Why Texas Has Its Own Power Grid: the Electric Reliability Council of Texas

Blackout postmortems have noted that America's electricity system consists of just three regions—the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection. Why does the Lone Star State have its own power grid?

Partly because of a historical desire for self-sufficiency and partly because of that famous "Don't Mess With Texas!" attitude. The majority of the state's residents live within the region regulated by the Electric Reliability Council of Texas, an "island" that generates and supplies all its own electricity—unlike, say, New York City or Detroit, whose residents found out the hard way that lots of their power comes from Canada. (A small sliver of Western Texas gets its juice from the Western Interconnection, while a few customers in the north and the east are hooked into the Eastern Interconnection. Still, ERCOT handles 85 percent of the state's electricity needs.)

The local utilities that comprise ERCOT have pledged not to sell their power to interstate customers. As a result, the interconnection is exempt from most regulation by the Federal Energy Regulatory Commission, the Beltway agency that governs the transmission of electricity from state to state—say, by mandating transmission standards, or requiring that prices be listed in public forums. ERCOT's resistance to federal regulation plays well in President Bush's native land, where meddling from Washington, D.C., is generally abhorred.

The isolation of the Texas grid also has roots in World War II, when ERCOT's precursor, the Texas Interconnected System, was created. At the time, the state was home to several factories vital to the war effort. The state's electricity planners—anxious to keep the assembly lines running and concerned about the reliability of the power supply—felt that a Texas-only system would be more dependable than one that harnessed electricity from distant states. Texas' isolated arrangement worked largely because of the state's abundance of homegrown natural resources, particularly coal (Texas currently ranks fifth in annual production) and gas (first, with 24 percent of the nation's proven reserves).

There has been relatively little agitation to integrate ERCOT into the national systems, primarily because Texas doesn't really need the help. The state uses more electricity than any other, 44 percent more than runner-up California. Much of this is used by industrial customers such as petrochemical plants and oil refineries. Despite Texas' massive thirst for electricity, ERCOT has been able to provide cheap power with few service hiccups. In fact, Texas electricity is cheaper, per kilowatt hour, than the national average.

The cost of which would need to be evaluated against the %of annual failure times the average cost of failure both in terms of lost revenue and in terms of financial risk from inheritance

It sounds like you think that is not done now. It is.

However, in my prior analysis the build out cost were not as extreame as you propose. Perhaps that was a unique situation. The sample "grid" did not have any single leg substations.

In terms of square miles, the majority of the US is rural. Most of it, does not have a dense load center. I do not have documentation, but based upon my construction experience across the United States, I believe that the majority of transmission line corridor miles would be single circuit. Please note, this comparison treats a corridor the same, regardless if it is a single circuit 69kV on 2/0 AWG or 7 circuits of 345kV. Power generation and loads are often dense, the electrification of the entire United States require the creation of REA's just to meet this demand. These are little 10~20 MVA stations spread all over, but they cover the majority of the USA. They are not the type that would require your service and may therefore be outside your experience.

My comments would not reduce the geographic foot print of the grid, but it would reduce the amount of power per grid.

Then you either suggestion immense construction projects, or a major reduction in the spare capacity in each system. And I am assume you do not recognize the great cost of transmission line construction. You are also requiring creating of new control centers, and a huge increase in the relaying.

"Is this what Ca. was riled about last year? I didn't understand their complaint but it had something to do with us not sharing at the price they set, I think."

and

"This article leaves out an enormous amount about the historical reasons that Texas in't connected to the Eastern or Western 'grids.'

What are the other historical reasons? "

To answer CindyDawg's question first, when CA was going through its worst crunch, Texas was bulldozing power plants, as they had excess capacity. Of course, the plants we were bulldozing were the oldest, most inefficient, and most polluting (basically because those plants were the least profitable). CA could not understand why we were not hooking up our grid to theirs to that they could vampire the power.

After all, it wasn't Californians that were going to breath the pollution produced by those plants. (Instead, they had to muscle CA power companies to fire up plants in CA that created so much pollution that their owners would be fined.) They though we Texans were terribly selfish to prefer to breath cleaner air instead of giving them power. (Of course, if they allowed the marketplace to work in CA, then at some point that state would have a surplus of plants which would lead to the demolition of old obsolete plants instead of having to nurse them along like Cuban automobiles.)

As far as historical reasons for a Texas-only grid, look at a map of the US. Most of Texas's population and industry is in a triangle defined by Denton, Galveston and San Antonio. (That captures the DFW, Austin, Houston and Waco metropolitan areas.) There really arn't major draws for power north, east and west of that area, except for Amarillo, and Midland-Odessa, and when you get north and west of those cities there is a lotta nothin' and Rocky Mountains. East Texas is mostly rural, as is southern Oklahoma. So geography leads one to a purely Texas grid as things start out.

When you end up, you get a one-state grid as large as most of the interstate grids in the Eastern Interconnection. (I think there are seven regional interconnections that link together to make the Eastern Interconnection.) Of those grids, with the exception of the Florida Grid, which is the smallest, all are interstate.

When it came time to link ERCOT, the Texas grid to the other grids, ERCOT was the only major grid that was purely intrastate, not subject to FERC. And, at that time Texas was flush with energy, so we did not need out of state power. The combination of no need for external power and the penalty of adding federal regulation led Texas to decide that it would be counterproductive to interconnect.

They did not, sparing us the need to ship power from obsolete plants to other parts of the nation too NIMBY or BANANA to allow powerplants locally. I'd say it's a pretty good deal.

June 13, 2003, 11:42PM

Your bills are facing a double whammy
Local gas, electric firms eye rate hikes

By MICHAEL DAVIS and NELSON ANTOSH
Copyright 2003 Houston Chronicle

AT A GLANCE
A sampling of the base rates charged by gas companies in other cities.

Houston
Utility: CenterPoint Energy
Base rate: $9.60
Last change: 1986
Plans: Requested increase to $14.75

Chicago
Utility: Peoples Energy
Base rate: $9.45
Last change: 1985
Plans: No rate changes planned

Denver
Utility: Xcel Energy
Base rate: $17.37
Last change: Reduced to $17.37 a month from $18.14 in 2002
Plans: Remain stable through rest of year

Pittsburgh
Utility: Columbia Gas of Pennsylvania
Base rate: $8.87
Last change: Increased on April 1 from $7.61
Plans: Slight increase anticipated

St. Louis
Utility: LaClede Gas Co.
Base rate: $12
Last change: In 1996 from $11
Plans: No comment on plans

Source: Chronicle survey

Houstonians will be hit with a one-two punch this summer on their natural gas and electric bills if local and state officials approve rate hikes sought Friday.

Citing increased natural gas costs, Reliant Energy asked the Public Utility Commission to allow it to raise the price it charges Houston residential customers and small businesses by 9 to 12.5 percent.

CenterPoint Energy, meanwhile, asked the city of Houston on Friday to approve a 53 percent increase in the base rate it charges residential customers for natural gas, the first such increase in 17 years.

CenterPoint said it needs the hike to cover increased operating and maintenace costs of its system. This increase is not tied to the rising costs of natural gas, the company said.

"After 17 years, our costs have definitely increased, particularly in our utility plant investment and our labor costs," said Georgianna Nichols, president of CenterPoint's Houston natural gas operations.

A residential natural gas bill consists of two components: the base rate, a minimum amount a customer pays even if no gas is used; and a fuel rate, the actual expense the company incurs buying gas to resell to its customers. CenterPoint is allowed to pass its fuel costs to customers.

The base rate now for a residential gas bill is $9.60. CenterPoint wants the city to allow it to increase that rate to $14.75.

On the average bill, the base rate is about one-third of the bill and the fuel costs make up the other two-thirds. The average bill of a customer using 4,000 cubic feet of gas per month is now about $40.83. If the increase is approved, it would rise to $45.47.

CenterPoint is seeking changes in the base rate of all classes of its customers. Large industrial customers would receive a decrease in their base rate if the Houston City Council approves the company's request. The average large user's monthly gas bill will drop from $183.67 to $181.65, CenterPoint said.

Large users are receiving a base rate decrease, the company said, to "lessen the growing disparity between the rates charged to large commercial customers and the actual cost of providing service to those customers."

A base rate increase must be approved by the city council. If the request is approved without delay, it would go into effect on July 18. The filing was made Friday. It was not expected to appear on the city council's agenda for next week.

Some industries that use large amounts of natural gas are struggling to remain profitable as their overhead costs have soared along with gas prices, said Art Gelber with The Gelber Group, a commodities trading firm in Houston.

"Utilities are having to raise prices across the country, and it's going to get worse this winter," Gelber said. "The short-term answer is demand destruction, the closing down of large industrial operations, which is going to add to the unemployment rate."

Last month, TXU Gas Co., the natural gas company serving Dallas and much of North Texas, filed for a similar increase. If granted, its base rate, or monthly customer charge, would increase about $3, from $9 to $12, said Kimberly Morgan, a spokeswoman for TXU Gas.

CenterPoint must file for the increase in every municipality in which it operates. As a result, it will file in the city of Houston first and then make similar filings in the outlying cities in its service area, said Alicia Dixon, a CenterPoint spokeswoman.

A base rate increase will also be sought for customers in unincorporated areas served by CenterPoint. That increase, however, only needs to be be approved by the Railroad Commission of Texas.

CenterPoint's natural gas bills include a fuel rate increase that took effect in February. That increase pushed the average bill for a homeowner up by about 26.5 percent.

The company can receive a fuel rate adjustment automatically from the city and the Railroad Commission twice a year, in February and August.

Natural gas is about twice as expensive now as it was a year ago. At this time last year, the benchmark futures contract on the New York Mercantile Exchange was running about $3.20 per thousand cubic feet. On Friday, the contract for July delivery to the Henry Hub in Louisiana closed at $5.67 per thousand cubic feet, up 6 cents.

Reliant Energy's newest request for a hike follows an increase of 8.2 percent for residential customers, which went into effect in March, a boost that was also based on escalating costs for natural gas.

Since the company is limited to two "fuel factor" increases per year, prices for residential and small businesses in the Houston area will be fixed for the rest of 2003 even if the cost of gas goes above $6.10 per thousand cubic feet, which is the level used in Reliant's latest application.

The current fuel factor for the price of electricity is based on a natural gas price of $4.96 per thousand cubic feet as of last January, while the $6.10 is a New York Mercantile futures average, involving 12 months, calculated during 20 trading days. The January application was based on 10 trading days.

The new rate will go into effect only after approval by the Public Utility Commission, which could occur in late July or early August. The higher rates would then be calculated into customer bills starting within days.

Reliant estimates that a typical residential customer using 1,000 kilowatt hours per month will see an increase of $9.32 per month, from $101.22, if billed today, to $110.54.

Chronicle reporter Wendy Lee contributed to this story.

Neither 7 or 8 were implemented by California. Yes there was some selling off of assets but not to the structure I propose. The needs to be a profit motive for making power (sell of power plants) and for the transmission of power (less money here but still needs to be profit motivated)

9)require utilities to purchase power from the local grid spot market or from the local grid futures market. The grid companies would enforce the contracts.

As I understand it California bought the transmission lines from the producers (after forcing them into bankruptcy through regulatory mismanagement) and bought tons of electricity on the spot markets (at horrible mark ups, helping to bankrupt the state)

I don't see the value in making the utilities just another middleman (wholesaler if you wish) that buys from one or more producers (paying them profit) and transfers the power over lines that they don't own (paying someone else profit) just to collect the bills.

Why not let the utilities produce and provide the power as they do now?

Splitting things up becomes a nightmare as you are now paying three layers of profit where before you were only paying one. Also your solutions call for more regulatory control (forcing buys on the spot market etc) and the last thing we need is more gov intervention in out lives

I do agree that more redundancy (within reason) needs to be built into the system but the system as it stands now is incredibly robust. We don't have a lot of outages and the ones we do have are short term in duration. Better control of the intergrid breakers would fix the problems better.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.