WEBVTT
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(gavel bangs)
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This meeting of the Public
Utility Commission of Texas
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will come to order to consider matters
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that have been duly posted
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with the Secretary of State
of Texas for July 1st, 2021.
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For the record, my name is Peter Lake.
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And with me today are Lori
Cobos and Will McAdams.
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At this time, we will open
up for public comment.
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Invited oral testimony related
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to a specific agenda item will be heard
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when that item is taken up.
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This public comment is for
general comments related
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to today's agenda.
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Only speakers will be
limited to three minutes each.
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Operator, could you please come on in
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and provide instructions to the public
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on how they can be recognized
if they would like to speak?
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Ladies and gentlemen,
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if you wish to ask a comment,
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please press one then
zero, one then zero.
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We have one, couple of comments.
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We'll have names for
you in just a moment here.
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One moment.
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Drew Gormley, you're
open. Please go ahead.
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Good morning
Commissioners. Can you hear me?
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Yes, we can hear you.
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Thank you.
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So, I appreciate your time this morning.
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This is in regards to Docket
52079 for Energy Monger.
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We'll, Drew,
I really wanted to,
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Why don't we take
that up during, on that,
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why don't we take that up on that item?
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We'll have you
Okay.
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Testify on that item
when we get there.
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Does that work?
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Okay. Sounds good.
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Yes.
Okay.
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Thanks.
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One moment.
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Jamie Sloss, you're open.
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Jamie, you're open on your end.
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I don't know if we're muted.
Okay.
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So, basically my question is
if Commissioner Peter Lake
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and Will McAdams are familiar
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with the rights of parties,
which is 22.102(b),
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the rights to parties.
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That's a yes or no. If
you're familiar with that.
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You're welcome
to bring any issues
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to the Commission's attention you like,
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Mr. Sloss, please continue.
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Yeah, well, that's
an issue I brought up
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to you guys about three,
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this is the third time
I'm bringing it up
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besides on my closing
arguments and on the,
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on the oral argument,
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and I'm not sure if you're familiar
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with the Subchapter section
22.102(b) rights of parties,
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because you guys made a ruling.
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You guys denied me the rehearing.
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And quite frankly, I don't think
I need a rehearing because
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it's very obvious why
AEC does not want me
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to cross examine their
witness, which is my rights.
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So, you guys denied
me my right to party.
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You guys denied me the
rehearing, and you voted,
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you took up the proposal
for decision by David,
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who also took into consideration
the affidavit of witnesses
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on behalf of AET, but this
denied me the right of parties
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to cross examine all witnesses.
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Now, somebody brought it
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to my attention that, yes,
You have one minute.
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To present a witness,
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but in the rights of parties,
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it says that I have a right to
cross examine all witnesses.
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So, if you're going to sit in that chair
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where you're sitting right now
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and you don't know
what you're in charge of,
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then I ask that you step down,
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tell Greg that you're not
able to carry out the duties
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that you are holding
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'cause you don't know
what you're doing up there.
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And I ask you and Will to step down
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because you're obviously not familiar
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with the rights to parties.
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And there's probably a lot
more you're not familiar with.
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So, Lori didn't get an opportunity
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to vote on the rehearing,
but you and Will did.
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So, I'm asking you to step down
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since you don't know
what you're doing up there.
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Thank you for your
comments, Mr. Sloss.
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(phone ringing)
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There are no
other comments at this point.
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Please continue.
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Thank you, Art.
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With no other speakers wanting
to address the Commission,
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public comment is now closed.
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This is a work session
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where we typically do not
take up formal action items,
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but due to some accelerated timelines
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and deadline restrictions,
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we will be required to
take up one formal item
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for action today.
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Mr. Jernay, could
you lay that out for us?
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Item one is
Docket Number 52079.
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It's the Commission staff's petition
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to revoke the rep
certificate of Energy Monger.
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Thank you, sir.
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I know we've got invited testimony.
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We'll go ahead and
hear that at this time,
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if that works for you.
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Yes, chairman.
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So, I will be recusing
myself from this decision
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due to my participation
in the case at OPUC.
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Noted. Thank you.
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Operator, I believe we
have a speaker for this item.
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Please bring them on.
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If you have a
comment, please press one zero.
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One moment.
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Drew, you're open. Please, go ahead.
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Thank you. Good
morning, Commissioners.
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I appreciate the time
that you're giving me
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to really have an open discussion
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with you just very quickly
about Energy Monger
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and you know, the
events that occurred to us.
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Really, what I wanted
to just state a few facts is,
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first of all, the settlement
that we agreed to
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with the Public Utility
Commission and ERCOT,
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you know, I stand by that.
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I did sign it.
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I felt that we were really, our
backs were against the wall.
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We didn't have much
leverage. We're out of cash.
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We're basically an insolvent company.
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Related to the winter storm,
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what I really wanted to
just state is who we are.
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I haven't had the opportunity to discuss
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with any of you what we
did when we started this.
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We're a startup.
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We started with about
$1.6 million in capital.
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And we actually did some things
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that probably have never
been done in ERCOT.
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We built our own systems
in really less than a year.
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We had our own billing,
CRM, transactions.
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Everything that we did, we
did not use third party vendors.
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In fact, ERCOT applauded us
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when we went through the
ERCOT market flight test,
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stating that we were the
only retail electric provider ever
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to pass the flight test on the first try
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with our own EDI, our own software.
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And we did it on the first try.
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We actually built something
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that I think most retail
electric providers would envy.
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I challenge you to find one
other retail electric provider
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that did what we did in
a short amount of time
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to really start in the ERCOT market.
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I have more than 13 years of experience,
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not just in ERCOT,
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but all across the United States
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and almost every ISO that's out there.
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I opened up Japan and Canada
for a retail electric provider.
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So, I'm very familiar
with this industry,
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been in it a pretty long time.
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The, really, what I want to
point out is what happened
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with winter storm Uri,
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and really highlight
that I feel still confidently
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that we did everything right.
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We went into February 92% hedged.
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We did two short-term
hedges in the month of February
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to account for usage for
the week of winter storm Uri.
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And really at the end of
the day, it wasn't enough.
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That Friday before the winter storm hit,
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we attempted to buy more.
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Prices had already gone
to $4,000 a megawatt hour.
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And by the time Monday
came around, a $9,000 price,
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it had hit the cap.
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And we were pretty much stuck.
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Our customer usage doubled and tripled
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in some cases for our customers,
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they were running full-steam.
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Every single residential high customer
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that we had that
was on really killed us.
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With respect to our financial losses,
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in the span of four and a half days,
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the estimated loss was about $10 million
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for 4,000 customers.
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And I really want you guys
to understand the impact
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that it had
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for a startup who had just
started serving customers
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in October, had only been
in business for four months,
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4,000 customers on
almost a $10 million loss.
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That is unrecoverable.
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I had one person tell me a few weeks ago
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that I would have
been better off investing
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in Bitcoin than ERCOT.
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And that is a very true statement.
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The thing that I really want
to point out is what I feel
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is what really led to this
winter storm Uri event
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is what's happened the last 10 years.
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Over the last 10 years,
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the PUC has allowed a,
really, the re-monopolization
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of the retail sector.
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By my estimates,
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$5 billion to $6 billion has
been spent by generators
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to re-monopolize the market.
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You've had, in fact,
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I came from one of those companies
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that was bought by
one of those generators.
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When that happens,
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you lose the actual true
purpose of deregulation.
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Under Senate Bill 7, the intent was
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to breakup the players in the market,
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the market participants,
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and when it broke up those companies,
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the intent was for
them to stay broken up,
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generators have capped
at 30% of their capacity.
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You don't have to produce
on any given day their,
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what they put on the grid.
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There is no cap for them to
own retail electric providers
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and that's what's happened.
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So, for the last 10 years,
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instead of generators
reinvesting in the market,
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putting steel in the
ground, natural gas plants,
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whatever that may be,
nuclear, coal, whatever they felt,
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instead that money went
to retail electric providers.
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I came from a retail electric provider
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that dealt with these issues.
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And, you know, it was very easy to,
00:12:08.090 --> 00:12:10.630
look, let me back up for a second.
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What I will tell you is, you know,
00:12:13.140 --> 00:12:14.810
there are many reps out there
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that have pretty significant losses.
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It could take five years, seven years,
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or even 10 years to recoup these losses.
00:12:22.210 --> 00:12:24.470
What I will tell you is it's very easy
00:12:24.470 --> 00:12:25.910
if you are a generator
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and you control 40%
of the retail electric side
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by simply taking your rates
up a penny or two pennies,
00:12:32.310 --> 00:12:34.340
you can recoup your losses very quickly.
00:12:34.340 --> 00:12:37.170
And I tell this is, kind
of has been the strategy
00:12:37.170 --> 00:12:40.000
for many years is if
you've cornered the market
00:12:40.920 --> 00:12:43.200
and you have control of the retail,
00:12:43.200 --> 00:12:44.860
of the retail sector,
00:12:44.860 --> 00:12:48.500
you can easily take your rates
up and make back any losses
00:12:48.500 --> 00:12:51.430
that you experienced
in our winter storm Uri.
00:12:51.430 --> 00:12:55.290
So, really what I want to
just highlight, and in closing,
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what I'll tell you is
I'm very well aware
00:12:57.980 --> 00:13:01.110
that I'm not the only
one in this position.
00:13:01.110 --> 00:13:02.680
There are other retail
electric providers that are
00:13:02.680 --> 00:13:03.540
in this position.
00:13:03.540 --> 00:13:05.360
Most are the entities.
00:13:05.360 --> 00:13:10.360
And it's a very frustrating
situation to be in knowing
00:13:10.980 --> 00:13:13.040
that we were a startup,
00:13:13.040 --> 00:13:15.780
knowing that we only
had 4,000 customers,
00:13:15.780 --> 00:13:18.200
knowing that we spent a year
trying to build this business
00:13:18.200 --> 00:13:20.820
before we even signed
up our first customer.
00:13:20.820 --> 00:13:24.373
And we were really out the
door before we even got started.
00:13:25.300 --> 00:13:28.180
I still feel that we
did everything right.
00:13:28.180 --> 00:13:29.520
We were hedged.
00:13:29.520 --> 00:13:33.560
We bought the, we
sold fixed price contracts.
00:13:33.560 --> 00:13:35.180
We did everything that
we should have done
00:13:35.180 --> 00:13:36.550
as a retailer electric provider
00:13:36.550 --> 00:13:38.990
to make sure that our
customers were protected
00:13:38.990 --> 00:13:40.290
from any exposure.
00:13:40.290 --> 00:13:44.700
To this day, not one customer
had any impact related
00:13:44.700 --> 00:13:48.130
to winter storm Uri
from our customer base.
00:13:48.130 --> 00:13:50.960
Every customer's
protected on fixed price.
00:13:50.960 --> 00:13:53.930
The one entity or person
that was not protected
00:13:53.930 --> 00:13:56.030
in our case was Energy Monger.
00:13:56.030 --> 00:13:58.680
There was nothing we could
have done to prevent this.
00:13:59.630 --> 00:14:03.140
So in closing, really what
I want to say is, you know,
00:14:03.140 --> 00:14:05.440
I started with the name
Monger for a reason.
00:14:05.440 --> 00:14:08.070
It's unique. People remember it.
00:14:08.070 --> 00:14:12.530
And it's one of those things
that will always be easy
00:14:12.530 --> 00:14:15.800
to remember once
you see it the first time.
00:14:15.800 --> 00:14:20.190
I did a lot of marketing
to find out a name
00:14:20.190 --> 00:14:22.950
and I came up with the
name Monger and what I hope,
00:14:22.950 --> 00:14:24.420
if anytime that you guys see
00:14:24.420 --> 00:14:28.360
in the future the word Monger
is you remember, you know,
00:14:28.360 --> 00:14:31.330
our company and really the impact
00:14:31.330 --> 00:14:34.600
that these ERCOT prices have on us
00:14:34.600 --> 00:14:36.280
and what it did to us.
00:14:36.280 --> 00:14:41.150
And really, what I firmly
believe is this is truly unjust.
00:14:41.150 --> 00:14:46.150
I firmly believe that this
could have been fixed
00:14:46.900 --> 00:14:50.400
during the event or
even after the event.
00:14:50.400 --> 00:14:55.400
And really, we were
exposed to, in my opinion,
00:14:56.435 --> 00:15:01.060
some unjust things
done by the Commission
00:15:01.060 --> 00:15:02.683
as well as generation.
00:15:03.633 --> 00:15:06.430
And the last thing I'll say is
this has been experienced
00:15:06.430 --> 00:15:11.430
for 2008, 2011, 2014,
2019, and now 2021.
00:15:14.750 --> 00:15:16.940
Every single one of those years,
00:15:16.940 --> 00:15:20.675
you've had generations fail
to deliver on their promise,
00:15:20.675 --> 00:15:23.210
of bringing power to the grid.
00:15:23.210 --> 00:15:25.360
Every single one of those years,
00:15:25.360 --> 00:15:28.250
you'd have prices that have spiked.
00:15:28.250 --> 00:15:30.540
And you've had companies experience
00:15:30.540 --> 00:15:34.120
significant financial losses
because of those price spikes.
00:15:34.120 --> 00:15:36.810
I encourage you to look at that
00:15:36.810 --> 00:15:39.110
and really inspect those years
00:15:39.110 --> 00:15:41.230
and find out what the problems were.
00:15:41.230 --> 00:15:45.040
Was it a mothball plant?
Was it unforced outages?
00:15:45.040 --> 00:15:46.080
But I guarantee you,
00:15:46.080 --> 00:15:48.790
what you're going to
find is it's going to be tied
00:15:48.790 --> 00:15:51.420
to generation and until that's fixed,
00:15:51.420 --> 00:15:53.540
I would never bet on ERCOT.
00:15:53.540 --> 00:15:55.740
And I don't think in the next two years,
00:15:55.740 --> 00:15:58.740
in the next five years,
in the next 10 years,
00:15:58.740 --> 00:16:00.170
it still isn't built.
00:16:00.170 --> 00:16:02.250
If more natural gas plants aren't built,
00:16:02.250 --> 00:16:03.670
this problem will not be fixed.
00:16:03.670 --> 00:16:06.470
Because you will continue
to have this problem.
00:16:06.470 --> 00:16:07.730
And I think you're going to continue
00:16:07.730 --> 00:16:10.220
to have investors shy away
00:16:10.220 --> 00:16:12.780
from the ERCOT market when building,
00:16:12.780 --> 00:16:14.890
when putting steel in the ground.
00:16:14.890 --> 00:16:16.050
So, I appreciate your time.
00:16:16.050 --> 00:16:21.050
Thank you, and look forward
to seeing what you guys do
00:16:21.600 --> 00:16:23.070
with this docket.
00:16:23.070 --> 00:16:24.500
Thank you very much.
00:16:24.500 --> 00:16:25.338
Thank you, Drew.
00:16:25.338 --> 00:16:27.470
I appreciate your comments and insights
00:16:27.470 --> 00:16:30.577
and the details of that experience.
00:16:30.577 --> 00:16:34.473
We do not have any other
invited testimony on this item.
00:16:36.350 --> 00:16:38.060
There's a settlement on this docket.
00:16:38.060 --> 00:16:40.363
Any thoughts or comments, Will or Lori?
00:16:41.690 --> 00:16:43.350
Or Will? You're recused, excuse me.
00:16:43.350 --> 00:16:48.350
No, I, you know, before
we get into the facts on it,
00:16:48.500 --> 00:16:50.590
I think his comments are well taken.
00:16:50.590 --> 00:16:55.590
I think that he has highlighted one
00:16:55.630 --> 00:16:57.929
of the foundational questions
00:16:57.929 --> 00:16:59.490
that we have before us
00:16:59.490 --> 00:17:02.660
in the near term is how
is our market functioning?
00:17:02.660 --> 00:17:04.190
And I think that's what these workshops
00:17:04.190 --> 00:17:06.960
that you're organizing,
Mr. Chairman, are about,
00:17:06.960 --> 00:17:10.293
is to highlight how is this working?
00:17:11.410 --> 00:17:14.440
Are the right incentives in
place to do the right thing?
00:17:14.440 --> 00:17:15.990
To invest in the resources
00:17:15.990 --> 00:17:20.300
that the public absolutely
demands for an essential service.
00:17:20.300 --> 00:17:24.460
So, no, I think,
00:17:24.460 --> 00:17:27.510
I appreciated that
presentation and comments
00:17:27.510 --> 00:17:28.343
by the witness.
00:17:30.560 --> 00:17:32.977
Yeah, that's why we're here
today, figure out what works,
00:17:32.977 --> 00:17:35.800
and more importantly, what doesn't work,
00:17:35.800 --> 00:17:40.223
so we can enhance the
competitive nature of our market.
00:17:42.400 --> 00:17:44.750
Given the settlement in
this case, I will entertain,
00:17:44.750 --> 00:17:45.583
is there a motion
00:17:45.583 --> 00:17:47.510
to revoke Energy
Monger's certificate based
00:17:47.510 --> 00:17:49.090
on the parties agreement?
00:17:49.090 --> 00:17:50.140
So moved.
00:17:50.140 --> 00:17:51.313
Second. All in
favor, say, "Aye."
00:17:51.313 --> 00:17:52.146
Aye.
Aye.
00:17:53.448 --> 00:17:54.448
The motion passes.
00:17:56.170 --> 00:17:58.810
That concludes the
formal business portion
00:17:58.810 --> 00:18:01.390
of this open meeting.
00:18:01.390 --> 00:18:04.003
At this point, we will
move to the work session.
00:18:07.220 --> 00:18:10.020
As everyone here and
watching online can tell,
00:18:10.020 --> 00:18:11.600
this is a different layout
for the Commission.
00:18:11.600 --> 00:18:15.323
This is a very different
type of open meeting.
00:18:16.290 --> 00:18:20.390
This is one of, this is
not our first workshop,
00:18:20.390 --> 00:18:24.810
but this is the first
workshop directly oriented
00:18:24.810 --> 00:18:29.810
around implementation of
legislation from the 87th session.
00:18:31.120 --> 00:18:33.950
And specifically, some
key elements of SB 3.
00:18:35.360 --> 00:18:39.100
This is, from this point forward, this,
00:18:39.100 --> 00:18:41.670
there will be no formal
action taken in this meeting.
00:18:41.670 --> 00:18:46.670
This is simply a forum for
exchange of information, ideas,
00:18:48.650 --> 00:18:51.700
and a forum for discussion
00:18:51.700 --> 00:18:54.490
about exactly what Commissioner
McAdams just identified,
00:18:54.490 --> 00:18:55.740
what's working, what's not working.
00:18:55.740 --> 00:18:57.591
How do we make it better?
00:18:57.591 --> 00:19:01.113
So, I want to highlight that
this is very much a working,
00:19:02.280 --> 00:19:06.480
a venue for discussion, ideas exchange.
00:19:06.480 --> 00:19:10.380
And this will be the first
of many work sessions
00:19:10.380 --> 00:19:13.720
on a variety of elements of
legislative implementation.
00:19:13.720 --> 00:19:17.380
So, by no means should
any market participant,
00:19:17.380 --> 00:19:21.710
member of the public take
anything said up here as,
00:19:21.710 --> 00:19:24.190
I think I speak for both of
the fellow Commissioners
00:19:24.190 --> 00:19:29.190
and nothing said up here
should be taken as written in stone
00:19:29.840 --> 00:19:32.900
or as some grand
intention of future action.
00:19:32.900 --> 00:19:35.710
This is purely a venue for discussion.
00:19:35.710 --> 00:19:36.723
Is that fair?
00:19:36.723 --> 00:19:38.380
Yes, sir.
Yes, sir.
00:19:38.380 --> 00:19:39.770
All right.
00:19:39.770 --> 00:19:41.290
With that, we will move.
00:19:41.290 --> 00:19:44.470
I don't have any things
on item 2 through 4.
00:19:44.470 --> 00:19:45.461
No, sir.
Do either of you all?
00:19:45.461 --> 00:19:46.294
No.
00:19:47.890 --> 00:19:48.723
All right.
00:19:48.723 --> 00:19:52.070
We will move to item five,
discussion and possible,
00:19:52.070 --> 00:19:53.020
no possible action,
00:19:53.020 --> 00:19:54.650
but discussion on
electrical reliability,
00:19:54.650 --> 00:19:57.920
electric market development,
powered to choose website,
00:19:57.920 --> 00:20:00.250
ERCOT oversight, transmission
planning, construction,
00:20:00.250 --> 00:20:02.530
and cost recovery in
areas outside of ERCOT
00:20:02.530 --> 00:20:05.160
and electrical liability standards
00:20:05.160 --> 00:20:08.720
and organizations
arising under federal law.
00:20:08.720 --> 00:20:13.720
We have a variety of panels to
address the Commission today,
00:20:15.560 --> 00:20:20.560
and we'll also be, of
course, taking questions.
00:20:21.670 --> 00:20:23.870
Our first panel is
market design overview.
00:20:23.870 --> 00:20:24.703
At this point,
00:20:24.703 --> 00:20:27.560
we'll call up ERCOT,
Independent Market Monitor,
00:20:27.560 --> 00:20:30.883
and representative from the
Intercontinental Exchange.
00:20:32.010 --> 00:20:32.960
Thank you.
00:20:39.764 --> 00:20:41.181
Thank you, Janet.
00:20:50.908 --> 00:20:55.908
We've got a
series of presentations
00:20:56.510 --> 00:21:01.050
and I know we'll have
some questions for each,
00:21:01.050 --> 00:21:02.750
I'm sure we'll have multiple
questions for each of you
00:21:02.750 --> 00:21:04.550
after your respective presentations.
00:21:05.650 --> 00:21:06.963
We'll start with our
ERCOT's presentation,
00:21:06.963 --> 00:21:10.800
then we'll move to the
IMM, and then finally ICE.
00:21:10.800 --> 00:21:11.960
Before you give your presentation,
00:21:11.960 --> 00:21:14.100
will you please state
your name for the record?
00:21:14.100 --> 00:21:15.180
Sure, Dave Maggio.
00:21:15.180 --> 00:21:18.180
I'm Director of Market
Design Analytics with ERCOT.
00:21:18.180 --> 00:21:19.450
Thank you.
00:21:19.450 --> 00:21:20.910
Go ahead.
All right.
00:21:20.910 --> 00:21:22.570
Thank you very much for the time today.
00:21:22.570 --> 00:21:25.820
I'm going to walk through
a few slides with you all
00:21:25.820 --> 00:21:27.520
and really just going
00:21:27.520 --> 00:21:29.440
to give a kind of a high-level overview
00:21:29.440 --> 00:21:31.250
of the market and in
a short period of time,
00:21:31.250 --> 00:21:34.240
but I'll focus on two key
components a little bit more.
00:21:34.240 --> 00:21:36.319
And those two components
will be looking a little bit
00:21:36.319 --> 00:21:39.170
at our current ancillary
services design,
00:21:39.170 --> 00:21:41.980
as well as talking about some
of the components we have,
00:21:41.980 --> 00:21:44.080
including our scarcity
pricing mechanisms.
00:21:45.120 --> 00:21:48.240
So, if you move to
the next slide, again,
00:21:48.240 --> 00:21:50.890
this is just to sort of set
the stage at a high overview.
00:21:50.890 --> 00:21:52.990
So, you can see the ERCOT region here
00:21:52.990 --> 00:21:55.880
and the number of stats
we have here on the left.
00:21:55.880 --> 00:21:56.900
I guess, one of the things
00:21:56.900 --> 00:21:59.740
that does stand out is
ERCOT is largely separated
00:21:59.740 --> 00:22:02.840
from the other grids
there at the bottom.
00:22:02.840 --> 00:22:05.750
That being the case, we do
though have about 1,200 megawatts
00:22:05.750 --> 00:22:08.610
or so of ties to the other grids.
00:22:08.610 --> 00:22:10.660
Specifically, some of that into SPP,
00:22:10.660 --> 00:22:12.550
as well as some in New Mexico.
00:22:12.550 --> 00:22:14.930
And it's probably worth
noting, not included here,
00:22:14.930 --> 00:22:18.920
there is a proposal to add
megawatts to those ties
00:22:18.920 --> 00:22:20.450
that's currently out there as well.
00:22:20.450 --> 00:22:22.520
Although none of that
is currently been set
00:22:22.520 --> 00:22:24.693
in terms of if and
when that might happen.
00:22:27.420 --> 00:22:28.980
Going to the next slide,
00:22:28.980 --> 00:22:32.340
just talking about the model
we have here in Texas,
00:22:32.340 --> 00:22:34.740
there's sort of three
main pillars to that.
00:22:34.740 --> 00:22:37.310
On the far left, you have
the supply side of that,
00:22:37.310 --> 00:22:39.260
where we have the
unbundled wholesale market,
00:22:39.260 --> 00:22:41.100
where we have resources competing
00:22:41.100 --> 00:22:44.490
within the wholesale
market to try and serve load.
00:22:44.490 --> 00:22:47.770
We're doing that as a
single balancing area
00:22:47.770 --> 00:22:49.960
and with the resources we have
00:22:49.960 --> 00:22:52.250
that they're settled
on a 15 minute level,
00:22:52.250 --> 00:22:55.540
and they're settled at a
specific location on the system,
00:22:55.540 --> 00:22:58.230
and we'll typically call those
locational marginal prices,
00:22:58.230 --> 00:23:01.410
but there's a specific node on the grid
00:23:01.410 --> 00:23:02.870
that's associated with these resources.
00:23:02.870 --> 00:23:05.320
And that's the price
point at which they're paid.
00:23:06.290 --> 00:23:08.930
On the other side of
that is the load resources.
00:23:08.930 --> 00:23:10.340
And in that case,
00:23:10.340 --> 00:23:12.670
they are also settled
at that 15 minute level,
00:23:12.670 --> 00:23:14.410
within our realtime market,
00:23:14.410 --> 00:23:17.190
but they pay prices
based on average prices
00:23:17.190 --> 00:23:18.740
over sort of a geographical area.
00:23:18.740 --> 00:23:20.240
We call it a load zone,
00:23:20.240 --> 00:23:23.997
but there's eight load zones
that we have within ERCOT
00:23:23.997 --> 00:23:26.453
that are these sort of averaged areas.
00:23:27.990 --> 00:23:30.150
In the middle there is the transmission
00:23:30.150 --> 00:23:31.830
and distribution side.
00:23:31.830 --> 00:23:33.100
That is, the transmission
00:23:33.100 --> 00:23:34.850
and distribution
equipment is really owned
00:23:34.850 --> 00:23:37.850
and operated by regulated utilities.
00:23:37.850 --> 00:23:40.140
And there's a
transmission cost of service
00:23:40.140 --> 00:23:42.190
that's allocated to load
that that provides some of
00:23:42.190 --> 00:23:43.843
that funding for transmission.
00:23:44.730 --> 00:23:48.840
And then on the far right
is we have the retail side
00:23:48.840 --> 00:23:52.430
and the majority of that is competitive
00:23:52.430 --> 00:23:53.610
with retailers competing
00:23:53.610 --> 00:23:56.280
to serve customers
through various products
00:23:56.280 --> 00:23:58.490
and things like that they would offer.
00:23:58.490 --> 00:24:01.230
But we also as well have
the municipally-owned utilities
00:24:01.230 --> 00:24:02.170
and electric cooperatives,
00:24:02.170 --> 00:24:04.993
that account for about a
quarter of the ERCOT market.
00:24:08.140 --> 00:24:10.847
On the next slide, talking
a little bit about more
00:24:10.847 --> 00:24:12.510
of the ERCOT market construct.
00:24:12.510 --> 00:24:15.640
So, a key component of
the ERCOT market is the fact
00:24:15.640 --> 00:24:17.300
that it's an energy only market
00:24:17.300 --> 00:24:21.120
and really a key focus
for us is scarcity pricing.
00:24:21.120 --> 00:24:22.770
So, pricing when things get tight,
00:24:22.770 --> 00:24:25.470
particularly for the realtime market.
00:24:25.470 --> 00:24:29.250
And that happens through
offers from the actual supply side,
00:24:29.250 --> 00:24:32.110
as well as a process I'll
talk a little bit more about,
00:24:32.110 --> 00:24:34.750
looking at, excuse me, the price adders
00:24:34.750 --> 00:24:37.200
to try and help us reflect
some of that scarcity.
00:24:38.230 --> 00:24:40.460
The general goal within
the market is for generators
00:24:40.460 --> 00:24:42.280
to self commit.
00:24:42.280 --> 00:24:45.870
However, to degree we
need to fill some gaps in,
00:24:45.870 --> 00:24:48.510
there is a process
through which we can do
00:24:48.510 --> 00:24:51.580
some residual reliability
commitments if needed.
00:24:51.580 --> 00:24:52.960
But again, the focus is to try
00:24:52.960 --> 00:24:55.420
to provide those
incentives for the supply
00:24:55.420 --> 00:24:57.000
to self-commit and come to the market
00:24:57.000 --> 00:24:59.713
without ERCOT necessarily
needing to take that action.
00:25:01.430 --> 00:25:03.200
We also have a day ahead market
00:25:03.200 --> 00:25:04.570
in addition to the realtime market.
00:25:04.570 --> 00:25:06.590
That market is voluntary.
00:25:06.590 --> 00:25:09.520
And that's where we really
procure the ancillary services
00:25:09.520 --> 00:25:11.940
that I'll talk about in
a little bit more detail.
00:25:11.940 --> 00:25:13.910
And we procure that along with energy
00:25:13.910 --> 00:25:15.990
and we co-optimize all
those things together,
00:25:15.990 --> 00:25:17.740
looking at all of the products
00:25:17.740 --> 00:25:20.140
that we're trying to
solve for in the day ahead.
00:25:21.490 --> 00:25:23.950
Within that, we have resources
submitting bids and offers
00:25:23.950 --> 00:25:26.290
to determine the right level of output.
00:25:26.290 --> 00:25:27.700
And we're trying to find,
00:25:27.700 --> 00:25:29.570
each five minutes when
we're running this market,
00:25:29.570 --> 00:25:32.540
trying to find, what is the
most economic way to try
00:25:32.540 --> 00:25:36.010
and serve the load that we
see on the system right now?
00:25:36.010 --> 00:25:38.030
And I guess, when I say resources here,
00:25:38.030 --> 00:25:39.330
I do mean it fairly broadly.
00:25:39.330 --> 00:25:41.480
So, we have our thermal
plants are part of that.
00:25:41.480 --> 00:25:42.980
We have our renewables,
00:25:42.980 --> 00:25:45.040
of course, now, we have energy storage,
00:25:45.040 --> 00:25:47.410
as well as starting to see some level
00:25:47.410 --> 00:25:49.480
of controllable load resources.
00:25:49.480 --> 00:25:52.783
So, actual load that has
quite a bit of functionality
00:25:52.783 --> 00:25:54.280
to be able to respond
00:25:54.280 --> 00:25:56.380
to these sort of five
minute instructions.
00:25:57.510 --> 00:25:59.440
And along with these
outputs that we're providing,
00:25:59.440 --> 00:26:01.240
every five minutes, we
actually also produce a price.
00:26:01.240 --> 00:26:03.730
And that's all those locational prices
00:26:03.730 --> 00:26:05.130
that I mentioned earlier.
00:26:07.750 --> 00:26:08.763
On the next slide,
00:26:10.200 --> 00:26:12.540
this is a graph I think you
probably have all seen before.
00:26:12.540 --> 00:26:15.277
This is just looking at the
installed capacity within ERCOT
00:26:15.277 --> 00:26:17.970
and how that's changed over time.
00:26:17.970 --> 00:26:21.030
Probably one of the key things
you'll notice is the increase
00:26:21.030 --> 00:26:22.970
in renewables during this timeframe.
00:26:22.970 --> 00:26:26.090
You see that in the
top in green with wind,
00:26:26.090 --> 00:26:29.110
that's kind of occurred
through this whole timeframe
00:26:29.110 --> 00:26:30.570
of about 20 years,
00:26:30.570 --> 00:26:33.270
as well as seeing
some increases in solar.
00:26:33.270 --> 00:26:35.020
And then I guess along with that,
00:26:35.020 --> 00:26:38.890
you have seen other changes
in the system in this timeframe.
00:26:38.890 --> 00:26:41.070
I guess probably most
pronounced is a decrease
00:26:41.070 --> 00:26:43.770
in the capacity from gas, steam,
00:26:43.770 --> 00:26:46.540
and actually some degree
in increase in the capacity
00:26:46.540 --> 00:26:48.140
from combined cycles.
00:26:48.140 --> 00:26:50.060
I guess there was also some changes.
00:26:50.060 --> 00:26:53.150
Over this time, it stayed, I
guess, relatively the same,
00:26:53.150 --> 00:26:56.900
but there was a uptick and
then a decrease in the capacity
00:26:56.900 --> 00:27:00.658
from coal between 2017 and 2018.
00:27:00.658 --> 00:27:03.550
And I think where this has
really sort of come into play
00:27:03.550 --> 00:27:06.230
when we think about the market design
00:27:06.230 --> 00:27:08.870
is specifically looking
at our reliability needs
00:27:08.870 --> 00:27:11.000
and some of our ancillary services
00:27:11.000 --> 00:27:14.050
and a lot of the
change in fuel mix is tied
00:27:14.050 --> 00:27:15.940
into our ancillary services
00:27:15.940 --> 00:27:17.500
and how we viewed them and discuss them
00:27:17.500 --> 00:27:19.133
over the last few years.
00:27:20.002 --> 00:27:22.605
Can we ask questions
during these slides?
00:27:22.605 --> 00:27:24.722
Yes, absolutely. If you'll?
00:27:24.722 --> 00:27:26.020
Yeah, sure.
00:27:26.020 --> 00:27:26.853
Okay.
00:27:26.853 --> 00:27:31.307
So, on that chart gas,
as of today, what mix,
00:27:33.010 --> 00:27:34.090
what portion of the mix
00:27:34.090 --> 00:27:37.680
of the fleet does gas constitute today?
00:27:37.680 --> 00:27:39.377
So, it is the
combination, I guess,
00:27:39.377 --> 00:27:41.277
of a few different categories up there.
00:27:41.277 --> 00:27:42.770
Right.
So they're broken up.
00:27:42.770 --> 00:27:45.490
They were broken
into the combined cycle,
00:27:45.490 --> 00:27:46.910
the gas steam units.
00:27:46.910 --> 00:27:50.400
So it's the turquoise color there,
00:27:50.400 --> 00:27:52.330
the darker blue, right above that,
00:27:52.330 --> 00:27:55.160
as well as the combustion turbines.
00:27:55.160 --> 00:27:59.110
And so in total, let's
see, that's about 51%,
00:27:59.110 --> 00:28:01.810
I would say if I add those
three categories together
00:28:01.810 --> 00:28:03.070
to look at gas broadly.
00:28:03.070 --> 00:28:04.168
Okay.
00:28:04.168 --> 00:28:08.520
So, just for the group,
PURA, Section 39.9044,
00:28:10.040 --> 00:28:12.877
coal for natural gas, subsection A,
00:28:12.877 --> 00:28:14.427
"It is the intent of the legislature
00:28:14.427 --> 00:28:17.557
"that 50% of the megawatts
of generating capacity installed
00:28:17.557 --> 00:28:21.727
"in this state after January
1, 2000, use natural gas.
00:28:21.727 --> 00:28:23.197
"To the extent permitted by law,
00:28:23.197 --> 00:28:24.837
"the Commission shall
establish a program
00:28:24.837 --> 00:28:28.057
"to encourage utilities to
comply with this section
00:28:28.057 --> 00:28:30.927
"by using natural gas
produced in this state
00:28:30.927 --> 00:28:33.137
"as the preferential fuel.
00:28:33.137 --> 00:28:36.027
"This section does not
apply to generating capacity
00:28:36.027 --> 00:28:38.590
"for renewable energy technologies."
00:28:38.590 --> 00:28:41.927
Subsection B, "The
Commission shall establish
00:28:41.927 --> 00:28:44.477
"a natural gas energy
credits trading program.
00:28:44.477 --> 00:28:47.077
"Any power generation
company, municipally owned utility,
00:28:47.077 --> 00:28:48.577
"or electric cooperative
00:28:48.577 --> 00:28:50.387
"that does not satisfy the requirements
00:28:50.387 --> 00:28:53.067
"of this Subsection A by directly owning
00:28:53.067 --> 00:28:56.087
"or purchasing capacity
using natural gas technologies
00:28:56.087 --> 00:28:59.197
"shall purchase sufficient
natural gas energy credits
00:28:59.197 --> 00:29:00.756
"to satisfy the requirements
00:29:00.756 --> 00:29:05.647
"by holding natural gas
energy credits in lieu of capacity
00:29:05.647 --> 00:29:08.550
"for natural gas energy technologies."
00:29:08.550 --> 00:29:11.850
So, you're telling me we are at 51%.
00:29:11.850 --> 00:29:12.870
Yes, so, that's the,
00:29:12.870 --> 00:29:14.320
and I guess maybe
it's helpful to clarify,
00:29:14.320 --> 00:29:16.140
this is the installed capacity.
00:29:16.140 --> 00:29:17.150
I know you also, I think,
00:29:17.150 --> 00:29:19.240
were talking a little bit
about the amount of energy.
00:29:19.240 --> 00:29:21.860
I don't have those numbers
here handy with me,
00:29:21.860 --> 00:29:23.410
but we can certainly
provide those as well.
00:29:23.410 --> 00:29:26.140
And those could be
potentially a little bit different.
00:29:26.140 --> 00:29:27.357
Great.
00:29:27.357 --> 00:29:30.270
Was that by
company or fleet-wide?
00:29:30.270 --> 00:29:31.560
It does not say.
00:29:31.560 --> 00:29:32.650
It's fleet-wide
00:29:32.650 --> 00:29:37.650
of 105,000 megawatts
total generating capacity
00:29:38.450 --> 00:29:40.900
in the state, rough, is that?
00:29:40.900 --> 00:29:42.003
Like nameplate.
00:29:42.980 --> 00:29:46.440
We're at 53,000 across all types of gas.
00:29:46.440 --> 00:29:49.480
So, point being, we're right at the.
00:29:49.480 --> 00:29:50.313
We're on the line.
00:29:50.313 --> 00:29:52.943
On the line of the
legislative intent.
00:29:55.650 --> 00:29:56.500
Good point, Will.
00:29:59.620 --> 00:30:03.950
And while we're speaking
about fleet makeup,
00:30:03.950 --> 00:30:08.250
when you say, you spoke about
how the prices are optimized,
00:30:08.250 --> 00:30:10.110
we got prices, just to be clear,
00:30:10.110 --> 00:30:13.670
we've got prices at the
node level that are then
00:30:13.670 --> 00:30:18.670
at the then kind of averaged
at the load zone level,
00:30:18.980 --> 00:30:21.340
which is what the public would
see on the ERCOT website
00:30:21.340 --> 00:30:23.540
as like, or the mobile app.
00:30:23.540 --> 00:30:28.540
I know the zones are there
20, hundreds, a hundred node,
00:30:30.120 --> 00:30:31.650
hundreds of nodes,
Yes.
00:30:31.650 --> 00:30:33.900
20, how many zones?
00:30:33.900 --> 00:30:35.421
There's really
only eight load zones
00:30:35.421 --> 00:30:36.670
that we have.
Eight load zones.
00:30:36.670 --> 00:30:40.870
But it's multiple
prices across locations
00:30:40.870 --> 00:30:44.460
that roll up into successively
smaller groupings.
00:30:44.460 --> 00:30:45.460
Is that accurate?
00:30:45.460 --> 00:30:46.331
Yes, sir.
00:30:46.331 --> 00:30:48.510
How we do the aggregations
and we do provide both on,
00:30:48.510 --> 00:30:51.090
sort of all of it available on
the, publicly on the website,
00:30:51.090 --> 00:30:53.250
Yes.
But the main focus tends
00:30:53.250 --> 00:30:55.520
to be those aggregations of prices
00:30:55.520 --> 00:30:57.220
into those average values.
00:30:57.220 --> 00:31:00.543
Okay. So the, I want to
make sure people understand.
00:31:00.543 --> 00:31:03.610
When you say, you're
optimizing these prices,
00:31:03.610 --> 00:31:05.470
you're, and every five minutes,
00:31:05.470 --> 00:31:10.470
you're optimizing for lowest
price for the consumer.
00:31:10.870 --> 00:31:11.890
At the same time, you've got
00:31:11.890 --> 00:31:16.510
to optimize for that
geographic location, right?
00:31:16.510 --> 00:31:17.530
A low price in one corner
00:31:17.530 --> 00:31:18.880
of the state doesn't mean it can help
00:31:18.880 --> 00:31:21.120
in another part, necessarily.
00:31:21.120 --> 00:31:23.640
And you're optimizing
for that moment in time.
00:31:23.640 --> 00:31:24.473
That's correct.
00:31:24.473 --> 00:31:26.660
And in fact, if you look at
the previous slide just here
00:31:26.660 --> 00:31:28.280
for a quick moment,
00:31:28.280 --> 00:31:30.410
this actually is a demonstration
of one of those cases
00:31:30.410 --> 00:31:32.580
where we've had some limitations
00:31:32.580 --> 00:31:34.730
in terms of transferring
power within the state.
00:31:34.730 --> 00:31:37.550
And so this is a contour map looking
00:31:37.550 --> 00:31:40.320
at how those prices vary
within those individual nodes.
00:31:40.320 --> 00:31:41.300
In this particular case,
00:31:41.300 --> 00:31:44.420
what you can see is we
actually had some higher prices
00:31:44.420 --> 00:31:46.730
in that far west portion of the state,
00:31:46.730 --> 00:31:48.610
where you see the blue color,
00:31:48.610 --> 00:31:49.730
that's where prices were lower,
00:31:49.730 --> 00:31:54.170
just based on not only trying
to find the least cost supply,
00:31:54.170 --> 00:31:56.490
but also recognizing
some of those limitations
00:31:56.490 --> 00:31:57.567
in transferring that power.
00:31:57.567 --> 00:31:59.120
And the
transmission constraints
00:31:59.120 --> 00:32:01.810
from where the power is
generated to where it's consumed.
00:32:01.810 --> 00:32:02.650
That's right.
And you said,
00:32:02.650 --> 00:32:04.910
on this one, you say it's generate,
00:32:04.910 --> 00:32:08.300
the goal is to have
generators self commit.
00:32:08.300 --> 00:32:09.550
Correct.
That means,
00:32:11.060 --> 00:32:13.720
in layman's terms,
00:32:13.720 --> 00:32:14.930
the price has got to be high enough
00:32:14.930 --> 00:32:17.650
for them to make money
running their generator
00:32:17.650 --> 00:32:19.060
at that moment in time.
00:32:19.060 --> 00:32:21.640
And at that point,
then they'll turn it on.
00:32:21.640 --> 00:32:22.473
Correct.
00:32:22.473 --> 00:32:24.300
Or they at least predict,
in the very near future,
00:32:24.300 --> 00:32:26.053
that price is going to be sufficient.
00:32:26.053 --> 00:32:26.950
Gotcha.
Right.
00:32:26.950 --> 00:32:28.270
That's the economic incentive.
00:32:28.270 --> 00:32:29.130
Right.
00:32:29.130 --> 00:32:29.963
Thanks.
00:32:31.080 --> 00:32:31.913
All right.
00:32:31.913 --> 00:32:33.970
If we can jump then to slide six,
00:32:33.970 --> 00:32:36.780
this is just seguing into
just giving a quick overview
00:32:36.780 --> 00:32:37.650
of ancillary services.
00:32:37.650 --> 00:32:40.850
I know that's going to a
little bit of a topic today,
00:32:40.850 --> 00:32:44.270
but I guess just to provide
a little bit of an introduction,
00:32:44.270 --> 00:32:46.457
the key thing to keep
in mind is that the load
00:32:46.457 --> 00:32:48.170
and generation that the supply
00:32:48.170 --> 00:32:49.870
and demand are constantly changing.
00:32:49.870 --> 00:32:54.000
And really, one of the
primary functions of the ISO is
00:32:54.000 --> 00:32:55.620
to do that rebalancing.
00:32:55.620 --> 00:32:59.120
And there's a variety of things
that cause that imbalance.
00:32:59.120 --> 00:33:02.510
There's just sort of the daily
load patterns of, you know,
00:33:02.510 --> 00:33:04.410
in the afternoons ACs are kicking on.
00:33:04.410 --> 00:33:06.440
So, people are consuming more energy.
00:33:06.440 --> 00:33:08.670
We have sort of
instantaneous load variations
00:33:08.670 --> 00:33:11.230
of people turning on
and off light switches.
00:33:11.230 --> 00:33:13.730
We have changes in
variable generation output,
00:33:13.730 --> 00:33:17.020
and we have things like a
generator tripping offline.
00:33:17.020 --> 00:33:19.180
So, all those things
create these imbalances
00:33:19.180 --> 00:33:20.660
between supply and demand
00:33:21.705 --> 00:33:24.650
and ancillary services
are really procured, again,
00:33:24.650 --> 00:33:27.640
primarily in the day ahead
market to help reserve that we,
00:33:27.640 --> 00:33:30.740
or help ensure that we
have sufficient extra capacity
00:33:30.740 --> 00:33:33.190
on the system, extra
headroom on supply, typically.
00:33:33.190 --> 00:33:36.180
Although we do have folks
on the demand side as well,
00:33:36.180 --> 00:33:40.120
who can help us deal with
trying to do this rebalancing,
00:33:40.120 --> 00:33:42.380
particularly when it may be to a level
00:33:42.380 --> 00:33:44.210
that we can't necessarily just cover it
00:33:44.210 --> 00:33:45.710
within the five minute market.
00:33:47.105 --> 00:33:49.770
And I guess I'll touch on the
three main types of service
00:33:49.770 --> 00:33:52.810
and describe them a little bit.
00:33:52.810 --> 00:33:54.770
First is regulation service.
00:33:54.770 --> 00:33:57.430
This is a really a service
that's intended for us to deal
00:33:57.430 --> 00:33:59.910
with very small second
to second changes.
00:33:59.910 --> 00:34:01.660
It's typically a very fast surface.
00:34:01.660 --> 00:34:05.170
So, it's something that we
deploy in the seconds timeframe.
00:34:05.170 --> 00:34:07.820
Responsive reserve
service is like regulation
00:34:07.820 --> 00:34:09.620
in the sense that it's very fast,
00:34:09.620 --> 00:34:12.900
but it's really intended to deal
with much bigger imbalances
00:34:12.900 --> 00:34:14.120
that we may see.
00:34:14.120 --> 00:34:16.000
So for example, that's
00:34:16.000 --> 00:34:19.390
that big generator tripping
offline causes a very quick,
00:34:19.390 --> 00:34:20.960
very significant imbalance,
00:34:20.960 --> 00:34:24.273
and that service helps
us recover from that.
00:34:25.380 --> 00:34:27.660
And then the third service
here is non-spin service.
00:34:27.660 --> 00:34:29.510
And this is really
more of a slow service.
00:34:29.510 --> 00:34:33.250
It's technically a 30 minute
ramp product that we have,
00:34:33.250 --> 00:34:36.390
and really not about solving
something exactly right now
00:34:36.390 --> 00:34:37.223
within the second.
00:34:37.223 --> 00:34:40.570
But I see something coming
up in the next 30 minutes,
00:34:40.570 --> 00:34:42.500
using the service to
help get prepared for that.
00:34:42.500 --> 00:34:44.240
So I see, for example,
00:34:44.240 --> 00:34:45.730
not right now, but in 30 minutes,
00:34:45.730 --> 00:34:49.890
I'm expecting to run
out of some capacity
00:34:49.890 --> 00:34:51.890
that I'm trying to maintain.
00:34:51.890 --> 00:34:56.230
So it in, or finish
up on this slide and I'll.
00:34:56.230 --> 00:34:58.170
Yeah, so, the only
thing I was gonna add
00:34:58.170 --> 00:35:01.720
to that is the sort of
design of these services
00:35:01.720 --> 00:35:03.840
and probably more
frequently, the quantity
00:35:03.840 --> 00:35:06.530
of these services is just sort
of an ongoing conversation
00:35:06.530 --> 00:35:08.969
that we have with the
market participants.
00:35:08.969 --> 00:35:11.490
In fact, looking at sort
of the methodology
00:35:11.490 --> 00:35:13.190
that we use to determine
the amounts is something
00:35:13.190 --> 00:35:15.120
that's reviewed at least annually,
00:35:15.120 --> 00:35:17.630
but can get updated
more frequently than that.
00:35:17.630 --> 00:35:22.630
So, to help me
translate into layman's terms,
00:35:23.610 --> 00:35:25.280
I'm going to say
layman's terms a lot today,
00:35:25.280 --> 00:35:27.050
I apologize in advance.
That's all right.
00:35:27.050 --> 00:35:29.040
The, so regulation service,
00:35:29.040 --> 00:35:31.300
that's something you can
turn on in four seconds.
00:35:31.300 --> 00:35:32.133
Right.
That version,
00:35:32.133 --> 00:35:33.990
the top version in the blue,
00:35:33.990 --> 00:35:38.880
that's as ACs turn on, or the sun sets,
00:35:38.880 --> 00:35:43.880
or just a quick imbalance
in between general,
00:35:45.510 --> 00:35:47.950
electricity produced and consumed.
00:35:47.950 --> 00:35:52.950
Responsive reserve service
is, was it a few minutes?
00:35:54.430 --> 00:35:56.240
It's actually also in
the order of seconds.
00:35:56.240 --> 00:35:57.960
It's order of seconds,
so that's bigger chunks,
00:35:57.960 --> 00:36:01.420
like a big industrial consumer turns on
00:36:01.420 --> 00:36:04.210
or transmission lines go down
00:36:04.210 --> 00:36:08.210
or some major disruption in the balance
00:36:08.210 --> 00:36:10.450
between electricity
generating consumers.
00:36:10.450 --> 00:36:11.710
Is that?
Right.
00:36:11.710 --> 00:36:15.245
A much larger disturbance
of some type has now put,
00:36:15.245 --> 00:36:18.560
it'd create a large imbalance
in that supply and demand.
00:36:18.560 --> 00:36:19.927
Like if a nuke
tripped, and that
00:36:19.927 --> 00:36:21.662
400 megawatts goes off,
Right.
00:36:21.662 --> 00:36:23.520
(snaps fingers)
They engage that.
00:36:23.520 --> 00:36:24.440
That's exactly right.
00:36:24.440 --> 00:36:26.779
So, it's still four
seconds but bigger chunks.
00:36:26.779 --> 00:36:28.250
And yeah, in fact,
and to some degree,
00:36:28.250 --> 00:36:30.560
it actually doesn't even
wait for an ERCOT signal.
00:36:30.560 --> 00:36:33.400
It actually senses that imbalance
00:36:33.400 --> 00:36:34.740
that we refer to as frequency,
00:36:34.740 --> 00:36:37.280
it will recognize that
decrease in frequency now
00:36:37.280 --> 00:36:39.620
that we, you know, demand
is outstripping supply
00:36:39.620 --> 00:36:40.467
by that significant amount.
00:36:40.467 --> 00:36:43.430
And it will automatically
kick in to help recover.
00:36:43.430 --> 00:36:44.910
But businesses that own
00:36:44.910 --> 00:36:49.010
these generating assets
have been paid in advance
00:36:49.010 --> 00:36:50.920
to make sure they're up and running?
00:36:50.920 --> 00:36:51.753
Correct.
00:36:51.753 --> 00:36:52.600
So, for all the services here,
00:36:52.600 --> 00:36:56.080
these are procured advanced
in the day ahead market
00:36:56.080 --> 00:36:58.130
for folks to be online and available.
00:36:58.130 --> 00:36:59.300
In the case of non-spin,
00:36:59.300 --> 00:37:01.340
folks are able to do that
from an offline status.
00:37:01.340 --> 00:37:03.250
They just have to be able
to start within 30 minutes,
00:37:03.250 --> 00:37:05.380
but in all cases to be on the ready
00:37:05.380 --> 00:37:07.150
to provide these services as needed.
00:37:07.150 --> 00:37:10.050
So, could you give us just
a quick overview on how that,
00:37:10.977 --> 00:37:12.420
I don't want it to sound crazy,
00:37:12.420 --> 00:37:14.210
but how that cash changes hands.
00:37:14.210 --> 00:37:16.010
like that's an independent business
00:37:16.010 --> 00:37:18.363
in the ERCOT
marketplace, the day before,
00:37:19.230 --> 00:37:23.850
I know some of the ancillary
services are looked at
00:37:23.850 --> 00:37:26.230
well in advance and anticipated,
00:37:26.230 --> 00:37:28.700
there's an anticipated amount
of how much will we need
00:37:28.700 --> 00:37:30.600
on a certain day at a certain time.
00:37:30.600 --> 00:37:33.020
How does, how do the gears turn
00:37:33.020 --> 00:37:37.240
on one, a business being identified
00:37:37.240 --> 00:37:39.550
as needing to provide responsive reserve
00:37:39.550 --> 00:37:41.700
or non-spin the day ahead?
00:37:41.700 --> 00:37:45.700
And how do those gears turn
and the transaction take place?
00:37:45.700 --> 00:37:46.533
Yeah, sure.
00:37:46.533 --> 00:37:48.700
So, typically, in our current design,
00:37:48.700 --> 00:37:50.080
we actually tell,
00:37:50.080 --> 00:37:52.620
we actually we post every
December how much we think
00:37:52.620 --> 00:37:54.390
we're going to need
for every hour of the day
00:37:54.390 --> 00:37:56.030
for the entire next year.
00:37:56.030 --> 00:37:57.370
So, that information is out there.
00:37:57.370 --> 00:37:59.010
It's technically a minimum amount,
00:37:59.010 --> 00:38:00.010
so, we can increase it
00:38:00.010 --> 00:38:02.083
if we see the reliability needs change,
00:38:02.083 --> 00:38:06.580
but that's when we make
people aware of the amount
00:38:06.580 --> 00:38:08.293
that we expect to need.
00:38:09.150 --> 00:38:11.420
And in terms of how those are paid for,
00:38:11.420 --> 00:38:12.440
I think that's kind of helpful place
00:38:12.440 --> 00:38:14.270
to start is those costs are going
00:38:14.270 --> 00:38:15.893
to be allocated to load based
00:38:15.893 --> 00:38:19.370
on how much they're consuming
relative to everyone else.
00:38:19.370 --> 00:38:24.150
And so, folks have to kind
of gauge, on the load side,
00:38:24.150 --> 00:38:26.630
an expectation of how much
they're going to consume
00:38:26.630 --> 00:38:29.380
to get a feel for what their portion
00:38:29.380 --> 00:38:32.660
of the total ancillary
service costs are going to be.
00:38:32.660 --> 00:38:35.603
Now, when we get to
the realtime, I'm sorry,
00:38:35.603 --> 00:38:38.520
into the day ahead market
where they're actually procured,
00:38:38.520 --> 00:38:41.240
ERCOT, sort of the optimization,
00:38:41.240 --> 00:38:44.450
is sort of clearing
it on behalf of load.
00:38:44.450 --> 00:38:46.120
So for example,
00:38:46.120 --> 00:38:48.469
we will tell within the day ahead market
00:38:48.469 --> 00:38:53.340
that we need 200 megawatts
of that regulation service.
00:38:53.340 --> 00:38:56.410
And we have a variety of
folks within the marketplace
00:38:56.410 --> 00:38:58.450
and again, it includes generation,
00:38:58.450 --> 00:39:01.690
in some cases, load for
some of these services as well
00:39:01.690 --> 00:39:06.010
that can bid in to supply them
within our day ahead market.
00:39:06.010 --> 00:39:07.750
And we will simply clear,
00:39:07.750 --> 00:39:09.910
again to try and find the
most cost-effective way
00:39:09.910 --> 00:39:11.210
to get those services,
00:39:11.210 --> 00:39:13.260
recognizing that we're
also solving for energy
00:39:13.260 --> 00:39:15.270
and other things as
well within the day ahead.
00:39:15.270 --> 00:39:17.890
So again, what does-
And ERCOT,
00:39:17.890 --> 00:39:20.420
says 200, we're going
to need 200 megawatts
00:39:20.420 --> 00:39:24.040
of the combination of non-spin,
00:39:24.040 --> 00:39:27.630
responsive, reserved,
et cetera for tomorrow.
00:39:27.630 --> 00:39:31.920
ERCOT cuts the deal,
for lack of a better term.
00:39:31.920 --> 00:39:35.150
And then those costs
to the lowest bidder
00:39:35.150 --> 00:39:38.770
or to the most optimal allocation
00:39:38.770 --> 00:39:42.180
of those 200 megawatts
price, geography, time.
00:39:42.180 --> 00:39:44.170
And then at a later point,
00:39:44.170 --> 00:39:47.060
those costs are allocated
to load based on the share.
00:39:47.060 --> 00:39:47.893
Correct.
00:39:47.893 --> 00:39:48.726
So, yeah, we will pay as part
00:39:48.726 --> 00:39:50.600
of just our day ahead market settlement,
00:39:50.600 --> 00:39:53.500
all the folks who were actually awarded,
00:39:53.500 --> 00:39:56.500
based on the actual
clearing of the day ahead.
00:39:56.500 --> 00:39:58.970
And then they have
now a really, this is,
00:39:58.970 --> 00:40:01.610
the damage is in financial in many ways
00:40:01.610 --> 00:40:02.810
as it relates to ancillary services,
00:40:02.810 --> 00:40:03.770
it's much more physical.
00:40:03.770 --> 00:40:04.883
So, there really is an expectation now
00:40:04.883 --> 00:40:07.170
that you have this responsibility
00:40:07.170 --> 00:40:08.810
and then you have
your plants on the ready
00:40:08.810 --> 00:40:09.643
to provide these services.
00:40:09.643 --> 00:40:11.343
All right. I appreciate it.
00:40:15.380 --> 00:40:16.800
All right, if we
go to the next slide,
00:40:16.800 --> 00:40:18.920
I mentioned that we have talked
00:40:18.920 --> 00:40:21.600
about these services over
time with the stakeholders,
00:40:21.600 --> 00:40:23.210
and there actually are
a couple of changes
00:40:23.210 --> 00:40:24.302
that are already underway.
00:40:24.302 --> 00:40:26.333
I just wanted to make
you all aware of them.
00:40:27.190 --> 00:40:29.940
These were actually done as
part of a change to the rules.
00:40:29.940 --> 00:40:33.190
It was Nodal Protocol
Revision Request 863.
00:40:33.190 --> 00:40:34.980
That was discussed for quite some time
00:40:34.980 --> 00:40:37.510
in the stakeholder process
a couple of years ago.
00:40:37.510 --> 00:40:40.160
And there were two main
concepts that were included
00:40:40.160 --> 00:40:41.673
in that change to the rules.
00:40:42.570 --> 00:40:43.950
First was the creation
00:40:43.950 --> 00:40:46.360
of something we call
fast frequency response.
00:40:46.360 --> 00:40:50.430
This is a subset of our existing
responsive reserve service.
00:40:50.430 --> 00:40:53.930
And really what makes
this unique is that it's fast,
00:40:53.930 --> 00:40:57.390
even faster potentially
than what we typically see
00:40:57.390 --> 00:40:59.630
with our response reserve product.
00:40:59.630 --> 00:41:01.870
But we only expect a sustained response
00:41:01.870 --> 00:41:02.990
for up to 15 minutes.
00:41:02.990 --> 00:41:04.620
So, all of our other services,
00:41:04.620 --> 00:41:07.660
we expect you to be able
to sustain it for a full hour.
00:41:07.660 --> 00:41:10.610
That is unique here, where
this service is very fast,
00:41:10.610 --> 00:41:13.070
but we only have
more of a time limitation
00:41:13.070 --> 00:41:14.520
on how long we can expect it.
00:41:16.310 --> 00:41:18.460
And then the third piece
is actually the creation
00:41:18.460 --> 00:41:19.790
of an entirely new service.
00:41:19.790 --> 00:41:22.440
We call it a ERCOT
Contingency Reserve Service,
00:41:22.440 --> 00:41:24.160
and this is much more like non-spin.
00:41:24.160 --> 00:41:26.920
It's not necessarily about
the exact second now,
00:41:26.920 --> 00:41:29.386
but a 10 minute ramp product
to help us kind of get ahead
00:41:29.386 --> 00:41:31.722
of things that we're predicting here
00:41:31.722 --> 00:41:33.440
in the very near future.
00:41:33.440 --> 00:41:34.790
So, this is
going to be outside
00:41:34.790 --> 00:41:37.070
of the three tier ancillary service?
00:41:37.070 --> 00:41:37.903
Correct.
00:41:37.903 --> 00:41:39.430
This actually would be
a fourth item on that list
00:41:39.430 --> 00:41:40.900
that is not included today.
00:41:40.900 --> 00:41:42.750
Okay.
So Dave,
00:41:42.750 --> 00:41:45.070
and for, you know, just
background purposes,
00:41:45.070 --> 00:41:46.860
I think what you were referring
00:41:46.860 --> 00:41:48.680
to earlier is ERCOT's evaluation
00:41:48.680 --> 00:41:51.000
of future ancillary services
00:41:51.000 --> 00:41:54.850
that ERCOT underwent a few years ago
00:41:54.850 --> 00:41:58.090
to try to identify what additional
new services were needed
00:41:59.620 --> 00:42:02.810
to address the resource
mix that's on the grid.
00:42:02.810 --> 00:42:04.450
So, more wind, maybe,
00:42:04.450 --> 00:42:05.910
at the time, I think just more wind.
00:42:05.910 --> 00:42:06.920
I think the proliferation
00:42:06.920 --> 00:42:08.750
of solar has just recently taken place,
00:42:08.750 --> 00:42:11.720
but that's how those two
new products came about
00:42:12.680 --> 00:42:13.810
out of a suite of products
00:42:13.810 --> 00:42:15.010
that were looked at at the time,
00:42:15.010 --> 00:42:17.650
through that feature
ancillary services evaluation.
00:42:17.650 --> 00:42:18.890
And so these products are,
00:42:18.890 --> 00:42:20.720
were born out of that evaluation
00:42:21.620 --> 00:42:24.610
and then I think, for
purposes of the public
00:42:24.610 --> 00:42:28.513
and my peers here, FFR,
00:42:29.660 --> 00:42:32.400
can you describe like what
kinds of resources would be able
00:42:32.400 --> 00:42:34.393
to provide those new products?
00:42:35.570 --> 00:42:37.940
Right, so, I think
one of the key areas
00:42:37.940 --> 00:42:40.500
that we see is energy
storage resources looking
00:42:40.500 --> 00:42:41.780
to participate in that.
00:42:41.780 --> 00:42:44.507
Again, they are able
to respond very quickly,
00:42:44.507 --> 00:42:46.590
but can have more duration limitations
00:42:46.590 --> 00:42:49.010
that are kind of unique
to that type of technology
00:42:49.010 --> 00:42:50.770
that may not exist
for other technologies.
00:42:50.770 --> 00:42:52.260
So, that was one of the things
00:42:52.260 --> 00:42:54.560
that certainly helped
open the door I think
00:42:54.560 --> 00:42:56.130
for participation from energy storage,
00:42:56.130 --> 00:42:58.430
specifically in the
ancillary services market.
00:42:59.400 --> 00:43:01.470
Although it is not
specifically only allowed
00:43:01.470 --> 00:43:02.303
for that type of technology,
00:43:02.303 --> 00:43:05.020
it is open for others
who are able to qualify.
00:43:05.020 --> 00:43:07.090
How far in advance, well,
00:43:07.090 --> 00:43:11.510
so, the details are still
being worked out on ECRS,
00:43:11.510 --> 00:43:12.840
or have you launched?
00:43:12.840 --> 00:43:13.673
I mean, is this?
00:43:13.673 --> 00:43:17.240
So, yeah, actually ECRS
has not been put in place yet.
00:43:17.240 --> 00:43:19.320
That was actually part
of our passport program.
00:43:19.320 --> 00:43:20.520
And so, I was-
Okay.
00:43:20.520 --> 00:43:21.353
Exactly when it's going
00:43:21.353 --> 00:43:23.630
to be delivered is still a
little bit under discussion.
00:43:23.630 --> 00:43:26.430
In terms of the
parameters of the discussion,
00:43:26.430 --> 00:43:30.560
when is the bid schedule on ECRS?
00:43:30.560 --> 00:43:31.730
What do you envision there?
00:43:31.730 --> 00:43:35.550
Because again, this is a
charge discharge type issue.
00:43:35.550 --> 00:43:38.440
So, what's the topics under discussion
00:43:38.440 --> 00:43:40.230
or the range of options
under discussion?
00:43:40.230 --> 00:43:41.273
So, I'm sorry. The
rules have been placed.
00:43:41.273 --> 00:43:43.480
We just have necessarily
put it into production,
00:43:43.480 --> 00:43:44.840
actually made the software changes.
00:43:44.840 --> 00:43:46.320
Similar to the other services,
00:43:46.320 --> 00:43:47.492
it'd be something that we would clear
00:43:47.492 --> 00:43:49.120
as part of our day ahead market.
00:43:49.120 --> 00:43:49.953
Okay.
00:43:52.290 --> 00:43:55.030
And so, what would
be an example of ECRS?
00:43:55.030 --> 00:43:56.678
Is that storage as well?
00:43:56.678 --> 00:43:59.520
Are there are other
examples for that product?
00:43:59.520 --> 00:44:01.183
Well, I guess maybe
the easiest example is
00:44:01.183 --> 00:44:02.780
that there are units out there
00:44:02.780 --> 00:44:04.890
that actually can start in 10 minutes,
00:44:04.890 --> 00:44:06.480
but right now there's not a separate,
00:44:06.480 --> 00:44:08.740
but it can be offline and
start up within 10 minutes,
00:44:08.740 --> 00:44:10.750
but there's not a
specific product for them.
00:44:10.750 --> 00:44:13.850
So, they would participate,
for example, in our non-spin,
00:44:13.850 --> 00:44:15.620
which is a 30 minute product
00:44:15.620 --> 00:44:18.070
and they actually could respond
quicker if we needed them.
00:44:18.070 --> 00:44:19.680
Would that be
like Quick Starts?
00:44:19.680 --> 00:44:21.090
Yeah. The Quick
Start resources, exactly.
00:44:21.090 --> 00:44:22.340
So, those combustion turbines.
00:44:22.340 --> 00:44:25.650
Economically, would it
allow for more discretion
00:44:25.650 --> 00:44:30.650
of pricing per, by response, right?
00:44:31.160 --> 00:44:33.110
Right,
Precise pricing.
00:44:33.110 --> 00:44:35.870
Yeah, I recognize I think
the even improved attribute
00:44:35.870 --> 00:44:37.573
of being able to ramp even more quickly
00:44:37.573 --> 00:44:38.553
than what we see with the 30 minutes.
00:44:38.553 --> 00:44:41.270
You get different economic
reward for ramp speed.
00:44:41.270 --> 00:44:42.920
Right, for that
flexibility in ramp.
00:44:42.920 --> 00:44:44.510
And that's really
important, I think,
00:44:44.510 --> 00:44:47.450
because as we have more
storage enter the market,
00:44:47.450 --> 00:44:50.780
you now have a new product
in the ancillary service market
00:44:50.780 --> 00:44:54.200
at ERCOT to allow them
participate in the market
00:44:54.200 --> 00:44:57.270
for variety of reasons,
as Dave explained,
00:44:57.270 --> 00:45:00.740
but also ECRS would
allow the Quick Starts,
00:45:00.740 --> 00:45:03.450
which would provide a
little bit more megawatts for-
00:45:03.450 --> 00:45:05.201
The peaking, peakers. Yeah.
00:45:05.201 --> 00:45:06.890
Yeah, the peakers
00:45:06.890 --> 00:45:09.870
to help with load
variability and reliability.
00:45:09.870 --> 00:45:12.000
So, thank you.
00:45:12.000 --> 00:45:13.730
Yeah, and of course, they
are able to participate now,
00:45:13.730 --> 00:45:15.880
but this just adds a new service
00:45:15.880 --> 00:45:19.393
to recognize their
unique attribute there.
00:45:19.393 --> 00:45:20.680
I just, in terms of the timing,
00:45:20.680 --> 00:45:22.730
we actually did
implement an initial phase
00:45:22.730 --> 00:45:25.390
of the fast frequency
response back in 20,
00:45:25.390 --> 00:45:26.683
I'm sorry, in early 2020.
00:45:27.520 --> 00:45:30.960
And we are improving on
that original implementation,
00:45:30.960 --> 00:45:33.270
not necessarily changing
the functionality too much,
00:45:33.270 --> 00:45:37.650
but trying to improve
the capabilities there,
00:45:37.650 --> 00:45:40.260
currently scheduled for
about the end of this year.
00:45:40.260 --> 00:45:42.610
And at least that's where
we have it right now.
00:45:43.750 --> 00:45:44.583
And as I mentioned,
00:45:44.583 --> 00:45:45.900
ECRS is still a little
bit under discussion
00:45:45.900 --> 00:45:48.450
in terms of when that will
actually be implemented.
00:45:51.100 --> 00:45:52.240
On the next slide,
00:45:52.240 --> 00:45:54.200
I wanted just to talk
to you all a little bit
00:45:54.200 --> 00:45:56.070
about the operating
reserve demand curve,
00:45:56.070 --> 00:45:58.340
probably something that
you've heard of quite a bit about,
00:45:58.340 --> 00:46:00.420
or already discussed,
00:46:00.420 --> 00:46:02.740
but just to provide a
little bit of history here.
00:46:02.740 --> 00:46:05.480
This was really a concept
that originally came out
00:46:05.480 --> 00:46:10.010
of a filing by GDF SUEZ
of a paper by Dr. Bill Hogan,
00:46:10.010 --> 00:46:12.490
all the way back in November, 2012.
00:46:12.490 --> 00:46:16.343
And it was actually part of a
Commission project 40000.
00:46:17.650 --> 00:46:20.680
And sort of after the
filing of this paper,
00:46:20.680 --> 00:46:22.730
there was a number of
meetings and discussions
00:46:22.730 --> 00:46:25.510
in the stakeholder
and at the Commission,
00:46:25.510 --> 00:46:27.450
all thinking about that project
00:46:27.450 --> 00:46:29.010
and really out of that paper
00:46:29.010 --> 00:46:31.730
and discussions is the ORDC concept
00:46:31.730 --> 00:46:34.010
that we have in effect today.
00:46:34.010 --> 00:46:37.790
It was originally implemented
back in June of 2014.
00:46:37.790 --> 00:46:39.977
There have been some changes, but,
00:46:39.977 --> 00:46:42.010
and I'll talk a little bit
that on the next slide,
00:46:42.010 --> 00:46:44.820
but broadly the concept
has stayed the same
00:46:44.820 --> 00:46:48.040
since that time in 2014.
00:46:48.040 --> 00:46:50.410
Now, the overall purpose of the ORDC is
00:46:50.410 --> 00:46:54.170
to really determine the
value of online reserves.
00:46:54.170 --> 00:46:56.550
So, the reserves that are
available to us right now,
00:46:56.550 --> 00:46:58.510
as well as the offline reserves,
00:46:58.510 --> 00:47:00.200
so things that are available,
00:47:00.200 --> 00:47:03.740
but may take some time
and trying to do that valuation
00:47:03.740 --> 00:47:07.170
and in realtime and factors
in sort of two key points
00:47:07.170 --> 00:47:10.180
of what is the current level of reserves
00:47:10.180 --> 00:47:12.450
and to what degree are
those reserves helping us
00:47:12.450 --> 00:47:15.540
prevent getting into an
emergency condition.
00:47:15.540 --> 00:47:17.290
And I'll talk a little bit
more on the next slide
00:47:17.290 --> 00:47:18.247
with the shape of the ORDC,
00:47:18.247 --> 00:47:21.060
you can kind of see
how that ends up looking
00:47:21.060 --> 00:47:22.733
in terms of pricing outcomes.
00:47:24.690 --> 00:47:26.073
Moving to the next slide,
00:47:27.580 --> 00:47:29.560
I have a few different ORDCs here.
00:47:29.560 --> 00:47:31.900
I'll kind of come back
to the changes over time,
00:47:31.900 --> 00:47:33.080
but these are all,
00:47:33.080 --> 00:47:35.800
all three kind of give you
a feel of the shape here.
00:47:35.800 --> 00:47:37.140
On the X axis,
00:47:37.140 --> 00:47:40.210
we have the available
reserves and on the Y axis,
00:47:40.210 --> 00:47:42.830
we have the value of those reserves.
00:47:42.830 --> 00:47:45.010
And as you can see, if
you go to the far right,
00:47:45.010 --> 00:47:47.290
when we have an abundant
amount of reserves,
00:47:47.290 --> 00:47:49.100
we're further away from emergency,
00:47:49.100 --> 00:47:50.550
we're less scarce on them.
00:47:50.550 --> 00:47:54.080
You see lower values
and lower prices for them.
00:47:54.080 --> 00:47:57.950
However, as the thing, as the
reserves become more scarce,
00:47:57.950 --> 00:48:00.888
as we get closer to potential
emergency conditions,
00:48:00.888 --> 00:48:03.050
we're looking to
strengthen that incentive
00:48:03.050 --> 00:48:04.170
that we have in the market,
00:48:04.170 --> 00:48:07.420
and you can see the price
increase fairly dramatically
00:48:07.420 --> 00:48:11.014
and fairly quickly up to
the current defined level
00:48:11.014 --> 00:48:13.750
of 2,000 megawatts,
at which case we put it
00:48:13.750 --> 00:48:17.310
at the maximum value
for the realtime prices.
00:48:17.310 --> 00:48:22.290
So on the Y axis, that
value of loss load is what?
00:48:22.290 --> 00:48:23.780
The value of
lost load is typically
00:48:23.780 --> 00:48:25.680
that $9,000 per megawatt hour
00:48:25.680 --> 00:48:28.580
or $9,000 per megawatt hour of value,
00:48:28.580 --> 00:48:30.740
it is currently with the L-CAP in effect
00:48:30.740 --> 00:48:32.570
at that $2,000 value.
$2,000. Got you.
00:48:32.570 --> 00:48:34.893
So in practice,
00:48:35.860 --> 00:48:39.650
the X axis we see here
are the available reserves.
00:48:39.650 --> 00:48:41.273
So, as that gets from,
00:48:42.140 --> 00:48:47.140
we've got 60,000
megawatt, just hypothetically,
00:48:47.360 --> 00:48:51.580
60,000 megawatts of
demand for electricity.
00:48:51.580 --> 00:48:55.223
And as the available supply
goes from 70,000 to 69,000,
00:48:57.553 --> 00:49:02.113
to 68,000, to 67,000
to 66,000, I guess this,
00:49:03.110 --> 00:49:04.050
for lack of a better term,
00:49:04.050 --> 00:49:09.000
the bonus payment to
be generating electricity.
00:49:09.000 --> 00:49:11.620
So, this only goes into play starting
00:49:11.620 --> 00:49:16.620
when you're down at
4,500-ish of extra reserves?
00:49:16.670 --> 00:49:18.317
Yeah, I mean, there
are some very minor prices
00:49:18.317 --> 00:49:21.610
that kind of go out to those
very high reserve levels,
00:49:21.610 --> 00:49:24.380
but they're very, they're
a very small component
00:49:24.380 --> 00:49:25.600
and to get down to,
00:49:25.600 --> 00:49:27.600
I forget exactly where they
get down to even just the penny,
00:49:27.600 --> 00:49:28.650
but yes.
Okay.
00:49:28.650 --> 00:49:30.750
So to get something meaningful, is the,
00:49:30.750 --> 00:49:33.920
is that a log scale on
the Y axis or is that linear?
00:49:33.920 --> 00:49:37.790
It's more of a,
it's a logarithmic scale.
00:49:37.790 --> 00:49:39.550
Okay (laughs).
Up until, of course,
00:49:39.550 --> 00:49:41.069
where you actually have
the sort of shelf there
00:49:41.069 --> 00:49:43.780
at the very far left.
Right. Okay.
00:49:43.780 --> 00:49:46.670
So, that's, the Y axis is a example,
00:49:46.670 --> 00:49:51.670
not a one-to-one dollar by
dollar, but so, I guess the,
00:49:52.120 --> 00:49:56.510
I think a key point of this is
00:49:56.510 --> 00:49:59.320
that the bonus payment doesn't kick in
00:49:59.320 --> 00:50:01.940
until, meaningful way,
until you've got say,
00:50:01.940 --> 00:50:04.770
35, 3,000 megawatts?
00:50:04.770 --> 00:50:05.633
I don't, you can tell me, I mean.
00:50:05.633 --> 00:50:07.560
I mean, I think even now,
00:50:07.560 --> 00:50:10.530
probably in the range of 4,000 or above,
00:50:10.530 --> 00:50:12.240
you do start to see,
00:50:12.240 --> 00:50:13.850
relative to what we would typically see
00:50:13.850 --> 00:50:15.280
in terms of the wholesale market prices,
00:50:15.280 --> 00:50:17.990
you start to see some
significant values.
00:50:17.990 --> 00:50:20.690
Certainly, those really
extreme type of ones
00:50:20.690 --> 00:50:23.030
in the thousands of
dollars occur really not
00:50:23.030 --> 00:50:25.280
until you get down
to that 4,000 or less.
00:50:25.280 --> 00:50:26.480
When, so from,
00:50:28.290 --> 00:50:31.283
so, to get the big bonuses
you got to be, you have,
00:50:32.380 --> 00:50:37.100
you've got to have less than
4,000 megawatts of extra supply
00:50:37.100 --> 00:50:39.740
of electricity over your demand.
00:50:39.740 --> 00:50:43.610
At what point of available
reserves do we start moving
00:50:43.610 --> 00:50:47.580
into advisories in emergency conditions?
00:50:47.580 --> 00:50:49.390
Yeah, and so there's
a little bit of distinction.
00:50:49.390 --> 00:50:50.900
This, I will say on the reserves here,
00:50:50.900 --> 00:50:54.543
it kind of looks more
generally at available capacity.
00:50:55.590 --> 00:50:56.930
When we look at emergency,
00:50:56.930 --> 00:50:58.450
it's based on a slightly
different measure,
00:50:58.450 --> 00:51:00.210
we call it physical
responsive capability.
00:51:00.210 --> 00:51:02.010
That's not only just capacity,
00:51:02.010 --> 00:51:04.370
but that it's frequency responsive.
00:51:04.370 --> 00:51:05.203
But within that,
00:51:05.203 --> 00:51:08.750
usually it's around 3,000
megawatts of that PRC,
00:51:08.750 --> 00:51:11.060
that physical responsive capacity value
00:51:11.060 --> 00:51:14.677
that we start doing things
like the advisories and all that.
00:51:14.677 --> 00:51:16.743
And it's down closer to, well,
00:51:16.743 --> 00:51:18.860
2,300 is when we actually start getting
00:51:18.860 --> 00:51:22.400
into those energy emergency
alert type of conditions,
00:51:22.400 --> 00:51:24.190
or at least the initial levels of it.
00:51:24.190 --> 00:51:25.023
Okay.
00:51:25.023 --> 00:51:27.500
So, you got to get pretty
close to the emergencies
00:51:27.500 --> 00:51:29.240
for the bonus payments to really kick in
00:51:29.240 --> 00:51:30.900
in a substantial way.
00:51:30.900 --> 00:51:31.733
Right, and it's, you know,
00:51:31.733 --> 00:51:33.580
and it's really then as we are
00:51:33.580 --> 00:51:35.700
between effectively levels one and two,
00:51:35.700 --> 00:51:37.510
that emergency energy alert
00:51:37.510 --> 00:51:40.500
that we actually see those
prices go to that maximum value.
00:51:40.500 --> 00:51:42.260
So, we're already in the emergency
00:51:42.260 --> 00:51:44.110
when prices go to that maximum value.
00:51:44.110 --> 00:51:46.492
To get to the
value of loss load.
00:51:46.492 --> 00:51:47.990
To get to that
value of loss load, yeah.
00:51:47.990 --> 00:51:48.823
Okay.
00:51:48.823 --> 00:51:53.430
And at that point you're,
for between the emergency,
00:51:53.430 --> 00:51:54.850
the first emergency condition
00:51:54.850 --> 00:51:56.640
and the second
emergency condition is when
00:51:56.640 --> 00:51:59.876
that really the prices
get to that point.
00:51:59.876 --> 00:52:01.610
That's where
that final step you see
00:52:01.610 --> 00:52:03.356
where it does finally
kick into that value
00:52:03.356 --> 00:52:04.700
of loss load, right.
Typically. Okay.
00:52:04.700 --> 00:52:07.550
And then at that point, if you're,
00:52:07.550 --> 00:52:08.893
once you get to,
00:52:10.160 --> 00:52:12.393
how far, I guess, at that point,
00:52:12.393 --> 00:52:14.870
when you get to the
second emergency condition,
00:52:14.870 --> 00:52:19.870
there's only three, how far
are you away from load shed?
00:52:20.060 --> 00:52:22.210
So the,
In terms of reserve.
00:52:22.210 --> 00:52:24.570
Right, so the,
I'll kind of equate,
00:52:24.570 --> 00:52:25.610
in this case, by the way,
00:52:25.610 --> 00:52:28.127
as you get close into emergency,
the number fairly converge.
00:52:28.127 --> 00:52:30.927
So, I can kind of use
directly the reserves here
00:52:30.927 --> 00:52:33.453
and that PRC value I was talking about.
00:52:34.450 --> 00:52:36.792
So, the value at which
we would typically have
00:52:36.792 --> 00:52:39.680
to start considering firm load shed,
00:52:39.680 --> 00:52:40.810
there's not an exact number,
00:52:40.810 --> 00:52:43.673
but it's between about
1,000 and I would say,
00:52:43.673 --> 00:52:46.770
1,200 megawatts of that PRC value
00:52:46.770 --> 00:52:48.160
that would be then when we would have
00:52:48.160 --> 00:52:51.290
to take that final step that we have.
00:52:51.290 --> 00:52:53.440
Okay, so if you're,
00:52:53.440 --> 00:52:54.580
those prices get up there
00:52:54.580 --> 00:52:57.350
when you're about 1,000
megawatts away from?
00:52:57.350 --> 00:52:58.183
Right, when
they're still, yeah.
00:52:58.183 --> 00:52:59.016
Firm load shed, okay.
00:52:59.016 --> 00:53:00.470
Thank you.
That's correct.
00:53:00.470 --> 00:53:04.020
So, Dave, just for
purposes of, you know,
00:53:04.020 --> 00:53:05.299
putting a little bit more
background on this,
00:53:05.299 --> 00:53:10.299
these years that you've
noted 2018, 2019, 2020,
00:53:11.290 --> 00:53:13.780
those are just, would those be, I guess,
00:53:13.780 --> 00:53:16.557
actions that were taken by the PUC
00:53:16.557 --> 00:53:20.130
to sort of make the slope steeper?
00:53:20.130 --> 00:53:23.080
Yeah.
Add more revenue
00:53:23.080 --> 00:53:25.350
to the market to incent
more generation build out?
00:53:25.350 --> 00:53:26.290
Yeah, that's exactly right.
00:53:26.290 --> 00:53:28.640
There was an action by the Commission
00:53:28.640 --> 00:53:32.150
in early 2019 to, one,
to strengthen the ORDC
00:53:32.150 --> 00:53:35.520
and the incentives that we
have in the realtime market.
00:53:35.520 --> 00:53:39.340
And so, what we're comparing
here is what the curve looked
00:53:39.340 --> 00:53:42.120
like between, during summer peak hours,
00:53:42.120 --> 00:53:46.550
looking at 2018 versus 2019 and 2020.
00:53:46.550 --> 00:53:49.490
And when the Commission
took those actions in 2019,
00:53:49.490 --> 00:53:52.230
they actually asked
for that strengthening
00:53:52.230 --> 00:53:53.670
to occur in two phases.
00:53:53.670 --> 00:53:57.784
And that's why you see a
difference between 2019 and 2020.
00:53:57.784 --> 00:54:00.760
So, the 2018 value
you can see, obviously,
00:54:00.760 --> 00:54:03.600
has the same sort of shape,
00:54:03.600 --> 00:54:05.880
but for the same level of reserves
00:54:05.880 --> 00:54:08.410
and all things being
equal, has the lowest prices.
00:54:08.410 --> 00:54:12.200
There was a effectively
a shift to the right for 2019
00:54:12.200 --> 00:54:14.803
and then an additional
shift to the right for 2020.
00:54:19.230 --> 00:54:23.240
Right. I'm now
recollecting all that.
00:54:23.240 --> 00:54:25.900
So can, so the value of loss load,
00:54:25.900 --> 00:54:27.400
you've described what that is.
00:54:28.770 --> 00:54:31.020
Can you describe the other
components of the ORDC?
00:54:31.020 --> 00:54:33.120
I know there's like
a standard deviation,
00:54:33.120 --> 00:54:33.953
and other components
00:54:33.953 --> 00:54:35.790
just for additional background purposes.
00:54:35.790 --> 00:54:37.140
Yeah, so, what
really drives the shape,
00:54:37.140 --> 00:54:38.700
and I talked about sort of the,
00:54:38.700 --> 00:54:41.060
one of the drivers being
how well it's keeping us
00:54:41.060 --> 00:54:44.760
from getting into an emergency
condition is we actually look
00:54:44.760 --> 00:54:49.760
at the equivalent of a probability
of going into emergency.
00:54:49.770 --> 00:54:50.800
So, we actually will look back
00:54:50.800 --> 00:54:53.440
and then what drives the
shape is historical analysis,
00:54:53.440 --> 00:54:57.010
looking at things like, effectively,
00:54:57.010 --> 00:55:00.180
the amount of reserves
we expected from one hour
00:55:00.180 --> 00:55:02.340
and how many we
actually got an hour later.
00:55:02.340 --> 00:55:04.670
So, there's a number of
things that factor into it.
00:55:04.670 --> 00:55:06.750
That could be a unit trip.
00:55:06.750 --> 00:55:08.790
That could be the load
was more than expected.
00:55:08.790 --> 00:55:12.430
That could be that renewables
were not forecasted correctly.
00:55:12.430 --> 00:55:15.700
Any of those things
lead to in different ways
00:55:15.700 --> 00:55:18.800
that forecast of reserves
not being accurate.
00:55:18.800 --> 00:55:21.870
And so, what really drives
this is looking back at,
00:55:21.870 --> 00:55:24.690
I think the full history we
have of the nodal market
00:55:24.690 --> 00:55:28.160
and saying, what was
the reserves we expected?
00:55:28.160 --> 00:55:29.370
As we were, you know,
00:55:29.370 --> 00:55:33.010
an hour or so before
the actual realtime market
00:55:33.010 --> 00:55:35.000
and what were the
actual reserves we got?
00:55:35.000 --> 00:55:37.330
And that probability
00:55:37.330 --> 00:55:40.280
and that air distribution is
what drives the shape here
00:55:40.280 --> 00:55:41.513
on the screen.
00:55:48.840 --> 00:55:49.673
Keep rolling.
00:55:49.673 --> 00:55:50.506
All right. Thank you.
00:55:50.506 --> 00:55:52.833
And I guess just one
last, I guess, topic,
00:55:54.160 --> 00:55:56.833
I guess, following the
implementation of the ORDC,
00:55:56.833 --> 00:56:00.100
there was still some concerns
related to scarcity pricing.
00:56:00.100 --> 00:56:02.560
And the particular concern was that,
00:56:02.560 --> 00:56:06.223
as we get close to emergency conditions,
00:56:07.440 --> 00:56:10.690
there are actions that
ERCOT will start to take
00:56:10.690 --> 00:56:12.580
as sort of defined within the rules
00:56:12.580 --> 00:56:14.730
to try to mitigate or prevent getting
00:56:14.730 --> 00:56:16.890
into those emergency conditions.
00:56:16.890 --> 00:56:19.740
And the problem that
folks saw is that these,
00:56:19.740 --> 00:56:22.030
some of these out of market
actions that we're taking
00:56:22.030 --> 00:56:24.900
for reliability purposes have the effect
00:56:24.900 --> 00:56:27.750
of suppressing prices
in the wholesale market,
00:56:27.750 --> 00:56:29.450
sort of at the exact wrong time, right?
00:56:29.450 --> 00:56:32.180
We're trying to incentivize
all the people in the market
00:56:32.180 --> 00:56:33.300
to be responding.
00:56:33.300 --> 00:56:34.480
And at the same time,
00:56:34.480 --> 00:56:35.870
if we're taking some of these actions,
00:56:35.870 --> 00:56:38.390
it's actually decreasing the
price that we see out there
00:56:38.390 --> 00:56:39.223
in the wholesale market.
00:56:39.223 --> 00:56:40.910
And when you
say taking actions,
00:56:40.910 --> 00:56:42.510
what do you mean by that?
00:56:42.510 --> 00:56:44.110
And actually,
I got a kind of a list
00:56:44.110 --> 00:56:45.630
of all the things we
include on the next slide,
00:56:45.630 --> 00:56:46.890
but it includes things, for example,
00:56:46.890 --> 00:56:49.500
of even ERCOT ordering one
00:56:49.500 --> 00:56:51.960
of those generators would be
online that wasn't planning to.
00:56:51.960 --> 00:56:53.900
So, that wasn't an economic decision.
00:56:53.900 --> 00:56:57.270
That was a reliability
decision by ERCOT to say,
00:56:57.270 --> 00:56:59.560
resource X, I want you to be online
00:56:59.560 --> 00:57:00.990
and operating during
this period of time.
00:57:00.990 --> 00:57:02.510
And that's RUC-ing?
00:57:02.510 --> 00:57:04.980
Yes, that's a reliable
unit commitment, or RUC.
00:57:04.980 --> 00:57:05.813
Okay.
00:57:07.440 --> 00:57:08.660
To mitigate
some of these impacts,
00:57:08.660 --> 00:57:11.180
we did an initial
implementation of what we call
00:57:11.180 --> 00:57:13.580
the reliability deployment
price adder process
00:57:13.580 --> 00:57:18.290
in really just a year after
ORDC in June, 2015.
00:57:18.290 --> 00:57:20.280
And the idea with this process is
00:57:20.280 --> 00:57:23.120
that we effectively run
the market a second time,
00:57:23.120 --> 00:57:25.440
where we've now
changed some of the inputs
00:57:25.440 --> 00:57:29.220
to try to offset these out
of market reliability actions
00:57:29.220 --> 00:57:30.770
that ERCOT has taken.
00:57:30.770 --> 00:57:33.500
And it's that, essentially
we run the market,
00:57:33.500 --> 00:57:36.940
use that for dispatch purposes
and then determine prices
00:57:36.940 --> 00:57:40.400
through this second
run to try to counteract
00:57:40.400 --> 00:57:43.833
or offset the pricing
effect of those actions.
00:57:45.355 --> 00:57:47.040
And I have a graph
here in a couple of slides
00:57:47.040 --> 00:57:48.530
that will sort of illustrate
what that looks like
00:57:48.530 --> 00:57:50.543
from just a day, a couple of weeks ago.
00:57:52.430 --> 00:57:54.430
On the next slide,
00:57:54.430 --> 00:57:56.330
this is actually is
the kind of the full list
00:57:56.330 --> 00:57:59.090
of actions sort of described broadly
00:57:59.090 --> 00:58:01.560
that we currently
account for in this process.
00:58:01.560 --> 00:58:03.040
One of them that we just talked
00:58:03.040 --> 00:58:05.220
about is reliable unit commitment.
00:58:05.220 --> 00:58:06.420
We have the deployment
00:58:06.420 --> 00:58:09.500
of load resources and
emergency response service.
00:58:09.500 --> 00:58:10.610
There are certain actions that
00:58:10.610 --> 00:58:13.330
if we start taking emergency
action at the DC ties,
00:58:13.330 --> 00:58:14.450
that will account for it,
00:58:14.450 --> 00:58:17.710
as well as something
called a block load transfers.
00:58:17.710 --> 00:58:19.310
And actually the newest
addition, of course,
00:58:19.310 --> 00:58:21.230
that we've been discussing
with you all a little bit in some
00:58:21.230 --> 00:58:24.040
of the open meetings is the
inclusion of firm load shed.
00:58:24.040 --> 00:58:28.000
So, that rule change was
actually approved by the board
00:58:28.000 --> 00:58:30.405
earlier this week, and it
has actually became effective
00:58:30.405 --> 00:58:31.750
at midnight this morning.
00:58:31.750 --> 00:58:34.600
So that, that's currently
in effect now as well.
00:58:34.600 --> 00:58:36.460
There are a couple of other items there
00:58:36.460 --> 00:58:39.320
that I mentioned that had been approved,
00:58:39.320 --> 00:58:41.260
but are pending software implementation.
00:58:41.260 --> 00:58:43.130
So, the rules have been written,
00:58:43.130 --> 00:58:46.123
but they're not necessarily
effective at this point in time.
00:58:48.060 --> 00:58:49.970
And then on the last
slide I have for you all,
00:58:49.970 --> 00:58:51.320
this is just a demonstration
00:58:51.320 --> 00:58:54.000
of what the deployment
price adder process looks like.
00:58:54.000 --> 00:58:56.780
This is prices, system-wide prices,
00:58:56.780 --> 00:58:57.900
over the course of the day
00:58:57.900 --> 00:59:00.880
from just a couple of
weeks ago on June 18th.
00:59:00.880 --> 00:59:02.440
And there's sort of three lines
00:59:02.440 --> 00:59:04.190
representing different prices here.
00:59:05.300 --> 00:59:06.880
The blue line, that's almost a little,
00:59:06.880 --> 00:59:09.540
a little hard to see
is the original price
00:59:09.540 --> 00:59:11.513
that came out of our dispatch run.
00:59:12.680 --> 00:59:14.593
Now, on this particular day,
00:59:14.593 --> 00:59:16.730
ERCOT had taken action
and we had done some
00:59:16.730 --> 00:59:18.240
of those reliability unit commitments
00:59:18.240 --> 00:59:19.700
and asked for some generators
00:59:19.700 --> 00:59:21.530
to be online during the afternoon
00:59:21.530 --> 00:59:25.000
from about a 1:00 to 5:00 PM.
00:59:25.000 --> 00:59:27.150
And when that happened,
00:59:27.150 --> 00:59:30.550
that triggered this execution
of this separate process
00:59:30.550 --> 00:59:32.560
to determine the price impacts
00:59:32.560 --> 00:59:35.100
now that we've taken
that out of market action
00:59:35.100 --> 00:59:39.310
and the delta, that that
impact is what's reflected there
00:59:39.310 --> 00:59:41.350
in that bottom line in gray.
00:59:41.350 --> 00:59:42.470
Now in general, on this day,
00:59:42.470 --> 00:59:44.490
the impact was relatively small.
00:59:44.490 --> 00:59:47.000
I think prices in
general were fairly mild
00:59:47.000 --> 00:59:48.667
in the wholesale market,
00:59:48.667 --> 00:59:50.540
but we did see a maximum impact
00:59:50.540 --> 00:59:53.050
of about $20 per megawatt hour.
00:59:53.050 --> 00:59:56.320
And it's that gray line
that's added to the blue
00:59:56.320 --> 00:59:58.860
that determines that final
price here on the graph.
00:59:58.860 --> 01:00:00.070
That's in green.
01:00:00.070 --> 01:00:01.220
And again, for most of the day,
01:00:01.220 --> 01:00:05.160
they're fairly similar, but
you do see some delta there,
01:00:05.160 --> 01:00:07.840
right in that afternoon time
where we did take that out
01:00:07.840 --> 01:00:10.370
of market action with
the unit commitment.
01:00:10.370 --> 01:00:13.870
So that's, this is a mechanism
01:00:13.870 --> 01:00:18.870
to compensate for when ERCOT
is concerned about reliability.
01:00:21.140 --> 01:00:26.140
It adds supply which offs,
01:00:27.770 --> 01:00:30.730
which cause, if there's, you
know, supply and demand,
01:00:30.730 --> 01:00:35.510
if you add more supply,
the price goes down,
01:00:35.510 --> 01:00:37.840
which caused a ripple effect.
01:00:37.840 --> 01:00:39.780
Well, if the price goes down,
01:00:39.780 --> 01:00:41.820
fewer people are
going to be incentivized
01:00:41.820 --> 01:00:42.787
to add more supply.
01:00:42.787 --> 01:00:45.170
And so, this is designed to offset that.
01:00:45.170 --> 01:00:46.700
Yeah, that's right.
01:00:46.700 --> 01:00:47.590
And I guess I'll say,
01:00:47.590 --> 01:00:49.570
the actions are not only adding supply.
01:00:49.570 --> 01:00:50.950
I think the unit,
01:00:50.950 --> 01:00:53.060
the reliability unit commitments
are the most common
01:00:53.060 --> 01:00:54.250
that we utilize.
01:00:54.250 --> 01:00:56.100
It could be actually
reductions in demand
01:00:56.100 --> 01:00:58.140
that ERCOT has asked for too.
01:00:58.140 --> 01:00:59.687
So it actually,
Sure.
01:00:59.687 --> 01:01:01.190
But the same logic applies.
01:01:01.190 --> 01:01:03.760
Where do those
ancillary services fit into,
01:01:03.760 --> 01:01:06.940
in the sequence of a
normal functioning market
01:01:06.940 --> 01:01:11.110
to calling ancillary
services, to RUC-ing a unit?
01:01:11.110 --> 01:01:12.770
So, in the case of
ancillary services,
01:01:12.770 --> 01:01:15.070
those are typically actually
deployed through the market.
01:01:15.070 --> 01:01:17.610
So they're not accounted for
within this particular process.
01:01:17.610 --> 01:01:20.680
This is really more
either, you know, again,
01:01:20.680 --> 01:01:22.290
that commitment by ERCOT
01:01:22.290 --> 01:01:25.220
from a unit that didn't
want it economically run
01:01:25.220 --> 01:01:26.740
or it's folks who, you know,
01:01:26.740 --> 01:01:29.230
for example, firm Lochet is
an example where, of course,
01:01:29.230 --> 01:01:30.990
those folks are not
directly participating
01:01:30.990 --> 01:01:31.920
in the wholesale market.
01:01:31.920 --> 01:01:33.920
And yet, we've asked for that action.
01:01:33.920 --> 01:01:35.080
So, those are the types of things
01:01:35.080 --> 01:01:36.510
that we account for in this process.
01:01:36.510 --> 01:01:37.956
In market versus out of market.
01:01:37.956 --> 01:01:39.206
That's right.
01:01:40.280 --> 01:01:41.113
Gotcha.
01:01:44.140 --> 01:01:44.973
All right. Thank you, Dave.
01:01:44.973 --> 01:01:46.480
Yep, and that's the
last slide I had for you.
01:01:46.480 --> 01:01:48.161
Thank you for the time.
01:01:48.161 --> 01:01:50.583
I appreciate you
fielding all those questions.
01:01:51.650 --> 01:01:52.905
Next up?
01:01:52.905 --> 01:01:55.363
Yes.
01:01:55.363 --> 01:01:56.645
Okay.
01:01:56.645 --> 01:01:57.562
Go ahead. Fire away, Carrie.
01:01:57.562 --> 01:01:58.395
Can you hear me?
01:01:58.395 --> 01:02:00.471
I can't tell if my microphone's on.
01:02:00.471 --> 01:02:01.317
Yes.
01:02:01.317 --> 01:02:02.150
Okay.
01:02:02.150 --> 01:02:05.810
Carrie Bivens, with the
Independent Market Monitor
01:02:05.810 --> 01:02:08.620
and Dave covered a lot of topics.
01:02:08.620 --> 01:02:10.920
So, I think I'm just going to
kind of dip in and out of some
01:02:10.920 --> 01:02:12.850
of the things that he talked about
01:02:12.850 --> 01:02:14.740
and expand upon it a little bit
01:02:14.740 --> 01:02:16.400
and then happy to take the questions
01:02:16.400 --> 01:02:17.750
that might arise from that.
01:02:18.980 --> 01:02:21.650
I just want to start
by talking a little bit
01:02:21.650 --> 01:02:24.240
about electricity markets in general.
01:02:24.240 --> 01:02:27.500
They're quite unique to other
types of commodity markets
01:02:27.500 --> 01:02:30.370
in that there's a vertical demand curve.
01:02:30.370 --> 01:02:32.960
Meaning, broadly speaking,
01:02:32.960 --> 01:02:36.550
the amount of energy that
you use does not change minute
01:02:36.550 --> 01:02:38.267
to minute based on what the price is.
01:02:38.267 --> 01:02:40.610
Everybody has kind of a fixed demand.
01:02:40.610 --> 01:02:44.120
And then you have to procure
generation to meet that demand.
01:02:44.120 --> 01:02:46.130
Of course, there's some
demand response, you know,
01:02:46.130 --> 01:02:47.360
around there, but broadly speaking,
01:02:47.360 --> 01:02:50.370
it's a vertical demand
curve, which is unique.
01:02:50.370 --> 01:02:54.610
And also, you know, electricity
cannot be stored, barring,
01:02:54.610 --> 01:02:56.740
you know, energy storage technologies
01:02:56.740 --> 01:02:57.650
that are coming on the market.
01:02:57.650 --> 01:02:58.780
But for the most part,
01:02:58.780 --> 01:03:00.540
you have to generate
exactly what you need
01:03:00.540 --> 01:03:02.930
at exactly the moment that you need it.
01:03:02.930 --> 01:03:07.650
So, these things combine
to create the LMP markets
01:03:07.650 --> 01:03:11.100
that we have today and in ERCOT,
01:03:11.100 --> 01:03:16.100
we start with a system price
we'll call system Lambda,
01:03:17.520 --> 01:03:18.930
and you'll see that a lot.
01:03:18.930 --> 01:03:21.310
And that is simply the constraint,
01:03:21.310 --> 01:03:24.530
the cost of the constraint
for meeting supply,
01:03:24.530 --> 01:03:27.740
meeting the demand
with the available supply.
01:03:27.740 --> 01:03:31.540
So, that's kind of just
your base energy price.
01:03:31.540 --> 01:03:33.110
That's what the generator costs
01:03:33.110 --> 01:03:37.100
or the marginal cost
of the marginal unit,
01:03:37.100 --> 01:03:40.510
short run marginal cost will
set that system Lambda price.
01:03:40.510 --> 01:03:43.080
And so, that's your
baseline energy price.
01:03:43.080 --> 01:03:46.110
On top of that, you're
adding this ORDC adder,
01:03:46.110 --> 01:03:48.710
if there is one, and on top of that,
01:03:48.710 --> 01:03:51.260
the reliability deployment
price adder, if you need,
01:03:51.260 --> 01:03:52.640
if there is one.
01:03:52.640 --> 01:03:54.760
And so those three
components will combine
01:03:54.760 --> 01:03:59.760
to create the total
system price at the time.
01:04:00.600 --> 01:04:03.350
Now, not only people,
01:04:03.350 --> 01:04:05.880
generators that are
generating get that price,
01:04:05.880 --> 01:04:07.600
they get those adders.
01:04:07.600 --> 01:04:11.610
Also, if you're online, but
maybe you're at your bottom,
01:04:11.610 --> 01:04:14.100
and you have plenty of room to move up,
01:04:14.100 --> 01:04:17.230
you actually get paid for
what we'll call that headroom.
01:04:17.230 --> 01:04:21.380
You'll get paid the ORDC
and the RDPA for that for,
01:04:21.380 --> 01:04:23.783
essentially, being
reserve on the system.
01:04:25.660 --> 01:04:28.540
And so, those two components come
01:04:28.540 --> 01:04:29.580
into play in different ways.
01:04:29.580 --> 01:04:31.890
They're paying generators
that are generating,
01:04:31.890 --> 01:04:33.220
they're also paying generators
01:04:33.220 --> 01:04:35.830
that are kind of online and available.
01:04:35.830 --> 01:04:36.670
Okay?
01:04:36.670 --> 01:04:40.580
And when we go to
realtime co-optimization,
01:04:40.580 --> 01:04:44.050
the ORDC component of this will go away
01:04:44.050 --> 01:04:46.210
because it's kind of replicating
01:04:46.210 --> 01:04:50.723
what a ancillary service
co-optimization would do.
01:04:53.520 --> 01:04:55.450
So, that's something
that's kind of an artifact
01:04:55.450 --> 01:04:57.420
of our current market design.
01:04:57.420 --> 01:04:58.993
That will change in the future.
01:04:59.900 --> 01:05:02.320
So, Carrie, not to
throw you off track,
01:05:02.320 --> 01:05:05.039
when RTC happens,
Yes.
01:05:05.039 --> 01:05:08.470
How do ancillary services
work under that construct?
01:05:08.470 --> 01:05:09.660
Yes.
01:05:09.660 --> 01:05:13.180
So, in realtime
co-optimization, there will be,
01:05:13.180 --> 01:05:15.920
it's similar to like the
day ahead market is now.
01:05:15.920 --> 01:05:20.920
You'll have demand
curves that are created
01:05:21.860 --> 01:05:23.240
for each ancillary service.
01:05:23.240 --> 01:05:25.410
So right now, where we say, you know,
01:05:25.410 --> 01:05:28.570
we want to procure this number
and it's just a fixed number.
01:05:28.570 --> 01:05:30.873
There'll actually be
curves that are created,
01:05:31.830 --> 01:05:34.500
that'll reflect the
value of each service.
01:05:34.500 --> 01:05:38.250
So, you know, regulation
is the most valuable service.
01:05:38.250 --> 01:05:41.660
You have to have that load
following every four seconds.
01:05:41.660 --> 01:05:44.630
The next most valuable is
your responsive reserve service,
01:05:44.630 --> 01:05:46.130
which is that frequency response
01:05:46.130 --> 01:05:47.790
when you have a unit trip,
01:05:47.790 --> 01:05:50.190
and also the 10 minutes
spinning reserves,
01:05:50.190 --> 01:05:51.250
and then you have non-spin,
01:05:51.250 --> 01:05:53.780
which is your least valuable service
01:05:53.780 --> 01:05:55.340
because it's that 30 minute service.
01:05:55.340 --> 01:05:58.000
And so, these demand curves
will have different shapes.
01:05:58.000 --> 01:06:00.470
And then you'll have
ancillary service offers
01:06:00.470 --> 01:06:02.170
from generators
01:06:02.170 --> 01:06:06.250
and you'll have the energy
offers from generators.
01:06:06.250 --> 01:06:08.260
And so, the realtime
cost optimization is going
01:06:08.260 --> 01:06:12.960
to take the optimal value of energy
01:06:12.960 --> 01:06:16.350
and ancillary services
every five minutes.
01:06:16.350 --> 01:06:18.310
And so, it's going to re, so right now,
01:06:18.310 --> 01:06:20.460
you're procuring in
the day ahead market.
01:06:20.460 --> 01:06:23.610
And you know, if you get
awarded 100 megawatts of RS,
01:06:23.610 --> 01:06:26.300
you're providing 100
megawatts of RS in realtime.
01:06:26.300 --> 01:06:29.640
In this, you could be,
it's a whole new market.
01:06:29.640 --> 01:06:32.640
So, every five minutes,
it'll be telling you,
01:06:32.640 --> 01:06:33.740
are you providing RS?
01:06:33.740 --> 01:06:35.210
Yes or no? How many megawatts?
01:06:35.210 --> 01:06:37.263
Yes or no, you know, 50, 10.
01:06:38.150 --> 01:06:41.440
It's constantly rebalancing
to reflect the fact
01:06:41.440 --> 01:06:44.280
that units are coming
offline and online,
01:06:44.280 --> 01:06:47.713
costs may change between
the day ahead and the realtime,
01:06:48.590 --> 01:06:50.360
and to get that most,
01:06:50.360 --> 01:06:54.450
the lowest cost ancillary
services for the entire market.
01:06:54.450 --> 01:06:57.403
So, is it fair to swap? It's
a mechanism of swapping?
01:06:58.310 --> 01:06:59.190
Yeah. Yeah.
01:06:59.190 --> 01:07:00.480
It's a trade-off, right?
01:07:00.480 --> 01:07:02.690
And so, I'll talk a little bit
about opportunity costs,
01:07:02.690 --> 01:07:04.740
but a lot of the,
01:07:04.740 --> 01:07:08.840
ancillary services are
primarily priced based
01:07:08.840 --> 01:07:10.800
on your opportunity costs.
01:07:10.800 --> 01:07:13.063
So, that's the cost that you have,
01:07:14.560 --> 01:07:17.930
if you're not providing
energy, you have to save it,
01:07:17.930 --> 01:07:20.260
then you're losing
out on the opportunity
01:07:20.260 --> 01:07:22.360
to get the energy price.
01:07:22.360 --> 01:07:24.210
So your ancillaries,
01:07:24.210 --> 01:07:25.660
you should be indifferent to whether
01:07:25.660 --> 01:07:27.900
or not you're providing
an ancillary service
01:07:27.900 --> 01:07:31.230
or an energy megawatt
01:07:31.230 --> 01:07:33.275
because ERCOT needs the reserves
01:07:33.275 --> 01:07:34.920
Currently.
And ERCOT needs the energy.
01:07:34.920 --> 01:07:36.710
And you, you know,
01:07:36.710 --> 01:07:39.050
you shouldn't prefer one or the other.
01:07:39.050 --> 01:07:40.220
Under the
current framework?
01:07:40.220 --> 01:07:41.300
I'm talking about RTC,
01:07:41.300 --> 01:07:43.630
but also in day ahead market today.
01:07:43.630 --> 01:07:47.250
In day ahead market
today, you're indifferent to,
01:07:47.250 --> 01:07:50.440
it co-optimizes, in the
realtime market right now,
01:07:50.440 --> 01:07:51.540
it does not co-optimize.
01:07:51.540 --> 01:07:53.540
It's a straight energy market.
Right.
01:07:53.540 --> 01:07:56.270
And you just have
this fixed requirement
01:07:56.270 --> 01:07:59.690
to provide the AS that you
were awarded the day before.
01:07:59.690 --> 01:08:03.320
And so, the reliability
deployment price adder
01:08:03.320 --> 01:08:05.270
in today's current market is intended
01:08:05.270 --> 01:08:07.310
to reflect the opportunity costs.
01:08:07.310 --> 01:08:08.143
Is that right?
01:08:08.143 --> 01:08:10.020
The headroom that holding,
The ORDC adder.
01:08:10.020 --> 01:08:10.853
Yeah, okay.
01:08:10.853 --> 01:08:14.290
The ORDC adder is intended
to reflect that probability
01:08:14.290 --> 01:08:17.290
that we're going to go
into emergency conditions.
01:08:17.290 --> 01:08:19.350
For ancillary service.
It's the value of reserves.
01:08:19.350 --> 01:08:21.860
And so, as the
conditions get tighter, it's,
01:08:21.860 --> 01:08:24.450
the reserves are more
valuable and the adder goes up.
01:08:24.450 --> 01:08:25.790
Right, but the,
01:08:25.790 --> 01:08:28.410
for ancillary services.
For ancillary,
01:08:28.410 --> 01:08:29.625
Is the other adder, right?
01:08:29.625 --> 01:08:32.593
In real TC, in
realtime co-optimization,
01:08:33.500 --> 01:08:35.407
they, AS will have its own prices
01:08:35.407 --> 01:08:37.730
and ORDC goes away completely.
01:08:37.730 --> 01:08:38.619
Right.
01:08:38.619 --> 01:08:41.780
I guess, I was trying to
sort of just kind of parse out,
01:08:41.780 --> 01:08:43.530
in today's current market,
Okay.
01:08:45.600 --> 01:08:47.180
You know, you get
paid the LMP price,
01:08:47.180 --> 01:08:48.500
and then the ORDC adder,
01:08:48.500 --> 01:08:50.520
during times of scarcity,
as you described,
01:08:50.520 --> 01:08:53.663
and then the reliability
deployment price adder,
01:08:54.740 --> 01:08:58.740
if you're providing
ancillary service or RUC
01:08:58.740 --> 01:09:01.023
or someone other out
of market action, right?
01:09:01.950 --> 01:09:04.890
So, in realtime co-optimization,
01:09:04.890 --> 01:09:08.167
all that will be baked
into one price, all in price.
01:09:08.167 --> 01:09:09.225
Theoretically.
01:09:09.225 --> 01:09:10.058
Theoretically.
01:09:10.058 --> 01:09:13.700
And so, I guess my point
that I was trying to make is that,
01:09:13.700 --> 01:09:16.290
kind of feeding off your
opportunity cost description was
01:09:16.290 --> 01:09:19.520
that that RDTPA's intended to reflect.
01:09:19.520 --> 01:09:21.780
Oh, the RDPA?
Yes.
01:09:21.780 --> 01:09:23.170
The, actually,
the RDPA is going
01:09:23.170 --> 01:09:25.930
to remain in realtime co-optimization.
01:09:25.930 --> 01:09:26.763
Okay.
'Cause we're still going
01:09:26.763 --> 01:09:28.270
to have our market actions.
01:09:28.270 --> 01:09:30.247
You're still going to have
reliability unit commitments.
01:09:30.247 --> 01:09:33.310
You'll still have emergency
response service deployments.
01:09:33.310 --> 01:09:34.710
You'll still have firm load shed.
01:09:34.710 --> 01:09:36.960
Those are still, you
know, theoretically,
01:09:36.960 --> 01:09:38.790
so, those are still things that you need
01:09:38.790 --> 01:09:41.570
to correct the price for to,
01:09:41.570 --> 01:09:43.980
so, there will still be
the second pricing run.
01:09:43.980 --> 01:09:46.870
The phenomena of
bringing more generation
01:09:46.870 --> 01:09:50.390
on for reliability will
That suppresses the price.
01:09:50.390 --> 01:09:52.310
Remove the economic incentive
01:09:52.310 --> 01:09:54.390
to bring more generation on.
01:09:54.390 --> 01:09:55.880
We just no longer
will need to try
01:09:55.880 --> 01:09:57.880
to price what the value of reserves are,
01:09:57.880 --> 01:09:59.040
because those will be contained
01:09:59.040 --> 01:10:01.510
within the ancillary services prices.
01:10:01.510 --> 01:10:02.343
Okay.
01:10:06.071 --> 01:10:07.930
Out of market actions,
we kind of talked about that.
01:10:07.930 --> 01:10:10.120
And so, total price is all three.
01:10:10.120 --> 01:10:11.350
Now, the opportunity cost.
01:10:11.350 --> 01:10:16.350
So, the day ahead market
today does co-optimize.
01:10:17.000 --> 01:10:21.880
And so, when there is no
realtime co-optimization now.
01:10:25.050 --> 01:10:29.470
And so, some of the ancillary
service prices have to be,
01:10:29.470 --> 01:10:31.400
people have to kind of price
01:10:31.400 --> 01:10:33.740
in what they think their
opportunity costs are going
01:10:33.740 --> 01:10:35.110
to be in realtime.
01:10:35.110 --> 01:10:37.320
And so, the market
construct is a little bit different
01:10:37.320 --> 01:10:38.820
than it will be in the future.
01:10:40.240 --> 01:10:41.160
It's really important,
01:10:41.160 --> 01:10:42.760
so, what's really important about this,
01:10:42.760 --> 01:10:47.130
the ORDC and the RDPA and
why you have these adders is that,
01:10:47.130 --> 01:10:52.130
you know, maybe only
15% of load is exposed
01:10:52.440 --> 01:10:57.440
to realtime prices in a
interval to interval basis.
01:10:58.230 --> 01:11:03.230
But the realtime prices
informs the forward markets
01:11:04.140 --> 01:11:08.000
and it disciplines everything
coming into the future.
01:11:08.000 --> 01:11:12.730
And so, even though a
small amount of the load,
01:11:12.730 --> 01:11:15.840
actually pays the realtime
price, the realtime price
01:11:15.840 --> 01:11:20.360
will govern what
people expectations are.
01:11:20.360 --> 01:11:23.280
The day ahead market
is based on expectations
01:11:23.280 --> 01:11:25.150
of what the realtime market is
01:11:25.150 --> 01:11:28.720
and the realtime prices being correct
01:11:28.720 --> 01:11:31.360
not only makes those
expectations correct.
01:11:31.360 --> 01:11:34.880
It is the short term
incentives of ensuring that,
01:11:34.880 --> 01:11:37.530
when prices are high,
you have generators on,
01:11:37.530 --> 01:11:41.730
and then also the longterm
investment decisions
01:11:41.730 --> 01:11:42.830
to enter the market
01:11:42.830 --> 01:11:46.530
or exit the market are based
on those realtime prices.
01:11:46.530 --> 01:11:47.810
So, making sure
01:11:47.810 --> 01:11:51.670
that the realtime price does
accurately reflect scarcity
01:11:51.670 --> 01:11:53.307
is important for making sure
01:11:53.307 --> 01:11:57.030
that you get the most
efficient investment decisions
01:11:57.030 --> 01:11:58.123
in the long-term.
01:12:02.530 --> 01:12:03.710
Yeah. I think I-
So, Carrie,
01:12:03.710 --> 01:12:06.920
back to that, the question
of all these adders.
01:12:06.920 --> 01:12:09.503
Yes.
So ultimately, that's not,
01:12:11.850 --> 01:12:15.540
that isn't as important
to the market as,
01:12:15.540 --> 01:12:19.540
I'm sorry, to resources
when considering investment
01:12:19.540 --> 01:12:22.890
as the realtime price formation.
01:12:22.890 --> 01:12:27.560
So, if there's a cost that
we look at, an evaluation,
01:12:27.560 --> 01:12:29.760
it is the accurate formation
01:12:29.760 --> 01:12:32.440
of that scarcity in the realtime price,
01:12:32.440 --> 01:12:34.560
not necessarily the adders?
01:12:34.560 --> 01:12:36.150
Does that kind of?
The adders are
01:12:36.150 --> 01:12:38.820
what helps create the total price,
01:12:38.820 --> 01:12:41.530
which is in scarcity
includes those adders.
01:12:41.530 --> 01:12:42.363
Okay.
01:12:42.363 --> 01:12:43.390
So when you say the realtime price,
01:12:43.390 --> 01:12:44.940
you're including the adders.
I'm including all of them.
01:12:44.940 --> 01:12:46.230
The total price, yes.
01:12:46.230 --> 01:12:47.730
Good clarification. Thank you.
01:12:49.440 --> 01:12:53.420
So, in the realtime market is, you know,
01:12:53.420 --> 01:12:57.430
natural gas is typically
the marginal fuel type.
01:12:57.430 --> 01:12:59.030
And so, it's typically
setting the price.
01:12:59.030 --> 01:13:01.410
So, those realtime prices will change
01:13:01.410 --> 01:13:03.010
with the natural gas prices.
01:13:03.010 --> 01:13:06.230
So, those are closely linked.
01:13:06.230 --> 01:13:08.210
Except when we do experience shortages
01:13:08.210 --> 01:13:10.140
and then they kind of become uncoupled
01:13:10.140 --> 01:13:12.690
because now your prices are not so much
01:13:12.690 --> 01:13:14.150
based on your marginal unit,
01:13:14.150 --> 01:13:15.710
but now they're based on
these scarcity questions.
01:13:15.710 --> 01:13:18.950
So, natural gas is
the marginal price driver
01:13:18.950 --> 01:13:22.430
for 51% of our generation.
01:13:22.430 --> 01:13:25.200
How do other sources
01:13:25.200 --> 01:13:27.370
that aren't based on natural gas impact
01:13:27.370 --> 01:13:28.917
the realtime end of day head price?
01:13:28.917 --> 01:13:32.000
So, the system
Lambda, the energy price,
01:13:32.000 --> 01:13:37.000
the base price without the
adders is set by everybody puts
01:13:37.140 --> 01:13:40.060
in their offers for their
short run marginal costs.
01:13:40.060 --> 01:13:44.720
And wherever that stack
of generators intersects
01:13:44.720 --> 01:13:46.450
with the amount of load,
01:13:46.450 --> 01:13:50.910
that generator sets the
price for all the generators
01:13:50.910 --> 01:13:51.907
that are online.
01:13:51.907 --> 01:13:54.323
And that tends to be a gas unit.
01:13:55.295 --> 01:13:56.420
Okay.
And it's short run
01:13:56.420 --> 01:14:00.573
marginal costs are, the
highest of those is your fuel cost.
01:14:01.710 --> 01:14:06.710
So, where, how do the
negative prices from renewables
01:14:06.880 --> 01:14:09.360
that we've heard so much
about factor into all this?
01:14:09.360 --> 01:14:10.857
Yeah, I'm mostly talking
about peak conditions.
01:14:10.857 --> 01:14:13.770
So, if you're talking about
two o'clock in the morning,
01:14:13.770 --> 01:14:15.130
the gas, there's probably,
01:14:15.130 --> 01:14:16.860
if there are any gas units online,
01:14:16.860 --> 01:14:18.490
they're at their low limit.
01:14:18.490 --> 01:14:20.060
And when units are at their low limit,
01:14:20.060 --> 01:14:21.830
they don't set the price.
01:14:21.830 --> 01:14:24.470
Okay, but there, but
everybody gets the same price
01:14:24.470 --> 01:14:25.388
every five minutes, right?
Everybody gets
01:14:25.388 --> 01:14:26.980
the same price every five minutes.
01:14:26.980 --> 01:14:29.360
So, in that framework,
at two in the morning,
01:14:29.360 --> 01:14:32.140
if a gas plant is at it's
lowest sustainable load,
01:14:32.140 --> 01:14:33.490
they've just got it,
01:14:33.490 --> 01:14:35.350
they've got it in the
lowest gear possible.
01:14:35.350 --> 01:14:36.590
Yes.
So it will be ready
01:14:36.590 --> 01:14:39.160
for the next afternoon.
01:14:39.160 --> 01:14:41.410
They don't get the marginal cost
01:14:41.410 --> 01:14:44.320
of the gas that they're consuming.
01:14:44.320 --> 01:14:47.700
They're getting the negative price costs
01:14:47.700 --> 01:14:50.940
of the renewables spinning, right?
01:14:50.940 --> 01:14:52.630
Yeah, so, they have
to decide whether or not,
01:14:52.630 --> 01:14:53.717
in that case, if you're
getting negative prices,
01:14:53.717 --> 01:14:55.867
that's a signal that
you should go offline.
01:14:56.760 --> 01:14:57.593
Okay.
01:14:57.593 --> 01:15:00.680
So, the current construct, at
two in the morning is saying,
01:15:00.680 --> 01:15:02.090
if at negative price?
01:15:02.090 --> 01:15:02.923
You're not needed.
01:15:02.923 --> 01:15:04.147
If your marginal cost is $30.
01:15:04.147 --> 01:15:06.670
And then, and the
price is negative eight,
01:15:06.670 --> 01:15:07.503
So that,
You're not needed.
01:15:07.503 --> 01:15:09.917
That generator, well,
01:15:09.917 --> 01:15:11.654
You're not needed.
I may not be needed
01:15:11.654 --> 01:15:13.351
at two in the morning.
At 2:00 AM in August.
01:15:13.351 --> 01:15:15.340
But if I've got an
18 hour ramp time
01:15:15.340 --> 01:15:16.210
and you need me at-
01:15:16.210 --> 01:15:19.750
Most gas units have much
faster start times than that.
01:15:19.750 --> 01:15:21.290
Okay, but that's saying,
01:15:21.290 --> 01:15:25.670
somebody waiting in
the, waiting to be ready.
01:15:25.670 --> 01:15:27.790
Yes.
And I guess most gas,
01:15:27.790 --> 01:15:32.220
most gas generators aren't
the ones we need in scarcity.
01:15:32.220 --> 01:15:33.400
Right?
01:15:33.400 --> 01:15:37.420
It's the ones that aren't
the fastest ramp time, right?
01:15:37.420 --> 01:15:39.000
When you need everybody.
01:15:39.000 --> 01:15:40.350
So, but just to be clear,
01:15:40.350 --> 01:15:42.450
the way the market clears right now,
01:15:42.450 --> 01:15:45.110
if you keep your gas unit on,
01:15:45.110 --> 01:15:49.600
at two in the morning at
like the lowest gear possible
01:15:49.600 --> 01:15:51.949
to be ready for the next
day, Yes.
01:15:51.949 --> 01:15:54.040
You have to pay a negative,
01:15:54.040 --> 01:15:58.620
a negative price means you're
paying $20 a megawatt just
01:15:58.620 --> 01:16:00.150
for the privilege of being on.
01:16:00.150 --> 01:16:02.460
If it's cheaper for
you to stay online
01:16:02.460 --> 01:16:05.100
and pay those negative prices
and not have to shut down
01:16:05.100 --> 01:16:06.718
and then start up again,
01:16:06.718 --> 01:16:09.720
you know, you'll have
to look over the entire,
01:16:09.720 --> 01:16:12.660
if you're online for
five days, you know,
01:16:12.660 --> 01:16:14.490
maybe one night you're in the negatives,
01:16:14.490 --> 01:16:17.700
but maybe your profit and
loss is going to be across
01:16:17.700 --> 01:16:19.030
that commitment timeframe.
01:16:19.030 --> 01:16:23.430
Okay, and then when we
do get into times of scarcity,
01:16:23.430 --> 01:16:26.970
like in the afternoon, you're offering,
01:16:26.970 --> 01:16:28.810
and the clearing is designed
01:16:28.810 --> 01:16:30.600
so that you're offering,
Yeah.
01:16:30.600 --> 01:16:32.703
The lowest possible price,
01:16:33.720 --> 01:16:35.233
To cover your costs.
01:16:35.233 --> 01:16:38.630
Because you, because
everybody gets the same price
01:16:38.630 --> 01:16:40.180
at the same time,
That's right.
01:16:40.180 --> 01:16:42.100
You don't care about trying
01:16:42.100 --> 01:16:44.070
to get a few dollars more per megawatt.
01:16:44.070 --> 01:16:48.480
You just want to make sure
your generator's called, right?
01:16:48.480 --> 01:16:51.280
And so, you're going to
offer the lowest possible price.
01:16:52.150 --> 01:16:53.910
If you, if you
try to offer more
01:16:53.910 --> 01:16:55.190
than your short run marginal cost
01:16:55.190 --> 01:16:56.700
in a competitive market, then yeah,
01:16:56.700 --> 01:16:57.720
you just won't get called.
01:16:57.720 --> 01:16:58.553
And so, everybody's
01:16:58.553 --> 01:16:59.699
incentives are to-
Well, it depends
01:16:59.699 --> 01:17:01.260
on the demand, right?
01:17:01.260 --> 01:17:04.460
Well, the demand is fixed.
Demand is vertical (laughs).
01:17:04.460 --> 01:17:07.280
Well, not between 2:00
AM and 4:00 PM. Right?
01:17:07.280 --> 01:17:08.480
Right, right, but.
01:17:08.480 --> 01:17:10.710
So if can guess, I mean,
01:17:10.710 --> 01:17:13.200
I'm sure all these
companies have predictions
01:17:13.200 --> 01:17:16.713
about what load and
load is going to look like.
01:17:17.655 --> 01:17:18.920
But then the question I'm getting at is,
01:17:18.920 --> 01:17:20.037
if you've got to pay a penalty to be on
01:17:20.037 --> 01:17:22.270
and be ready to go at night,
01:17:22.270 --> 01:17:24.880
and you're designed to not,
01:17:24.880 --> 01:17:27.216
it's designed to not
game the system, right?
01:17:27.216 --> 01:17:29.710
You want to, because
everybody gets the same price,
01:17:29.710 --> 01:17:32.600
you want to get everybody offering
01:17:32.600 --> 01:17:34.330
the lowest possible price, right?
01:17:34.330 --> 01:17:37.100
Because their only incentive
is to make sure they're called.
01:17:37.100 --> 01:17:41.200
And if they try to add another
five bucks to their offer,
01:17:41.200 --> 01:17:42.390
then they run the risk
They might lose out.
01:17:42.390 --> 01:17:44.200
Of not getting called
and they get no money,
01:17:44.200 --> 01:17:45.240
which is a feature.
01:17:45.240 --> 01:17:47.630
That's why all power
marketers use that, right?
01:17:47.630 --> 01:17:48.463
Yes.
01:17:48.463 --> 01:17:53.150
Where in, but where in this
framework are generators,
01:17:53.150 --> 01:17:55.150
where does the profit
and the economic incentive
01:17:55.150 --> 01:17:59.600
for these companies to
invest in new generators?
01:17:59.600 --> 01:18:02.170
Where is, I mean, these
are private businesses, right?
01:18:02.170 --> 01:18:03.003
Yeah.
01:18:03.003 --> 01:18:07.560
So, you might've heard
of the Peaker Net Margin
01:18:07.560 --> 01:18:09.770
as an estimation.
01:18:09.770 --> 01:18:13.070
So that's, I bring that up
01:18:13.070 --> 01:18:16.360
because it's a representation
01:18:16.360 --> 01:18:20.760
of how a plant might look at it.
01:18:20.760 --> 01:18:23.710
So, you're not going to make
a decision based on one day
01:18:23.710 --> 01:18:26.160
or one month or even
one year probably, right?
01:18:26.160 --> 01:18:27.093
You have to,
01:18:31.320 --> 01:18:33.180
as you run throughout the year,
01:18:33.180 --> 01:18:38.090
every time the clearing price
is above your marginal costs,
01:18:38.090 --> 01:18:41.290
that's profit to you that you
use to cover your fixed costs.
01:18:41.290 --> 01:18:44.170
And you're talking about
fixed costs of like being online
01:18:44.170 --> 01:18:46.530
when it, you know, you're
at your minimum level
01:18:46.530 --> 01:18:51.190
or other sort of capital costs.
01:18:51.190 --> 01:18:55.580
And over the longer timeframe is
01:18:55.580 --> 01:18:57.220
when you recover those costs.
01:18:57.220 --> 01:18:59.660
But in any given interval,
01:18:59.660 --> 01:19:01.427
you only offer your
short run marginal cost.
01:19:01.427 --> 01:19:02.950
And so, if your marginal,
01:19:02.950 --> 01:19:05.240
all you're covering is your
operations and maintenance,
01:19:05.240 --> 01:19:06.730
your fuel and whatnot.
01:19:06.730 --> 01:19:10.560
But every time somebody
is, gets selected above you,
01:19:10.560 --> 01:19:12.017
and you're going to
get that clearing price.
01:19:12.017 --> 01:19:13.740
Okay.
And those are the intervals
01:19:13.740 --> 01:19:15.990
in which you're recovering
all those other types of costs.
01:19:15.990 --> 01:19:17.430
So, I'm trying to
work through when we,
01:19:17.430 --> 01:19:20.450
the question we get is why
is there not more generation?
01:19:20.450 --> 01:19:21.283
Right?
01:19:21.283 --> 01:19:23.760
That's the kind of eternal
question we've heard all session.
01:19:25.870 --> 01:19:30.410
And what I'm trying to get
to is, how can we as a state,
01:19:30.410 --> 01:19:32.350
when we've got to find the
balance between reliability
01:19:32.350 --> 01:19:36.167
and affordability, what, where do we,
01:19:38.670 --> 01:19:40.390
and we have the very good point you made
01:19:40.390 --> 01:19:44.053
about the dispatchable
gas intent of in PURA.
01:19:45.150 --> 01:19:50.150
So, for a dispatchable
high, like low heat rate,
01:19:50.890 --> 01:19:54.030
super high, efficient
combined cycle gas plant
01:19:55.090 --> 01:19:58.023
that can offer a very low price, right?
01:19:59.060 --> 01:20:00.410
Like that's the hope, right?
01:20:00.410 --> 01:20:04.200
Like we want really efficient
dispatchable generation
01:20:04.200 --> 01:20:06.173
for the times when we really need it.
01:20:07.278 --> 01:20:09.840
The only time they can make a profit,
01:20:09.840 --> 01:20:14.470
if there's a less
efficient peaker out there
01:20:14.470 --> 01:20:15.310
that gets filled.
01:20:15.310 --> 01:20:17.840
And that's what moves the
price up to give them a profit.
01:20:17.840 --> 01:20:19.040
Is that right?
01:20:19.040 --> 01:20:21.750
Well, I mean, peaking
units have low capacity factor.
01:20:21.750 --> 01:20:23.349
So, if you're talking
about a peaking unit,
01:20:23.349 --> 01:20:25.190
that's a little different
from like a combined cycle.
01:20:25.190 --> 01:20:30.190
But if you're talking about
a, you know, simple cycle GT
01:20:32.020 --> 01:20:33.930
that's just, you know,
01:20:33.930 --> 01:20:35.970
those tend to be have high heat rates.
01:20:35.970 --> 01:20:37.370
So, they're expensive.
01:20:37.370 --> 01:20:38.203
Okay.
Right?
01:20:38.203 --> 01:20:39.300
Right, but I
guess just hypothetically,
01:20:39.300 --> 01:20:40.460
if the entire fleet
Okay.
01:20:40.460 --> 01:20:44.150
Was super efficient
combined cycle gas,
01:20:44.150 --> 01:20:45.480
just hypothetically.
Okay.
01:20:45.480 --> 01:20:48.740
And everybody's
marginal costs was $10.
01:20:48.740 --> 01:20:50.450
I'm making the numbers up.
Yeah.
01:20:50.450 --> 01:20:53.410
And the feature of
the market design is
01:20:53.410 --> 01:20:55.590
that nobody ever wants
01:20:55.590 --> 01:20:57.540
to offer more than exactly what it costs
01:20:57.540 --> 01:20:58.900
to make one more megawatt,
Yeah.
01:20:58.900 --> 01:21:02.080
Which is gas and
labor and, you know,
01:21:02.080 --> 01:21:04.097
whatever it costs that day, right?
01:21:05.609 --> 01:21:06.442
So, everybody would always get $10.
01:21:08.688 --> 01:21:12.630
Plus, yes, plus the ORDC
and the RDPA if there,
01:21:12.630 --> 01:21:15.750
if we are in scarcity or if
there is a reliability action.
01:21:15.750 --> 01:21:16.583
Okay.
So, there's
01:21:16.583 --> 01:21:18.380
So the,
Money on top of that
01:21:18.380 --> 01:21:19.230
if we're in scarcity.
01:21:19.230 --> 01:21:22.030
So, the idea is that, if
we're never in scarcity,
01:21:22.030 --> 01:21:24.390
that's a signal that we
don't need more generation.
01:21:24.390 --> 01:21:26.030
If we're frequently in scarcity,
01:21:26.030 --> 01:21:27.420
there's going to be a lot of revenue.
01:21:27.420 --> 01:21:29.680
And that's a signal that
we need more generation.
01:21:29.680 --> 01:21:31.790
So, the scarcity pricing provides
01:21:31.790 --> 01:21:34.290
those longterm investment signals.
01:21:34.290 --> 01:21:37.110
Okay, so, the more we,
01:21:37.110 --> 01:21:39.990
so, what I'm trying to
get to is like, what is the,
01:21:39.990 --> 01:21:44.990
how do we incentivize somebody
to invest a dollar, not only,
01:21:45.967 --> 01:21:49.973
and if it's a dollar designated
for additional generation,
01:21:51.420 --> 01:21:52.253
how do they,
01:21:52.253 --> 01:21:54.290
why do they choose to
invest in new generation
01:21:54.290 --> 01:21:56.060
instead of investing in real estate
01:21:56.060 --> 01:21:57.600
or any other asset class?
01:21:57.600 --> 01:21:59.900
And if they are going to
invest in generation, why do,
01:21:59.900 --> 01:22:00.760
how are we going to get them
01:22:00.760 --> 01:22:03.931
to choose Texas versus somebody else?
01:22:03.931 --> 01:22:08.931
And the crux of it seems to be,
01:22:09.150 --> 01:22:12.053
if the only way they can
make money is scarcity,
01:22:13.190 --> 01:22:15.713
what, like how do we
balance that intersection?
01:22:16.820 --> 01:22:19.720
Of reliability between profit?
01:22:19.720 --> 01:22:21.910
Yeah.
I mean, that's ultimately,
01:22:21.910 --> 01:22:23.310
It seems real tricky right now.
01:22:23.310 --> 01:22:25.070
It's tenuous, right, Carrie?
01:22:25.070 --> 01:22:26.870
I mean, that's the crux of it.
01:22:26.870 --> 01:22:28.730
And that, and you've argued this
01:22:28.730 --> 01:22:33.120
with the high value of
loss load, i.e the $9,000.
01:22:33.120 --> 01:22:35.170
And I would put, point out,
01:22:35.170 --> 01:22:37.650
you've got great charts showing,
01:22:37.650 --> 01:22:39.070
and I think Peaker Net Margin plays
01:22:39.070 --> 01:22:41.520
into your calculation on this,
01:22:41.520 --> 01:22:44.350
but the cost of new entry, the cone.
01:22:44.350 --> 01:22:47.573
And we've only hit
that once in 10 years.
01:22:47.573 --> 01:22:49.097
2019, mm-hmm.
01:22:49.097 --> 01:22:51.260
(laughs) And that was at $9,000
01:22:51.260 --> 01:22:52.198
for six hours?
That's cost of new entry
01:22:52.198 --> 01:22:56.120
for a brand new,
Combined cycle
01:22:56.120 --> 01:22:57.573
which is what he's,
Yep.
01:22:57.573 --> 01:22:58.870
What the chair's talking about.
01:22:58.870 --> 01:23:01.070
So, how do we normalize this?
01:23:01.070 --> 01:23:02.350
How do we reach?
01:23:02.350 --> 01:23:04.860
Yeah, so in an
energy only market,
01:23:04.860 --> 01:23:09.600
it's these realtime prices,
particularly in scarcity,
01:23:09.600 --> 01:23:12.090
they need to be properly formed
01:23:12.090 --> 01:23:13.530
so that those incentives exist.
01:23:13.530 --> 01:23:15.550
You also have the
ancillary services market.
01:23:15.550 --> 01:23:17.040
So, we can't ignore that,
01:23:17.040 --> 01:23:19.371
is that you also have the,
01:23:19.371 --> 01:23:21.320
and they're capacity products, right?
01:23:21.320 --> 01:23:23.910
And as long as you are
asking for the features
01:23:23.910 --> 01:23:27.530
that you need, and you're
providing this revenue stream,
01:23:27.530 --> 01:23:29.000
then you'll receive those features.
01:23:29.000 --> 01:23:32.590
I mean, I think what we're seeing is,
01:23:32.590 --> 01:23:36.960
based on the realtime
prices and the times of scarcity
01:23:36.960 --> 01:23:41.960
and the features of
our market is tending
01:23:42.180 --> 01:23:46.560
to incentivize things
like storage resources,
01:23:46.560 --> 01:23:50.300
because the fast frequency
response, for instance, is that,
01:23:50.300 --> 01:23:52.090
you know, it's signaling,
01:23:52.090 --> 01:23:55.530
we need resources that
can respond very quickly
01:23:55.530 --> 01:23:57.220
to renewable ramps, right?
01:23:57.220 --> 01:23:59.280
Or whatever other reason.
01:23:59.280 --> 01:24:03.170
And so, the market creates products
01:24:03.170 --> 01:24:07.860
that ask for exactly what
it needs and no more,
01:24:07.860 --> 01:24:12.250
and that provides the
investment signal to the market.
01:24:12.250 --> 01:24:13.580
So, if there's no,
01:24:13.580 --> 01:24:15.167
if the cost of new entry is not-
01:24:15.167 --> 01:24:16.900
What if it doesn't?
Mm-hmm.
01:24:16.900 --> 01:24:18.470
Saying new combined cycles,
01:24:18.470 --> 01:24:20.820
the answer may be, we don't
need new combined cycles.
01:24:20.820 --> 01:24:23.950
And I know that's not maybe
the most popular thing to say,
01:24:23.950 --> 01:24:26.807
but if you have a 15% reserve margin
01:24:26.807 --> 01:24:31.807
and the way that the prices
have been coming out are such
01:24:32.840 --> 01:24:37.840
that the fixed cost of those
are only getting recovered
01:24:39.990 --> 01:24:41.300
in certain years,
01:24:41.300 --> 01:24:44.040
that might be a signal
that we don't need them.
01:24:44.040 --> 01:24:47.270
And if that's not the
case, for policy reasons,
01:24:47.270 --> 01:24:49.950
then you have to make some
change to the realtime market
01:24:49.950 --> 01:24:53.170
because that's what our
realtime market is signaling.
01:24:53.170 --> 01:24:55.140
So I think, you know, the
chairman may, you know,
01:24:55.140 --> 01:24:57.120
is asking you obviously
very important questions,
01:24:57.120 --> 01:24:58.117
very, very important broad questions.
01:24:58.117 --> 01:25:02.563
I think when we look at this
with your larger questions,
01:25:02.563 --> 01:25:03.907
I think we have to recognize that,
01:25:03.907 --> 01:25:05.940
I think what Carrie saying is
01:25:05.940 --> 01:25:07.559
that we are an energy only market,
01:25:07.559 --> 01:25:10.050
and that's based on
scarcity price signals
01:25:10.050 --> 01:25:11.920
to incent generation.
01:25:11.920 --> 01:25:15.320
And there are only
certain knobs that we have
01:25:15.320 --> 01:25:17.393
in our current energy only market
01:25:17.393 --> 01:25:21.580
that we can turn to drive
those scarcity pricing signals
01:25:21.580 --> 01:25:26.410
at this time, like the
ORDC and these adders.
01:25:26.410 --> 01:25:30.380
And obviously, we have
the ancillary service market
01:25:30.380 --> 01:25:33.520
where we're looking at not
only the existing products,
01:25:33.520 --> 01:25:36.880
but new products that
will be put into service
01:25:36.880 --> 01:25:39.039
to drive certain investment,
like energy storage
01:25:39.039 --> 01:25:44.039
and the Quick Start generation unit.
01:25:44.090 --> 01:25:45.280
So, I think,
01:25:45.280 --> 01:25:47.410
we'll have to work with what we have now
01:25:47.410 --> 01:25:50.310
and evaluate other
mechanisms potentially
01:25:50.310 --> 01:25:53.304
to address some of
these broader questions.
01:25:53.304 --> 01:25:55.273
SB 3 has some
pretty big knobs in it.
01:25:56.210 --> 01:25:57.043
Yes.
01:25:58.950 --> 01:25:59.783
Levers.
01:26:00.630 --> 01:26:03.043
Another thing to consider,
01:26:04.710 --> 01:26:07.530
economic dispatch on transmission.
01:26:07.530 --> 01:26:10.360
That is at low bid as well.
01:26:10.360 --> 01:26:14.810
So, even when we're
considering battery discharge
01:26:16.790 --> 01:26:21.790
on transmission or a
solar, at some points,
01:26:21.840 --> 01:26:24.270
and depending on congestion constraints,
01:26:24.270 --> 01:26:25.700
again, it's the low bid.
01:26:25.700 --> 01:26:30.700
So, whoever is producing
at that lowest possible price.
01:26:31.690 --> 01:26:35.480
Is there a concern there for the purpose
01:26:35.480 --> 01:26:40.480
of drawing in resources that
ERCOT may otherwise need?
01:26:43.560 --> 01:26:48.040
Because again, a PTC wind megawatt
01:26:48.040 --> 01:26:50.610
versus a solar, you know,
01:26:50.610 --> 01:26:52.410
whatever they've recouped in ITC,
01:26:52.410 --> 01:26:57.160
but a solar, even zero
marginal cost megawatt,
01:26:57.160 --> 01:26:59.530
and then a battery megawatt,
01:26:59.530 --> 01:27:03.220
that wind is going to
crowd all that out for a time.
01:27:03.220 --> 01:27:05.510
But again, for frequency regulation,
01:27:05.510 --> 01:27:09.520
depending on what may pop
up as we move into the future,
01:27:09.520 --> 01:27:12.170
in terms of the engineering
requirements of the grid,
01:27:13.300 --> 01:27:15.640
do we need to look at that?
01:27:15.640 --> 01:27:19.573
So, let's talk about
transmission congestion.
01:27:20.860 --> 01:27:21.790
You know, it occurs
01:27:21.790 --> 01:27:23.740
when you can't use
the cheapest generation
01:27:23.740 --> 01:27:24.607
to serve your load.
01:27:24.607 --> 01:27:25.440
Right.
01:27:25.440 --> 01:27:26.480
Because there's some
problem, you know,
01:27:26.480 --> 01:27:31.010
there's some transmission
line that's full, let's say.
01:27:31.010 --> 01:27:35.033
And so, or group of
them, in the case of GTCs.
01:27:36.910 --> 01:27:41.200
Those prices will go
down and that's a signal
01:27:41.200 --> 01:27:45.553
to either stop building
there or for some,
01:27:46.930 --> 01:27:48.270
it can be a signal,
01:27:48.270 --> 01:27:50.420
because a lot of the times
when we have low prices,
01:27:50.420 --> 01:27:52.280
in some hours, we
have high prices in others
01:27:52.280 --> 01:27:53.440
in the very same regions,
01:27:53.440 --> 01:27:56.793
because it does tend to be
correlated with the renewables.
01:27:57.830 --> 01:28:02.010
And those price signals
are very important
01:28:02.010 --> 01:28:05.158
to drive the decisions
that need to be made
01:28:05.158 --> 01:28:06.860
as to the location.
01:28:06.860 --> 01:28:08.760
So now, we're not talking
about capacity anymore.
01:28:08.760 --> 01:28:11.420
We're talking about where
should the capacity be located?
01:28:11.420 --> 01:28:13.640
So, to the extent
somebody is looking to build,
01:28:13.640 --> 01:28:15.050
put new steel in the ground,
01:28:15.050 --> 01:28:17.330
those locational prices are going to,
01:28:17.330 --> 01:28:19.870
on the other side of the
constraint, the price is high.
01:28:19.870 --> 01:28:21.770
And it's going to tell you,
01:28:21.770 --> 01:28:24.313
locate here to resolve this congestion.
01:28:26.190 --> 01:28:27.050
So that's, those are,
01:28:27.050 --> 01:28:30.950
those pricing signals
are there specifically
01:28:30.950 --> 01:28:33.950
to resolve the congestion.
01:28:33.950 --> 01:28:35.630
So, in realtime dispatch,
01:28:35.630 --> 01:28:38.670
the realtime market
needs to, minute by minute,
01:28:38.670 --> 01:28:39.900
resolve that congestion
01:28:39.900 --> 01:28:42.200
and ensure that the
line doesn't burn down.
01:28:42.200 --> 01:28:43.640
But from a long-term perspective,
01:28:43.640 --> 01:28:46.980
that's also telling you where
in the state to put those,
01:28:46.980 --> 01:28:48.570
you know, and it tends to be like,
01:28:48.570 --> 01:28:51.237
you know, near load centers or,
01:28:51.237 --> 01:28:53.430
you know, in weaker parts of the system
01:28:53.430 --> 01:28:55.843
when it comes to transmission build out.
01:28:58.816 --> 01:28:59.649
Okay.
01:29:00.880 --> 01:29:04.500
Yeah, and where I go with
that is, as variability increases,
01:29:04.500 --> 01:29:06.600
again, as the resources that are coming
01:29:06.600 --> 01:29:08.550
into the market increases,
01:29:08.550 --> 01:29:12.140
and ERCOT has considerations
01:29:12.140 --> 01:29:14.320
that are just not price dependent,
01:29:14.320 --> 01:29:17.590
but they're based on
engineering analysis
01:29:17.590 --> 01:29:20.960
on what these resources
may or may not be doing
01:29:20.960 --> 01:29:23.940
to the transmission system
within those given areas,
01:29:23.940 --> 01:29:27.300
or within those key
links, those substations,
01:29:27.300 --> 01:29:31.343
those choke points, as you point out,
01:29:33.050 --> 01:29:37.420
do we need to re-look
at how that is priced
01:29:37.420 --> 01:29:40.330
in order to send the
right reliability signals?
01:29:40.330 --> 01:29:41.730
It's not just an economic signal,
01:29:41.730 --> 01:29:42.563
it's a reliability signal
01:29:42.563 --> 01:29:44.090
at that point, and again,
Well, I think-
01:29:44.090 --> 01:29:45.410
We're dealing with a commodity
01:29:45.410 --> 01:29:46.440
that moves at the speed of light.
01:29:46.440 --> 01:29:49.850
So do we, can we pair those two?
01:29:49.850 --> 01:29:52.570
I would say that's a function
of the planning function.
01:29:52.570 --> 01:29:55.360
Yeah.
Because I wouldn't want, I,
01:29:55.360 --> 01:29:56.970
those pricing rules are important.
01:29:56.970 --> 01:29:58.510
I wouldn't want to dampen them.
01:29:58.510 --> 01:29:59.860
Right.
Because they do
01:30:01.170 --> 01:30:04.080
make more efficient market overall.
01:30:04.080 --> 01:30:05.960
And if we were to
dampen those price signals,
01:30:05.960 --> 01:30:09.030
then you would get build
out where it doesn't belong.
01:30:09.030 --> 01:30:11.200
You would make the
problems worse, right?
01:30:11.200 --> 01:30:14.480
Those price signals are
supporting the reliability need.
01:30:14.480 --> 01:30:16.530
Now, if you need to do something else,
01:30:16.530 --> 01:30:18.210
then that's where the planning comes in,
01:30:18.210 --> 01:30:20.820
whether there's economic criteria
01:30:20.820 --> 01:30:22.390
for building known transmission line,
01:30:22.390 --> 01:30:23.680
there's a reliability criteria
01:30:23.680 --> 01:30:24.513
for building new transmission line.
01:30:24.513 --> 01:30:25.440
Right.
But if the,
01:30:25.440 --> 01:30:30.440
if the congestion costs are so high,
01:30:30.670 --> 01:30:35.670
that it might meet some
economic planning criteria
01:30:35.920 --> 01:30:38.190
on the planning side to
resolve that congestion
01:30:38.190 --> 01:30:41.450
and unlock some of that
lower cost generation.
01:30:41.450 --> 01:30:43.400
Okay.
Oh and I believe we're going
01:30:43.400 --> 01:30:45.390
to be looking at
Right.
01:30:45.390 --> 01:30:47.140
The new transmission criteria.
01:30:47.140 --> 01:30:47.977
And I think it's really just the,
01:30:47.977 --> 01:30:50.863
you know, the overall balance is policy,
01:30:52.980 --> 01:30:57.037
balance between building more
transmission versus trying to,
01:30:57.037 --> 01:31:00.210
you know, signal for
generation build out.
01:31:00.210 --> 01:31:02.480
Sure.
And how they hold.
01:31:02.480 --> 01:31:03.450
Crux, right?
Yeah.
01:31:03.450 --> 01:31:05.400
My point was, is that,
01:31:05.400 --> 01:31:07.950
and I think we've all
three heard from ERCOT is
01:31:07.950 --> 01:31:10.433
that we're going to have
a lot of new technology,
01:31:11.530 --> 01:31:14.480
new data from this
technology over the next year,
01:31:14.480 --> 01:31:16.330
that we'll be able to
evaluate how the batteries,
01:31:16.330 --> 01:31:20.000
how that 1,000 megawatts
of batteries are interacting.
01:31:20.000 --> 01:31:24.660
And again, just with the
increased concentration
01:31:24.660 --> 01:31:28.900
of intermittence in certain
areas, how that interacts?
01:31:28.900 --> 01:31:32.010
And I knew that there were
complaints from certain resources
01:31:32.010 --> 01:31:34.650
that they weren't even able
to get on the grid, you know,
01:31:34.650 --> 01:31:36.130
on the lines at certain locations,
01:31:36.130 --> 01:31:38.200
because they were never
going to be the low bid
01:31:38.200 --> 01:31:40.550
because of the nature of the
other resources in the area.
01:31:40.550 --> 01:31:42.890
So, it sort of hemmed that in,
01:31:42.890 --> 01:31:45.693
in terms of what type of
resources located where.
01:31:47.454 --> 01:31:48.980
Yeah, we certainly
heard about, I think,
01:31:48.980 --> 01:31:52.610
some trapped generation
in the valley potentially.
01:31:52.610 --> 01:31:53.850
Yep.
01:31:53.850 --> 01:31:56.370
So, that was part of
the GTC discussion.
01:31:56.370 --> 01:31:58.350
So, there are a variety
of different angles
01:31:58.350 --> 01:31:59.847
to look at this issue (laughs).
01:32:00.830 --> 01:32:02.180
All right. Keep going, Carrie.
01:32:02.180 --> 01:32:03.730
I know JC's been waiting patiently.
01:32:03.730 --> 01:32:04.926
So, we're trying.
No, I know it.
01:32:04.926 --> 01:32:06.003
That's all right.
That's why I'm thinking
01:32:06.003 --> 01:32:07.613
I'm taking too much time.
01:32:07.613 --> 01:32:10.670
It's perfect layout
though, 'cause.
01:32:10.670 --> 01:32:12.210
I'll just mention
one more thing.
01:32:12.210 --> 01:32:14.040
I think, going back to
the ancillary services,
01:32:14.040 --> 01:32:16.000
because I know that's a big topic
01:32:16.000 --> 01:32:18.220
that I think it's a little bit detailed,
01:32:18.220 --> 01:32:20.310
but to get into just thinking
01:32:20.310 --> 01:32:23.540
about these ancillary
services, when they're deployed,
01:32:23.540 --> 01:32:25.890
also have impacts on the market.
01:32:25.890 --> 01:32:27.750
And so, it's something to keep in mind
01:32:27.750 --> 01:32:30.810
as we're pulling certain
levers on the ancillary services
01:32:30.810 --> 01:32:33.033
that they also affect the energy prices.
01:32:34.050 --> 01:32:36.710
So, like regulation, not necessarily
01:32:36.710 --> 01:32:39.550
because regulation kind of
happens between the market.
01:32:39.550 --> 01:32:43.780
So the, it doesn't have
as much of an impact,
01:32:43.780 --> 01:32:47.213
but if you're looking at the
responsive reserve service,
01:32:48.560 --> 01:32:52.130
you know, the more of that
gets reserved and the mark,
01:32:52.130 --> 01:32:55.700
the realtime market cannot
access it, that capacity,
01:32:55.700 --> 01:32:57.930
unless we're in an emergency condition
01:32:57.930 --> 01:33:00.890
and it gets deployed and
then it's released to the market
01:33:00.890 --> 01:33:03.640
and then the market
dispatches it economically.
01:33:03.640 --> 01:33:08.640
So, the more you
reserve behind that wall,
01:33:09.070 --> 01:33:11.870
the less there is for the
realtime market to dispatch.
01:33:11.870 --> 01:33:13.580
And that can raise prices.
01:33:13.580 --> 01:33:15.230
So, depending on
where you put that wall,
01:33:15.230 --> 01:33:16.300
that makes an impact.
01:33:16.300 --> 01:33:18.420
So, you know, it's what,
01:33:18.420 --> 01:33:21.980
just another component
that I wanted to mention.
01:33:21.980 --> 01:33:24.193
And lastly, with the non-spin,
01:33:25.830 --> 01:33:27.410
it's a little bit of an oxymoron
01:33:27.410 --> 01:33:30.530
because you can have online
non-spin and offline non-spin.
01:33:30.530 --> 01:33:33.930
But if you have online
non-spin, that capacity is,
01:33:33.930 --> 01:33:36.920
has to be priced at $75 or higher.
01:33:36.920 --> 01:33:38.870
So, it has an offer floor on it,
01:33:38.870 --> 01:33:41.450
so that the market's not
accessing those megawatts
01:33:41.450 --> 01:33:44.283
until the price gets to $75 or above.
01:33:45.781 --> 01:33:48.510
The same's not necessarily
true for offline non-spin.
01:33:48.510 --> 01:33:50.140
So, those are just two
things to keep in mind,
01:33:50.140 --> 01:33:53.330
as we're talking about
ancillary services today.
01:33:53.330 --> 01:33:55.490
I think I'll stop there and let JC talk.
01:33:55.490 --> 01:33:56.380
Thank you very much.
01:33:56.380 --> 01:33:58.460
And I know this is, as I said before,
01:33:58.460 --> 01:34:02.400
this is first of several of
these kinds of conversations.
01:34:02.400 --> 01:34:04.430
I appreciate
Sure.
01:34:04.430 --> 01:34:06.233
The information
and your candor.
01:34:08.180 --> 01:34:11.360
Next up, state your name
and who you're with please.
01:34:11.360 --> 01:34:12.193
Thank you, chairman.
01:34:12.193 --> 01:34:15.610
JC Kneale with
Intercontinental Exchange, ICE.
01:34:15.610 --> 01:34:17.260
I appreciate the
invitation to be here today
01:34:17.260 --> 01:34:19.640
and let me compliment
you guys on the prescience
01:34:19.640 --> 01:34:21.700
of having the order that you have set,
01:34:21.700 --> 01:34:24.660
'cause you've got Dave
telling us how it all works,
01:34:24.660 --> 01:34:25.990
and then you've got Carrie telling us
01:34:25.990 --> 01:34:27.340
how the prices are formed.
01:34:27.340 --> 01:34:31.200
And so, what I'm going to
try to inform everybody is,
01:34:31.200 --> 01:34:33.110
what do we do with those prices?
01:34:33.110 --> 01:34:35.280
It's great that we understand
how we make the prices
01:34:35.280 --> 01:34:38.630
on the day and even the near term,
01:34:38.630 --> 01:34:39.840
but what is that used for?
01:34:39.840 --> 01:34:41.650
And why is it important?
01:34:41.650 --> 01:34:42.770
And Carrie hinted at it.
01:34:42.770 --> 01:34:44.120
It's investment in the future.
01:34:44.120 --> 01:34:46.910
And chairman, you've been
asking this question over
01:34:46.910 --> 01:34:49.400
and over, is how do we get
more people into the market?
01:34:49.400 --> 01:34:54.370
And so, what we at ICE do
is we run the forward market.
01:34:54.370 --> 01:34:58.530
So, ERCOT is managing
the price signals in the realtime
01:34:58.530 --> 01:35:01.530
to make sure we can turn
our lights on every morning.
01:35:01.530 --> 01:35:05.300
And the model is prescribing
a price for that service.
01:35:05.300 --> 01:35:08.430
And that's ultimately
what we all get paid on
01:35:08.430 --> 01:35:11.930
in the realtime and the day
ahead for those products.
01:35:11.930 --> 01:35:15.770
But what ICE is here to do is
01:35:15.770 --> 01:35:17.720
make transparent the forward curve.
01:35:17.720 --> 01:35:20.470
So, what do people anticipate
the price for those services
01:35:20.470 --> 01:35:22.190
to be in the future?
01:35:22.190 --> 01:35:24.157
And in particular for ERCOT,
01:35:24.157 --> 01:35:27.300
in the power and the
gas markets, right now,
01:35:27.300 --> 01:35:30.290
we go an average of about
a decade into the future.
01:35:30.290 --> 01:35:34.450
There are certainly companies
out there that do investment
01:35:34.450 --> 01:35:37.160
on a longer time horizon,
that have their own models,
01:35:37.160 --> 01:35:40.070
that guess at what these
prices may be two decades,
01:35:40.070 --> 01:35:42.740
three decades, perhaps
longer into the future,
01:35:42.740 --> 01:35:45.710
but it's not realistic for an
exchange such as ourselves
01:35:45.710 --> 01:35:47.440
to have products that
service those markets
01:35:47.440 --> 01:35:51.440
that effectively are
never actually utilized.
01:35:51.440 --> 01:35:53.630
They're just sort of
background research.
01:35:53.630 --> 01:35:55.540
So, if you could move
into the next side, please,
01:35:55.540 --> 01:35:56.373
that'd be great.
01:35:56.373 --> 01:35:59.070
Just a quick, and I'll apologize.
01:35:59.070 --> 01:36:01.620
This is formatted for wide
screen and we've got a square,
01:36:01.620 --> 01:36:05.070
so, we'll do the best we can.
01:36:05.070 --> 01:36:08.100
But in short, the, first
couple of slides are really just
01:36:08.100 --> 01:36:09.530
about who we are
01:36:09.530 --> 01:36:13.270
and ICE operates
exchanges all over the world
01:36:13.270 --> 01:36:15.573
for all different kinds
of assets classes,
01:36:16.610 --> 01:36:20.260
whether it's gas, carbon, metals,
01:36:20.260 --> 01:36:22.460
exchange rates, interest rates, energy.
01:36:22.460 --> 01:36:25.040
And obviously, that's what
we're here for is the energy.
01:36:25.040 --> 01:36:27.430
We're also a little unique
in the exchange space
01:36:27.430 --> 01:36:29.540
in that we actually
offer our own front ends
01:36:29.540 --> 01:36:34.540
for transactions versus
just allowing the other folks
01:36:34.540 --> 01:36:35.760
to provide that service.
01:36:35.760 --> 01:36:37.070
Next slide, please.
01:36:37.070 --> 01:36:38.450
A few years ago,
01:36:38.450 --> 01:36:40.150
we bought a company that some
of you guys may have heard of
01:36:40.150 --> 01:36:41.710
called the New York Stock Exchange.
01:36:41.710 --> 01:36:45.900
And so, we also service
the equities business globally
01:36:45.900 --> 01:36:49.850
and with the equities business
and the energy business,
01:36:49.850 --> 01:36:51.960
I think it gives us a
really unique insight
01:36:51.960 --> 01:36:55.360
into how investment decisions are made
01:36:55.360 --> 01:36:56.810
in the energy space in particular.
01:36:56.810 --> 01:36:59.130
And obviously Texas,
01:36:59.130 --> 01:37:02.070
I believe the NYC folks
would get on me about it,
01:37:02.070 --> 01:37:05.430
but Texas alone would
represent the, you know,
01:37:05.430 --> 01:37:07.666
sixth largest country in
terms of listed companies
01:37:07.666 --> 01:37:09.970
on the New York Stock Exchange.
01:37:09.970 --> 01:37:12.680
So, Texas in particular
is extremely important.
01:37:12.680 --> 01:37:14.180
And a lot of those companies,
as you can imagine,
01:37:14.180 --> 01:37:15.030
are energy companies.
01:37:15.030 --> 01:37:17.480
So, they, hopefully they
know what they're doing.
01:37:18.350 --> 01:37:19.520
If you'd hit the next slide, please.
01:37:19.520 --> 01:37:21.120
I appreciate it.
01:37:21.120 --> 01:37:23.100
So, first I wanted to
talk about hedging.
01:37:23.100 --> 01:37:26.150
There's been so much discussion
over the last several months
01:37:26.150 --> 01:37:28.570
about hedging and who
hedges and who doesn't hedge
01:37:28.570 --> 01:37:32.580
and why it's important or unimportant.
01:37:32.580 --> 01:37:35.650
And ultimately, what hedging is supposed
01:37:35.650 --> 01:37:38.530
to do is provide you
with a bit of assurance
01:37:38.530 --> 01:37:43.461
that should you have a resource
01:37:43.461 --> 01:37:45.631
and you have estimated
the price of that resource
01:37:45.631 --> 01:37:48.020
or the value of that
resource incorrectly,
01:37:48.020 --> 01:37:50.720
this is, in essence, an
insurance payment against that.
01:37:50.720 --> 01:37:52.620
So, if you go make a
particular investment
01:37:52.620 --> 01:37:54.913
to provide a service of any kind,
01:37:55.880 --> 01:37:57.700
you would hope that
there is a way for you
01:37:57.700 --> 01:37:59.670
to hedge that bet, so to speak.
01:37:59.670 --> 01:38:02.480
Go out and either buy or sell a product
01:38:02.480 --> 01:38:05.460
that would give you some
sort of financial protection
01:38:05.460 --> 01:38:07.680
in case you've made the wrong decision.
01:38:07.680 --> 01:38:11.461
And that's what we see in
these exchange markets.
01:38:11.461 --> 01:38:14.520
And that's what we see in
Texas in both the electricity side
01:38:14.520 --> 01:38:15.770
and the natural gas side.
01:38:16.630 --> 01:38:19.130
The ERCOT market is widely regarded
01:38:19.130 --> 01:38:21.120
as one of the most successful markets
01:38:21.120 --> 01:38:26.120
in terms of operational
investment and trading.
01:38:26.650 --> 01:38:29.100
And that trading is important
because that is the hedging.
01:38:29.100 --> 01:38:33.390
That's what all of the participants
in ERCOT are looking to,
01:38:33.390 --> 01:38:37.200
to understand the value
of their generation stack,
01:38:37.200 --> 01:38:39.400
understand where they need investment
01:38:39.400 --> 01:38:43.493
and what the potential cash
flows from new investment are.
01:38:45.350 --> 01:38:48.010
So, if we break it down very simply,
01:38:48.010 --> 01:38:50.940
there are three types of hedgers here,
01:38:50.940 --> 01:38:52.410
and maybe there are others,
01:38:52.410 --> 01:38:54.890
but these are the ones that
pop into my mind most rapidly,
01:38:54.890 --> 01:38:57.310
which is, you know, first
you've got consumers
01:38:57.310 --> 01:38:59.390
and I don't necessarily mean you and me,
01:38:59.390 --> 01:39:01.190
but the reality of it is,
01:39:01.190 --> 01:39:02.453
is in a way it is you and me.
01:39:02.453 --> 01:39:04.243
We have the power to
choose here in Texas.
01:39:04.243 --> 01:39:07.770
And so, we get to
make all sorts of choices
01:39:07.770 --> 01:39:11.730
about which provider we use
and what price we pay for that.
01:39:11.730 --> 01:39:14.860
We get to choose what
generation stack even.
01:39:14.860 --> 01:39:18.380
So, it's a pretty powerful
tool for us as consumers.
01:39:18.380 --> 01:39:21.920
And hopefully, we're all
using fixed price contracts
01:39:21.920 --> 01:39:22.980
at this point.
01:39:22.980 --> 01:39:26.173
I think we understand
the dangers in not,
01:39:28.530 --> 01:39:30.790
but there are also industrial consumers,
01:39:30.790 --> 01:39:32.220
manufacturers, et cetera,
01:39:32.220 --> 01:39:34.210
just anybody on the
grid that uses electricity
01:39:34.210 --> 01:39:35.450
as a consumer,
01:39:35.450 --> 01:39:38.120
and they have the choice
to hedge their products,
01:39:38.120 --> 01:39:41.170
either on the day ahead
market or the realtime market.
01:39:41.170 --> 01:39:43.360
And luckily, we had
these guys to explain
01:39:43.360 --> 01:39:45.950
to us what the difference in
the day ahead and the realtime,
01:39:45.950 --> 01:39:47.377
I always like to think of the day ahead
01:39:47.377 --> 01:39:49.180
as it's everybody's best guess
01:39:49.180 --> 01:39:50.780
at what tomorrow's going to look like.
01:39:50.780 --> 01:39:54.900
And realtime is just the
reality, and it's the difference,
01:39:54.900 --> 01:39:57.750
and in fact, one of the most
common products traded in Texas
01:39:57.750 --> 01:39:59.410
and other markets is a spread
01:39:59.410 --> 01:40:00.720
between the day ahead and realtime.
01:40:00.720 --> 01:40:01.620
And it's essentially,
01:40:01.620 --> 01:40:06.290
it's a guess at how
efficient the market is pricing
01:40:06.290 --> 01:40:09.280
and understanding in the day ahead
01:40:09.280 --> 01:40:10.973
versus what reality will end up.
01:40:12.250 --> 01:40:13.850
The next category is
we've got the generators
01:40:13.850 --> 01:40:16.310
and this is where we're going
to spend a lot of time today,
01:40:16.310 --> 01:40:19.210
I'm sure, because we understand
01:40:19.210 --> 01:40:21.630
that generation scarcity is an issue
01:40:21.630 --> 01:40:24.270
and potentially a
growing issue in the state,
01:40:24.270 --> 01:40:27.650
but electricity generators,
01:40:27.650 --> 01:40:29.620
they have a couple of different inputs
01:40:29.620 --> 01:40:31.060
and I'm going to keep it very simple.
01:40:31.060 --> 01:40:33.480
We'll assume everybody's
got cost of operations, et cetera.
01:40:33.480 --> 01:40:36.080
But the bottom line is,
depending on the type of generator,
01:40:36.080 --> 01:40:37.380
I have to buy fuel,
01:40:37.380 --> 01:40:40.010
whether that's coal or
whether that's natural gas
01:40:40.010 --> 01:40:41.880
or what other commodity that,
01:40:41.880 --> 01:40:43.740
diesel, I might run my generator,
01:40:43.740 --> 01:40:44.573
I've got to buy that.
01:40:44.573 --> 01:40:49.530
And so, I have price risk
with the input to my generation.
01:40:51.900 --> 01:40:53.420
I know roughly what it costs me
01:40:53.420 --> 01:40:56.350
to convert those
molecules into electricity.
01:40:56.350 --> 01:40:58.010
And so, that is the price
01:40:58.860 --> 01:41:01.330
for the electricity that's put out.
01:41:01.330 --> 01:41:03.262
I have a couple of
options there as well.
01:41:03.262 --> 01:41:06.670
I can sell my electricity, truly,
01:41:06.670 --> 01:41:08.160
as it comes out of the generator
01:41:08.160 --> 01:41:11.250
and at which point, I'm
exposed to the realtime price.
01:41:11.250 --> 01:41:12.370
That's a choice.
01:41:12.370 --> 01:41:16.000
We would say that's
un-hedged, but that's your choice.
01:41:16.000 --> 01:41:18.720
And the other choice I have
is I can sell financial futures
01:41:18.720 --> 01:41:22.860
or actually the physical power
on a forward basis as well.
01:41:22.860 --> 01:41:26.220
And so, I can lock in those prices
01:41:26.220 --> 01:41:29.140
based on my best guess at my input costs
01:41:29.140 --> 01:41:30.170
and my output costs,
01:41:30.170 --> 01:41:33.110
lock in my P and L,
and hopefully sleep well.
01:41:33.110 --> 01:41:38.100
And that all works until
something goes crazy.
01:41:38.100 --> 01:41:41.800
And though, when I say go
crazy, I should back up there.
01:41:41.800 --> 01:41:44.490
When the system performs
the way it's supposed to
01:41:44.490 --> 01:41:46.020
in times of scarcity,
01:41:46.020 --> 01:41:49.293
crazy, just implying that
prices get higher unexpectedly.
01:41:50.699 --> 01:41:52.710
And then we've, of course,
got load serving entities.
01:41:52.710 --> 01:41:55.360
And load serving entities, in my mind,
01:41:55.360 --> 01:41:58.760
are typically entities who
don't have enough generation
01:41:58.760 --> 01:42:00.730
or any generation to serve all the load.
01:42:00.730 --> 01:42:03.850
So, they're usually out there
procuring generation to sell
01:42:03.850 --> 01:42:06.690
to consumers or anybody that needs it,
01:42:06.690 --> 01:42:08.570
and they too have price risk.
01:42:08.570 --> 01:42:10.640
And so, they're the opposite,
01:42:10.640 --> 01:42:12.650
they're typically going the
opposite way of the generators
01:42:12.650 --> 01:42:15.090
because they are
procuring the electricity
01:42:15.090 --> 01:42:18.993
or procuring financial
assurances against rising prices.
01:42:20.580 --> 01:42:22.040
I know I've said a whole lot there,
01:42:22.040 --> 01:42:24.320
and if everybody's on the same page,
01:42:24.320 --> 01:42:25.420
I'm happy to keep going,
01:42:25.420 --> 01:42:28.510
but I'm happy to answer
any questions there
01:42:28.510 --> 01:42:29.810
in the middle as well, so.
01:42:30.690 --> 01:42:31.530
Quick question on the,
01:42:31.530 --> 01:42:32.900
especially on the load serving side,
01:42:32.900 --> 01:42:35.770
are there forward and
future products only,
01:42:35.770 --> 01:42:37.030
or options as well?
01:42:37.030 --> 01:42:39.623
Options as well. Yeah.
01:42:40.560 --> 01:42:42.260
Let's go to the next slide please.
01:42:43.220 --> 01:42:45.900
So what is the role of ICE in all this?
01:42:45.900 --> 01:42:47.580
Well, there's a couple of functions.
01:42:47.580 --> 01:42:51.750
So, we operate both an
exchange and a clearing house.
01:42:51.750 --> 01:42:55.090
The exchange is where
both buyers and sellers come
01:42:55.090 --> 01:42:56.870
and they place bids and offers,
01:42:56.870 --> 01:42:59.270
no different than in the
ERCOT model as well,
01:42:59.270 --> 01:43:03.000
where we're trying to
optimize for the best price.
01:43:03.000 --> 01:43:03.960
This is very similarly,
01:43:03.960 --> 01:43:06.000
we're optimizing the bids and the offers
01:43:06.000 --> 01:43:08.060
until we have a common price,
01:43:08.060 --> 01:43:10.832
at which point, we
have an executed order.
01:43:10.832 --> 01:43:14.680
The clearing service that
we offer is futures clearing,
01:43:14.680 --> 01:43:17.570
meaning we have a
clearing member or bank,
01:43:17.570 --> 01:43:19.630
somebody representing the end consumer
01:43:19.630 --> 01:43:23.230
or end user offering price protection,
01:43:23.230 --> 01:43:25.083
offering credit typically.
01:43:26.030 --> 01:43:30.080
And those clearing members
access our clearing house.
01:43:30.080 --> 01:43:35.080
So, ICE every single day
is looking for initial margin.
01:43:35.480 --> 01:43:38.350
Basically, that margin is
guaranteeing the performance
01:43:38.350 --> 01:43:41.760
of both the buyers and the
sellers to honor their contracts.
01:43:41.760 --> 01:43:43.820
Every single day, we're creating a mark
01:43:43.820 --> 01:43:46.550
to market price for
the contracts traded,
01:43:46.550 --> 01:43:50.220
and we're assigning a P and
L, both paying and collecting,
01:43:50.220 --> 01:43:53.360
every single afternoon and
sometimes during the day,
01:43:53.360 --> 01:43:55.183
depending on the commodity.
01:43:56.330 --> 01:43:59.653
And in doing so, we
like to say that we're,
01:44:00.650 --> 01:44:05.130
that initial margin should
be enough every single night
01:44:05.130 --> 01:44:08.160
to cover the worst move tomorrow.
01:44:08.160 --> 01:44:08.993
Right?
01:44:08.993 --> 01:44:11.120
So, we've always, we're
never so far out on a limb
01:44:11.120 --> 01:44:12.240
that we don't have enough cash
01:44:12.240 --> 01:44:15.010
to cover any gains
and losses the next day,
01:44:15.010 --> 01:44:15.843
that isn't always the case.
01:44:15.843 --> 01:44:18.360
And that's why we have to
raise margins from time to time.
01:44:18.360 --> 01:44:21.050
Certainly, in Texas, we
saw issues in the winter
01:44:21.050 --> 01:44:23.740
where we didn't have
enough margin on hand
01:44:23.740 --> 01:44:24.800
and that can happen.
01:44:24.800 --> 01:44:28.270
And how we react to those
situations is really the key
01:44:28.270 --> 01:44:31.683
to the clearing house
or any credit mechanism.
01:44:32.530 --> 01:44:36.500
In futures clearing,
we're fairly limited.
01:44:36.500 --> 01:44:38.840
We expect payment every single day.
01:44:38.840 --> 01:44:40.950
There's no, there's no lack of payment.
01:44:40.950 --> 01:44:43.060
If your lack of payment,
you're considered in default.
01:44:43.060 --> 01:44:46.070
And the rules and
regulations provided by,
01:44:46.070 --> 01:44:48.100
whether it's the United
States, or United Kingdom,
01:44:48.100 --> 01:44:49.980
or Europe are very clear,
01:44:49.980 --> 01:44:53.060
we don't have much
leeway in collections.
01:44:53.060 --> 01:44:57.500
So, now, the clearing members
can sometimes give, you know,
01:44:57.500 --> 01:44:59.930
24 hours or 48 hours to their customer.
01:44:59.930 --> 01:45:02.720
But we as a clearing house
expect payment daily and timely.
01:45:02.720 --> 01:45:05.410
And if you're not made daily and timely,
01:45:05.410 --> 01:45:09.730
we can put you in default,
potentially liquidate positions,
01:45:09.730 --> 01:45:12.853
potentially liquidate the
desks and pencils in your office.
01:45:13.740 --> 01:45:15.130
We're going to come
and find all the money
01:45:15.130 --> 01:45:16.750
and we're going to do
it as quick as we can
01:45:16.750 --> 01:45:18.090
to keep the market whole.
01:45:18.090 --> 01:45:18.923
So, question there,
01:45:18.923 --> 01:45:22.200
Yes, sir.
When you consider the risk
01:45:22.200 --> 01:45:23.823
of market participants,
01:45:24.980 --> 01:45:29.450
and where I'm headed is we sort of have,
01:45:29.450 --> 01:45:32.560
in the ERCOT market,
two clearing houses,
01:45:32.560 --> 01:45:34.750
we have ERCOT, to a certain extent,
01:45:34.750 --> 01:45:38.070
and then we have ICE, and
you're on the supply side,
01:45:38.070 --> 01:45:40.550
you know, arbitraging that commodity
01:45:40.550 --> 01:45:45.170
and paired with generation
and then retail as well,
01:45:45.170 --> 01:45:48.040
I assume, because they're
hedging through you as well?
01:45:48.040 --> 01:45:49.570
The reps, for sure, yeah.
Sure, yeah.
01:45:49.570 --> 01:45:50.960
Not individuals but reps, yeah.
01:45:50.960 --> 01:45:51.943
But reps, yeah.
01:45:52.850 --> 01:45:57.850
So, in terms of actors who default,
01:45:59.760 --> 01:46:01.120
what are the repercussions for that?
01:46:01.120 --> 01:46:04.750
If they default, can they not, you know,
01:46:04.750 --> 01:46:06.660
what are the ramifications
for that with ICE?
01:46:06.660 --> 01:46:08.330
Yeah, it, pretty
swiftly we're going
01:46:08.330 --> 01:46:10.670
to remove their ability to participate
01:46:10.670 --> 01:46:12.880
because we don't want
them to exacerbate an issue.
01:46:12.880 --> 01:46:16.680
If we're concerned about a credit issue,
01:46:16.680 --> 01:46:19.017
we act swiftly to put
a member in default
01:46:19.017 --> 01:46:22.380
and in this particular
model, and I've got to,
01:46:22.380 --> 01:46:24.590
to muddy the water, we
actually have two clearing houses,
01:46:24.590 --> 01:46:26.507
one for financially settled products
01:46:26.507 --> 01:46:28.340
and one for physically settled products.
01:46:28.340 --> 01:46:30.090
And so, when we get to the physical one,
01:46:30.090 --> 01:46:31.380
that might even make more sense
01:46:31.380 --> 01:46:32.660
as to how it relates to ERCOT.
01:46:32.660 --> 01:46:34.193
But in this particular model,
01:46:35.400 --> 01:46:37.520
there are two different
credit assurances
01:46:37.520 --> 01:46:38.750
for us, the clearinghouse.
01:46:38.750 --> 01:46:42.240
One is we've got member
banks or member firms
01:46:42.240 --> 01:46:44.600
that represent their customers.
01:46:44.600 --> 01:46:47.483
And so, a member firm
may have 20 customers.
01:46:48.390 --> 01:46:50.780
Every single day, I'm
expecting the member firm
01:46:50.780 --> 01:46:52.650
to make me whole.
01:46:52.650 --> 01:46:56.910
If they have a customer that
creates such a large default
01:46:56.910 --> 01:46:59.430
that the member firm
cannot make me whole,
01:46:59.430 --> 01:47:01.680
then I put the member in default.
01:47:01.680 --> 01:47:04.060
I potentially remove
all trading privileges
01:47:04.060 --> 01:47:07.240
for every customer of a clearing member.
01:47:07.240 --> 01:47:11.240
And so, those solvent
clearing customers would have
01:47:11.240 --> 01:47:13.470
to move to a new clearing member
01:47:13.470 --> 01:47:15.400
in order to continue to participate.
01:47:15.400 --> 01:47:19.850
So, there is a direct overlay
between the QSE actor
01:47:19.850 --> 01:47:22.440
and with ERCOT and ICE.
01:47:22.440 --> 01:47:23.490
So essentially, they're,
Yeah.
01:47:23.490 --> 01:47:25.350
They're acting
in both capacities.
01:47:25.350 --> 01:47:26.440
It absolutely could be, right?
01:47:26.440 --> 01:47:28.090
Okay.
So, there are certainly
01:47:28.090 --> 01:47:29.910
some financial only participants
01:47:29.910 --> 01:47:32.550
and as well as physical participants,
01:47:32.550 --> 01:47:36.360
but so, not every ICE participant
would be at the QSE level
01:47:36.360 --> 01:47:38.573
of interaction in the ERCOT market.
01:47:39.670 --> 01:47:44.100
But it's probably fair to say
that every QSE participant is
01:47:44.100 --> 01:47:47.890
in some way active in
ICE, maybe not directly,
01:47:47.890 --> 01:47:49.530
they may go to a bank for hedging
01:47:49.530 --> 01:47:52.810
and the bank may come
to ICE, but in some way,
01:47:52.810 --> 01:47:55.350
they're interacting with
these forward markets
01:47:55.350 --> 01:47:57.930
that are made transparent
by our exchange.
01:47:57.930 --> 01:47:58.763
Okay.
01:48:01.860 --> 01:48:03.300
So, let's jump to
the next slide too.
01:48:03.300 --> 01:48:06.510
'Cause I think this one
is particularly, excuse me,
01:48:06.510 --> 01:48:08.550
we were just going over
this slide more or less,
01:48:08.550 --> 01:48:09.890
which is ICE Futures US.
01:48:09.890 --> 01:48:12.790
So, this is really where we
have our financial futures.
01:48:12.790 --> 01:48:14.890
This is all cash settled instruments.
01:48:14.890 --> 01:48:17.770
So, all, performance is
purely did you pay your bill?
01:48:17.770 --> 01:48:19.620
Not showing up with molecules.
01:48:19.620 --> 01:48:20.830
Now, let's jump to the next slide
01:48:20.830 --> 01:48:23.230
where I think it gets a
little more interesting.
01:48:23.230 --> 01:48:24.860
So, this is ICE NGX.
01:48:24.860 --> 01:48:29.240
So, ICE NGX is a subsidiary of ICE
01:48:29.240 --> 01:48:33.140
that is involved in
the physical delivery,
01:48:33.140 --> 01:48:37.410
settlement and clearing
of megawatts in ERCOT.
01:48:37.410 --> 01:48:41.940
We also deliver, schedule,
physical gas in Texas,
01:48:41.940 --> 01:48:44.710
but as it relates to this
particular discussion,
01:48:44.710 --> 01:48:46.360
let's talk about the
physical power side.
01:48:46.360 --> 01:48:49.980
So, in this instance, ICE
NGX is actually a QSE.
01:48:49.980 --> 01:48:52.700
So, we truly are
involved at the QSE level.
01:48:52.700 --> 01:48:55.810
We are scheduling in
and out buys and sells
01:48:55.810 --> 01:48:57.310
to ERCOT every single day.
01:48:57.310 --> 01:48:59.230
Now, by default, we're always flat.
01:48:59.230 --> 01:49:01.990
So, we should never
be any risk to anybody
01:49:01.990 --> 01:49:04.930
because I've always
got a buyer and a seller.
01:49:04.930 --> 01:49:06.460
But in this particular case,
01:49:06.460 --> 01:49:08.960
we do sometimes see
defaults as well, right?
01:49:08.960 --> 01:49:11.200
So, much like ERCOT,
01:49:11.200 --> 01:49:13.840
our first action would be to
go in and assess the credit.
01:49:13.840 --> 01:49:16.330
We may shut down a customer only buying.
01:49:16.330 --> 01:49:18.200
We may shut down a
customer only selling,
01:49:18.200 --> 01:49:21.442
depending on which
side their balance is.
01:49:21.442 --> 01:49:22.392
(coughs) Excuse me.
01:49:24.750 --> 01:49:26.020
If they are in default,
01:49:26.020 --> 01:49:29.920
then we're gonna quickly
move into our default procedures.
01:49:29.920 --> 01:49:30.753
And we're going to seek
01:49:30.753 --> 01:49:34.210
to consume their
entire letter of credit.
01:49:34.210 --> 01:49:35.270
If that's what we have on hand,
01:49:35.270 --> 01:49:38.010
we're going to ask the
bank to turn it to cash.
01:49:38.010 --> 01:49:40.310
We're going to come
after any assets that
01:49:40.310 --> 01:49:41.143
that company has,
01:49:41.143 --> 01:49:43.480
and we're going to move
swiftly to do so, right?
01:49:43.480 --> 01:49:45.050
We do not allow companies
01:49:45.050 --> 01:49:47.870
to participate once they are in default.
01:49:47.870 --> 01:49:49.410
Once we have put you in default,
01:49:49.410 --> 01:49:51.890
if you want to participate
again in the market,
01:49:51.890 --> 01:49:55.770
you have to either make
use of any existing balance
01:49:55.770 --> 01:49:58.730
that may be in your
favor with the exchange.
01:49:58.730 --> 01:50:01.380
For instance, a company
may go into insolvency,
01:50:01.380 --> 01:50:03.200
but have a net balance with us
01:50:03.200 --> 01:50:06.210
because they have
receivables that we owed them.
01:50:06.210 --> 01:50:08.170
So, we would allow them to participate
01:50:08.170 --> 01:50:10.040
such that it diminishes their balance,
01:50:10.040 --> 01:50:11.473
but never beyond zero.
01:50:12.740 --> 01:50:15.120
However, if they simply owe us money,
01:50:15.120 --> 01:50:16.810
we shut it down altogether.
01:50:16.810 --> 01:50:18.560
We don't allow them to participate.
01:50:20.330 --> 01:50:22.270
The next step would be,
01:50:22.270 --> 01:50:25.480
we would go to that company
and meet with management,
01:50:25.480 --> 01:50:29.210
understand what other
steps to get back to solvency
01:50:29.210 --> 01:50:31.590
if the case or resolve any defaults.
01:50:31.590 --> 01:50:33.080
And it may just be a timing issue.
01:50:33.080 --> 01:50:35.117
It may be, "I couldn't
make the payment today.
01:50:35.117 --> 01:50:37.350
"I can make the payment tomorrow."
01:50:37.350 --> 01:50:39.500
We have a little bit of
leeway to go in and work
01:50:39.500 --> 01:50:42.230
with the customer, just as
ERCOT has a little bit of leeway,
01:50:42.230 --> 01:50:44.630
but if we're ultimately not satisfied
01:50:44.630 --> 01:50:45.840
that they can meet collateral,
01:50:45.840 --> 01:50:48.250
we just, we don't enable them again.
01:50:48.250 --> 01:50:49.950
We're not going to take that risk.
01:50:52.070 --> 01:50:52.970
Does that answer your question, sir?
01:50:52.970 --> 01:50:53.803
Yes, sir. Thank you.
01:50:53.803 --> 01:50:54.636
Okay.
01:50:57.650 --> 01:50:59.370
And again, so this is
on the physical side,
01:50:59.370 --> 01:51:00.840
so, it looks a little bit different.
01:51:00.840 --> 01:51:03.820
This is more, if you think about it,
01:51:03.820 --> 01:51:07.200
there's future style margining
and accrual margining,
01:51:07.200 --> 01:51:08.960
and this is more of
an accrual margining.
01:51:08.960 --> 01:51:10.770
So, in future style margining,
01:51:10.770 --> 01:51:13.030
there's a daily P and L
and there's a true payment
01:51:13.030 --> 01:51:15.528
and of every single dollar
that comes in and goes
01:51:15.528 --> 01:51:18.380
out on a daily basis.
01:51:18.380 --> 01:51:23.160
In this accrual
standard, cash isn't fully,
01:51:23.160 --> 01:51:26.870
or P and L isn't fully recognized
until flow has happened.
01:51:26.870 --> 01:51:28.480
So, until delivery has occurred,
01:51:28.480 --> 01:51:30.260
you can't take your money out.
01:51:30.260 --> 01:51:32.150
It creates positive balances
01:51:32.150 --> 01:51:34.970
that you can use as margins, et cetera,
01:51:34.970 --> 01:51:39.030
but because it's accrual,
because we expect delivery,
01:51:39.030 --> 01:51:42.520
all we're doing is sort of
giving you unrealized profit
01:51:42.520 --> 01:51:43.963
and loss on a daily basis.
01:51:44.810 --> 01:51:46.693
We still collect initial margins.
01:51:48.100 --> 01:51:49.420
We still do all the other things.
01:51:49.420 --> 01:51:50.830
We do mark to market, et cetera.
01:51:50.830 --> 01:51:53.520
It just, the cash flows
a little bit differently.
01:51:53.520 --> 01:51:57.240
Can you talk about
how this schedule,
01:51:57.240 --> 01:52:00.000
how you're scheduling
of this physical delivery?
01:52:00.000 --> 01:52:02.080
Because you got a buyer and a seller
01:52:03.200 --> 01:52:05.420
both agreeing, they don't, never,
01:52:05.420 --> 01:52:06.530
I don't know if they
see each other or not.
01:52:06.530 --> 01:52:10.740
This is OTC, your OTC
platform, but through you,
01:52:10.740 --> 01:52:15.060
they're getting an electron
delivered to a certain point
01:52:15.060 --> 01:52:16.004
at a certain place in time.
01:52:16.004 --> 01:52:17.340
Well, really just to the grid.
01:52:17.340 --> 01:52:18.520
So we're, you know,
01:52:18.520 --> 01:52:21.540
that's the nice thing in
a market like Texas is
01:52:21.540 --> 01:52:23.860
that you can really
think of it as a pool.
01:52:23.860 --> 01:52:26.660
So, as long as I'm putting
as much power into the pool
01:52:26.660 --> 01:52:29.523
as I'm taking out, it doesn't matter.
01:52:31.630 --> 01:52:35.760
There are regional
markets, we use the hubs.
01:52:35.760 --> 01:52:37.530
We also clear out the load zones.
01:52:37.530 --> 01:52:38.760
And so, to some extent,
01:52:38.760 --> 01:52:41.870
the product you choose
determines the region,
01:52:41.870 --> 01:52:44.640
but I'm not necessarily
getting to the nodal level.
01:52:44.640 --> 01:52:48.180
We believe that
currently that's too precise.
01:52:48.180 --> 01:52:51.340
If we were to go to a nodal perspective,
01:52:51.340 --> 01:52:53.940
odds are you'd have only
one or two counterparties able
01:52:53.940 --> 01:52:55.790
to participate at a single node.
01:52:55.790 --> 01:52:57.380
Right.
We believe that creates
01:52:57.380 --> 01:53:00.460
excessive risk of concentration
and things like that.
01:53:00.460 --> 01:53:02.960
Sure, so, what I'm
trying to get at is how your,
01:53:03.840 --> 01:53:07.450
the physical products that
are traded on y'all overlays
01:53:07.450 --> 01:53:11.420
with both the ERCOT trades
Yeah.
01:53:11.420 --> 01:53:14.700
And interacts with
the ERCOT scheduling
01:53:14.700 --> 01:53:15.760
because you don't
Okay.
01:53:15.760 --> 01:53:19.690
Just have a buy or
sell ERCOT power
01:53:19.690 --> 01:53:22.000
on October 15th product.
01:53:22.000 --> 01:53:24.440
You've got a whole lot of
products lifted at ERCOT, right?
01:53:24.440 --> 01:53:26.160
That's right. Yeah,
that's accurate.
01:53:26.160 --> 01:53:28.080
So, we have everything from,
01:53:28.080 --> 01:53:31.070
on the cash side, we
do a same day product.
01:53:31.070 --> 01:53:35.330
So, people are truly buying
and selling a peak load product
01:53:35.330 --> 01:53:37.860
for hour 7 to 22.
01:53:37.860 --> 01:53:40.040
It's a cash settled
instrument that they're using
01:53:40.040 --> 01:53:42.480
to hedge what they believe could happen
01:53:42.480 --> 01:53:44.370
throughout the balance of the day.
01:53:44.370 --> 01:53:45.620
And based on that,
01:53:45.620 --> 01:53:48.910
it allows them to make
resource guesses about,
01:53:48.910 --> 01:53:50.750
should they go ahead
and spin up generator?
01:53:50.750 --> 01:53:52.860
And if they do so, here's
the hedge for the cost
01:53:52.860 --> 01:53:54.820
in case it doesn't
get called, et cetera,
01:53:54.820 --> 01:53:58.080
and everything through
a calendar 2032 product,
01:53:58.080 --> 01:54:01.130
where you're simply
making a hedge or guess
01:54:01.130 --> 01:54:03.960
as to what the value
will be 10 years from now.
01:54:03.960 --> 01:54:05.470
How many different
geographic, if you,
01:54:05.470 --> 01:54:07.260
for lack of a better term,
how many different geo,
01:54:07.260 --> 01:54:08.740
like, locations?
All five hubs,
01:54:08.740 --> 01:54:10.290
including the newer panhandle,
01:54:10.290 --> 01:54:13.250
which is about 18
months old, I guess, now.
01:54:13.250 --> 01:54:17.120
And I believe all of the load
zones for those hubs as well,
01:54:17.120 --> 01:54:18.760
the geographically, for whatever reason,
01:54:18.760 --> 01:54:19.593
they're not perfect.
01:54:19.593 --> 01:54:20.820
They line up slightly differently.
01:54:20.820 --> 01:54:24.230
So in fact, some people will
trade a hub versus a zone,
01:54:24.230 --> 01:54:27.010
even though it's both
Houston hub and Houston zone.
01:54:27.010 --> 01:54:30.070
And there is some diff,
overlap there, you're right,
01:54:30.070 --> 01:54:32.013
or non-overlap, if you will.
01:54:33.110 --> 01:54:34.130
We provide all that.
01:54:34.130 --> 01:54:35.170
And then as you said,
01:54:35.170 --> 01:54:38.120
everything from daily to next
week to balance the week,
01:54:38.120 --> 01:54:39.880
to the balance of the month, monthly,
01:54:39.880 --> 01:54:41.460
on out into the future.
So, you can,
01:54:41.460 --> 01:54:43.890
so, your platform, you can go buy
01:54:43.890 --> 01:54:46.130
and sell the obligation
to either deliver
01:54:46.130 --> 01:54:51.130
or receive an electron
in any of these 4, 6, 8?
01:54:54.300 --> 01:54:57.240
In the NGX platform
for physical delivery,
01:54:57.240 --> 01:54:59.180
there are five locations.
01:54:59.180 --> 01:55:00.630
So five locations, so that,
01:55:00.630 --> 01:55:01.591
there's a separate product
That's right.
01:55:01.591 --> 01:55:02.590
The five hubs.
For Houston
01:55:02.590 --> 01:55:04.610
versus West, versus North.
North.
01:55:04.610 --> 01:55:05.980
Versus south.
That's right.
01:55:05.980 --> 01:55:09.270
For any time
between now and 2032?
01:55:09.270 --> 01:55:10.610
That's right. Roughly.
01:55:10.610 --> 01:55:12.210
It may vary slightly on the tenor,
01:55:12.210 --> 01:55:13.790
but a long time.
01:55:13.790 --> 01:55:15.150
Yeah, Long time out.
01:55:15.150 --> 01:55:17.500
And that's a completely
different financial product
01:55:17.500 --> 01:55:19.510
for the Houston zone
and the West Texas zone?
01:55:19.510 --> 01:55:20.390
Absolutely.
01:55:20.390 --> 01:55:22.210
And you could
also have products
01:55:22.210 --> 01:55:27.210
that will trade the spread
between those on how,
01:55:28.500 --> 01:55:31.200
which to what Carrie was
talking about earlier, does that,
01:55:31.200 --> 01:55:33.825
that would capture some transmission
01:55:33.825 --> 01:55:34.790
inefficiency?
That's exactly right.
01:55:34.790 --> 01:55:36.340
It's a bit of a congestion play, right?
01:55:36.340 --> 01:55:39.950
So if I believe that
there's going to be a ton
01:55:39.950 --> 01:55:42.760
of excess generation in the West,
01:55:42.760 --> 01:55:45.170
which theoretically there should be,
01:55:45.170 --> 01:55:47.380
there's less people, but
there's a lot of generation.
01:55:47.380 --> 01:55:50.370
I may spread it to North
or to South or to Houston
01:55:50.370 --> 01:55:55.370
as a way to cover that guess
on congestion versus the load
01:55:55.870 --> 01:55:57.767
that I may need to serve
in Houston, et cetera, so.
01:55:57.767 --> 01:56:00.730
But if I'm a
generator say in South,
01:56:00.730 --> 01:56:02.840
and I want to, you know,
01:56:02.840 --> 01:56:06.470
I want to obligate myself to
sell an electron in the future.
01:56:06.470 --> 01:56:10.150
So, I get the cash now
for physical delivery
01:56:10.150 --> 01:56:15.150
of that electron on October 15th, 2024,
01:56:15.459 --> 01:56:17.060
and it's only for the south load.
01:56:17.060 --> 01:56:18.765
That's not just dumping
it anywhere on earth.
01:56:18.765 --> 01:56:20.570
That's right. That's right.
Okay.
01:56:20.570 --> 01:56:22.700
And I mean, you
know, theoretically,
01:56:22.700 --> 01:56:24.570
as the Commissioner said,
01:56:24.570 --> 01:56:25.880
this all moves at the speed of light.
01:56:25.880 --> 01:56:28.360
So, if you're able to
provide to this, to the grid,
01:56:28.360 --> 01:56:30.980
then theoretically that
power can move to Maine,
01:56:30.980 --> 01:56:31.813
but it's about getting it there, right?
01:56:31.813 --> 01:56:33.980
So, you've got to
have that transmission.
01:56:33.980 --> 01:56:35.027
Right, but if I
took the money now
01:56:35.027 --> 01:56:36.360
Right.
To obligate that,
01:56:36.360 --> 01:56:37.892
But you're obligated
for where you bought it,
01:56:37.892 --> 01:56:38.725
that's right.
And if I don't show up
01:56:38.725 --> 01:56:41.330
with that power in that zone,
01:56:41.330 --> 01:56:42.540
Then you face repercussions.
01:56:42.540 --> 01:56:44.920
Then I'm in default to ICE?
01:56:44.920 --> 01:56:46.013
That's right. Correct.
01:56:46.013 --> 01:56:48.960
But on that time
in place then is,
01:56:48.960 --> 01:56:50.160
when does that scheduling?
01:56:50.160 --> 01:56:52.090
I've got to get to that zone.
01:56:52.090 --> 01:56:53.780
When does the
scheduling and distribution
01:56:53.780 --> 01:56:55.410
of that shift to ERCOT?
01:56:55.410 --> 01:56:57.290
Like, I guess the
handoff of that electron.
01:56:57.290 --> 01:56:59.000
Sure. Day ahead.
Okay.
01:56:59.000 --> 01:57:01.870
So, scheduling for
tomorrow's electricity is done
01:57:01.870 --> 01:57:05.470
and keep me honest,
by 10:15, or it used to be,
01:57:05.470 --> 01:57:06.840
been a long time since I had to do that.
01:57:06.840 --> 01:57:07.950
10:00 AM. Okay.
01:57:07.950 --> 01:57:11.180
So, by 10:00 AM each day, I have to have
01:57:11.180 --> 01:57:14.690
into the system all of
our longs and shorts
01:57:14.690 --> 01:57:16.440
to the ERCOT, by location,
01:57:16.440 --> 01:57:18.080
et cetera, scheduled in the system.
01:57:18.080 --> 01:57:19.770
Okay.
And so,
01:57:19.770 --> 01:57:22.709
I want to say in June we had something
01:57:22.709 --> 01:57:27.000
like 20 terawatt hours
of buys and sells.
01:57:27.000 --> 01:57:28.050
And on average,
01:57:28.050 --> 01:57:31.880
we scheduled each day
about 40% of that total.
01:57:31.880 --> 01:57:32.713
So it's, you know,
01:57:32.713 --> 01:57:34.780
we get a lot of netting,
as you can imagine.
01:57:34.780 --> 01:57:35.613
Right?
Sure.
01:57:35.613 --> 01:57:36.600
So, buyers and sellers.
01:57:36.600 --> 01:57:39.390
We are the counterparty to everybody.
01:57:39.390 --> 01:57:42.700
So, it doesn't matter if
Carrie bought from me
01:57:42.700 --> 01:57:45.510
and then I sold to Dave,
they would never know,
01:57:45.510 --> 01:57:46.650
nor do they ever need to know,
01:57:46.650 --> 01:57:48.860
because I'm the guarantee in the middle.
01:57:48.860 --> 01:57:53.860
So, 40% of the
transactions are based
01:57:53.860 --> 01:57:58.860
on power purchase agreements
that you're processing.
01:57:59.180 --> 01:58:00.830
No, I don't, I don't
want to say that.
01:58:00.830 --> 01:58:03.950
I was trying to illustrate
that, of the total volume
01:58:03.950 --> 01:58:07.340
that trades on the platform,
Right.
01:58:07.340 --> 01:58:08.729
Not all of it gets scheduled.
01:58:08.729 --> 01:58:09.562
Okay.
01:58:09.562 --> 01:58:11.130
So, just because
I've bought or sold,
01:58:11.130 --> 01:58:12.152
doesn't mean I'm truly
That's not necessarily
01:58:12.152 --> 01:58:12.985
part of it.
Going to show up.
01:58:12.985 --> 01:58:13.818
Okay.
That's right.
01:58:13.818 --> 01:58:14.900
Because someone's going to net out.
01:58:14.900 --> 01:58:17.590
I may, in the chairman's example,
01:58:17.590 --> 01:58:19.520
he bought for October 15th.
Right.
01:58:19.520 --> 01:58:22.940
He's got between now
and then to change his mind.
01:58:22.940 --> 01:58:24.100
And he may very well do so.
01:58:24.100 --> 01:58:26.330
He may find a better
opportunity somewhere else.
01:58:26.330 --> 01:58:28.110
At which point, he would
simply come out of the exchange,
01:58:28.110 --> 01:58:30.050
flatten out his ICE position
01:58:30.050 --> 01:58:31.660
and go sell to that customer directly.
01:58:31.660 --> 01:58:32.849
If that's what he chooses.
Yeah.
01:58:32.849 --> 01:58:35.340
I'm trying to figure
out what Carrie sees
01:58:35.340 --> 01:58:36.900
in the realtime market.
01:58:36.900 --> 01:58:39.120
And again, that's what
we're watching constantly.
01:58:39.120 --> 01:58:40.920
And again, that vast picture
01:58:40.920 --> 01:58:45.043
of the bilateral agreements.
01:58:46.350 --> 01:58:48.027
What is the pie chart on that?
01:58:48.027 --> 01:58:49.410
So, you're,
Right.
01:58:49.410 --> 01:58:51.170
Where the exchange,
So all she sees is,
01:58:51.170 --> 01:58:53.280
at the point it's been scheduled,
01:58:53.280 --> 01:58:54.770
and this is really for Dave too, right?
01:58:54.770 --> 01:58:56.090
So, all ERCOT sees, we should say,
01:58:56.090 --> 01:58:57.440
Yeah.
Carrie just gets to see
01:58:57.440 --> 01:58:58.830
what ERCOT can see.
Yep.
01:58:58.830 --> 01:58:59.920
The only thing they can see
01:58:59.920 --> 01:59:02.020
is what actually gets scheduled.
01:59:02.020 --> 01:59:04.810
So, they wouldn't get to see
the other 60% that netted out.
01:59:04.810 --> 01:59:07.620
They wouldn't get to see
any of the buys and sells
01:59:07.620 --> 01:59:09.230
that happened and never actually went
01:59:09.230 --> 01:59:10.330
to delivery, et cetera.
01:59:10.330 --> 01:59:12.710
They only see what is truly scheduled
01:59:12.710 --> 01:59:15.343
onto the system the day ahead.
01:59:16.240 --> 01:59:17.073
That's it.
01:59:17.073 --> 01:59:19.290
They don't get to see
what is going to happen
01:59:19.290 --> 01:59:20.880
for October 15th.
01:59:20.880 --> 01:59:25.511
Now, they can take price
signals in theory, because,
01:59:25.511 --> 01:59:28.820
because October 15th traded today,
01:59:28.820 --> 01:59:31.810
I can create a mark to
market for October 15th
01:59:31.810 --> 01:59:34.490
and give everybody
investors, generators,
01:59:34.490 --> 01:59:37.770
whatever, some idea of what
the value of October 15th is.
01:59:37.770 --> 01:59:39.120
Right, but a bilateral,
01:59:39.120 --> 01:59:40.613
I think this is
important, like a bilateral
01:59:40.613 --> 01:59:45.613
between like Acme
generator and Value Co rep,
01:59:46.670 --> 01:59:50.320
where they agreed to
deliver electrons over the next,
01:59:50.320 --> 01:59:52.990
of a certain, you know,
over the next three months,
01:59:52.990 --> 01:59:55.710
that can be a two party
agreement that never touches ICE.
01:59:55.710 --> 01:59:57.200
That's right. Absolutely.
Okay.
01:59:57.200 --> 01:59:58.870
And that's, they schedule that,
01:59:58.870 --> 01:59:59.703
Acme schedules it
They'd have
01:59:59.703 --> 02:00:00.643
to schedule it directly.
02:00:00.643 --> 02:00:02.530
That's right.
Directly, call Dave,
02:00:02.530 --> 02:00:03.650
Got it.
And says,
02:00:03.650 --> 02:00:08.063
this electron needs to
go to Value Co, right?
02:00:08.981 --> 02:00:10.861
And that's the bilateral
you hear so much about.
02:00:10.861 --> 02:00:12.260
For sure.
And that's a huge,
02:00:12.260 --> 02:00:15.390
Huge part, absolutely.
85% of the physical,
02:00:15.390 --> 02:00:16.223
Yeah.
Of, like I said,
02:00:16.223 --> 02:00:17.760
the power schedule.
It's tough to say
02:00:17.760 --> 02:00:19.547
because it's very opaque, right?
02:00:19.547 --> 02:00:20.630
And that's the reality.
02:00:20.630 --> 02:00:23.550
So, the benefit and curse
02:00:23.550 --> 02:00:24.853
of the transparent exchange market is
02:00:24.853 --> 02:00:26.380
that it's all right there for you.
02:00:26.380 --> 02:00:29.930
So, you can see what's
happening, but in the opaque market,
02:00:29.930 --> 02:00:31.050
the bilateral market,
02:00:31.050 --> 02:00:33.430
which serves a absolutely
necessary function,
02:00:33.430 --> 02:00:34.410
don't get me wrong.
02:00:34.410 --> 02:00:36.460
I don't mean anything
negative by opaque.
02:00:37.330 --> 02:00:38.870
There's no great way
to see what's going on.
02:00:38.870 --> 02:00:41.790
Now, on the Swap, capital S, side,
02:00:41.790 --> 02:00:43.560
Dodd-Frank tried to bring some of that
02:00:43.560 --> 02:00:44.750
to make it more transparent,
02:00:44.750 --> 02:00:48.800
which is why they created
the swap repositories, et cetera.
02:00:48.800 --> 02:00:51.830
Okay, but even
on the day ahead,
02:00:51.830 --> 02:00:52.940
that can be a financial
02:00:52.940 --> 02:00:54.682
or a physical trend, right?
Sure.
02:00:54.682 --> 02:00:55.515
That's right.
So, you can buy
02:00:55.515 --> 02:00:59.463
a day ahead and then
never physically take or,
02:01:00.413 --> 02:01:01.371
or generate.
Yeah.
02:01:01.371 --> 02:01:02.204
Yeah, it's an option.
Ultimately, you've always
02:01:02.204 --> 02:01:04.183
got ERCOT as your backstop, right?
02:01:04.183 --> 02:01:07.240
And so, a lot of our
participants do, in fact,
02:01:07.240 --> 02:01:09.610
trade most of their book financially,
02:01:09.610 --> 02:01:10.740
because the beauty
02:01:10.740 --> 02:01:13.300
of those financial instruments
is they settle exactly
02:01:13.300 --> 02:01:16.200
to either the day ahead
or the realtime price.
02:01:16.200 --> 02:01:18.580
So if it's realtime
and I need megawatts,
02:01:18.580 --> 02:01:20.170
and I have a hedge, well, good news,
02:01:20.170 --> 02:01:23.217
the settlement price of that
financial contract is the price
02:01:23.217 --> 02:01:25.067
of the energy that I need to procure.
02:01:26.020 --> 02:01:29.710
So, I just wanna make
sure I understand this right.
02:01:29.710 --> 02:01:30.970
And then ask you
02:01:30.970 --> 02:01:32.020
some more specific questions.
Sure.
02:01:32.020 --> 02:01:37.020
So, as the Chairman and
Commissioner McAdams are saying,
02:01:37.720 --> 02:01:42.720
they, basically, your
visibility is into the day ahead,
02:01:43.400 --> 02:01:46.300
realtime, not into the bilateral market.
02:01:46.300 --> 02:01:47.423
There's not a lot
of visibility in there.
02:01:47.423 --> 02:01:50.080
Well, they're the same thing.
02:01:50.080 --> 02:01:53.550
It's just that some of
that day ahead is bilateral
02:01:53.550 --> 02:01:55.507
and therefore, I can't
see it and you can't see it.
02:01:55.507 --> 02:01:56.400
Right.
Right?
02:01:56.400 --> 02:01:58.513
So, the bilateral
aspect of each
02:01:58.513 --> 02:01:59.490
of those markets.
Yes, ma'am.
02:01:59.490 --> 02:02:02.300
Okay, so, as you
said at the beginning
02:02:02.300 --> 02:02:04.523
that your ICE runs the forward market.
02:02:05.360 --> 02:02:07.060
We operate a forward market.
02:02:07.060 --> 02:02:10.870
There are OTC markets
that could be bilateral
02:02:10.870 --> 02:02:13.100
that I wouldn't have,
you see what I mean?
02:02:13.100 --> 02:02:16.460
Like I don't wanna
get lost in semantics,
02:02:16.460 --> 02:02:19.240
but we operate the
transparent forward market.
02:02:19.240 --> 02:02:20.140
Okay.
02:02:20.140 --> 02:02:23.330
So, as we're looking at the
transparent forward market
02:02:23.330 --> 02:02:28.330
and forward prices, what
I'm interested in learning about
02:02:28.370 --> 02:02:30.560
and getting some
clarification from you is,
02:02:30.560 --> 02:02:32.290
obviously, the actions we take
02:02:32.290 --> 02:02:34.960
as a Commission impact forward pricing.
02:02:34.960 --> 02:02:35.793
Yeah, that's right.
02:02:35.793 --> 02:02:37.470
And that's really,
02:02:37.470 --> 02:02:42.470
as we sort of look forward
in implementing SB 3
02:02:42.640 --> 02:02:45.160
and all the, you know,
knobs, I mentioned yesterday,
02:02:45.160 --> 02:02:47.883
and the levers that has
SB 3 includes in there,
02:02:48.750 --> 02:02:51.200
it's really important to keep in mind
02:02:51.200 --> 02:02:52.860
that those actions we take
02:02:52.860 --> 02:02:57.140
and even actions this
summer impact forward pricing.
02:02:57.140 --> 02:02:58.325
And so, actions
Absolutely.
02:02:58.325 --> 02:02:59.530
Would you hit the next slide, please?
02:02:59.530 --> 02:03:01.257
Or even statements (laughs).
02:03:02.780 --> 02:03:03.640
So this is what
we're talking about.
02:03:03.640 --> 02:03:05.450
Here, this is the forward curve,
02:03:05.450 --> 02:03:08.680
as we know it for ERCOT
north hub yesterday
02:03:08.680 --> 02:03:09.820
for the peak part of the curve.
02:03:09.820 --> 02:03:12.700
And this is speaking to
exactly what you're talking about
02:03:12.700 --> 02:03:14.500
and you can see there's a very,
02:03:14.500 --> 02:03:16.490
guess what those tall spikes are.
02:03:16.490 --> 02:03:17.350
That's summer.
02:03:17.350 --> 02:03:19.470
This is a year? Or
what's our timeline here?
02:03:19.470 --> 02:03:21.640
Through October
of '32 or something.
02:03:21.640 --> 02:03:23.470
I apologize for the scale.
02:03:23.470 --> 02:03:24.460
That's 10 years.
02:03:24.460 --> 02:03:26.120
that's captured
a lot of trades, yeah.
02:03:26.120 --> 02:03:26.953
That's right.
02:03:26.953 --> 02:03:30.440
So, and this may not actually be trades
02:03:30.440 --> 02:03:32.710
because we're using some
math to say, okay, well,
02:03:32.710 --> 02:03:34.700
I had a trade in '24 and a trade in '26,
02:03:34.700 --> 02:03:37.010
so I can make a good guess about '25.
02:03:37.010 --> 02:03:37.843
Does that make sense?
02:03:37.843 --> 02:03:39.210
Yep.
So what, okay,
02:03:39.210 --> 02:03:40.960
so what time period,
02:03:40.960 --> 02:03:44.750
I guess, for purposes of a
timeline, obviously, what the,
02:03:44.750 --> 02:03:46.353
if we take actions this fall,
02:03:46.353 --> 02:03:48.810
that will impact forward
pricing for next summer.
02:03:48.810 --> 02:03:49.643
Yeah.
Right?
02:03:49.643 --> 02:03:53.410
So, leading up to the
pricing this summer,
02:03:53.410 --> 02:03:55.860
obviously, there were
actions or things that happened
02:03:55.860 --> 02:03:58.313
that impacted forward
pricing for this summer.
02:03:59.890 --> 02:04:04.890
So, what would you say would be ways
02:04:04.920 --> 02:04:07.580
that we can positively
impact forward pricing?
02:04:07.580 --> 02:04:09.740
Because forward
pricing is very important
02:04:10.610 --> 02:04:12.320
to drive investment.
02:04:12.320 --> 02:04:14.830
What are some of the
actions you believe are some
02:04:14.830 --> 02:04:19.420
of like the zingers that
move those prices up, right?
02:04:19.420 --> 02:04:20.253
I mean-
Yeah.
02:04:20.253 --> 02:04:22.730
So, I'm not going to speculate on what,
02:04:22.730 --> 02:04:24.000
Not specifics, but like,
02:04:24.000 --> 02:04:24.833
Right.
02:04:24.833 --> 02:04:26.610
I mean, look,
Not specific numbers.
02:04:26.610 --> 02:04:29.750
Our job is to
not have an opinion.
02:04:29.750 --> 02:04:30.950
Right? And I don't.
02:04:30.950 --> 02:04:34.570
So I guess I have some bias
02:04:34.570 --> 02:04:37.450
because I know what leads
to more transactions typically.
02:04:37.450 --> 02:04:38.793
So, I like a little volatility, right?
02:04:38.793 --> 02:04:42.100
That we are a company that
makes money on the trading.
02:04:42.100 --> 02:04:43.730
And so, when people
are doing all this hedging,
02:04:43.730 --> 02:04:44.563
that's how we make money.
02:04:44.563 --> 02:04:46.834
So, if the market's
perfectly flat forever
02:04:46.834 --> 02:04:50.180
and ever, and ever, I'm
not going to have a business.
02:04:50.180 --> 02:04:52.470
But that doesn't mean
that's not the most utility
02:04:52.470 --> 02:04:54.580
for us as a society.
02:04:54.580 --> 02:04:56.110
So, if that's what happens,
that's what happens.
02:04:56.110 --> 02:04:57.490
That's fine.
02:04:57.490 --> 02:04:59.130
But in this particular case,
02:04:59.130 --> 02:05:02.367
it's difficult for me to point
to any one thing and say,
02:05:02.367 --> 02:05:04.277
"Well, if you take this action,
02:05:04.277 --> 02:05:08.120
"I'll see these peaks shave off by 30%."
02:05:08.120 --> 02:05:10.150
I can't really give you that. Right?
02:05:10.150 --> 02:05:12.320
Because it's a complex system.
02:05:12.320 --> 02:05:14.740
I think what you guys can do,
02:05:14.740 --> 02:05:18.350
and you're going to have
people who are way better experts
02:05:18.350 --> 02:05:22.940
in cause and effect on actual
generation and the prices
02:05:22.940 --> 02:05:24.550
and what happens to the customer.
02:05:24.550 --> 02:05:26.460
You're going to have
better experts than me.
02:05:26.460 --> 02:05:30.110
I'm, I am loosely an
expert on markets. Okay?
02:05:30.110 --> 02:05:32.710
So, I can tell you that the
reason those are higher
02:05:32.710 --> 02:05:33.543
in those things is
02:05:33.543 --> 02:05:36.139
because there's more
people willing to buy.
02:05:36.139 --> 02:05:37.400
So,
And I know it sounds silly,
02:05:37.400 --> 02:05:38.800
but there's more buyers than sellers
02:05:38.800 --> 02:05:40.020
and that's why it went up.
02:05:40.020 --> 02:05:43.960
Okay, so when I hear from
the stakeholder community,
02:05:43.960 --> 02:05:48.600
that what we did just
killed the ICE market,
02:05:48.600 --> 02:05:49.800
tell me what that means.
02:05:49.800 --> 02:05:54.800
I think what they mean
is the volatility got so high.
02:05:55.210 --> 02:06:00.200
The price got so high,
$9,000 for four days. Okay?
02:06:00.200 --> 02:06:02.770
Normally being 40 or $50,
02:06:02.770 --> 02:06:05.260
recall I have to collect initial margin
02:06:05.260 --> 02:06:10.260
from customers in order to
protect myself in the event
02:06:10.330 --> 02:06:11.690
that there are crazy price moves
02:06:11.690 --> 02:06:14.120
or large price moves,
whatever you want to say.
02:06:14.120 --> 02:06:17.453
I got to stop using
crazy. Large price moves.
02:06:18.350 --> 02:06:21.040
So, when we see sustained $9,000,
02:06:21.040 --> 02:06:24.380
I now have to factor
in the reality of $9,000
02:06:24.380 --> 02:06:26.030
into my risk model.
02:06:26.030 --> 02:06:31.030
Meaning that, whereas, say on
February 5th, maybe I assumed
02:06:31.550 --> 02:06:36.550
that there was a 0.01% chance
the price could be $9,000.
02:06:37.057 --> 02:06:38.670
It just doesn't happen very often.
02:06:38.670 --> 02:06:40.960
It happens for a couple
hours each summer.
02:06:40.960 --> 02:06:42.170
And the market absorbs that.
02:06:42.170 --> 02:06:43.440
It's not that really a big deal,
02:06:43.440 --> 02:06:45.780
but now all of a sudden, I've had $9,000
02:06:45.780 --> 02:06:47.510
for four and a half days.
02:06:47.510 --> 02:06:48.920
So, now instead of being 0.01,
02:06:48.920 --> 02:06:52.700
maybe there's a 1% or 2%
chance the price can be nine.
02:06:52.700 --> 02:06:55.491
That changes the
amount of collateral I need
02:06:55.491 --> 02:06:57.680
to require from my customers.
02:06:57.680 --> 02:06:59.130
Similarly, it should change the math
02:06:59.130 --> 02:07:02.090
that ERCOT needs to
collect more collateral
02:07:02.090 --> 02:07:04.280
from their customers as well, same idea.
02:07:04.280 --> 02:07:06.810
And so, when they
say "Killed the market,"
02:07:06.810 --> 02:07:07.710
that's very generic.
02:07:07.710 --> 02:07:08.930
So, it could mean a variety of things.
02:07:08.930 --> 02:07:10.410
And I'm sorry this is so long winded.
02:07:10.410 --> 02:07:11.260
It's okay.
But one,
02:07:11.260 --> 02:07:12.420
I assume they're saying
02:07:12.420 --> 02:07:16.680
that the market got a little less liquid
02:07:16.680 --> 02:07:19.060
and the reason it got a little
less liquid, in my opinion,
02:07:19.060 --> 02:07:22.010
is because margins were so high
02:07:22.010 --> 02:07:26.130
that to trade a 50 megawatt
hour hedge might cost you
02:07:26.130 --> 02:07:28.600
a million dollars in collateral,
02:07:28.600 --> 02:07:33.600
but that million dollars
represented $800 per megawatt hour
02:07:33.920 --> 02:07:35.190
of price risk.
02:07:35.190 --> 02:07:37.010
Well, that's not even 9,000, right?
02:07:37.010 --> 02:07:40.790
So, imagine if I had to
set the margin at 9,000
02:07:40.790 --> 02:07:42.300
and collect $7 million
02:07:42.300 --> 02:07:44.250
or something on that
order for a 50 mega,
02:07:44.250 --> 02:07:47.140
the market would have really
stopped trading at that point.
02:07:47.140 --> 02:07:50.090
So, I think what they
mean, my best guess,
02:07:50.090 --> 02:07:51.280
and I don't know who
you were speaking to.
02:07:51.280 --> 02:07:52.113
I'm sorry.
02:07:52.113 --> 02:07:56.763
Is that just that with
those prices being at 9,000,
02:07:58.430 --> 02:08:01.140
it meant that ICE, and by the way,
02:08:01.140 --> 02:08:04.860
the gas side too, gas went to
1,200 at a point in Oklahoma
02:08:04.860 --> 02:08:07.210
and 900 in a couple of places in Texas,
02:08:07.210 --> 02:08:11.990
we had to significantly raise
our collateral requirement
02:08:11.990 --> 02:08:13.177
and that's cash.
02:08:13.177 --> 02:08:15.990
And that's cash that these
companies have to come up with
02:08:15.990 --> 02:08:17.723
in order to stay sorta,
02:08:19.880 --> 02:08:22.233
instead of to stay
out of default, right?
02:08:23.270 --> 02:08:24.470
But that also means
02:08:24.470 --> 02:08:27.390
that where my collateral
requirement say,
02:08:27.390 --> 02:08:30.370
went from 100 million to 2 billion,
02:08:30.370 --> 02:08:35.190
that reduces my ability
to hedge the next contract.
02:08:35.190 --> 02:08:36.340
Does that make sense?
02:08:36.340 --> 02:08:37.173
Because I need to,
02:08:37.173 --> 02:08:39.983
I have to come up with
more cash to participate more.
02:08:41.180 --> 02:08:44.670
So, it took about two months
02:08:44.670 --> 02:08:47.950
of operating before the risk model,
02:08:47.950 --> 02:08:50.840
and I don't know about ERCOT's,
but certainly for our model,
02:08:50.840 --> 02:08:53.620
which we cleverly called
the ICE Risk Model.
02:08:53.620 --> 02:08:58.210
So IRM, it takes about two
months for big spikes like that
02:08:58.210 --> 02:08:59.490
to sort of decay enough
02:08:59.490 --> 02:09:02.540
that margins start to
return to a normal level.
02:09:02.540 --> 02:09:05.660
Now, you asked an interesting
question about what can we do
02:09:05.660 --> 02:09:07.623
that changes what will
happen on the forward curve?
02:09:07.623 --> 02:09:09.920
One of the things I
found most fascinating
02:09:09.920 --> 02:09:13.550
and I learned a lot during Uri was
02:09:13.550 --> 02:09:15.500
about the pool for $9,000.
02:09:15.500 --> 02:09:16.890
I actually didn't know
02:09:16.890 --> 02:09:19.770
because I don't think
we hit it very often before.
02:09:19.770 --> 02:09:23.390
So, when $9,000 was
sustained for four days,
02:09:23.390 --> 02:09:27.470
what we saw is the value,
the forward value of summer,
02:09:27.470 --> 02:09:31.240
the July and August
contract drifted from $87 down
02:09:31.240 --> 02:09:32.680
to about $65
02:09:33.830 --> 02:09:36.920
in the midst of all time record prices,
02:09:36.920 --> 02:09:40.400
the summer, in my brain,
should also be going up.
02:09:40.400 --> 02:09:41.750
Whoa, look what's possible.
02:09:42.610 --> 02:09:44.380
But you have to recall that now,
02:09:44.380 --> 02:09:45.650
because we've used all those funds,
02:09:45.650 --> 02:09:48.130
the cap is $2,000 for
the rest of the year.
02:09:48.130 --> 02:09:51.360
So, the maximum price this
summer is now only $2,000.
02:09:51.360 --> 02:09:53.300
Now, that's, you got a knock on effect.
02:09:53.300 --> 02:09:56.680
It means that this summer,
the most I can collect is $2,000.
02:09:56.680 --> 02:09:59.120
But going back to the
chairman's earlier question,
02:09:59.120 --> 02:10:01.390
is how do I incentivize generators
02:10:01.390 --> 02:10:03.320
to participate in this market?
02:10:03.320 --> 02:10:05.790
Some generators have now
missed out on the opportunity
02:10:05.790 --> 02:10:09.050
to collect on those higher
prices at different times
02:10:09.050 --> 02:10:10.070
for the rest of the year.
02:10:10.070 --> 02:10:10.903
I see.
02:10:10.903 --> 02:10:13.410
So, because of the sustained impact
02:10:13.410 --> 02:10:15.870
of the $9,000 for X amount of days,
02:10:15.870 --> 02:10:18.120
it impacted this summer, well, it,
02:10:18.120 --> 02:10:19.870
we reached the P and M.
02:10:19.870 --> 02:10:22.080
That's right.
That the LCAP kicked in.
02:10:22.080 --> 02:10:22.950
We're at 2,000.
02:10:22.950 --> 02:10:24.470
So, that impacted, obviously,
02:10:24.470 --> 02:10:26.050
the generator's ability
that were counting
02:10:26.050 --> 02:10:27.450
on making money this summer.
02:10:28.710 --> 02:10:29.543
That's right.
02:10:29.543 --> 02:10:31.350
They may not have been able
to run during the winter storm.
02:10:31.350 --> 02:10:33.040
And so, they've, for at least a year,
02:10:33.040 --> 02:10:35.083
they've lost the ability to
capture some of that P and L
02:10:35.083 --> 02:10:36.110
that they would have baked
02:10:36.110 --> 02:10:38.060
into their financial models, et cetera.
02:10:39.320 --> 02:10:40.890
Yeah.
02:10:40.890 --> 02:10:42.560
Good, good answer.
02:10:42.560 --> 02:10:44.530
I know we've got another panel
before we get to lunch break.
02:10:44.530 --> 02:10:47.767
So, I don't want to burden you
with too many more questions,
02:10:47.767 --> 02:10:49.050
but please keep going.
02:10:49.050 --> 02:10:52.200
No, this was
really the end slide.
02:10:52.200 --> 02:10:54.100
I think this is what
it's all about, right?
02:10:54.100 --> 02:10:55.213
So, everything that,
02:10:56.060 --> 02:11:00.510
that Dave and ERCOT have
done to build a market that is,
02:11:00.510 --> 02:11:03.280
again, frankly, it's
very, well-regarded,
02:11:03.280 --> 02:11:06.010
one for its amendability.
02:11:06.010 --> 02:11:08.242
So, I'm certainly not
going to be somebody
02:11:08.242 --> 02:11:10.370
to suggest you throw the
baby out with the bath water.
02:11:10.370 --> 02:11:11.450
I think that's one of the beauties
02:11:11.450 --> 02:11:14.170
of the ERCOT is the protocol process.
02:11:14.170 --> 02:11:15.740
And you can make changes and revisions
02:11:15.740 --> 02:11:18.957
and create better ideas as you learn.
02:11:18.957 --> 02:11:21.030
But everything that Dave
does and then, you know,
02:11:21.030 --> 02:11:21.863
Carrie is sort of here
02:11:21.863 --> 02:11:24.150
to make sure we're all
doing it the right way.
02:11:24.150 --> 02:11:25.920
You know, that the math works the way
02:11:25.920 --> 02:11:27.120
that it's designed.
02:11:27.120 --> 02:11:29.200
And then we are the
outcome of everything
02:11:29.200 --> 02:11:30.120
that ERCOT is doing.
02:11:30.120 --> 02:11:32.233
So, we are the forward market
02:11:32.233 --> 02:11:34.751
and why this is important
goes exactly back
02:11:34.751 --> 02:11:38.660
to your question, and Madam
Commissioner, your question,
02:11:38.660 --> 02:11:41.710
which is, how do I get new
people to come in and invest?
02:11:41.710 --> 02:11:45.440
Whether it's solar or
wind or new gas or nuclear,
02:11:45.440 --> 02:11:47.550
whatever it is and it's this, right?
02:11:47.550 --> 02:11:49.820
So, they come in and
they look at this model
02:11:49.820 --> 02:11:51.770
and they look at the peaks and valleys
02:11:51.770 --> 02:11:53.700
and they figure out the average cost
02:11:53.700 --> 02:11:55.577
and they say, "Here's
what my inputs are.
02:11:55.577 --> 02:11:57.887
"And based on a
decision right now today,
02:11:57.887 --> 02:12:01.457
"here's what I think I can
make over a 10 year period.
02:12:01.457 --> 02:12:04.257
"And does that justify my
investment in this state?"
02:12:05.850 --> 02:12:10.850
And all the knobs
you turn will affect this
02:12:10.900 --> 02:12:12.710
and it'll affect it
pretty quickly, right?
02:12:12.710 --> 02:12:14.140
The market is very efficient
02:12:14.140 --> 02:12:16.630
and that's something else to remember.
02:12:16.630 --> 02:12:20.840
Again, so the second we hit the P and M,
02:12:20.840 --> 02:12:23.410
we saw the summer start coming up.
02:12:23.410 --> 02:12:24.300
People are smart.
02:12:24.300 --> 02:12:27.010
The participants in this
market that are trading forward
02:12:27.010 --> 02:12:29.590
and managing their risk,
they're smart and efficient.
02:12:29.590 --> 02:12:33.130
And so, we see those things
happen in near realtime.
02:12:33.130 --> 02:12:34.900
Information is good these days
02:12:36.890 --> 02:12:39.450
and efficient, so, I
guess that's, this is it.
02:12:39.450 --> 02:12:41.230
That's the sum.
02:12:41.230 --> 02:12:43.070
Excellent. Thank you very much.
02:12:43.070 --> 02:12:44.530
Thank you, all of our panelists,
02:12:44.530 --> 02:12:47.780
appreciate your time, information,
02:12:47.780 --> 02:12:50.620
and your willingness to
field all these questions.
02:12:50.620 --> 02:12:52.260
Thanks so much to
you three for inviting us.
02:12:52.260 --> 02:12:53.820
Appreciate it.
02:12:53.820 --> 02:12:57.360
Next up, we have
TAEBA, Pattern Energy,
02:12:57.360 --> 02:12:59.080
and Hunt Energy Network.
02:13:03.050 --> 02:13:03.883
Yeah.
02:13:12.489 --> 02:13:14.072
Yes, please, sir.
02:13:19.379 --> 02:13:21.879
(door closes)
02:13:52.290 --> 02:13:55.457
(microphone shuffles)
02:14:40.053 --> 02:14:41.653
All right, do we have a,
02:14:43.390 --> 02:14:46.953
we've got TAEBA up first.
02:14:46.953 --> 02:14:49.863
Do we have a presentation or?
02:14:51.320 --> 02:14:52.320
We're working on it.
02:15:04.680 --> 02:15:06.390
Well, Pat, you wanted
to work sessions.
02:15:06.390 --> 02:15:08.390
You got work sessions.
02:15:08.390 --> 02:15:09.993
Oh, it's bringing
back all the memories.
02:15:09.993 --> 02:15:12.350
(laughs) It's good stuff.
02:15:12.350 --> 02:15:14.420
I know we have physical copies
02:15:14.420 --> 02:15:16.267
if you want to go ahead and get started,
02:15:16.267 --> 02:15:18.270
Suzanne.
Okay.
02:15:18.270 --> 02:15:20.790
And hopefully we'll
get the screen working,
02:15:20.790 --> 02:15:23.500
but for sake of time,
02:15:23.500 --> 02:15:26.070
please feel free to state your name
02:15:26.070 --> 02:15:28.420
and who you're with for
the record and dive right in.
02:15:28.420 --> 02:15:29.630
Great. Thank you.
02:15:29.630 --> 02:15:32.760
I'm Suzanne Bertin, and
I am Managing Director
02:15:32.760 --> 02:15:36.550
of Texas Advanced Energy
Business Alliance or TAEBA.
02:15:36.550 --> 02:15:39.530
And we are a business association
02:15:39.530 --> 02:15:41.750
of advanced energy companies,
02:15:41.750 --> 02:15:44.430
where advanced energy
really represents a wide range
02:15:44.430 --> 02:15:49.260
of technologies that
are the best technologies
02:15:49.260 --> 02:15:50.630
to make the grid more secure,
02:15:50.630 --> 02:15:52.060
clean, reliable, and affordable.
02:15:52.060 --> 02:15:57.020
So, it's technology such as
solar, wind, energy efficiency,
02:15:57.020 --> 02:15:59.423
demand response, energy storage,
02:16:00.470 --> 02:16:03.430
and electric vehicles
and charging equipment,
02:16:03.430 --> 02:16:04.900
all the hardware and software
02:16:04.900 --> 02:16:06.750
that ties all those systems together.
02:16:07.690 --> 02:16:09.390
Next slide, please.
02:16:09.390 --> 02:16:11.540
Actually, you can
move next one after that.
02:16:13.040 --> 02:16:15.890
So, today I want to focus,
02:16:15.890 --> 02:16:19.270
I want to take it up a little
bit, bigger picture issue
02:16:19.270 --> 02:16:23.030
to address specifically
distributed energy resources.
02:16:23.030 --> 02:16:24.890
You know, historically when we've talked
02:16:24.890 --> 02:16:27.790
about this market, we've
always kind of focused more
02:16:27.790 --> 02:16:30.670
on the supply side of the equation,
02:16:30.670 --> 02:16:32.770
big generation, really, you know,
02:16:32.770 --> 02:16:37.770
traveling large distances to
reach load in across the state
02:16:38.310 --> 02:16:41.600
and distributed energy
resources are really kind
02:16:41.600 --> 02:16:43.540
of the next frontier
02:16:43.540 --> 02:16:45.640
that we need to be addressing in ERCOT.
02:16:45.640 --> 02:16:48.100
And these are our broad
range of technologies,
02:16:48.100 --> 02:16:51.890
distributed solar, battery
storage, thermal storage.
02:16:51.890 --> 02:16:54.470
It could be, you know, onsite,
02:16:54.470 --> 02:16:56.320
you know, solar at somebody's house,
02:16:56.320 --> 02:16:59.890
connected devices in
the home, electric vehicles,
02:16:59.890 --> 02:17:01.730
all those kinds of technologies.
02:17:01.730 --> 02:17:05.490
And they're, you know,
smaller, much faster to market.
02:17:05.490 --> 02:17:09.300
They are typically connected
at that distribution level.
02:17:09.300 --> 02:17:12.900
So, when you think
about the overall grid,
02:17:12.900 --> 02:17:14.500
ERCOT is really looking
02:17:14.500 --> 02:17:16.500
at kind of the bolt transmission system.
02:17:16.500 --> 02:17:19.860
And then you get down
to the local utility level,
02:17:19.860 --> 02:17:22.190
that's where these technologies
are, and they could be,
02:17:22.190 --> 02:17:24.620
you know, onsite at
a home or a business,
02:17:24.620 --> 02:17:27.990
or just connected onto
the distribution system.
02:17:27.990 --> 02:17:30.170
They are also typically two way,
02:17:30.170 --> 02:17:33.580
so, they are consuming from the grid,
02:17:33.580 --> 02:17:38.040
but also able to inject
back onto the system.
02:17:38.040 --> 02:17:43.040
They also affect the whole
system from, you know, the local,
02:17:43.940 --> 02:17:47.593
obviously, the customer
has local benefits,
02:17:48.510 --> 02:17:53.510
and then they also affect
the local distribution system
02:17:53.550 --> 02:17:57.620
in terms of they can
provide for demand reduction,
02:17:57.620 --> 02:18:00.350
also, it affects the overall
transmission system,
02:18:00.350 --> 02:18:02.210
and then the amount of
generation that's needed
02:18:02.210 --> 02:18:03.820
on the system.
02:18:03.820 --> 02:18:07.331
Wood Mackenzie has, the
consulting firm's actually estimated
02:18:07.331 --> 02:18:12.220
that cumulative distributed
energy resource capacity
02:18:12.220 --> 02:18:14.280
in the United States
is projected to grow
02:18:14.280 --> 02:18:19.280
to an astounding 387 gigawatts by 2025.
02:18:19.740 --> 02:18:22.520
Now, Texas, obviously,
we're a huge state.
02:18:22.520 --> 02:18:25.500
And so, I think some of the
numbers I'm going to share
02:18:25.500 --> 02:18:28.870
with you a little bit later
will bear this out, but,
02:18:28.870 --> 02:18:30.620
you know, we should
expect that we're going
02:18:30.620 --> 02:18:32.813
to be a pretty
substantial portion of that.
02:18:34.560 --> 02:18:35.663
Next slide, please.
02:18:36.800 --> 02:18:38.580
So, just a few principles here.
02:18:38.580 --> 02:18:40.260
I think, you know,
02:18:40.260 --> 02:18:43.530
when we think about the overall market,
02:18:43.530 --> 02:18:47.770
I kinda like to think
of it as, you know,
02:18:47.770 --> 02:18:52.230
metaphorically like a symphony
orchestra that we have here,
02:18:52.230 --> 02:18:54.840
Texas has a wide range of
technologies that have something
02:18:54.840 --> 02:18:56.640
to offer in the market.
02:18:56.640 --> 02:19:00.830
And so, you know, whether
it's brass, woodwinds,
02:19:00.830 --> 02:19:01.880
or percussion, right?
02:19:01.880 --> 02:19:04.660
It's all, everybody playing together
02:19:04.660 --> 02:19:08.520
that ultimately, you know,
delivers the performance
02:19:08.520 --> 02:19:11.110
and the ultimate customer experience.
02:19:11.110 --> 02:19:12.720
So, the electric system's
really no different.
02:19:12.720 --> 02:19:16.430
We should be striving to
move policies forward that really,
02:19:16.430 --> 02:19:18.704
you know, get the best
out of the technologies
02:19:18.704 --> 02:19:22.380
that we have and take
advantage of those benefits
02:19:22.380 --> 02:19:25.930
for the benefit of all the, the
system and the customers.
02:19:25.930 --> 02:19:28.960
So, you know, to
that end, you know,
02:19:28.960 --> 02:19:31.570
market rules should be
maximizing these opportunities
02:19:31.570 --> 02:19:34.120
for technologies to provide services
02:19:34.120 --> 02:19:36.570
in accordance with the
technical capabilities,
02:19:36.570 --> 02:19:40.130
but we shouldn't be pitting
technologies against each other.
02:19:40.130 --> 02:19:43.690
We would recommend the ERCOT, you know,
02:19:43.690 --> 02:19:47.680
when it's thinking about
ancillary services and potentially,
02:19:47.680 --> 02:19:52.140
you know, future ancillary
service changes really, you know,
02:19:52.140 --> 02:19:53.520
first set clear guidance
02:19:53.520 --> 02:19:56.830
for what is the actual
service that's needed,
02:19:56.830 --> 02:19:59.650
and then develop the
qualifications to meet those needs.
02:19:59.650 --> 02:20:01.940
And, you know, be really agnostic
02:20:01.940 --> 02:20:05.680
as to what kind of technology
can provide the service.
02:20:05.680 --> 02:20:09.410
Market rule should
always foster innovation,
02:20:09.410 --> 02:20:11.500
ensuring that we allow a wide range
02:20:11.500 --> 02:20:13.453
of business models to participate.
02:20:14.360 --> 02:20:18.270
Customers in all customer
classes should have opportunities
02:20:18.270 --> 02:20:20.140
to participate in wholesale markets,
02:20:20.140 --> 02:20:23.850
whether individually or
as part of an aggregation,
02:20:23.850 --> 02:20:27.110
and they should be compensated
for those contributions
02:20:27.110 --> 02:20:28.710
that they provide to the market.
02:20:29.570 --> 02:20:33.130
You know, we talked,
we've talked about how,
02:20:33.130 --> 02:20:35.190
you know, there's a lot
of emphasis on supply,
02:20:35.190 --> 02:20:37.470
but demand is really half the equation.
02:20:37.470 --> 02:20:38.580
The part of the problem we had
02:20:38.580 --> 02:20:41.930
back in winter storm Uri was
just this humongous demand
02:20:41.930 --> 02:20:44.592
on the system at a time, you know,
02:20:44.592 --> 02:20:47.360
when we didn't have
adequate supply and it was just,
02:20:47.360 --> 02:20:48.430
it all ties together.
02:20:48.430 --> 02:20:50.760
So, it's half the equation.
02:20:50.760 --> 02:20:52.540
We need to be addressing
the demand side,
02:20:52.540 --> 02:20:54.710
as well as the supply side.
02:20:54.710 --> 02:20:56.770
Not all of that demand is inelastic.
02:20:56.770 --> 02:21:01.770
It's not just a vertical demand curve,
02:21:02.020 --> 02:21:04.970
but in fact, some folks
are going to be willing
02:21:04.970 --> 02:21:09.170
to modify their behavior
based on market signals.
02:21:09.170 --> 02:21:10.087
If we've got the prices, you know,
02:21:10.087 --> 02:21:12.630
the price signals have to be there.
02:21:12.630 --> 02:21:14.960
And finally, we should be,
02:21:14.960 --> 02:21:16.270
when we're thinking about market rules,
02:21:16.270 --> 02:21:19.460
we should really harmonize the retail
02:21:19.460 --> 02:21:20.810
and wholesale use cases
02:21:20.810 --> 02:21:23.800
to maximize the value to customers
02:21:23.800 --> 02:21:25.490
and the system as a whole.
02:21:25.490 --> 02:21:26.870
So, what I'm getting
at there is, you know,
02:21:26.870 --> 02:21:30.740
we've got sort of local value, you know,
02:21:30.740 --> 02:21:34.240
I may have at my house, but you know,
02:21:34.240 --> 02:21:36.370
the grid could also get value from that.
02:21:36.370 --> 02:21:38.590
So, let's make sure that the rules allow
02:21:38.590 --> 02:21:40.650
for that to really take place.
02:21:40.650 --> 02:21:41.773
Next slide, please.
02:21:43.200 --> 02:21:48.080
So, I wanted to just throw
out here a couple of use cases
02:21:48.080 --> 02:21:51.400
for DER just to kind of help, you know,
02:21:51.400 --> 02:21:53.990
paint a picture for what
the opportunity is here.
02:21:53.990 --> 02:21:56.850
So, you know, diving into the first one,
02:21:56.850 --> 02:21:59.510
electric school buses,
you can also think of this
02:21:59.510 --> 02:22:02.960
as a kind of more
frequently dispatched DER.
02:22:02.960 --> 02:22:06.130
And so, the distinction there
is really kind of compared
02:22:06.130 --> 02:22:08.480
to old school demand response, right?
02:22:08.480 --> 02:22:13.270
Where, you know, maybe it
just gets dispatched once a year.
02:22:13.270 --> 02:22:18.010
So, the distinction here is
electric school buses could be
02:22:18.010 --> 02:22:19.990
dispatched much more
frequently, like, you know,
02:22:19.990 --> 02:22:21.990
it's battery storage.
02:22:21.990 --> 02:22:26.990
And so, you know, as
battery costs are declining,
02:22:27.730 --> 02:22:29.430
we're going to see, more adoption
02:22:29.430 --> 02:22:31.830
of these electric school buses.
02:22:31.830 --> 02:22:34.860
By way of example, up in Maryland,
02:22:34.860 --> 02:22:39.490
Montgomery County has
just entered into a contract
02:22:39.490 --> 02:22:43.820
for 1,400 electric school buses.
02:22:43.820 --> 02:22:47.380
As you can see here, you know,
02:22:47.380 --> 02:22:50.660
there are 480,000 school buses
02:22:50.660 --> 02:22:53.550
that are on the road in the U.S.
02:22:53.550 --> 02:22:54.850
We are the number one state
02:22:54.850 --> 02:22:57.677
with more than 10% of the school buses
02:22:57.677 --> 02:22:59.100
that are on the road.
02:22:59.100 --> 02:23:03.160
So, you know, that gives you a feel
02:23:03.160 --> 02:23:07.343
for like how much DER
potential there really is here.
02:23:07.343 --> 02:23:10.233
Everman ISD, up in Fort Worth,
02:23:10.233 --> 02:23:13.360
has purchased some
electric school buses.
02:23:13.360 --> 02:23:17.540
They're piloting it, very excited
about what they're seeing
02:23:17.540 --> 02:23:20.780
in terms of the value
to the school district.
02:23:20.780 --> 02:23:21.730
But, you know, right now,
02:23:21.730 --> 02:23:25.640
they're not able to
deliver that value back
02:23:25.640 --> 02:23:29.490
to the rest of the grid
that would benefit all of us.
02:23:29.490 --> 02:23:33.390
So, you know, the
thing about school buses
02:23:33.390 --> 02:23:36.090
in particular is that,
02:23:36.090 --> 02:23:38.990
you know, they'll transport students.
02:23:38.990 --> 02:23:42.189
And then once those school
routes are done, you know,
02:23:42.189 --> 02:23:45.050
it's late afternoon, evening.
02:23:45.050 --> 02:23:48.880
That is a prime time, especially
on summer afternoons,
02:23:48.880 --> 02:23:52.060
when, you know, maybe they
haven't had to do a run at all.
02:23:52.060 --> 02:23:56.700
They're just a resource waiting
to be tapped into, you know,
02:23:56.700 --> 02:23:59.720
to address those peak demand
situations that we run into
02:23:59.720 --> 02:24:02.560
when we hit those $9,000 prices.
02:24:02.560 --> 02:24:04.890
So, a good opportunity there,
02:24:04.890 --> 02:24:06.490
let's move, next slide (coughs).
02:24:09.210 --> 02:24:10.910
I won't go over all of this in detail,
02:24:10.910 --> 02:24:14.290
but 'cause I know we're short on time,
02:24:14.290 --> 02:24:16.833
but essentially, this is just
demonstrating that, you know,
02:24:16.833 --> 02:24:18.930
when we refer to retail services here,
02:24:18.930 --> 02:24:20.480
you can think of it
as that kind of local,
02:24:20.480 --> 02:24:24.330
it could be a benefit to
the customer themselves,
02:24:24.330 --> 02:24:28.550
or it could be also a value
02:24:28.550 --> 02:24:31.200
to the local distribution utility.
02:24:31.200 --> 02:24:32.300
Y'all will recall
02:24:32.300 --> 02:24:37.300
that the legislature
passed SB 415 this session,
02:24:37.670 --> 02:24:41.930
which would allow for
battery storage in particular
02:24:41.930 --> 02:24:44.630
to be used to avoid
02:24:44.630 --> 02:24:47.750
or defer distribution
system investments.
02:24:47.750 --> 02:24:50.823
So, that's the kind of value
that we're talking about here.
02:24:52.790 --> 02:24:57.790
So, historically, you know, we've had,
02:25:00.420 --> 02:25:02.070
demand response
that's kind of, you know,
02:25:02.070 --> 02:25:06.310
it's really a reduction in load, right?
02:25:06.310 --> 02:25:11.310
But where we can take this
going forward is to really think
02:25:11.400 --> 02:25:14.250
about it more as a virtual power plant,
02:25:14.250 --> 02:25:17.090
being able to aggregate, you know,
02:25:17.090 --> 02:25:21.140
across the system or in
a, you know, a local area,
02:25:21.140 --> 02:25:23.170
multiple assets, and then,
02:25:23.170 --> 02:25:28.170
and have those multiple
assets deliver back to the system.
02:25:29.180 --> 02:25:34.180
That is a significant
opportunity that is still untapped.
02:25:36.190 --> 02:25:38.083
Let's move to the next slide, please.
02:25:39.540 --> 02:25:41.660
Another use case,
02:25:41.660 --> 02:25:46.660
this is behind the
meter solar plus storage,
02:25:46.710 --> 02:25:49.290
or you could have individual just,
02:25:49.290 --> 02:25:51.080
you could have just storage,
02:25:51.080 --> 02:25:54.760
whether that's like a Tesla
power wall, for example,
02:25:54.760 --> 02:25:58.483
or if it's a electric
vehicle at the home.
02:25:59.400 --> 02:26:02.610
There, this is an area where, you know,
02:26:02.610 --> 02:26:04.330
there's definitely increasing interest
02:26:04.330 --> 02:26:06.140
in this kind of local solution.
02:26:06.140 --> 02:26:07.610
I mean, you heard stories
02:26:07.610 --> 02:26:11.030
actually back during
the winter storm of folks
02:26:11.030 --> 02:26:15.320
who had a solar plus
storage solution at their homes
02:26:15.320 --> 02:26:18.740
and they were able to stay up
and running for multiple days.
02:26:18.740 --> 02:26:20.390
Yeah, so there you go, Pat would.
02:26:21.840 --> 02:26:23.910
Even while the whole
neighborhood was out. Right?
02:26:23.910 --> 02:26:27.210
So, I think based on that experience,
02:26:27.210 --> 02:26:32.060
we would expect an increase
in interest from customers
02:26:32.060 --> 02:26:36.230
in investing in these and, you know,
02:26:36.230 --> 02:26:38.363
similar to the school bus example,
02:26:39.850 --> 02:26:42.620
EV penetration, also
going to be increasing.
02:26:42.620 --> 02:26:45.080
You've probably seen the advertisements
02:26:45.080 --> 02:26:47.190
from Ford on their F-150.
02:26:47.190 --> 02:26:49.230
They are explicitly marketing it
02:26:49.230 --> 02:26:53.253
as a backup power
solution for folks' homes.
02:26:54.390 --> 02:26:59.153
So, these are, this is
another one where, you know,
02:27:03.860 --> 02:27:08.580
we'll be able to have these
solar plus storage systems
02:27:08.580 --> 02:27:09.850
that right now,
02:27:09.850 --> 02:27:14.387
they are simply just
providing these local solutions,
02:27:16.360 --> 02:27:21.360
but we should affirmatively
work to have them be injecting
02:27:22.410 --> 02:27:27.410
into the system in these, you
know, these aggregations of,
02:27:28.250 --> 02:27:31.230
you know, as this virtual
power plant concept.
02:27:31.230 --> 02:27:32.363
Next slide, please.
02:27:34.750 --> 02:27:35.583
So, again, just you know,
02:27:35.583 --> 02:27:36.753
some of the examples again,
02:27:36.753 --> 02:27:38.890
when we think about the retail services,
02:27:38.890 --> 02:27:41.480
I mean, local or some value potentially
02:27:41.480 --> 02:27:43.940
to a local distribution company,
02:27:43.940 --> 02:27:46.580
and then, you know,
on the wholesale side,
02:27:46.580 --> 02:27:48.470
there's all those, you know,
02:27:48.470 --> 02:27:50.833
variety of services
that could be provided.
02:27:52.340 --> 02:27:54.330
When you get down to customers,
02:27:54.330 --> 02:27:57.223
like particularly residential customers,
02:27:58.350 --> 02:28:02.620
you know, we'll need to
think about how does it work
02:28:02.620 --> 02:28:05.050
also from those retail types of rules
02:28:05.050 --> 02:28:08.060
and making sure that
it's not overly complex
02:28:08.060 --> 02:28:12.830
for customers to be able
to participate in markets.
02:28:12.830 --> 02:28:13.663
In some cases, you know,
02:28:13.663 --> 02:28:16.160
it may be a rep or
a third party provider
02:28:16.160 --> 02:28:19.080
that will likely take care
of a lot of, you know,
02:28:19.080 --> 02:28:22.850
take away that friction from
customers, but, you know,
02:28:22.850 --> 02:28:26.070
there could be a variety of
business models that really,
02:28:26.070 --> 02:28:27.370
you know, bring that home.
02:28:28.650 --> 02:28:33.155
So, when we're thinking about
the kinds of market barriers
02:28:33.155 --> 02:28:36.410
that, you know, need to be considered,
02:28:36.410 --> 02:28:40.593
and as ancillary services
continue to be modified over time,
02:28:41.580 --> 02:28:43.250
historically, one of the things
02:28:43.250 --> 02:28:46.131
that's come up over
and over is really trying
02:28:46.131 --> 02:28:50.900
to strike the right balance
between what is the data
02:28:50.900 --> 02:28:55.520
or transparency that ERCOT may need
02:28:55.520 --> 02:29:00.520
to have an idea of what's
going on with a resource, but,
02:29:01.350 --> 02:29:03.540
you know, if they put too
many requirements on,
02:29:03.540 --> 02:29:07.540
in terms of telemetry and,
you know, data requirements,
02:29:07.540 --> 02:29:11.600
it can become too costly
for somebody to be able
02:29:11.600 --> 02:29:14.270
to justify going down that path.
02:29:14.270 --> 02:29:17.150
So, we need to just be mindful of that.
02:29:17.150 --> 02:29:18.830
And, you know, only again,
02:29:18.830 --> 02:29:21.340
sort of think about
what do you really need?
02:29:21.340 --> 02:29:24.433
And then, you know, address that,
02:29:24.433 --> 02:29:26.870
just exactly what you
need and nothing more,
02:29:26.870 --> 02:29:30.310
otherwise it just
becomes cost prohibitive.
02:29:30.310 --> 02:29:35.310
So, these are just a couple of examples
02:29:36.540 --> 02:29:38.580
that I've put forth just to give an idea
02:29:38.580 --> 02:29:40.950
of where DERs could go.
02:29:40.950 --> 02:29:45.790
But I just wanted to
mention that, in 2019,
02:29:45.790 --> 02:29:49.670
we Commissioned a
study from a consulting firm
02:29:49.670 --> 02:29:52.810
that has expertise in
distributed energy resources
02:29:52.810 --> 02:29:54.220
and valuing them.
02:29:54.220 --> 02:29:58.483
And we asked them
to answer the question,
02:29:59.350 --> 02:30:02.110
how much money is
left on the table in Texas,
02:30:02.110 --> 02:30:05.230
if these DERs that are out there already
02:30:05.230 --> 02:30:10.010
on the system can't be integrated fully?
02:30:10.010 --> 02:30:13.730
And what they came
back with was, you know,
02:30:13.730 --> 02:30:15.593
just the 1,000, you know,
02:30:15.593 --> 02:30:19.403
1,000 megawatts that's out
there right now already on homes,
02:30:20.420 --> 02:30:25.420
that it's a $5.47 billion
value over 10 years
02:30:26.530 --> 02:30:31.240
from part of it being
wholesale market value,
02:30:31.240 --> 02:30:34.670
about $3 plus billion on
wholesale market value,
02:30:34.670 --> 02:30:37.250
being able to inject in
those high price times,
02:30:37.250 --> 02:30:41.430
and then another, roughly $2.5 billion
02:30:41.430 --> 02:30:44.980
in terms of those
non-wire solutions deferring
02:30:44.980 --> 02:30:48.110
or avoiding local distribution costs.
02:30:48.110 --> 02:30:51.787
And that data that was used
to put together that study was,
02:30:51.787 --> 02:30:54.080
you know, the report was in 2019,
02:30:54.080 --> 02:30:58.580
it was before we started
hitting all these $9,000 prices
02:30:58.580 --> 02:31:00.430
on a more regular basis.
02:31:00.430 --> 02:31:02.500
So after winter storm Uri,
02:31:02.500 --> 02:31:06.930
I think it is definitely safe
to say that the number
02:31:06.930 --> 02:31:10.500
that was in that report
substantially understates
02:31:10.500 --> 02:31:14.263
the value that Texas
would gain through DERs.
02:31:15.370 --> 02:31:18.291
So, I'll stop there with
my opening remarks
02:31:18.291 --> 02:31:21.473
and pass it on.
02:31:23.130 --> 02:31:28.023
Has there been any
analysis done on, again,
02:31:29.720 --> 02:31:31.440
what your technologies,
02:31:31.440 --> 02:31:35.510
your suite of technologies
bring to the table is the ability
02:31:35.510 --> 02:31:40.390
to concentrate distributed
generation and aggregate it
02:31:40.390 --> 02:31:42.660
in clusters around the state
02:31:42.660 --> 02:31:47.130
and throw an immense amount
of power back onto the wires.
02:31:47.130 --> 02:31:48.560
Now, again, this is going to be coming
02:31:48.560 --> 02:31:50.700
from a series of neighborhoods
02:31:50.700 --> 02:31:54.513
and facilities that
traditionally have been net,
02:31:56.330 --> 02:31:58.250
they suck power, you know,
02:31:58.250 --> 02:32:01.440
to kind of copy an old
Navy engineer I once heard
02:32:01.440 --> 02:32:02.273
about this, I mean,
02:32:02.273 --> 02:32:07.120
they're constantly pulling
power off the system, but again,
02:32:08.040 --> 02:32:11.750
the transmission infrastructure
around those areas,
02:32:11.750 --> 02:32:15.890
it's not a, I mean, this is a
distribution system as well.
02:32:15.890 --> 02:32:20.200
And so, it's not wired like
the industrials, you know,
02:32:20.200 --> 02:32:23.130
refineries, it's not
wired like a power plant,
02:32:23.130 --> 02:32:25.430
so, it's not a net off-taker right
02:32:25.430 --> 02:32:27.640
from the transmission
system right there.
02:32:27.640 --> 02:32:30.730
So, have we done some
analysis on what we need
02:32:30.730 --> 02:32:32.450
to be considering moving forward
02:32:32.450 --> 02:32:35.370
in our transmission
and distribution planning
02:32:35.370 --> 02:32:38.630
to account for this type of resource
02:32:41.210 --> 02:32:43.763
and in these different
parts of the state?
02:32:44.601 --> 02:32:46.450
What do we need to be accounting for
02:32:46.450 --> 02:32:48.250
at the Commission level?
02:32:48.250 --> 02:32:51.280
And then there's the cost, you
know, which is always there.
02:32:51.280 --> 02:32:54.660
So, Katie'll get up and talk
about all that in a minute,
02:32:54.660 --> 02:32:57.513
but what analysis has been done?
02:32:59.620 --> 02:33:02.120
So, I'm not aware
of a, you know,
02:33:02.120 --> 02:33:05.010
specific analysis looking at, you know,
02:33:05.010 --> 02:33:06.860
what does Texas need to do?
02:33:06.860 --> 02:33:10.690
If everybody throws their
Ford F-150s in my neighborhood,
02:33:10.690 --> 02:33:13.410
in Cedar Park onto the grid.
02:33:13.410 --> 02:33:14.243
Right.
At, so, you know,
02:33:14.243 --> 02:33:16.653
Cedar Park's not accustomed to that.
02:33:17.640 --> 02:33:21.680
Well, the individual
distribution utilities are
02:33:21.680 --> 02:33:22.680
always looking at this.
02:33:22.680 --> 02:33:24.780
They're, you know, they're
looking five, 10 years out.
02:33:24.780 --> 02:33:27.150
And then they're also looking, you know,
02:33:27.150 --> 02:33:29.600
a more granular level at, you know,
02:33:29.600 --> 02:33:32.060
one year out, for example.
02:33:32.060 --> 02:33:37.060
But I would suggest that
the Commission would,
02:33:38.650 --> 02:33:42.840
we would all benefit if perhaps
through the implementation
02:33:42.840 --> 02:33:45.890
of SB 415, when you
start looking at, you know,
02:33:45.890 --> 02:33:49.460
how do non-wire solutions, you know,
02:33:49.460 --> 02:33:51.460
how are they brought into the,
02:33:51.460 --> 02:33:54.540
that distribution planning process?
02:33:54.540 --> 02:33:56.870
You know, having some
additional transparency
02:33:56.870 --> 02:33:59.600
around what that process is,
02:33:59.600 --> 02:34:04.600
and then how distribution
or DER providers, you know,
02:34:05.240 --> 02:34:09.010
can contribute to that
because you can, you know,
02:34:09.010 --> 02:34:12.730
you could have a situation
where maybe people cluster
02:34:12.730 --> 02:34:14.990
or the assets cluster in one place,
02:34:14.990 --> 02:34:17.120
but if you've got the
right price signals
02:34:17.120 --> 02:34:21.190
and information on where
would it be most advantageous
02:34:21.190 --> 02:34:24.030
to the utility in terms of, you know,
02:34:24.030 --> 02:34:29.030
reducing sort of local
congestion, if you will,
02:34:29.417 --> 02:34:31.960
or local capacity constraints
02:34:31.960 --> 02:34:34.040
that the distribution utility has, it,
02:34:34.040 --> 02:34:37.230
these are all technologies
that provide a benefit
02:34:37.230 --> 02:34:39.883
to utility, you know, if we do it right.
02:34:39.883 --> 02:34:42.610
So, that's what I would suggest is
02:34:42.610 --> 02:34:47.030
that we should definitely have
a more transparent process.
02:34:47.030 --> 02:34:48.380
Right now, it's just a black box.
02:34:48.380 --> 02:34:50.113
Utilities do their thing.
02:34:51.030 --> 02:34:52.440
In terms of distribution planning,
02:34:52.440 --> 02:34:54.330
everybody else doesn't
really have any insight
02:34:54.330 --> 02:34:56.790
into what that is, what the, you know,
02:34:56.790 --> 02:35:00.790
where the most
advantageous places would be
02:35:00.790 --> 02:35:02.590
for these resources to locate.
02:35:02.590 --> 02:35:05.280
But given what you're
seeing in terms of your group
02:35:05.280 --> 02:35:07.540
and the technologies that are coming on,
02:35:07.540 --> 02:35:10.640
it seems like DER could
be a ubiquitous source
02:35:10.640 --> 02:35:13.760
of power production
in the very near future.
02:35:13.760 --> 02:35:17.100
And currently, the ERCOT
planning process does not drill
02:35:17.100 --> 02:35:20.090
down to that degree of
specificity to include that,
02:35:20.090 --> 02:35:22.950
for us, with the TDUs for our approval
02:35:22.950 --> 02:35:26.530
and rate cases or anything
else at the wholesale level.
02:35:26.530 --> 02:35:28.210
Right, I mean, ERCOT,
02:35:28.210 --> 02:35:31.380
they look at transmission, right?
02:35:31.380 --> 02:35:33.670
And so, there's kind
of like almost a line,
02:35:33.670 --> 02:35:35.160
like beyond that line,
02:35:35.160 --> 02:35:38.050
it's the local distribution utilities
02:35:38.050 --> 02:35:39.280
and only they would,
02:35:39.280 --> 02:35:42.900
only they know what's going
on in their specific areas.
02:35:42.900 --> 02:35:45.520
Like I said, it's like a black
box to everybody else.
02:35:45.520 --> 02:35:46.353
Okay.
02:35:46.353 --> 02:35:51.300
So, just to kind of
dovetail from Will.
02:35:51.300 --> 02:35:52.343
So, I think, you know,
02:35:52.343 --> 02:35:55.107
what you're generally
saying is there's definitely a lot
02:35:55.107 --> 02:35:59.100
of potential on the
demand side of the equation
02:35:59.100 --> 02:36:00.130
with demand response
02:36:00.130 --> 02:36:03.660
and distributed energy resources and DG
02:36:03.660 --> 02:36:06.640
and ERCOT right now doesn't have, well,
02:36:06.640 --> 02:36:09.060
it doesn't have visibility
into the distribution network.
02:36:09.060 --> 02:36:13.060
They operate at the high
level, transmission line level.
02:36:13.060 --> 02:36:17.760
And while ERCOT has
taken a lot of steps to integrate,
02:36:17.760 --> 02:36:20.740
register and integrate
DERs into the market
02:36:20.740 --> 02:36:22.053
this last year,
02:36:23.445 --> 02:36:26.130
there's still some actions
that could be taken
02:36:26.130 --> 02:36:28.180
to further integrate these resources
02:36:28.180 --> 02:36:31.553
and capture value from
these resources in the future.
02:36:33.010 --> 02:36:35.450
You know, I, there's
been a lot of discussion on,
02:36:35.450 --> 02:36:39.480
you know, or observations
that consumers should be paid
02:36:39.480 --> 02:36:41.030
for conserving energy,
02:36:41.030 --> 02:36:43.323
your demand response, like other loads.
02:36:44.450 --> 02:36:45.810
That's something that I think, you know,
02:36:45.810 --> 02:36:47.920
has gotten a lot of attention.
02:36:47.920 --> 02:36:50.407
And, you know, one thing that I think,
02:36:50.407 --> 02:36:52.250
you know, 'cause I've
been sort of thinking
02:36:52.250 --> 02:36:53.383
about these issues,
02:36:54.340 --> 02:36:55.640
you know, how do we,
02:36:55.640 --> 02:36:57.210
how does ERCOT gain more visibility
02:36:57.210 --> 02:36:59.930
into the distribution network?
02:36:59.930 --> 02:37:01.320
I mean, right now,
02:37:01.320 --> 02:37:02.780
they have, for what I understand,
02:37:02.780 --> 02:37:06.950
only 100 megawatts of
solar DG on the system.
02:37:06.950 --> 02:37:09.820
There's about 550 megawatts of storage
02:37:09.820 --> 02:37:13.440
and with like maybe
about 1,700 in the queue.
02:37:13.440 --> 02:37:16.680
So, we are seeing increase, right?
02:37:16.680 --> 02:37:19.520
But not a tremendous
explosion to warrant,
02:37:19.520 --> 02:37:24.520
perhaps, the distribution ISO
model that would have like,
02:37:24.847 --> 02:37:27.470
you know, little mini
ISOs throughout the state
02:37:27.470 --> 02:37:29.980
that would be on the
distribution network
02:37:29.980 --> 02:37:32.100
to feed ERCOT that information.
02:37:32.100 --> 02:37:33.810
So right now, we largely rely
02:37:33.810 --> 02:37:36.520
on the distribution service providers
02:37:36.520 --> 02:37:38.370
to provide that information to ERCOT,
02:37:39.390 --> 02:37:43.580
to be able to garner
some of that, you know,
02:37:43.580 --> 02:37:45.720
visibility and potential benefits
02:37:45.720 --> 02:37:48.530
that we can get from these resources
02:37:48.530 --> 02:37:50.020
on the distribution network.
02:37:50.020 --> 02:37:51.660
So, that's kind of the way I envision
02:37:51.660 --> 02:37:52.780
sort of the way it is right now,
02:37:52.780 --> 02:37:57.020
the state of the state of DERs,
the actions ERCOT's taken,
02:37:57.020 --> 02:37:58.620
the visibility they have,
02:37:58.620 --> 02:38:00.850
further, you know,
steps that could be taken
02:38:00.850 --> 02:38:03.160
to gain visibility.
02:38:03.160 --> 02:38:06.080
How can ERCOT get visibility
now to kind of, you know,
02:38:06.080 --> 02:38:08.950
capture the benefit
from these resources?
02:38:08.950 --> 02:38:11.453
But then to Will's point about cost,
02:38:12.623 --> 02:38:14.750
it's a very valid sort
of segue into this.
02:38:14.750 --> 02:38:16.780
As, you know, as he was I think saying
02:38:16.780 --> 02:38:18.820
that the distribution
network is built the way it is
02:38:18.820 --> 02:38:21.280
right now, and as you have more and more
02:38:21.280 --> 02:38:25.490
of these DERs on the system,
you may hear from some
02:38:25.490 --> 02:38:27.710
of the distribution service
providers state that,
02:38:27.710 --> 02:38:30.527
you know, these adding,
added costs to the system
02:38:30.527 --> 02:38:32.600
and how do we, as a
Commission, the back end,
02:38:32.600 --> 02:38:35.280
while we want to capture
the benefit of DERs,
02:38:35.280 --> 02:38:40.280
how do we in the future
ensure that when TDUs,
02:38:41.490 --> 02:38:42.940
distribution service
providers, they come in,
02:38:42.940 --> 02:38:44.880
basically for rate cases,
02:38:44.880 --> 02:38:46.140
how do we allocate those costs?
02:38:46.140 --> 02:38:48.060
Because the distribution
service costs are
02:38:48.060 --> 02:38:51.310
typically allocated to
residential consumers,
02:38:51.310 --> 02:38:52.360
small business, I guess.
02:38:52.360 --> 02:38:55.780
And so, on the back
end, on the cost allocation,
02:38:55.780 --> 02:38:57.090
that's the part that, you know,
02:38:57.090 --> 02:38:59.310
we need to remain cognizant of
02:38:59.310 --> 02:39:03.660
as we have more and more
DERs proliferate in the state,
02:39:03.660 --> 02:39:07.230
how not only from, you know,
02:39:07.230 --> 02:39:12.230
demand side benefit
perspective, we can incent,
02:39:12.600 --> 02:39:14.970
you know, participation and integration,
02:39:14.970 --> 02:39:17.250
but also be mindful of the cost impacts
02:39:17.250 --> 02:39:21.320
that these resources
will have on the system
02:39:21.320 --> 02:39:24.680
and ultimately on consumers.
02:39:24.680 --> 02:39:26.720
I mean, I think we
sort of alluded to this
02:39:26.720 --> 02:39:29.650
in the EV discussion back
about two years ago, right?
02:39:29.650 --> 02:39:32.440
As you have more EV added to the system,
02:39:32.440 --> 02:39:33.990
we certainly want to have, you know,
02:39:33.990 --> 02:39:36.310
the technology proliferate in the state,
02:39:36.310 --> 02:39:39.090
but as you have more
EVs charging stations added
02:39:39.090 --> 02:39:40.440
to distribution systems,
02:39:40.440 --> 02:39:43.070
then who's going to pay
at the end of the day?
02:39:43.070 --> 02:39:45.170
So, these are just to kind of,
02:39:45.170 --> 02:39:47.950
really, my whole point
is, as a Commission,
02:39:47.950 --> 02:39:52.370
we've got to look at the broader
picture of how do we work
02:39:52.370 --> 02:39:55.110
to integrate these technologies
02:39:55.110 --> 02:39:56.400
that could be very beneficial,
02:39:56.400 --> 02:40:00.720
but also being mindful of any
cost impacts down the road
02:40:00.720 --> 02:40:05.090
as they come to us in
various forums, like rate cases?
02:40:06.830 --> 02:40:08.280
And here's another thought.
02:40:09.820 --> 02:40:14.740
So, you're going to need to
go through a queasy kind of
02:40:14.740 --> 02:40:15.880
to operate in ERCOT.
02:40:15.880 --> 02:40:17.860
Ultimately, once everybody
aggregates together,
02:40:17.860 --> 02:40:19.010
everybody's Ford F-150
02:40:20.110 --> 02:40:21.500
and then you're going to go through
02:40:21.500 --> 02:40:25.110
in a competitive area through
your retail electric provider.
02:40:25.110 --> 02:40:28.630
And so, then NRG or Vistra,
02:40:28.630 --> 02:40:32.633
who collectively have 80%
of the retail electric market,
02:40:33.676 --> 02:40:38.676
70 to 80, then are producing
power through their rep
02:40:39.810 --> 02:40:41.280
and putting that back on the market
02:40:41.280 --> 02:40:43.080
through everybody's Ford F-150s.
02:40:43.080 --> 02:40:46.820
In the meantime, they
have a generation fleet,
02:40:46.820 --> 02:40:50.120
which is under cost
pressure from all this stuff.
02:40:50.120 --> 02:40:52.970
So yeah,
02:40:52.970 --> 02:40:54.470
it's going to brave new world.
(Peter speaks indistinctly)
02:40:54.470 --> 02:40:56.110
No, that's right.
02:40:56.110 --> 02:40:58.020
Well, and first of all,
02:40:58.020 --> 02:41:00.547
back to Commissioner Cobos' point,
02:41:02.640 --> 02:41:05.270
we need to make sure
that we all keep in mind
02:41:05.270 --> 02:41:10.270
that there are costs and benefits.
02:41:11.020 --> 02:41:14.750
So, it's not strictly that
these are putting more costs
02:41:14.750 --> 02:41:15.583
on the system.
02:41:15.583 --> 02:41:16.570
They're also providing benefits
02:41:16.570 --> 02:41:17.403
to the system.
Suzanne, this is
02:41:17.403 --> 02:41:18.810
a good thing, don't get me wrong.
02:41:18.810 --> 02:41:19.643
Yeah.
You know,
02:41:19.643 --> 02:41:21.003
this is a good thing, you
have a good thing going.
02:41:21.003 --> 02:41:22.027
And that's all I'm
trying to highlight is
02:41:22.027 --> 02:41:23.660
there are costs and benefits.
Right.
02:41:23.660 --> 02:41:26.060
And we as a Commission
need to be mindful of all of them
02:41:26.060 --> 02:41:29.140
while, you know,
looking for specific ways
02:41:29.140 --> 02:41:32.530
from some of the distribution, the DERs,
02:41:32.530 --> 02:41:34.750
on ways that we can, like you suggested,
02:41:34.750 --> 02:41:35.650
how can we do that?
02:41:35.650 --> 02:41:37.400
How can we fold them in,
02:41:37.400 --> 02:41:39.460
these resources into
these various markets
02:41:39.460 --> 02:41:40.820
in a way that makes sense?
02:41:40.820 --> 02:41:42.830
I mean, we certainly want to, you know,
02:41:42.830 --> 02:41:44.820
encourage the potential,
but as a Commission,
02:41:44.820 --> 02:41:46.080
we've got to look at the whole picture
02:41:46.080 --> 02:41:49.450
and just wanted to highlight
that, in some cases, you know,
02:41:49.450 --> 02:41:51.220
in the not too distant future,
02:41:51.220 --> 02:41:53.110
we may be hearing from some
02:41:53.110 --> 02:41:54.840
of the distribution service providers
02:41:54.840 --> 02:41:59.840
as we have a rapid increase
or rush from these DERs
02:41:59.860 --> 02:42:01.510
that want to connect.
Right, yeah.
02:42:01.510 --> 02:42:04.860
100% and, you know, keep in mind also,
02:42:04.860 --> 02:42:08.350
customers are already
incurring these costs
02:42:08.350 --> 02:42:11.700
on their own dime to
put these, you know,
02:42:11.700 --> 02:42:14.147
on their rooftops.
Right, some customers.
02:42:14.147 --> 02:42:14.980
Yes.
02:42:14.980 --> 02:42:17.590
Yeah, so it's, you know,
02:42:17.590 --> 02:42:21.610
still a small number
relatively, but they're,
02:42:21.610 --> 02:42:23.010
you know, incurring those costs
02:42:23.010 --> 02:42:27.230
for their own personal
resilience and reliability.
02:42:27.230 --> 02:42:29.320
And, you know, part of the point is that
02:42:29.320 --> 02:42:33.140
that is just an asset that's out there
02:42:34.040 --> 02:42:37.640
that's available to
us collectively as a,
02:42:37.640 --> 02:42:38.940
you know, overall system.
02:42:38.940 --> 02:42:40.118
And so we need to make sure
02:42:40.118 --> 02:42:44.660
that we're putting the rules
in place that would allow
02:42:44.660 --> 02:42:47.890
for the system to get
the benefit from that too,
02:42:47.890 --> 02:42:51.370
which will lower costs for
the local distribution utility,
02:42:51.370 --> 02:42:52.680
if you do it right.
02:42:52.680 --> 02:42:55.820
And we, I mean, the not you directly,
02:42:55.820 --> 02:42:59.300
but if we all do it right,
and have, you know,
02:42:59.300 --> 02:43:00.840
all the transparency we need
02:43:00.840 --> 02:43:05.820
and also to Commissioner McAdams' point,
02:43:05.820 --> 02:43:09.070
it may be the reps
who, you know, do this,
02:43:09.070 --> 02:43:10.600
but they're also, you know,
02:43:10.600 --> 02:43:12.890
you could have totally
different business models.
02:43:12.890 --> 02:43:13.736
There could be
competition for that.
02:43:13.736 --> 02:43:14.730
Absolutely.
Right.
02:43:14.730 --> 02:43:17.160
It's a, you know, there's
third party providers.
02:43:17.160 --> 02:43:20.150
What you're seeing more
is also this kind of energy
02:43:20.150 --> 02:43:22.840
as a service as a concept
or school bus as a service,
02:43:22.840 --> 02:43:23.800
even, where you could have
Right.
02:43:23.800 --> 02:43:26.340
Somebody come in and you know,
02:43:26.340 --> 02:43:30.680
just sell, you know, school
buses, traveling on a route
02:43:30.680 --> 02:43:31.750
to a school district.
02:43:31.750 --> 02:43:33.005
And then that third party takes care
02:43:33.005 --> 02:43:34.870
of all of the technical issues.
02:43:34.870 --> 02:43:37.740
Oh no, I'm going back
to my days when TASB,
02:43:37.740 --> 02:43:41.100
Texas Association of School
Board had a retail contract,
02:43:41.100 --> 02:43:42.670
you know, and stuff like that.
02:43:42.670 --> 02:43:43.800
So yeah, oh, it's,
Right.
02:43:43.800 --> 02:43:44.633
So, yeah.
It's going to be
02:43:44.633 --> 02:43:46.030
a brave new world.
Definitely want to,
02:43:46.030 --> 02:43:50.400
you know, allow all of
the business models that,
02:43:50.400 --> 02:43:54.290
you know, anybody can come up with that,
02:43:54.290 --> 02:43:56.790
you know, to be able to
participate in the system.
02:43:56.790 --> 02:44:00.963
I would also highlight
for you, Commissioner,
02:44:02.770 --> 02:44:05.230
get all these things that
we're coming up with right now.
02:44:05.230 --> 02:44:07.720
And I've been approached by
people asking for clarification
02:44:07.720 --> 02:44:11.210
of what we wanted in the
non-ERCOT proceeding,
02:44:11.210 --> 02:44:14.650
rulemaking, on distributed
energy resources.
02:44:14.650 --> 02:44:17.180
This is exactly why we need a rulemaking
02:44:17.180 --> 02:44:18.630
on the non-ERCOT stuff,
02:44:18.630 --> 02:44:22.160
because all these
questions, it doesn't matter,
02:44:22.160 --> 02:44:24.580
it is beyond jurisdiction.
02:44:24.580 --> 02:44:27.560
It's applying inside of
ERCOT and outside of ERCOT,
02:44:27.560 --> 02:44:29.897
how these things are going
to be integrated and paid for,
02:44:29.897 --> 02:44:32.640
and the various scenarios
that need to be contemplated
02:44:32.640 --> 02:44:33.680
a little bit of nuance,
02:44:33.680 --> 02:44:36.680
but ultimately, it's a new
resource coming onto the system
02:44:36.680 --> 02:44:39.720
that is going to be harnessed
by either a incumbent utility
02:44:39.720 --> 02:44:43.710
and sold elsewhere,
but it's very technical
02:44:43.710 --> 02:44:47.180
and I am not smart enough
to put pen to paper right now,
02:44:47.180 --> 02:44:50.320
but ultimately, stakeholders
and staff need to start that.
02:44:50.320 --> 02:44:51.153
Well, the resources
are going to be
02:44:51.153 --> 02:44:52.680
in distribution system,
02:44:52.680 --> 02:44:55.040
whether it's on a
utility inside of ERCOT
02:44:55.040 --> 02:44:56.540
or outside of ERCOT, right?
02:44:56.540 --> 02:44:58.770
So, all I'm really
asking is we sort of look,
02:44:58.770 --> 02:45:01.100
or I will ask is, as we
sort of look into the future
02:45:01.100 --> 02:45:03.450
and look at ways to
further integrate DER
02:45:03.450 --> 02:45:06.660
and capture the value
that you help us try
02:45:06.660 --> 02:45:09.620
to balance these issues
out so that we can do it
02:45:09.620 --> 02:45:13.560
in a cost effective, cost
equitable way in the future.
02:45:13.560 --> 02:45:16.770
And as we're going to hear
from the wires companies as well
02:45:16.770 --> 02:45:20.283
on their opinions and
other consumers, right?
02:45:21.310 --> 02:45:24.550
To kind of help us reach that sweet spot
02:45:24.550 --> 02:45:27.480
to make it all work, because
there are, there is potential,
02:45:27.480 --> 02:45:30.010
but we gotta be mindful
of cost in the back end,
02:45:30.010 --> 02:45:32.660
but I'm confident that
we can get somewhere
02:45:32.660 --> 02:45:35.500
in that whole discussion
that strikes the right balance.
02:45:35.500 --> 02:45:38.400
Absolutely, and definitely
appreciate the comment about,
02:45:38.400 --> 02:45:41.450
it's not just ERCOT, it's
also non-ERCOT utilities,
02:45:41.450 --> 02:45:44.940
whether they're integrated
or, you know, separated,
02:45:44.940 --> 02:45:46.110
like we've got in ERCOT.
02:45:46.110 --> 02:45:47.580
And in fact, you know,
02:45:47.580 --> 02:45:50.900
the Federal Energy Regulatory
Commission has issued
02:45:50.900 --> 02:45:54.440
Order 2222 that mandates that, you know,
02:45:54.440 --> 02:45:57.820
MISO, SPP, and the other regional grids
02:45:57.820 --> 02:46:00.610
that are outside of ERCOT
02:46:00.610 --> 02:46:03.280
actually take specific steps forward
02:46:03.280 --> 02:46:04.780
to integrate these DERs.
02:46:04.780 --> 02:46:06.970
So, you know, it's happening everywhere.
02:46:06.970 --> 02:46:10.140
And so, I appreciate the,
the, you know, considering,
02:46:10.140 --> 02:46:13.150
we need to consider the whole
state, and not just ERCOT.
02:46:13.150 --> 02:46:15.850
Well put. All right,
thank you, Suzanne.
02:46:15.850 --> 02:46:17.103
Next up, Pattern Energy.
02:46:18.120 --> 02:46:19.920
Hi. Good afternoon,
Commissioners.
02:46:21.260 --> 02:46:23.030
I don't have any presentation material.
02:46:23.030 --> 02:46:24.650
So, I'm just going to go
on my script right here,
02:46:24.650 --> 02:46:27.160
but the conversation this
morning has been evolving.
02:46:27.160 --> 02:46:28.390
So, I'm going to try
02:46:28.390 --> 02:46:31.280
to work with the points
as we go through.
02:46:31.280 --> 02:46:33.060
My name is Kara Beckmann
and I'm the Director
02:46:33.060 --> 02:46:36.130
of Regulatory Compliance
and Energy Policy Design
02:46:36.130 --> 02:46:37.630
for Pattern Energy.
02:46:37.630 --> 02:46:38.463
Pattern is one
02:46:38.463 --> 02:46:41.150
of the world's largest private
renewable energy companies
02:46:41.150 --> 02:46:43.210
with operating development footprints
02:46:43.210 --> 02:46:45.850
in the U.S, Canada, and Japan.
02:46:45.850 --> 02:46:48.420
Our headquarters of
operations are here in Houston
02:46:48.420 --> 02:46:51.190
and Pattern currently
operates about one gig of wind
02:46:51.190 --> 02:46:52.160
in the ERCOT market
02:46:52.160 --> 02:46:55.420
and is a member of the
Independent Generators Segment.
02:46:55.420 --> 02:46:57.330
As this is my first
time in front of you all,
02:46:57.330 --> 02:46:59.890
a little bit about me, I
have about over 10 years
02:46:59.890 --> 02:47:02.390
of experience in the power sector.
02:47:02.390 --> 02:47:04.480
I began on the retail
electric provider side
02:47:04.480 --> 02:47:07.163
and joined the renewable
movement in 2019.
02:47:08.320 --> 02:47:10.540
My materials are going
to be kind of focused
02:47:10.540 --> 02:47:12.430
on ancillary services for now,
02:47:12.430 --> 02:47:15.250
but they may take a
little evolution on that.
02:47:15.250 --> 02:47:17.910
According to the ERCOT
protocols, as we heard today,
02:47:17.910 --> 02:47:22.200
AS is that service as necessary
to support the transmission
02:47:22.200 --> 02:47:26.190
of energy to loads while
maintaining reliable operations.
02:47:26.190 --> 02:47:28.058
You know, ERCOT procures AS products
02:47:28.058 --> 02:47:31.320
in an array of fashion
and Pattern at this time is,
02:47:31.320 --> 02:47:34.017
you know, supportive
of all different products
02:47:34.017 --> 02:47:35.755
and in order for all market participants
02:47:35.755 --> 02:47:39.511
to actively participate
in the AS market.
02:47:39.511 --> 02:47:43.270
As the current fuel mix evolves,
02:47:43.270 --> 02:47:46.390
ancillary services becomes
even more endemic.
02:47:46.390 --> 02:47:50.230
We want to keep those
technological advancements neutral
02:47:50.230 --> 02:47:53.430
and ask the Commission and
ERCOT to respect the neutrality
02:47:53.430 --> 02:47:56.570
of the evolving fuel
mix as we move forward.
02:47:56.570 --> 02:47:59.870
In regards to cost distribution
on ancillary services,
02:47:59.870 --> 02:48:02.300
Pattern believes
those costs distribution
02:48:02.300 --> 02:48:05.880
of ancillaries should
maintain and stay with load.
02:48:05.880 --> 02:48:07.440
We ask the Commission to be cautious
02:48:07.440 --> 02:48:11.151
in changing this distribution as AS, we,
02:48:11.151 --> 02:48:12.780
we ask the Commission to be cautious
02:48:12.780 --> 02:48:15.370
in changing any distribution
of ancillary services
02:48:15.370 --> 02:48:17.250
to any specific generation source
02:48:17.250 --> 02:48:20.180
in order to maintain
cost causation principles
02:48:20.180 --> 02:48:22.810
and avoid any discriminatory
or preferential treatment
02:48:22.810 --> 02:48:23.643
by fuel type.
02:48:24.950 --> 02:48:26.870
Pattern believes all market
participants should be able
02:48:26.870 --> 02:48:29.180
to participate in the ancillary market.
02:48:29.180 --> 02:48:32.290
Wind assets intrinsically
provide ancillary support
02:48:32.290 --> 02:48:35.160
even if we do not bid into a product.
02:48:35.160 --> 02:48:36.620
During the interconnection process,
02:48:36.620 --> 02:48:38.940
wind assets are obligated to respond
02:48:38.940 --> 02:48:41.830
with primary frequency
responses, voltage support,
02:48:41.830 --> 02:48:43.540
per ERCOT parameters.
02:48:43.540 --> 02:48:45.860
Before we get part three ERCOT testing,
02:48:45.860 --> 02:48:49.100
and to be able to go operational,
our control centers have
02:48:49.100 --> 02:48:52.160
to provide these immediate
frequency and voltage support
02:48:52.160 --> 02:48:55.163
as the evolving mix
changes minute by minute.
02:48:56.140 --> 02:48:58.240
I've even heard of some
renewable companies able
02:48:58.240 --> 02:49:00.520
to participate in the reg up product,
02:49:00.520 --> 02:49:03.720
and we hope and maintain
that that's as an opportunity
02:49:03.720 --> 02:49:05.483
for future renewable development.
02:49:06.910 --> 02:49:08.610
Lastly, it would be
remiss if I don't mention,
02:49:08.610 --> 02:49:11.350
there's been a lot of activity
at the TAC yesterday morning
02:49:11.350 --> 02:49:16.350
and the day prior on the
additional conservative approach
02:49:16.670 --> 02:49:19.960
on managing load solar
and wind forecast variability
02:49:19.960 --> 02:49:22.190
by ERCOT, it's a very thankless job.
02:49:22.190 --> 02:49:25.720
And so, myself and everyone
in this room are thankful
02:49:25.720 --> 02:49:27.250
for ERCOT's participation
02:49:27.250 --> 02:49:29.530
as we kind of navigate this summer.
02:49:29.530 --> 02:49:31.090
Due to the lost generation capacity
02:49:31.090 --> 02:49:33.320
from outages and forecast uncertainty,
02:49:33.320 --> 02:49:36.110
it seems that the new
increasing responsive reserve
02:49:36.110 --> 02:49:39.640
and non-spin will be able
to balance those changes.
02:49:39.640 --> 02:49:40.473
Pattern would like
02:49:40.473 --> 02:49:43.050
to see ERCOT develop a
little bit more accurate planning
02:49:43.050 --> 02:49:45.940
and forecast methodology
that was used earlier.
02:49:45.940 --> 02:49:47.820
There are times,
especially in the valley
02:49:47.820 --> 02:49:50.070
or in the panhandle,
where there is generation
02:49:50.070 --> 02:49:52.900
that is curtailed at the bind
02:49:52.900 --> 02:49:54.810
at the generic transmission limit.
02:49:54.810 --> 02:49:57.860
At this point of time,
ERCOT at times cannot,
02:49:57.860 --> 02:50:00.430
or does not adequately plan
02:50:00.430 --> 02:50:02.090
that this production is not available
02:50:02.090 --> 02:50:03.870
to be provided at the grid.
02:50:03.870 --> 02:50:05.730
We also look forward to the conversation
02:50:05.730 --> 02:50:08.040
about economic criteria to be used
02:50:08.040 --> 02:50:09.610
with transmission development
02:50:09.610 --> 02:50:12.070
in order to maximize all possible output
02:50:12.070 --> 02:50:14.083
to our constituents.
02:50:17.630 --> 02:50:20.560
With the lack of transmission,
specifically in the West,
02:50:20.560 --> 02:50:23.610
we are limited to provide
any congestion assistance
02:50:23.610 --> 02:50:28.610
or any load assistance
while congestion still exists.
02:50:29.010 --> 02:50:31.470
In closing, Pattern would
like to continue to participate
02:50:31.470 --> 02:50:32.860
in any subsequent workshops
02:50:32.860 --> 02:50:35.453
and provide more data
as the questions arise.
02:50:37.200 --> 02:50:39.090
And I'll stop there if
there are any questions.
02:50:39.090 --> 02:50:40.260
Thank you. Questions?
02:50:43.959 --> 02:50:48.543
The one quick question,
we're still tight on time.
02:50:49.690 --> 02:50:51.033
You mentioned the,
02:50:52.460 --> 02:50:55.750
one of your requests
was about the planning for,
02:50:55.750 --> 02:50:56.930
or improved planning
02:50:56.930 --> 02:51:01.930
on intermittent contribution
to inter-generation.
02:51:04.020 --> 02:51:06.270
What, in your mind,
what would that look like?
02:51:06.270 --> 02:51:09.080
Because you, and you
mentioned that the shortages,
02:51:09.080 --> 02:51:10.600
the thermal outages, forced outages,
02:51:10.600 --> 02:51:11.480
that have been the topic
02:51:11.480 --> 02:51:13.530
of such discussion
in the last few weeks.
02:51:15.550 --> 02:51:17.970
When it comes to
intermittence, love the price point.
02:51:17.970 --> 02:51:18.920
Right.
02:51:18.920 --> 02:51:21.940
But the same time we
had those forced outages,
02:51:21.940 --> 02:51:26.940
we had 3,000 of 25,000 total
installed wind megawatts online
02:51:29.690 --> 02:51:31.440
when we really, really needed them.
02:51:32.490 --> 02:51:33.846
Those are, you know, it was,
02:51:33.846 --> 02:51:35.250
that was one of three variables.
02:51:35.250 --> 02:51:37.100
I want to be very clear, forced outages,
02:51:37.100 --> 02:51:42.100
lack of wind and then the
record demand that day.
02:51:43.130 --> 02:51:48.130
So how does improved
planning help resolve that?
02:51:49.270 --> 02:51:51.740
Yeah, from a forecast
methodology perspective,
02:51:51.740 --> 02:51:53.950
when we're part of the
interconnection process
02:51:53.950 --> 02:51:57.410
to even be able to serve
customers or the market,
02:51:57.410 --> 02:51:59.160
we have met towers that are constructed.
02:51:59.160 --> 02:52:01.390
And so, telemetry is tested in order
02:52:01.390 --> 02:52:03.680
that ERCOT has a direct line of sight
02:52:03.680 --> 02:52:06.350
of the forecast of available wind.
02:52:06.350 --> 02:52:08.960
And so, how ERCOT uses that forecast,
02:52:08.960 --> 02:52:10.540
I'm not very well briefed on it
02:52:10.540 --> 02:52:13.500
and nor do I think there's a
lot of transparency on that.
02:52:13.500 --> 02:52:15.540
When it comes to wind changes, you know,
02:52:15.540 --> 02:52:18.410
none of us have the
crystal ball and, you know,
02:52:18.410 --> 02:52:20.790
things of that nature
can happen pretty rapidly.
02:52:20.790 --> 02:52:23.040
For wind, it's extremely rare.
02:52:23.040 --> 02:52:25.400
You know, with Uri, two days prior,
02:52:25.400 --> 02:52:28.060
I mean, I think we
already knew the impact
02:52:28.060 --> 02:52:30.120
to wind in that area.
02:52:30.120 --> 02:52:33.240
And so, I think if there
was a more, perhaps,
02:52:33.240 --> 02:52:36.400
transparent planning
process that we knew
02:52:36.400 --> 02:52:38.120
that the wind was going to be offline,
02:52:38.120 --> 02:52:40.730
it didn't become offline
in a couple hours.
02:52:40.730 --> 02:52:44.410
There could be some
contingencies planned on that.
02:52:44.410 --> 02:52:45.900
I know there's a weatherization docket,
02:52:45.900 --> 02:52:48.060
that's open with public
utility Commission.
02:52:48.060 --> 02:52:51.510
I think there's a lot of
availability there. You know?
02:52:51.510 --> 02:52:53.195
Part of a compliance team,
02:52:53.195 --> 02:52:55.360
we always look at our assets yearly,
02:52:55.360 --> 02:52:57.210
actually twice a year in ERCOT,
02:52:57.210 --> 02:52:59.740
in June and in September
for summer and winter.
02:52:59.740 --> 02:53:02.440
And so, there's different,
definitely some best practices
02:53:02.440 --> 02:53:05.390
that could be used for
additional availability, but.
02:53:05.390 --> 02:53:08.210
Okay. We'd love to hear
about that in more detail.
02:53:08.210 --> 02:53:10.460
I don't want to belabor
the point and I will,
02:53:13.710 --> 02:53:16.200
we've had some work session
discussions about planning
02:53:16.200 --> 02:53:17.620
and forecasting at ERCOT.
02:53:17.620 --> 02:53:20.303
So, we'll revisit that,
02:53:22.150 --> 02:53:24.860
and certainly room for improvement.
02:53:24.860 --> 02:53:27.120
My analogy was skydiving.
02:53:27.120 --> 02:53:31.223
You know, statistics only
work over infinite iterations,
02:53:32.160 --> 02:53:35.393
but we can only get the grid wrong once.
02:53:36.930 --> 02:53:41.683
And, but the point I
would drive to as to,
02:53:42.930 --> 02:53:47.680
for all of us to try to
capture the good parts,
02:53:47.680 --> 02:53:49.880
the price point, that, I mean,
02:53:49.880 --> 02:53:53.590
that is a tremendous benefit
while also figuring out a way,
02:53:53.590 --> 02:53:57.510
you heard me mentioned how
the uniform price clearing means
02:53:57.510 --> 02:54:02.510
that the negative prices
at night force dispatchable
02:54:02.750 --> 02:54:06.511
to pay a penalty for,
essentially, being dispatchable.
02:54:06.511 --> 02:54:09.780
So, to your point about
agnostic about technologies,
02:54:09.780 --> 02:54:11.620
how do we find a way
02:54:11.620 --> 02:54:13.950
to capture the
positives of intermittence
02:54:15.460 --> 02:54:18.000
while mitigating the pain points
02:54:18.000 --> 02:54:21.690
of the price penalties
incurred on others,
02:54:21.690 --> 02:54:26.690
and also having 12% of your
capacity show up randomly
02:54:30.260 --> 02:54:32.830
and with, acknowledge, a full nod
02:54:32.830 --> 02:54:34.800
to the lack of predictability,
02:54:34.800 --> 02:54:37.765
but the difficulties planning.
02:54:37.765 --> 02:54:39.131
So, striking that balance,
02:54:39.131 --> 02:54:40.590
I think, will be the key going forward.
02:54:40.590 --> 02:54:41.423
Yeah. Sure.
I look forward to working
02:54:41.423 --> 02:54:42.256
with you on it.
02:54:42.256 --> 02:54:46.040
Just one point on the
negative pricing with the PTC.
02:54:46.040 --> 02:54:48.610
I mean, I think that's what your,
02:54:48.610 --> 02:54:49.730
what you guys have been describing it,
02:54:49.730 --> 02:54:50.563
I mean, it's endemic, right?
02:54:50.563 --> 02:54:52.910
We want to incentivize
more of that base low gen
02:54:52.910 --> 02:54:54.280
to cover that intermittency.
02:54:54.280 --> 02:54:57.110
And I think myself and
Pattern would agree with that.
02:54:57.110 --> 02:55:00.923
With the PTC, just, it
does drop off after 10 years,
02:55:00.923 --> 02:55:02.220
and that's not going
to help depending on
02:55:02.220 --> 02:55:03.760
when the asset was created.
02:55:03.760 --> 02:55:07.990
But theoretically in a set
kind of zone where you have,
02:55:07.990 --> 02:55:10.450
you know, a lot of wind
operators in that area
02:55:10.450 --> 02:55:13.580
and depending on when they
went live will depend on how long
02:55:13.580 --> 02:55:15.217
that negative pricing is there.
02:55:15.217 --> 02:55:18.030
But yeah, point of
clarification on that.
02:55:18.030 --> 02:55:20.230
I'm hearing from the developers now
02:55:20.230 --> 02:55:25.230
that if you refit those
facilities, those qualify for PTC.
02:55:26.970 --> 02:55:31.950
So the tail, and when I
was working for legislators,
02:55:31.950 --> 02:55:33.797
we always said, "Okay, 2029.
02:55:33.797 --> 02:55:35.867
"If we can get through 2029, we're okay.
02:55:35.867 --> 02:55:38.810
"PTC's not effective."
02:55:38.810 --> 02:55:39.850
That is not the case.
No, that's fair, sir.
02:55:39.850 --> 02:55:41.290
Yeah, that is not the case.
Yeah, the retrofitting is-
02:55:41.290 --> 02:55:43.300
We are looking at decades more
02:55:43.300 --> 02:55:46.460
of PTC dictated policy constraints.
02:55:46.460 --> 02:55:47.390
Yeah.
Right? Okay.
02:55:47.390 --> 02:55:49.000
I think that's right.
I mean, it has survived
02:55:49.000 --> 02:55:50.530
a lot of different administrations,
02:55:50.530 --> 02:55:52.510
so it doesn't seem to be going away.
02:55:52.510 --> 02:55:53.600
Right.
02:55:53.600 --> 02:55:55.040
It's a big challenge
02:55:55.040 --> 02:55:57.700
that holds both difficulties
and opportunities.
02:55:57.700 --> 02:55:58.533
Yeah.
02:55:58.533 --> 02:55:59.366
Thank you.
02:55:59.366 --> 02:56:00.700
Thank you.
02:56:00.700 --> 02:56:02.250
Last and certainly not least,
02:56:02.250 --> 02:56:05.010
Hunt Energy Network, Mr. Wood.
02:56:05.010 --> 02:56:07.350
So y'all are getting
in about five hours
02:56:07.350 --> 02:56:10.820
what took me 10 years
to get, so congratulations.
02:56:10.820 --> 02:56:13.980
Thank you, and God bless you.
(group laughs)
02:56:13.980 --> 02:56:18.980
Wholesale market design
is not as complicated
02:56:19.750 --> 02:56:20.890
as you'd think.
02:56:20.890 --> 02:56:23.530
I mean, it's gotten a lot of
accoutrements over the years,
02:56:23.530 --> 02:56:27.580
but when we decided the
wholesale market design for ERCOT,
02:56:27.580 --> 02:56:28.857
people think there
was this vote and all,
02:56:28.857 --> 02:56:31.200
but it just kind of, it just was there,
02:56:31.200 --> 02:56:33.130
you had energies and reserves,
02:56:33.130 --> 02:56:36.230
which now we call ancillary
services and that's it.
02:56:36.230 --> 02:56:38.187
So, this whole construct
of capacity markets
02:56:38.187 --> 02:56:40.060
and all that kind of grew out
02:56:40.060 --> 02:56:41.580
of what happened outside ERCOT.
02:56:41.580 --> 02:56:45.180
And I have viewed that the
East Coast capacity markets,
02:56:45.180 --> 02:56:47.590
which I know have been cast about here
02:56:47.590 --> 02:56:50.860
in kind of the macro
ancillary service debate.
02:56:50.860 --> 02:56:54.350
Those really were the 20th
century kind of regulatory tool
02:56:54.350 --> 02:56:58.730
to really plug the
gap for an insufficient
02:56:58.730 --> 02:57:01.557
and competitive retail market
design in the Mid-Atlantic
02:57:01.557 --> 02:57:02.870
and the Northeastern states.
02:57:02.870 --> 02:57:05.440
So, whenever y'all talk
about capacity market,
02:57:05.440 --> 02:57:06.910
I'd be happy to come
visit about that one,
02:57:06.910 --> 02:57:09.150
because there are some things about it.
02:57:09.150 --> 02:57:11.510
I'm not reflexively against it,
02:57:11.510 --> 02:57:12.710
my friend Katie's back there.
02:57:12.710 --> 02:57:15.260
She'll give you an earful.
Nervous, Pat (laughs).
02:57:15.260 --> 02:57:17.680
But you know, I
don't really think it's,
02:57:17.680 --> 02:57:19.110
you know, I think most of us agree
02:57:19.110 --> 02:57:20.980
that wouldn't have
changed things in February.
02:57:20.980 --> 02:57:23.110
So, but it could change
some other things.
02:57:23.110 --> 02:57:25.910
But, and when I think about the future
02:57:25.910 --> 02:57:28.280
and that's really what that Section 18,
02:57:28.280 --> 02:57:31.853
which I think is the, to me,
the gem of Senate Bill 3.
02:57:31.853 --> 02:57:33.507
There's some other great stuff in there,
02:57:33.507 --> 02:57:37.170
but that one really
just was a forward lane
02:57:37.170 --> 02:57:39.623
about how we make
sure that we fix things
02:57:39.623 --> 02:57:41.720
that happened in February.
02:57:41.720 --> 02:57:43.448
And y'all got wonderful
tools to do that.
02:57:43.448 --> 02:57:45.800
And I'm thrilled about that.
02:57:45.800 --> 02:57:46.845
But more importantly,
02:57:46.845 --> 02:57:51.300
this grid is shifting faster
than probably any grid
02:57:51.300 --> 02:57:52.450
in the world.
02:57:52.450 --> 02:57:54.450
Moving with, we have free resources
02:57:54.450 --> 02:57:57.320
that the good Lord gave us,
blowing and shining on us.
02:57:57.320 --> 02:57:58.920
In addition to all this
stuff we've been able
02:57:58.920 --> 02:58:01.003
to pull up from under the
ground and monetize that.
02:58:01.003 --> 02:58:03.610
There's not a state like this.
02:58:03.610 --> 02:58:07.120
And so, we've got to get this right.
02:58:07.120 --> 02:58:09.120
Unlike the past, when, you know,
02:58:09.120 --> 02:58:10.510
I got to look at other things
02:58:10.510 --> 02:58:12.440
and watch the some pioneers get shot,
02:58:12.440 --> 02:58:14.640
so I could be a settler
and go get the land.
02:58:15.830 --> 02:58:17.860
We figured that out
from looking at the UK,
02:58:17.860 --> 02:58:20.230
from looking at Pennsylvania,
from looking at California,
02:58:20.230 --> 02:58:22.660
from looking at New
South Wales, you know,
02:58:22.660 --> 02:58:25.253
all of these great places,
even Chile down there.
02:58:26.810 --> 02:58:28.650
Here, we've got to
figure this stuff out first.
02:58:28.650 --> 02:58:31.611
So, the future scenario
that I think about when I think
02:58:31.611 --> 02:58:36.611
about what y'all have got
before you is 20-blah-blah-blah,
02:58:39.010 --> 02:58:43.623
30 something, 80%
of the hours of the year,
02:58:45.040 --> 02:58:47.317
you're going to have nuke, wind,
02:58:47.317 --> 02:58:49.230
and solar setting the energy price.
02:58:49.230 --> 02:58:52.370
So, it's this big or maybe negative
02:58:52.370 --> 02:58:53.970
in light of our last discussion.
02:58:55.440 --> 02:58:56.273
Wow.
02:58:56.273 --> 02:58:57.680
So, that great energy market
02:58:57.680 --> 02:58:59.730
that we're just counting
on energy and ancillaries
02:58:59.730 --> 02:59:03.530
to be cashflow for
investors here gets shifted
02:59:03.530 --> 02:59:05.640
to the other 20% of the hours.
02:59:05.640 --> 02:59:09.340
So, the great thing is the
80%, you've got low carbon,
02:59:09.340 --> 02:59:12.193
Texas is the hero to the
environmental movement,
02:59:13.600 --> 02:59:15.810
customers are benefiting
from that really low price,
02:59:15.810 --> 02:59:18.163
as we have really for the last 10 years,
02:59:19.970 --> 02:59:22.740
but that other 20% is
going to be really spiky
02:59:23.700 --> 02:59:24.983
and really pricey.
02:59:25.860 --> 02:59:28.320
And you're going to be depending
02:59:28.320 --> 02:59:30.770
on these dispatchable resources,
02:59:30.770 --> 02:59:33.920
that section 18, to make the math work.
02:59:33.920 --> 02:59:38.920
And so, those units that
used to run, I don't know,
02:59:39.210 --> 02:59:44.180
60% of the time, CCCTs that
came in here when I was here
02:59:44.180 --> 02:59:46.160
and it was 60, 70% of the hours.
02:59:46.160 --> 02:59:48.143
And now they're down below 40.
02:59:49.640 --> 02:59:52.850
How do we keep those employees there,
02:59:52.850 --> 02:59:55.530
those plants maintained,
that fuel, you know,
02:59:55.530 --> 02:59:57.230
lined up with firm contracts?
02:59:57.230 --> 02:59:59.713
So, they don't get
interrupted in February again.
03:00:01.960 --> 03:00:05.410
That's I think going to have
to require a different type
03:00:05.410 --> 03:00:06.660
of compensation mechanism
03:00:07.960 --> 03:00:11.373
and I don't run right to
PJM's capacity market.
03:00:12.818 --> 03:00:14.610
You know, we've heard
some good ideas here today,
03:00:14.610 --> 03:00:17.260
and other people here
in the room are going
03:00:17.260 --> 03:00:18.190
to have some other ones,
03:00:18.190 --> 03:00:21.700
but a resource adequacy percentage,
03:00:21.700 --> 03:00:23.740
much like they have used in California
03:00:23.740 --> 03:00:25.230
or in the Southwest power pool,
03:00:25.230 --> 03:00:27.660
some of the regulated states,
03:00:27.660 --> 03:00:30.168
a more surgical ancillary service,
03:00:30.168 --> 03:00:33.590
ORDC was the political compromise
03:00:33.590 --> 03:00:36.550
for not doing a capacity market in 2013.
03:00:36.550 --> 03:00:38.120
We can slice it any other way,
03:00:38.120 --> 03:00:39.110
but that's what it was.
03:00:39.110 --> 03:00:41.840
Bill Hogan, who I respect,
who's a wonderful economist,
03:00:41.840 --> 03:00:44.680
that I'd encourage you
all to get to know him.
03:00:44.680 --> 03:00:48.370
He was a great advisor to
me here and also at FERC
03:00:48.370 --> 03:00:52.840
on market design, the ORDC was the,
03:00:52.840 --> 03:00:57.260
my back tool, because FERC
could not order capacity markets.
03:00:57.260 --> 03:00:59.590
They were brought to
us by market participants
03:00:59.590 --> 03:01:02.410
And so, the tool that I did have,
03:01:02.410 --> 03:01:03.920
if I ever needed to do something
03:01:03.920 --> 03:01:06.610
like a capacity market was in ORDC,
03:01:06.610 --> 03:01:09.740
which is kind of paying
capacity premiums in realtime,
03:01:09.740 --> 03:01:12.253
as you saw beautifully
illustrated here today.
03:01:13.700 --> 03:01:15.580
I'm expecting, I don't know,
03:01:15.580 --> 03:01:18.710
I've just heard from market
participants whispering to me
03:01:18.710 --> 03:01:21.960
that maybe that gets squashed
down and flattened out.
03:01:21.960 --> 03:01:24.930
So, maybe that helps in
those 20% of the hours is
03:01:24.930 --> 03:01:28.230
that those 20% of the hours
all have an adder on them,
03:01:28.230 --> 03:01:31.143
perhaps that is a way to make
those more compensatory.
03:01:32.521 --> 03:01:37.521
I am going to go find Tommy
Merritt's phone number today
03:01:38.300 --> 03:01:39.990
because he's the Genesis.
03:01:39.990 --> 03:01:41.390
He was the
author of that section.
03:01:41.390 --> 03:01:44.950
Behind point 9044, and
I never dreamed in my life
03:01:44.950 --> 03:01:47.100
I would ever see that
again until this morning,
03:01:47.100 --> 03:01:49.280
I had to look it up, and that was it.
03:01:49.280 --> 03:01:53.600
Tommy Merritt is this
charismatic Republican legislator
03:01:53.600 --> 03:01:54.896
from, I think, Kilgore.
03:01:54.896 --> 03:01:55.860
That's right.
03:01:55.860 --> 03:01:58.980
Who saw all the renewable
portfolio language going
03:01:58.980 --> 03:02:01.187
in right above that in
the statute and said,
03:02:01.187 --> 03:02:02.570
"Well, I'm gonna do
one for natural gas."
03:02:02.570 --> 03:02:04.640
'Cause he's sitting on
top of the East Texas field.
03:02:04.640 --> 03:02:09.130
And that's a remarkable
tool because I don't sense
03:02:09.130 --> 03:02:12.210
that we'll see any
more coal plants here.
03:02:12.210 --> 03:02:14.290
And so, when you think
dispatchable resources
03:02:14.290 --> 03:02:16.003
in the context of Texas,
03:02:17.980 --> 03:02:20.943
you may just have a solution to some,
03:02:22.070 --> 03:02:24.460
I hate to use the phrase
'cause it's so pejorative,
03:02:24.460 --> 03:02:27.930
but the missing money issue
that we've got to think about
03:02:27.930 --> 03:02:29.610
for those 20% of the hours.
03:02:29.610 --> 03:02:31.970
So, bravo on that, Commissioner McAdams,
03:02:31.970 --> 03:02:34.803
I think that could be a lot of fun.
03:02:36.750 --> 03:02:38.570
I'm also mindful of the importance
03:02:38.570 --> 03:02:40.823
of a competitive retail market.
03:02:41.940 --> 03:02:43.740
The Energy Monger discussion
03:02:43.740 --> 03:02:48.170
y'all just had was very sobering.
03:02:48.170 --> 03:02:50.593
And I may be, probably,
your own only testifier
03:02:50.593 --> 03:02:54.170
in this calendar year to
mourn the passing of Griddy,
03:02:54.170 --> 03:02:58.530
but I do think price responsive load is
03:02:58.530 --> 03:03:00.610
absolutely our silver
bullet here, you know,
03:03:00.610 --> 03:03:04.980
storage plus price responsive
load is that missing interface
03:03:04.980 --> 03:03:08.813
that we never had in this
very supply-driven market.
03:03:10.810 --> 03:03:13.890
But the point of 1999 legislation was
03:03:13.890 --> 03:03:16.210
to shift the risk off
the back of customers
03:03:16.210 --> 03:03:20.130
onto those providers who
can better manage that risk.
03:03:20.130 --> 03:03:20.970
They're supposed to.
03:03:20.970 --> 03:03:24.140
And the operations in February,
03:03:24.140 --> 03:03:26.730
particularly the after the
fact ancillary service bills,
03:03:26.730 --> 03:03:29.370
which we're focusing
on here today that came
03:03:29.370 --> 03:03:32.100
and I think may have
been addressed partially
03:03:32.100 --> 03:03:34.750
by the clawing back
and the securitization
03:03:34.750 --> 03:03:37.377
of those over the market,
which is, you know,
03:03:38.229 --> 03:03:39.670
a substandard approach,
03:03:39.670 --> 03:03:42.610
but certainly, better than
seeing those people go out.
03:03:42.610 --> 03:03:44.190
But that shows the limits
03:03:44.190 --> 03:03:45.960
of how reasonable this market is.
03:03:45.960 --> 03:03:50.170
There is, there's probably
too much systemic market risk
03:03:50.170 --> 03:03:52.050
in the current design.
03:03:52.050 --> 03:03:53.360
And as it goes forward,
03:03:53.360 --> 03:03:56.840
I think you can, protecting
the wholesale market,
03:03:56.840 --> 03:03:58.187
but this is the beauty
of what your job is,
03:03:58.187 --> 03:04:00.470
is you've got wholesale and retail,
03:04:00.470 --> 03:04:02.670
which no other regulator
in this continent has.
03:04:02.670 --> 03:04:06.800
So, you get the ability to
see both sides of the puzzle
03:04:06.800 --> 03:04:10.900
and to put together those
pieces and make them work
03:04:10.900 --> 03:04:13.020
for the retail competition
03:04:13.020 --> 03:04:16.130
as well as the wholesale
competition is an important piece.
03:04:16.130 --> 03:04:18.410
So, that wake up call this morning,
03:04:18.410 --> 03:04:19.740
forced me to throw away my script
03:04:19.740 --> 03:04:21.910
and actually add some thoughts there.
03:04:21.910 --> 03:04:25.320
But I should say that it also
validates for me the value
03:04:25.320 --> 03:04:27.160
of retail competition,
03:04:27.160 --> 03:04:29.930
that those resource
providers were the ones
03:04:29.930 --> 03:04:32.570
who managed the risk, not
the backs of the customer,
03:04:32.570 --> 03:04:34.480
who in the regulated parts of the state,
03:04:34.480 --> 03:04:37.670
and in gas utility land are
going to be bearing those costs
03:04:37.670 --> 03:04:38.503
for 30 years.
03:04:38.503 --> 03:04:40.590
So, that's a phenomenal victory
03:04:40.590 --> 03:04:42.470
that we should all take
the chance to celebrate,
03:04:42.470 --> 03:04:43.590
but it comes at a cost
03:04:43.590 --> 03:04:46.330
because there were
people who weren't liberated,
03:04:46.330 --> 03:04:50.390
who do have a single
provider on their back
03:04:50.390 --> 03:04:52.290
who was unable to manage it.
03:04:52.290 --> 03:04:53.663
But again, stepping back,
03:04:54.810 --> 03:04:57.160
I don't know if anybody
could have managed it.
03:04:57.160 --> 03:05:00.250
And so, how do you reduce the risk?
03:05:00.250 --> 03:05:05.250
Certainly, maybe squishing
then spreading that adder,
03:05:05.500 --> 03:05:06.620
there's a lot of discussion.
03:05:06.620 --> 03:05:07.750
I know there's litigation
03:05:07.750 --> 03:05:11.710
on the Commission's February
15th order and the 96 hours
03:05:11.710 --> 03:05:15.520
and the Independent Market
Monitor's been involved in that,
03:05:15.520 --> 03:05:17.690
but increasing ancillary
service procurements,
03:05:17.690 --> 03:05:20.240
we've seen that happen just
this week and it was referred
03:05:20.240 --> 03:05:24.310
to here by my co-panelists
and by the, I think ERCOT,
03:05:24.310 --> 03:05:25.700
Dave might've mentioned that earlier,
03:05:25.700 --> 03:05:28.410
but ERCOT took some steps
to really broaden that then.
03:05:28.410 --> 03:05:32.670
And that is an effective way
to, in a second tier manner,
03:05:32.670 --> 03:05:34.300
push up that forward curve.
03:05:34.300 --> 03:05:38.250
When you see there's more
resources being procured
03:05:38.250 --> 03:05:40.257
on a non-spin basis, that is saying,
03:05:40.257 --> 03:05:42.650
"I want more capacity here now."
03:05:42.650 --> 03:05:44.820
It's not a three or
four capacity construct
03:05:44.820 --> 03:05:48.800
like you have in PJM, but
it is, it's our version of that.
03:05:48.800 --> 03:05:51.690
And I think those signals
are extremely important
03:05:51.690 --> 03:05:53.220
and they do fly below the radar.
03:05:53.220 --> 03:05:55.817
In fact, when I read
about it this week, I'm like,
03:05:55.817 --> 03:05:57.470
"Wow, that's big."
03:05:57.470 --> 03:05:59.050
I mean, y'all didn't have to order that.
03:05:59.050 --> 03:06:00.780
I would stay deeply engaged in that
03:06:00.780 --> 03:06:04.040
and have a top staffer
here for not just that issue.
03:06:04.040 --> 03:06:07.220
I've got a few here that we,
we're focused on at HEN,
03:06:07.220 --> 03:06:11.220
but in any event that
there's a lot there.
03:06:11.220 --> 03:06:13.440
The circuit breaker,
obviously, if the, you know,
03:06:13.440 --> 03:06:16.550
I think there's some
legislation to drive that.
03:06:16.550 --> 03:06:18.230
Getting more price responsible,
03:06:18.230 --> 03:06:19.470
Suzanne talked about it better
03:06:19.470 --> 03:06:21.340
than anybody I can imagine in Texas.
03:06:21.340 --> 03:06:24.030
So I won't, I'll just say me too on her,
03:06:24.030 --> 03:06:27.830
but, you know, and
then there's a huge slug
03:06:27.830 --> 03:06:28.663
of storage coming.
03:06:28.663 --> 03:06:29.496
We want to be part of that.
03:06:29.496 --> 03:06:33.930
At HEN, we're putting 10
megawatt batteries at, around it,
03:06:33.930 --> 03:06:36.680
substations, distribution
side of the substations
03:06:36.680 --> 03:06:37.623
around the state.
03:06:38.810 --> 03:06:39.729
We expect fully that
03:06:39.729 --> 03:06:44.729
that territory that was just
being talked about there is,
03:06:45.390 --> 03:06:49.120
you know, the next ground
03:06:49.120 --> 03:06:50.870
to bring in more resources to the state,
03:06:50.870 --> 03:06:54.530
a lot of chance to
decentralize resiliency.
03:06:54.530 --> 03:06:56.610
As I see, the decarbonization agenda,
03:06:56.610 --> 03:06:59.333
it's also joined by the
de-centralization agenda.
03:07:01.270 --> 03:07:04.040
I think pushing that action
beyond the substation
03:07:04.040 --> 03:07:06.630
toward the customer meter is a new area.
03:07:06.630 --> 03:07:09.050
And as we worry about
how to pay for that,
03:07:09.050 --> 03:07:11.548
I think about as the TDU,
03:07:11.548 --> 03:07:14.540
as the distribution utilities
reconfigure their systems,
03:07:14.540 --> 03:07:18.410
so that the really fatal issue
03:07:18.410 --> 03:07:20.560
of how critical load was managed
03:07:20.560 --> 03:07:23.570
during the crisis gets addressed,
03:07:23.570 --> 03:07:24.730
that's going to take some money.
03:07:24.730 --> 03:07:26.280
And I think that's
money as a rate payer,
03:07:26.280 --> 03:07:29.060
I'm happy to pay for the,
03:07:29.060 --> 03:07:31.170
for CenterPoint to
reconfigure its systems
03:07:31.170 --> 03:07:33.330
so that they can do more surgical roles.
03:07:33.330 --> 03:07:35.680
As they reconfigure though,
03:07:35.680 --> 03:07:39.430
that 2D, that two way
design that we've got
03:07:39.430 --> 03:07:41.200
on the transmission grid
03:07:41.200 --> 03:07:43.300
that we so much have on distribution.
03:07:43.300 --> 03:07:46.380
Although I did tour
CenterPoint a few years ago,
03:07:46.380 --> 03:07:48.400
when a visiting
dignitary was in Houston,
03:07:48.400 --> 03:07:51.400
I got to introduce them to
the CenterPoint management.
03:07:51.400 --> 03:07:54.120
We toured their new backup station.
03:07:54.120 --> 03:07:55.490
They have a station like ERCOT,
03:07:55.490 --> 03:07:58.880
the big TDUs do to
manage their own systems.
03:07:58.880 --> 03:08:00.490
There's a lot of capability there
03:08:00.490 --> 03:08:02.270
that was put in with smart meters.
03:08:02.270 --> 03:08:04.440
And after smart meters went in,
03:08:04.440 --> 03:08:06.863
that I encourage the
Commissioners to look at
03:08:06.863 --> 03:08:10.448
because there, our utilities
here have recovered a lot
03:08:10.448 --> 03:08:11.450
of money to do it,
03:08:11.450 --> 03:08:13.140
but I think the ones that I've seen
03:08:13.140 --> 03:08:16.450
in on course will have
done a lot of creative things
03:08:16.450 --> 03:08:18.690
that really go in this right direction.
03:08:18.690 --> 03:08:23.240
And I think a gentle nudge
as opposed to a cudgel is going
03:08:23.240 --> 03:08:26.170
to be sufficient to just
get where we want to go
03:08:26.170 --> 03:08:31.170
on this two-way kind of DER
rich Nirvana that, you know,
03:08:31.520 --> 03:08:34.040
the Texas was intended
to kind of generate
03:08:35.040 --> 03:08:37.480
that sort of creativity
and entrepreneurialship.
03:08:37.480 --> 03:08:39.850
So, I want to see that happen.
03:08:39.850 --> 03:08:41.877
And again, at Hunt,
we intend to be part of
03:08:41.877 --> 03:08:43.720
and right in the middle
of that, but it's, you know,
03:08:43.720 --> 03:08:45.730
this area's been barely unlocked.
03:08:45.730 --> 03:08:50.150
To unlock that, ERCOT
has to push into distribution.
03:08:50.150 --> 03:08:51.760
I know that makes ERCOT cringe,
03:08:51.760 --> 03:08:53.200
that makes the distribution cringe,
03:08:53.200 --> 03:08:55.710
but at the end of the day,
and Commissioner Cobos,
03:08:55.710 --> 03:08:57.410
you mentioned about the DISOs.
03:08:57.410 --> 03:09:00.740
I think we could probably do
something simpler than that,
03:09:00.740 --> 03:09:02.100
but I think that's the model.
03:09:02.100 --> 03:09:02.933
I think you're right.
03:09:02.933 --> 03:09:04.860
What, when 20 years ago,
03:09:04.860 --> 03:09:08.740
we wanted to turn the
transmission utilities
03:09:08.740 --> 03:09:11.173
into a very customer focused,
03:09:13.180 --> 03:09:15.340
to both generators and to retailers,
03:09:15.340 --> 03:09:17.170
very customer focused business.
03:09:17.170 --> 03:09:20.200
And I remember the day
after the cut-over happened,
03:09:20.200 --> 03:09:21.557
generators came to me and said,
03:09:21.557 --> 03:09:23.877
"H L and P is like a new animal.
03:09:23.877 --> 03:09:25.737
"They are so happy with the generators.
03:09:25.737 --> 03:09:26.697
"We are their customer.
03:09:26.697 --> 03:09:29.197
"They're making us deals, you know,
03:09:29.197 --> 03:09:31.277
"getting us set up for
things that we've fought them
03:09:31.277 --> 03:09:32.110
"for 20 years.
03:09:32.110 --> 03:09:33.030
"We just can't believe it."
03:09:33.030 --> 03:09:35.237
I said, "When you
change the business model
03:09:35.237 --> 03:09:36.793
"and make the incentives great,
03:09:37.647 --> 03:09:39.420
"that's what needs to happen."
03:09:39.420 --> 03:09:40.470
I mean, distribution,
03:09:40.470 --> 03:09:44.867
I think the legislature said,
"You guys are not in storage.
03:09:44.867 --> 03:09:46.410
"That's a competitive environment."
03:09:46.410 --> 03:09:48.440
We, if it can replace,
as Suzanne point out,
03:09:48.440 --> 03:09:49.670
if it can replace
03:09:49.670 --> 03:09:51.660
and be a cheaper
alternative to wires business,
03:09:51.660 --> 03:09:52.790
we want it in the mix,
03:09:52.790 --> 03:09:56.370
which a great balanced,
compromise that I totally support.
03:09:56.370 --> 03:10:00.610
But if getting the wires
businesses into that same,
03:10:00.610 --> 03:10:05.610
you know, viewing us as a
storage company or, you know,
03:10:05.990 --> 03:10:09.770
as a solar, a community solar farm,
03:10:09.770 --> 03:10:13.270
or as an aggregation of Ford
F-150s in the neighborhood,
03:10:13.270 --> 03:10:14.840
those parties that are going to do that,
03:10:14.840 --> 03:10:16.120
and we fully intend to
be right in the middle
03:10:16.120 --> 03:10:17.363
of all of that mix too,
03:10:18.430 --> 03:10:20.550
to know that the utilities viewing us
03:10:20.550 --> 03:10:23.900
as happy to be a customer,
not to be an annoyance is,
03:10:23.900 --> 03:10:25.790
I mean, I had to, one of our meetings,
03:10:25.790 --> 03:10:28.460
we had to introduce the
distribution staff of a utility
03:10:28.460 --> 03:10:29.690
to their transmission staff.
03:10:29.690 --> 03:10:32.670
They were separate people
and they're separate businesses.
03:10:32.670 --> 03:10:35.030
And I think that's kind of got
03:10:35.030 --> 03:10:36.360
to be a history book kind of thing.
03:10:36.360 --> 03:10:37.670
We've got to move on from that.
03:10:37.670 --> 03:10:41.521
And so, ERCOT's already easing into
03:10:41.521 --> 03:10:43.560
that role in distribution
03:10:43.560 --> 03:10:47.010
by now implementing what
were policies made nine years ago
03:10:47.010 --> 03:10:49.300
at this Commission on storage,
03:10:49.300 --> 03:10:51.330
implementing those
at the distribution level
03:10:51.330 --> 03:10:53.810
with the distribution
generation resource,
03:10:53.810 --> 03:10:55.990
which we're firmly involved in and some
03:10:55.990 --> 03:11:00.373
of our other storage competitor
friends are doing as well.
03:11:01.390 --> 03:11:04.600
Other distributed energy
resources that Suzanne mentioned,
03:11:04.600 --> 03:11:05.433
those are next.
03:11:05.433 --> 03:11:07.573
And they're really right on the cusp.
03:11:11.641 --> 03:11:13.800
Onto some specific
issues, I did leave a,
03:11:13.800 --> 03:11:15.913
I did have a deck here
and I don't want to project it
03:11:15.913 --> 03:11:18.100
because I've only got
a short amount of time,
03:11:18.100 --> 03:11:20.670
but I do want to, I don't
want to give them short shrift,
03:11:20.670 --> 03:11:23.067
but I do want to let y'all
know that, you know,
03:11:23.067 --> 03:11:27.110
we and others are firmly
engaged at the working groups
03:11:27.110 --> 03:11:30.980
under TAC and the wholesale
market working group
03:11:30.980 --> 03:11:35.890
to learn from the February event
03:11:35.890 --> 03:11:37.750
and make sure that resources
03:11:37.750 --> 03:11:41.233
in the ancillary service
stack are properly allocated,
03:11:42.160 --> 03:11:44.750
you know, batteries should
be your last line of defense
03:11:44.750 --> 03:11:46.480
for frequency excursions.
03:11:46.480 --> 03:11:48.200
You know, we're short in duration,
03:11:48.200 --> 03:11:49.950
but lightning fast.
03:11:49.950 --> 03:11:52.490
I mean, it used to be
hydro electricity was the way
03:11:52.490 --> 03:11:54.110
to kind of be immediate.
03:11:54.110 --> 03:11:56.270
That's a 12 second response time.
03:11:56.270 --> 03:11:59.490
We're a quarter of a second
and going toward milliseconds
03:11:59.490 --> 03:12:00.940
as the technology gets better.
03:12:00.940 --> 03:12:05.940
So, that resource, is it
appropriately valued?
03:12:05.970 --> 03:12:08.500
Well, I mean, they
indicated here in 2019 that
03:12:08.500 --> 03:12:12.730
that FFR class was created
for fast frequency response.
03:12:12.730 --> 03:12:13.563
We're in that.
03:12:13.563 --> 03:12:15.040
That class probably able to be bigger
03:12:15.040 --> 03:12:17.780
because if you trip a
unit here in ERCOT,
03:12:17.780 --> 03:12:20.330
there's a substantial response.
03:12:20.330 --> 03:12:23.190
In the past, that's
what we call inertia.
03:12:23.190 --> 03:12:24.860
And it took me years to figure that out.
03:12:24.860 --> 03:12:26.460
So, I'm gonna try it real quick.
03:12:27.523 --> 03:12:31.160
You've got a generator
and three turbines,
03:12:31.160 --> 03:12:33.530
say on a CCCT, and
they're just spinning like this.
03:12:33.530 --> 03:12:35.810
The gas is turned, is burning, the,
03:12:35.810 --> 03:12:37.210
or heating the water into steam.
03:12:37.210 --> 03:12:40.790
And it's turning those
four pieces of equipment,
03:12:40.790 --> 03:12:44.540
three turbines and one
generator multiple times.
03:12:44.540 --> 03:12:48.033
And so, when they
take the foot off the gas,
03:12:48.033 --> 03:12:49.270
it's just like a car.
03:12:49.270 --> 03:12:51.200
Those things still keep rolling.
03:12:51.200 --> 03:12:56.200
So, when that, when they've
hit the 60 Hertz frequency,
03:12:56.660 --> 03:12:58.720
that mass is still spinning,
03:12:58.720 --> 03:13:00.680
but we're not adding to it.
03:13:00.680 --> 03:13:02.610
Well, that inertia just keeps on going.
03:13:02.610 --> 03:13:05.090
And then it basically would
fade out if you were not to run
03:13:05.090 --> 03:13:06.110
that gas plant.
03:13:06.110 --> 03:13:08.030
That inertia has value to the system
03:13:08.030 --> 03:13:09.460
that it's uncompensated,
03:13:09.460 --> 03:13:11.780
but it's just part of the way it is
03:13:11.780 --> 03:13:13.233
because that's just history.
03:13:14.600 --> 03:13:17.820
Wind has that, has a little
bit, they're a little more low,
03:13:17.820 --> 03:13:20.630
but, you know, solvers' inverter based.
03:13:20.630 --> 03:13:22.200
So, it doesn't have that at all.
03:13:22.200 --> 03:13:24.050
And that's a plus and a minus.
03:13:24.050 --> 03:13:27.810
But for returning system
to frequency, which again,
03:13:27.810 --> 03:13:28.800
keeping it at 60,
03:13:28.800 --> 03:13:32.900
as we all know from that
wonderful night, that heroic story,
03:13:32.900 --> 03:13:36.650
I should say, it scared
the bejesus out of me,
03:13:36.650 --> 03:13:40.120
but that was a very
illustrative event for all of us
03:13:40.120 --> 03:13:41.530
to learn from on frequency.
03:13:41.530 --> 03:13:44.310
But batteries can be
very valuable to that.
03:13:44.310 --> 03:13:46.200
Up to now, recently,
03:13:46.200 --> 03:13:48.420
batteries have just been
pulled out to be energy just
03:13:48.420 --> 03:13:49.400
to kind of plug the hole.
03:13:49.400 --> 03:13:51.380
I think it's actually, it's tough,
03:13:51.380 --> 03:13:53.800
but that, and I mentioned
this in the document,
03:13:53.800 --> 03:13:57.450
but it probably better to call
for another 100 megawatts
03:13:57.450 --> 03:14:02.450
of load curtailments than to
pirate energy from a battery
03:14:02.600 --> 03:14:04.800
in the middle of another February 15th,
03:14:04.800 --> 03:14:07.430
because the consequences of that,
03:14:07.430 --> 03:14:10.560
I'm a black start missionary,
03:14:10.560 --> 03:14:13.310
but having lived
through the 2003 blackout
03:14:13.310 --> 03:14:16.193
as FERC chair in Ohio,
03:14:17.270 --> 03:14:19.680
it went out, it wasn't
a controlled outage.
03:14:19.680 --> 03:14:21.390
We, this is not a blackout.
03:14:21.390 --> 03:14:23.720
And I know y'all are
very mindful of that.
03:14:23.720 --> 03:14:25.930
This was controlled outages. Dramatic?
03:14:25.930 --> 03:14:29.100
Yes, but we did not lose the grid.
03:14:29.100 --> 03:14:32.499
If we lose the ERCOT
grid, it is stone age.
03:14:32.499 --> 03:14:33.390
I mean, it is really,
03:14:33.390 --> 03:14:36.910
we are not like Ohio connected
to Illinois and Michigan
03:14:36.910 --> 03:14:40.010
and Ontario and West Virginia
to kind of pull us back up
03:14:40.010 --> 03:14:41.550
and get on the horse again.
03:14:41.550 --> 03:14:46.190
We got to start from, you
know, flint and, what's?
03:14:46.190 --> 03:14:48.610
Flint and whatever? At the campfire.
03:14:48.610 --> 03:14:49.900
I'm forgetting my Boy Scout days,
03:14:49.900 --> 03:14:52.860
but starting from really just scratch
03:14:52.860 --> 03:14:54.537
to build the grid back up and match load
03:14:54.537 --> 03:14:57.450
and generation all the
way back up to 70 gigs,
03:14:57.450 --> 03:14:59.260
that's a multi-week event.
03:14:59.260 --> 03:15:00.670
So, we cannot have that.
03:15:00.670 --> 03:15:04.060
So, keeping the resources
that are valuable and that's,
03:15:04.060 --> 03:15:06.890
and again, batteries
provide that for the grid,
03:15:06.890 --> 03:15:08.956
through the ancillary services
market and through the suite
03:15:08.956 --> 03:15:11.550
of services that are offered there.
03:15:11.550 --> 03:15:14.500
ERCOT is getting an earful from us
03:15:14.500 --> 03:15:15.860
about what we think they ought to do.
03:15:15.860 --> 03:15:17.010
And I've attached that to you.
03:15:17.010 --> 03:15:20.273
And again, just ask, in the interest of,
03:15:20.273 --> 03:15:23.680
I guess self-interest of
getting to a good place
03:15:23.680 --> 03:15:25.100
that we think is in the public interest,
03:15:25.100 --> 03:15:27.820
but also, certainly benefits
the battery business is
03:15:27.820 --> 03:15:32.680
that you just keep a supportive push
03:15:32.680 --> 03:15:35.900
on the folks over at ERCOT
to continue to do that.
03:15:35.900 --> 03:15:36.895
When I was in your role,
03:15:36.895 --> 03:15:41.290
I really viewed the market
participants as the folks
03:15:41.290 --> 03:15:43.740
that really got the grunt work done.
03:15:43.740 --> 03:15:45.640
But there are going to be times
03:15:45.640 --> 03:15:48.750
when there's either a
bias against technology
03:15:48.750 --> 03:15:51.910
or against a company or
against a market segment
03:15:51.910 --> 03:15:53.900
that the Commissioners
have to get involved in.
03:15:53.900 --> 03:15:55.217
And then the other big batch of thing,
03:15:55.217 --> 03:15:56.957
and this was Judy Walsh said,
03:15:56.957 --> 03:15:58.757
"Look, if you're picking on somebody,
03:15:58.757 --> 03:16:01.867
"something or some stuff,
we want to hear about it.
03:16:01.867 --> 03:16:04.457
"And if it's a money
issue, we'll resolve it for you
03:16:04.457 --> 03:16:07.077
"so y'all don't have to get
twisted around the axle on that,
03:16:07.077 --> 03:16:09.080
"but y'all go figure
out all the details."
03:16:09.080 --> 03:16:13.580
And so, that's really a great
balance for ERCOT still.
03:16:13.580 --> 03:16:16.780
The market participant
process is probably better here
03:16:16.780 --> 03:16:18.620
than anywhere in the
country and I've seen them all,
03:16:18.620 --> 03:16:22.690
but it's one we ought
to build on and keep up.
03:16:22.690 --> 03:16:25.420
But again, an active
Commission staff presence
03:16:25.420 --> 03:16:28.300
by somebody who
really gets into the detail
03:16:28.300 --> 03:16:30.080
and the nerve, we'd love to keep up
03:16:30.080 --> 03:16:32.320
with that person just to let
them know what we're up to,
03:16:32.320 --> 03:16:34.830
but that would be deeply appreciated
03:16:34.830 --> 03:16:36.980
because we're pursuing
the items on the page,
03:16:36.980 --> 03:16:38.340
the last page of my handout,
03:16:38.340 --> 03:16:40.510
there's five items that
we're currently pursuing
03:16:40.510 --> 03:16:42.580
in front of the dockets down there.
03:16:42.580 --> 03:16:46.810
And we look forward to hearing back
03:16:46.810 --> 03:16:48.347
from the market
participants on all that,
03:16:48.347 --> 03:16:50.383
and about how that ought to go.
03:16:52.494 --> 03:16:53.990
You know, at the end,
03:16:53.990 --> 03:16:58.350
if we could ask for anything
from the storage segment,
03:16:58.350 --> 03:17:02.210
it's just a better
vision, crisper for us,
03:17:02.210 --> 03:17:06.240
about how you want
to see the grid close to,
03:17:06.240 --> 03:17:08.533
the edge of the grid, I think, play out.
03:17:09.830 --> 03:17:12.550
We can engage resources and the load,
03:17:12.550 --> 03:17:17.410
'cause I think a price
responsive load is a key part
03:17:17.410 --> 03:17:18.390
of the solution here.
03:17:18.390 --> 03:17:21.194
Had we had price
responsive load the morning
03:17:21.194 --> 03:17:23.870
of February 15th, you know,
03:17:23.870 --> 03:17:25.840
I think half of the generation,
03:17:25.840 --> 03:17:27.260
we've done some calculations,
03:17:27.260 --> 03:17:29.330
the former Commissioners and I.
03:17:29.330 --> 03:17:32.510
Half of the gigawatts
that were being used
03:17:32.510 --> 03:17:33.910
in the demand side there were
03:17:33.910 --> 03:17:37.453
to do residential electric heating,
03:17:38.600 --> 03:17:41.410
which now we've got 61%
of the state being heated
03:17:41.410 --> 03:17:42.770
by electricity, which is way,
03:17:42.770 --> 03:17:44.810
I mean, it was 10% when I was a kid.
03:17:44.810 --> 03:17:46.420
So, it's grown substantially
03:17:46.420 --> 03:17:48.490
and that's a big part of
what's changed around here,
03:17:48.490 --> 03:17:51.880
but there's no price signal
when you're paying a flat nine
03:17:51.880 --> 03:17:54.660
or 10 cents a kilowatt
hour to turn it off
03:17:54.660 --> 03:17:56.880
or to turn it way down at two o'clock.
03:17:56.880 --> 03:17:58.110
Unless you're a Griddy customer,
03:17:58.110 --> 03:17:59.920
then you turned it
off and froze to death.
03:17:59.920 --> 03:18:03.400
But that was, that was tough.
03:18:03.400 --> 03:18:05.210
I would, I'd like to
think that in the future,
03:18:05.210 --> 03:18:07.660
that price responsive
demand would be part of it.
03:18:08.670 --> 03:18:12.780
But we also want to
recognize that, like energy,
03:18:12.780 --> 03:18:14.980
the ancillary services
that are provided,
03:18:14.980 --> 03:18:18.044
both responsive reserves
on down through non-spin
03:18:18.044 --> 03:18:19.437
and everything above it,
03:18:19.437 --> 03:18:22.810
and that expecting that
probably in the future,
03:18:22.810 --> 03:18:25.290
we'll see some development of a winter,
03:18:25.290 --> 03:18:27.490
maybe a winter price responsive
03:18:27.490 --> 03:18:30.890
or winter dependable capacity reserve
03:18:30.890 --> 03:18:32.540
that people are required to obtain.
03:18:32.540 --> 03:18:35.160
You know, I think ORDC
probably does a pretty good job
03:18:35.160 --> 03:18:37.890
for summer, we'll see.
03:18:37.890 --> 03:18:40.810
And the 2,000 price cap
makes me just a touch nervous,
03:18:40.810 --> 03:18:43.620
but 'cause I don't
think anybody really hit
03:18:43.620 --> 03:18:45.500
their peaker net margin based
03:18:45.500 --> 03:18:48.890
on reading the publicly traded
people's generator things.
03:18:48.890 --> 03:18:50.790
But I know we've got
one testifying here later,
03:18:50.790 --> 03:18:52.120
but that be what it is.
03:18:52.120 --> 03:18:55.190
2,000 is well above
where the market is today.
03:18:55.190 --> 03:19:00.190
And I, well, I think,
03:19:00.340 --> 03:19:02.740
knowing that the ancillary
services have a value
03:19:02.740 --> 03:19:05.893
in that environment, both in
the summer and in the winter,
03:19:07.130 --> 03:19:10.510
we like locational pricing
for those ancillary services.
03:19:10.510 --> 03:19:11.720
They may make sense somewhere
03:19:11.720 --> 03:19:13.830
that where's congestion around the grid,
03:19:13.830 --> 03:19:15.700
just like we have, as
was mentioned here,
03:19:15.700 --> 03:19:17.497
we got four trading hubs there
03:19:17.497 --> 03:19:19.710
and a lot more granular than that.
03:19:19.710 --> 03:19:22.423
I mean, as a storage
resource, we get nodal pricing,
03:19:23.380 --> 03:19:25.510
both selling and buying
at the different places
03:19:25.510 --> 03:19:27.730
around the grid, wherever we locate.
03:19:27.730 --> 03:19:30.390
So, having that for ancillaries as well,
03:19:30.390 --> 03:19:31.810
maybe it's complicating,
03:19:31.810 --> 03:19:34.750
and maybe why ERCOT throws
their hands up because you know,
03:19:34.750 --> 03:19:36.820
it's hard enough to run
the software with the nodes
03:19:36.820 --> 03:19:40.730
that we have, but I'm
just saying that's a way
03:19:40.730 --> 03:19:42.680
to bring some efficiency to the market.
03:19:44.130 --> 03:19:45.230
And again, I just think,
03:19:45.230 --> 03:19:47.733
how do we bring load into playing here?
03:19:49.520 --> 03:19:50.460
At the end of the day,
03:19:50.460 --> 03:19:55.460
we can just have a Commission
and an ERCOT that continues
03:19:55.710 --> 03:19:58.590
to just figure out how to
say, "Yes" to new ideas
03:19:58.590 --> 03:20:01.730
and new technology and new innovation.
03:20:01.730 --> 03:20:05.150
I think that'll bring the
value that we all have hoped
03:20:05.150 --> 03:20:07.270
to have in this state
for a long, long time.
03:20:07.270 --> 03:20:09.670
So, sorry, I ran long, but
thank you for the invite.
03:20:09.670 --> 03:20:11.340
Good to see y'all and thank you for,
03:20:11.340 --> 03:20:12.670
thank you for the job you're doing.
03:20:12.670 --> 03:20:16.080
I go home tonight and sleep well,
03:20:16.080 --> 03:20:20.093
seeing y'all dive into this
stuff so deep and early.
03:20:21.850 --> 03:20:25.373
Appreciate it, Pat
and Suzanne and Kara.
03:20:26.940 --> 03:20:27.883
Thank you.
03:20:27.883 --> 03:20:32.390
More the, see the Nirvana
language spread further
03:20:32.390 --> 03:20:33.760
across there, Pat's Nirvana,
03:20:33.760 --> 03:20:35.910
you should spread
further across the panel,
03:20:37.200 --> 03:20:38.990
but we are at one o'clock.
03:20:38.990 --> 03:20:41.129
So, I think let's take a recess.
03:20:41.129 --> 03:20:42.140
Does that work for y'all?
03:20:42.140 --> 03:20:43.260
Yes, sir.
03:20:43.260 --> 03:20:46.860
Let's do a recess for 30
minutes and we'll reconvene
03:20:46.860 --> 03:20:48.833
for the afternoon panels at 1:30.
03:20:50.200 --> 03:20:51.150
Thank you.