THE DEREGULATED TEXAS ELECTRICITY MARKET March 4, 2016
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RECENT HISTORY OF TEXAS ELECTRICITY MARKET 1999 – 2015
2005: • S.B. 20 passed • Expanded RPS goal of 5,880 MW by 2015 and a target of 10,000 MW by 2025 • Established CREZ
1999: • S.B. 7 passed • Deregulated TX electricity market • Established RPS
2002: • S.B. 7 implemented with RPS goal of 2,880 MW by 2009; beginning of retail competition
2007: • TX surpassed expanded 2015 RPS goal
2006: • ERCOT completes its CREZ study
2010-2013: • CREZ projects proceed; route segments selected
2009: • TSPs selected to build CREZ
2008: • PUCT approved $5B CREZ transmission project • GE Energy delivers its report, “Analysis of Wind Generation Impact on ERCOT” • ERCOT finalizes CREZ transmission optimization study
2010: • TX surpassed expanded 2025 RPS goal • CREZ line construction began
2015: • TX sets alltime record for wind energy production (13.9 GW)
2013: • Final CREZ line construction completed
CREZ: Competitive Renewable Energy Zones ERCOT: Electric Reliability Council of Texas PUCT: Public Utility Commission of Texas RPS: Renewable Portfolio Standard TSP: Transportation Service Provider Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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S.B. 20 (2005) THE BEGINNING OF CREZ
Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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IDENTIFY AREAS OF HIGHEST WIND POTENTIAL PUC PROJECT NO. 33577
Source: PUCT Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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CREZ OPTIONS 25 DIFFERENT ZONES
Source: ERCOT Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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CREZ DESIGNATION PUC DOCKET NO. 33672
Source: PUCT Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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CREZ TRANSMISSION LINES
Source: PUCT Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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SELECTION OF TRANSMISSION LINES PUC DOCKET NO. 35665
Source: PUCT Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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THE CREZ PROCESS WAS A NEW PROCESS
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Typically, transmission is built from generation or to load when there are no lines or when current lines get congested.
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Designating the zones and building transmission before the generation is in place is the reverse of what normally happens; removes “the chicken or the egg” problem.
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PURA 39.904(h) – In reviewing CREZ CCN applications, “need” should not be considered.
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The PUC approved different transmission providers to build the CREZ lines to encourage new market participants rather than rely exclusively on incumbent TSPs.
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New TSPs awarded projects in Panhandle of West Texas, as well as “non-priority projects.”
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TRANSMISSION LINE APPROVAL PROCESS
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Under PURA, the PUC must consider factors such as the community, historical, and aesthetic values, and the environmental integrity associated with the transmission line.
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Additional factors in PUC rules are whether the routes:
– utilize existing compatible rights-of-way, including the use of vacant positions on existing multiple -circuit transmission lines; – parallel existing compatible rights-of-way; – parallel property lines or other natural or cultural features; and – conform with the policy of prudent avoidance. •
Utilities must apply to the PUC for a certificate of convenience and necessity (CCN) before it can build a power line.
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Originally, TSPs provided the PUC with a “preferred route” and two alternate routes, but unintended consequences led to elimination of the “preferred route” requirement
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After transmission lines were selected, the TSPs had to apply for a CCN, which gives utilities the power of eminent domain to obtain the use of private property easements for the power lines. Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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WIND ENERGY IN TEXAS 2005 – 2015 (MWH PER YEAR)
45,000,000 40,786,278
40,000,000 36,142,384
35,000,000
32,705,373 29,803,361
30,000,000
28,295,402 24,713,265
25,000,000 20,000,000
18,809,812 15,237,876
15,000,000 10,000,000
8,732,934 6,341,451
5,000,000
3,977,038
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: ERCOT Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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U.S. WIND POWER CAPACITY INSTALLATIONS, BY STATE FOURTH QUARTER 2015
Source: American Wind Energy Association | U.S. Wind Industry Fourth Quarter 2015 Market Report Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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TEXAS ENERGY USE COMPARISON 2003, 2009, & 2014
Nuclear 11.95%
Coal 39.72%
Wind 0.83%
Wind 6.2%
Hydro, Biomass, Solar, Other 1.15% Natural Gas 46.35%
Nuclear 13.6%
Coal 36.6%
Wind 10.6%
Hydro, Biomass, Solar, Other 1.5%
Nuclear 11.6% Natural Gas 42.1%
Hydro, Biomass, Solar, Other 0.8% Natural Gas 41.1%
Coal 36%
Energy Use 2003
Energy Use 2009
Energy Use 2014
Total energy consumed: 279,373,420 MWh
Total energy consumed: 305,432,222 MWh
Total energy consumed: 340,033,353 MWh
Source: ERCOT Public Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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TEXAS ENERGY USE 2015
Wind 11.7%
Hydro, Biomass, Solar, Other 0.5%
Nuclear 11.3% Natural Gas 48.3% Coal 28.1%
Energy Use 2015 Total Energy Consumed: 347,522,948 MWh Source: ERCOT Public Confidential and Proprietary ©2016 Vinson & Elkins LLP www.velaw.com
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SPEAKER BIOGRAPHY
Barry is the only person to ever serve on both the Public Utility Commission of Texas (PUCT) and the Railroad Commission of Texas (RRC), and is a nationally recognized authority on a number of emerging energy trends. With this background, Barry brings unique experience and perspective when advising clients on issues relating to state and federal regulations, energy project development, legislative matters, and energy litigation.
BARRY T. SMITHERMAN PARTNER
512.542.8562
[email protected]
Barry Smitherman @smithermanTX
Barry’s experience at the PUCT and RRC, coupled with his service on a number of national and regional energy-focused boards and committees, gives him particular insight into emerging developments such as unconventional oil and gas development, electric transmission development, renewable energy generation, and energy storage. Barry was appointed to the RRC in 2011 to serve an unexpired term and, in 2012, was elected statewide for a two-year term. He was later chosen by his colleagues to serve as chairman of the RRC. During his chairmanship, he also served as chair of the Gas Committee of the National Association of Regulatory Utility Commissioners from 2013 to 2014.
Prior to his service with the RRC, Barry was a member of the PUCT for more than seven years and served as chairman of the agency for most of 2007 to 2011. In addition to a number of significant achievements, Barry is best known for leading the PUCT’s adoption and management of the 3,600-mile Competitive Renewable Energy Zone transmission line project, handling routing disputes and acting as the agency’s liaison with the Texas Legislature, service providers, and landowners. Prior to beginning public service, Barry spent 16 years as an investment banker. He held leadership positions with several firms, including Lazard, where he led the Houston office; The First Boston Corporation, where he was co-head of the “sunbelt infrastructure” group; J.P. Morgan Securities, where he was head of Texas public finance; and Banc One Capital Markets, where he was the National Head of tax-exempt origination. During this time, he managed billions in municipal bond offerings on behalf of state and local governments.
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