Tarrant Business

Energy Future Holdings loses $3.36 billion in 2012

Dallas-based Energy Future Holdings, formerly TXU Corp., said it lost $3.36 billion last year after taking a $1.2 billion non-cash impairment charge in the fourth quarter and $983 million paper loss on its hedging contracts. The company in January released preliminary results of a $2.2 billion loss, but said it might take further write-downs. At least once a year, public companies must compare their asset values to current market conditions, and if the market price is less then the assets' value on its books must be reduced to the market price. Without the adjustments, EFH said it lost $1.03 billion. That compared to an adjusted loss of $1.08 million in 2011.

EFH said it lost $1.95 billion in 2012''s fourth quarter, including that $1.2 billion impairment as well as other adjustments. Without the adjustments, EFH lost $483 million, compared to a net loss of $407 million in 2011.

EFH owns and operates Luminant Generation, the state's largest electricity producer, and TXU Energy, an electricity retailer. It owns 80 percent of Oncor Electric Delivery, the regulated distribution utility that serves most of North Texas. Oncor reported a net profit of $340 million, compared to a $360 million profit in 2011.

-- Jim Fuquay

North Texas lags in solar power, environmental group says

San Antonio and Austin are using their municipal power companies to push solar electricity generation, and other Texas cities should do the same, Austin-based Environment Texas says in a new study released Thursday. Oncor, North Texas' biggest electricity distributor, has the most solar capacity installed by customers on its grid among local distribution systems in the state, the study shows. But Austin Energy and CPS Energy, the muni serving the San Antonio area, account for nearly 90 percent of the utility-supported installations of solar generation. The numbers on a per-customer basis are still tiny. Austin Energy is the leader with 99 watts per account, followed by CPS Energy with 73 watts. A link to the group's summary of the report is here.

-- Jim Fuquay

PUC's Anderson is latest to blast capacity market in ERCOT

Kenneth Anderson, one of three members of the Public Utility Commission of Texas, argues that Texas' biggest power grid can meet growing demand without resorting to a system that pays generators to provide capacity sufficient to meet supply targets. In a filing with the PUC, Anderson said the Electric Reliability Council of Texas can meet its goal of 13.75 percent reserve margin of supply over projected demand by calling in currently mothballed plants, counting "reliably anticipated new generation" and valuing the state's vast wind power, especially coastal installations, at a higher rate as supported ERCOT staff. Do that, he says, and "ERCOT does not dip below its 13.75 percent target reserve margin until after 2018."

Anderson's filing is here.

-- Jim Fuquay

Public Citizen criticizes electricity "capacity" market

The Austin office of Public Citizen on Tuesday said that paying electricity generators to add capacity to meet growing demand is not the solution to meeting the state's growing demand for power. It hired two consultants to study the existing "capacity market" in the PJM regional transmission market, which serves 13 states and the District of Columbia and has a design most like that being considered for the Electricity Reliability Council of Texas. Those experts said  replicating the PJM-run capacity market would take until 2015 and would cost between $1.2 billion and $2.3 billion a year." The consultants are Anna Sommer, president of Sommer Energy and the report’s principal author, and co-author David Schissel, president of Schlissel Technical Consulting.

   "Our study has found that a capacity market takes too long, costs too much and won’t be enough to keep the lights on," said Tom "Smitty" Smith, director of Public Citizen’s Texas Office. "We’d be better off developing a new market structure that creates incentives for people to use less electricity." Public Citizen said "a capacity market would just reward the owners of existing power plants with substantial windfall profits."

A link to the study is here.

The Public Utility Commission of Texas has been discussing this issue for more than a year and will consider it again on Thursday. It has already raised the ceiling price in the Texas wholesale electricity market to help give generators more incentive to build new power plants. ERCOT managers have warned that the grid's safety margin between capacity and projected demand could run uncomfortably short as soon as this summer.

Public Citizen said it also plans to release this week a study looking at whether a capacity market would be enough to help Energy Futures Holdings, the state's biggest power generator that is struggling with a big debt load.

-- Jim Fuquay

 

Austin group says capacity electricity market not for Texas

Texas might have challenges regarding the adequacy of its electrical power supply, but paying generators for new capacity isn't the solution, says the Texas Public Policy Foundation, an Austin-based free-market advocate. Texas has what's called an energy-only market, meaning generators only get paid when they sell electricity. Low wholesale power prices in recent years have discouraged new capacity, and the state's biggest power grid, the Electricity Reliability Council of Texas, has said its margin of supply over projected demand could run uncomfortably short as early as this summer. One approach taken in a so-called "capacity market" is to pay generators a sort of stand-by fee to bring more capacity to the market. Texas' situation has attracted national attention, such as this report.

“A capacity market is an institution in which people have no choice but to trade a contrived good that has little or no economic value,” co-author Robert Michaels, professor of economics at California State University, Fullerton, says in a prepared release. “Not only will a capacity market fail to address reliability concerns, its costs will almost surely exceed any benefits it might bring,” he says. The study argues that "ERCOT’s reliability challenges do not stem from any inherent flaws in electricity markets that render them incapable of functioning properly," but instead are "a result of intervention such as renewable energy subsidies and price caps that has inhibited – or prohibited – innovation and kept the market from developing solutions to these highly complex issues."

The report drew a cheer from the Texas Coalition for Affordable Power, which represents dozens of municipalities and isn't exactly the biggest fan of the state's deregulated market. TCAP Executive Director Randy Moravec, in a prepared release, said: “We agree that moving to a capacity market is expensive and unnecessary.  A capacity market in New Jersey has cost electricity customers in that state more than $1 billion annually, according to reports.  Creating such a market here will layer extra costs on all electricity in Texas — just like a tax — and drive up prices for both residential and business users.”

A link to the TPPF's study is here.

-- Jim Fuquay

Energy Future Holdings loss widens in 2012

Energy Future Holdings, the Dallas-based electricity company, lost $2.17 billion in 2012 on sharply lower operating revenues of $5.64 billion, it said in a Securities and Exchange Commission filing of its unaudited, preliminary financial results. The loss compared to a 2011 net loss of $1.91 billion on $7.04 billion in revenues. EFH, formerly known as TXU Corp., owns Luminant Generation, the state's largest power generator,  TXU Energy, an electricity retailer, and a majority of Oncor Electric Delivery, which operates the electrical wires and poles that distribute power in much of North Texas. It was taken private in a $45 billion buyout by a group led by the private equity investors Texas Pacific Group and Kohlberg Kravis Roberts

EFH, which was weighed down with $38.5 billion in long-term debt following the buyout, last year managed to reduce its interest expenses but not enough to offset declining revenues. It reported $3.5 billion in interest and related charges last year, compared to $4.3 billion in 2011. Its Oncor regulated utility, in which it has an 80 percent stake, earned $340 million on $3.3 billion in revenues. 

-- Jim Fuquay

Texas electric supply questioned by national reliability group

The North American Electric Reliability Corp. has jumped into the debate about whether Texas has enough electricity capacity to meet rising demand. The issue has already prompted a move by the Public Utility Commission to raise wholesale power price caps to encourage generators to add capacity and thus increase the "reserve margin," or excess of supply over estimated demand. NERC, an industry group that sets reliability standards in the U.S., told the Electric Reliability Council of Texas in a Jan. 7 letter that it's worried about risks to the state's largest power grid. In the letter, addressed to ERCOT CEO Trip Doggett, NERC President Gerry Cauley says his organization's estimates for Texas "imply higher reliability risks" and asks that ERCOT tell NERC by April 30 what it's doing "to address the declining reserve margin and projected capacity shortfall."

Doggett issued a statement today that said, in part: "We take this issue very seriously, and the staff and board of ERCOT consider electric reliability and future resource adequacy our top priorities. ERCOT and the Public Utility Commission of Texas (PUC) recognize our critical role in ensuring the lights stay on in a variety of conditions." 

Unstated by either organization is the debate over whether Texas should pay generators for providing enough capacity to ensure a reasonable reserve margin, currently set by ERCOT at 13.75 percent. In Texas' deregulated market, generators earn revenue only when they sell power, a model called an "energy-only" market; a policy of paying generators to maintain more capacity is called a "capacity market." Some think capacity payments would assure a certain reserve margin, while others see them as a subsidy to generators, who have struggled to make money in Texas, where wholesale electricity prices have been very low in recent years.

In a blog post today on the topic, Colin Meehan of the Texas office of the Environmental Defense Fund whote that: "No one could accuse ERCOT or the PUC of sitting idly by or pretending this risk isn't real. However, they have yet to send a strong enough signal to the market to spur investors in demand response or any other resources to develop new projects." Paul Ring, who operates the Energy Choice Matters website and is an outspoken critic of capacity markets, said in his own post today that "these 'reliability' concerns are simply manufactured." He points out that NERC doesn't have the authority to tell ERCOT how to run the Texas grid. "NERC is inserting itself in a policy debate about resource adequacy -- one clearly outside of its intended mission as well as its specifically enumerated powers," Ring says.

-- Jim Fuquay

Electricity use in most of Texas declined in 2012

The Electric Reliability Council of Texas, which serves about 85 percent of the state's demand, said Thursday that total electricity use across its system fell 2.7 percent last year compared to 2011, the state's hottest year on record. In 2011, ERCOT's electricity demand jumped nearly 5 percent. Those figures compare to average annual growth of about 2 percent in recent years, ERCOT said. ERCOT said it saw decreases in six months last year.

Natural gas widened its lead over coal as the No. 1 fuel for electricity generation, accounting for 44.6 percent of  the power provided. That's nearly 11 percentage points more than coal's 33.8 percent, and compared to a difference of just 1.4 percentage points in 2011 and a second-place ranking behind coal in 2010. Nuclear held steady at 11.8 percent of power provided in 2012, following by wind at 9.2 percent, hydroelectric at 0.1 percent and other fuels at 0.5 percent.

Nationally, electricity demand has been sagging in recent years, according to a recent Wall Street Journal report. It reported that "electricity production in the U.S. fell in 2008 and 2009, amid the recession, then ticked up slightly in 2010 before falling again in 2011."

Electricity deregulation still needs work, group says

Although electricity prices in deregulated areas in Texas have declined since 2008 and choices have increased, Texans still pay prices above the national average and complaints have risen, says an updated report from the Texas Coalition for Affordable Power, a group of cities and other purchasers that says it buys more than 1.3 billion kilowatt-hours of power annually for street lighting, office buildings, water plants and municipal needs. TCAP calculates that Texans have paid $10.4 billion more since 2002 than they would have had the state's electricity price matched the U.S. average. It says Texans paid on average 6.4 percent less than the U.S. average before deregulation, versus 8.5 percent after. TCAP also said complaints by electricity customers rose, peaking in 2003 and again in 2009, but have declined more recently.

Texans have paid electricity rates below the U.S. average in 2011 and so far in 2012 as natural gas prices have plummeted, the report shows. But that has only trimmed Texans' overpayment by about $1 billion compared to a similar study the group published in early 2011. Electricity prices in deregulated Texas markets rose above the U.S. average from 2003 to 2010, with the spread peaking in 2006. TCAP also questions the benefits of the state's wind power, the largest in the nation, because of the cost of constructing transmission lines to bring the power to urban areas and also its impact on reliability.

The report is available here.

-- Jim Fuquay

ERCOT says 2013 summer reserve margin slightly lower than target

The state's biggest electricity grid said today that its forecast for the peak air conditioning season next summer should see total resources that are sufficient to meet demand but just shy of the organization's reserve margin -- the excess of estimated capacity over anticipated demand. The Electric Reliability Council of Texas, which serves about 85 percent of the state's demand, expects peak demand of nearly 68,000 megawatts, with demand-reduction programs lowering that to 65,952 megawatts. Generation and other resources are estimated at 75,950 megawatts. That produces a reserve margin of 10,000 megawatts, or 13.2 percent, compared to ERCOT's preferred margin of 13.75 percent. ERCOT said it used an updated economic outlook to estimate demand.

Looking ahead to summer 2014, ERCOT said its reserve margin could fall to 10.9 percent, but noted that three gas-fired generation facilities are scheduled to go into operation sometime in the third quarter of that year. They are not included in calculating the 2014 reserve margin, but if they were, they would raise the reserve margin to 13.6 percent that year.

-- Jim Fuquay