What 4 Sun Belt states reveal about U.S. electricity

Source: By Edward Klump, E&E News • Posted: Sunday, August 29, 2021

The Sun Belt is among the U.S. regions coping with a changing power sector as it juggles renewables, infrastructure and aging power plants. Oregon Department of Transportation (solar panels); Varistor60/Wikipedia (transmission tower); public domain/Wikipedia (power plant)

With a rising population, robust power demand and a shifting generation mix, the Sun Belt stands on the front line of U.S. adaptation to new electric and climate realities — and its choices could echo across the country.

State regulators and company executives are facing key decisions that could shape how power is produced and delivered for years to come. To get a snapshot of potential change, E&E News examined recent comments from major power providers based in four states — Arizona, Louisiana, Oklahoma and Texas — that held earnings calls this month. The warm-weather Sun Belt states have seen a barrage of extreme events, leading to questions about resilience, emissions and the role of emerging technologies.

“Our customers are telling us what they wan,t and we’re listening,” Leo Denault, CEO of New Orleans-based Entergy Corp., said during an Aug. 4 earnings call. That includes, he said, offering ways to help consumers “achieve their sustainability goals.”

While the states represent a slice of the country, many of their trends — such as a growing interest in hydrogen and concerns about emissions — mirror the rest of the United States. And their power companies also, in several cases, have assets and interests across the United States. At the same time, Texas, the nation’s energy capital and largest greenhouse gas emitter, can influence the energy mix beyond its borders.

Sun Belt power companies like Entergy continue to focus publicly on balancing the push to become cleaner with the pillars of grid reliability and affordability to customers. There’s hope in in the region, and the power sector broadly, that the electrification of transportation, industrial processes and buildings will add to electricity demand. Yet growth also presents an emissions challenge for the U.S. power space because President Biden has called for its decarbonization by 2035.

Last week, El Paso Electric announced a settlement agreement that offers a microcosm of the region’s energy transition: The deal could pave the way for a new 228-megawatt natural gas-fueled project known as Newman 6 to go forward in Texas. But EPE has also touted plans to boost its solar power and battery storage portfolio while pursuing the new fossil fuel unit, which still needs an air permit from the Texas Commission on Environmental Quality.

Environmental advocates cheered conditions such as lowering emissions at Newman 6, no future fossil fuel expansion by EPE at the plant site, and retirement plans for at least two other older, existing gas generating units in the region.

“While we are far from attaining a 100 percent clean and renewable grid, this settlement brings us that much closer while also giving a traditionally marginalized community of color a fighting chance,” Antoinette Reyes of the Rio Grande Chapter of the Sierra Club said in a statement.

Utility skeptics say electricity producers and retailers need more oversight to effectively tackle climate change.

Logan Burke, executive director of the New Orleans-based Alliance for Affordable Energy, said Entergy and other utility companies will make progress that’s required by shareholders or regulators.

“However, if left to voluntarily reduce emissions, I am not optimistic that any of these utilities will move fast enough,” Burke said in an email.

Here are four takeaways from emerging electricity trends in the Sun Belt:

1. Resilience

Reliable service often comes up in electricity discussions, but so now does resilience — the ability to bounce back from storms and other events that could damage systems. And companies are coming at those issues from new directions.

Earlier this month, Oklahoma-based OGE Energy Corp. outlined a pilot plan to help inspect distribution poles for damage using artificial intelligence. OGE is the parent of Oklahoma Gas & Electric.

“This technology will allow our teams to respond more efficiently and utilize a consistent approach for repair and replacement,” OGE CEO Sean Trauschke said during an Aug. 5 earnings call.

Trauschke also pointed to grid enhancement programs in Oklahoma and Arkansas, and he said work on substations and distribution circuits will help reliability and resilience of the grid.

At Entergy, Denault said the company is developing long-term plans to boost resilience — as customer affordability remains a cornerstone. Some upgrades happen in the normal course of business, such as replacing aging transmission and distribution infrastructure, he said.

“At times, these resiliency improvements are accelerated, like when we build back better after a major storm,” Denault said.

Executives at Phoenix-based Pinnacle West Capital Corp., the parent of Arizona Public Service Co., raised concern during the company’s Aug. 5 earnings call about a rate case before regulators at the Arizona Corporation Commission. A recommended opinion and order from an administrative law judge there would, among other things, disallow certain emissions control investment at the Four Corners coal-fueled power plant. Approving the suggested order, Pinnacle West said, could decrease its annual net income by as much as about $90 million.

“We continue to believe that the commission and other stakeholders recognize the importance of investing in assets such as Four Corners to maintain reliability given the challenges that we’ve all seen in the West,” Pinnacle West Capital Corp. CEO Jeffrey Guldner told analysts and investors.

In Texas, critics have said state lawmakers didn’t do enough to protect Texans and reform oversight of electricity and natural gas after February blackouts (Energywire, June 2). Observers will be watching to see what actions the Railroad Commission of Texas takes in terms of oversight of the natural gas industry after swaths of gas infrastructure were forced offline during the winter storm, for example.

NRG Energy Inc. CEO Mauricio Gutierrez noted that Texas’ main grid operator and the Public Utility Commission of Texas are “working to implement the power market portions of the reform.” He suggested that the PUC will address key issues such as market design and system hardening this year for the power sector.

Irving, Texas-based Vistra Corp. noted its own plans to bolster assets.

The company is “investing nearly $50 million in 2021 prior to the 2022 winter on improvements to further harden our coal fuel handling capabilities and to further weatherize our Texas fleet for even colder temperatures and longer durations,” CEO Curt Morgan said this month.

Vistra intends “to spend up to another $30 million in 2022 to further enhance the ability for our fleet to withstand extreme weather conditions,” he said.

Morgan said Vistra also contracted for additional gas storage, and it’s installing dual-fuel capabilities at gas steam units and boosting fuel oil inventory at dual-fuel sites. The company plans to keep an eye on other developments in Texas, as well.

“We intend to play a role in ensuring the efforts to map and identify critical gas and power infrastructure are carried out in a manner that results in the intended reduction of risk to the integrated systems,” Morgan said.

2. Renewables

Companies continue to tout plans to expand renewables, even if the path varies by state.

In Arizona, previous legislation may open the door to new retail electric competition for residents and businesses.

That’s the hope of Green Mountain Energy, which is part of Houston-based NRG. Green Mountain recently filed an application with the Arizona Corporation Commission to allow it to provide renewable-based retail power service in territories served by Arizona Public Service and Tucson Electric Power.

Green Mountain says in its filing that “by approving this application the Commission can enable Arizonans to not only choose their electricity provider, but also choose the type of generation they would like to receive.”

Existing utilities didn’t embrace the idea in comments this month.

“Arizona residents benefit from some of the most reliable energy in the country, provided by locally governed and regulated utilities,” APS said in a statement. “Clearly, Arizona’s current system works. Now is not the time to put that at risk.”

Joe Salkowski, senior director of communications and public affairs at Tucson Electric Power, said the company’s green energy plans are tied directly to wind and solar power systems built to serve its customers. The retail green energy market, he said in a statement, is based on credits that “are essentially a promise that clean energy is being produced somewhere else.”

While such credits have their place in the energy market, Salkowski said, they’re not a substitute for energy that customers depend on.

To the east, renewable energy also is on the minds of Entergy executives. The company has faced criticism from renewables advocates in the past for not moving quickly enough.

Entergy described an expectation of a growing renewables portfolio with at least 5,000 MW by 2030, and Denault noted approval from Arkansas regulators for a 100-MW solar project expected to be in service in 2022.

The company has filed for a proposed green tariff in Arkansas to allow for the sale of designated renewable energy to interested customers.

“We have received signed, nonbinding letters of interest from 20 customers, including Walmart,” Denault said earlier this month.

In Arizona, Guldner said his company has executed a contract for an additional 60 MW of utility-owned energy storage to be located at APS solar sites. The company also has been working through an all-source request for proposals for up to 800 MW of additional resources.

Morgan, Vistra’s CEO, made a point of noting renewables and battery storage, too. He gave a nod to work done by NextEra Energy Inc., the Florida-based company that has a major focus on renewables.

“We did a review … of our renewable and battery business. And we have one of the best businesses,” Morgan said. “We understand NextEra has got an incredible business, and … kudos to them, but, you know, we’re not second to anybody else in our view.”

3. Emissions

Denault said a large chunk of Entergy’s demand comes from industrial customers. While some see a risk for the company, he said it’s an opportunity because Entergy can help with sustainability objectives and provide access to clean electricity.

He said Gulf Coast facilities produce a range of feedstocks and finished products. That’s not going away, Denault said, as more sustainable cars will still need items such as tires, frames and dashboards.

Many industrial emissions relate to so-called Scope 1 emissions from using fossil fuels on-site, Denault said. He said Entergy is developing ways to help customers lower such emissions using electrification — including with green options for processes like compression for liquefied natural gas.

“You can think about it as it’s new load with new sales for new processes that today are not electrified,” he said.

Meanwhile, Houston-based CenterPoint Energy Inc. is planning an analyst day next month — and it intends to discuss a net-zero carbon commitment.

“Across jurisdictions, we are collaborating to find ways to introduce more renewable fuels into our systems as we firm up our goal to achieve a net-zero target,” CEO David Lesar told analysts and investors Aug. 5. “We look forward to unveiling this in September during our analyst day.”

The Arizona Corporation Commission drew headlines earlier this year when it voted for proposed clean energy rules that would affect major investor-owned electric utilities in the state (Energywire, June 4). There are proposed interim standards and a final benchmark of 100 percent clean energy by 2070 — a date much later than the midcentury timelines that many major U.S. electric utilities already plan to meet.

But the commission still needs to take a final vote on the rules package for it to go into effect for companies such as Arizona Public Service.

“We think we’re well aligned with the commission on the interim goals and expect to continue our current path to achieve 100 percent clean energy by 2050,” said Guldner of Pinnacle West, the parent of APS.

Oklahoma-based OGE also is moving away from some older generating units — with plans to retire a number of gas units that were constructed over 50 years ago.

“We expect to retire approximately 850 megawatts over the next five to six years,” Trauschke said Aug. 5.

4. Hydrogen

Entergy took a step forward on hydrogen recently, formally outlining its plan for the Orange County Advanced Power Station in Texas. The $1.2 billion project could run on natural gas or hydrogen — which emits no carbon dioxide when burned — or both.

The company said it plans in the coming weeks to file a request for approval to build the plant. If approved by Texas regulators, construction would start in the second quarter of 2023. That means the facility could be in service by summer 2026, Entergy said.

The electricity provider’s positioning geographically among hydrogen producers, pipelines, storage and consumers represents an opportunity, according to Denault.

He called the proposed facility “a significant milestone in our strategy to provide clean energy that also supports reliability.”

Still, Burke of the Alliance for Affordable Energy cited various concerns about hydrogen projects, including whether the hydrogen would come from a process that uses natural gas as a feedstock. She also said burning hydrogen may create local air-quality issues.

Entergy said in a statement that, as the market advances, it would “procure the most economic hydrogen with the lowest associated carbon emissions which will likely include both blue and green hydrogen.”

Blue hydrogen can be derived from methane or coal using steam methane reforming or gasification with carbon capture, according to a guide from the International Renewable Energy Agency. Green hydrogen comes from renewable power using a process known as electrolysis.

Entergy said its proposed station would “be able to use a blend of up to 30% hydrogen by volume when it goes into service.” And future modifications could enable the plant to blend up to 100 percent hydrogen and keep the ability to use 100 percent natural gas, according to the company, which is working with Mitsubishi Power to advance hydrogen technologies.

Oklahoma’s OGE also noted the potential for hydrogen in its earnings call this month. The company recently filed a draft integrated resource plan (IRP) — a strategic document that helps guide future energy decisions — and new resources could include solar and hydrogen.

“Key components of our IRP include a successful energy efficiency and demand-side management program combined with replacing retired generation with a combination of solar and hydrogen-capable combustion turbines,” said Trauschke, OGE’s CEO.

Hydrogen is something that’s relevant in other states beyond the Sun Belt and to companies that have operations in natural gas as well as electricity.

Jason Wells, CenterPoint’s chief financial officer, told analysts this month that his company has “a green hydrogen pilot” that will come online in Minnesota “at the end of the year.”