Members present: Senators John Carona (Chair), Chris Harris (Vice-Chair), Troy Fraser,
Mike Jackson, Eddie Lucio, Jr., and Kirk Watson.
The Committee heard invited and public testimony on charges 1 and 2 from:
- Mike Geeslin, Commissioner of Insurance, Texas Department of Insurance (TDI)
- Jim Oliver, General Manager, Texas Windstorm Insurance Association (TWIA)
- Dwight Burns, Executive Director, Texas Public Finance Authority (TPFA)
- Beaman Floyd, Texas Coalition for Affordable Insurance Solutions (TCAIS)
- Jay Thompson, Association of Fire and Casualty Companies of Texas
- Wally Goodman, Independent Insurance Agents of Texas
- Deeia Beck, Office of Public Insurance Counsel (OPIC)
- Otis “Otie” Zapp, Jr., President, Coastal Windstorm Insurance Coalition
- Fred Bosse, Regional Vice President, American Insurance Association
- H.B. “Trip” Doggett, President, Electric Reliability Council of Texas (ERCOT)
- Barry Smitherman, Chairman, Public Utility Commission of Texas (PUC)
- Danny Bivens, Office of Public Utility Council (OPUC)
- Kate Robertson, Environmental Defense Fund
- Alan Ahrens, CenterPoint Energy Houston Electric LLC
- Carl Richie, Vice President Governmental Affairs, TXU Energy
- Curtis Seidlits, Texas is Hot Coalition
- · John W. Fainter, Jr., President, Association of Electric Companies of Texas, Inc.
- Rick Gilliam, Vice President Government Affairs, SunEdison
- Steve Munson, Chairman, GeoPower Texas
- Dr. Michael Webber, Assistant Professor Mechanical Engineering, UT Austin
- Steve Wiese, Texas Renewable Energy Industries Association
- Danny Vines, President, Aspen Power LLC
- Jim Greer, Senior Vice President Asset Management, Oncor Electric Delivery
- Kenny Mercado, CenterPoint Energy Houston Electric LLC
- Brent Hodges, Reliant Energy
- Brewster McCracken, Executive Director, Pecan Street Project
- Patrick James, TXU Energy
- Luke Bellsnyder, Executive Director, Texas Association of Manufacturers
- Bill Peacock, Texas Public Policy Foundation Center for Economic Freedom
- Tim Morstad, AARP
- Karen Hadden, Sustainable Energy and Economic Development Coalition
- Luke Metzger, Director, Environment Texas
- Lanetta Cooper, Texas Legal Services Center
- Russ Keene, Plug-In Texas
- Carol Biedrzycki, Texas Ratepayers’ Organization to Save Energy (ROSE)
Interim Charges:
1) Study the implementation of H.B. 4409 enacted by the 81st Legislature pertaining to the financing of insured losses in excess of premium and other revenue of the Texas Windstorm Insurance Association (TWIA). Assess the coverage and affordability of TWIA policies. Review the claims and payments processes and make recommendations to improve the stability of TWIA while enhancing services to clients.
2) Study options for reducing demand for electricity, including innovative pricing options relating to the use of smart meters, programmable thermostats, and other demand side management and behavioral response strategies. Review current consumer education programs to reduce demand, decrease energy prices, and improve air quality. Consider benefits and costs of alternative energy sources such as geothermal and solar, and current incentives for electric and plug-in hybrid electric vehicles. The study should include recommendations on improving consumer knowledge and usage of these strategies in lowering overall electric usage, promoting energy efficiency, and improving the reliability of the ERCOT grid.
INVITED TESTIMONY CHARGE 1
Agency perspective:
Mike Geeslin, Commissioner of Insurance, TDI testified first.
With the post-event funding mechanisms in place today, Texas can only afford one major storm. TDI cannot make great improvements because of the way the system is mandated by HB 4409.
Home owners and commercial property interests, particularly churches and schools, are concerned about companies that refuse to write wind insurance in areas with risk. The lack of capacity was more pronounced in tier 1 counties, but in the past few years has increased in tier 2. However, there are companies that still write wind along the coast and have not curtailed their underwriting in tier 2.
Jim Oliver of TWIA added that following Dolly and Ike it is unlikely Texas will see private market writing around bays, inlets, and on islands because many companies are writing in selected areas on the backsides of counties.
Jim Oliver, General Manager, TWIA testified second.
In 2009, Texas had $74 million in the Catastrophe Reserve Trust Fund. Approximately $225 million to $250 million will go into the reserve fund this year depending on hurricane activity over the next few months.
TWIA does not believe there is an adequate rate for windstorm coverage on the coast. A rate increase would not be enough to pay for the $2.3 to $2.4 billion loss accumulated in 2008 from Dolly and Ike. Between 1971 and 2008 Texas collected $1.8 billion in premiums, all of which, and more, was depleted in 2008. TWIA has recently requested a 5% increase in residential and commercial rates, but believes rates need to be subsidized statewide.
Senator Fraser interjected, wanting to know if TWIA continued to funnel reinsurance instead of allowing the premiums to build up the reserve. Oliver clarified that TWIA made their reinsurance commitment prior to Ike in May 2008 and did not make another purchase after the Senate’s request. Only two payments remained from 2008 that had to be paid in 2009.
Dwight Burns, Executive Director, TPFA testified third.
After HB 4409 was passed, TPFA was instructed to be ready to sell bonds if there was a post-storm need for funding. The rules promulgated by TDI will allow TPFA to go into the capital markets once a storm event has occurred.
Industry perspective:
Beaman Floyd, TCAIS testified first.
TCAIS believes Texas should move from a debt-based funding structure to a capitalized, pre-event structure. Reinsurance is a pre-event way to protect surplus that the state will eventually have and should be considered as an option each year. Texas can also consider raising rates, looking into loss mitigation in land use and building codes, and ultimately the depopulation of TWIA.
Jay Thompson, Association of Fire and Casualty Companies of Texas testified second.
The Association feels Texas should look at pre-event funding and capitalizing TWIA. Reinsurance should be considered; it can be less expensive than bonds and buying it at different levels, with a higher deductible, can increase claims paying ability. Additionally, premiums should reflect the anticipated losses and expenses of a territory to encourage engagement in cost mitigation measures. Many low-income, low-value homes cannot afford big rate increases, so Texas also has to find a way to subsidize the persons that live and work on the coast.
The increase in coverage and limits of liability that insurance can be bought for is set by statute with annual increases. This allows the board to recommend increases to the Commissioner. The Association feels this is an authority the legislature should take back; there is increased exposure for TWIA and the state in allowing the board to increase the limit.
Wally Goodman, Independent Insurance Agents of Texas testified third.
Windstorm availability and pricing is affected by supply and demand. When there are many companies competing for policies that include windstorm, premiums and underwriting are normally less expensive. Goodman recalled HB 4409 was supposed to encompass a provision incentivizing insurance companies to insure windstorm peril, creating a competitive market with less expensive premiums and underwriting. As it does not, he claimed the insured who are worse off with HB 4409 are home owners and small business persons of the coastal area.
Consumer perspective:
Deeia Beck, OPIC testified first.
Residual markets are migrating significantly and increasing over time in Texas.
An individual with home owner’s coverage, windstorm, and flood coverage at $150,000 on a 10-year-old home from Galveston will pay $6,000 on average per year. This figure is close to or more than what the individual would pay in property taxes. OPIC wants adjustments so people can have affordable, responsible coverage.
Otie Zapp, President, Coastal Windstorm Insurance Coalition testified second.
Zapp argued Texas needs an insurer like TWIA as it was before HB 4409 as well as on-hand and certain, adequate claims funding. He recommended restoring financial responsibility back to insurers, avoiding the cost of borrowing if at all possible and looking into the restoration of statutory language and procedures, eliminating the file-and-use privilege for TWIA as a non-competitor.
PUBLIC TESTIMONY CHARGE 1
Fred Bosse, Regional Vice President, American Insurance Association gave the only public testimony on charge 1.
The Association is concerned about the methodology for allocating premium to coastal risk on commercial property. A phrase in HB 4409 did not limit the application of the surcharge to commercial properties and included the term operations. This concerns the Association with Texas’ ability to produce a reliable, consistent source of income to pay back bonds concerning commercial surcharge for class two securities. Bosse requested correcting the language.
INVITED TESTIMONY CHARGE 2
Introduction
H.B. “Trip” Doggett, President, ERCOT testified first.
ERCOT has a diverse fleet of installed capacity and adequate reserves through 2015 at the 12 ½ % target margin. Texas has invested $4.4 billion since 1999 in transmission.
Wind is a challenge because of its variability and ERCOT continues to need flexible gas units that are capable of moving to accommodate sudden changes in the wind. Rate payers across the state share the cost of bringing wind-generated power onto the grid. While half the generation planned for the future is wind, it is dependent upon the price of natural gas.
ERCOT is transitioning from a zonal to nodal market. The transition involves moving from four zones today to multiple nodes in the future. Nodal is a granular operation that provides more precise pricing, more accurate movement of individual resources, more precise management of congestion across the state, and ultimately more reliable operation of the grid. Financially, ERCOT has stayed within its $650 million budget identified 18 months ago. The target go-live date is December 1, 2010.
Barry Smitherman, Chairman, PUC testified second.
PUC is building up the grid to fill in the high capacity transmission holes that run from San Antonio or Austin to West Texas and the panhandle with the Competitive Renewable Energy Zones (CREZ). Building out the CREZ will help the state avoid congestion and higher prices and send West Texas energy directly to Austin, San Antonio, and the valley.
PUC is also installing smart meters that are 99.96% accurate. About 1.7 million have been installed to date and there will be 6.1 million installed for small business and residential customers at the finish. This tool enables customers to curtail their consumption and allow PUC to know exactly who has electricity in times of crisis. Consumption can be collectively reduced between 3% and 20% at a residential level with more tools.
Recently, PUC has increased the amount of demand that utilities have to get from energy efficiency from 20% in 2011 to 25% in 2012 and 30% in 2013.
Consumer Education Panel:
Danny Bivens, OPUC testified first.
OPUC is required by statute to do manual customer service surveys on complaints they receive and report it back to the legislature, as well as conduct an annual meeting to receive feedback from their customer base.
In 2010, OPUC attempted to travel 1 to 3 times per month to partner with organizations and establish two-way dialogue. OPUC partnered with Commissioner Nelson and talked specifically to senior citizen organizations about customer choice, low income available assistance, and energy efficiency options.
OPUC’s efforts in education are focused in four areas:
- Electric choice;
- Low income and other available assistance;
- Energy efficiency; and
- Smart meter deployment
Kate Robertson, Environmental Defense Fund testified second.
Robertson discussed the difference between energy conservation and energy efficiency. Conservation is cutting down waste and efficiency is using technology to achieve the same results with less energy. The optimum use is to have them both working together.
Most people are unaware of their daily energy use. There are solutions such as the smart meter, but if people cannot interpret the information in the meter it is an ineffective strategy. Demand site management programs enable consumers to have greater control over their energy information and uses, as well as educate them on the difference between conservation and energy efficiency.
Alan Ahrens, CenterPoint Energy Houston Electric LLC testified third.
CenterPoint currently offers 13 residential and commercial programs that promote a wide range of efficiency measures such as high efficiency air conditioning and lighting, improved insulation levels, and low income weatherization. The company has exceeded its energy efficiency goals each year since 2002 with energy savings from their programs totaling over 3.5 billion kilowatt hours.
The revised PUC energy efficiency rules established cost caps that limited the amount of money utilities could spend to achieve their goals. CenterPoint is in support of the new rules, but believes utilities need to receive fair financial treatment when asked to meet increasingly higher goals. This is a financial disincentive in energy efficiency programs that results in lost revenue. Energy efficiency costs need to be commensurate with energy efficiency benefits
Carl Richie, Vice President Governmental Affairs, TXU Energy testified fourth.
TXU has many energy efficiency programs and is committed to investing approximately $100 million to develop innovative energy efficiency and energy conservation tools. A portion of the $100 million is dedicated to helping low-income families conserve their electricity. There are tools offered to businesses, too, such as the energy efficiency rebate program. TXU’s community relations team attended over 500 events last year to discuss energy conservation and efficiency tools.
TXU’s wireless power monitor allows people to see their electricity use in real-time over the course of a month and provides a projection of the monthly cost. TXU also has an online energy store where individuals can go to locate hard-to-find energy efficiency tools.
Curtis Seidlits, Texas is Hot Coalition testified fifth.
Texas is Hot is interested in saving Texas billions of dollars through energy efficiency and getting information to consumers. If Texas implements the programs it has in place today, the state could save 8,500 megawatts of new generation. Texas needs a statewide, quasi public-private campaign to educate people on technologies available and bring them to conservation issues.
Alternative Energy Cost and Benefits panel:
John W. Fainter, Jr., President, Association of Electric Companies of Texas testified first.
Texas is growing in population and industry and therefore has a vastly growing demand for energy. In diversifying its fuel base, the Association feels the state needs to use renewable energies, take advantage of nuclear energy, and develop ways to use coal. Because sources of power are not free, the Association advises the government to be conscious of mandates issued and realize the cost that goes into generation.
Rick Gilliam, Vice President Government Affairs, SunEdison testified second.
SunEdison believes solar energy is a real, viable long-term resource option for Texas and that the challenge lies in providing a sufficient market to capture its benefits. Solar costs are declining and will continue to decline. Today, the cost for a utility-scale project is in the .10 to .15 cent range and the cost for a commercial project is .12 to .16 cents. However, solar energy is not cheaper than Texas’ current forms of generation and is higher than the average cost of electricity. Therefore, an incentive program, provided by utilities or the state, is needed. SunEdison believes a temporary, 5-year incentive program could bridge the gap between the electricity value and the price of solar, allowing Texas to build the solar market and attract manufacturing assembly and other businesses to the state. Solar generation would provide a hedge value against the future costs of electricity and natural gas and create 30 jobs per megawatt installed.
Steve Munson, Chairman, GeoPower Texas testified third.
GeoPower is trying to bring a 24/7 geothermal base load with 97% to 98% available power to Texas. The organization is in great support of PUC developing a rule to favor non-wind base load geothermal power. Geothermal energy is a clean, cost-effective resource. To drill steam it takes the same rigs, drillers, contractors, engineers, construction hands to build and operators to run a plant as it does for power plants, which is a big positive for the Texas economy. The primary drilling locations run from South Texas to the Central Gulf Coast. GeoPower would not need subsidies.
Dr. Michael Webber, Assistant Professor Mechanical Engineering, UT Austin testified fourth.
Electric Vehicles (EV) are faster, quieter, easier to control and less maintenance than regular vehicles, but come with limited ranges. The typical range is 40 to 100 miles, but in two years it is projected to be 200 miles. Additionally, EVs work better as smaller, lighter cars. They are efficient and produce energy conservation overall, but increase the consumption of electricity and are not zero emission cars. Even so, if they are charged off coal they are cleaner than petroleum-based cars. Plugging them into wind turbines is hypothesized to be even cleaner than coal. EVs are more expensive to purchase but cheaper to operate per mile and can be good for the utility industry, semiconductor industry, automation control, and an increase in demand for gas fired electricity. They are compatible with the smart grid and two-way flows of power. The infrastructure demands for EVs are small; most of the charging infrastructure in terms of power plants and transmission lines are already in place. They are expected to have rapid market penetration.
Steve Wiese, Texas Renewable Energy Industries Association testified fifth.
Wiese discussed the benefits of renewable energy resources. First, there are reduced energy costs; many renewable technologies, because they have higher capital costs but low operating costs, can bid into markets and offset marginal resources when they are very expensive. Second, incorporating more diverse renewable energy provides the benefit of portfolio diversification, which enables Texas to diversify from the risks of using any one resource. Third, there are external benefits such as new jobs, benefits to the local economy and higher capital investment. Lastly, there is distributed renewable generation of small resources such as small wind and solar systems on the customer side of the meter.
Danny Vines, President, Aspen Power LLC testified sixth.
Aspen Power produces 22.4 billion pounds of fuel from 100% biomass in generation of power representing in excess of 100 trillion BTUs of heat energy every year. Biomass is located close to large consumption areas and is one of the most competitive sources of renewable energy from a base load standpoint. It is clean, carbon neutral, and able to operate, with the best technology available, a plant 60 to 70 times cleaner than the air standards of today. A 50 megawatt biomass facility generates 350 to 450 jobs. The cost per kilowatt hour, without subsidies or tax credit, is 5.5 or 6 cents.
Smart Grid Technology Panel:
Jim Greer, Senior Vice President Asset Management, Oncor Electric Delivery testified first.
Oncor’s smart metering effort began in 2008. There are 1.2 million meters currently deployed or installed and there will be 3.4 million by 2012. Oncor developed a website where anyone with a smart meter can get information on how they have been using energy on a 15-minute basis to get a feel for how they use electricity on a daily or weekly basis. The cornerstone of Oncor’s education program is their mobile classroom; Oncor goes out into communities to let people talk to personnel and get a feel for the technology. The Ask Oncor website and hotline gave another avenue for questions.
Kenny Mercado, CenterPoint Energy Houston Electric LLC testified second.
CenterPoint’s advanced metering system in the Houston area began March 2009. 550,000 meters have been installed and 2.2 million electric meters will be put in through 2014. In 2009, CenterPoint received a stimulus grant from the Department of Energy for $200 million. The company allocated $150 million to the advanced metering project to ensure completion by 2012 instead of 2014. The remaining funds went to the first area of CenterPoint’s intelligent grid; the building infrastructure for 15% of the company’s service territory over next three years. The accuracy of the metering system is providing CenterPoint with the ability to remotely connect and disconnect meters.
Brent Hodges, Reliant Energy testified third.
Reliant had deployed 1.7 million smart meters as of July 31, 2010. The company offers a weekly summary email, smart grid portal, time-of-use rate plan, and in-home displays to help customers better understand and manage their energy usage. Reliant offers additional education services to improve energy efficiency such as free home energy audits, home electricity reviews and a website with conservation tips and tools. The company is working with major appliance manufacturers to conduct pilot programs that utilize time-of-use rate plans to manage the operation of smart appliances in customer’s homes by utilizing the functionality of home area networks. This pilot will test the smart meter’s functionality and automatic operation.
Brewster McCracken, Executive Director, Pecan Street Project testified fourth.
McCracken believes the biggest area of darkness for Texas is between what happens in the substation and inside customer premises. 0.6% of electricity comes from petroleum and 0.3% of transportation is powered by something other than petroleum. As such, what happens with oil has virtually no impact on electricity.
Electricity use grows during the course of day with its peak period between 3-7pm. The extremely high cost of late afternoon electricity is being subsidized by what is paid in the morning. If Texas could reduce consumption per household during peak times the cost of electricity would go from $360 MW/hr to $90 MW/hr. McCracken feels the smart meter effort is helping Texas better manage its electricity usage.
Patrick James, TXU Energy testified fifth.
TXU has two products that take advantage of smart meters and leverage the infrastructure in market today. The first is its thermostat program that was launched in 2008. It is the first, low-cost web enabled programmable thermostat for residential and commercial customers. People can monitor, manage and control settings remotely via web portal and mobile application. The second product is the Time-of-Use plan. It is an opt-in program that offers fixed rates for off and on peak times, not variable pricing. Coupled with the thermostat program, double incentive is given to reduce kilowatt hours and use energy at lower cost points.
PUBLIC TESTIMONY CHARGE 2
Luke Bellsnyder, Executive Director, Texas Association of Manufacturers testified first.
The Association requests the state be cautious of cost drivers and their impacts as policies on energy efficiency increase. Any cost drivers, electricity being number one, to doing business in Texas are going to decrease competitiveness with other states and foreign markets, decrease the chance of adding jobs in the manufacturing sector, and decrease companies’ abilities to perform research and development.
Bill Peacock, Texas Public Policy Foundation Center for Economic Freedom testified second.
Texas has paid $591 million since 2002 to support state energy efficiency programs. The cost for 2010 is an estimated $114 million and the recent increase by PUC should double that cost. Peacock argued Texas’ energy efficiency programs are not reducing consumption or cost to consumers because of three major flaws in them:
- tests understate the cost of the programs;
- the state incorrectly measures program savings; and
- programs are designed to reduce electricity use by making it more expensive.
Tim Morstad, AARP testified third.
AARP is concerned that the impacts of time-of-use or dynamic pricing have not been adequately studied with regard to the older population. The state needs to understand who has the ability to adjust when they use electricity in any 24-hour period. Texas needs to keep a robust outreach effort in mind going forward to make sure the people that end up on these types of pricing programs are going to benefit from them. Morstad recommended finding a way for people to get out of a contract without huge termination fees if a time-of-use plan is not benefitting.
Karen Hadden, Sustainable Energy and Economic Development Coalition testified fourth.
Utilities that used over 500,000 MW hours in 2005 have to report to the state Energy Conservation Office on their gains and what their programs are. Hadden explained that 1/3 of the utilities and co-ops are doing really well, 1/3 have minimal offering of audits and information provided, and 1/3 are not doing much at all. The Coalition feels these facilities should adopt goals similar to the other utilities in Texas that are being successful.
Luke Metzger, Director, Environment Texas testified fifth.
Metzger expressed concern that the 2.2 million new homes to be built in Texas over the next 20 years will strain the electrical grid and water demand and exacerbate air pollution. He reminded the Committee that Texas has the technology to promote efficiency and on-site renewable in net-zero energy homes and requested that policies the legislature implements incentivize rooftop solar and provide incentive for builders to go beyond the code and become greener.
Lanetta Cooper, Texas Legal Services Center testified sixth.
Texas needs equitable access to options that benefit low-income persons. Cooper encouraged considering demand savings goals for low-income programs that would be equal to the percentage of poverty served by any one plan. She feels the best option for demand savings for low-income persons is weatherization. Lower-income individuals who receive weatherization are better able to pay their electric bill and decrease utility collection costs as well as bad debt. Cooper recommended Texas consider requiring weatherization programs to be a part of any efficiency plan addressing demand savings as well as consolidating all energy efficiency programs into a single, stand alone agency.
Russ Keene, Plug-In Texas testified seventh.
Plug-In hopes the legislature will look for ways to enhance and bring EVs to the state more quickly. Almost all major carmakers have invested millions of dollars in EVs and they align well with wind generation. There are several hundred in Texas already, including fleets being purchased in the City of Houston. Fort Worth is receptive to EVs and Dallas is looking at them.
Carol Biedrzycki, Executive Director, Texas ROSE testified eighth.
Texas has to be careful as it goes through the technology revolution in the electricity industry to not price low-income customers out of the electricity market. The state has to take think long-term and make sure everyone has electricity they can afford to pay for.
Texas ROSE is concerned PUC’s decision making in regard to energy efficiency is moving in the wrong direction. 1/3 of all houses qualify for low-income weatherization programs, but under PUC rules they are only required to obtain 5% of all the savings from low-income programs. Also, PUC discontinued requirements that a utility has to obtain 10% of savings from low-income programs to quality for a performance bonus. Texas ROSE feels the incentive has been taken away from utilities to exceed that percentage and this suggests it is alright for utilities to discontinue funding low-income weatherization. Finally, PUC has decided it is taking a 5% reduction in budget that has been mandated from the system benefits fund, which, they argue, is essentially taking money from the programs that are serving low-income persons.