Posts Tagged ‘electric power prices’

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Cheap natural gas undermining solar dreams

January 5, 2012

Michael Giberson

NPR reports from Pennsylvania how low natural gas prices have helped put the damper on some solar power dreams:

Barbara Scott had 21 solar panels installed last March on her house in Media, Pa. Scott’s family was the first in the community, and she was prepared to evangelize, “We can have open houses and write newsletter articles and promote the idea of solar,” she said. But that was before the economics changed.

With government rebates and tax incentives, Scott says, her family spent $21,000 to install the system. She figured it would take eight years to recoup that investment.

But that eight year (private) payback period turned out to be too optimistic. First, too many other Pennsylvanians also invested in solar, which caused the price of solar power credits to drop sharply.  Scott figures the change added seven more years to the payback period. Second, the price of electric power is lower than it would have been because of low natural gas prices. Scott adds another two years to the payback period for that effect.

With a new total of a seventeen-year payback period, Scott observed: ”We’re up to 17 years, which is, essentially, the life of the system. And we haven’t even considered what happens if the system breaks or what it’s going to cost to take the system off the roof and dispose of it. “

As noted, this is a private payback estimate, it only reflects the homeowners expenses and net electric bill reductions. Omitted from the calculation are the taxpayer- or ratepayer-funded subsidies (likely large) and external benefits of the system (likely modest but could be significant). Furthermore, these sort of casual payback calculations frequently omit consideration of opportunity costs (i.e. the time value of money or foregone interest income.)

But isn’t it sort of interesting that the story builds around the effects of low natural gas prices as a culprit even though the effect is relatively modest compared to the much larger solar credit price effect resulting from too many other Pennsylvanians getting into the subsidized solar game?

Posted in Electricity, Energy markets, Environmental policy, Regulation | Tagged , , , | 3 Comments »

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How valuable will a monopoly be to Lubbock Power & Light?

January 31, 2010

Michael Giberson

After over 90 years of operating in competition with a rival electric utility in town, late last year Lubbock Power & Light and Xcel announced a deal in which municipal electric utility LP&L would buy out Xcel’s distribution assets and customer accounts in the city for $87 million, leaving LP&L as a monopoly electric utility in the city.

Regulatory filings with the state reveal much more of the details of the deal.  A newspaper story in the Lubbock Avalanche-Journal notes, for example, that the $87 million will buy assets that Xcel values at $64.2 million.  Lubbock’s electric power consumers may wonder what the city is getting for that extra $22.8 million payment.

It is a complex deal that, in addition to paying Xcel to get out of town, accommodates changes in numerous existing contracts between the two companies.  For example, a few years ago when LP&L was on the brink of bankruptcy, LP&L and Xcel entered into a deal under which Xcel controls operations at LP&L’s generating plants and LP&L began buying all of its power supply needs from Xcel.  That deal expires in 2019, but under the acquisition plan Xcel would continue to make available some wholesale power to LP&L.  Xcel purchases waste water from the city for cooling a power plant, and that agreement would be revised as well.  All the complexities make it hard to evaluate what, exactly, the deal is worth to citizens of Lubbock – putative owners of the municipal utility – and the value to be created by the deal (if any).

One question to be asked, as a starter, is why LP&L needs to pay anything above scrap value for the Xcel distribution system in the city.  After all, the city claims its existing system is sufficient to serve the entire city and that maintaining two utility systems is town is wasteful.  So LP&L doesn’t need Xcel’s distribution assets to take on current Xcel’s customers, and adding the distribution assets will simply result in a costly, wasteful, and over-built local distribution system.

Scrap value would be too low, since some of the Xcel distribution system may be incorporated into LP&L’s system (in cases in which the Xcel system is superior to the LP&L segment that it duplicates), but book value on the assets seems a reasonable upper limit.  In any case it is hard to believe LP&L should pay a premium over book value for Xcel’s assets.

Is having a monopoly going to be so valuable to LP&L that they are willing to pay Xcel a $20+ million bonus to get out of town? What does that imply for future electricity rates in the city?

BACKGROUND – Earlier posts on electric utility competition in Lubbock:

Note that, technically speaking, one or two small neighborhoods will still have a choice between LP&L and South Plains Electric Coop, but otherwise LP&L becomes the monopoly provider in the city of Lubbock.

ADDED: The related regulatory filings at the PUC of Texas can be found via the PUCT’s Interchange document system.  Start on this page, enter 37901 as the “Control Number,” and press the “Search Now” button.

Posted in Electricity, Energy markets, Regulation | Tagged , , , , | Comments Off

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Lower prices for electric power in Texas

March 2, 2009

Michael Giberson

Are your electric power rates falling?  Are they below what they were two years ago?

They might  be if you live in parts of West Texas.  The Abilene Reporter-News reports:

Electric rates available to West Texans are less expensive, on average, than they were two years ago.

In addition, residential rates offered in Abilene and San Angelo are among the lowest in the deregulated parts of Texas — in contrast to two years ago when West Central Texans were paying some of the highest rates in the state….

In April 2007 the average monthly cost of electric plans available to residents in Abilene and San Angelo was about $139 for customers who used 1,000 kilowatt hours of power per month.

The average price of plans currently available on www.powertochoose.org, the state’s clearinghouse of electric prices, is about $120 a month. That’s a 13 percent decrease over two years.

The article notes that while the numbers are suggestive of deals available to consumers, they don’t necessarily represent exactly what all consumers are paying now.  For example, consumers may be on one- or two-year fixed price contracts that have yet to reach term, and could be paying higher rates than now offered to new customers (on the other hand, such consumers may have avoided the high prices facing new customers last summer).

Lower natural gas prices are part of the reason prices are lower in West Texas, but wind capacity and transmission grid limits also play a role:

Abilene and San Angelo are uniquely positioned because the wind energy that is produced in the region has a hard time moving to more densely populated parts of the state. So the glut of wind power produced here has helped push the wholesale price of electricity down — which in turn pulls down residential retail rates in the area. Wholesale prices are unique to each of four regions in the ERCOT grid.

Generators “have to curtail the wind generation at times when more is blowing than can be transported out of that region,” said [Potomac Economics VP Dan] Jones, who monitors the wholesale electric market in Texas. “When they do that, the prices become very low.”

But the lower prices may only last for the next few years — until the state can follow through with a plan to beef up its electric transmission system.

Once the transmission build out is completed – estimated to be in the 2014/2015 time frame – wind power will be much less likely to be shut in by grid congestion, so prices will be equalized across the state more of the time.  Still, the large and growing number of wind turbines in the region should help the region remain a low cost power area.

My local utility – I may have mentioned before that I live in the non-ERCOT portion of West Texas – took out a large ad in yesterday’s Lubbock Avalance-Journal to remind ratepayers that our rates are going down.  The local regulated privately-owned electric utility (Xcel) got approval for various rate changes including an immediate reduction in rates due to lower fuel costs, and the local municipal electric utility (LP&L) has matched the rate reduction to stay competitive (because they know what will happen to the customer base if they don’t).

(HT to Michael Grable, ERCOT general counsel, who mentioned the Abilene newspaper story at today’s FERC technical conference on integrating renewable power to the transmission grid.  BTW, a webcast of the event will be available online soon and remain available for about 3 months.)

Posted in Electricity, Energy markets | Tagged , , | Comments Off

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LNG and the future of natural gas prices in the U.S.

February 27, 2009

Michael Giberson

Domestic U.S. production of natural gas is up. Macroeconomic factors are reducing demand for natural gas. And yet, as Fereidoon Sioshansi points out:

The real surprise is that despite the declining need for imported LNG, the US may end up on the receiving end of much of the global excess production and transportation capacity because of its massive storage.

See the linked article by Sioshansi, from the March 2009 EEnergy Informer, for more explanation. Possibly collaborating evidence comes from the EIA; the most recent Weekly Natural Gas Storage Report shows working gas in storage to be 199 Bcf above the 5-year average of 1,696 Bcf.

So natural gas in the United States may be in for another long stretch of low prices. Bad news for producers, of course, but good for natural gas consumers.

Also good news for electric power consumers since natural-gas fired generation frequently sets the market price for electric power in those parts of the country featuring competitive wholesale markets. Fuel adjustment clauses or more cumbersome regulatory procedures will also, eventually, bring lower power prices to regions that remain dedicated to the old vertically-integrated-regulated-monopoly approach to providing electricity.

HT to Cheryl Morgan at MorganEnergy.

Posted in Energy markets | Tagged , , | Comments Off

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