HOUSTON — Almost 500 electric and gas industry participants attended the Gulf Coast Power Association’s 30th annual conference, where low gas prices, environmental rules and new technologies dominated discussion. Here are some of the highlights of the two-day meeting.
Texas Legislators Cite Rule Stability
Texas Rep. Phil King, chairman of the state House of Representatives’ State and Federal Power and Responsibility Committee, said he was proud lawmakers didn’t change their 1999 law creating a competitive retail electricity market after natural gas prices spiked to more than $13/MMBtu in 2005. But he said the current low gas prices, which are putting pressure on the state’s coal and nuclear generators, could necessitate some “incremental” changes to the market.
“You know, 1999 was a long time ago,” he said, adding that changes should be made by the Public Utility Commission and not by the legislature. “I like the legislature for making policy; I’m not really crazy about us getting into the weeds on things, and that is a very weedy issue.”
Rep. Eddie Lucio III spoke about the impact of diminished water supplies on the power industry, saying “desalination is part of our future,” although current technology is not economical.
He also decried the fragmented, “Byzantine” structure of water authorities in the state, urging consideration of a proposed water grid that could deliver water from Louisiana and Oklahoma throughout Texas. “It seems very forward thinking,” he said of the proposal, though acknowledging “some people really have concerns with it.”
Impact of Low Oil, Natural Gas Prices
Neel Mitra, director of power and utilities for Tudor, Pickering, Holt & Co., said the U.S. could see an additional 10 GW of coal-fired generation retire by the end of 2017 if gas prices stay below $2/MMBtu.
Mitra said conditions are the worst for coal plants in Pennsylvania, which can’t compete with gas plants built near Marcellus Shale supplies, but that Texas plants also are in distress.
“What we’ve been seeing in real time is that the Texas plants that run mainly on [Powder River Basin coal] and lignite, which practically costs nothing, have been seasonally mothballing going into the summer, and capacity factors for those plants have been the lowest we’ve seen since we began tracking it in 2010,” he said. “We’ve been tracking the fully loaded costs — fixed costs plus [operations and maintenance] plus fuel — and really we see only one plant in Texas that is covering its fixed costs in a $2 gas scenario.”
Mitra said things would be worse if railway shippers, which had been charging $25 to $30/ton to ship PRB, hadn’t reduced their prices, which he said are now between $15 to $20/ton. With PRB available from mines at $10/ton, he noted, two-thirds of the delivered cost can be transportation.
The South Texas Power Project and Comanche Peak nuclear plants also are at risk from the low prices, he said.
Mitra said he is “more bullish” for 2017. “LNG exports are probably the biggest piece that could get us back to higher natural gas prices.”
Jen Snyder, vice president of North America natural gas research for Wood Mackenzie, said LNG exports will likely be affected most by whether Russia’s Gazprom seeks to fight for market share in Europe.
“If Russia decides to support price and gives up market share as they did in 2009-2010, then the U.S. [LNG capacity utilization] is likely to run somewhere around 75%,” she said. “But if Russia decides to go for market share … [it] would discourage further U.S. LNG projects,” with utilization of existing projects ranging from 40 to 50%.
2016 Power Star Award
John Fainter received GCPA’s Pat Wood Power Star Award, honoring him for his 18 years as CEO of the Association of Electric Companies of Texas.
Parker McCollough, vice president of legislative affairs for NRG Energy, praised Fainter, who retired at the end of last year, as a “champion herder of cats.”
“During the course of his tenure at AECT, we never lost” in the legislature, McCollough said.
Former FERC Chairman Pat Wood, who presented the award, recalled meeting Fainter after being appointed to the PUCT in 1995. Wood said then-Gov. George W. Bush in 1995 appointed him with a mandate to create a competitive electric market.
The “very politically powerful” investor-owned utilities who made up AECT “were not that keen on getting into a market,” Wood said.
Wood said Fainter’s calm style and sense of humor were crucial to the enactment of the 1999 law, Senate Bill 7. “He was for me, for the industry, a lighthouse in the storm,” Wood said.
In a keynote speech earlier, Fainter commented on technological changes reshaping the grid and new market entrants such as battery maker Tesla. “We’re going to see new players in the industry. It’s not going to be the same … seven companies … as when I came to AECT in 1998,” he said.
Fainter also lamented EPA’s regulatory “silos,” which have subjected coal plants to separate regulations controlling carbon emissions, mercury emissions and particulate matter.
“Everybody wants clean air. Everybody wants clean water. Everybody wants a healthy environment,” he said. “But there’s got to be a reasonable way to deal with it. [Congress should] fix it so you can have an integrated way to address these issues and not do them one at a time with a different set of enforcement processes. To me that makes sense.”
CCN ‘Fatigue’
Two-thirds of attendees who participated in a GCPA poll at the conference said they believed Lubbock Power & Light’s plan to join ERCOT will lead the PUCT to implement a process to bring additional loads to the grid operator.
David McCalla, Lubbock’s director of electric utilities, said the transition will save Texas’ 11th largest city (population 4 million) $350 million to $700 million it would have had to spend on a new generating plant after its full requirements contract with Xcel Energy expires in 2019. (See SPP Ponders Response to Lubbock’s ERCOT Move.)
The switch wouldn’t have been possible, McCalla said, if not for the transmission added as a result of the state’s Competitive Renewable Energy Zones.
Former PUCT Chairman Paul Hudson cautioned that the commission is dealing with “CCN fatigue,” a reference to state regulators’ power to grant certificates of convenience and necessity for new transmission lines.
“Looking landowners in the eye is one of the most difficult tasks the PUC has,” said Hudson, now a managing principal at Stratus Energy Group.
Environmental Debate
A present and former member of the Texas Commission on Environmental Quality sparred with a Sierra Club executive over what they called EPA’s overreach.
Jon Niermann, who was appointed to the CEQ last September, said EPA exceeded its authority in the Clean Power Plan and that its Regional Haze rule would cost Texas $2 billion for no appreciable difference in visibility. Niermann said EPA rejected Texas’ approach to the haze rule even though it would reach visibility goals much earlier than other states whose plans the agency approved. “It feels to me like EPA is imposing a double standard on Texas,” he said.
Former CEQ Chairman Kathleen White, now director of the Armstrong Center for Energy & the Environment at the Texas Public Policy Foundation, decried what she called a “deterioration of the science that EPA uses in its risk assessments.”
White said EPA is improperly using “co-benefits” to justify its rules, such as the CPP’s potential to reduce particulate matter in addition to CO2 emissions. “It’s a little problematic,” she said. “They’re using the same basket of co-benefits over and over again.”
Al Armendariz, senior representative for the Sierra Club’s Beyond Coal campaign, said White’s complaint EPA has issued an “unprecedented” number of regulations in recent years reflects the agency’s effort to complete long-delayed rulemakings authorized by the Clean Air Act, including revamps of George W. Bush-era rules that were rejected by federal courts.
Armendariz said coal-burning generators have escaped paying for the environmental costs of their CO2 emissions. “In order to have a functioning free market, people who are producing the products need to be paying the full cost of producing that product, including the climate impact. And that’s not happening today,” he said.
That brought a retort from Niermann. “I’m just skeptical of that causal connection, that fossil fuel burners are responsible for CO2 and therefore for climate change and for paying for the economic costs that they’re adding,” he said.
White also jumped in, saying the United Nations Intergovernmental Panel on Climate Change has reported no evidence that “more frequent droughts, more frequent floods, more frequent extreme weather events” are occurring.
“There’s no historical anomaly going on at this point,” she said. “To talk about a causal connection is very, very problematic, as [are] claims that climate science is somehow unequivocally settled. No science is unequivocally settled.”
Energy Storage Ready to Disrupt Industry?
Allan Stewart, executive director of North American power for PIRA Energy Group, predicted innovations in battery technology will start changing electric market fundamentals as soon as 2020 in California and Hawaii, by 2025 in New York and 2030 in ERCOT, MISO South and southern SPP. (See related story, FERC to Examine RTO Rules for Energy Storage.)
As batteries flatten the load curve and distributed generation reduces net load, Stewart said, marginal prices will be set by the least efficient baseload plants. “In this environment, I would argue a peaker is useless. It’s absolutely worthless,” he said.
Stewart said one source of innovation may be graphene polymer batteries, which have been licensed by car companies. “It has the potential, soon, to increase the range of electric vehicles to 600 miles and [reduce] the recharge time to eight minutes,” he said. “Space age, you say. 2050 or beyond. Think again.”
– Rich Heidorn Jr.
The commission’s Office of Energy Policy and Innovation last week sent identical letters to each of the grid operators under its jurisdiction, requesting data on “the eligibility of electric storage resources to participate in the RTO and ISO markets; the technical qualification and performance requirements for market participants; required bid parameters; and the treatment of electric storage resources when they are receiving electricity for later injection to the grid.”
The commission voluntarily agreed to reconsider the issue after