Competition, consumer choice and smart meters in Texas helped the grid to bounce back quickly after Hurricane Harvey struck Houston in September, two Direct Energy executives said in an interview with Bloomberg New Energy Finance.
Jim Steffes, Direct’s executive vice president of corporate affairs, and Ned Ross, Texas government and regulatory affairs director, answered questions from BNEF in a recent interview about Harvey’s impact and industry trends. Direct Energy, based in Houston, provides electricity, natural gas, and home and energy services to more than 4 million customers in North America. The company has been a subsidiary of Centrica Plc since 2000.
Q: When a storm like Harvey is threatening your service area, how soon does the planning start?
Steffes: A week out, our continuity teams are looking at weather and predictions. The science is getting much better. We’re starting to assemble teams based on our planning and our strategies around that. As we get closer to the event, more and more groups will be involved. We start with a daily call with a small group. As we get closer to the event, we may go to two calls a day. The group may expand.
We run a trading floor here in Houston. We’ll shift a team of people to a site that is safer and ensure there are enough people there. We pre-position employees to ensure that we’re reliable and can meet our obligations.
Someone in Houston is the incident commander. He makes calls and positions the team. As the storm approaches, we begin to provide customer-level information, making sure we’re minimizing the risk to our customers, our employees and our communities.
Q: What changes when the storm strikes?
Steffes: During Harvey, we probably had three calls a day, trying to understand the footprint we were faced with, making sure we’ve met our commitment to the market and then starting to understand our customer impact. We’re working with the state Public Utilities Commission about what the industry should be doing so people can focus on safety, recovery and protecting their property.
Harvey was very challenging because of the duration. [Harvey poured 51 inches of rain on Houston over six days.]
Q: Texas leads the nation in percentage of smart meters installed, according to a December 2016 report from the Federal Energy Regulatory Commission, and power outages related to Harvey were less than forecast. How much did the meters help?
Steffes: CenterPoint Energy, the Houston area’s electric transmission provider, did a great job. The first version of that smart grid they’ve installed allowed them to pinpoint outages, find the right resources and minimize the amount of time that people were without electricity.
They were able to provide their crews access in near real time about where the outages were occurring. They also provided customers with information about what it would take to bring them back up.
Unless there was a substation underwater, CenterPoint was rapidly restoring and keeping things operating throughout that storm. The same goes for AEP [provider in the region outside Houston].
Q: Moving on from Harvey, what has changed the most in energy delivery in recent years?
Ross: The evolution of data and accessibility to data. That’s just begun through the smart meter process. We have a slew of products we offer that would have been impossible with the old analog meters. We can offer daily electrical products. We can give people information about what they just consumed.
Q: What has that meant for consumers?
Ross: People can open their phone up right now and look at what they consumed over the weekend when they hosted that party. They now have a sense of what it cost to do that from an energy perspective. All that makes the consumer aware — that consumer education component is going to be critical.
Q: What are the other industry trends?
Steffes: The macro trend has been the willingness to allow competition to supersede cost-of-service regulation. It truly started in the 1980s and 1990s when natural gas deregulation empowered competition.Three big trends are going to happen. The first is digitization of the electricity network. You saw the benefits during Harvey.
The second is moving toward a distributed energy network [more access points like rooftop solar will put surplus energy into the grid]. Even in a relatively low-cost energy market, big customers and households can take advantage.
The third is design. People want to design their own energy path. Corporations in particular are picking paths that are greener, more sustainable and less energy-intensive.
Digitized, design, decentralized and decarbonized solutions. Not by government mandate, but because consumers will choose it.
Q: How does that consumer control affect the market?
Steffes: When our parents were customers of Houston Lighting & Power in 1988, you got that usage bill for August sometime around Sept. 12, and you had one choice: Pay it or not pay it. It made perfect sense for consumers to be indifferent.
With distributed energy and digitization, you’re giving people control that makes it a much more engaging product. It goes to each customer’s need for data and timeliness. Businesses want to know pretty close to real time what’s going on.
Q: What has that meant in the larger picture?
Ross: Just a year ago, Texas Public Utilities Commissioner Ken Andersonwondered why Ercot’s electrical load wasn’t increasing at the rate it used to increase and the rate Ercot thinks it’s supposed to increase. They started looking at the background and started seeing a little bit of solar here, a lot of efficiency, and some of this data recovery. It gives people the ability to make sense out of something they couldn’t make sense out of before.
Q: Texas has had a largely deregulated energy market for about 20 years now that splits companies into three segments — generation, retail and transmission. What are the lessons of its experience?
Steffes: We have the most vibrant wholesale power market anywhere. The retail market has hundreds and hundreds of offers. Transmission and distribution companies are focused on building a resilient, smart grid where they’re rewarded by that service.
You have retailers that are focused on customers and making sure we serve them well. The number of complaints has fallen to an all-time low.
Texas has seen the cost minimization of wholesale and retail drive down prices 25 percent. And the value is even bigger than that. The data won’t show Houston had 10,000 thermostats that enabled people to lower their bills 3 percent to 10 percent.
Q: How do you react when you see that Energy Secretary Rick Perry, who was governor of Texas from 2000 to 2014 and presumably saw all these benefits, wants federal rules to help coal and nuclear plants?
Steffes: We want a reliable, resilient power market. How do you make sure there’s resiliency and reliability? The networks have been very reliable, particularly on the generation-adequacy side. When there have been problems, typically they’ve come out on the transmission/distribution side.
We hope that when all the decisions and the facts are in, good judgment will evolve the market in a way where there’s reliability and choice, and competition rules the roost.
There’s a good reason to place faith in competitive markets.