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AECT Electricity 101 2020
1. Electricity 101
November 2020
Legislative advertising paid for by: Association of Electric Companies of Texas
1005 Congress, Suite 1000, Austin, TX 78701 • 512-474-6725 • www.aect.net
4. 512-474-6725
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AECT Utilities Outside of ERCOT
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04
Western Electricity Coordinating
Council (WECC)
Midcontinent Independent System
Operator (MISO)
Southwest Power Pool (SPP)
Total ERCOT
Capacity:
94,000+ MW
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AECT is Comprised of Investor-Owned Utilities
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05
AECT does not include Municipally-Owned Utilities or Electric Cooperatives
Service Territories of Utilities
Represented by AECT
El Paso Electric Co.
Xcel Energy
CenterPoint Energy
Entergy Texas
AEP Texas Central Company
AEP Texas North Company
Oncor
Texas-New Mexico Power Co.
Legend
AEP SWEPCO
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ERCOT Roles and Responsibilities
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06
ERCOT: By the Numbers
• 90% of the electric load in Texas is in ERCOT
• 75% of ERCOT’s load is in the competitive
market, including 24 million customers
• Over 680 generating units, providing 82,000
MW of generating capacity during peak
demand
• 46,500 miles of high-voltage transmission
ERCOT Responsibilities
• System reliability – planning and operations
• Wholesale market settlement for electricity
production and delivery
• Retail switching process for customer choice
• Open access to transmission
ERCOT region
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07
Steps to Electric Competition in Texas
Jan. 2007
Jan. 2005
Jan. 2002
July 2001
Sep. 1999
June 1999
May 1995
Wholesale
competition
legislation
passed (SB 373)
Retail
competition
legislation
passed (SB 7)
ERCOT
electric rates
frozen
Texas Choice
pilot program
begins
Retail choice
begins in
ERCOT
Affiliate REPs
allowed to
offer non-
price-to-beat
prices
End of
price-to-beat
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08
Steps to Electric Competition: Wholesale Market
Senate Bill No. 373 enacted in May 1995
• Required utilities to provide non-discriminatory open access transmission to support
wholesale competition in ERCOT.
• Recognized new, unregulated participants in ERCOT wholesale market.
Exempt wholesale generators
Power marketers
• Allowed non-utility wholesale market participants to offer market-based prices in ERCOT.
• Deregulated electric cooperative distribution rates.
Note: Non-ERCOT areas are subject to FERC jurisdiction for wholesale services, including transmission services.
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Steps to Electric Competition: Retail Market
ERCOT market restructuring legislation, Senate Bill 7, passed in 1999
• Initiated competition in ERCOT retail markets beginning January 2002.
• Municipally-owned utilities and electric cooperatives allowed to “opt-in”.
• Included environmental and energy efficiency provisions.
Required reduction of nitrogen oxide (NOx) emissions from older power plants by 50%, and sulfur
dioxide emission from coal-fired facilities by 25%.
Utilities required to fund energy efficiency programs equal to at least 10% of each year’s annual growth
in demand.
• 1999 - 2001 – Preparation for retail competition.
• Electricity rates frozen.
• ERCOT develops systems required to support competition.
• PUC promulgates competition rules
• PUC determines rate unbundling cases.
• July 2001 – Retail competition pilot project begins.
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ERCOT: Separate Companies Provide Retail, Transmission &
Distribution and Generation Services
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10
• In competitive markets, consumers have multiple retail electric providers (REPs) and service
plans to choose from.
• Wholesale and retail prices are set by competitive market forces, while the PUC sets transmission
and distribution rates.
Power Flow
Financial Flow
Regulated
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Outside ERCOT: A Single Utility Provides Retail, Transmission &
Distribution and Generation Services In Each Area
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11
• In fully regulated markets, the PUC sets retail rates charged to end-use customers.
• Each of service area is part of a multi-state electric grid, with differing regulations. In many
cases, vertically integrated utilities purchase wholesale power from certain unregulated entities.
Power Flow
Financial Flow
Regulated
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The ERCOT Competitive Retail Electric Market is Providing
Customer Benefits
Key Facts on the Competitive Electric Market in Texas
• Price offers are substantially lower than prices available just before competition began
• Texas’ national electric price ranking has improved since the market opened in 2002
• Every competitive area in ERCOT has variable and 1-year lock offers available that are far
lower than the national average price and nearly all state averages
• Among states like Texas that depend heavily on natural gas for power generation, Texas
prices compare favorably, with even lower prices available to those in the competitive
market
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Lower Prices Available Today Than Before Competition Began
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13
Sources: PUC Historical Data, Bureau of Labor Statistics Inflation Calculator (47.3% inflation since December 2001);
www.powertochoose.org offers as of October 1, 2020
Service Area
Average Fixed-Price
Offer
(12-month term)
Lowest Fixed-Price
Offer
(12-month term)
Dec. 2001 prices,
not adjusted for
inflation
Dec. 2001
prices, adjusted
for inflation
AEP Texas Central 11.0¢/kWh 6.6¢/kWh 9.6¢/kWh 13.7¢/kWh
AEP Texas North 10.1¢/kWh 6.4¢/kWh 10.0¢/kWh 14.7¢/kWh
CenterPoint
Energy 10.7¢/kWh 6.7¢/kWh 10.4¢/kWh 15.3¢/kWh
Oncor 10.2¢/kWh 6.1¢/kWh 9.7¢/kWh 14.3¢/kWh
TNMP 12.1¢/kWh 8.2¢/kWh 10.6¢/kWh 15.6¢/kWh
October 2020 December 2001
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Texas’ National Price Ranking Has Improved Since 2001
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14
0
5
10
15
20
25
30
LA WA AR ID OK ND UT KY TN MO NE OR WV WY MS MT GA NC SD TX FL VA NV OH CO IN AZ AL NM DE KS SC IL IA DC MD MN PA WI MI NJ VT ME NY CA NH RI CT MA AK HI
Sources: EIA average annual residential rates for 2001 and 2019; Power to Choose data as of October 1, 2020
Note: Average lowest available price is for a residential customer using an average of 1,000 kWh per month
¢/kWh¢/kWh
2001 State Ranking (Pre-Competition)
2019 State Ranking
Average lowest 12-month
fixed price offer in
competitive market in
October 2020:
6.8¢/kWh
0
2
4
6
8
10
12
14
16
18
KY
WA
ID
WV
OR
TN
ND
NE
UT
WY
MT
IN
MO
AL
OK
MS
SD
CO
MN
KS
MD
SC
AR
GA
DC
VA
WI
LA
NC
MI
AZ
OH
IA
FL
DE
IL
NM
TX
NV
PA
NJ
CT
CA
AK
RI
MA
NH
VT
ME
NY
HI
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Electric Price Offers Compared With Other Retail Products
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15
Sources: Dec 2001 electric
rates: Public Utility
Commission of Texas;
September 2020 electric
rates: Power to Choose for
1,000 kWh/usage; All other
data: U.S. Bureau of Labor
Statistics (September data;
latest available)
Price Change: December 2001 to September 2020
Ground Beef 108%
Gallon of Gas 105%
Legal Services 80%
Dallas-Fort Worth Rent 69%
Houston Area Rent 68%
U.S. Average Residential Electricity 62%
Dozen Eggs 52%
Ground Coffee 36%
Gallon of Milk 33%
Loaf of White Bread 18%
ERCOT Average Lowest Variable Offer -18%
ERCOT Average Lowest 1-Year Fixed Price Offer -45%
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Average 1-Year Fixed Price Offers in ERCOT are Significantly Lower than the
National Average Price
slide
16
0
5
10
15
20
Louisiana
Washington
AVG1YRFIXED-CORPUSCHRISTI
Oklahoma
AVG1YRFIXED-DALLAS
Kentucky
AVG1YRFIXED-HOUSTON
Nevada
Arkansas
Tennessee
Idaho
Mississippi
AVG1YRFIXED-ABILENE
Utah
NorthCarolina
Oregon
Nebraska
WestVirginia
Florida
DistrictofColumbia
Texas(Statewide)
NorthDakota
Wyoming
Delaware
Illinois
Montana
Ohio
AVG1YRFIXED-LEWISVILLE
Indiana
Maryland
Virginia
SouthDakota
SouthCarolina
Missouri
Georgia
Alabama
Arizona
Colorado
Kansas
Pennsylvania
U.S.AVERAGE
Minnesota
NewMexico
Wisconsin
Iowa
Michigan
NewJersey
Maine
NewHampshire
NewYork
Vermont
RhodeIsland
California
Massachusetts
Connecticut
Alaska
Hawai'i
RESIDENTIAL RETAIL ELECTRICITY PRICES
All Data from July 2020
U.S. Average
Sources: PowerToChoose.org offers as of July 1, 2020
U.S. Energy Information Administration, latest available data
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Texas Market Compares Favorably to Other States Utilizing Natural Gas as the
Primary Generation Source
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17
Sources: EIA average annual
residential rates for September 2018
monthly data (latest available
information); Power to Choose data
as of July 1, 2020
Note: Average lowest available price
is for a residential customer using an
average of 1,000 kWh per month
0
5
10
15
20
25
30
AK MA CA RI NY ME TX FL MS NV LA
Average Lowest Available 12-Month
Fixed Price Offer in ERCOT
Competitive Market (July 2020):
5.9¢/kWh
RESIDENTIAL PRICE AMONG NAUTRAL-GAS INTENSIVE STATES
All data from July 2020
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Protections in the Market for Retail Customers
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18
Among other requirements, REPs serving residential customers must:
• Make Spanish-language support available to customers
• Place customer deposits in interest-bearing accounts
and return that interest to customers when the deposit
is returned
• Follow a mandated timeline for disconnection of
customers
• Provide notice in case of disconnection
• Investigate any customer complaint within 21 days
• Provide a Terms of Service Statement detailing
contract terms, cancellation penalties, deposit
requirements, fees, payment arrangement options,
how to cancel service, and other obligations of the REP
• Allow a customer to cancel a service agreement within
three federal business days after receiving the terms
of service
• Allow a customer to cancel the switch upon receiving
notification that the switch will occur
• Register with the PUC and meet financial
requirements set by the Commission
• Communicate clearly with consumers regarding
notice of contract expiration
• Demonstrate creditworthiness to purchase power to
serve its customers
• Demonstrate the technical ability to supply electricity
• Maintain privacy of customer information
• Not discriminate among customers
• Not add charges to a customer’s electric bill for
services not requested by the customer
• Provide a “Your Rights as a Customer” disclosure
• Provide an Electricity Facts Label to allow for an
“apples-to-apples” comparison among REPs
• Make deferred payment plans available for those
expressing an inability to pay
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Transmission & Distribution Utilities Provide Reliable Delivery of
Electricity
Role of Transmission & Distribution Utilities
• Provide reliable delivery of electricity on a 24-7 basis.
• Invest in and build infrastructure (e.g., transmission lines, Smart Grid) to support the needs
of Texas’ growing economy.
• Manage their transmission networks under the direction of ERCOT; coordinating with ERCOT
on transmission planning activities.
• Respond to outages (e.g., storms and disasters) that affect the grid and restore service as
quickly as safely possible.
• Provide key market information, such as premise information and metering services to
facilitate successful operation of the ERCOT deregulated market.
• Provide regulated transmission and distribution services to facilitate operations of wholesale
and retail business entities.
• Charge regulated delivery rates to REPs
• Rates based on a historical cost of service including a PUC-established return on capital investment
• Allocation of ERCOT-wide transmission costs
• Non-bypassable charges include the cost to deliver electricity, recovery of true-up costs and nuclear decommissioning
expenses for existing nuclear facilities
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Timeline of Transmission Line Construction
• While certain types of generation can be constructed quickly -- often as short as 12-18 months --
transmission lines typically take between three and five years. Generation can be brought into the market
more rapidly if the siting takes advantage of the existing transmission infrastructure.
• Building long transmission lines can affect many landowners, often requiring a lengthy and extensive
easement acquisition effort.
• The transmission line siting process must take into account the impact of those lines on environmentally
sensitive and historically significant lands.
• Utility is not typically allowed to begin recovering costs until year 5 or 6.
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Transmission Line Routing Process
1. The utility files an application with the PUC to obtain a Certificate of
Convenience and Necessity (CCN), which is assessed by the PUC
• Consideration include: the need for service; whether the route uses
existing rights-of-way; parallels other rights-of-way; follows property lines;
and conforms with the policy of prudent avoidance to limit overall impact
of the line
2. Landowners who would be affected by a new line receive notice; landowners
can informally file a protest or formally participate in the case as an
intervenor
3. An administrative law judge (ALJ) holds a prehearing conference to set a
schedule for the case
4. Parties to the case conduct discovery to gather facts on the case
5. An ALJ hearing is held, with cross-examination of witnesses. The ALJ and the
PUC will rely on factual information submitted as evidence filed in the docket
and presented during discovery
6. The ALJ makes a recommendation to the PUC, which is called a proposal for
decision
7. The PUC Commissioners rule on the case and may approve it, modify it,
request further action by the ALJ or deny the case. After the PUC’s ruling,
parties may appeal the decision
Brochure provided to landowners affected by
a proposed transmission line
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Continued Transmission & Distribution and Generation Investment
Needed Long-Term
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22
• According to the Texas State
Data Center, 5 million new
residents are expected in Texas
by 2020.
• New generation must be
delivered effectively and
efficiently to population
centers of the state.
• Areas of Texas located outside
the ERCOT grid are also
growing, both in terms of
population and economic
development, requiring
transmission investment.
Source: ERCOT, “Report on Existing and Potential Electric System Constraints and
Needs,” December 2018 (next update will be December 2020)
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Technology Threats: Cyber Attacks and Infiltration
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Avoidance and Preparation
o “Good Cyber Hygiene”: Maintain best practices, share information with other utilities and
hold regular briefings to avoid human error, such as clicking on a malicious email or
installing Trojan horse software
o Ongoing briefing and Communications: Communicate with federal agencies regarding
grid hacking activities
o Investment: Major hardware and software investment specifically aimed at identifying
cyber attack activity, plus investment in cyber security divisions staffed with financial
industry and military backgrounds
Response in Case of Major Outage
o Mitigation: Ensure systems can be segmented from one another to limit the impact of a
cyber attack
o Recovery: Ensure critical facilities are primed for backup and quick recovery
o Restoration, Cooperation and Recovery of Systems: As with other types of outage,
utilities are designed to be restored through robust systems, cooperation with government
entities and able to be rebuilt
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The Competitive Wholesale Market in ERCOT
Competition Has Brought Greater Efficiency to the Wholesale Market
• Generators shoulder the risk of building new power plants, bringing efficient, cost-effective
generation to consumers.
• New power plants produce more electricity per unit of fuel.
• Operational efficiency of a competitive market helps push wholesale prices downward.
• The competitive market will continue to bring forward the right mix of technology and fuel
type based on environmental choices by policymakers.
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Growing Population Drives Electric Consumption
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1980 1990 2000 2010 2020 2030 2040 2050
Sources: U.S. Census, Texas Demographic Center, 0.5 migration scenario
Texas’ Projected Population Growth (millions)
1980-2050
To meet increases in
electric load created
by Texas’ rapid
population and
economic growth,
Texas will require
additional power,
transmission
and distribution,
customer demand
response and energy
efficiency.
28.8
25.1
36.6
32.7
20.9
17.0
14.2
40.5
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Strong Environmental Performance by Electric Generators in Texas
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Electric Generators in Texas Use Fuel Efficiently and
Effectively Capture Emissions
– Texas is one of a minority of states with NOx, SO2 and CO2 emissions rates below the
national average for electric generation
– Texas electric generators have the lowest rate of NOx emissions when compared with
neighboring states
– New power plants include modern environmental emissions controls.
Maintaining Access to Cooling Water is Important to
Continued Generation Reliability
– Dependable water supplies are essential to the reliable generation of electricity because most
electric generation units require the use of water for system cooling.
– AECT member companies represent the largest private owners, builders, and operators of
private reservoirs in Texas.
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How Texas’ Steam Power Plants Use Water
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• The graphic above is a simplified example of a power plant’s use of water for steam generation.
• Most power plants heat water in a closed system until it becomes steam, then pressurize that
steam to turn a generating turbine.
• The steam is then routed to a condenser, where the water is condensed and reused in the steam
cycle.
Turbine Generator TransformerPump
Combustion
Water
Steam
Cooling Water
Condenser
Fuel
Controls
Stack
Electricity
Flow of Power
Flow of H2O
Flow of H2O
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Summary of Tax Impact of AECT Member Companies
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AECT member
companies pay and
collect significant taxes
to bolster state revenue
– The electric industry is a major
source of state and local tax
revenue in Texas.
– In 2019, members of AECT paid
$1.83 billion in state and local
levies. On average, this cost is
$82,936 per employee.
– AECT companies also collected
$315.5 million in sales taxes
from end-use customers.
State and Local Taxes Paid or Collected by
AECT Member Companies in 2019
TAXES IMPOSED ON AECT COMPANIES
State Taxes
Gas, Electric & Water Utility Tax
Public Utilities Gross Receipts Assessment
State Sales & Use Tax (Paid on Company purchases)
State Franchise Tax
Local Taxes
Property Taxes
Local Sales & Use Taxes (Paid on Company Purchases)
Municipal Franchise Fees
Subtotal, Company Taxes
SALES TAXES ON AECT ELECTRIC SALES
State Sales & Use Tax (Collected from Customers)
Local Sales & Use Taxes (Collected from Customers)
Subtotal, Customers’ Taxes
TOTAL, STATE & LOCAL TAXES
Source: Association of Electric Companies of Texas
Millions of Dollars
$190.4
23.2
167.6
84.7
742.1
44.9
578.4
$1,831.3
208.8
106.7
$315.5
$2,146.9
