have gathered, creating an additional layer of government regulation and increasing end-user cost for a false market created by regulators is not in the best interest of our clients.

Background

Electricity generation in Texas has functioned under a non-binding target reserve margin of 13.75% to ensure stable grid operation. A mandatory capacity reserve margin could result in excessive unnecessary, unavoidable costs. A reserve margin refers to the amount of available power capacity above the capacity needed to meet normal peak demand levels. That is, the amount of power available above and beyond the normal usage in Texas.  The target reserve margin is set by the Public Utility Commission (PUC) in an effort to avoid rolling blackouts during extreme weather circumstances.  The PUC is governed by an appointed board of three members.

Summer

Courtesy of ERCOT.
Disclaimer: This chart predicts the 2014 Summer reserve margin to surpass the available generation. In a 2011 report, ERCOT shows Summer forecasts for all years from 2012 – 2022 falling below the reserve margin. In 2012 the ERCOT grid maintained at least a 13.75% reserve margin and in 2013 generation has kept up, even experiencing our highest demand since 2011 on August 7, 2013.

Winter

Courtesy of ERCOT.

Recent hearings at the PUC have indicated that two of the three board members may support the implementation of a mandatory reserve margin – meaning a capacity market would be implemented.  In basic terms, a capacity market provides guaranteed payments to electricity generators, outside of free market forces, to encourage additional generation investment.

Currently, generators are paid based on the electricity they produce.  A capacity market would pay generators regardless of whether they produce power or not.

 

Why is RPM against a capacity market and for the current energy-only market?

1)      Texas consumers are adverse to additional taxes or fees on their electricity bill.

2)      The current energy-only market has provided sufficient reserves even during the period of rapid growth in the population and Texas economy.

3)      The free market will encourage additional generation when needed.

4)      Encouraging fewer regulations/ barriers-to-entry for electricity generators could spur additional investment without raising costs for consumers.

5)      Mandatory reserve margins will not guarantee the prevention of rolling blackouts during extreme weather conditions. Additionally, ERCOT has never experienced a grid collapse, unlike many other parts of the US where capacity markets are used.

6)      Energy efficiency programs remain in their infancy and such programs have significant room for growth.

7)      Innovative, free market solutions like Demand Response programs are just gaining momentum and a great way to deal with times when demand is high.

8)      ERCOT will not dip below its 13.75% target reserve margin until after 2018. Please see page 14 of the presentation given by Commissioner Kenneth W. Anderson here.

9)      Renewable energy costs continue to decline and implementation continues to grow.

10)   Smart meter technology will allow Retail Electric Providers the ability to provide time-of-use pricing for consumers, providing an additional free market option to reduce peak demand.

 

Take Action

In addition to the points listed above, please find two links below which dive deeper into the issue.

If you agree with our assessment and the information found in the linked articles below, please take action immediately by contacting the PUC and your local legislator.  If you have additional questions or concerns, please call your RPM Energy Manager for further discussion on this important, albeit complicated, issue.

 

PUC Chairs
Name Phone Email
Donna Nelson 512-936-7015 donna.nelson@puc.texas.gov
Kenneth Anderson 512-936-7005 kenneth.anderson@puc.texas.gov
Brandy Marty 512-936-7025 brandy.marty@puc.texas.gov

 

Who Represents Me in the Texas Legislature?

http://www.fyi.legis.state.tx.us/Home.aspx

Supporting articles on the subject:

Restructuring Today:

http://www.restructuringtoday.com/public/12390print.cfm

November 2013 Capacity Report: A Retreat From Electric Competition:

http://tcaptx.com/reports

 

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August 14th, 2013

Department of Energy Approves Third LNG Export Facility

On Wednesday, August 7, the Department of Energy approved the United States’ third liquefied natural gas (LNG) terminal. The three now approved projects will have the combined ability to export about 5.6 billion cubic feet of gas a day.

The latest approval, an export terminal in Lake Charles, Louisiana, plans to ship 2 billion cubic feet a day. The approval lasts 20 years and allows sales to all countries. The Federal Energy Regulatory Commission (FERC) still has to grant a construction permit and is contingent upon a review of detailed plans.

The first export project to win approval was Cheniere Energy’s Sabine Pass Liquefaction facility in 2011. The terminal was designed for up to six LNG trains, and is currently entered into four 20-year agreements with various customers. Please see below for detailed contract information:

More than a dozen export proposals are pending before the Department of Energy. While demand for natural gas is strong, analysts are predicting that a limited amount of buyers remain.  The facilities also cost multiple billions of dollars to build. Taking all of this into consideration, Moody’s Investor Services predict only four export projects are predicted to be built.

The debate on what effect the export facilities will have on domestic prices still remains. Some believe the benefit for the US economy outweighs the fact prices may rise.

Click to view other Energy Buzz articles.

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May 24th, 2013

Natural Gas Prices Rally After Energy Department Announcement

Natural gas prices are on the rise again after the Energy Department announced its approval of the first LNG terminal since 2011.

The Freeport Development LP’s project on Quintana Island, Texas, is the second facility to receive approval from the Energy Department to send gas to countries without free-trade agreements with the United States. The terminal still needs approval from the Federal Energy Regulatory Commission. Anticipated export capacity was announced at 1.4 billion cubic feet a day for the ConocoPhillips, Dow Chemical Co., and Osaka Gas Co. joint venture.

London based Goldman Sachs analyst Samantha Dart said in a report emailed to BusinessWeek on May 21 that, “These recent developments support our view that at least 6.8 billion cubic feet a day of liquefaction of capacity will be built in the U.S.”

Proposed Liquefaction facilities (Trains 1 – 3) at Quintana Island Terminal (courtesy of freeportlng.com)

Cheniere Energy

The Energy Department approved Cheniere Energy Inc.’s Sabine Pass LNG Terminal, located in Louisiana, in May 2011 for exports of as much as 2.2 billion cubic feet a day. Just last month, the Sabine Pass LNG Terminal entered into its sixth LNG Purchase and Sale Agreement with Centrica.

Future of LNG Exports

At least twenty applications for export terminals have been submitted in recent months to the Energy Department, which could export the equivalent of 41 percent of U.S. total production this year according to Energy Department data. Those proposed projects will be reviewed for approval by the Energy Department on a case-by-case basis.

London based Goldman Sachs analyst Samantha Dart said in a report emailed to BusinessWeek on May 21 that, “These recent developments support our view that at least 6.8 billion cubic feet a day of liquefaction of capacity will be built in the U.S.”

Arguments for increasing exports at a much more dramatic pace seem to be losing traction. Recent reports following the Freeport announcement are suggesting only two more projects will need approval by mid-2016 to reach 6.5 billion cubic feet a day of gas by 2020, according to New York based Morgan Stanley analyst, Adam Longson.

Those against exporting LNG contend that allowing unlimited export of the gas could raise prices for US consumers – which already rings true simply based on announcements. Proponents for LNG exports believe that without the US’s participation in the process, we will fall behind as terminals are built abroad.

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April 3rd, 2013

Liquefied Natural Gas to Begin Shipping in 2015

Sabine Liquefaction, a subsidary of Cheniere Energy Partners, L.P, has entered into a liqufied natural gas (LNG) sale and purchase agreement with their sixth customer, Centrica. Centrica serves over 11 million households in Britain. The agreement allows Centrica to purchase 91,250,000 MMBtu of LNG volumes per year for twenty years.

Sabine Liquefaction is developing six liquefaction trains and has already begun construction on the first two. They expect to start construction on the third and fourth trains in the first half of 2013 and the permitting process and preliminary engineering have been initiated for the fifth and sixth trains. After all six trains are completed, the Sabine Pass will be able to ship out approximately 4 billion cubic feet of gas per day.

A liquefaction train is what an LNG plant uses to compress natural gas into a liquefied state. The gas is first refined to remove any impurities and is then cooled down to approximately -160 degrees celcius for shipping.

Cheniere isn’t the only US company to have signed long-term agreements with major LNG buyers and recent indications point to several more long-term contracts being announced in the near future. What was just a possibility last year has become a reality in 2013.

As natural gas becomes a world commodity, supply will decrease for the United States as demand increases in places like China and Japan where costs are significantly higher. This  could provide upward pressure on domestic gas rates and once natural gas prices reach $4.50 – $5.00, coal and other fuel sources can become attractive electricity generation options again – potentially causing electricity rates to rise.

Below is a snapshot of current global natural gas prices. Courtesy of FERC.

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February 15th, 2013

Panama Canal Expansion Will Help Provide a World Market for US Natural Gas

For nearly 100 years, the Panama Canal has provided a faster and safer path for goods to be shipped between Asia and North America.  However, with ships growing wider and deeper to carry more goods per trip, the Canal has been forced to expand.  Six years ago, Panama started a $5.25 Billion dollar expansion so that vessels up to three times larger can carry goods along the 48-mile route.

Meanwhile in the United States, technological advances in the drilling industry have allowed us to tap into some of the largest natural gas reserves in the world.  Though natural gas prices in the United States have steadily declined since 2008, global demand and global prices are rising.  Previously a local commodity, natural gas is now being transformed into a liquid state, becoming Liquefied Natural Gas (LNG), making it easier to be shipped overseas and sold at higher prices.  Therefore, shale gas in the US combined with an expanded Panama Canal provides an opportunity for natural gas to enter the global marketplace. This could mean pricing mirroring the oil market, thus eliminating the current low price advantage of the domestic stock.

Jorge Luis Quijano, the Panama Canal Administrator, promises that the expanded passage through Panama will create new markets to exploit bigger ships and deeper ports (Washington Post). The new locks will help accommodate another 2,600 ships, oil tankers and LNG carries.  Previously, only 10% of the world’s 369 LNG-carrying vessels could pass the canal.  However, the expansion will accommodate up to 80% of the fleet.  Expected completion is June 2015.

For more information on the opportunities the expansion can bring please visit this link.

Two cargo ships entering Panama Canal’s Gatun Locks. Ships are raised up to 87 feet to pass through the different lanes of the canal. Image courtesy of PRWeb.

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February 15th, 2013

Transmission Cost Recovery Factor Charge Increase

The Transmission Cost Recovery Factor or TCRF is a charge found on electricity customer’s bills in the Oncor territory. Customers may notice that this charge fluctuates around 2 times a year. Depending on your meter’s rate class, the charge is calculated per kWh or per kW. Larger customers will always find their charge is based per kW. Click for detailed information on the TCRF.

In an open meeting with Oncor, approximate cost increases were detailed for the charge. In addition to the normal twice-a-year updates, the charge is expected to increase 2/10 of a penny per kWh by the end of 2013 and an additional 2/10 of a penny per kWh by the end of 2014. That totals nearly half a penny increase per kWh beginning 2015.

Below are example calculations from a customer with 363 kW demand and 112,800 kWh usage:

Total Current TCRF Charge: $756.70, which comes out to be around $.0067/kWh

With the 2/10 penny increase by the end of 2013, the total TCRF Charge would be: $981.36, which comes out to $0.0087/kWh

With the 2/10 penny increase by the end of 2014, the total TCRF Charge would be: $1,206.96, which comes out to $0.0107/kWh

The total overall increase from now until 2015 is $449.26 or a 37% increase for the particular example above. Exact percentages will depend on your load particulars.

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February 15th, 2013

Transportation Charges with Atmos Increasing

If you’re a transportation customer with Atmos, you may have noticed an increase on your latest bill. The monthly charge has increased from $450 to $600. While the customer charge has increased, the cost per MMBtu has decreased:

                                                      2012                       2013

First 1,500                          $0.2750              $0.2473
Next 3,500                         $0.2015               $0.1812
All Additional                    $0.0433              $0.0389

If you use from 1 to 1,500 MMBtu each month, you will see a cost increase anywhere from 13% to 33% on your total bill.

If you use from 1,501 to 5,000 MMBtu each month, you will see a cost increase anywhere from 2% to 13%.

If you use 5,001 MMBtu and above, you will see a cost increase of approximately 2%. It is not until a customer uses 14,000 MMBtu per month that a cost decrease will be seen. See the below for a further breakdown:

 

10,000 MMBtu per Month: 1% increase

12,000 MMBtu per Month: No change 

14,000 MMBtu per Month: 0.1% decrease

15,000 MMBtu per Month: 0.3% decrease

 

If you would like to see what your approximate charges will look like in 2013, contact RPM today for an estimation using your company’s historical usage from the past year.

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October 11th, 2012

Some Good News for the Lack of Generation in Texas

Panda Power Funds, an organization built to develop and invest in natural gas power generation and solar energy projects, announced Tuesday, September 18 it would immediately begin building a power plant in Sherman, Texas. The 758-megawatt (MW) plant will be fueled by natural gas.

Panda began construction of a similar 1,000 MW plant in Temple, Texas in July. Bill Pentak, spokesman for Panda, says both plants will be producing electricity by the end of 2014 and once operational, the Sherman power plant will supply power to the needs of about 750,000 homes.

The Texas Electric Reliability Council of Texas (ERCOT) continuously warns that Texas will face electricity shortages unless new generating plants are built or consumers cut back on usage. The announcement of these plants comes at a good time for the ERCOT grid, which faces declining reserve margins each day.

The Texas Public Utility Commission (PUCT) voted to increase the system wide offer cap in June from $3,000 to $4,500 per megawatt hour (MWH). In lay perspective, that equates to $4.50 per kilowatt hour (kWh) during high peak demand periods.  Further increases to the price cap are pending with the anticipated goal of spurring investment into new generation facilities.

More generation would lead to an increased reserve margin and fewer struggles to meet demand during extreme weather situations coupled with Texas’s continuous population growth. However, increases to the price cap will also mean higher prices for consumers.

Please see the chart below for the coming years’ forecasted reserve margin (courtesy of ERCOT).

The red dashed line represents the ERCOT grid’s projected reserve margin over the next 10 years. Note that near the middle of 2014, the reserve margin will not be met and after 2015, the margin steadily decreases again.

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