Natural gas commodity prices are less than half what they were in 2004 and yet average home gas bills have gone up.
How can this be? Why aren’t Texans enjoying real savings in their gas utility bills?
The answer relates to pipeline and distribution charges, which are little known components of home utility bills.
Because gas utilities are monopolies (think Atmos Energy in the DFW area or CenterPoint Energy in Houston), the rates they charge to deliver gas to Texas homes and businesses are set by state regulators. Every home gas utility bill includes these regulated pipeline and distribution charges along with market-based charges reflecting natural gas commodity costs.
It’s the regular increases in these regulated delivery charges that have consumed much of the savings that Texans should have expected in their home gas bills. To make matters worse, controversial “alternative” rate-making schemes allow monopoly utilities to frequently hike rates without substantive regulatory review.
Let’s look at the numbers.
According to the United States Energy Information Administration, the average annual commodity (Henry Hub) price for natural gas declined by 57.2 percent from 2004 through 2016. At the same time, the average overall natural gas prices paid by Texas residential consumers (delivery charges, plus those commodity costs) increased by 13.1 percent — from an average of $10.37 (per thousand cubic feet) to $11.73.
Texans served by monopoly gas utilities during that 12-year period have endured a constant uptick in distribution and pipeline charges.
The example of Atmos Energy, which is one of the state’s largest gas utilities, illustrates this point. Atmos serves millions of Texas customers though its three utility divisions in the state: Atmos Pipeline, Atmos Mid Tex and Atmos West Texas. According to our review of regulatory filings, Atmos Pipeline Texas increased its rates 21 times since 2004, Atmos Mid Tex increased its rates 16 times and Atmos West Texas increased its rates 12 times.
Because of alternative rate-making rules such as those included in the “Gas Reliability Infrastructure Program” (adopted in 2003 by the Texas Legislature) most of these increases have been implemented without substantive regulatory review.
But Atmos customers are by no means alone. The Gas Reliability Infrastructure Program and other alternative rate-making schemes also have contributed to millions of dollars in rate hikes by other major Texas utilities over the last decade.
Regulatory planners, industry officials and others looking to guard against blackouts must focus more of their attention on the nation’s natural gas delivery systems and its natural gas-fired plants.
That’s among the key take-away findings from a new report by the North American Electric Reliability Corporation, the quasi-governmental organization that oversees power reliability in the United States. The report, issued this month, also identifies several areas of Texas in which the power grid could be undermined under certain circumstances by the sudden loss of multiple natural gas-fired plants.
“In light of the power sector’s rising reliance on natural gas, the loss of gas facilities must be added to the list of potential extreme contingencies used to measure system reliability impacts,” said John Moura, one of NERC’s directors, in a prepared statement.
The electric power sector is changing dramatically: increasing numbers of natural gas-fired plants are pumping out more power even while a growing number of coal and nuclear plants are retiring or are expected to retire. These charges are largely driven by lower natural gas prices but also technological advancements that have made natural gas-fired plants more competitive.
As a consequence, a major disruption in natural gas delivery or the sudden shutdown of multiple natural gas-fired plants can destabilize power grids. Texas experienced such instability during a major cold front in 2011 when millions of Texans lost power after freezing parts and a lack of fuel caused the shutdown of several gas-fired plants.
NERC, in its report, found that potential risks for natural gas-related grid instability vary widely depending on geographical location and the density of infrastructure. It also said that risk mitigation strategies are available.
For its report, NERC mapped the location of major gas storage facilities that are coupled with electric generation, mapped the location of clusters of natural gas-fired electricity plants and also surveyed other expert studies.
It identified four areas in Texas with groups of generation facilities that could experience stability problems if two gigawatts or more of natural gas-fired generation were to be disrupted.
The assessment included several recommendations:
- Regulators should address cyber and physical security needs related to fuel supply disruptions.
- The Department of Energy should consider collecting data to quantify dual fuel storage and seasonal on-site inventory.
- Wholesale electric markets should continue to incentivize performance of natural gas generation.
- The natural gas and electricity industries should continue to strengthen their operational coordination.
The new report is entitled “Special Assessment: Potential Bulk Power System Impacts Due to Severe Disruptions on the Natural Gas System.” You can find it here.
$105 million — that’s how much Barclays Bank and several former energy traders will pay after being accused by federal regulators of improperly manipulating electric prices in California during 2006 and 2008.
Although less than the $487.9 million originally sought, the legal settlement is still one of the largest ever for such a case. It also exceeds by far anything ever seen in Texas.
According to the allegations, Barclays and several of its former energy traders improperly schemed to lose money in certain transactions in order to make money in others. As a consequence, California energy market participants reportedly lost nearly $140 million, according to reports.
The agency pursuing the case — the Federal Energy Regulatory Commission — originally approved more than $400 million in fines, but agreed to the smaller amount after a protracted legal fight. Under the deal announced this month, Barclays will pay a $70 million civil penalty and disgorge another $35 million in profits.
“The commission concludes that the agreement is a fair and equitable resolution of the matters concerned and is in the public interest, as it reflects the nature and seriousness of the conduct,” FERC stated in a Nov. 7 regulatory filing.
FERC oversees energy markets throughout the United States but has limited authority over the Texas energy market, which is overseen by the Texas Public Utility Commission. However, under the Energy Policy Act of 2005 FERC has much broader authority than the PUC to assess penalties in market manipulation cases.
The most ever paid in a U.S. market manipulation case involving FERC came in 2013, when JP Morgan agreed to pay $410 million to settle allegations of improper activities in California and the Midwest from 2010 through 2012. The largest settlement in Texas came in 2008, when Luminant agreed to pay $15 million to settle allegations stemming from alleged gaming activities in 2005.
A parade of under-the-radar rate hikes — that’s been the unfortunate result of a long-running and controversial Railroad Commission program that now has captured the attention of The Dallas Morning News.
The program, known as the Gas Reliability Infrastructure Program, or GRIP, has long been criticized by the Atmos Cities Steering Committee, the Texas Coalition of Cities for Utility Issues and other city and consumer groups. It also has been the subject of critical reports by the state’s largest-circulation newspaper, the Houston Chronicle.
And now, in a blistering Aug. 24 editorial, The Dallas Morning News has added its voice to those expressing concerns.
The paper noted that GRIP has led to multiple hikes by multiple gas utilities, including more than a half-billion dollars in increases from a single Atmos Energy division serving the Dallas-Fort Worth area. It noted that GRIP allows these hikes without substantive regulatory review.
“The program … amounts to a license to skirt serious regulatory oversight,” the paper’s editorial board stated.
GRIP was first authorized by the Texas Legislature in 2003. It has been reported separately that utilities have gone so far as to leverage the program to hike rates even at times when the utilities already are reaping windfall profits.
The Morning News noted that commodity gas prices have declined precipitously over the last several years, but those declines have been masked by the repeated GRIP increases. It concluded that “consumers are getting the short end” from GRIP and that lawmakers should consider ending the program.
“Utilities have a right to recoup their investments, but it must not be part of shadow alternative rate process for regulation,” the newspaper stated.
You can read The Dallas Morning News editorial here.
Remember: always exercise extreme caution when dealing with electricity during a flood.
“When possible, we recommend that you contact a licensed electrician to advise and assist during flood conditions in turning power off at the breaker box and back on,” advises CenterPoint, the Houston-based utility.
The utility also cautions that if it appears flood waters will reach the power outlets “that you cut off power at the breaker box ONLY if you are able to do so safely and without standing in water.”
CenterPoint said it already has restored power to hundreds of thousands of customers, although high waters and debris continue hampering its efforts. The utility said its natural gas system was functioning normally, although difficult conditions on the ground likewise were keeping it from responding to some leak calls.
The other big Texas utility impacted this week by Hurricane Harvey, AEP Texas, said it has restored 10 transmission lines and 20 transmission stations, but another 55 transmission lines and 44 stations remained out of service. AEP serves the Corpus Christi area.
“Assessment and restoration efforts have been hampered by the weather (e.g. inability to fly helicopters to assess impact on facilities, etc.) but the transmission team has been able to assess about 70% of its transmission equipment in the affected areas,” the utility said in a message on its website.
As of 9 p.m. Tuesday, about 116,000 AEP customers in the Coastal Bend area remained without power, according to the utility. That included more than 41,000 in the hard hit Aransas Pass/Rockport area.
Texas Gov. Greg Abbott on Monday issued a proclamation allowing public utilities to enter and use private property and public easements to restore power to storm-stricken areas.
5 p.m., Aug. 28, 2017
The ERCOT grid continues to be in stable condition following Hurricane Harvey. However, several transmission lines remain out of service, especially near Corpus Christi and Victoria where Hurricane Harvey made landfall.
Two major 345-kV transmission lines serving the Gulf Coast area are still out of service, along with many other high-voltage transmission lines. As of mid-day today, a little more than 6,700 MW of generation capacity, including a very small percentage of renewables, was off-line for reasons related to the storm.
Electricity demand in the days since landfall has been about 20,000 megawatts (MW) below typical August electricity use, peaking at less than 44,000 MW, due to a combination of structural damage along the coast and cooler temperatures in much of the region.
ERCOT operations will continue to focus on overall grid reliability during the restoration process, while transmission and distribution providers make repairs to power lines and electrical equipment. Additional engineers have been on site around the clock throughout the hurricane and tropical storm to support these operations and stay in constant communication with transmission and generation suppliers.
System restoration times will vary depending on the extent of damage and location of the outage, as well as weather conditions in the coming days.
To help prevent a power surge when power is restored, ERCOT recommends unplugging anything that requires a significant amount of electricity, such as large appliances and electronics. For safety reasons, residents in flooded areas should have electronics and appliances checked by a repair person before using. Additionally, when possible, have a licensed electrician handle turning circuit breakers on and off.
9 a.m., Aug. 27, 2017
Conditions in the ERCOT region have remained steady over the past 24 hours. ERCOT continues to see widespread transmission outages, especially near Corpus Christi and Victoria.
While power to some areas that were affected by Hurricane Harvey Friday night have been restored, new outages are likely over the next several days as the tropical storm dumps heavy rains in other parts of the ERCOT region, including the Houston area.
ERCOT continues to work with transmission and generation owners to protect the overall reliability of the grid. We will continue to provide updates if system conditions change.
As a reminder, please stay away from downed power lines, as they may be energized. They should be reported immediately to your local electric service provider.
5 p.m., Aug. 26, 2017
Consumer outages due to Hurricane Harvey, which has been downgraded to a tropical storm, have decreased slightly to less than 300,000. Outage numbers may fluctuate in the coming days as transmission providers continue to work to restore power safely in affected areas. System conditions overall remain stable. Area residents are reminded to avoid contact with downed power lines, which could be energized, and report them promptly to local electric utilities. Unless conditions change overnight, ERCOT will provide the next update the morning of Aug. 27.
2 p.m., Aug. 26, 2017
ERCOT is seeing widespread transmission line outages along the coastal areas in the storm’s path, from Corpus Christi up toward the Houston area. We currently estimate more than 300,000 customers are still without power based on reports from transmission providers in the affected areas.
Transmission providers are assessing the damage and making repairs where and when it is possible to do so safely. Extended outages are likely in most affected areas.
ERCOT continues to monitor the situation and communicate with transmission and generation owners to assess the impacts of the hurricane and manage overall system reliability.
Heavy rain is expected to continue through the weekend and into next week. Tornadoes may also cause damage as the storm progresses.
Please avoid any downed power lines resulting from the storm and contact authorities if you see them.
7:20 a.m., August 26, 2017
The number of outages in the ERCOT region has increased to more than 293,000 customers. Approximately 157 circuits are out of service.
6:30 a.m., August 26, 2017
More than 213,000 consumers are currently without power on the Texas Gulf Coast due to effects from Hurricane Harvey. Approximately 140 circuits are out of service.
1 a.m., August 26, 2017
More than 211,000 consumers are currently without power on the Texas Gulf Coast due to effects from Hurricane Harvey. Landfall occurred near Rockport just after 10 p.m. Widespread transmission outages, with more than 100 circuits currently out of service.
7 p.m., August 25, 2017
The Electric Reliability Council of Texas (ERCOT) has issued an emergency notice for Hurricane Harvey, which has reached Category 4 status and is expected to make landfall late Friday evening. The storm has already begun to impact the electric system, and more than 70,000 customers are without power as a result. In addition to wind-related damage, the hurricane is expected to cause significant flooding in the South, South Central and Coastal weather zones in the ERCOT region. This includes the cities of Houston, Corpus Christi, Brownsville, Austin and San Antonio. ERCOT System Operations is working 24/7 to monitor the situation and manage the electric grid to ensure overall system reliability.
The ERCOT region includes Houston, Dallas, Fort Worth, San Antonio, Austin, Corpus Christi, Abilene and the Rio Grande Valley. It does not include the El Paso area, the Texas Panhandle, Northeast Texas (Longview, Marshall and Texarkana), and Southeast Texas (Beaumont, Port Arthur, and the Woodlands).
Local Utility Information
Contact your local electric service provider to report downed power lines in your area. To find out if you need to report an outage, check websites below for more information.
- AEP Texas: 877-373-4858
- Austin Energy: 512-322-9100
- Bandera Electric Cooperative: 866-226-3372
- Bluebonnet Electric Cooperative: 800-949-4414
- Brazos Electric Power Cooperative: 254-750-6500
- Brownsville Public Utilities Board: 956-983-6300
- Bryan Texas Utilities: 979-822-3777
- CenterPoint Energy: 800-332-7143 (Please limit calls to downed power lines and natural gas emergencies.)
- College Station Utilities: 855-528-4278
- CPS Energy–San Antonio: 210-353-4357
- Denton Municipal Electric: 940-349-7000
- Garland Power & Light: 972-205-3000
- Guadalupe Valley Electric Cooperative: 800-223-4832
- LCRA: 800-223-7622
- Magic Valley Electric Cooperative: 866-225-5683
- Nueces Electric Cooperative: 800-632-9288
- Oncor: 888-313-4747
- Pedernales Electric Cooperative: 888-883-3379
- Rayburn County Electric Cooperative: 469-402-2100
- Sharyland Utilities: 800-545-4513
- South Texas Electric Cooperative: 888-480-3534
- Texas-New Mexico Power: 888-866-7456
Thanks in large part to its repeated rate increases and customer growth, profits are up for CenterPoint Energy.
That’s the word from the Houston Chronicle, which reported this week that its hometown electricity and natural gas distributor made profits of $135 million — or 31 cents per share — during the second quarter of the year. That’s compared to a $2 million loss during the same period last year, according to the newspaper.
How do those profits relate to the home consumer? “Natural gas and electricity rates for Houston customers have gone up,” the paper reported.
A rate increase for natural gas service that was recently approved by the Texas Railroad Commission will increase CenterPoint’s bills to typical Houston customers by about $1.23 per month, the newspaper reported. A separate rate increase proposed by CenterPoint’s electric utility will increase rates to those customers by about 80 cents per month, if approved by the Texas Public Utility Commission, according to the newspaper.
In a recent investigative report, the Houston Chronicle also found that monopoly utilities like CenterPoint often have hiked gas rates even while earning windfall profits off their captive customers.
“CenterPoint Energy’s gas utility earned profits that were hundreds of thousands of dollars above the cap set by state regulations in 2015. But that didn’t stop the company from asking last year — and getting — higher rates to collect even more money from its Houston-area customers,” the newspaper’s Ryan Maye Handy reported in May.
CenterPoint likewise earned profits above previously approved levels in 2013 and 2014, and both times the Railroad Commission allowed the company to raise rates “with few questions asked.”
Handy attributed those controversial rate hikes to the Gas Reliability Infrastructure Program that allows gas utilities to regularly increase residential and commercial bills, but with little regulatory oversight.
“For the company’s 1 million Houston-area customers, the result has been a steady uptick in the cost of natural gas delivery, which has cut into savings from the lowest natural gas prices in nearly two decades,” reported Handy.
Customers served by one of the state’s largest gas utilities will soon see their bills increase thanks to a decision this week by the Texas Railroad Commission.
Under that decision Atmos Pipeline Texas — a regulated monopoly serving northern and western parts of the state — will begin collecting about $30.7 million more each year. The Railroad Commission’s three elected commissioners also granted Atmos Pipeline Texas on Monday an 11.5 percent “return on equity,” or ROE, which is a rough proxy for its allowable profit levels.
Geoffrey Gay, ACSC general counsel, said the return on equity level and the overall rate increase are excessive given the company’s status as an extremely low-risk monopoly. “As the investor owned utility in Texas with the most risk-reducing features, (the company) should have among the lowest authorized ROE of public utilities — instead, (it) has the highest,” wrote Gay, in an ACSC legal brief filed earlier this month.
The ACSC general counsel also noted that Atmos Pipeline’s latest hike comes on top of numerous previous ones, that, taken cumulatively, totaled 17.5 percent since 2011. Each of those previous hikes were the result of a controversial program known as the Gas Reliability Infrastructure Program that has allowed Atmos Pipeline Texas and other gas utilities to hike rates on an annual basis with almost no regulatory review.
In a recent investigative report, the Houston Chronicle also found that the GRIP program has allowed gas utilities like Atmos Pipeline Texas to increase rates even when those monopoly companies were simultaneously earning windfall profits off their captive customers.
In 2013, for instance, the commission approved a rate increase for Atmos customers when the company over earned by around $4 million, according to the newspaper. Then, in 2015, the commission approved another rate increase when the company had over earned by about $1.6 million, the paper reported.
Increasingly hot summers and the needs of a growing state help explain heightened demands on the state principal power grid.
On June 23 — a hot day even by Texas standards — electrical consumption on the state’s main power grid spiked in quick succession to 66.7 gigawatts, 67.5 gigawatts and then to 67.7 gigawatts. Each spike represented a new June record for peak power usage, and they all beat the previous 66.5 GW record set in June 2012.
To put those numbers in perspective, a single gigawatt is enough power for approximately 300,000 to 500,000 homes. A single gigawatt is the output of 500 utility-scale wind turbines, or the equivalent of 2,000 engines from 2,000 Corvette sports cars.
That’s a lot of power.
But the records set last month represent historic highs for June, and not all-time records. According to ERCOT, which is the organization that oversees the state’s main power grid, the much higher all-time peak record was set during the brutal summer of 2011, when Texans hit peak consumption of more than 71 GW.
The increasingly hot summers and the needs of a growing state help explain heightened demands on the grid. But even still, ERCOT says the state should have enough generating capacity to keep the lights on for the foreseeable future.
In a report released last May ERCOT projected that generation capacity should exceed projected peak demands for the next five years. You can read about that report here.
The 85th Regular Session of the Texas Legislature adjourned sine die on May 29, 2017. Just below we describe a number of bills we were following, as well as their ultimate fate during the session.
House Bill 931 will help expand the state’s network of hike-and-bike trails, but at virtually no cost to political subdivisions for the underlying land. This is because the legislation responsibly waives some of the legal liability that utilities would otherwise face for allowing their land to be used for public recreational purposes. The legislation has been adopted by both the House and Senate and signed by the governor.
Senate Bill 735 would require the Public Utility Commission to establish a schedule under which it periodically reviews the fairness of electric utility rates. It also includes other changes to rate-setting procedures that, taken collectively, would be something of a mixed bag for consumers. Gov. Greg Abbott signed SB 735 into law on May 27.
Senate Bill 83, by state Sen. Bob Hall, calls for the creation of a task force to review potential risks to the state’s electric grid infrastructure from cyber and electro-magnetic attacks. The legislation has been approved by the full Senate, but then stalled in the House. House Bill 787, which is similar to SB 83, has been adopted by the Texas House, but then stalled in the Senate. Both bills failed.
Senate Bill 1976 would ensure the continuation of a process whereby the Public Utility Commission identifies low-income electric and telecommunications ratepayers. This is important because such customers are eligible for various customer protection benefits. Gov. Greg Abbott signed this bill into law on May 19.
House Bill 1427, by Rep. Pat Fallon, would have clarified the proposition that a city’s zoning authority extends over electric cooperatives just as it would for any other business operating within city limits. This legislation was adopted by the House Urban Affairs Committee, but then stalled and died.
Several bills, including House Bill 237 by Rep. Rafael Anchia and House Bill 642 by Rep. Larry Phillips, had called for a name change for the Texas Railroad Commission. This would have helped to clear up public confusion about the agency, which does not have responsibility for overseeing railroads but does oversee gas utility rates. These bills failed to get traction during the session, and were not adopted.
House Bill 1818, by state Rep. Larry Gonzales, is the Railroad Commission “Sunset” bill. That is, the bill authorizes the continuation of the agency for several more years, and also spells out various adjustments to the agency’s operations. However, House Bill 1818 does not include several recommended reforms — such as the use of independent administrative law judges for the adjudication of gas utility cases — that were included in versions of this bill during previous legislative sessions. HB 1818 was adopted by both the Texas House and Texas Senate and signed by the governor.