Issue No. 1 – June 1, 2021

Published

Policy News and Analysis on the Technology That’s Powering America

The Pacific Research Institute is excited to launch a new project. Starting today, the Electricity Reality Report will provide readers like you with news and timely analysis on policies, markets, and technology trends that affect our nation’s ability to power American homes and businesses with reliable low cost energy.

In today’s issue:

  • More than three months after the deep freeze, debate rages over what causes the power in Texas to fail.
  • Did an over-reliance on wind power cause the Texas crisis?
  • Skepticism in Virginia over whether a monopoly will provide solar-generated power to customers.
  • Biden’s $100 billion plan to expand the electric grid.
  • NJ rate-payers burdened with $300 million a year subsidies for nuclear plants.
  • Large investor calls ‘top-tier results elusive’ and asks to break up Duke Energy.

What’s the meaning of Texas?

In mid-February, over a four-day period, Texas suffered a deep freeze, with temperatures dropping to minus-2 degrees F. in Dallas. Markets could not produce enough electricity to meet demand. Electricity Reliability Council of Texas, or ERCOT, dealt with the crisis through controlled outages. In the ensuing disaster, more than 100 people died, and property damage amounted to tens of billions of dollars.

Fingers have been pointing ever since. The vertically integrated monopoly utilities even launched a website called Power for Tomorrow to promote the Texas events as a failure of deregulation. Of course, all utilities, including in Texas, are subject to state and federal regulation. (As one example, the North American Electric Reliability Corp., overseen by the Federal Energy Regulatory Commission, sets reliability standards for every power generator.)

In recent years, monopoly utilities have been confronted by competitive power suppliers at both the wholesale and retail level. In any market, more competition benefits consumers – in this case, with lower costs, better reliability, and more focus on environmental sustainability.

But to get back to Texas. Within the state, ERCOT provides one of the most competitive retail electricity markets in the United States, with consumers choosing among more than 70 retail electric providers.

But Texas is an anomaly in another way. There are seven Regional Transmission Organizations (RTOs) in the U.S., and they operate as power pools for independent utilities to share. RTOs buy electricity from generators at prices determined by the market and then sell it to customers at retail prices, also determined by the market. But ERCOT is different. It draws its fuel from Texas alone, not from a multi-state RTO like the Southwest Power Pool (SPP) or the PJM (for Pennsylvania, New Jersey and Maryland RTO).

In fact, Texas is an example of what can go wrong when an unprecedented weather event occurs in a region that has purposely limited its geographic sources of fuel. Texas is isolated. As Devin Hartman and Beth Garza of the R Street Institute, a Washington think tank, wrote recently: “A key lesson in Texas is that it’s not enough of a market.”

The New York Times notes that Texas “made decisions as far back as the early 20th century to become the only state in the continental United States to operate its own grid — a plan that leaves it able to borrow only from a few close neighbors.” The few parts of Texas that were not serviced by ERCOT fared much better than the rest of the state because they could go beyond the state’s boundaries for fuel. For example, the Panhandle, that rectangle that juts up in the north of Texas, escaped major damage because it is part of the SPP, whose “power grid spans 14 states, which allows them to share power when there’s a need,” according to the Texas Tribune.

The region SPP serves also experienced harsh weather conditions, but the geographic diversity of its resources allowed the Panhandle to avoid the damage that afflicted most of the rest of Texas. “El Paso survived the freeze much better than Dallas or Houston because it was not part of the Texas grid but connected to the much larger grid covering many Western states,” said the Times.

Renewables and Reliables

The U.S. ranks second is the world in installed wind energy capacity after China, and, within the U.S., Texas is in first place by far with 25,000 megawatts; Iowa is a distant number-two at 8,000. At the end of 2020, some 25% of the power in Texas was generated by wind, 4% by solar, and 51% by natural gas.

Texas is far and away the largest petroleum-producing state as well, but its focus on renewables became another theme of criticism for the February power failures in Texas. Even Gov. Greg Abbott emphasized early in the crisis that “our wind and solar got shut down, and they were collectively more than 10 percent [sic] of our power grid [and] that thrust Texas into a situation where it was lacking power.”

A bill (S.B. 1278) in the Texas legislature seeks to impose new costs on wind power because of the alleged unreliability of “intermittent generation,” Utility Dive reported on May 17. But Peter Crampton, a former director on ERCOT’s board, pointed out that renewables outperformed winter forecasts by 6.3 gigawatts while natural gas underperformed by 15.8 GW. A graph in an ERCOT post-event slide presentation shows dramatically that outages because of wind power deficiencies during the crisis were minor.

Solar Energy in Virginia

Dominion Energy, which operates in 16 states, is coming under fire for its solar policies. An article in the Virginia Mercury on May 21 casts a skeptical eye toward Dominion Energy Virginia’s claims to offer its customers the ability to purchase electricity generated by solar power.

Dominion, one of the nation’s five largest monopoly utilities, has “proposed to collect an average of $75 a month as a ‘minimum bill’ from every customer who buys solar energy from someone else.” Writes the Mercury’s Ivy Main, “A fee like that would end the program before it ever started.” Solar advocates and Virginia’s lead energy agency are asking regulators to hold a hearing on the plan for a minimum bill.

Similar complaints were raised in a commentary piece in the Post and Courier of South Carolina. Writes Aaron Davis of Firefly Solar in Greenville, SC, a panel installer:

Power companies typically charge customers a nominal monthly service fee — Dominion’s is currently $9 — which is what you owe on your bill before flipping a light switch. But for solar customers, Dominion plans to hike that fee to almost $20. Then Dominion wants to tack on a “solar subscription fee” that would cost a typical customer with an 8-kilowatt system an extra $43 a month.

The Southern Environmental Law Center estimates the fees at $650 a year and says they are “threatening solar jobs [and] access to rooftop solar.”

 As for Virginia, Main writes that “Dominion’s website does list one attractive program under the name ‘community solar’…. This would pass all our tests, except that it doesn’t exist. The SCC [State Corporation Commission] gave Dominion the green light to offer the program more than two years ago, and we’ve heard nothing since, even though the enabling legislation appears to make it mandatory for both Dominion and APCo [Appalachian Power, the other large monopoly in the state].”

The Biden Plan for Expanding the Electric Grid

The fate of President Biden’s American Jobs Plan, released March 31, is still uncertain, but when it comes to power generation, it is definitely ambitious. The plan calls for $100 billion to help deliver “100 percent carbon-free electricity by 2035. Biden wants to provide tax incentives to build “at least 20 gigawatts of high-voltage capacity power lines.” He proposes a new “Grid Deployment Authority” at the Department of Energy to allow for “better leverage of existing rights-of-way – along roads and highways” and to support “creative financing tools to spur additional high-priority, high-voltage transmission lines.”

The President also proposed a 10-year extension of an expanded “direct-pay” investment tax credit and production tax credit, paired with strong energy standards, for clean energy generation and storage.

To put the Biden request in context: He is asking for $100 billion for the electric grid, compared with a total of $115 billion for highways, bridges and roads.

Subsidy for Nuclear Plants Is Questioned

“Do NJ’s nuke plants need that $300 MM subsidy?” asks a headline on an NJ Spotlight News article on May 19. The piece notes that Public Service Enterprise Group’s three nuclear plants in South Jersey are expected to turn a profit this year, raising “more questions about the subsidies awarded to the company just last month.”

In April, the state’s Board of Public Utilities (BPU) extended a subsidy of $300 a million annually, “paid by customers for another three years beginning in 2021…. The subsidies have been hotly contested by consumer advocates, business groups and New Jersey’s Rate Counsel since the BPU awarded the first round of incentives in 2018.”

Plan to Break Up Duke Energy Offered

Duke Energy has come under fire from Elliott Management Corp., one of its 10 largest investors. Elliott, a hedge fund founded by Paul Singer with $44 billion under management, sent a letter to Duke’s board of directors on May 17, outlining a plan to break up the company into three regional utilities in the Carolinas, Florida and the Midwest. The plan, Elliott estimates, would “create $12 to $15 billion of line-of-sight near-term value for shareholders.”  

In a press release, Elliott asserted that “top-tier results have proven elusive,” leaving “few benefits” for stakeholders. The letter cited the company’s “discounted valuation and long-term share price underperformance.”

Duke, the second-largest U.S. utility based on market value, after NextEra, responded with a statement that it will deploy over $125 billion of capital over the next 10 years and deliver 5% to 7% annual earnings growth to shareholders. It criticized Elliott, stating, “This ‘shrink-the company’ strategy that underlies all of Elliott’s proposals runs counter to the strategic direction of the entire industry at a time when scale is needed to efficiently finance the company’s unprecedented capital investment and growth opportunities.”

A project of the Pacific Research Institute, the Electricity Reality Report provides news and analysis on policies, markets, and technology trends that affect our nation’s ability to power American homes and businesses with reliable low cost energy.

For more information, visit www.electricityrealityreport.org/