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Commentary: PEC and where the electricity hits the power lines

In 1776, 13 colonies declared their independence from the British Empire. Last year, more than twice this number — 28 states in total — joined together in opposition to the federal government’s carbon-dioxide emission regulations known as the Environmental Protection Agency’s Clean Power Plan. Whereas most know of the national coalition aligned to fight the administration’s effort to federalize the generation of electricity, little attention has been given to the grass tops impact of this pending regulation.

Less than 100 years ago, most of the rural Texas Hill Country lived in the dark. Although 50 years had passed since the first commercial electric station opened in San Francisco, much of the area west of Austin remained without electric service. Providing electricity to rural areas was simply not profitable for suppliers, leaving farmers and ranchers to use kerosene lamps as the only source of illumination.

This changed in the 1930s when Congressman Lyndon B. Johnson helped create the Pedernales Electric Cooperative, obtaining $1.3 million in federal loans to build 1,800 miles of electric lines serving the nearly 3,000 families that signed up for service. Today, PEC provides electric service to more than 230,000 members in a territory covering 8,100 square miles, a service area nearly the size of Massachusetts.

PEC is an industry leader in innovation and member responsiveness. PEC members enjoy a diverse, predictable energy portfolio consisting of coal, natural gas, wind and hydro-electric. PEC has incorporated energy solutions including the addition of more cost-beneficial wind to the portfolio, the development of advanced energy inspection programs for its residential and commercial consumers to drive conservation and efficiency, and the launch of its emPower Loan Program, a convenient on-bill financing program for energy storage and PV systems providing support to cooperative members by lowering the lifecycle cost of those member-owned systems. PEC is now deploying 15MW of member and community solar distributed across its large service territory to connect its membership to the value of solar’s peak energy production and to offset PEC’s increasing transmission costs in Texas.

PEC, like many utilities, will face challenges in transitioning under the changing regulations imposed by the CPP. The CPP will dramatically disrupt PEC’s balance of diversified power sources and the use of innovative power technology that PEC uses to continually provide reliable and electric power to its members. Under the CPP, PEC arbitrarily will be forced to obtain a much greater percentage of power from natural gas, thus reducing PEC’s current insulation from market fluctuation.

The EPA has not adequately considered the time needed to upgrade both distribution and transmission assets. The Electric Reliability Council of Texas, the grid operator that serves the majority of the state of Texas, analysis of the CPP estimates that the forced retirement of coal fired generation units will cause thermal capacities to be exceeded on hundreds miles of transmission lines.

Texas has already experienced the retirement of older, less efficient coal plants because these less efficient plants are unable to compete and earn sufficient revenue from low market power prices driven by natural gas prices and low-cost wind power. The CPP, in its current form, will further decrease ERCOT’s ability to rely on coal generated power by forcing a portion of existing coal capacity to prematurely be retired and replaced with alternate forms of power generation — with the most likely alternative being natural gas.

The growth and dependency of natural gas generation in ERCOT will increase as capacity is required for both new demand growth and to meet loss of supply from coal-plant retirements. Under such a scenario, ERCOT and Texas are overexposed to natural gas, pipeline infrastructure becomes a single point of congestion and vulnerability, and PEC and will lose the predictability and security of a diverse generation mix.

When the cost of power was forecast considering the potential impact of the CPP, the estimated cost of power in 2034 is estimated to be $570 million ($71.25/MWh) — a 43.9 percent jump from PEC’s 2016 cost estimates. Within the 43.9 percent increase, 30.3 percent of the increase is directly attributable to the CPP’s impact.

In order to accommodate additional new generation within the state’s high voltage transmission system, ERCOT will likely have to construct additional transmission. This new transmission investment may result in a Texas State Cost of Transmission rate increase that would result in a total cost increase to PEC members from $63 million in 2016 to over $220 million in 2034. Without the CPP, PEC’s likely TCOS would increase only to $131 million in 2034. Therefore, the CPP impact to transmission cost is an $89 million cost impact in 2034, which equals a 68 percent increase.

The impacts at the consumer level threaten the ability of PEC customers — most rural and many poor — to continue to afford electricity. Hopefully, these members will not have to dust off their ancient kerosene lamps to keep the lights on at home.

Henneke is general counsel and director of the Texas Public Policy Foundation’s Center for the American Future. Pataki is the president and District 2 director of the Pedernales Electric Cooperative.

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