Scope of Competition in Electric Markets in Texas Report to the 86th Legislature Public Utility Commission of Texas January 2019 2019 SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS REPORT 2019 Scope of Competition in Electric Markets in Texas TABLE OF CONTENTS I. INTRODUCTION ...........................................................................................................1 II. STATE OF THE COMPETITIVE MARKET FROM 2017 TO 2018 ...................................2 Residential and Small Commercial Customers in Competitive Retail Markets ................................................................................................................... 2 1. Customer Choice ................................................................................................2 2. Retail Prices .......................................................................................................3 3. Customer Education Activities ..........................................................................4 4. Customer Protection...........................................................................................5 Wholesale Market in ERCOT ................................................................................. 5 1. Independent Market Monitor .............................................................................5 2. Wholesale Market Prices ...................................................................................6 3. Capacity, Demand, and Reserves Report ...........................................................7 Non-ERCOT Utilities: Market Development ........................................................ 8 1. Southwest Power Pool .......................................................................................9 2. Midcontinent Independent System Operator .....................................................9 3. Western Electricity Coordinating Council .......................................................10 III. SIGNIFICANT COMMISSION ACTION FROM 2017 TO 2018 ......................................11 Retail Market ........................................................................................................ 11 1. Project No. 45625: Rulemaking Related to the Use of Hand-Held Electronic Devices for Retail Customer Enrollment .......................................11 2. Project No. 47343: Amendments to Reflect the Elimination of the System Benefit Fund and Project No. 48337: Rulemaking to Amend 16 TAC § 25.45 to Provide for a Low Income List Administrator Opt-In Process .............................................................................................................11 3. Project No. 47545: Rulemaking Proceeding to Establish Filing Schedules for Investor-Owned Electric Utilities Operating Solely Inside ERCOT ............................................................................................................11 4. Senate Bill 559: Required No Commission Action .........................................12 5. Senate Bill 1002: Required No Commission Action .......................................12 6. Docket No. 47416: Advanced Meter Deployment in Entergy .........................12 7. Smart Meter Texas ...........................................................................................13 8. Docket No. 45414: Sharyland Utilities Legal Transfer of Assets and Effect on Rates .................................................................................................13 9. Sempra Energy’s Acquisition of Oncor ...........................................................14 i | Page 2019 SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS REPORT 10. Effect of the Tax Cuts and Jobs Act of 2017 on Rates ....................................15 11. Hurricane Harvey Storm Costs ........................................................................16 12. Power to Choose ..............................................................................................17 13. Docket No. 46368: Application of AEP Texas North Company for Regulatory Approvals Related to the Installation of Utility-Scale Battery Facilities ..............................................................................................18 ERCOT Wholesale Market ................................................................................... 18 1. Operating Reserves Demand Curve .................................................................18 2. Wholesale Market Design Initiatives ...............................................................19 3. Review of ERCOT Market Performance in Summer 2018 .............................19 4. Project No. 45078: Rulemaking Related to Distributed Generation Interconnection Agreements ............................................................................20 5. Project No. 45927: Rulemaking Regarding Emergency Response Service..............................................................................................................21 6. Project No. 46369: Reliability Must-Run Service in ERCOT .........................21 7. Load Transfers Between Regions ....................................................................21 8. Southern Cross Transmission ..........................................................................22 Oversight and Enforcement Actions ..................................................................... 23 IV. LEGISLATIVE RECOMMENDATIONS .........................................................................25 1. Outside Counsel for Proceedings before Regional Transmission Organizations .................................................................................................25 2. Default Violations...........................................................................................25 3. Registration of Retail Electric Brokers ........................................................25 4. Electric Industry Security .............................................................................26 5. Review of Power Generation Mergers and Acquisitions............................27 6. Use of Battery Storage in ERCOT ...............................................................28 7. Recovery of Costs of Advanced Meter Deployment in All Non- ERCOT Areas of the State ............................................................................29 ii | Page 2019 SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS REPORT List of Appendices APPENDIX A – ACRONYMS ............................................................................................................................. 30 List of Tables TABLE 1. NUMBER OF REPS AND PRODUCTS SERVING RESIDENTIAL CUSTOMERS BY TDU SERVICE TERRITORY ..................................................................................................................................... 2 TABLE 2. VISITOR WEBSITE STATISTICS FOR SEPTEMBER 1, 2016 – AUGUST 31, 2018 ................................... 4 TABLE 3. MAY 2018 CDR REPORT FOR PEAK SUMMER CONDITIONS FOR 2019 – 2023 ................................... 7 TABLE 4. EFFECT OF SHARYLAND DISTRIBUTION TRANSFER ON RESIDENTIAL RATES .................................. 14 TABLE 5. ERCOT PEAK DEMAND GROWTH FOR 2012 – 2018 ...................................................................... 20 TABLE 6. NOTICES OF VIOLATIONS ............................................................................................................... 23 TABLE 7. CERTIFICATES REVOKED OR RELINQUISHED .................................................................................. 24 TABLE 8. WARNING LETTERS ........................................................................................................................ 24 List of Figures FIGURE 1. COMPARISON OF CURRENTLY AVAILABLE RETAIL RATES TO THE NATIONAL AVERAGE AND INFLATION-ADJUSTED LAST REGULATED RATE ............................................................................. 3 FIGURE 2. LOAD-WEIGHTED AVERAGE REAL-TIME MONTHLY SETTLEMENT POINT PRICES ........................... 6 FIGURE 3. MAP OF REGIONAL TRANSMISSION ORGANIZATIONS IN TEXAS ....................................................... 9 FIGURE 4. MONTHLY PEAK DEMAND IN ERCOT FOR JANUARY 2016 – AUGUST 2018 ................................. 20 iii | Page 2019 SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS REPORT I. INTRODUCTION This report examines the status of electric markets in Texas throughout the two years since the submission of the previous Scope of Competition in Electric Markets in Texas to the 85th Legislature in 2017. The report identifies trends affecting competition in the wholesale and retail electric markets and Commission activities of notable interest over the last two years, including implementation of legislation, rulemaking activity, significant proceedings, and changes in the competitive ERCOT market. The report concludes with legislative recommendations. The competitive electric marketplace in Texas continues to support a healthy number of retail electric providers and a wide variety of products to customers, competitive prices in wholesale markets, reliable service, and a diverse mix of generation resources. Because of the timing of the preparation of this report, the data used to analyze retail and wholesale trends looks at the two-year period from September 1, 2016 through August 31, 2018, including record-setting peak demand in the summer of 2018. 1 | Page 2019 SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS REPORT II. STATE OF THE COMPETITIVE MARKET FROM 2017 TO 2018 Residential and Small Commercial