Watching the Temperature and the Tariffs

There are two things we are really watching this summer: the temperature and rate cases. It’s mid-June, school is out and the 4^th of July is two weeks away – summer is here.  It is natural to start watching the thermometer, waiting for those days that are at or above 100º F and looking to the sky for any signs of looming rain clouds.  So far, this summer has been both cool and rainy.  The number of cooling degree days for May in North Texas was two-thirds of what it was last year, and June seems to be following that same trend.

These cooler temperatures have kept spot prices for electricity relatively low, and at the same time kept forward prices in July and August from rallying.  Figure 1 shows how on-peak (weekdays from 6am to 10pm) prices for July and August 2019 have been trading from last summer to present.  Today, the on-peak prices for July and August are trading around $95/MWh, which hasn’t changed much over the last few weeks.  Clients with any open positions for the balance of this summer should not wait and should immediately make those purchases, knowing that just as summer temperatures begin to rise in Texas, electricity prices will follow.

Figure 1: Trading History for ERCOT North Graph, by 5

Pending Rate Cases:

Both AEP Texas (in South & West Texas) and Centerpoint (in the Houston area) have filed a rate case with the Public Utility Commission.  The highlights of those rate cases are summarized below:

AEP Texas

• AEP Texas, has up to now, been two separate legal entities in Texas, one in the West and one in the South. This rate case will consolidate the two companies, along with their two tariffs into a single tariff, where all similar customer classes in AEP’s territory will pay the same price.
• The ratcheting demand mechanism for smaller commercial customers is being removed, similar to tariff revisions in Oncor and TNMP service territories in their previous rate cases.
• AEP Texas is proposing to remove its Transmission Charge and shift all transmission costs to the Transmission Cost Recovery Factor (TCRF). This would allow AEP to quickly adjust its pass-through transmission costs and also mirrors tariff changes made in Oncor and TNMP’s territories through their recently approved rate cases.

Centerpoint

• Centerpoint is moving in the opposite direction from AEP Texas in regards to transmission costs. Instead of shifting costs to the TCRF, Centerpoint is proposing to zero out and effectively reset this transmission cost recovery component.
• For commercial customers, the largest impact of the rate case is the proposed increase in the Distribution Charge, increasing about $1.65 per kW per month.
• For customers with demand between 10 and 700 kW, monthly standing charges will decrease by about $11 per month

Both of these rate cases are still being reviewed by the PUC and multiple public intervenors.  We will continue to monitor these rate cases as they make their way through the approval process and provide updates on the status and impact of these changes to our clients.