HOUSTON -- With an electricity bill that averages $2 million a month, John Farris has more interest than most in Texas maintaining an adequate supply of electricity at a reasonable price.
But while the industry, regulators and consumer advocates debate whether to pay generators to add capacity or to keep raising price caps, Farris has his eye on something else, and he likes what he sees."It's still all about natural gas," said the general manager of Nucor Steel-Texas, the nation's largest recycler of steel with a mill in Jewett, east of Waco. With prices being held down by prodigious production from fields like the Barnett Shale, natural gas is being used to fuel more and more power plants in Texas and across the nation.Like most attending the IHS CeraWeek energy conference this week, Farris expects the price of natural gas to remain low for the foreseeable future. And because natural gas-fired generation largely sets the price of wholesale power in Texas, Farris anticipates more years of low power prices for his mill.But that's exactly the problem facing Texas officials, such as Public Utility Commission Chair Donna Nelson, who shared a panel on the state's electricity market with Farris and other industry representatives on Thursday. As Texas continues to grow, demand for electricity threatens to outrun the state's power generating capacity."We have the blessings of growth, but also challenges," Nelson said. Last year, the average wholesale power price was $28 per megawatt-hour, and even the year before, amid a record heat wave, it averaged $53."You need about $55 to justify investment" in new generation, she said. The PUC has addressed that gap by lifting the price cap on wholesale power to $4,500 a megawatt-hour last year, $5,000 this summer and eventually $9,000 by 2015, to try and entice generators to add capacity.But even that isn't going to get the job done, said Thad Hill, president of Houston-based Calpine, which produces about 10 percent of the state's electricity. Texas hit the maximum price for only an hour in 2012 and just 21 hours in 2011, he said."In the long term, it's not going to drive the investment" needed for more capacity, Hill said. Calpine is adding about 500 megawatts of capacity by the summer of 2014, but it's being installed at existing facilities for about half the price of a new "green field" installation.There's another option, said Steven Murray, president of Direct Energy Residential, the state's third-largest electricity retailer. Empowering users to cut their use at critical times, called demand response, could be more effective, he said.Direct Energy customers on pre-paid plans can get text messages informing them of their usage, and they will change their behavior enough to reduce consumption by about 10 percent, Murray said. The rest of the retail market needs the means to do the same."We're in the infancy of that," he said. The statewide installation of so-called "smart meters" that monitor minute-by-minute electricity use can enable smart thermostats and other energy-saving mechanisms.Farris said Nucor has invested in systems that monitor electricity use by the minute and can tell the mill operator when to shut down the furnaces. That and other demand controls, he said, save Nucor 10 to 12 percent on its electricity costs.Jim Fuquay, 817-390-7552Twitter: @jimfuquay
Capacity decision not expected before fall
It could be fall before the Public Utility Commission decides whether to adopt some form of payment to generators to assure an adequate supply of electricity at peak demand periods, the commission's chairwoman, Donna Nelson, said Thursday..
Nelson, speaking at the IHS CeraWeek conference in Houston, said the agency needs to be at full strength before making a ruling. Commissioner Rolando Pablos resigned March 1, and the two remaining members, Nelson and Kenneth Anderson, are generally on opposite sides of the issue. The position is appointed by the governor.
Nelson has favored some version of so-called "capacity" payments to balance supply and demand, while Anderson opposes capacity payments.
"We have studied it a lot," Nelson said of the issue, which the agency has considered for more than a year. "We've made thoughtful progress," she said, but "we need a third commissioner to decide."
-- Jim Fuquay
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