WEBVTT 00:00:12.270 --> 00:00:13.103 Right. 00:00:13.103 --> 00:00:15.440 Welcome back to this work session 00:00:15.440 --> 00:00:17.540 of the Public Utility Commission of Texas. 00:00:19.500 --> 00:00:23.620 At this point, in terms of scheduling, 00:00:23.620 --> 00:00:28.620 we will finish the panel from this morning. 00:00:30.420 --> 00:00:34.770 And with NRG excellence panel, 00:00:34.770 --> 00:00:38.520 and we will move to some timing constraints, 00:00:38.520 --> 00:00:40.270 we'll move straight to Dr. Brattle. 00:00:41.210 --> 00:00:44.713 And then circle back to Commissioner McAdams. 00:00:45.990 --> 00:00:46.823 Dr. Patton. 00:00:49.640 --> 00:00:51.400 Dr. Patton after the panel, 00:00:51.400 --> 00:00:53.370 and then (muffled speaking). 00:00:53.370 --> 00:00:54.793 Yes sir, the name change anyway. 00:00:54.793 --> 00:00:55.669 Sorry. 00:00:55.669 --> 00:00:57.848 (crowd laughing) 00:00:57.848 --> 00:00:58.681 All right. 00:00:58.681 --> 00:00:59.801 Energy is on. 00:00:59.801 --> 00:01:00.634 All right. 00:01:00.634 --> 00:01:02.220 Thank you, Chairman, Commissioners 00:01:02.220 --> 00:01:04.270 appreciate the opportunity to be here. 00:01:04.270 --> 00:01:05.330 Bill Barnes for NRG. 00:01:05.330 --> 00:01:07.270 I'm gonna help tag team this 00:01:07.270 --> 00:01:09.083 with Arnie Olson for me three. 00:01:12.150 --> 00:01:13.730 Because you guys are asking such good questions, 00:01:13.730 --> 00:01:15.160 I'm gonna sit up here and help him out 00:01:15.160 --> 00:01:16.840 and also have a few brief introductory remarks 00:01:16.840 --> 00:01:18.330 for handed over to him. 00:01:18.330 --> 00:01:22.230 Last time, I was up here on a market design panel 00:01:22.230 --> 00:01:24.890 that was in your first in early July. 00:01:24.890 --> 00:01:28.690 And we had just begun the process of talking 00:01:28.690 --> 00:01:30.880 with the three and developing our thoughts 00:01:30.880 --> 00:01:34.580 and proposals on market design concepts. 00:01:34.580 --> 00:01:37.470 And we got the message loud and clear, 00:01:37.470 --> 00:01:40.213 work with urgency but work with purpose. 00:01:41.100 --> 00:01:46.100 And two main components to what we had through our minds 00:01:46.940 --> 00:01:49.500 as we developed this proposal was one 00:01:49.500 --> 00:01:51.490 is the reliability expectations 00:01:51.490 --> 00:01:53.000 and goals of our market have been 00:01:53.000 --> 00:01:56.500 redefined from now until forever, right? 00:01:56.500 --> 00:01:59.410 So the prior expectations, the prior thoughts 00:01:59.410 --> 00:02:01.230 on what our market design needed 00:02:01.230 --> 00:02:03.230 to achieve from reliability has changed. 00:02:04.620 --> 00:02:09.020 And that means moving away from scarcity events, 00:02:09.020 --> 00:02:11.930 moving away from what you call crisis based pricing, 00:02:11.930 --> 00:02:15.110 moving in a direction that ensures 00:02:15.110 --> 00:02:17.330 and helps increase the likelihood 00:02:17.330 --> 00:02:20.263 that we have more reliability, higher reserves. 00:02:22.300 --> 00:02:24.560 And we've heard that consistently from our customers 00:02:24.560 --> 00:02:26.780 from the public, from our legislative members 00:02:26.780 --> 00:02:27.980 from the Governor's office, 00:02:27.980 --> 00:02:30.030 that is our common goal common objective. 00:02:31.130 --> 00:02:33.160 And we felt very strongly that we need to do 00:02:33.160 --> 00:02:37.070 that the right way by setting the right foundation first. 00:02:37.070 --> 00:02:40.780 And that begins with setting a reliability requirement 00:02:40.780 --> 00:02:43.260 and having the market achieve that. 00:02:43.260 --> 00:02:45.320 Any other proposal that you've heard today 00:02:45.320 --> 00:02:48.770 that doesn't start with that shooting in the dark? 00:02:48.770 --> 00:02:50.433 And so then that's what we kept getting back to 00:02:50.433 --> 00:02:54.910 because we need to begin with the right part, 00:02:54.910 --> 00:02:57.860 and give you guys a plan and a process. 00:02:57.860 --> 00:02:59.513 As you said, hope is not a plan. 00:03:00.630 --> 00:03:03.280 And so that's what we have worked diligently 00:03:03.280 --> 00:03:05.210 on last few months to deliver. 00:03:05.210 --> 00:03:08.930 And the second component that was important for us 00:03:08.930 --> 00:03:10.770 is you have to achieve the goal 00:03:10.770 --> 00:03:13.710 and the requirement through the competitive market, 00:03:13.710 --> 00:03:16.700 preserve what has worked so well in ERCOT, 00:03:16.700 --> 00:03:19.560 the best and most robust and competitive retail market, 00:03:19.560 --> 00:03:22.670 empower reps analysis to solve 00:03:22.670 --> 00:03:25.380 and contribute to the reliability. 00:03:25.380 --> 00:03:28.368 So with that backdrop, I'm gonna turn over to Arnie. 00:03:28.368 --> 00:03:30.430 Thank you. Thanks, Bill. 00:03:30.430 --> 00:03:32.700 And Charlie Commissioners thanks for the opportunity to come 00:03:32.700 --> 00:03:35.450 and talk about our proposal with you today. 00:03:35.450 --> 00:03:39.950 So just to echo what Bill said, our proposal is, 00:03:39.950 --> 00:03:44.630 in fact, to ask the Commission based 00:03:44.630 --> 00:03:47.190 on technical work conducted by ERCOT, 00:03:47.190 --> 00:03:50.850 to establish a forward looking reliability standard 00:03:50.850 --> 00:03:52.270 that the Texas electricity market 00:03:52.270 --> 00:03:54.690 would be expected to perform too. 00:03:54.690 --> 00:03:56.520 I think, to me, that's the central question 00:03:56.520 --> 00:03:59.380 that this Commission faces, is do you wanna continue 00:03:59.380 --> 00:04:03.000 with a market where reliability is an outcome of the market? 00:04:03.000 --> 00:04:07.270 So we send market signals that we hope will incent 00:04:07.270 --> 00:04:10.330 companies investors to invest in generation. 00:04:10.330 --> 00:04:11.980 But we're not sure how much reliability 00:04:11.980 --> 00:04:13.870 we'll get out of that system. 00:04:13.870 --> 00:04:15.160 Now, the theory of that is 00:04:15.160 --> 00:04:17.450 that the market outcome should be a function 00:04:17.450 --> 00:04:20.200 of customers value of reliability, right? 00:04:20.200 --> 00:04:22.120 That's the theory, and it makes sense. 00:04:22.120 --> 00:04:24.120 The challenge is we don't really have a system 00:04:24.120 --> 00:04:26.510 where customers can realize and experience 00:04:26.510 --> 00:04:29.150 their value of reliability in the marketplace. 00:04:29.150 --> 00:04:31.190 And we've seen some challenges and dangers 00:04:31.190 --> 00:04:33.070 of what happens when we expose customers 00:04:33.070 --> 00:04:35.020 to real time prices all the way up 00:04:35.020 --> 00:04:38.090 to what their value of reliability might be. 00:04:38.090 --> 00:04:41.230 So the reality is, we have a system where 00:04:42.770 --> 00:04:45.840 we're not sure what level of reliability we're gonna get. 00:04:45.840 --> 00:04:47.090 So that really is the key question 00:04:47.090 --> 00:04:49.720 and what we've offered is in effect a straw proposal 00:04:49.720 --> 00:04:51.650 or if you accept the proposition 00:04:51.650 --> 00:04:55.320 that a forward looking reliability standard is appropriate. 00:04:55.320 --> 00:04:56.650 You've offered a straw proposal 00:04:56.650 --> 00:04:57.810 for how you might get there in 00:04:57.810 --> 00:05:00.310 a way as Bill said, that's most friendly 00:05:00.310 --> 00:05:02.810 and most consistent with competitive market principles 00:05:02.810 --> 00:05:05.150 as it can be as we can design it, 00:05:05.150 --> 00:05:10.150 which is to embed it in the LSE load serving obligation. 00:05:10.810 --> 00:05:14.870 So we've listed up here, the challenges that we see. 00:05:14.870 --> 00:05:17.610 And we've designed the proposal to address, 00:05:17.610 --> 00:05:21.110 ensuring sufficient generation capability. 00:05:21.110 --> 00:05:22.380 And this is what Sam described. 00:05:22.380 --> 00:05:24.950 That's problem number one, supply adequacy. 00:05:24.950 --> 00:05:27.060 And really, all over the proposals 00:05:27.060 --> 00:05:28.730 that you've been hearing about today, they're 00:05:28.730 --> 00:05:32.090 all really aimed at problem number one, supply adequacy. 00:05:32.090 --> 00:05:33.470 I haven't really heard any proposal 00:05:33.470 --> 00:05:35.300 that says whose main purpose 00:05:35.300 --> 00:05:38.520 is day to day reliability positioning this system 00:05:38.520 --> 00:05:41.780 to have the operational responsiveness that Sam described, 00:05:41.780 --> 00:05:46.360 they really are always at raising electricity prices 00:05:46.360 --> 00:05:48.700 during certain hours of the year to provide incentives 00:05:48.700 --> 00:05:50.110 for people to make investments, 00:05:50.110 --> 00:05:53.900 they really are all aimed at that investment challenge. 00:05:53.900 --> 00:05:56.910 Most of them are aimed very indirectly at that challenge 00:05:56.910 --> 00:05:59.900 by incenting behavior and dispatch in response 00:05:59.900 --> 00:06:01.990 during certain time periods of the year. 00:06:01.990 --> 00:06:04.730 Ours is aimed directly at it by identifying 00:06:04.730 --> 00:06:06.610 the characteristics that are needed 00:06:06.610 --> 00:06:08.670 to ensure reliability throughout the year, 00:06:08.670 --> 00:06:11.720 and directly rewarding them through a generator 00:06:11.720 --> 00:06:14.253 accreditation program, which I'll get into. 00:06:15.890 --> 00:06:18.090 If you go to the next slide. 00:06:18.090 --> 00:06:20.580 So our proposal is a load serving 00:06:20.580 --> 00:06:23.250 entity reliability obligation. 00:06:23.250 --> 00:06:25.170 In fact, it's a procurement obligation 00:06:25.170 --> 00:06:27.200 on the load serving entities, 00:06:27.200 --> 00:06:30.170 to procure the quantity of resources that are required 00:06:30.170 --> 00:06:33.320 to meet that forward looking reliability standard. 00:06:33.320 --> 00:06:35.970 I'll walk through a few of the elements here. 00:06:35.970 --> 00:06:39.720 The first element is that ERCOT would on a regular basis, 00:06:39.720 --> 00:06:44.550 semi annually, annually do very detailed modeling, 00:06:44.550 --> 00:06:46.380 loss of load modeling, considering all 00:06:46.380 --> 00:06:47.613 of the various weather conditions 00:06:47.613 --> 00:06:49.820 that the system might expect to face, 00:06:49.820 --> 00:06:51.410 all of the various supply conditions 00:06:51.410 --> 00:06:54.100 looking at conditions on the natural gas system. 00:06:54.100 --> 00:06:58.240 And through that process, develop a proposal 00:06:58.240 --> 00:07:00.910 for what that reliability standard might look like, 00:07:00.910 --> 00:07:03.580 along with information about how costly it would be 00:07:03.580 --> 00:07:05.380 to achieve different levels of reliability, 00:07:05.380 --> 00:07:08.850 what types of resources that you would need to achieve that? 00:07:08.850 --> 00:07:11.300 How each of those resources contributes 00:07:11.300 --> 00:07:13.780 towards the meeting that reliability standard, 00:07:13.780 --> 00:07:16.390 and whether the system is in fact adequate, 00:07:16.390 --> 00:07:18.340 based on their best available information 00:07:18.340 --> 00:07:21.180 that they can muster, to look at this problem. 00:07:21.180 --> 00:07:24.170 And based on all of that, they would come to the Commission 00:07:24.170 --> 00:07:27.270 and ask you for a determination of whether or not the system 00:07:27.270 --> 00:07:30.980 is adequate, what the reliability standards should be. 00:07:30.980 --> 00:07:33.140 And if the system is not adequate 00:07:33.140 --> 00:07:36.550 to trigger this load serving entity reliability obligation 00:07:36.550 --> 00:07:38.670 on a three year forward basis. 00:07:38.670 --> 00:07:42.620 So in time for new steel on the ground to be developed, 00:07:42.620 --> 00:07:45.750 new resources to be constructed to remedy this situation, 00:07:45.750 --> 00:07:48.030 so that we can go into the operating near 00:07:48.030 --> 00:07:50.260 the operating season the operating day, 00:07:50.260 --> 00:07:51.753 with enough capability to make sure 00:07:51.753 --> 00:07:54.283 that we can operate the system reliably. 00:07:55.630 --> 00:07:57.960 The requirement falls onto the LSE. 00:07:57.960 --> 00:08:00.480 It's a natural extension again of their role 00:08:00.480 --> 00:08:03.490 in hedging forward energy purchases on behalf 00:08:03.490 --> 00:08:06.570 of their customers, assembling a portfolio of resources 00:08:06.570 --> 00:08:09.870 that they believe best meets the needs of their customers, 00:08:09.870 --> 00:08:11.930 this is just one additional component of 00:08:11.930 --> 00:08:15.150 that procurement obligation that they would need to look at. 00:08:15.150 --> 00:08:19.550 There will be a showing one year ahead of the time period in 00:08:19.550 --> 00:08:22.220 which the deficiency was identified. 00:08:22.220 --> 00:08:23.950 That showing is a formal requirement. 00:08:23.950 --> 00:08:27.090 And if LSE are deficient, they're penalized. 00:08:27.090 --> 00:08:30.320 And any penalty monies that are caught would collect 00:08:30.320 --> 00:08:32.760 it could use still in the year ahead timeframe 00:08:32.760 --> 00:08:35.210 to take some actions to attempt to remedy the situation. 00:08:35.210 --> 00:08:36.400 That's not a lot of time. 00:08:36.400 --> 00:08:38.360 But it may be enough time to implement 00:08:38.360 --> 00:08:40.820 some emergency demand response, type programs, 00:08:40.820 --> 00:08:43.410 load shedding programs that might need to be in time 00:08:43.410 --> 00:08:46.110 to identify backup diesel generators, 00:08:46.110 --> 00:08:47.940 for example, that could be deployed 00:08:47.940 --> 00:08:51.810 to help prepare a physical remedy for the situation. 00:08:51.810 --> 00:08:55.000 So we believe that establishing 00:08:55.000 --> 00:08:58.020 this forward looking reliability requirement is responsive 00:08:58.020 --> 00:08:59.330 to the requirements of SB 3, 00:08:59.330 --> 00:09:02.280 which it says that the Commission 00:09:02.280 --> 00:09:04.980 should establish requirements to meet the reliability needs 00:09:04.980 --> 00:09:06.600 of the power system. 00:09:06.600 --> 00:09:07.433 It says that the Commission 00:09:07.433 --> 00:09:09.530 should determine the quantity and characteristics 00:09:09.530 --> 00:09:11.300 of reliability services necessary 00:09:11.300 --> 00:09:14.390 to ensure appropriate reliability. 00:09:14.390 --> 00:09:16.780 It procures ancillary and liability services 00:09:16.780 --> 00:09:19.670 on a competitive basis, and it develops appropriate 00:09:19.670 --> 00:09:22.693 qualification performance requirements for generators. 00:09:25.610 --> 00:09:26.980 I spend just a minute now 00:09:26.980 --> 00:09:29.480 on this slide about resource accreditation. 00:09:29.480 --> 00:09:31.470 So this would be an important component 00:09:31.470 --> 00:09:33.600 of the forward shelling process, 00:09:33.600 --> 00:09:36.020 which is that LSEs would signed contracts 00:09:36.020 --> 00:09:37.850 with individual generators 00:09:37.850 --> 00:09:41.890 to procure reliability attributes of those generators. 00:09:41.890 --> 00:09:42.950 In order to do that, in order 00:09:42.950 --> 00:09:45.470 to know whether our system is gonna be reliable. 00:09:45.470 --> 00:09:48.440 We need to have a way of accurately assessing 00:09:48.440 --> 00:09:50.100 how each resource would perform 00:09:50.100 --> 00:09:52.080 under the conditions that matter most. 00:09:52.080 --> 00:09:54.120 And the conditions that matter most are 00:09:54.120 --> 00:09:56.610 when the system is the most short 00:09:56.610 --> 00:09:59.880 and the most at risk of suffering a loss of load event 00:09:59.880 --> 00:10:03.710 and The types of modeling that energy planners do 00:10:03.710 --> 00:10:06.960 are designed exactly to address that question 00:10:06.960 --> 00:10:10.680 of what are the most stressful conditions on the system? 00:10:10.680 --> 00:10:12.700 And narrowing in on really what 00:10:12.700 --> 00:10:14.920 is a very few number of hours. 00:10:14.920 --> 00:10:16.720 When you might expect to suffer loss, 00:10:16.720 --> 00:10:19.490 you don't suffer loss of load once a month, 00:10:19.490 --> 00:10:21.570 or even every year, it really only happens under 00:10:21.570 --> 00:10:23.330 the most extreme weather conditions. 00:10:23.330 --> 00:10:26.090 So what matters the most is how these resources perform 00:10:26.090 --> 00:10:28.250 under the most extreme our weather conditions. 00:10:28.250 --> 00:10:30.120 And this is what a forward looking assessment 00:10:30.120 --> 00:10:33.620 can do for you as you can identify these in advance, again, 00:10:33.620 --> 00:10:38.360 as best you can, given the limits of data available to you. 00:10:38.360 --> 00:10:40.550 So each resource has its own characteristics. 00:10:40.550 --> 00:10:41.700 None of them are perfect. 00:10:41.700 --> 00:10:43.010 Each of them have limitations, 00:10:43.010 --> 00:10:45.869 solar and wind have limitations based on. 00:10:45.869 --> 00:10:48.560 When the weather the sun shining, where the winds blowing, 00:10:48.560 --> 00:10:50.370 some of the thermal resources have limitations 00:10:50.370 --> 00:10:52.500 based on whether they can get fuel 00:10:52.500 --> 00:10:55.930 or whether they're weatherize and those sorts of things. 00:10:55.930 --> 00:10:58.220 Can just maybe have another risk. 00:10:58.220 --> 00:11:00.110 A couple minutes, I'll wrap up quickly, yeah. 00:11:00.110 --> 00:11:04.640 So the next one gets into the issues of LSE showings. 00:11:04.640 --> 00:11:07.250 So if triggered, each LSE would be required 00:11:07.250 --> 00:11:10.830 to procure enough reliability attributes to meet its share 00:11:10.830 --> 00:11:14.504 of the system requirements as identified by ERCOT. 00:11:14.504 --> 00:11:15.913 If you go to the last slide. 00:11:16.830 --> 00:11:20.430 The LSE obligation would be extinguished at the end 00:11:20.430 --> 00:11:22.190 of the four week showing period. 00:11:22.190 --> 00:11:24.170 So in fact, you're ahead. 00:11:24.170 --> 00:11:27.150 But this really it's an obligation not just on the LSE, 00:11:27.150 --> 00:11:29.310 but also on the generators that agreed 00:11:29.310 --> 00:11:32.370 to sell these reliability attributes to the LSE. 00:11:32.370 --> 00:11:34.720 So the generators would then have an obligation 00:11:34.720 --> 00:11:37.500 to perform during the system events. 00:11:37.500 --> 00:11:40.360 So ERCOT would identify the potential 00:11:40.360 --> 00:11:42.360 for reliability events to occur. 00:11:42.360 --> 00:11:45.380 And the generators that sold these reliability attributes 00:11:45.380 --> 00:11:46.600 would be required to offer 00:11:46.600 --> 00:11:48.850 all their capabilities into the market. 00:11:48.850 --> 00:11:50.750 So that ERCOT can be assured now 00:11:50.750 --> 00:11:52.190 that those resources are actually going 00:11:52.190 --> 00:11:54.750 to be available on the operating day available 00:11:54.750 --> 00:11:56.913 for dispatch when they need them the most. 00:12:00.700 --> 00:12:01.983 Counter argument. 00:12:03.520 --> 00:12:04.920 Let me take the first one. 00:12:06.523 --> 00:12:10.810 So yeah, the most popular counter argument 00:12:10.810 --> 00:12:11.770 I think we've heard so far. 00:12:11.770 --> 00:12:12.960 And obviously we've talked a lot 00:12:12.960 --> 00:12:14.750 of other stakeholders about this 00:12:14.750 --> 00:12:18.300 is that it disadvantages smaller participants 00:12:18.300 --> 00:12:21.518 included particularly smaller retail electric providers, 00:12:21.518 --> 00:12:22.410 Unaffiliated. 00:12:22.410 --> 00:12:24.383 Unaffiliated or smaller. 00:12:25.560 --> 00:12:26.600 I don't believe that's true at all, 00:12:26.600 --> 00:12:28.710 and for a lot of good reasons. 00:12:28.710 --> 00:12:32.550 First, is, although this mechanism 00:12:32.550 --> 00:12:34.440 is modeled off of Australia, 00:12:34.440 --> 00:12:37.420 and it's similar to SPP, and I've also heard some try 00:12:37.420 --> 00:12:41.340 to compare it to California, you cannot compare 00:12:41.340 --> 00:12:45.163 ERCOT retail market to any other market that exists today. 00:12:46.190 --> 00:12:48.600 It is highly robust, the barriers 00:12:48.600 --> 00:12:52.550 to entry are extremely low, you are seeing eight 00:12:52.550 --> 00:12:57.550 to 10 new rep certificate applications being filed 00:12:57.780 --> 00:13:01.080 almost regularly, it's easy to enter 00:13:01.080 --> 00:13:02.793 and exit the retail market. 00:13:04.290 --> 00:13:05.690 There's really no other market 00:13:05.690 --> 00:13:08.040 that you can actually compare it to my opinion. 00:13:09.690 --> 00:13:11.910 And so part of the delivery mechanism 00:13:11.910 --> 00:13:15.870 that's proposed here is after the accreditation is done, 00:13:15.870 --> 00:13:18.780 each of those resources gets a certificate 00:13:18.780 --> 00:13:20.113 or a rec like product. 00:13:21.260 --> 00:13:25.840 And that is a tradable liquid product that can be purchased. 00:13:25.840 --> 00:13:27.610 Similar to what we see today 00:13:27.610 --> 00:13:29.830 with the renewable portfolio standard. 00:13:29.830 --> 00:13:31.760 I've heard it no one complain about 00:13:31.760 --> 00:13:35.480 how the rec market disadvantages any types of retailer. 00:13:35.480 --> 00:13:39.006 It's liquid, you can talk to a broker and get a quote on it. 00:13:39.006 --> 00:13:42.370 The delivery mechanism and fulfillment mechanism 00:13:43.320 --> 00:13:44.780 can be similar to that so 00:13:44.780 --> 00:13:47.233 that you have a liquid tradable product. 00:13:48.650 --> 00:13:52.800 That is probably the biggest attribute 00:13:52.800 --> 00:13:56.530 to help achieve and accomplish that goal 00:13:56.530 --> 00:13:59.973 without advantages or disadvantages certain participants. 00:14:02.010 --> 00:14:07.010 The second is the amount of the obligation 00:14:09.210 --> 00:14:11.363 is based on your sizes rep. 00:14:12.620 --> 00:14:16.430 The entity that will have to procure the most capacity 00:14:16.430 --> 00:14:18.773 to meet this obligation is right here. 00:14:20.100 --> 00:14:22.490 So if you're a smaller rep, 00:14:22.490 --> 00:14:24.500 and this is what we really like about this product, 00:14:24.500 --> 00:14:28.910 and what really allows reps and LSE 00:14:28.910 --> 00:14:31.800 to differentiate themselves, if I'm a small rep 00:14:31.800 --> 00:14:32.990 and I wanna meet my obligation 00:14:32.990 --> 00:14:35.263 with just demand response, I can do that. 00:14:36.610 --> 00:14:39.090 When you're a rep of our size, and you have 00:14:39.090 --> 00:14:40.820 to procure thousands of megawatts 00:14:40.820 --> 00:14:43.570 to meet your obligation, we don't have that option. 00:14:43.570 --> 00:14:47.070 So we have to go out and get all kinds 00:14:47.070 --> 00:14:49.340 to meet the reliability share. 00:14:49.340 --> 00:14:51.690 So in a way, I would argue it's more burdensome 00:14:51.690 --> 00:14:52.950 for the larger reps because we have 00:14:52.950 --> 00:14:55.410 a much bigger obligation to cover. 00:14:55.410 --> 00:14:57.510 And that's the way it should be, right? 00:14:57.510 --> 00:14:59.140 We all need to step up and make sure 00:14:59.140 --> 00:15:01.540 that we're covering our share of the obligation. 00:15:03.950 --> 00:15:07.860 The third thing which is completely unique to ERCOT, 00:15:07.860 --> 00:15:09.550 is I just checked last night, 00:15:09.550 --> 00:15:13.200 I see about 2000 broker registrations, 00:15:13.200 --> 00:15:18.200 we have a very robust and mature market for retail brokers 00:15:20.200 --> 00:15:22.820 that helped provide substantial liquidity on 00:15:22.820 --> 00:15:25.050 any types of products energy, 00:15:25.050 --> 00:15:29.030 and this product would look no different in terms 00:15:29.030 --> 00:15:32.580 of their ability to provide that liquidity for all shapes 00:15:32.580 --> 00:15:34.603 and sizes of market participants. 00:15:35.620 --> 00:15:37.890 I did you have anything else to add on that one? 00:15:37.890 --> 00:15:38.960 No. 00:15:38.960 --> 00:15:41.230 And then the second counter argument 00:15:41.230 --> 00:15:43.743 that we've heard is concerned about market power. 00:15:44.670 --> 00:15:48.900 And in a way, some of what I just said 00:15:48.900 --> 00:15:50.330 that addresses the first counter argument 00:15:50.330 --> 00:15:53.090 also helps address the second counter argument, 00:15:53.090 --> 00:15:54.660 which is when liquidity. 00:15:54.660 --> 00:15:58.040 So do you have a tradable product that's liquid 00:15:58.040 --> 00:16:00.580 that helps all entities shapes 00:16:00.580 --> 00:16:03.060 and sizes meet their obligation? 00:16:03.060 --> 00:16:05.273 You can develop a mechanism to do that. 00:16:06.900 --> 00:16:08.680 And the biggest thing that I wanna try 00:16:08.680 --> 00:16:13.680 to draw comparison to is today, 00:16:13.840 --> 00:16:17.060 the vast majority of reps analysis 00:16:17.060 --> 00:16:19.490 meet their energy obligation. 00:16:19.490 --> 00:16:21.360 So when we all hedge, we have 00:16:21.360 --> 00:16:24.420 to procure supply to meet our load. 00:16:24.420 --> 00:16:27.923 That happens through the bilateral energy market. 00:16:29.240 --> 00:16:32.120 Vast majority of power that's transacted energy 00:16:32.120 --> 00:16:35.720 that's transacted is in the bilateral market, 00:16:35.720 --> 00:16:38.763 which would look similar in a concept to this. 00:16:39.880 --> 00:16:43.910 That there's been no concerns that I've heard 00:16:43.910 --> 00:16:46.190 from the IMM about the bilateral energy market 00:16:46.190 --> 00:16:50.020 having a structural issue, that there are mechanisms 00:16:50.020 --> 00:16:54.780 that help ensure that there's market power 00:16:54.780 --> 00:16:58.070 abuse is prohibited on spot and energy prices, 00:16:58.070 --> 00:17:02.950 that helps limit that behavior in the forward market. 00:17:02.950 --> 00:17:06.950 But still, that exists and with sufficient competition, 00:17:06.950 --> 00:17:10.840 and liquid product, that competition diminishes 00:17:10.840 --> 00:17:12.733 those market power opportunities. 00:17:15.030 --> 00:17:17.340 And I'm gonna turn the market power 00:17:17.340 --> 00:17:19.640 issue over to Arnie to address in more detail. 00:17:20.730 --> 00:17:22.230 Yeah, which is very briefly, 00:17:23.360 --> 00:17:26.220 market power rests in concentration, 00:17:26.220 --> 00:17:27.890 if there's degeneration resources, 00:17:27.890 --> 00:17:30.150 or too concentrated in a small number of owners, 00:17:30.150 --> 00:17:31.680 they might be able to withhold, 00:17:31.680 --> 00:17:33.710 and thereby actually execute market power. 00:17:33.710 --> 00:17:37.083 That concern exists within all of our cuts markets, 00:17:37.083 --> 00:17:38.750 then all of the organized markets, 00:17:38.750 --> 00:17:41.230 and there are detailed mitigation plans 00:17:41.230 --> 00:17:43.050 that are put in place for the energy market, 00:17:43.050 --> 00:17:44.610 we think those could very easily apply 00:17:44.610 --> 00:17:47.630 to the sale of these forward reliability certificates 00:17:47.630 --> 00:17:49.930 as well, there's no reason why they couldn't. 00:17:49.930 --> 00:17:51.680 I've got maybe just a couple of others to raise, 00:17:51.680 --> 00:17:54.050 just briefly the issue on the timing that Sam raise. 00:17:54.050 --> 00:17:56.890 So we recognize this as a long term solution. 00:17:56.890 --> 00:18:00.450 And that's why it's important to plant the seeds now 00:18:00.450 --> 00:18:02.360 to start the process now of developing 00:18:02.360 --> 00:18:04.780 a more comprehensive holistic reform, 00:18:04.780 --> 00:18:07.600 so that over time, we evolve towards a system 00:18:07.600 --> 00:18:09.860 in which all of the LSEs have the right incentives 00:18:09.860 --> 00:18:11.610 to invest in the right types of resources 00:18:11.610 --> 00:18:13.490 that the system needs for reliability, 00:18:13.490 --> 00:18:17.130 you can certainly put in place some shorter term fixes, 00:18:17.130 --> 00:18:18.787 as this process plays itself out. 00:18:18.787 --> 00:18:21.130 And all the design parameters are developed. 00:18:21.130 --> 00:18:24.520 And we've heard a lot of ideas on that. 00:18:24.520 --> 00:18:26.260 The last one I wanted to raise, actually, 00:18:26.260 --> 00:18:27.520 could you go back to the slide 00:18:27.520 --> 00:18:29.580 with the restructure accreditation, 00:18:29.580 --> 00:18:32.172 I want to address the issue around averaging 00:18:32.172 --> 00:18:34.500 that you brought up Chair Lake on this. 00:18:34.500 --> 00:18:35.790 And then we have heard this concern 00:18:35.790 --> 00:18:37.830 about these types of methods 00:18:37.830 --> 00:18:40.760 for accrediting renewable resources in particular, 00:18:40.760 --> 00:18:42.810 is this really just a complicated way 00:18:42.810 --> 00:18:44.440 of calculating an average? 00:18:44.440 --> 00:18:46.630 And I wanna show you that it's not. 00:18:46.630 --> 00:18:51.630 And it really is the focus on those most extreme hours, 00:18:51.770 --> 00:18:54.450 that prevents you, you know that moves you away 00:18:54.450 --> 00:18:55.990 from averaging, you really are concerned 00:18:55.990 --> 00:18:57.590 about how does the wind perform 00:18:57.590 --> 00:19:00.490 when it's the coldest day of the winter, 00:19:00.490 --> 00:19:02.410 when it's the hottest day of the summer. 00:19:02.410 --> 00:19:04.203 And it turns out that in most markets 00:19:04.203 --> 00:19:05.830 wind is anti correlated 00:19:05.830 --> 00:19:08.450 with load during those most extreme events. 00:19:08.450 --> 00:19:12.630 So the average winter time wind is might have nothing to do 00:19:12.630 --> 00:19:15.970 with how the wind performed during the most extreme day. 00:19:15.970 --> 00:19:18.940 And this method is the most accurate one 00:19:18.940 --> 00:19:21.020 at capturing the performance of those resources 00:19:21.020 --> 00:19:22.880 during those hours that matter the most. 00:19:22.880 --> 00:19:24.650 In fact, any other method that moves away 00:19:24.650 --> 00:19:27.410 from this invites more and more averaging. 00:19:27.410 --> 00:19:29.090 And we heard a lot of discussion 00:19:29.090 --> 00:19:32.400 about the RDC proposals that earlier. 00:19:32.400 --> 00:19:34.580 And all of those would involve more averaging than these, 00:19:34.580 --> 00:19:36.970 although it would provide incentives 00:19:36.970 --> 00:19:39.980 for performance during hours that are maybe kind of tight, 00:19:39.980 --> 00:19:41.320 but not the most extreme hours 00:19:41.320 --> 00:19:42.480 where you really are most worried 00:19:42.480 --> 00:19:45.023 about loss of load events potentially. 00:19:46.100 --> 00:19:48.150 And then maybe the last thing is that 00:19:48.150 --> 00:19:51.430 if you have this reliability certificate program, 00:19:51.430 --> 00:19:53.750 there's a question, is this increasing 00:19:53.750 --> 00:19:56.200 costs to everyone else? 00:19:56.200 --> 00:19:58.770 And what I would say to that is, 00:19:58.770 --> 00:20:02.200 this is really ends up being a residual market. 00:20:02.200 --> 00:20:06.690 So if all the resources can realize enough revenues through 00:20:06.690 --> 00:20:08.480 the daily and hourly energy markets, 00:20:08.480 --> 00:20:10.310 and through some of the RDC reform proposals 00:20:10.310 --> 00:20:11.560 that we heard about earlier, 00:20:11.560 --> 00:20:13.630 then there'll be plenty of certificates. 00:20:13.630 --> 00:20:15.200 And there won't be any need really, 00:20:15.200 --> 00:20:16.650 for anybody to fuss too much 00:20:16.650 --> 00:20:18.530 about procuring enough of this stuff. 00:20:18.530 --> 00:20:20.210 It's really only if those other resources, 00:20:20.210 --> 00:20:22.210 other systems don't work. 00:20:22.210 --> 00:20:24.370 These certificates become in short supply. 00:20:24.370 --> 00:20:27.800 And the remedy to market power ultimately, is new entry. 00:20:27.800 --> 00:20:29.360 And that's exactly what this is intended 00:20:29.360 --> 00:20:31.310 to unsend on a three year forward basis, 00:20:31.310 --> 00:20:33.160 is provide the incentives for new entry 00:20:33.160 --> 00:20:35.900 into the market building new steel in the ground. 00:20:35.900 --> 00:20:38.000 So that provides a natural ceiling on 00:20:38.000 --> 00:20:40.572 that the price of these certificates is 00:20:40.572 --> 00:20:42.770 they should never get higher in the long run 00:20:42.770 --> 00:20:44.870 than the cost of building their resources. 00:20:46.870 --> 00:20:48.907 Sorry, just to piggyback on that, 00:20:48.907 --> 00:20:51.420 and a couple more about the big change, 00:20:51.420 --> 00:20:52.420 we're not gonna sit up here 00:20:52.420 --> 00:20:53.970 and act like this is something simple 00:20:53.970 --> 00:20:55.590 that can be done next year, right? 00:20:55.590 --> 00:20:56.423 This is a plan. 00:20:56.423 --> 00:20:58.250 This is a process. 00:20:58.250 --> 00:20:59.760 Katie mentioned it and I agree there 00:20:59.760 --> 00:21:03.520 are numerous important policy decisions 00:21:03.520 --> 00:21:06.350 that would need to accompany this proposal 00:21:06.350 --> 00:21:11.053 that would need to be made, that's paperwork. 00:21:12.450 --> 00:21:13.820 We believe system light. 00:21:13.820 --> 00:21:16.350 I agree with Kanaan that it would require changes 00:21:16.350 --> 00:21:19.683 to the settlement system for the performance assessment. 00:21:20.560 --> 00:21:24.010 But in terms of system and implementation time, 00:21:24.010 --> 00:21:24.900 we think that's light. 00:21:24.900 --> 00:21:27.650 But there are policy decisions that need to be made. 00:21:27.650 --> 00:21:30.620 If we had tried to guess I would say two to three year 00:21:30.620 --> 00:21:34.230 implementation time to get all those decisions made. 00:21:34.230 --> 00:21:36.810 And then the second thing I wanna add on 00:21:36.810 --> 00:21:41.293 to is Katie's concern about guarantees. 00:21:42.490 --> 00:21:44.160 You're also not gonna hear us sit up here 00:21:44.160 --> 00:21:46.290 and say this is gonna guarantee reliability, 00:21:46.290 --> 00:21:49.000 nothing will guarantee you reliability, 00:21:49.000 --> 00:21:51.550 a fully regulated utility market 00:21:51.550 --> 00:21:53.260 would not have prevented URI. 00:21:53.260 --> 00:21:56.303 What this does is it lowers the risk. 00:21:57.970 --> 00:21:59.820 Well, it doesn't take zero. 00:21:59.820 --> 00:22:01.616 Yeah, fair enough. 00:22:01.616 --> 00:22:04.480 All right, let's do a quick round of questions. 00:22:04.480 --> 00:22:06.290 Can kind of go first? Yeah, yeah. 00:22:06.290 --> 00:22:10.630 So Bill, I wanna have you counter 00:22:10.630 --> 00:22:13.627 to your own response to that argument. 00:22:13.627 --> 00:22:18.627 And that is the impact to the retail market. 00:22:19.890 --> 00:22:21.623 You mentioned that. 00:22:23.230 --> 00:22:25.900 In fact, California and SPP in Australia 00:22:25.900 --> 00:22:28.513 have an LSE obligation in place right now. 00:22:29.640 --> 00:22:33.540 But that the difference between those obligations 00:22:33.540 --> 00:22:36.280 and in other states and markets countries 00:22:37.630 --> 00:22:40.403 is that we have a robust retail market. 00:22:41.300 --> 00:22:46.300 So I really wanna understand that a little bit more, 00:22:46.700 --> 00:22:48.640 because I almost think that you got to turn 00:22:48.640 --> 00:22:51.910 that on its head a little bit, right? 00:22:51.910 --> 00:22:55.210 Because that is what we have to be sensitive to 00:22:55.210 --> 00:22:57.730 because we have a robust retail market, right? 00:22:57.730 --> 00:22:59.630 And I understand that, you know, 00:22:59.630 --> 00:23:04.630 we have new reps coming in on a continuous basis. 00:23:05.800 --> 00:23:09.110 But isn't that the reason? 00:23:09.110 --> 00:23:10.960 Having a robust competitive retail market 00:23:10.960 --> 00:23:13.890 is a reason we have new reps signing up to come in. 00:23:13.890 --> 00:23:17.890 So I just wanna make sure that I understand that fully, 00:23:17.890 --> 00:23:19.540 because that's why we're different. 00:23:19.540 --> 00:23:22.030 I don't know if it's a positive, 00:23:22.030 --> 00:23:23.473 I think it's something we have to recognize is 00:23:23.473 --> 00:23:27.270 that we have a retail market, unlike California. 00:23:27.270 --> 00:23:30.477 And, you know, most states in SPP, 00:23:30.477 --> 00:23:32.253 and I'm guessing Australia, 00:23:33.400 --> 00:23:35.600 but I also do wanna ask you to counter 00:23:37.050 --> 00:23:40.170 how your proposal may impact, 00:23:40.170 --> 00:23:41.880 could potentially negatively impact 00:23:41.880 --> 00:23:46.880 smaller MOUs in some of the smaller electric cooperatives. 00:23:48.840 --> 00:23:52.803 So yeah, let me try to rephrase your question. 00:23:54.250 --> 00:23:57.680 In the context of does this create any advantages 00:23:57.680 --> 00:24:00.550 or disadvantages for smaller versus larger entities, 00:24:00.550 --> 00:24:02.143 whether it be a rep or an MOU? 00:24:03.070 --> 00:24:07.750 And the way that we've thought about that is, 00:24:07.750 --> 00:24:11.550 does is there something about this mechanism 00:24:11.550 --> 00:24:16.550 that makes it easier for NRG to meet our obligation 00:24:16.920 --> 00:24:20.020 than it would a smaller participant? 00:24:20.020 --> 00:24:21.320 And I believe that would be true 00:24:21.320 --> 00:24:23.920 if there were liquidity issues, 00:24:23.920 --> 00:24:27.240 if the market wasn't as competitive and robust 00:24:27.240 --> 00:24:30.330 if the proposal didn't accompany 00:24:30.330 --> 00:24:34.577 and was fulfilled by a tradable incremental product 00:24:35.630 --> 00:24:38.530 that mimics something similar today 00:24:38.530 --> 00:24:39.963 that you can get quotes on. 00:24:41.870 --> 00:24:44.530 I think that would be a concern. 00:24:44.530 --> 00:24:46.390 But that's not what we're proposing. 00:24:46.390 --> 00:24:47.750 I don't see that, to me, 00:24:47.750 --> 00:24:49.850 the burden is on how much you need to buy. 00:24:50.990 --> 00:24:55.570 And, to me, that would be a larger rep that 00:24:56.740 --> 00:24:59.550 whoever needs who has the largest obligation is the one 00:24:59.550 --> 00:25:01.131 that's gonna have to come up 00:25:01.131 --> 00:25:05.097 with the most amount to cover their share, right? 00:25:06.110 --> 00:25:11.110 And also, if this proposal required LSE or reps 00:25:11.110 --> 00:25:14.930 to buy a very specific type of technology, 00:25:14.930 --> 00:25:19.930 like, you know, thermal or some type of mechanism 00:25:21.750 --> 00:25:26.354 or some type of resource, instead of anything 00:25:26.354 --> 00:25:30.930 that can contribute to reliability gets credit, right? 00:25:30.930 --> 00:25:32.630 And so what's gonna happen is LSEs 00:25:32.630 --> 00:25:35.860 are gonna naturally gravitate towards the resources 00:25:35.860 --> 00:25:38.650 that can provide their obligation, 00:25:38.650 --> 00:25:41.040 they can meet their obligation at the lowest cost. 00:25:41.040 --> 00:25:42.450 I think demand response is a big winner 00:25:42.450 --> 00:25:44.063 in this proposal. 00:25:44.898 --> 00:25:48.193 DG, small incremental batteries. 00:25:49.705 --> 00:25:52.380 And so those things help really, 00:25:52.380 --> 00:25:54.610 I think, really help address the concerns 00:25:54.610 --> 00:25:57.790 about any advantages or disadvantages 00:25:57.790 --> 00:25:59.906 as a part of this proposal, yep. 00:25:59.906 --> 00:26:02.660 And then as a spin off, you mentioned how this could work, 00:26:02.660 --> 00:26:04.700 sort of the accreditation process 00:26:04.700 --> 00:26:07.150 could work like our existing rec trading program. 00:26:09.640 --> 00:26:11.350 Is there a salient difference in 00:26:11.350 --> 00:26:13.650 that maybe you'd be don't meet your rec, 00:26:13.650 --> 00:26:15.620 trading program requirements 00:26:15.620 --> 00:26:18.363 that you don't impose a penalty, is that true? 00:26:20.460 --> 00:26:22.150 I think you have to retire a certain amount 00:26:22.150 --> 00:26:23.848 of wrecks to meet your obligation. 00:26:23.848 --> 00:26:25.600 If you don't you get assessed a penalty. 00:26:25.600 --> 00:26:26.950 But in your proposal, if you don't 00:26:26.950 --> 00:26:28.710 meet your requirement, you're assessed to penalty. 00:26:28.710 --> 00:26:29.717 Correct. Okay. 00:26:29.717 --> 00:26:30.550 And that's part of I think, 00:26:30.550 --> 00:26:32.030 what Arnie was touching on in terms 00:26:32.030 --> 00:26:36.890 of market power concerns, there's a maximum amount 00:26:36.890 --> 00:26:39.530 that this product would be valued at, 00:26:39.530 --> 00:26:41.980 and it's wherever we set the compliance building. 00:26:43.530 --> 00:26:48.383 Okay, and then one more on the implementation timeline. 00:26:51.050 --> 00:26:53.060 Greater than a year, we know that, 00:26:53.060 --> 00:26:56.800 but is it true that we kind of really don't know? 00:26:56.800 --> 00:27:00.840 Because I think the only comparisons we have are California, 00:27:00.840 --> 00:27:03.040 which is drastically different. 00:27:03.040 --> 00:27:05.820 Because they have just a whole different kind of market 00:27:05.820 --> 00:27:08.873 with regulated utilities, et cetera. 00:27:10.690 --> 00:27:12.240 I think what I heard from Brattle, 00:27:12.240 --> 00:27:14.390 and I'll let Sam speak to it later is 00:27:14.390 --> 00:27:17.620 that the closest comparisons are California and Australia. 00:27:17.620 --> 00:27:21.900 And California doesn't really match our market profile. 00:27:21.900 --> 00:27:24.130 So that's not I don't know how much lessons learned 00:27:24.130 --> 00:27:26.290 we're gonna squeeze out of there in terms of 00:27:26.290 --> 00:27:28.290 how do we build it and how quickly 00:27:28.290 --> 00:27:32.063 and then Australia was just a recent market development. 00:27:33.420 --> 00:27:36.160 Australia just put in their LSE obligations. 00:27:36.160 --> 00:27:38.360 So they really don't have a historical tread 00:27:39.520 --> 00:27:43.000 that we can compare to in the lessons from necessarily, 00:27:43.000 --> 00:27:45.460 although they do have an energy only market. 00:27:45.460 --> 00:27:49.010 So I'm just trying to figure out, as we look at again, 00:27:49.010 --> 00:27:50.500 like I said, at the beginning, 00:27:50.500 --> 00:27:52.923 near term, mid-term, long-term solutions. 00:27:54.680 --> 00:27:58.460 And I know you all conceded, this is a longer term solution. 00:27:58.460 --> 00:28:01.660 And but as we sit here today, trying 00:28:01.660 --> 00:28:03.610 to ensure reliability in the future, 00:28:03.610 --> 00:28:06.990 we got to make sure that we're being realistic 00:28:06.990 --> 00:28:09.640 about timelines for implementation and truly calling, 00:28:10.670 --> 00:28:12.590 truly making sure that we're taking steps 00:28:12.590 --> 00:28:15.210 to get these done in the interim, 00:28:15.210 --> 00:28:17.420 even if we have more midterm and long term solutions 00:28:17.420 --> 00:28:20.250 out there and being realistic about the implementation, 00:28:20.250 --> 00:28:24.020 and complexities surrounding all of the options. 00:28:24.020 --> 00:28:25.610 Yeah, fair point. 00:28:25.610 --> 00:28:29.730 We've got appreciate you guys sticking around 00:28:29.730 --> 00:28:30.640 for a little bit longer. 00:28:30.640 --> 00:28:33.450 I know Dr. Patton has to get on a plane. 00:28:33.450 --> 00:28:36.470 So if it works, we'll just move straight onto 00:28:36.470 --> 00:28:39.083 that segment of our programming for today. 00:28:41.330 --> 00:28:42.970 Come on up. 00:28:42.970 --> 00:28:44.843 Okay, can I ask one question real quick, 00:28:45.700 --> 00:28:48.660 in the view of this as key LSE 00:28:48.660 --> 00:28:51.060 reliability obligation elements. 00:28:51.060 --> 00:28:54.030 You have reliability, standard resource accreditation, 00:28:54.030 --> 00:28:56.550 system assessment and performance assessments. 00:28:56.550 --> 00:28:59.580 Are you proposing that every component 00:28:59.580 --> 00:29:00.970 of this gets done by ERCOT 00:29:02.030 --> 00:29:07.030 or PUC have a role in setting those standards, 00:29:07.130 --> 00:29:11.380 quantifying the value of the resources, things like that? 00:29:11.380 --> 00:29:13.880 You know, our view of it is that ERCOT would conduct all 00:29:13.880 --> 00:29:16.280 of the quantitative modeling. 00:29:16.280 --> 00:29:19.020 And they would develop a rich body of evidence, 00:29:19.020 --> 00:29:21.220 different model runs at different levels of reliability 00:29:21.220 --> 00:29:22.350 with different cost levels 00:29:22.350 --> 00:29:24.990 and different levels of resources added. 00:29:24.990 --> 00:29:26.720 But then they would bring that to the Commission. 00:29:26.720 --> 00:29:28.160 And it would need to be the Commission's job 00:29:28.160 --> 00:29:29.550 to look at all that and determine 00:29:29.550 --> 00:29:32.130 what an appropriate reliability standard is 00:29:32.130 --> 00:29:34.520 how much we ought to be willing to pay for reliability 00:29:34.520 --> 00:29:38.720 in Texas and then as to whether or not that it's warranted 00:29:38.720 --> 00:29:42.080 to trigger the obligation based on your concern 00:29:42.080 --> 00:29:44.133 about how short the market might be in three years. 00:29:44.133 --> 00:29:45.713 Thanks. Thanks, John. 00:29:47.407 --> 00:29:49.407 Thank you. All right. 00:29:50.750 --> 00:29:51.583 Come on up. 00:30:08.549 --> 00:30:11.433 (muffled speaking) what's my timeframe? 00:30:13.840 --> 00:30:15.140 Your timeframe? Yeah. 00:30:16.858 --> 00:30:18.543 I have two hours. 00:30:19.630 --> 00:30:21.080 We're not that long. 00:30:22.700 --> 00:30:24.043 But let's bracket it. 00:30:24.900 --> 00:30:25.733 Okay. 00:30:28.576 --> 00:30:29.730 Let's start with your presentation. 00:30:29.730 --> 00:30:32.180 And we'll aim to have this segment wrapped up by. 00:30:33.890 --> 00:30:34.723 6pm. 00:30:35.934 --> 00:30:37.940 Okay, yeah. 00:30:37.940 --> 00:30:41.040 We'll aim for no more than a 30 minute discussion. 00:30:41.040 --> 00:30:41.873 Okay. 00:30:43.110 --> 00:30:47.710 That's great, because I think there are some comments 00:30:47.710 --> 00:30:51.190 I'll make that you may wanna discuss with me. 00:30:51.190 --> 00:30:53.433 As I go through the presentation. 00:30:55.270 --> 00:30:58.880 Even before I get to some of the potential changes 00:30:58.880 --> 00:31:03.880 in the market, particularly on this first slide, slide two. 00:31:05.610 --> 00:31:10.010 One thing that I think is critically important is that 00:31:10.010 --> 00:31:13.410 and I'm glad Sam framed us at the beginning is 00:31:13.410 --> 00:31:16.583 that we think really hard about what our objectives are, 00:31:18.268 --> 00:31:22.380 and map these various proposals to these objectives. 00:31:23.780 --> 00:31:27.020 And one thing that's very useful is 00:31:27.020 --> 00:31:30.380 that some of these proposed changes have actually been tried 00:31:30.380 --> 00:31:34.620 and other markets we monitor, New York, 00:31:34.620 --> 00:31:38.093 New England, the mid-continent, ISO as well as ERCOT. 00:31:39.219 --> 00:31:41.500 So other RTOs that we monitor have tried some 00:31:41.500 --> 00:31:43.680 of these things, and some of them haven't been successful. 00:31:43.680 --> 00:31:45.750 So I think it's really useful to learn 00:31:45.750 --> 00:31:48.070 from their experience, and I can talk about why they have 00:31:48.070 --> 00:31:49.420 or haven't been successful. 00:31:50.960 --> 00:31:55.005 But even before hearing Sam's categorization 00:31:55.005 --> 00:31:58.600 of the objectives, I propose these three objectives. 00:31:58.600 --> 00:32:03.600 And interestingly, I think they aren't exactly matched up 00:32:04.060 --> 00:32:07.603 with Sam's, but I can map these to what he talked about. 00:32:08.500 --> 00:32:10.890 And importantly, number one, and number two, 00:32:10.890 --> 00:32:14.825 so number one, I labeled as increasing 00:32:14.825 --> 00:32:17.400 the total capacity margin, 00:32:17.400 --> 00:32:21.250 or targeting some level of capacity margin, 00:32:21.250 --> 00:32:23.967 as a potential objective that some 00:32:23.967 --> 00:32:27.380 of the proposals seem to be trying to accomplish. 00:32:27.380 --> 00:32:29.040 And you can think of that as being 00:32:29.040 --> 00:32:31.370 a steel on the ground requirement, 00:32:31.370 --> 00:32:33.163 how many power plants do we have? 00:32:35.230 --> 00:32:39.350 And then I argue that wasn't really an issue 00:32:39.350 --> 00:32:43.200 with winter storm URI, the problem was really 00:32:43.200 --> 00:32:48.020 in category number two, which is the objective 00:32:48.020 --> 00:32:52.300 of having our power plants be available and be flexible. 00:32:52.300 --> 00:32:57.300 So if I were mapping this to a supply adequacy objective, 00:32:57.320 --> 00:32:59.860 it's really a combination of number one and number two, 00:32:59.860 --> 00:33:03.040 it's how many power plants you have, 00:33:03.040 --> 00:33:05.310 and how well they perform. 00:33:05.310 --> 00:33:08.020 And the reason it's important to break those apart 00:33:08.020 --> 00:33:10.550 and not call them both supply adequacy is 00:33:10.550 --> 00:33:14.010 that all of our problems were in number two, 00:33:14.010 --> 00:33:16.860 just about if we had more power plants, 00:33:16.860 --> 00:33:18.610 we still would have had our outages, 00:33:18.610 --> 00:33:21.210 the problem was the power plants we had kind of run. 00:33:22.970 --> 00:33:27.490 So understanding how the different proposals would achieve, 00:33:27.490 --> 00:33:29.440 you know, more power plants being built 00:33:30.317 --> 00:33:31.850 versus allowing power plants 00:33:31.850 --> 00:33:35.510 to perform more reliably is critically important. 00:33:35.510 --> 00:33:37.210 And then number three, I think 00:33:37.210 --> 00:33:38.420 we haven't really talked about it. 00:33:38.420 --> 00:33:43.420 But when you rely heavily on the tail end 00:33:44.560 --> 00:33:49.560 of the RDC curve at $9,000 to incent behavior 00:33:49.990 --> 00:33:52.080 by participants, you can end up 00:33:52.080 --> 00:33:54.450 with the sort of catastrophic economic impacts 00:33:54.450 --> 00:33:56.800 that we saw coming out of URI. 00:33:56.800 --> 00:34:01.800 And I think, in theory, like if you took an economist 00:34:02.170 --> 00:34:04.640 and just say, well, should this work? 00:34:04.640 --> 00:34:07.610 An economists would say, yeah, well, this should work. 00:34:07.610 --> 00:34:11.340 The problem really is we're putting most 00:34:11.340 --> 00:34:13.730 of your expected revenues are very large share 00:34:13.730 --> 00:34:15.580 of your expected revenues at the tail end 00:34:15.580 --> 00:34:19.410 of the at the most extreme end of the RDC curve 00:34:19.410 --> 00:34:23.410 in terms of pricing and revenues, is problematic in 00:34:23.410 --> 00:34:27.440 that those conditions are extremely hard to forecast. 00:34:27.440 --> 00:34:32.440 So if you look at the economic outcomes coming out of URI 00:34:32.510 --> 00:34:36.192 for various generators, like the companies 00:34:36.192 --> 00:34:40.270 that those generators were well winterized and ran, 00:34:40.270 --> 00:34:42.030 the difference between how they fared 00:34:42.030 --> 00:34:45.500 and how companies who weren't well winterize performed. 00:34:45.500 --> 00:34:46.820 I mean, you're talking about billions 00:34:46.820 --> 00:34:48.233 of dollars of differences. 00:34:49.270 --> 00:34:51.810 Say you have to look at that and say, 00:34:51.810 --> 00:34:53.860 it doesn't look like we have an incentive problem 00:34:53.860 --> 00:34:56.650 with winterizing, so why wasn't everybody winterized? 00:34:56.650 --> 00:35:01.233 Well, the problem is that if you ask anybody you know, 00:35:03.100 --> 00:35:04.860 calculate the percentage chance 00:35:04.860 --> 00:35:07.390 that something like URI would happen. 00:35:07.390 --> 00:35:09.590 Like, it's almost impossible to even calculate that number. 00:35:09.590 --> 00:35:11.220 It's so small. 00:35:11.220 --> 00:35:12.230 It's so unlikely. 00:35:12.230 --> 00:35:16.973 So if you build a market design around delivering revenues, 00:35:18.040 --> 00:35:20.660 in conditions that are almost impossible 00:35:20.660 --> 00:35:22.340 to calculate the probability of then 00:35:22.340 --> 00:35:26.210 you won't necessarily get get people committing capital 00:35:26.210 --> 00:35:29.690 to investments that would address those concerns. 00:35:29.690 --> 00:35:34.690 And so that's why relying on the ORDC 00:35:34.850 --> 00:35:39.660 and scarcity pricing in and of itself isn't a terrible idea. 00:35:39.660 --> 00:35:43.420 Because as you move away from the extreme conditions 00:35:43.420 --> 00:35:45.430 that the simply the tight conditions, 00:35:45.430 --> 00:35:46.870 those are much easier to forecast 00:35:46.870 --> 00:35:48.800 how often you're gonna have those. 00:35:48.800 --> 00:35:51.330 And people actually will respond to those incentives, 00:35:51.330 --> 00:35:54.830 because they can build a business case around the revenues 00:35:54.830 --> 00:35:57.810 that would occur on parts of the curve, 00:35:57.810 --> 00:36:00.173 that you're gonna hit 1000 hours a year, 00:36:01.084 --> 00:36:04.090 versus the part of the curve that you're gonna hit, 00:36:04.090 --> 00:36:08.173 you know, just a few hours, maybe every five years. 00:36:10.030 --> 00:36:15.030 Okay, so that's why our proposals generally 00:36:15.480 --> 00:36:18.260 address number two, and number three, 00:36:18.260 --> 00:36:21.430 now it's unambiguously true that if you do something 00:36:21.430 --> 00:36:23.010 to get people to build more power plants, 00:36:23.010 --> 00:36:25.393 that's gonna result in more reliability. 00:36:26.590 --> 00:36:29.770 But I think that it's a more costly approach. 00:36:29.770 --> 00:36:32.360 And when people talk about establishing 00:36:32.360 --> 00:36:34.760 a minimum reliability requirements, 00:36:34.760 --> 00:36:37.440 and then structuring a market around satisfying, 00:36:37.440 --> 00:36:39.170 they're talking about number one, 00:36:39.170 --> 00:36:42.750 that's what the capacity markets do in other markets, 00:36:42.750 --> 00:36:45.510 they say we're gonna meet a one in 10 standard, 00:36:45.510 --> 00:36:47.730 we have to have a capacity margin 00:36:47.730 --> 00:36:51.500 coming out of the planning models of 16, 17%, 00:36:51.500 --> 00:36:53.460 whatever it is, in different markets, 00:36:53.460 --> 00:36:56.990 and then we structure our market to procure it. 00:36:56.990 --> 00:36:59.870 And you're largely doing number one, although 00:36:59.870 --> 00:37:02.963 how your credit resource should account for number two. 00:37:05.160 --> 00:37:08.100 The problem is that those accreditation models 00:37:08.100 --> 00:37:11.510 don't envision the sort of extreme circumstances 00:37:11.510 --> 00:37:13.210 that you have in like a URI, like, 00:37:13.210 --> 00:37:15.530 you're never gonna tell a gas plant 00:37:15.530 --> 00:37:17.510 that you're gonna credit them way down, 00:37:17.510 --> 00:37:21.730 because there may be some very unlikely situation 00:37:21.730 --> 00:37:22.970 where they can't get gas, 00:37:22.970 --> 00:37:25.600 because there's a power outage 00:37:25.600 --> 00:37:28.520 to the compressors, so gas won't flow. 00:37:28.520 --> 00:37:31.530 And so you can't really address number two 00:37:31.530 --> 00:37:33.500 with a capacity market very effectively. 00:37:33.500 --> 00:37:38.090 You can try to but not really. 00:37:38.090 --> 00:37:40.370 So just keep in mind that when you establish 00:37:40.370 --> 00:37:44.970 a minimum capacity or a minimum capacity requirement, 00:37:44.970 --> 00:37:48.380 you're essentially establishing a capacity market 00:37:48.380 --> 00:37:51.183 as you do that, even if it's a bilateral market. 00:37:53.490 --> 00:37:56.380 Okay, so, any questions on those sorts 00:37:56.380 --> 00:37:58.260 of comments before I move 00:37:58.260 --> 00:37:59.500 to the proposal? I will save the 00:37:59.500 --> 00:38:01.583 questions for end. Okay. 00:38:02.454 --> 00:38:07.454 So one thing I wanted to mention that hasn't been well, 00:38:08.260 --> 00:38:10.110 or hasn't been discussed yet today 00:38:10.110 --> 00:38:13.330 is how important Real-Time Co-optimization is. 00:38:13.330 --> 00:38:16.800 A lot of the questions that you've asked earlier today 00:38:16.800 --> 00:38:21.130 about how you accommodate extreme ramp demands, 00:38:21.130 --> 00:38:24.780 like with solar, which is gonna be a problem that needs 00:38:24.780 --> 00:38:26.920 to be managed by ERCOT, as well 00:38:26.920 --> 00:38:31.640 as fluctuations in wind output, and so forth, are things 00:38:31.640 --> 00:38:35.470 that Real-Time Co-optimization is really the only thing 00:38:35.470 --> 00:38:40.470 that will meaningfully help ERCOT manage those well 00:38:40.510 --> 00:38:44.910 and set prices that reflect the true market conditions. 00:38:44.910 --> 00:38:46.780 So I'm gonna sort of refer 00:38:46.780 --> 00:38:50.090 to how Real-Time Co-optimization would change 00:38:50.090 --> 00:38:51.530 the performance of the markets as 00:38:51.530 --> 00:38:54.650 I talk about the first proposal 00:38:54.650 --> 00:38:58.490 that I wanna discuss which is related to the ORDC. 00:38:58.490 --> 00:39:03.490 So if you'll skip ahead to proposal number two, 00:39:04.500 --> 00:39:06.800 I apologize that I'm taking this out of order. 00:39:13.154 --> 00:39:15.240 So proposal number two has to do 00:39:15.240 --> 00:39:20.240 with improving our scarcity, pricing, our pricing of energy. 00:39:23.070 --> 00:39:27.710 And I'm gonna talk a little bit about what's wrong 00:39:27.710 --> 00:39:30.490 with what we currently do, which would help improve 00:39:30.490 --> 00:39:32.490 reliability and ERCOT and then some 00:39:32.490 --> 00:39:35.540 of the changes that we should make. 00:39:35.540 --> 00:39:38.160 So at the outset, one thing that's really important is just 00:39:38.160 --> 00:39:41.260 to understand what this curve actually means. 00:39:41.260 --> 00:39:45.360 It's the shortage value associated with energy and reserves. 00:39:45.360 --> 00:39:49.480 And the best way to calculate it is by calculating the value 00:39:49.480 --> 00:39:52.120 of lost load how much electricity is worth 00:39:52.120 --> 00:39:56.500 to consumers times the probability of losing load. 00:39:56.500 --> 00:40:00.710 So as you become more and more short of reserve, 00:40:00.710 --> 00:40:03.340 the probability that the lights might goes out goes up. 00:40:03.340 --> 00:40:04.410 Now the reason. 00:40:04.410 --> 00:40:07.820 So for example, the reason when you're at 5000 megawatts 00:40:07.820 --> 00:40:12.820 of reserves, you only get a price of, let's say, $200. 00:40:14.910 --> 00:40:17.260 Even though the value of last load is 9000, 00:40:17.260 --> 00:40:19.100 is the probability of losing loads at 00:40:19.100 --> 00:40:22.050 that point is below 1%. 00:40:22.050 --> 00:40:26.100 And so as you start using up your resources, 00:40:26.100 --> 00:40:29.270 so you have less resources in reserve, 00:40:29.270 --> 00:40:31.090 that the probability something could happen, 00:40:31.090 --> 00:40:33.110 that would cause the lights to go out goes up. 00:40:33.110 --> 00:40:35.170 So you're moving up this curve. 00:40:35.170 --> 00:40:37.560 There's one thing that in Texas, 00:40:37.560 --> 00:40:40.380 as always sort of a departure from that basic idea, 00:40:40.380 --> 00:40:43.400 and that's this minimum contingency level, 00:40:43.400 --> 00:40:47.010 which sort of arbitrarily jumps you up to the cap. 00:40:47.010 --> 00:40:50.890 Right now, at 2000 megawatts, there's really no rationale 00:40:50.890 --> 00:40:55.360 for that, all it does is just put some revenue 00:40:55.360 --> 00:40:57.157 in the very tight conditions. 00:40:57.157 --> 00:41:01.650 So it increases your reliance on the extreme events, 00:41:01.650 --> 00:41:04.420 I can't see any reason why you shouldn't do away with that. 00:41:04.420 --> 00:41:07.223 So that's part of our, that's part of our proposal. 00:41:08.870 --> 00:41:11.730 Now, the other thing that you should know 00:41:11.730 --> 00:41:14.210 about how this varies from sort 00:41:14.210 --> 00:41:18.333 of an economically sound approach, is number one, 00:41:20.160 --> 00:41:22.600 because you don't have co-optimization, 00:41:22.600 --> 00:41:25.773 you're not utilizing all of your resources efficiently. 00:41:27.421 --> 00:41:29.871 And this is particularly important when you ramp. 00:41:32.440 --> 00:41:35.140 The amount of reserves you actually have available 00:41:35.140 --> 00:41:37.390 to you is the amount of megawatts you can get 00:41:37.390 --> 00:41:40.780 to within 10 or 30 minutes, okay. 00:41:40.780 --> 00:41:44.360 So put yourself on the bottom of the dark curve 00:41:44.360 --> 00:41:46.860 and start ramping all of your conventional generation 00:41:46.860 --> 00:41:48.250 as fast as you can. 00:41:48.250 --> 00:41:52.110 At that point, you can't get megawatts out of any 00:41:52.110 --> 00:41:53.300 of those units that are ramping. 00:41:53.300 --> 00:41:55.520 So let's say they're ramping for an hour, 00:41:55.520 --> 00:41:58.593 and then you lose 1000 megawatt unit. 00:42:00.221 --> 00:42:02.890 You're done, there's nothing you can do 00:42:02.890 --> 00:42:04.820 because you're already ramping those units 00:42:04.820 --> 00:42:06.710 as fast as you can to make up 00:42:06.710 --> 00:42:08.780 for the solar that's going down. 00:42:08.780 --> 00:42:11.520 And so effectively, you don't have operating reserves 00:42:11.520 --> 00:42:14.090 that are spinning at that point in time. 00:42:14.090 --> 00:42:18.960 Now, in ERCOT, that's invisible to you, right? 00:42:18.960 --> 00:42:23.310 Because the without Real-Time Co-optimization, 00:42:23.310 --> 00:42:27.380 you're not really tracking how many megawatts 00:42:27.380 --> 00:42:28.950 you can ramp within 10 minutes, 00:42:28.950 --> 00:42:31.910 and you're not trying to allocate your resources 00:42:31.910 --> 00:42:34.520 between energy and reserves in the way 00:42:34.520 --> 00:42:36.300 that's the most efficient. 00:42:36.300 --> 00:42:37.700 Now, what happens in other markets 00:42:37.700 --> 00:42:40.430 that are co-optimized is when you're on that dark curve, 00:42:40.430 --> 00:42:41.830 if you get into the circumstance 00:42:41.830 --> 00:42:43.440 where you're ramping as fast as you can, 00:42:43.440 --> 00:42:46.910 and you can't meet your spinning reserve requirements, 00:42:46.910 --> 00:42:48.130 which is based on how much you can 00:42:48.130 --> 00:42:50.600 ramp your regulation requirements, 00:42:50.600 --> 00:42:53.310 which is also how much you can ramp 00:42:53.310 --> 00:42:55.380 just in a few second timeframe 00:42:55.380 --> 00:42:57.570 as supply and demand fluctuates. 00:42:57.570 --> 00:43:01.080 Those markets will recognize that there's a shortage, 00:43:01.080 --> 00:43:05.380 and you'll get a high price for 10 minutes, 15 minutes. 00:43:05.380 --> 00:43:06.510 And it happens a lot. 00:43:06.510 --> 00:43:11.510 Because like in miso we had prices in over $1,000 range 00:43:19.190 --> 00:43:20.633 twice in April this year, 00:43:21.570 --> 00:43:23.720 because wind chopped off 30 minutes 00:43:23.720 --> 00:43:27.060 before it was forecasted miso has in the span 00:43:27.060 --> 00:43:30.703 of just an hour to last up to like 12 gigawatts of wind. 00:43:30.703 --> 00:43:33.330 Now, if you don't forecast that drop properly, 00:43:33.330 --> 00:43:34.910 like if it happens a little earlier 00:43:34.910 --> 00:43:36.470 than you thought it was gonna happen, 00:43:36.470 --> 00:43:38.670 you're gonna have a serious ramping problem. 00:43:39.980 --> 00:43:42.830 And so you can get the shortages that last 10 or 15 minutes. 00:43:42.830 --> 00:43:45.920 And those high prices conveniently 00:43:45.920 --> 00:43:47.190 don't get paid to the wind 00:43:47.190 --> 00:43:48.840 because they're causing the problem 00:43:48.840 --> 00:43:51.060 they're not producing out but they do get paid 00:43:51.060 --> 00:43:53.810 to everybody who can ramp 00:43:53.810 --> 00:43:56.690 and the faster you can ramp the more money you make. 00:43:56.690 --> 00:43:59.000 Also, and this is a problem in ERCOT, 00:43:59.000 --> 00:44:01.733 it gets paid to your offline peaking units. 00:44:02.920 --> 00:44:05.010 You're not paying your offline picking units 00:44:05.010 --> 00:44:07.210 except a very small subset of people 00:44:07.210 --> 00:44:09.620 who can start in 10 minutes. 00:44:09.620 --> 00:44:13.570 So in other markets 00:44:13.570 --> 00:44:16.543 because this curve sets the price for reserves. 00:44:17.460 --> 00:44:19.963 Anybody who's selling reserves gets paid. 00:44:20.990 --> 00:44:24.220 So I guarantee you want your gas turbines 00:44:24.220 --> 00:44:26.950 to get paid the ORDC adder even 00:44:26.950 --> 00:44:28.830 if they can only start in 30 minutes 00:44:28.830 --> 00:44:33.820 because they are a critical component of what's keeping 00:44:33.820 --> 00:44:38.820 They're included in the calculation of your reserves 00:44:39.720 --> 00:44:42.440 to some extent, but they are critically important 00:44:42.440 --> 00:44:47.440 for determining how likely am I to lose load. 00:44:47.960 --> 00:44:51.860 So there are some not having co-optimization makes 00:44:51.860 --> 00:44:54.870 it harder for the ORDC to be fully effective 00:44:54.870 --> 00:44:57.780 at compensating dispatchable units, 00:44:57.780 --> 00:45:00.083 flexible units and gas peaking units. 00:45:01.750 --> 00:45:05.480 But so there are some improvements 00:45:05.480 --> 00:45:06.850 that you could do in that regard. 00:45:06.850 --> 00:45:08.930 Even before you get to co-optimization, 00:45:08.930 --> 00:45:12.133 we could track how much ramp bubble capacity you have, 00:45:13.250 --> 00:45:17.680 or ERCOT has, so that you could adapt the system 00:45:17.680 --> 00:45:20.460 to recognize ramp shortages. 00:45:20.460 --> 00:45:23.320 And if ERCOT says Real-Time CO-optimization 00:45:23.320 --> 00:45:26.670 is I don't know what they're saying now, to be honest, 00:45:26.670 --> 00:45:28.820 but if they're saying it's four or five years away, 00:45:28.820 --> 00:45:30.270 it might be worth doing that. 00:45:31.340 --> 00:45:33.100 If we're gonna get a lot of solar 00:45:34.363 --> 00:45:37.410 before Real-Time Co-optimization can be in place. 00:45:37.410 --> 00:45:38.910 So go ahead to the next slide. 00:45:41.860 --> 00:45:44.103 Go one more, I'll talk about these things. 00:45:45.230 --> 00:45:46.820 So this is in effect, what 00:45:46.820 --> 00:45:49.880 we're proposing you do at the ORDC. 00:45:54.360 --> 00:45:56.180 And I think what would be useful is 00:45:56.180 --> 00:45:59.453 to talk through a lot of the scenarios that you raised, 00:46:00.610 --> 00:46:04.970 and how this would affect those scenarios. 00:46:04.970 --> 00:46:09.223 But one important thing to keep in mind is that you know, 00:46:11.880 --> 00:46:14.440 people have listed as a con of a lot of these proposals 00:46:14.440 --> 00:46:18.963 that it won't be guaranteed that people will build. 00:46:20.080 --> 00:46:24.387 But as an economist, and I think what I would say is 00:46:26.530 --> 00:46:29.210 that if you increase the expected revenues 00:46:29.210 --> 00:46:32.580 that a generator would receive all other things equal, 00:46:32.580 --> 00:46:33.850 they're gonna invest more, 00:46:33.850 --> 00:46:36.600 and they're gonna retire fewer resources. 00:46:36.600 --> 00:46:39.480 And we're already seeing that even in today's market, 00:46:39.480 --> 00:46:42.720 although there's opportunities for improvements. 00:46:42.720 --> 00:46:46.210 There's one company that's in the middle of a process 00:46:46.210 --> 00:46:48.250 to build 4000 megawatts of peakers. 00:46:48.250 --> 00:46:51.633 I think by the end of this year, they will built 1500. 00:46:54.260 --> 00:46:57.430 We've seen units come out of mothball. 00:46:57.430 --> 00:47:01.720 Our capacity margin next year is forecasted to be 28%. 00:47:01.720 --> 00:47:06.720 So we do see folks responding to the shortage pricing, 00:47:07.210 --> 00:47:10.130 I think when you rely on extreme events, 00:47:10.130 --> 00:47:12.030 the bad part of that scenario is 00:47:12.030 --> 00:47:13.230 that when they haven't happened 00:47:13.230 --> 00:47:16.300 for a while, people will underestimate 00:47:16.300 --> 00:47:17.760 the probability that they would happen. 00:47:17.760 --> 00:47:20.340 And then once they happen, they'll tend to overestimate 00:47:20.340 --> 00:47:22.070 so you end up with kind of a boom bust. 00:47:22.070 --> 00:47:25.020 And I think we're kind of in the boom part of that 00:47:25.020 --> 00:47:26.970 because of the amount of money 00:47:26.970 --> 00:47:29.163 that people saw change hands during URI. 00:47:30.190 --> 00:47:33.980 So we don't disagree with your objective 00:47:33.980 --> 00:47:37.730 to move away from the reliance on the emergency conditions, 00:47:37.730 --> 00:47:41.533 which is really down in the blue area of this curve. 00:47:43.260 --> 00:47:48.260 And one way to do that is to cap the system wide offer cap, 00:47:53.700 --> 00:47:56.930 the maximum price that can be generated 00:47:56.930 --> 00:47:59.800 by the curve at something like 5000 megawatts, 00:47:59.800 --> 00:48:01.250 you do you want it to be high enough 00:48:01.250 --> 00:48:04.810 to provoke the demand response that can respond 00:48:04.810 --> 00:48:08.650 to help you keep the lights on for the non-flexible loads. 00:48:08.650 --> 00:48:11.260 So I thought the comments of the industrial 00:48:14.090 --> 00:48:17.423 representative were extremely insightful in that regard. 00:48:18.700 --> 00:48:22.930 So capping it at something like $5,000 makes sense. 00:48:22.930 --> 00:48:25.740 Now, I've heard people talk about 00:48:25.740 --> 00:48:27.573 fattening the end of the tail. 00:48:30.490 --> 00:48:33.080 If you go back to the formula of value of loss load 00:48:33.080 --> 00:48:35.650 times the probability of losing load, 00:48:35.650 --> 00:48:38.160 you shouldn't arbitrarily change the probability 00:48:38.160 --> 00:48:40.460 of losing load to something that it's not. 00:48:40.460 --> 00:48:42.770 So some proposals that have said 00:48:42.770 --> 00:48:44.713 increase the standard deviation. 00:48:46.480 --> 00:48:48.970 That is a deliberate departure away 00:48:48.970 --> 00:48:52.210 from what ERCOT is estimated the probability of losing load 00:48:52.210 --> 00:48:56.260 is the variable you can change 00:48:56.260 --> 00:48:59.070 and should change is the value of last load. 00:48:59.070 --> 00:49:00.840 The study support a much higher value 00:49:00.840 --> 00:49:03.040 of loss load the $9,000. 00:49:03.040 --> 00:49:05.220 Now it doesn't mean you'll actually pay it, 00:49:05.220 --> 00:49:08.520 it means that and then in this green line here, 00:49:08.520 --> 00:49:13.140 the reason that it's higher on the tail end of the curve, 00:49:13.140 --> 00:49:16.650 is because we're calculating that curve based on something 00:49:16.650 --> 00:49:19.900 that's closer to a $20,000 value of loss load. 00:49:19.900 --> 00:49:24.840 So what you're saying when you do that is when we start 00:49:24.840 --> 00:49:28.790 to get tight in the five to $6,000 range, 00:49:28.790 --> 00:49:33.790 we care a tremendous amount that we minimize the chance 00:49:35.200 --> 00:49:36.410 that we're gonna lose load 00:49:36.410 --> 00:49:38.740 because losing load is extremely valuable. 00:49:38.740 --> 00:49:41.730 In fact, it's more valuable than $9,000. 00:49:41.730 --> 00:49:42.563 It's easy. 00:49:42.563 --> 00:49:46.040 We're proposing in my so a $23,000 value of loss load, 00:49:46.040 --> 00:49:49.350 it's easy to support a $20,000 value loss load. 00:49:49.350 --> 00:49:54.030 It's not easy to justify paying it for 30 hours straight, 00:49:54.030 --> 00:49:56.340 which is why the cap makes some sense 00:49:56.340 --> 00:49:59.190 to de emphasize the extreme shortage, 00:49:59.190 --> 00:50:01.233 but that area I've circled there, 00:50:02.390 --> 00:50:06.040 it's important to recognize you're gonna be in that zone, 00:50:06.040 --> 00:50:09.330 probably one to 2000 times as often 00:50:09.330 --> 00:50:11.430 as you are in the blue zone. 00:50:11.430 --> 00:50:16.430 So although it looks small and we do zoom in on it, 00:50:17.120 --> 00:50:18.220 so that you can see better 00:50:18.220 --> 00:50:20.670 that there's a meaningful gap in prices, 00:50:20.670 --> 00:50:23.680 you're there so much more often than you are 00:50:23.680 --> 00:50:27.970 lower in the curve, that if you look at the performer 00:50:27.970 --> 00:50:32.970 for a peaking unit, that would hugely incentive 00:50:34.310 --> 00:50:37.020 or increase the net revenue of peaking units 00:50:37.020 --> 00:50:39.560 who are providing your reserves, 00:50:39.560 --> 00:50:41.760 presuming that they get paid the ORDC, 00:50:41.760 --> 00:50:43.500 adder which they don't all get paid. 00:50:43.500 --> 00:50:44.883 So we should fix that. 00:50:46.450 --> 00:50:48.530 So this would be a meaningful change, 00:50:48.530 --> 00:50:51.040 it wouldn't rely on the market being so tight 00:50:51.040 --> 00:50:53.070 that you're on the precipice of losing load, 00:50:53.070 --> 00:50:56.690 but it would, it would greatly increase the the payments 00:50:56.690 --> 00:50:58.490 and to the comment earlier about, 00:50:58.490 --> 00:51:01.520 you don't wanna fatten the tail to just create a tax. 00:51:01.520 --> 00:51:03.560 This is absolutely not a tax 00:51:03.560 --> 00:51:07.380 because that adder is based on the probability 00:51:07.380 --> 00:51:11.500 of losing load times of value that we all believe in 00:51:11.500 --> 00:51:14.170 as far as the value of keeping the lights on. 00:51:14.170 --> 00:51:16.630 So when you get into that area, 00:51:16.630 --> 00:51:21.610 and you're paying $100 adder, let's say, or a $200 adder, 00:51:21.610 --> 00:51:24.660 that adder reflects the reliability threat 00:51:24.660 --> 00:51:26.540 of being in the tight condition. 00:51:26.540 --> 00:51:29.780 So it's absolutely justified. 00:51:29.780 --> 00:51:33.743 And it's in no way in my mind, a tax. 00:51:35.480 --> 00:51:38.913 And now let's talk about the solar the dark curve ramp. 00:51:42.390 --> 00:51:46.083 If ERCOT is not perfectly prepared for the dark curve, 00:51:47.160 --> 00:51:49.460 in most cases, they should be prepared in terms 00:51:49.460 --> 00:51:50.850 of how they turn on the units 00:51:50.850 --> 00:51:55.150 and their dispatch software should 00:51:55.150 --> 00:51:57.500 be holding units at a level that when you enter 00:51:57.500 --> 00:51:59.760 into the dark curve, you're right 00:51:59.760 --> 00:52:01.930 that just a few combined cycles can't handle it. 00:52:01.930 --> 00:52:04.540 But if you have 100 units that are all way down 00:52:05.985 --> 00:52:09.210 in their operating range, that it's not gonna 00:52:09.210 --> 00:52:12.670 be overly taxing for them all to move. 00:52:12.670 --> 00:52:15.270 But you will bounce into this range 00:52:15.270 --> 00:52:18.210 for 15 minutes, 30 minutes an hour. 00:52:18.210 --> 00:52:20.060 And when you bounce into that range, 00:52:20.060 --> 00:52:21.780 you're gonna be generating revenues 00:52:21.780 --> 00:52:25.497 for the units that are dispatchable. 00:52:25.497 --> 00:52:27.950 And that are helping you maintain reliability. 00:52:27.950 --> 00:52:31.383 And importantly, what we've shown in our reports, 00:52:32.290 --> 00:52:35.220 is when you get deeper into this range, 00:52:35.220 --> 00:52:39.033 like into the three 4000 areas, 00:52:40.100 --> 00:52:41.810 that's almost always gonna happen 00:52:41.810 --> 00:52:45.370 because the intermittence are producing at low levels. 00:52:45.370 --> 00:52:48.810 So we have this concept in our reports called the net load, 00:52:48.810 --> 00:52:51.743 which is the load minus the renewable resources. 00:52:52.610 --> 00:52:54.820 So although we wouldn't advocate 00:52:54.820 --> 00:52:56.260 for doing anything deliberate 00:52:56.260 --> 00:52:57.960 to discriminate against the intermittence, 00:52:57.960 --> 00:53:00.090 like don't pay them the ORDC, 00:53:00.090 --> 00:53:01.980 it's naturally going to be the case 00:53:01.980 --> 00:53:05.660 that to the extent they're putting you in this range, 00:53:05.660 --> 00:53:07.650 they're generating at very low levels. 00:53:07.650 --> 00:53:12.640 And so the meaningful revenues that are generated 00:53:12.640 --> 00:53:15.280 by the ORDC are gonna go to everybody else 00:53:15.280 --> 00:53:18.563 who's helping you and not go to them. 00:53:21.139 --> 00:53:21.972 Trying to think if there was 00:53:21.972 --> 00:53:23.963 another scenario that you asked about. 00:53:27.380 --> 00:53:32.380 It's not coming to mind, but so why don't I pause there? 00:53:32.890 --> 00:53:34.040 Do you have any questions about this 00:53:34.040 --> 00:53:37.520 particular proposal? Well, I tell you what, 00:53:37.520 --> 00:53:38.840 we're getting tight on time, 00:53:38.840 --> 00:53:39.673 if we're gonna keep going. 00:53:39.673 --> 00:53:41.960 So go ahead and bring it home for us, if you will, 00:53:41.960 --> 00:53:43.970 and we'll do a round of questions with the Commission. 00:53:43.970 --> 00:53:46.370 Okay, so let's go back to proposal number one. 00:53:48.320 --> 00:53:52.317 Okay, so I don't wanna mislead you into thinking 00:53:57.295 --> 00:54:00.360 that we are opponents of capacity markets, 00:54:00.360 --> 00:54:02.250 we don't think capacity markets are evil 00:54:02.250 --> 00:54:03.840 or should be avoided at all cost, 00:54:03.840 --> 00:54:06.690 but we think they have significant problems. 00:54:06.690 --> 00:54:09.390 And the most significant problem is the money 00:54:09.390 --> 00:54:13.400 for nothing problem, that we accredit resources. 00:54:13.400 --> 00:54:15.350 We pay the millions of dollars, 00:54:15.350 --> 00:54:18.920 and then you get into a circumstance like URI or situations 00:54:18.920 --> 00:54:21.930 that are less dramatic than URI. 00:54:21.930 --> 00:54:23.300 And you look at a bunch of resources 00:54:23.300 --> 00:54:24.920 that you paid in the capacity market, 00:54:24.920 --> 00:54:25.753 and they weren't there. 00:54:25.753 --> 00:54:27.587 And you say, well, what are we doing here? 00:54:27.587 --> 00:54:30.570 You know, why are we giving these people money 00:54:30.570 --> 00:54:32.570 if they're not gonna keep the lights on? 00:54:33.510 --> 00:54:35.143 So go forward one slide. 00:54:36.330 --> 00:54:40.233 So one way to even out the revenues 00:54:42.360 --> 00:54:46.610 that generators receive and to pay for reliability in a way 00:54:46.610 --> 00:54:50.100 that will sustain an adequate resource base. 00:54:50.100 --> 00:54:52.720 But do so in a way that's consistent 00:54:52.720 --> 00:54:54.520 with your energy only market is 00:54:54.520 --> 00:54:57.740 to create a mandatory forward hedge. 00:54:57.740 --> 00:55:02.370 So this is a I call it a four shortage energy hedge. 00:55:02.370 --> 00:55:05.680 So it has some of the characteristics 00:55:05.680 --> 00:55:08.490 that look kind of like a capacity requirement, 00:55:08.490 --> 00:55:12.600 but it's really not, it's entirely a financial product. 00:55:12.600 --> 00:55:17.190 And it's based on the amount of an accredited amount 00:55:17.190 --> 00:55:20.527 of the hedge that a particular generator 00:55:20.527 --> 00:55:23.140 could be deemed to be adequate to sell. 00:55:23.140 --> 00:55:27.593 Because you do want this to be a physical product. 00:55:28.730 --> 00:55:33.730 So what happens is, I have a 50 megawatt gas turbine, 00:55:35.620 --> 00:55:37.700 it's accredited at 45 megawatts. 00:55:37.700 --> 00:55:41.923 So I buy 45 megawatts of this hedge from the turbine now, 00:55:42.760 --> 00:55:47.760 when the shortage happens, and that turbine is producing 00:55:48.710 --> 00:55:52.290 or selling reserves providing reserves, 00:55:52.290 --> 00:55:54.760 they don't get paid the ORDC adder, 00:55:54.760 --> 00:55:58.660 because they've sold that forward. 00:55:58.660 --> 00:56:00.430 So they're gonna get a ton of revenues 00:56:00.430 --> 00:56:03.490 by selling the hedge, but they don't get the ORDC revenues. 00:56:03.490 --> 00:56:05.450 Now, if they're not available, 00:56:05.450 --> 00:56:07.793 they have to pay the ORDC price. 00:56:08.950 --> 00:56:12.760 So they are directly on the hook for the extent 00:56:12.760 --> 00:56:15.180 to which they are contributing 00:56:16.476 --> 00:56:20.760 to the tight condition, or the load shedding event. 00:56:20.760 --> 00:56:23.700 But remember, most of the ORDC adder 00:56:23.700 --> 00:56:25.890 is gonna be in periods where you're not very close 00:56:25.890 --> 00:56:28.900 to shutting load, it's just tight conditions, 00:56:28.900 --> 00:56:30.230 they're contributing to it. 00:56:30.230 --> 00:56:33.223 And so they're financially on the hook. 00:56:34.480 --> 00:56:38.190 If you do that, I guarantee you that 00:56:38.190 --> 00:56:40.380 that's gonna create an enormous incentive 00:56:40.380 --> 00:56:43.460 to firm your fuel to have dual fuel capability 00:56:43.460 --> 00:56:48.033 like no company is going to be wanting to hold these hedges. 00:56:50.890 --> 00:56:54.290 And not have the ability to perform 00:56:54.290 --> 00:56:57.423 with a reasonably high probability. 00:56:58.620 --> 00:57:01.690 So creates a very strong incentive for companies 00:57:04.190 --> 00:57:06.590 to do things to ensure that they will be available 00:57:06.590 --> 00:57:09.350 and it directly compensates them 00:57:09.350 --> 00:57:14.230 with based on their actual availability. 00:57:14.230 --> 00:57:17.330 And what it does from a revenue standpoint, 00:57:17.330 --> 00:57:20.420 is shown in the picture here. 00:57:20.420 --> 00:57:24.450 The one problem with relying on extreme events and the ORDC. 00:57:24.450 --> 00:57:26.750 Is you get what you see on the left. 00:57:26.750 --> 00:57:29.483 And if you look in our report at the net revenues, 00:57:30.400 --> 00:57:33.710 we compare the ERCOT to other markets around the country. 00:57:33.710 --> 00:57:36.800 ERCOTs almost always the lowest, and it's the lowest 00:57:36.800 --> 00:57:41.160 because when you don't have a significant amount 00:57:41.160 --> 00:57:46.160 of shortages, basically you're relying on energy 00:57:46.350 --> 00:57:49.670 and ancillary service revenues and non shortage hours. 00:57:49.670 --> 00:57:52.030 And there's not a lot of profit margin built into those 00:57:52.030 --> 00:57:55.200 because the outcome market is fairly competitive. 00:57:55.200 --> 00:57:58.040 In other markets, there's a big chunk of capacity revenues 00:57:58.040 --> 00:58:00.060 that look like the green on the right, 00:58:00.060 --> 00:58:03.350 like in the rest of the Eastern interconnect. 00:58:03.350 --> 00:58:06.120 But in ERCOT, all those revenues 00:58:06.120 --> 00:58:08.220 are embedded in shortage pricing. 00:58:08.220 --> 00:58:11.310 So you get almost nothing in most years, 00:58:11.310 --> 00:58:14.373 and then you get the one year where it's enormous. 00:58:15.566 --> 00:58:17.730 And it makes it hard to invest around that 00:58:17.730 --> 00:58:19.940 because if you can't calculate the probability 00:58:19.940 --> 00:58:23.520 of the year for happening, then it's really hard 00:58:23.520 --> 00:58:26.590 to make the business case and get financing. 00:58:26.590 --> 00:58:29.223 But if you have a mandatory hedge, 00:58:30.410 --> 00:58:33.620 it will spread out the revenues associated 00:58:33.620 --> 00:58:35.350 with the mandatory hedge will be based on 00:58:35.350 --> 00:58:39.230 the expected value of your for happening. 00:58:39.230 --> 00:58:44.230 And so you'll get a much more even incentive to invest. 00:58:44.400 --> 00:58:48.350 I think it'll go a long way to meeting the obligation 00:58:48.350 --> 00:58:52.530 to maintain a an adequate base of resources, 00:58:52.530 --> 00:58:55.630 but also give them a much stronger incentive 00:58:55.630 --> 00:58:59.940 to perform as the system starts to get tight. 00:58:59.940 --> 00:59:04.130 And that will be more and more important. 00:59:04.130 --> 00:59:06.040 The more intermittency you have, 00:59:06.040 --> 00:59:08.750 the more you're gonna bounce into the range 00:59:08.750 --> 00:59:12.130 where the market is tight, 00:59:12.130 --> 00:59:13.950 but not now the lights aren't going out, 00:59:13.950 --> 00:59:15.330 but the system is tight 00:59:15.330 --> 00:59:17.970 because the intermittence are fluctuating, 00:59:17.970 --> 00:59:19.790 particularly if it's hard to forecast. 00:59:19.790 --> 00:59:22.010 So wind is a much bigger problem than solar, 00:59:22.010 --> 00:59:24.510 because it's hard to forecast the wind, 00:59:24.510 --> 00:59:27.013 and they're highly correlated with one another. 00:59:29.498 --> 00:59:30.998 And then the last proposal is, 00:59:32.010 --> 00:59:33.660 I'll just mention it briefly 00:59:33.660 --> 00:59:35.663 so that you all can ask questions. 00:59:37.820 --> 00:59:39.910 The one thing that's really missing in a lot of markets, 00:59:39.910 --> 00:59:43.450 including ERCOT is a longer term reserve product. 00:59:43.450 --> 00:59:46.037 We have 30 minute reserves and 10 minute reserves 00:59:46.037 --> 00:59:48.410 are common in all markets, but what we need 00:59:48.410 --> 00:59:50.340 with more and more intermittency is something like 00:59:50.340 --> 00:59:53.170 a four hour reserve product, a two to four hours, 00:59:53.170 --> 00:59:56.628 so when a RTS starts to realize 00:59:56.628 --> 00:59:59.150 that the wind is forecasted incorrectly 00:59:59.150 --> 01:00:01.430 or the load is higher than expected, 01:00:01.430 --> 01:00:03.170 instead of doing things out 01:00:03.170 --> 01:00:05.560 of market like wrecking resources, 01:00:05.560 --> 01:00:07.820 they deploy these longer term reserves 01:00:07.820 --> 01:00:09.523 and more units can sell it. 01:00:11.518 --> 01:00:16.518 So it syncs up the operations of most RTS with the products. 01:00:16.960 --> 01:00:19.510 And importantly, it's integrated 01:00:19.510 --> 01:00:21.150 with the rest of the products, 01:00:21.150 --> 01:00:24.720 the one thing I think I would stay away from are products 01:00:24.720 --> 01:00:29.240 that are outside the market operations, 01:00:29.240 --> 01:00:31.540 that's been tried and not worked, 01:00:31.540 --> 01:00:33.973 you know, buying reserves forward. 01:00:35.753 --> 01:00:38.040 And trying to hold them outside 01:00:38.040 --> 01:00:39.963 the market was done by New England, 01:00:40.928 --> 01:00:42.699 it's really been kind of a disaster, 01:00:42.699 --> 01:00:46.073 and they're trying to eliminate that product at this point. 01:00:47.270 --> 01:00:49.876 This, on the other hand, would would be integrated 01:00:49.876 --> 01:00:53.190 and co-optimized with the rest of the reserve products, 01:00:53.190 --> 01:00:56.240 and a lot more resources could sell it, 01:00:56.240 --> 01:00:58.660 you know, any resource that could get on within, 01:00:58.660 --> 01:01:00.820 say, two hours could sell it. 01:01:00.820 --> 01:01:04.580 And the importance of allowing them to sell it is 01:01:04.580 --> 01:01:06.280 it puts all of those actions 01:01:06.280 --> 01:01:09.040 that ERCOT takes committing units like that 01:01:10.070 --> 01:01:13.250 and puts them into the market and prices them, 01:01:13.250 --> 01:01:16.153 which provides better incentives for everybody. 01:01:17.680 --> 01:01:18.830 And it gives you a better signal 01:01:18.830 --> 01:01:20.150 that you're actually getting tight, 01:01:20.150 --> 01:01:23.900 when you start to run out of two to four hour units, 01:01:23.900 --> 01:01:25.450 you should be recognizing 01:01:25.450 --> 01:01:28.350 that the system is starting to get tight. 01:01:28.350 --> 01:01:30.370 So that ORDC could capture 01:01:30.370 --> 01:01:33.350 this product when and if we define it. 01:01:33.350 --> 01:01:34.183 All right. 01:01:34.183 --> 01:01:35.260 Good deal. 01:01:35.260 --> 01:01:37.021 Thank you very much. 01:01:37.021 --> 01:01:38.460 There's a lot to unpack there. 01:01:38.460 --> 01:01:42.270 I know, my colleagues will have some questions. 01:01:42.270 --> 01:01:45.303 I'll start with just one question. 01:01:46.660 --> 01:01:50.510 Both in your comments and a variety of others 01:01:50.510 --> 01:01:55.340 two themes have heard our (indistinct) procurement, 01:01:55.340 --> 01:01:56.653 more than just the dam, 01:01:57.730 --> 01:02:02.730 allow us visibility on extend revenues out more than a day, 01:02:02.940 --> 01:02:06.053 potentially, a month, a quarter a year, 01:02:07.240 --> 01:02:09.920 and essentially require full hedging. 01:02:09.920 --> 01:02:13.750 Especially your comments and the previous speakers. 01:02:13.750 --> 01:02:16.460 But what I'm still have an open question about 01:02:16.460 --> 01:02:21.460 is we're trying to solve a lot of problems created 01:02:22.830 --> 01:02:27.830 by weather dependent resources that suddenly stop generating 01:02:30.550 --> 01:02:34.610 and forecasting weather is hard. 01:02:34.610 --> 01:02:35.760 It's hard for everybody. 01:02:35.760 --> 01:02:37.950 Nobody's particularly good at it. 01:02:37.950 --> 01:02:41.010 Some people are better than others, but it's difficult. 01:02:41.010 --> 01:02:44.140 And so even in your example of the forward hedge 01:02:45.760 --> 01:02:47.570 with the entire name, right? Yeah. 01:02:47.570 --> 01:02:49.830 And in a lot of other comments we've had 01:02:49.830 --> 01:02:52.410 the reason we've got that high cap that high vol is 01:02:52.410 --> 01:02:54.730 that's a huge incentive for generators to perform, 01:02:54.730 --> 01:02:59.480 because if they don't perform, most of them are hedged. 01:02:59.480 --> 01:03:00.740 And if there's a required hedge, 01:03:00.740 --> 01:03:03.830 they've got to go pay this extraordinary cost 01:03:03.830 --> 01:03:06.150 to meet their obligation to provide power. 01:03:06.150 --> 01:03:11.150 That's a tremendous incentive to generate power. 01:03:12.130 --> 01:03:14.520 Where's the incentive for intermittence 01:03:14.520 --> 01:03:16.733 to generate power when we need it? 01:03:19.020 --> 01:03:21.300 Why don't they get the same penalty 01:03:21.300 --> 01:03:23.363 for suddenly stopping generating power? 01:03:25.000 --> 01:03:29.170 Another way to think about it is if you have two windmills, 01:03:29.170 --> 01:03:33.280 for example, one investor has a freelance, 01:03:33.280 --> 01:03:35.800 if it does have a bilateral, 01:03:35.800 --> 01:03:40.800 it's as generated not even a fit curve contract, 01:03:41.280 --> 01:03:45.280 you have another windmill that is associated with storage, 01:03:45.280 --> 01:03:47.900 battery, compressed air, whatever collocated, 01:03:47.900 --> 01:03:50.223 associated off site, whatever it is, 01:03:51.750 --> 01:03:54.590 what in any of these proposals is going 01:03:54.590 --> 01:03:57.520 to incentivize an investor 01:03:57.520 --> 01:03:59.893 to firm up that intermittent resource? 01:04:02.600 --> 01:04:05.260 Whether avoiding a penalty or providing a proactive, 01:04:05.260 --> 01:04:06.610 like avoiding the high cap penalty 01:04:06.610 --> 01:04:11.610 or providing a adder or proactive incentive? 01:04:13.430 --> 01:04:15.913 Yeah, that's a great question. 01:04:18.170 --> 01:04:20.380 And I wanted to distinguish one thing 01:04:20.380 --> 01:04:22.871 about the forward procurement in some 01:04:22.871 --> 01:04:24.090 of the other proposals from this one, 01:04:24.090 --> 01:04:26.790 because I think it goes directly to your question is 01:04:29.200 --> 01:04:31.150 if you look at the economics associated 01:04:31.150 --> 01:04:34.853 with that forward hedge, although you're buying it forward, 01:04:35.990 --> 01:04:38.950 all of the economics and incentives associated 01:04:38.950 --> 01:04:42.930 with it are linked to what's happening in real time. 01:04:42.930 --> 01:04:47.930 So it links back to our real reliability circumstance, 01:04:49.220 --> 01:04:50.910 which is critically important in my mind 01:04:50.910 --> 01:04:55.910 because it is the one thing that ensures 01:04:56.245 --> 01:04:59.267 that the resources that help us keep the lights on get paid 01:04:59.267 --> 01:05:02.320 and the ones that contribute to the lights going out, 01:05:02.320 --> 01:05:04.483 don't get paid or get charged, 01:05:06.420 --> 01:05:08.170 which is different than some of the proposals 01:05:08.170 --> 01:05:11.330 that procure things forward and generate revenue streams 01:05:11.330 --> 01:05:13.400 that are not connected in any real way 01:05:13.400 --> 01:05:18.283 to the real time outcomes, so, to the wind example. 01:05:21.610 --> 01:05:24.910 It's one of the reasons why I can't get away 01:05:24.910 --> 01:05:28.490 from the primary incentive being paying people 01:05:28.490 --> 01:05:29.477 for the value of the reserves 01:05:29.477 --> 01:05:31.760 and the energy in the real time, 01:05:31.760 --> 01:05:36.760 because if I'm right, that fast forward five years, 01:05:37.630 --> 01:05:39.610 nine 90% of our shortages are gonna be 01:05:39.610 --> 01:05:42.483 when intermittence are producing at low levels, 01:05:44.700 --> 01:05:46.423 and I'm a wind resource. 01:05:47.886 --> 01:05:51.980 And I can see that my net revenues aren't very good, 01:05:51.980 --> 01:05:54.420 because every time the price is high in ERCOT, 01:05:54.420 --> 01:05:57.410 I'm not running, or I'm producing very low, 01:05:57.410 --> 01:05:59.410 because I'm contributing to the problem. 01:06:01.430 --> 01:06:04.400 The economics of me putting a battery on my site, 01:06:04.400 --> 01:06:09.100 so that when all my buddies are producing nothing, 01:06:09.100 --> 01:06:10.363 I'm producing a lot. 01:06:11.620 --> 01:06:13.500 Like my net revenues versus them 01:06:13.500 --> 01:06:14.770 are gonna be night and day. 01:06:14.770 --> 01:06:16.623 In fact, we've done that calculation. 01:06:17.630 --> 01:06:18.780 But it hasn't happened yet. 01:06:18.780 --> 01:06:21.560 We've had those incentives, we've had 9000, 01:06:21.560 --> 01:06:22.900 and there are no batteries 01:06:22.900 --> 01:06:26.020 next to wind mills of any meaningful scale. 01:06:26.020 --> 01:06:29.090 Sure, but that goes back to the fact 01:06:32.230 --> 01:06:35.590 that all we've really had is a circumstance 01:06:35.590 --> 01:06:38.100 that would have been almost impossible 01:06:38.100 --> 01:06:40.080 for someone to attach a probability to 01:06:40.080 --> 01:06:42.100 and spend a lot of money on the basis of 01:06:43.290 --> 01:06:46.503 with the change in the ORDC that we're discussing here. 01:06:48.907 --> 01:06:51.780 The economics, given that you're running into the bottom of 01:06:51.780 --> 01:06:54.530 that curve thousands of times a year, 01:06:54.530 --> 01:06:58.460 you're dramatically increasing the value of having a battery 01:07:01.009 --> 01:07:06.009 that you know, if I can make $200 $1,000 a year. 01:07:11.020 --> 01:07:15.010 Shifting ORD curves firm up our entire intermittent fleet. 01:07:15.010 --> 01:07:18.384 It will form up the entire intermittent fleet, 01:07:18.384 --> 01:07:19.713 I would doubt that's the case. 01:07:19.713 --> 01:07:22.790 Because right now, it's pretty close to zero. 01:07:22.790 --> 01:07:25.090 And if we don't from a fire in intermittently, 01:07:26.286 --> 01:07:29.500 we're gonna be chasing the dark curve 01:07:29.500 --> 01:07:31.170 for the next 100 years, whether 01:07:31.170 --> 01:07:34.920 it be eternally spiraling towards. 01:07:34.920 --> 01:07:35.960 The other thing I would say about 01:07:35.960 --> 01:07:37.543 that the other proposal. 01:07:38.830 --> 01:07:41.850 Remember how I said, for the forward hedge, 01:07:41.850 --> 01:07:43.240 it's gonna produce a lot of revenues 01:07:43.240 --> 01:07:45.100 that are very predictable over time. 01:07:45.100 --> 01:07:48.890 And that I said that, that has to be a physical, 01:07:48.890 --> 01:07:50.650 you have to have the ability to perform, 01:07:50.650 --> 01:07:52.870 you don't want that to be a purely financial product 01:07:52.870 --> 01:07:55.120 that J.P. Morgan can come rolling in 01:07:55.120 --> 01:07:57.100 and sell it to you with no power plant. 01:07:57.100 --> 01:08:01.850 For example, as soon as an intermittent resource 01:08:01.850 --> 01:08:04.020 puts a battery on their site, the amount of 01:08:04.020 --> 01:08:06.773 that hedge they can sell is gonna go from, 01:08:07.670 --> 01:08:12.670 let's say, 7%, five to 7% to some much higher level, 01:08:13.180 --> 01:08:15.520 because the amount of firmness 01:08:16.850 --> 01:08:20.695 that you can accredit them goes way up, so that change. 01:08:20.695 --> 01:08:24.860 And then they're also under the full hedging construct. 01:08:24.860 --> 01:08:28.910 They're also liable to that penalty as well. 01:08:28.910 --> 01:08:30.992 Which you absolutely want. 01:08:30.992 --> 01:08:32.360 I agree. 01:08:32.360 --> 01:08:34.470 I don't think a lot of window operators want 01:08:34.470 --> 01:08:36.630 to be associated with that penalty 01:08:36.630 --> 01:08:39.900 when they've got essentially a free ride right now. 01:08:39.900 --> 01:08:41.224 Yeah. I was gonna say, 01:08:41.224 --> 01:08:42.057 well, I think one 01:08:42.057 --> 01:08:44.150 of the reasons why they're not putting batteries on, 01:08:44.150 --> 01:08:46.950 love your opinion is a lot of these 01:08:46.950 --> 01:08:49.280 in West Texas are bought behind congestion. 01:08:49.280 --> 01:08:51.060 So they're not even getting paid right now 01:08:51.060 --> 01:08:53.420 because of their getting curtailed. 01:08:53.420 --> 01:08:56.150 So why would they go add more capital costs to their plant, 01:08:56.150 --> 01:08:58.207 if there we don't have any expectation? 01:08:58.207 --> 01:08:59.250 (muffled speaking) if they were worried 01:08:59.250 --> 01:09:00.610 about generating revenues, 01:09:00.610 --> 01:09:03.070 they wouldn't have built behind congestion. 01:09:03.070 --> 01:09:05.060 Well, I think what happens is they didn't 01:09:05.060 --> 01:09:07.970 they did the smart movers built first, 01:09:07.970 --> 01:09:10.680 you know, the farthest away to the best wind resource. 01:09:10.680 --> 01:09:13.190 And then the way our interconnection process works, 01:09:13.190 --> 01:09:16.860 everybody built, you know, in front of them towards load. 01:09:16.860 --> 01:09:20.690 So, you know, the original wind generator went 01:09:20.690 --> 01:09:22.900 to the best capacity factor wind, 01:09:22.900 --> 01:09:25.610 which was the furthest away, and then everybody said, 01:09:25.610 --> 01:09:26.443 Well, what the heck? 01:09:26.443 --> 01:09:27.276 I'm just gonna build along 01:09:27.276 --> 01:09:29.450 that same transmission line closer, 01:09:29.450 --> 01:09:31.010 and the furthest ended up being the one 01:09:31.010 --> 01:09:32.520 that gets curtailed first. 01:09:32.520 --> 01:09:36.630 So it's not a matter of when you invested. 01:09:36.630 --> 01:09:38.300 Well, it is a matter of when you invest it, 01:09:38.300 --> 01:09:41.950 but not the value or the volume of your wind. 01:09:41.950 --> 01:09:42.783 Sure. 01:09:42.783 --> 01:09:43.616 So pay that forward. 01:09:43.616 --> 01:09:47.510 And if the winds not blowing and prices are high, 01:09:47.510 --> 01:09:50.580 even under a current construct, even a battery on 01:09:50.580 --> 01:09:55.080 that furthest windmill should be generating excess economics 01:09:55.080 --> 01:09:57.480 and others wouldn't, we have no battery. 01:09:59.260 --> 01:10:00.999 I think on a compared to basis between 01:10:00.999 --> 01:10:03.760 one mill and one without. 01:10:03.760 --> 01:10:06.860 So it might produce, if you're assuming 01:10:06.860 --> 01:10:08.510 that all the congestion has gone? 01:10:09.420 --> 01:10:14.420 No, I mean, I think if we can't get an investor 01:10:14.690 --> 01:10:16.410 who's firmed up in intermittent resorts 01:10:16.410 --> 01:10:20.423 to make money first versus other folks, 01:10:22.057 --> 01:10:24.023 then we're not doing our job. 01:10:24.023 --> 01:10:26.070 But the point of the battery was even 01:10:26.070 --> 01:10:30.160 if there's transmission, even there's congestion 01:10:30.160 --> 01:10:33.610 in West Texas, if the winds not blowing and prices are up, 01:10:33.610 --> 01:10:36.900 that fully charged battery would have a free pass down 01:10:36.900 --> 01:10:39.760 that transmission line to the revenues, right? 01:10:39.760 --> 01:10:40.973 Potentially, I think. 01:10:42.050 --> 01:10:44.000 As long as solar and all the other resources 01:10:44.000 --> 01:10:46.090 don't come in in front of them. 01:10:46.090 --> 01:10:50.293 So I will say with the data we have, we could estimate 01:10:52.290 --> 01:10:57.290 and I'm 90 some percent confident that we could show you 01:10:57.600 --> 01:11:01.253 a battery is extremely economic under these proposals. 01:11:02.600 --> 01:11:04.810 Because you know, we can calculate 01:11:04.810 --> 01:11:07.210 how much additional net revenue 01:11:07.210 --> 01:11:11.120 a battery in West Texas would make if you were 01:11:11.120 --> 01:11:13.053 to just the ORDC in this manner. 01:11:14.192 --> 01:11:16.060 Good to know, it's that simple. 01:11:16.060 --> 01:11:17.690 It's not simple. 01:11:17.690 --> 01:11:19.563 We have access to a lot of data. 01:11:21.529 --> 01:11:24.950 Okay, so kind of back to a broader discussion 01:11:24.950 --> 01:11:27.503 on this forward hedging proposal that you put forth. 01:11:28.390 --> 01:11:31.400 Can you just kind of compare and contrast it 01:11:31.400 --> 01:11:33.010 with the LSE obligation? 01:11:33.010 --> 01:11:35.540 I know you mentioned that it's not purely financial, 01:11:35.540 --> 01:11:37.723 but it involves some physical, right? 01:11:38.870 --> 01:11:41.210 And it sounds like the LSE obligation 01:11:41.210 --> 01:11:43.790 is more of a physical obligation. 01:11:43.790 --> 01:11:46.280 Can you compare and contrast 01:11:46.280 --> 01:11:48.373 your forward hedging proposal with that? 01:11:49.260 --> 01:11:53.930 So we've estimated in other markets, 01:11:53.930 --> 01:11:56.480 A one in 10 reliability standard implies 01:11:56.480 --> 01:11:58.750 in terms of the value of loss load. 01:11:58.750 --> 01:12:00.640 And it's somewhere in the neighborhood 01:12:00.640 --> 01:12:04.120 of $200,000 per megawatt hour. 01:12:04.120 --> 01:12:09.120 So the if you were to ask the question, 01:12:10.079 --> 01:12:15.079 why, in New York, for example, if I look at a peaking unit, 01:12:16.390 --> 01:12:18.260 why do they make more than half their revenues 01:12:18.260 --> 01:12:20.700 in the capacity market and the rest in the energy market 01:12:20.700 --> 01:12:22.650 because they have shortage pricing and so forth, 01:12:22.650 --> 01:12:24.370 or same thing in New England? 01:12:24.370 --> 01:12:28.930 It's because they have a capacity requirement 01:12:28.930 --> 01:12:32.960 that is extremely expensive to try to satisfy. 01:12:32.960 --> 01:12:36.190 And so they maintain a base of resources, 01:12:36.190 --> 01:12:40.303 that makes shortages, less frequent. 01:12:41.890 --> 01:12:46.480 The thing with the forward capacity hedge is it links 01:12:46.480 --> 01:12:49.530 to whatever value of loss load you're setting 01:12:49.530 --> 01:12:53.280 for your energy and ancillary service markets. 01:12:53.280 --> 01:12:56.730 So you get much better performance incentives out of it. 01:12:56.730 --> 01:13:01.730 But also, you won't generally maintain as high a level 01:13:05.030 --> 01:13:08.500 of high a base of iron in the ground, 01:13:08.500 --> 01:13:10.580 or steel in the ground as you would 01:13:11.580 --> 01:13:13.743 in a traditional capacity market. 01:13:15.270 --> 01:13:18.350 So I would imagine, it's hard to say where you'd end up 01:13:18.350 --> 01:13:20.993 in the E3 proposal. 01:13:21.840 --> 01:13:24.320 Because we don't want know what 01:13:24.320 --> 01:13:25.850 that requirement would look like. 01:13:25.850 --> 01:13:28.800 But I would imagine it would lead you 01:13:28.800 --> 01:13:31.080 to more installed capacity 01:13:31.080 --> 01:13:33.423 and weaker performance incentives. 01:13:35.010 --> 01:13:39.240 So would your forward hedging proposal be contingent 01:13:39.240 --> 01:13:42.980 on a successful real time quantization implementation? 01:13:42.980 --> 01:13:44.550 Or could it stand on its own two feet 01:13:44.550 --> 01:13:45.750 and still provide value? 01:13:46.950 --> 01:13:49.790 It can still operate under the current ORDC, 01:13:49.790 --> 01:13:54.220 it's just that the problem with the current ORDC 01:13:54.220 --> 01:13:57.780 is we're not gonna price a lot of the circumstances 01:13:57.780 --> 01:14:00.520 where we actually are tight, 01:14:00.520 --> 01:14:05.270 particularly the ramping hours where we're tight, 01:14:05.270 --> 01:14:09.100 but because we're not jointly optimizing our reserves 01:14:09.100 --> 01:14:12.363 and energy, we just don't price that today. 01:14:14.420 --> 01:14:18.470 So you mentioned better performance? 01:14:18.470 --> 01:14:20.440 Yes. That's the key. 01:14:20.440 --> 01:14:23.770 Yes. And I know nobody 01:14:23.770 --> 01:14:26.163 can guarantee you still on the ground, 01:14:26.163 --> 01:14:28.130 I mean, how does it impact dispatchable 01:14:28.130 --> 01:14:29.577 generation in this though? 01:14:31.270 --> 01:14:35.680 It will definitely increase dispatchable investment 01:14:35.680 --> 01:14:40.680 because the predictable increase in net revenue, 01:14:40.820 --> 01:14:45.760 like any investor who's doing an analysis 01:14:45.760 --> 01:14:50.140 of the economics of an investment in a peeker resource 01:14:51.533 --> 01:14:55.507 with an ORDC that is going to trigger 01:14:56.442 --> 01:15:01.442 and generate more than double the revenues 01:15:01.870 --> 01:15:05.080 that the current ORDC does during tight conditions 01:15:05.080 --> 01:15:09.540 is gonna find that the incentive to invest in 01:15:10.685 --> 01:15:14.100 a peaking unit is significantly higher than it is today. 01:15:14.100 --> 01:15:18.770 Now, again, it's important that the peaking units 01:15:18.770 --> 01:15:21.780 get paid the ORDC adder and many of them don't. 01:15:21.780 --> 01:15:24.510 So that's an important caveat. 01:15:24.510 --> 01:15:27.500 So if you're talking about investment in new gas resources 01:15:27.500 --> 01:15:29.400 that don't have access to the ORDC, 01:15:29.400 --> 01:15:32.063 when they're offline, that's a problem. 01:15:33.020 --> 01:15:35.400 And we should fix that problem. 01:15:35.400 --> 01:15:37.180 But is it an offline peaker problem 01:15:37.180 --> 01:15:40.380 or more of we're looking to add more hours of ORDC 01:15:40.380 --> 01:15:42.300 and we're gonna have less peak times, 01:15:42.300 --> 01:15:43.870 And so peaker units are not just gonna be 01:15:43.870 --> 01:15:46.173 on the system, whether they're? 01:15:47.550 --> 01:15:52.550 No, I mean, the thing is the I don't know 01:15:53.920 --> 01:15:57.710 if you can go back to one of the charts that shows the ORDC. 01:15:57.710 --> 01:16:00.120 But either one, that quantity 01:16:00.120 --> 01:16:02.990 of real time reserves down at the bottom. 01:16:02.990 --> 01:16:05.470 We don't calculate that exactly correctly today. 01:16:05.470 --> 01:16:07.470 But let's imagine we calculated that 01:16:07.470 --> 01:16:11.940 so that it reflected, our online reserves, 01:16:11.940 --> 01:16:15.720 our offline 10 minute reserves and our 30 minute reserves, 01:16:15.720 --> 01:16:17.310 so that every megawatt you're seeing on 01:16:17.310 --> 01:16:20.323 that axis as a megawatt of peaking resource can sell you, 01:16:21.450 --> 01:16:25.110 as you go short, it's gonna be the case 01:16:25.110 --> 01:16:30.030 that any available peaker is gonna be selling you one 01:16:30.030 --> 01:16:31.550 of those classes and reserves 01:16:31.550 --> 01:16:33.530 and should be getting paid the ORDC 01:16:33.530 --> 01:16:37.683 if we made some changes to how the ORDC settles, 01:16:37.683 --> 01:16:42.683 And so that's why I think, yeah, 01:16:44.940 --> 01:16:46.530 we're not gonna have a problem under 01:16:46.530 --> 01:16:47.730 this sort of reform 01:16:47.730 --> 01:16:50.564 with under compensating peaking resources. 01:16:50.564 --> 01:16:51.970 Okay. 01:16:51.970 --> 01:16:55.430 Do other markets have a forward hedging mechanism 01:16:55.430 --> 01:16:56.580 that we can compare to? 01:16:57.836 --> 01:17:01.820 They do they, I mean, one thing 01:17:01.820 --> 01:17:03.450 about the electric industry is everyone wants 01:17:03.450 --> 01:17:04.800 to use their own terminology, 01:17:04.800 --> 01:17:06.790 and it sort of muddies the water, 01:17:06.790 --> 01:17:10.680 but PJM and New England has something they call 01:17:10.680 --> 01:17:13.490 that pay for performance regime. 01:17:13.490 --> 01:17:16.840 And if you look hard at what that regime is 01:17:16.840 --> 01:17:21.490 it basically when they buy capacity embedded 01:17:21.490 --> 01:17:26.490 in the capacity product is a forward hedge 01:17:27.660 --> 01:17:31.590 of a component of their shortage pricing. 01:17:31.590 --> 01:17:36.590 So right now, for instance, in New England, 01:17:36.690 --> 01:17:40.930 I think we're now at $5,700. 01:17:40.930 --> 01:17:42.830 If they have any sort of shortage 01:17:42.830 --> 01:17:45.320 of 30 minute or 10 minute reserves, 01:17:45.320 --> 01:17:46.983 and you're a capacity seller, 01:17:49.010 --> 01:17:53.697 and you don't perform, then you're charged $5,700. 01:17:55.020 --> 01:17:56.930 And if you're not a capacity seller, 01:17:56.930 --> 01:17:59.040 and you do produce megawatts 01:17:59.040 --> 01:18:02.230 or self reserves, you get paid $5,700. 01:18:02.230 --> 01:18:06.360 So that is a forward shortage pricing hedge 01:18:06.360 --> 01:18:08.500 it's just cloaked in terminology 01:18:09.806 --> 01:18:12.300 that might not make it clear that it's similar 01:18:12.300 --> 01:18:14.632 to what we're talking about here. 01:18:14.632 --> 01:18:17.363 Yeah, I wanna get one in. 01:18:18.300 --> 01:18:22.820 So, Dr. Patton, the backstop reliability service, 01:18:22.820 --> 01:18:25.600 which was proposed by the industrial energy consumers 01:18:25.600 --> 01:18:29.330 before you spoke, let me read you this slide 01:18:29.330 --> 01:18:30.750 consider allocation similar 01:18:30.750 --> 01:18:32.550 to the reliability unit commitment, 01:18:32.550 --> 01:18:34.560 which allocates cost to capacity short, 01:18:34.560 --> 01:18:36.590 qualified scheduling entities, 01:18:36.590 --> 01:18:39.580 this would increase long term hedging incentives. 01:18:39.580 --> 01:18:41.660 When net peak load is anticipated, 01:18:41.660 --> 01:18:43.327 the price of the service should increase 01:18:43.327 --> 01:18:45.220 and more costs should be allocated 01:18:45.220 --> 01:18:48.100 to capacity short entities in the market. 01:18:48.100 --> 01:18:50.210 Can you please explain the difference between 01:18:50.210 --> 01:18:53.553 your forward shortage energy hedge and that proposal? 01:18:55.160 --> 01:18:56.640 Well, I have to say I'm not an expert on 01:18:56.640 --> 01:18:57.660 what they were proposing. 01:18:57.660 --> 01:19:02.570 But to the extent that there's a separate product. 01:19:02.570 --> 01:19:04.340 I mean, that would be the key difference 01:19:04.340 --> 01:19:09.340 that the forward hedge that we're talking about 01:19:09.510 --> 01:19:14.250 is links back to energy and ancillary services 01:19:15.170 --> 01:19:19.550 that ERCOT is utilizing to keep the lights on 01:19:19.550 --> 01:19:22.610 and that we are pricing in the real time market. 01:19:22.610 --> 01:19:25.500 And so as we get short of the megawatts 01:19:26.440 --> 01:19:29.600 that are providing our reliability, the price would go up, 01:19:29.600 --> 01:19:32.780 and the hedge would settle against that. 01:19:32.780 --> 01:19:37.780 I think any proposal that would create some separate product 01:19:37.850 --> 01:19:40.860 that is not part of our cots operating protocol, 01:19:40.860 --> 01:19:44.493 I think is you know, doesn't have the same advantages. 01:19:45.690 --> 01:19:48.010 Okay, but conceptually, 01:19:48.010 --> 01:19:51.493 they are in the same universe, sounds like? 01:19:52.730 --> 01:19:55.528 They maybe, why don't I get back to you? 01:19:55.528 --> 01:19:56.570 Okay, that would be helpful. 01:19:56.570 --> 01:19:57.920 I'll take a look at that product 01:19:57.920 --> 01:19:59.450 and try to give you a better idea 01:19:59.450 --> 01:20:01.080 of what the difference are. 01:20:01.080 --> 01:20:03.720 You did prefer it uncertainty product, which. 01:20:03.720 --> 01:20:05.960 Yes. Might be why 01:20:05.960 --> 01:20:07.332 you preferred it. 01:20:07.332 --> 01:20:10.810 That's simply a longer term reserve 01:20:10.810 --> 01:20:12.683 product longer than 30 minutes. 01:20:13.680 --> 01:20:18.340 So most of the time, just kind of an idea why 10 minute 01:20:18.340 --> 01:20:21.299 and 30 minute reserves emerged in the industry, 01:20:21.299 --> 01:20:26.299 is generally those reserve products exists 01:20:26.771 --> 01:20:29.150 to satisfy narcs reliability requirements 01:20:29.150 --> 01:20:32.960 that when a big unit ships off, within 10 minutes, 01:20:32.960 --> 01:20:34.810 you need to have supply and demand in balance, 01:20:34.810 --> 01:20:37.040 and then within 30 minutes, you need 01:20:37.040 --> 01:20:39.040 to recover your 10 Minute reserve. 01:20:39.040 --> 01:20:39.950 So you need to have something 01:20:39.950 --> 01:20:42.123 you can turn on within 30 minutes. 01:20:43.100 --> 01:20:47.620 Now, if you listen to that explanation, 01:20:47.620 --> 01:20:52.620 I didn't say anything about missing the wind forecast, 01:20:52.680 --> 01:20:55.040 for example, or missing the load forecast 01:20:56.340 --> 01:20:59.710 we're headed into as a situation where 01:20:59.710 --> 01:21:01.330 having a unit trip off our 01:21:01.330 --> 01:21:03.490 is not our big reliability problem. 01:21:03.490 --> 01:21:07.020 It's Miss forecasting the wind 01:21:07.020 --> 01:21:08.933 is much bigger problem and myself. 01:21:10.560 --> 01:21:15.263 And responding to that concern, there a much larger number 01:21:17.570 --> 01:21:19.730 of resources that that take longer to start 01:21:19.730 --> 01:21:21.820 that can help you with that problem 01:21:21.820 --> 01:21:23.120 than the immediate problem 01:21:24.514 --> 01:21:28.020 of replacing a unit that just chipped off line. 01:21:28.020 --> 01:21:30.250 Would your product needed ERCOT system change 01:21:30.250 --> 01:21:32.000 that is impacted by the MS upgrade? 01:21:32.890 --> 01:21:33.723 Yes. 01:21:33.723 --> 01:21:35.340 Yeah, the good news about the ORDC 01:21:35.340 --> 01:21:39.670 is this sort of change can be done very, very quickly. 01:21:39.670 --> 01:21:42.980 And it's the most effective thing that you can do, 01:21:42.980 --> 01:21:44.840 then certainly product is a new product 01:21:44.840 --> 01:21:48.270 that I imagined would be in Kaanans, 01:21:48.270 --> 01:21:50.113 you know, to your timeframe. 01:21:51.580 --> 01:21:54.222 All right, excellent, Jimmy, any more questions? 01:21:54.222 --> 01:21:55.055 No. 01:21:55.950 --> 01:21:56.930 All right. 01:21:56.930 --> 01:21:59.750 Thank you, Dr. Patton, will obviously love for you 01:21:59.750 --> 01:22:00.970 to stick around as long as you can, 01:22:00.970 --> 01:22:02.320 but don't miss your flight. 01:22:04.090 --> 01:22:06.610 I'll be around for another hour and a half. 01:22:06.610 --> 01:22:07.443 Okay. 01:22:07.443 --> 01:22:09.823 So you can let me know if you have other questions. 01:22:11.537 --> 01:22:13.870 Brave man to admit that information, 01:22:13.870 --> 01:22:15.233 will have you back up here. 01:22:17.430 --> 01:22:21.750 At this point, we're gonna shift gears a little bit 01:22:21.750 --> 01:22:26.000 and ask Commissioner McAdams to lay out 01:22:26.000 --> 01:22:28.733 his memo on interconnect priority. 01:22:31.230 --> 01:22:32.680 We'll lay that out. 01:22:32.680 --> 01:22:35.140 And I know we'll wanna have some discussion 01:22:35.140 --> 01:22:38.453 on the Commission and hopefully by 2:30. 01:22:40.000 --> 01:22:43.743 We'll start with the rattle conclusions. 01:22:44.870 --> 01:22:46.190 20, 30 minutes on their thoughts 01:22:46.190 --> 01:22:47.430 on the presentations for the day. 01:22:47.430 --> 01:22:51.380 And from three to four, we'll wrap up 01:22:51.380 --> 01:22:54.124 with open conversation for the Commission, 01:22:54.124 --> 01:22:55.213 does it work for everybody? 01:22:55.213 --> 01:22:56.923 Good for me. All right. 01:22:58.750 --> 01:23:01.670 Commissioner, as I tried to be brief 01:23:01.670 --> 01:23:05.927 and concise in the memo, the overarching policy premise 01:23:08.550 --> 01:23:13.550 is speed expeditious employment policy, 01:23:15.830 --> 01:23:18.760 to where we can start sending meaningful signals 01:23:18.760 --> 01:23:21.363 to market participants as soon as possible. 01:23:22.560 --> 01:23:24.830 And I'm gonna welcome thoughts on this memo. 01:23:24.830 --> 01:23:28.000 But as you all know, we have a great deal 01:23:28.000 --> 01:23:31.380 of we have natural gas in queue 01:23:31.380 --> 01:23:32.650 and transmission interconnection 01:23:32.650 --> 01:23:34.550 but we also have a great deal of batteries. 01:23:34.550 --> 01:23:35.640 And what we're trying to do, 01:23:35.640 --> 01:23:38.060 I believe, in our conversations, and even today 01:23:38.060 --> 01:23:40.010 with the greater market design efforts, 01:23:41.100 --> 01:23:44.650 is send a layered strategy of signals 01:23:44.650 --> 01:23:46.340 to market participants that we want 01:23:46.340 --> 01:23:50.040 certain performance characteristics soon 01:23:50.040 --> 01:23:52.640 to arrest any type of dark curve phenomenon 01:23:52.640 --> 01:23:57.060 to help meet the threat of a URI event. 01:23:57.060 --> 01:23:59.030 Bottom line is we need you to be able, 01:23:59.030 --> 01:24:00.970 we would like you to be able to be dispatchable 01:24:00.970 --> 01:24:03.320 in the future for command and control of ERCOT. 01:24:04.540 --> 01:24:07.657 The transmission interconnection process is in my view, 01:24:07.657 --> 01:24:09.930 one of those pieces of low hanging fruit 01:24:09.930 --> 01:24:12.220 that could be looked at sooner rather than later. 01:24:12.220 --> 01:24:16.370 And I'm talking about working with TDSPs, 01:24:16.370 --> 01:24:20.770 starting next year to prioritize those dispatchable projects 01:24:20.770 --> 01:24:22.680 that could be and again right now, 01:24:22.680 --> 01:24:26.650 it's just first come first serve you're in line due 01:24:26.650 --> 01:24:28.960 to the date of your application. 01:24:28.960 --> 01:24:31.410 And again, it's an 18 month process typically 01:24:31.410 --> 01:24:33.669 to do the studies between ERCOT 01:24:33.669 --> 01:24:36.300 and the transmission service provider, 01:24:36.300 --> 01:24:39.840 the on course, the APS, but even the knollys. 01:24:42.340 --> 01:24:45.150 What this would do is depending 01:24:45.150 --> 01:24:46.560 on those performance characteristics, 01:24:46.560 --> 01:24:49.490 and I actually articulated what in my view, 01:24:49.490 --> 01:24:52.470 some of the non negotiables are I actually shot the moon 01:24:52.470 --> 01:24:55.020 and for our dispatch ability. 01:24:55.020 --> 01:24:56.510 Again, it's not the 24 hours, 01:24:56.510 --> 01:24:59.140 which we can talk about with Randall later 01:24:59.140 --> 01:25:02.610 but it's takes a step in qualifying batteries, 01:25:02.610 --> 01:25:06.820 you know, pairing of batteries with intermittent resources 01:25:06.820 --> 01:25:09.630 to qualify, and getting those front loaded 01:25:09.630 --> 01:25:12.930 in those interconnection processes. 01:25:12.930 --> 01:25:14.730 It's my understanding that a great deal 01:25:14.730 --> 01:25:18.050 of the financing that happens in the renewable space 01:25:18.050 --> 01:25:20.770 or any generator, but especially the renewable space, 01:25:20.770 --> 01:25:25.770 and especially solar, is that those financing arrangements 01:25:26.340 --> 01:25:29.250 aren't really like solidified until they get 01:25:29.250 --> 01:25:33.307 a firm confirmation of an interconnection process 01:25:34.680 --> 01:25:36.710 from the interconnection process. 01:25:36.710 --> 01:25:40.741 And so right now, there's not really an 01:25:40.741 --> 01:25:44.280 a clear cut black and white incentive 01:25:44.280 --> 01:25:46.970 for them to deploy batteries as is, 01:25:46.970 --> 01:25:50.250 because the price of power is still lucrative for them, 01:25:50.250 --> 01:25:53.430 the federal policy is still lucrative for them. 01:25:53.430 --> 01:25:55.630 So this would be just one more signal 01:25:55.630 --> 01:25:58.150 that we could send to those developers 01:25:58.150 --> 01:26:01.480 and then to the financiers who are funding these projects, 01:26:01.480 --> 01:26:03.430 that this is what the state of Texas 01:26:03.430 --> 01:26:06.610 ultimately desires more in the near future, 01:26:06.610 --> 01:26:08.460 and you might qualify. 01:26:08.460 --> 01:26:12.640 So with that, we've got a lot of experience on this Dyess, 01:26:12.640 --> 01:26:14.290 so I'd love to hear any thoughts. 01:26:16.460 --> 01:26:17.293 Sure. 01:26:18.140 --> 01:26:21.350 Thank you, Commissioner McAdams for looking into this issue, 01:26:21.350 --> 01:26:26.350 as we look to it, you know, ensure more greater liability, 01:26:26.730 --> 01:26:29.630 more dispatchable generation investment in the state, 01:26:29.630 --> 01:26:32.273 we must leave no stone unturned. 01:26:33.190 --> 01:26:35.943 I generally agree with the spirit of your memo. 01:26:37.530 --> 01:26:40.580 I guess I have a question, and then maybe a statement. 01:26:40.580 --> 01:26:43.120 So I'm trying to understand the mechanics 01:26:43.120 --> 01:26:44.260 of how this will work. 01:26:44.260 --> 01:26:48.950 Okay, by moving generation up batteries up 01:26:48.950 --> 01:26:51.060 and then having renewable generation 01:26:52.730 --> 01:26:54.840 after them in the interconnection queue. 01:26:54.840 --> 01:26:59.230 So would this mean that if you're ready 01:26:59.230 --> 01:27:03.453 to go as a solar generator, or wind generator, 01:27:06.400 --> 01:27:11.080 do you have to wait until the gas generation plant goes? 01:27:12.600 --> 01:27:14.980 And what if they're not ready? 01:27:14.980 --> 01:27:19.450 Right, so that's why I put a time limit on this 01:27:19.450 --> 01:27:21.320 to where that process resets. 01:27:21.320 --> 01:27:23.950 If they get all of their ready to go, 01:27:23.950 --> 01:27:28.000 key condition dispatchable projects studied 01:27:28.000 --> 01:27:33.000 and approved and on course, for execution of the project 01:27:33.080 --> 01:27:35.290 and development of the project, 01:27:35.290 --> 01:27:39.300 then those non dispatchable paired intermittence 01:27:39.300 --> 01:27:41.310 would then be right there in the queue. 01:27:41.310 --> 01:27:43.500 I think the problem is there's a backlog, 01:27:43.500 --> 01:27:45.710 there's so many projects in queue within 01:27:45.710 --> 01:27:48.500 so many transmission service providers, 01:27:48.500 --> 01:27:52.560 either, again, non opt in entities or competitive area, 01:27:52.560 --> 01:27:57.453 territory, service providers, that a backlog forms, 01:27:58.540 --> 01:28:00.850 and again, they're inundated with requests, 01:28:00.850 --> 01:28:03.610 I liken it to a city permit office, you know, 01:28:03.610 --> 01:28:05.560 so they're trying to meet the shot clocks 01:28:05.560 --> 01:28:07.270 that they have on themselves. 01:28:07.270 --> 01:28:10.170 But any type of prioritization effort 01:28:10.170 --> 01:28:13.200 that is beyond just the normal time 01:28:13.200 --> 01:28:15.770 of application submission, 01:28:15.770 --> 01:28:17.290 could make a meaningful difference. 01:28:17.290 --> 01:28:20.020 And again, get those projects reviewed through 01:28:20.020 --> 01:28:23.550 and then they turn to the straight intermittent 01:28:23.550 --> 01:28:26.290 resources after that, they could still process them, 01:28:26.290 --> 01:28:29.400 but then they reset that queue after a year. 01:28:30.394 --> 01:28:33.590 Okay, I think I understand that. 01:28:33.590 --> 01:28:37.460 So, you know, again, 01:28:37.460 --> 01:28:39.810 I guess kind of a mechanical sort of statement. 01:28:41.400 --> 01:28:43.210 I mean, does ERCOT need more 01:28:43.210 --> 01:28:46.723 interconnection assisting staff? 01:28:47.660 --> 01:28:49.600 Is there a shortage out of ERCOT? 01:28:49.600 --> 01:28:51.010 I don't know, if this necessarily 01:28:51.010 --> 01:28:53.110 the ERCOT phenomenon is the TSP. 01:28:53.110 --> 01:28:53.943 Okay. 01:28:53.943 --> 01:28:56.730 Again, ERCOT does a component of the studies 01:28:56.730 --> 01:29:00.260 but then the TSPs, they're in the trenches doing this. 01:29:00.260 --> 01:29:02.130 It's their systems that are. 01:29:02.130 --> 01:29:03.600 Okay. Interconnected. 01:29:03.600 --> 01:29:04.433 Okay. 01:29:04.433 --> 01:29:06.080 Thank you for that clarification. 01:29:07.787 --> 01:29:10.920 So it resets every year almost? 01:29:10.920 --> 01:29:12.910 Yeah, because if it's an 18 month process, 01:29:12.910 --> 01:29:14.950 again, you want and a portion of that, 01:29:14.950 --> 01:29:16.430 say eight months of that is ERCOT, 01:29:16.430 --> 01:29:18.400 we can get ERCOT up later Kaanan, 01:29:18.400 --> 01:29:19.600 I'm sure you don't wanna get balled up 01:29:19.600 --> 01:29:20.950 in this this in your field. 01:29:21.810 --> 01:29:24.530 But we can talk to him about it later. 01:29:24.530 --> 01:29:25.967 But if eight months of it is ERCOT 01:29:25.967 --> 01:29:29.490 and a year of it is the TSP, then we wanna try 01:29:29.490 --> 01:29:32.300 to get them, you know, through their backlog 01:29:32.300 --> 01:29:36.260 of qualified dispatchable projects, if any are ready to go. 01:29:36.260 --> 01:29:37.093 Okay. 01:29:37.093 --> 01:29:39.350 So it's more of a signal to the utilities. 01:29:39.350 --> 01:29:41.210 That's right. That we want them 01:29:41.210 --> 01:29:44.910 to prioritize that type of, rather than ERCOT. 01:29:44.910 --> 01:29:49.420 Well, so I think everybody applies 01:29:49.420 --> 01:29:51.100 to the ricotta interconnection process. 01:29:51.100 --> 01:29:53.360 Everybody's in the same queue. 01:29:53.360 --> 01:29:55.160 There are different types of resources in there. 01:29:55.160 --> 01:29:58.280 Obviously, if you've looked at the interconnection queue, 01:29:58.280 --> 01:30:03.280 it's very long and there are ways that projects 01:30:03.600 --> 01:30:07.180 that are ready can get to the head of the line anyway, 01:30:07.180 --> 01:30:10.360 it's because some of the TSPs 01:30:10.360 --> 01:30:12.120 actually get the studies done quicker. 01:30:12.120 --> 01:30:17.120 And, you know, a lot of this is done by the TSPs. 01:30:17.410 --> 01:30:22.090 In other markets, they use third party firms that go, 01:30:22.090 --> 01:30:24.210 they hire additional third party firms 01:30:24.210 --> 01:30:26.480 to do interconnection work and do the studies. 01:30:26.480 --> 01:30:28.140 There are three or four different studies, 01:30:28.140 --> 01:30:31.470 depending on markets, what needs to be completed 01:30:31.470 --> 01:30:34.090 before you can get your final interconnection agreement. 01:30:34.090 --> 01:30:35.640 Sometimes those take short time, 01:30:35.640 --> 01:30:38.060 sometimes they're very, very controversial, 01:30:38.060 --> 01:30:41.323 depending upon what facilities are deemed needed. 01:30:42.400 --> 01:30:44.610 That's not as much a problem in ERCOT, 01:30:44.610 --> 01:30:48.150 because the TSP pays for most of the interconnection. 01:30:48.150 --> 01:30:53.150 So that challenge has gone away to a large extent here. 01:30:53.600 --> 01:30:58.323 I think the goal of moving something that's dispatchable, 01:30:59.160 --> 01:31:01.330 you know, satisfies what the Governor wants 01:31:01.330 --> 01:31:04.040 And is, I think something that the market needs. 01:31:04.040 --> 01:31:06.100 I'm concerned about one thing, and that is, 01:31:06.100 --> 01:31:08.880 if there are entities that are in the process 01:31:08.880 --> 01:31:11.653 that have already spent money on studies, 01:31:13.230 --> 01:31:15.710 as they have been required to 01:31:15.710 --> 01:31:18.560 is there some legal issue associated with that. 01:31:18.560 --> 01:31:21.720 You mean grandfather and conditions that can be imposed, 01:31:21.720 --> 01:31:25.089 If they're almost there that they just move on through? 01:31:25.089 --> 01:31:27.263 Yeah, yeah, exactly, something like that. 01:31:28.600 --> 01:31:30.700 I'm afraid that we don't wanna get 01:31:30.700 --> 01:31:33.770 into a legal snafu here. 01:31:33.770 --> 01:31:36.300 But, you know, if we tell, you know, 01:31:36.300 --> 01:31:39.659 a guy who's number one in the queue, who, you know. 01:31:39.659 --> 01:31:41.630 Who's almost there. Who's almost done, 01:31:41.630 --> 01:31:43.630 you know, you have to move to the back. 01:31:43.630 --> 01:31:47.150 But this is our value, your experience, 01:31:47.150 --> 01:31:48.400 because a lot of them just sort of put 01:31:48.400 --> 01:31:49.840 that minimum amount of, 01:31:49.840 --> 01:31:52.818 so what's the threshold that you'd advise on? 01:31:52.818 --> 01:31:54.700 I don't have an answer for you right now. 01:31:54.700 --> 01:31:57.120 But I know, you know, we could come up 01:31:57.120 --> 01:31:59.520 with one that I think would be valuable. 01:31:59.520 --> 01:32:02.770 I think we have found that there used to be a lot 01:32:02.770 --> 01:32:05.260 of as we called Mom and Pop developers 01:32:05.260 --> 01:32:07.740 that would just go file or interconnection, 01:32:07.740 --> 01:32:10.760 they were developers that were wanting to sell projects. 01:32:10.760 --> 01:32:12.590 So they just filed these interconnections. 01:32:12.590 --> 01:32:14.053 Buying a call option. 01:32:14.053 --> 01:32:15.810 Buying a call option, and that's exactly right. 01:32:15.810 --> 01:32:17.560 Interconnection didn't cost much. 01:32:17.560 --> 01:32:18.850 You didn't have to do money studies, 01:32:18.850 --> 01:32:20.100 you just threw your name in the queue, 01:32:20.100 --> 01:32:21.660 and you were done with it. 01:32:21.660 --> 01:32:24.970 I'm not sure that is all of our problem right now. 01:32:24.970 --> 01:32:29.480 I think we've attracted so much global attention 01:32:29.480 --> 01:32:31.090 to build resources in our market 01:32:31.090 --> 01:32:32.460 is really what the issue is. 01:32:32.460 --> 01:32:34.620 But I think, you know, sticking 01:32:34.620 --> 01:32:39.000 with finding something that's dispatchable. 01:32:39.000 --> 01:32:40.920 And if we're trying to remain agnostic, 01:32:40.920 --> 01:32:42.840 if we're gonna put a battery with wind 01:32:42.840 --> 01:32:46.630 or battery with solar, I mean, actually, 01:32:46.630 --> 01:32:51.300 you could put a battery with thermal generation too 01:32:51.300 --> 01:32:54.540 and actually make it even quicker start they could apply to, 01:32:54.540 --> 01:32:56.690 you could put it at a combined cycle plant 01:32:56.690 --> 01:32:58.240 and they can ramp very quickly. 01:32:59.190 --> 01:33:03.160 But doing this, I think follows the the point 01:33:03.160 --> 01:33:06.080 of what I think we're intending to do here, 01:33:06.080 --> 01:33:07.260 and I just don't want there 01:33:07.260 --> 01:33:08.880 to be some unintended consequences 01:33:08.880 --> 01:33:10.940 that people have already spent a lot of money 01:33:10.940 --> 01:33:14.380 and gone away down a queue process to be disadvantaged. 01:33:14.380 --> 01:33:16.630 And that's where I was going next. 01:33:16.630 --> 01:33:21.163 And so I definitely agree with the spirit of your memo. 01:33:21.163 --> 01:33:23.171 And obviously, we are charged 01:33:23.171 --> 01:33:25.560 to carry forward this direction from the Governor 01:33:25.560 --> 01:33:27.260 and in some cases, the legislature 01:33:29.610 --> 01:33:32.000 with respect to this specific issue, 01:33:32.000 --> 01:33:35.900 as I look at it, that's the lens I'm looking at it is 01:33:35.900 --> 01:33:38.790 from an unintended consequences standpoint, 01:33:38.790 --> 01:33:41.830 with respect to impacting investment 01:33:41.830 --> 01:33:43.140 that's already been made. 01:33:43.140 --> 01:33:45.113 That's sort of, like Jimmy described, 01:33:45.113 --> 01:33:47.910 already has some momentum going 01:33:47.910 --> 01:33:49.593 and they're gonna get reshuffled. 01:33:50.430 --> 01:33:53.660 Also, you know, recognizing the fact that, 01:33:53.660 --> 01:33:56.120 you know, by moving we are here today, 01:33:56.120 --> 01:33:57.730 because we're working on trying 01:33:57.730 --> 01:34:01.470 to send more price signals to the market, 01:34:01.470 --> 01:34:04.870 so that a portion of that 13,000 megawatts 01:34:04.870 --> 01:34:07.160 actually does come to fruition, because right now, 01:34:07.160 --> 01:34:10.190 based on historical trends, it's only 1% 01:34:10.190 --> 01:34:14.040 of gas generation that comes to fruition, traditionally, 01:34:14.040 --> 01:34:16.873 so by moving it up, we're hoping that you know, 01:34:16.873 --> 01:34:20.100 what we do here, actually, you know, 01:34:20.100 --> 01:34:22.450 sends it out of the gate, right? 01:34:22.450 --> 01:34:27.450 Secondly, I wanna kind of zoom in into sort 01:34:28.430 --> 01:34:30.400 of a point I tried to make earlier, 01:34:30.400 --> 01:34:33.360 I completely recognize that renewable generation 01:34:33.360 --> 01:34:35.460 has its variability issues. 01:34:35.460 --> 01:34:39.820 But with respect to solar, you know, 01:34:39.820 --> 01:34:42.420 we have received grid reliability updates all summer long 01:34:42.420 --> 01:34:45.590 from ERCOT, where a significant percentage 01:34:45.590 --> 01:34:47.320 showed up during the summer 01:34:47.320 --> 01:34:50.453 to provide generation that we really needed. 01:34:52.001 --> 01:34:54.710 And I do think that in some cases, 01:34:54.710 --> 01:34:58.010 solar is a little bit more of a predictable resource. 01:34:58.010 --> 01:34:59.900 And what I don't wanna do 01:34:59.900 --> 01:35:02.990 is having unintended consequences on 01:35:02.990 --> 01:35:06.970 a little bit more of a reliable intermittent resource 01:35:06.970 --> 01:35:08.980 that has actually helped us in some situations 01:35:08.980 --> 01:35:10.280 where we are really tight. 01:35:11.690 --> 01:35:16.690 And it also a resource that can be built very quickly. 01:35:19.220 --> 01:35:23.450 Months, you know, in about a year versus, 01:35:23.450 --> 01:35:26.456 you know, a gas generation plant 01:35:26.456 --> 01:35:28.930 that can take about two years or more. 01:35:28.930 --> 01:35:32.100 So in the interim, while we send these signals out 01:35:32.100 --> 01:35:35.500 through whatever pathways that we ultimately decide, 01:35:35.500 --> 01:35:37.920 we have to recognize it's gonna take about two years 01:35:37.920 --> 01:35:39.960 to get a plant online, if not more, 01:35:39.960 --> 01:35:41.250 but what are we gonna do in the interim, 01:35:41.250 --> 01:35:45.770 and I just don't wanna impact our ability 01:35:45.770 --> 01:35:49.220 to get some quickly built resources 01:35:49.220 --> 01:35:52.040 that can help us during times when we need it 01:35:52.040 --> 01:35:53.590 in certain periods of the year. 01:35:55.010 --> 01:35:56.320 I reshuffling but it sounds like 01:35:56.320 --> 01:35:58.480 from what Commissioner McAdams is saying 01:35:58.480 --> 01:36:00.950 that the shot clock, you know, 01:36:00.950 --> 01:36:05.130 starting in a periodic basis might address that issue. 01:36:05.130 --> 01:36:06.650 And I would also expound 01:36:06.650 --> 01:36:10.513 on the legal issue that Jimmy raised. 01:36:11.430 --> 01:36:16.430 I know, Commissioner McAdams you mentioned the TDUs. 01:36:16.910 --> 01:36:19.340 But one thing we got to make sure 01:36:19.340 --> 01:36:23.890 that if they're ready to interconnect, 01:36:23.890 --> 01:36:25.510 we can't just tell them no, right? 01:36:25.510 --> 01:36:26.388 There's a pair of statutory required. 01:36:26.388 --> 01:36:27.520 That's not the intention. Okay. 01:36:27.520 --> 01:36:30.180 So because there is a statutory requirement against 01:36:30.180 --> 01:36:32.550 that Imperial right now we're at 39 151. 01:36:32.550 --> 01:36:34.290 And I just wanna be mindful, 01:36:34.290 --> 01:36:36.200 and it's a requirement on ERCOT. 01:36:36.200 --> 01:36:40.410 I just wanna be mindful that we're not putting you know, 01:36:40.410 --> 01:36:41.797 anybody in an illegal stable. 01:36:41.797 --> 01:36:44.180 I think (muffled speaking) are you ready to interconnect? 01:36:44.180 --> 01:36:45.590 I mean, are you going, you know, 01:36:45.590 --> 01:36:48.823 and we have so much hypothetical, we still do, 01:36:48.823 --> 01:36:52.540 I mean, queue huge, hypothetical projects out there. 01:36:52.540 --> 01:36:55.130 And from a sorting perspective, again, 01:36:55.130 --> 01:36:57.630 this is just one more layered signal that says, 01:36:57.630 --> 01:36:59.930 look, you can get to the front of the line, 01:36:59.930 --> 01:37:01.750 after all these guys who have said, 01:37:01.750 --> 01:37:02.583 they're ready to interconnect, 01:37:02.583 --> 01:37:04.540 and they're gonna energize 01:37:04.540 --> 01:37:07.520 that they're gonna get their eye out there. 01:37:07.520 --> 01:37:11.270 After they're, you know, flush through the process, 01:37:11.270 --> 01:37:14.500 then then we get to this prioritization scheme. 01:37:14.500 --> 01:37:15.990 And it'll be there for you. 01:37:15.990 --> 01:37:19.050 And hopefully, it proves decisive in years to come. 01:37:19.050 --> 01:37:21.520 I mean, it just seems consistent policy with again, 01:37:21.520 --> 01:37:24.090 what we're talking about on that curve. 01:37:24.090 --> 01:37:27.260 And as the solar deploys, and I agree with you, 01:37:27.260 --> 01:37:29.100 it's a great resource at peak, we just have 01:37:29.100 --> 01:37:31.653 to how it how we come down off that solar hot. 01:37:32.830 --> 01:37:34.630 And we need to continue to study the dark curve, 01:37:34.630 --> 01:37:35.770 because again, I still think 01:37:35.770 --> 01:37:37.260 we are different than California. 01:37:37.260 --> 01:37:39.290 And I really want ERCOT to really take 01:37:39.290 --> 01:37:40.310 a deeper look at that. 01:37:40.310 --> 01:37:41.450 I know they already have been 01:37:41.450 --> 01:37:45.730 but really give us a very Texas perspective 01:37:45.730 --> 01:37:47.570 of what we're facing with that amount 01:37:47.570 --> 01:37:49.053 of solar on our system. 01:37:50.760 --> 01:37:51.593 Value here. 01:37:51.593 --> 01:37:53.820 And what you propose, well, it's just two part, 01:37:53.820 --> 01:37:55.250 one, it's a very important signal 01:37:55.250 --> 01:37:57.937 that we value dispatch ability of any flavor. 01:37:57.937 --> 01:37:58.770 He's right. 01:37:58.770 --> 01:38:00.880 That could be combined cycle gas could be bigger gas, 01:38:00.880 --> 01:38:03.040 it could be battery, that could be compressed air, 01:38:03.040 --> 01:38:06.203 it could be hydrogen, it's dispatchability the key, 01:38:07.050 --> 01:38:09.560 certainly never gonna tell a generating asset 01:38:09.560 --> 01:38:10.760 that they can't hook up. 01:38:12.240 --> 01:38:15.013 We're just gonna focus on the dispatchable ones first. 01:38:16.960 --> 01:38:19.153 The second real value add, I think is 01:38:19.153 --> 01:38:21.083 that to Laura's point about timing. 01:38:22.150 --> 01:38:24.690 Certainly solar is very quick to be in terms 01:38:24.690 --> 01:38:29.690 of implementation to full operation and fully energized, 01:38:30.350 --> 01:38:32.530 but batteries are even quicker. 01:38:32.530 --> 01:38:36.110 And so to the extent that this can move batteries up 01:38:39.320 --> 01:38:43.110 to the we always wanna be wary of unintended consequences. 01:38:43.110 --> 01:38:46.850 But if one of the consequences is we have more batteries 01:38:46.850 --> 01:38:48.810 at the front of the line sooner, 01:38:48.810 --> 01:38:51.780 that's one of the best things we can do in terms 01:38:51.780 --> 01:38:54.180 of physical steel on the ground for next summer. 01:38:55.320 --> 01:39:00.320 And I think the important value in this proposal, 01:39:00.470 --> 01:39:04.360 I think the devil is always in the details. 01:39:04.360 --> 01:39:07.190 Certainly think just because you bought 01:39:07.190 --> 01:39:08.773 a call option hold your place in line, 01:39:08.773 --> 01:39:11.160 I don't think that means you get to preserve 01:39:11.160 --> 01:39:13.130 that place in line, we're not gonna tell 01:39:13.130 --> 01:39:14.880 you can't stay in line. 01:39:14.880 --> 01:39:16.460 If somebody has procured cost 01:39:16.460 --> 01:39:18.960 to move forward in the process. 01:39:18.960 --> 01:39:21.660 I would certainly hope we can let them continue in 01:39:21.660 --> 01:39:26.150 that process if there's a dispatchable asset 01:39:26.150 --> 01:39:30.540 that is co-located or associated with an intermittent asset. 01:39:30.540 --> 01:39:34.890 So we value solar but we value solar plus battery more. 01:39:34.890 --> 01:39:37.457 We certainly would consider that dispatchable. 01:39:39.180 --> 01:39:44.180 And like I said, this is a great step we can take right now 01:39:44.900 --> 01:39:49.900 to both show the market that we do truly value dispatchable 01:39:50.900 --> 01:39:54.310 and to drive action on the ground 01:39:54.310 --> 01:39:55.760 to move these things forward. 01:39:56.730 --> 01:39:58.010 I have one other thing to say. 01:39:58.010 --> 01:40:01.680 And that is there's really two parts to this one of them is 01:40:03.220 --> 01:40:06.080 those that are in the interconnection queue today, 01:40:06.080 --> 01:40:09.120 under the old rules ought to be able to have some process 01:40:09.120 --> 01:40:12.990 to say that they can amend their solar only project 01:40:12.990 --> 01:40:14.800 and add batteries to it. 01:40:14.800 --> 01:40:16.200 Agreed. In their 01:40:16.200 --> 01:40:18.150 same queue position. 01:40:18.150 --> 01:40:20.880 That if they meet that new standard, 01:40:20.880 --> 01:40:25.530 then this new standard adding for our batteries, 01:40:25.530 --> 01:40:27.370 they get to keep that same position, 01:40:27.370 --> 01:40:29.793 you know, everything else being equal. 01:40:30.640 --> 01:40:31.473 I agree. 01:40:33.570 --> 01:40:35.130 Since we do have next week, 01:40:35.130 --> 01:40:37.160 could we get some feedback from ERCOT, 01:40:37.160 --> 01:40:38.513 possibly on the logistics of that? 01:40:38.513 --> 01:40:40.860 Because I agree with you, I mean, you wanna be able 01:40:40.860 --> 01:40:42.910 to amend it, and it's in our interest that you amend it. 01:40:42.910 --> 01:40:43.743 Yeah. 01:40:44.720 --> 01:40:46.240 Can you work with ERCOT 01:40:46.240 --> 01:40:50.610 to work with him to bring a proposal on logistics 01:40:50.610 --> 01:40:54.120 and implementation timeline for this change? 01:40:54.120 --> 01:40:55.220 And let me just say one other thing, 01:40:55.220 --> 01:41:00.150 that interconnection queue is only one part of the process 01:41:00.150 --> 01:41:02.350 of interconnecting the facility. 01:41:02.350 --> 01:41:04.260 Obviously, you have that interconnection piece, 01:41:04.260 --> 01:41:06.810 but I mean, you have energy 01:41:06.810 --> 01:41:08.430 that's flowing across the ERCOT system. 01:41:08.430 --> 01:41:10.550 So you may be creating more congestion, 01:41:10.550 --> 01:41:13.030 you know, as we're adding, you know, 01:41:13.030 --> 01:41:16.960 so many megawatts of storage, we may be create exacerbating 01:41:16.960 --> 01:41:19.810 that congestion problem on different areas of the system. 01:41:19.810 --> 01:41:24.810 That I mean, it could create all sorts of problems, 01:41:25.390 --> 01:41:26.870 or it could create none, you know, 01:41:26.870 --> 01:41:27.703 that's something else 01:41:27.703 --> 01:41:30.910 that we should ask ERCOT to think about. 01:41:30.910 --> 01:41:33.290 We also hoped that the clever investors behind this 01:41:33.290 --> 01:41:36.023 wouldn't put a bunch of storage behind congestion. 01:41:38.500 --> 01:41:41.150 Again, as we said, or as I said earlier, 01:41:41.150 --> 01:41:43.060 you know, it was great when you built, 01:41:43.060 --> 01:41:44.030 you know, way out there. 01:41:44.030 --> 01:41:45.430 And but you didn't know two guys, 01:41:45.430 --> 01:41:47.140 were gonna come in front of you. 01:41:47.140 --> 01:41:50.140 On this one, I will say, and I'll birddog it with ERCOT. 01:41:50.140 --> 01:41:52.140 But I can tell they're gonna get fidgety over there. 01:41:52.140 --> 01:41:54.680 And rightly so. (crowd laughing) 01:41:54.680 --> 01:41:57.430 As I understand it, the inverters 01:41:57.430 --> 01:42:00.120 of the batteries do cause a little different 01:42:00.120 --> 01:42:05.120 study constraints in those processes. 01:42:05.240 --> 01:42:06.470 So I'll get you details on that. 01:42:06.470 --> 01:42:08.490 And we'll get something by next week. 01:42:08.490 --> 01:42:11.150 In addition, Commissioner McAdams, 01:42:11.150 --> 01:42:12.770 just to give us all some you know, 01:42:12.770 --> 01:42:15.030 just to confirm, because I wanna make sure 01:42:15.030 --> 01:42:17.080 that as we move forward with this path, 01:42:17.080 --> 01:42:18.950 you know, we've dotted all the ORDs 01:42:18.950 --> 01:42:21.370 and cross all our ORTs, and it's all sound. 01:42:21.370 --> 01:42:23.160 Can you please also check with our colleagues, 01:42:23.160 --> 01:42:24.160 they don't have any concerns? 01:42:24.160 --> 01:42:26.623 Sure, that will be a pleasure. 01:42:28.900 --> 01:42:30.090 Thank you for taking the lead on this. 01:42:30.090 --> 01:42:32.000 Yes sir. Great initiative. 01:42:32.000 --> 01:42:35.200 We'll look forward to hearing that day naturally. 01:42:35.200 --> 01:42:37.623 All right, 2:30. 01:42:39.910 --> 01:42:43.640 Next up is Braddell for a debrief on everything 01:42:43.640 --> 01:42:46.574 we heard and learned today. 01:42:46.574 --> 01:42:48.050 Okay. 01:42:48.050 --> 01:42:51.830 Looking forward to that, so it's been a long day, 01:42:51.830 --> 01:42:55.990 but I think my job is to kind of remind everybody about 01:42:55.990 --> 01:43:00.350 the problems that we're focused on today, 01:43:00.350 --> 01:43:02.030 that needs to be in the blueprint, 01:43:02.030 --> 01:43:04.750 like over the next week and months, 01:43:04.750 --> 01:43:06.830 in terms of what are what is kind of the suite 01:43:06.830 --> 01:43:10.163 or package of solutions that can address those problems. 01:43:11.150 --> 01:43:14.670 So before kind of reviewing the menu of options 01:43:14.670 --> 01:43:17.020 that are on the table, I just thought 01:43:17.020 --> 01:43:19.810 it would be worth getting back to the problem statement 01:43:19.810 --> 01:43:21.810 and making sure that, you know, 01:43:21.810 --> 01:43:24.140 the Commissioners have a chance to, you know, 01:43:24.140 --> 01:43:28.800 agree on what is the set of problems we're trying to solve. 01:43:28.800 --> 01:43:30.880 So I think we have two that Sam articulated 01:43:30.880 --> 01:43:32.270 at the beginning of the day, 01:43:32.270 --> 01:43:35.620 the Market Monitor are articulated a third, 01:43:35.620 --> 01:43:38.300 and I think it's, you know, really helpful 01:43:38.300 --> 01:43:40.600 to this whole room and and us, 01:43:40.600 --> 01:43:43.130 if we get a, you know, an affirmation or, 01:43:43.130 --> 01:43:46.800 you know, confirmation of that's what we're trying to solve. 01:43:46.800 --> 01:43:50.120 Problem number one being supply adequacy, 01:43:50.120 --> 01:43:53.670 that we have enough resources in the system in the grid, 01:43:53.670 --> 01:43:56.890 to meet all system conditions, supply available, 01:43:56.890 --> 01:43:59.740 all winter conditions, all summer conditions, 01:43:59.740 --> 01:44:02.640 including, you know, extreme winter events 01:44:02.640 --> 01:44:04.090 and extreme summer events. 01:44:04.090 --> 01:44:06.490 So that's problem number one is supply adequacy. 01:44:07.800 --> 01:44:11.010 And also, we actually did hear a case that's actually kind 01:44:11.010 --> 01:44:13.037 of a an inarticulate definition of the problem. 01:44:13.037 --> 01:44:15.380 And so I think, you know, just clarifying, 01:44:15.380 --> 01:44:17.110 is that a problem that needs to be solved? 01:44:17.110 --> 01:44:19.593 And how are we gonna define that exactly? 01:44:20.670 --> 01:44:24.910 Number two, is operational flexibility and performance, 01:44:24.910 --> 01:44:27.290 making sure that the resources 01:44:27.290 --> 01:44:29.330 that we have on the system are positioned 01:44:29.330 --> 01:44:32.810 and ready to respond at all timeframes 01:44:32.810 --> 01:44:34.080 to provide that flexibility 01:44:34.080 --> 01:44:36.450 and operational support that the system needs. 01:44:36.450 --> 01:44:37.740 Through market incentives, 01:44:37.740 --> 01:44:39.410 not through control room reactions, 01:44:39.410 --> 01:44:40.510 not through out of market means 01:44:40.510 --> 01:44:42.450 but through market incentives 01:44:42.450 --> 01:44:45.703 that incentivize strong dispatch, ability and performance. 01:44:46.560 --> 01:44:49.730 To meet all system needs, contingency risks 01:44:49.730 --> 01:44:53.337 and system uncertainties, ramp known ramping, 01:44:53.337 --> 01:44:56.370 expected net load variability as well 01:44:56.370 --> 01:44:59.423 as uncertainties around that expectation. 01:45:00.700 --> 01:45:03.300 And then having a strong system of incentives 01:45:03.300 --> 01:45:07.450 and potentially penalties for folks who perform 01:45:08.440 --> 01:45:10.810 and address that problem and penalties 01:45:10.810 --> 01:45:13.933 for those who kind of exacerbate the problems. 01:45:13.933 --> 01:45:17.170 And then the third one that I think we probably have heard 01:45:17.170 --> 01:45:19.290 less from the Commissioners on, it would be helpful 01:45:19.290 --> 01:45:20.900 to articulate is that third problem 01:45:20.900 --> 01:45:25.460 that Dr. Patton identified, which is related to hedging. 01:45:25.460 --> 01:45:27.440 Is part of this trying to find a solution 01:45:27.440 --> 01:45:29.750 to extreme financial events? 01:45:29.750 --> 01:45:32.370 And looking at that, both from the supplier perspective. 01:45:32.370 --> 01:45:36.570 I mean, are we trying to smooth out revenues for you know, 01:45:36.570 --> 01:45:39.450 kind of a smoother year to year investment signal? 01:45:39.450 --> 01:45:41.780 Or is that actually not what the Commission is trying to do? 01:45:41.780 --> 01:45:44.140 So that's one piece, or articulated 01:45:44.140 --> 01:45:45.770 from the customer perspective. 01:45:45.770 --> 01:45:47.680 Are we trying to find an insurance product 01:45:47.680 --> 01:45:52.680 that protects consumers from extreme financial consequences? 01:45:52.980 --> 01:45:57.200 So I think, you know, all three of those problems, 01:45:57.200 --> 01:45:59.363 actually, if we have direction as to, 01:46:00.250 --> 01:46:01.970 that these are the problems on the table 01:46:01.970 --> 01:46:06.400 that need to be solved, can then be turned into a numerical, 01:46:06.400 --> 01:46:08.700 you know, set of parameters, right? 01:46:08.700 --> 01:46:11.120 Exactly what is the level of reliability 01:46:11.120 --> 01:46:13.390 that we wanna support in the system, 01:46:13.390 --> 01:46:14.760 whether that's a target or a standard 01:46:14.760 --> 01:46:16.170 that needs to be enforced? 01:46:16.170 --> 01:46:18.090 And then on the financial side, you know, 01:46:18.090 --> 01:46:20.541 what is the level of financial consequences that you know, 01:46:20.541 --> 01:46:22.563 consumers can be exposed to? 01:46:23.760 --> 01:46:26.450 And those can, I think, guide a lot of the parameters 01:46:26.450 --> 01:46:30.343 in terms of some of the details of the solutions, as well. 01:46:32.540 --> 01:46:35.100 So back to summarizing some of the solutions 01:46:35.100 --> 01:46:37.520 that are on the table for problem one, 01:46:37.520 --> 01:46:40.360 which again, are very related to problem three, 01:46:40.360 --> 01:46:43.313 because they're the solutions are gonna be very related. 01:46:44.430 --> 01:46:48.500 So there's also, you know, again, coming back 01:46:48.500 --> 01:46:50.500 to some of these solutions, there's a time element to it, 01:46:50.500 --> 01:46:52.950 how quickly can these be accomplished? 01:46:52.950 --> 01:46:56.780 So the first panel today, we heard 01:46:56.780 --> 01:46:58.920 from three different entities, 01:46:58.920 --> 01:47:00.890 most of them had more than one component 01:47:00.890 --> 01:47:03.140 to their solution to have a complete package. 01:47:04.540 --> 01:47:06.360 And you know, some of them had some similarities. 01:47:06.360 --> 01:47:08.160 So I'm gonna talk about them thematically as 01:47:08.160 --> 01:47:09.970 to the differences and those 01:47:09.970 --> 01:47:13.420 that are kind of complementary versus standalone. 01:47:13.420 --> 01:47:15.614 So one portion of the solution, 01:47:15.614 --> 01:47:20.614 potentially the most urgent is addressing fuel security. 01:47:20.820 --> 01:47:22.870 So we're talking about winterization. 01:47:22.870 --> 01:47:26.390 And, you know, if not entirely preventing 01:47:26.390 --> 01:47:28.470 at least mitigating and limiting the extent 01:47:28.470 --> 01:47:31.313 of something like what we saw last winter. 01:47:32.230 --> 01:47:34.890 So we're talking about fuel security. 01:47:34.890 --> 01:47:38.090 Some of the problems that we see are the challenges 01:47:38.090 --> 01:47:39.990 are some of the solutions on the table 01:47:39.990 --> 01:47:42.060 are not really market oriented. 01:47:42.060 --> 01:47:45.130 They are kind of a cost recovery sort of mechanisms. 01:47:45.130 --> 01:47:48.380 If we you know, end up using some of those mechanisms, 01:47:48.380 --> 01:47:50.610 we may end up at a place where we're having 01:47:50.610 --> 01:47:53.140 some component of competition, 01:47:53.140 --> 01:47:55.050 but it's in the end of the day potentially 01:47:55.050 --> 01:47:56.400 not gonna be as resource neutral 01:47:56.400 --> 01:47:58.060 or market oriented as some of the others, 01:47:58.060 --> 01:48:00.743 we may have spillover effects into the rest of the market. 01:48:01.830 --> 01:48:04.180 That being said, it is the most urgent problem. 01:48:06.090 --> 01:48:09.680 The second category as I would characterize it 01:48:09.680 --> 01:48:13.100 is something on the order of a strategic reserve. 01:48:13.100 --> 01:48:15.380 So these are the reserves that can be procured 01:48:15.380 --> 01:48:17.860 and kept available out of the energy nicely. 01:48:17.860 --> 01:48:20.610 service markets are combined those in advance. 01:48:20.610 --> 01:48:23.330 And again, in terms of the timing dimension of this, 01:48:23.330 --> 01:48:24.950 that can be done, I think 01:48:24.950 --> 01:48:27.690 we heard quickly, like within a year. 01:48:27.690 --> 01:48:30.310 So with those, we already have a product similar 01:48:30.310 --> 01:48:32.820 to that ERS with demand response, 01:48:32.820 --> 01:48:35.500 this would be an extension of that sort of a product, 01:48:35.500 --> 01:48:38.040 you'd withhold these resources out of the energy 01:48:38.040 --> 01:48:39.660 and ancillary service markets. 01:48:39.660 --> 01:48:43.070 And that has the spillover effect of boosting energy 01:48:43.070 --> 01:48:44.710 and answer service prices. 01:48:44.710 --> 01:48:48.100 So the incentives we're getting in the market are stronger. 01:48:48.100 --> 01:48:49.340 And presumably, that's gonna add 01:48:49.340 --> 01:48:51.593 to the supply investment incentive. 01:48:52.730 --> 01:48:57.120 So that approach is attractive, 01:48:57.120 --> 01:48:59.940 because it can be in some flavors, 01:48:59.940 --> 01:49:01.970 you know, more resource neutral, 01:49:01.970 --> 01:49:02.980 it is using the market 01:49:02.980 --> 01:49:05.380 to provide most of the investment signals. 01:49:05.380 --> 01:49:07.780 And those signals, again, are gonna be driven 01:49:07.780 --> 01:49:10.560 through energy and ancillary service markets. 01:49:10.560 --> 01:49:12.650 The disadvantages of that being 01:49:12.650 --> 01:49:14.610 some operational inefficiencies, 01:49:14.610 --> 01:49:17.371 because we have resources being held out of energy 01:49:17.371 --> 01:49:18.610 and ancillary service markets. 01:49:18.610 --> 01:49:21.420 So on a day to day basis, they're not providing some of 01:49:21.420 --> 01:49:24.450 that performance support that we wanna see. 01:49:24.450 --> 01:49:27.053 So that's kind of a disadvantage of that approach. 01:49:28.400 --> 01:49:31.560 And then another disadvantage, 01:49:31.560 --> 01:49:35.770 I would say is that we can size the quantity 01:49:35.770 --> 01:49:37.190 that we're procuring in order 01:49:37.190 --> 01:49:40.960 to target a specific reliability level, 01:49:40.960 --> 01:49:43.830 but we don't have the same level of kind of guarantee, 01:49:43.830 --> 01:49:47.450 you know, to achieve that reliability level. 01:49:47.450 --> 01:49:50.203 So a bit of a pros and cons that we see there. 01:49:51.520 --> 01:49:55.050 And then a final or another solution to achieve 01:49:55.050 --> 01:50:00.050 that reliability standard is the LSE reliability obligation. 01:50:00.760 --> 01:50:02.305 One of the options, that's the one 01:50:02.305 --> 01:50:07.010 that is the most likely to, I won't say guarantee, 01:50:07.010 --> 01:50:10.888 but close to guarantee that we hit the reliability standard 01:50:10.888 --> 01:50:12.143 if we adopt one. 01:50:13.260 --> 01:50:16.540 And that can be tailored to the winter needs. 01:50:16.540 --> 01:50:17.410 And so therefore, 01:50:17.410 --> 01:50:19.730 if we have certain fuel security requirements 01:50:19.730 --> 01:50:22.090 or on site fuel requirements that can be built right into 01:50:22.090 --> 01:50:24.320 that reliability obligation. 01:50:24.320 --> 01:50:26.060 And so that makes that an 01:50:26.060 --> 01:50:29.173 in market mechanism for that problem. 01:50:30.900 --> 01:50:33.910 We also talked about some of the disadvantages 01:50:33.910 --> 01:50:36.960 of that approach, it will take longer to implement, 01:50:36.960 --> 01:50:39.880 than some of the others were talking about, 01:50:39.880 --> 01:50:42.470 I think, would be very optimistic to say two years, 01:50:42.470 --> 01:50:44.850 it can take, you know, let's say three years 01:50:44.850 --> 01:50:46.503 to implement something like that. 01:50:47.680 --> 01:50:48.750 That being said, that can be 01:50:48.750 --> 01:50:50.703 a long term sustainable solution. 01:50:52.720 --> 01:50:56.890 The other challenges with that solvable challenges, 01:50:56.890 --> 01:50:59.660 you know, need to adopt and implement 01:50:59.660 --> 01:51:01.420 a robust monitoring and mitigation regime. 01:51:01.420 --> 01:51:04.980 So anybody who has, you know, market power, 01:51:04.980 --> 01:51:05.990 we'd need to make sure that there's 01:51:05.990 --> 01:51:09.540 a monitoring mitigation regime that would address you know, 01:51:09.540 --> 01:51:12.290 prevent the exercise of that market power. 01:51:12.290 --> 01:51:14.120 And then the other piece, again, that needs 01:51:14.120 --> 01:51:17.490 to be fleshed out, that hasn't been as yet is to ensure 01:51:17.490 --> 01:51:21.030 that it's totally consistent with the retail choice market. 01:51:21.030 --> 01:51:25.090 So making sure that all of the positive and you know, 01:51:25.090 --> 01:51:29.380 competitive attributes of the retail market in Texas are, 01:51:29.380 --> 01:51:31.280 you know, continue to be supported, 01:51:31.280 --> 01:51:33.633 enabled under this mechanism. 01:51:34.750 --> 01:51:39.610 So again, you know, a few pros and cons of that option. 01:51:39.610 --> 01:51:44.610 And then the final option, this forward hedge option 01:51:46.560 --> 01:51:51.300 is can, as Dr. Patton said, be 01:51:53.450 --> 01:51:55.970 a solution to either just problem three, 01:51:55.970 --> 01:51:58.480 which is about hedging, you know, protecting, 01:51:58.480 --> 01:52:00.470 you don't either smoothing investment incentives 01:52:00.470 --> 01:52:03.570 for the suppliers, and smoothing, 01:52:03.570 --> 01:52:05.750 you know, impacts for consumers. 01:52:05.750 --> 01:52:10.010 But it can also be combined with physical requirements 01:52:10.010 --> 01:52:12.640 on the generators, saying, you know, you actually 01:52:12.640 --> 01:52:15.340 can't just be a financial entity and sell this hedge, 01:52:15.340 --> 01:52:17.190 you have to be a physical entity, you have 01:52:17.190 --> 01:52:20.260 to meet certain physical performance requirements. 01:52:20.260 --> 01:52:23.960 In that case, it can also be a solution 01:52:23.960 --> 01:52:28.500 that meets, you know, a particular reliability standard. 01:52:28.500 --> 01:52:30.980 So that one, I think, has at least, you know, 01:52:30.980 --> 01:52:32.300 two variations depending on 01:52:32.300 --> 01:52:34.523 which problem you're trying to solve. 01:52:35.840 --> 01:52:40.210 So I think, you know, those being kind 01:52:40.210 --> 01:52:42.370 of the menu of options on the table, 01:52:42.370 --> 01:52:44.010 any one of them probably does need 01:52:44.010 --> 01:52:45.280 to be fleshed out further, 01:52:45.280 --> 01:52:47.710 and there will be many kind of calls along the way, 01:52:47.710 --> 01:52:49.983 but I think, primary pros and cons there. 01:52:52.060 --> 01:52:56.840 So, problem number two, I think, you know, what I heard, 01:52:56.840 --> 01:52:58.820 I believe, kind of from all fronts is 01:52:58.820 --> 01:53:03.070 that there's a common agreement that problem two is one 01:53:03.070 --> 01:53:06.270 that needs to be solved, which is operational flexibility. 01:53:06.270 --> 01:53:08.450 And I also think what's, you know, 01:53:08.450 --> 01:53:10.420 interesting is that we have, you know, 01:53:10.420 --> 01:53:13.050 even if there's not 100% agreement on the exact set 01:53:13.050 --> 01:53:15.610 of solutions, some very common threads. 01:53:15.610 --> 01:53:18.750 And this is a package of reforms, 01:53:18.750 --> 01:53:21.270 some of them that are ongoing, and some of them 01:53:21.270 --> 01:53:23.483 that will take some time to implement. 01:53:24.600 --> 01:53:25.810 So the nearest term things 01:53:25.810 --> 01:53:29.620 that can be implemented are changes to the ORDC. 01:53:29.620 --> 01:53:31.870 Again, those kind of guiding principles, 01:53:31.870 --> 01:53:33.960 in terms of the problem statement may drive us 01:53:33.960 --> 01:53:35.460 in a different place in terms 01:53:35.460 --> 01:53:37.980 of exactly what reforms get implemented on ORDC. 01:53:39.470 --> 01:53:40.560 But at the end of the day, I think 01:53:40.560 --> 01:53:42.580 that can also be done quickly, 01:53:42.580 --> 01:53:45.960 the implementation timeframe is pretty fast. 01:53:45.960 --> 01:53:49.870 The other piece is to the extent that we see operational 01:53:49.870 --> 01:53:51.933 and reliability problems today, 01:53:53.906 --> 01:53:56.430 immediate solutions to that are gonna end up being 01:53:56.430 --> 01:53:59.693 higher quantities of existing ancillary service products. 01:54:01.726 --> 01:54:04.440 Or we're gonna end up with out of market actions 01:54:04.440 --> 01:54:07.420 to address operational reliability problems. 01:54:07.420 --> 01:54:10.753 So, those being the most immediate solutions. 01:54:13.770 --> 01:54:16.500 And then the other kind of very soon 01:54:16.500 --> 01:54:18.540 to be implemented as fast frequency response. 01:54:18.540 --> 01:54:22.590 So kind of an already ongoing not a complete solution, 01:54:22.590 --> 01:54:25.140 but contribution to solving some of these problems. 01:54:26.410 --> 01:54:29.363 Medium term. What was that last one? 01:54:30.600 --> 01:54:31.433 FFR. Okay. 01:54:31.433 --> 01:54:33.763 So like fast frequency response. 01:54:36.030 --> 01:54:39.000 So medium term, some of the solutions 01:54:39.000 --> 01:54:41.490 that are available in the medium term are really those 01:54:41.490 --> 01:54:44.950 that are kind of already in progress, 01:54:44.950 --> 01:54:48.470 talking about ECRs so enhanced ability 01:54:48.470 --> 01:54:51.290 to respond in a 10 minute basis to contingencies 01:54:51.290 --> 01:54:53.770 and ramp system ramping needs. 01:54:53.770 --> 01:54:56.490 And then there are other some other components, 01:54:56.490 --> 01:54:59.670 Commissioner Cobos, you really emphasize the importance 01:54:59.670 --> 01:55:02.830 of timing out when companies, you know, 01:55:02.830 --> 01:55:05.740 different exciting solutions be implemented, 01:55:05.740 --> 01:55:10.653 given the upgrades to the EMS in real time optimization. 01:55:11.670 --> 01:55:16.250 Now, EMS, right now we heard 2024, 01:55:16.250 --> 01:55:17.703 that feels like a long time. 01:55:18.830 --> 01:55:19.770 And then I think even after that, 01:55:19.770 --> 01:55:23.330 we're gonna see Real-Time Co-optimization. 01:55:23.330 --> 01:55:26.280 One of the things that Dr. Patton articulated 01:55:27.180 --> 01:55:30.140 is the importance of that Real-Time Co-optimization, 01:55:30.140 --> 01:55:32.190 despite the fact that it's quite far out there 01:55:32.190 --> 01:55:35.580 is a really essential and important enabling tool set 01:55:36.640 --> 01:55:39.300 for the effectiveness of things like ORDC, 01:55:39.300 --> 01:55:42.110 for the effectiveness of ECRS, and, you know, 01:55:42.110 --> 01:55:45.160 any other balancing products that may be implemented. 01:55:45.160 --> 01:55:47.410 And so the timing is a bit of a challenge. 01:55:47.410 --> 01:55:48.270 But at the end of the day, 01:55:48.270 --> 01:55:50.558 I hope we're going on a pathway where 01:55:50.558 --> 01:55:54.450 that enabling tool to achieve that operational response 01:55:54.450 --> 01:55:57.770 and effectiveness won't be delayed further 01:55:59.310 --> 01:56:02.300 by the, you know, the strain on resources 01:56:02.300 --> 01:56:04.560 that, of course, that we're gonna see. 01:56:04.560 --> 01:56:08.980 And then as we look to 2025, and beyond, or, you know, 01:56:08.980 --> 01:56:11.320 hopefully some of it could be expedited, 01:56:11.320 --> 01:56:14.670 we're gonna need a suite of ancillary service products 01:56:14.670 --> 01:56:18.280 that make sure that we have that operational flexibility 01:56:18.280 --> 01:56:20.720 and performance at all timeframes, you know, 01:56:20.720 --> 01:56:23.810 if cycles, you know, within cycles, within 10 minutes, 01:56:23.810 --> 01:56:25.770 within 30 minutes within two hours, 01:56:25.770 --> 01:56:29.650 because as we see, again, back to the 10 more gigawatts 01:56:29.650 --> 01:56:33.660 of solar or other resources that are gonna introduce, 01:56:33.660 --> 01:56:36.570 you know, that ramping need, we do need to make sure 01:56:36.570 --> 01:56:38.950 that ERCOT has the tools in his toolbox 01:56:38.950 --> 01:56:42.380 to send market based signals for the market to pre position 01:56:42.380 --> 01:56:45.330 and then react to those system needs. 01:56:45.330 --> 01:56:48.480 So once we get out a few more years down the line, 01:56:48.480 --> 01:56:52.170 seeing either increasing needs for more ramping capability, 01:56:52.170 --> 01:56:56.490 so perhaps that's ECRS, maybe it's more volume of VCRs. 01:56:56.490 --> 01:57:01.490 And perhaps it's addition of new products for ramping, 01:57:01.530 --> 01:57:02.830 for example, the two hours 01:57:02.830 --> 01:57:06.160 or some of the dispatchable reserves 01:57:06.160 --> 01:57:07.960 that we heard from TIEC. 01:57:07.960 --> 01:57:09.220 And then finally, you know, 01:57:09.220 --> 01:57:11.620 are we gonna need other products such as inertia. 01:57:11.620 --> 01:57:14.770 And those again, I think, probably do need 01:57:14.770 --> 01:57:17.690 to be on the roadmap of reforms and solutions today, 01:57:17.690 --> 01:57:20.990 because this is a problem that's gonna come very quickly, 01:57:20.990 --> 01:57:23.810 you know, given the timeframe to implementation, 01:57:23.810 --> 01:57:26.810 but at the same time, can't really be expected 01:57:26.810 --> 01:57:29.903 to be in place, you know, next year or even a year after. 01:57:33.170 --> 01:57:34.003 All right. 01:57:34.003 --> 01:57:36.130 Thank you very nicely. 01:57:36.130 --> 01:57:37.930 Summarize, you've been taking notes. 01:57:39.860 --> 01:57:41.310 Well done a quick turnaround. 01:57:45.100 --> 01:57:47.040 Yep, state your name and who you are 01:57:47.040 --> 01:57:47.950 for the record, I'm sorry. 01:57:47.950 --> 01:57:49.923 Kathleen Spees from the Brattle group. 01:57:51.690 --> 01:57:54.640 In the the fifth 10 or 15 minutes, 01:57:54.640 --> 01:57:57.510 we got left, and we made it do a quick break it 01:57:59.710 --> 01:58:04.710 let's say 2:50, and reconvene at three. 01:58:08.620 --> 01:58:10.100 I'll just do a quick response 01:58:10.100 --> 01:58:12.823 to your clarification on problem statement. 01:58:14.490 --> 01:58:16.543 Number one, supply adequacy. 01:58:17.830 --> 01:58:21.543 Yes, of course, I'd break it into three components. 01:58:23.260 --> 01:58:26.283 Reliability when we need it, it's available. 01:58:27.150 --> 01:58:29.253 Two resiliency. 01:58:30.200 --> 01:58:35.200 When unusual conditions arise, extreme weather, et cetera. 01:58:36.190 --> 01:58:37.780 The assets perform. 01:58:37.780 --> 01:58:40.030 And three, quantity, obviously 01:58:40.030 --> 01:58:42.530 is the most important part of the supply. 01:58:42.530 --> 01:58:44.990 In the context of a reserve margin, somebody mentioned 01:58:44.990 --> 01:58:45.860 that we're looking at like 01:58:45.860 --> 01:58:48.563 a 28% reserve margin in a year or two. 01:58:49.670 --> 01:58:51.900 If you discount wind and solar 01:58:51.900 --> 01:58:55.623 to a bad day, that's like six. 01:58:56.660 --> 01:59:01.650 So we need to be realistic about what that quantity 01:59:01.650 --> 01:59:04.363 and the character of that quantity should be. 01:59:05.690 --> 01:59:09.410 Number two, operational ability, flexibility, 01:59:09.410 --> 01:59:13.490 You all said, it's what I've, in my simple parlance, 01:59:13.490 --> 01:59:14.970 called the Blue Sky problem, you can have 01:59:14.970 --> 01:59:17.670 a perfectly lovely day expectations 01:59:18.930 --> 01:59:21.810 of intermittent are off weather wind or solar. 01:59:21.810 --> 01:59:23.240 There's a thunderstorm in West Texas, 01:59:23.240 --> 01:59:24.470 but it's hot and sunny in Dallas 01:59:24.470 --> 01:59:27.370 or the wind drops off whatever blue sky day 01:59:27.370 --> 01:59:31.110 and we are in suddenly very suddenly 01:59:31.110 --> 01:59:34.338 in very scarce conditions. 01:59:34.338 --> 01:59:37.153 That is no way for a civilized country to live. 01:59:38.842 --> 01:59:40.610 So we need to solve that. 01:59:40.610 --> 01:59:43.810 And then finally the, I guess the financial 01:59:43.810 --> 01:59:48.000 or the the hedging challenge. 01:59:48.000 --> 01:59:52.270 I don't think I do think we need reliability 01:59:52.270 --> 01:59:55.020 to be a standard feature of this market. 01:59:55.020 --> 01:59:57.950 As I've said before, that is part 01:59:57.950 --> 02:00:00.120 of its day to day operation, not a bolt on 02:00:00.120 --> 02:00:01.773 or an add on or an afterthought. 02:00:03.130 --> 02:00:06.670 And like the things we heard today around that concept 02:00:06.670 --> 02:00:09.210 or since we are requiring some sort 02:00:09.210 --> 02:00:12.823 of full forward looking hedging. 02:00:15.020 --> 02:00:19.210 I think a byproduct of that would be both providing a bid 02:00:19.210 --> 02:00:23.250 for investors to see what future revenues are out there. 02:00:23.250 --> 02:00:28.010 And also by requiring full hedging, 02:00:28.010 --> 02:00:33.010 minimizing volatility in price risk to consumers. 02:00:33.230 --> 02:00:35.210 So while that's not a problem we're solving 02:00:35.210 --> 02:00:36.830 for I think it's something we should expect 02:00:36.830 --> 02:00:41.830 to see as an outcome of the, if we do our job correctly. 02:00:42.290 --> 02:00:43.123 I'll stop there. 02:00:47.596 --> 02:00:49.005 I just made it. You said a lot. 02:00:49.005 --> 02:00:51.755 (crowd laughing) 02:00:53.230 --> 02:00:55.330 (muffled speaking) I know her hands are tired 02:00:55.330 --> 02:00:57.420 so we can break now if you want. 02:00:59.990 --> 02:01:04.850 All right, we'll take a break now and reconvene at 3pm 02:01:04.850 --> 02:01:07.275 for the final hour of discussion. 02:01:07.275 --> 02:01:08.870 But the only thing I can guarantee is 02:01:08.870 --> 02:01:10.740 I think all four of us will be ready 02:01:10.740 --> 02:01:11.790 to walk out here for. 02:01:12.713 --> 02:01:14.590 (crowd laughing) 02:01:14.590 --> 02:01:15.790 See all of that. 02:01:25.034 --> 02:01:27.951 (crowd chattering) 02:01:32.907 --> 02:01:35.860 All right, folks, it is not quite yet happy hour, 02:01:35.860 --> 02:01:37.213 but I like the spirit. 02:01:40.730 --> 02:01:45.730 All right, we're closing out a very long but productive day 02:01:48.150 --> 02:01:53.150 with open discussion with our Commissioners 02:01:53.330 --> 02:01:56.010 and our participants today, 02:01:56.010 --> 02:01:59.550 the especially on specific plans. 02:01:59.550 --> 02:02:00.870 I know Commissioner McAdams has 02:02:00.870 --> 02:02:03.310 a very particular question to ask first. 02:02:03.310 --> 02:02:04.470 That is on timeline. 02:02:04.470 --> 02:02:05.650 So I'll turn it over to you. 02:02:05.650 --> 02:02:06.483 And we'll go from there. 02:02:06.483 --> 02:02:08.170 Yeah, Dr. Patton. 02:02:08.170 --> 02:02:10.040 I see you moving close to the mic. 02:02:10.040 --> 02:02:10.873 Thank you very much. 02:02:10.873 --> 02:02:13.093 Katie, would you approach your mic so we can. 02:02:15.490 --> 02:02:17.461 (speaking off mic) 02:02:17.461 --> 02:02:18.294 Oh, yeah. 02:02:20.550 --> 02:02:21.690 Yeah, if y'all wanna start doing that, 02:02:21.690 --> 02:02:23.020 I'll go ahead and feel my questions 02:02:23.020 --> 02:02:25.763 so we can get Dr. Patton good to go. 02:02:26.600 --> 02:02:29.120 I wanted to see conceptually since 02:02:29.120 --> 02:02:31.490 we've had 10 whole minutes to reset 02:02:31.490 --> 02:02:34.540 and figure out some very important economics, 02:02:34.540 --> 02:02:36.430 forward shortage energy hedge 02:02:36.430 --> 02:02:39.480 versus backstop reliability service. 02:02:39.480 --> 02:02:40.800 Katie, in your mind, what are 02:02:40.800 --> 02:02:43.720 the significant difference between years are there? 02:02:43.720 --> 02:02:45.600 Or is it just a question of mechanics. 02:02:45.600 --> 02:02:48.960 So having seen this proposal from Potomac 02:02:48.960 --> 02:02:50.860 for the first time a few minutes ago, 02:02:50.860 --> 02:02:53.080 I probably need a little more detail myself. 02:02:53.080 --> 02:02:57.860 But what I can appreciate at this point is our proposal was 02:02:57.860 --> 02:03:01.160 that we would have some level of dispatchable resources 02:03:01.160 --> 02:03:04.040 that we're procuring every day for operating reserves, 02:03:04.040 --> 02:03:05.940 and I think we've got some flexibility, 02:03:05.940 --> 02:03:09.240 they had proposed like a two or four hour product, 02:03:09.240 --> 02:03:10.920 I think that could I think we're open 02:03:10.920 --> 02:03:12.180 to that as an alternative. 02:03:12.180 --> 02:03:13.690 But we were proposing to allocate 02:03:13.690 --> 02:03:16.670 that on a capacity short basis. 02:03:16.670 --> 02:03:19.610 As I understand Dr. Patton's proposal it 02:03:19.610 --> 02:03:24.290 is a broader attempt to allocate more energy 02:03:24.290 --> 02:03:28.790 and ancillary services at large in perhaps a similar manner. 02:03:28.790 --> 02:03:32.910 The thing that I think is similar about both 02:03:32.910 --> 02:03:35.220 that we like, is that it is more 02:03:35.220 --> 02:03:37.820 of a real time dynamic allocation instead 02:03:37.820 --> 02:03:41.143 of some fixed administrative four word allocation. 02:03:42.650 --> 02:03:44.560 Anything further down on that (indistinct)? 02:03:44.560 --> 02:03:48.370 Yeah, in simple terms, and I went back and read, 02:03:48.370 --> 02:03:51.610 and I'm still a little foggy on exactly the nature 02:03:51.610 --> 02:03:56.610 of the product, but I think, and please correct me, 02:03:57.780 --> 02:04:02.230 our forward hedge covers all generation and all load. 02:04:02.230 --> 02:04:06.033 So you're buying 70, some 1000 megawatts of it. 02:04:07.860 --> 02:04:11.130 And, and almost all the generators are selling it. 02:04:11.130 --> 02:04:13.361 I mean, they might put a risk premium. 02:04:13.361 --> 02:04:15.580 And they may not all clear if you don't need 02:04:15.580 --> 02:04:17.673 as much hedges as there is generation. 02:04:19.160 --> 02:04:22.063 But it's covering the entire market, essentially. 02:04:23.020 --> 02:04:26.080 And I believe your product is more like a reserve product. 02:04:26.080 --> 02:04:29.263 So it might be 4000 megawatts or something. 02:04:31.050 --> 02:04:31.883 I think you've covered this, 02:04:31.883 --> 02:04:32.930 and I might have missed it in terms 02:04:32.930 --> 02:04:34.500 of implementation timeline, 02:04:34.500 --> 02:04:36.080 given what you know about the ERCOT market. 02:04:36.080 --> 02:04:39.410 I mean, this is a system change, it would require. 02:04:39.410 --> 02:04:41.353 The hedge? Yeah, yeah. 02:04:43.100 --> 02:04:44.170 I mean, I think they could have 02:04:44.170 --> 02:04:46.561 it implemented in just a few months. 02:04:46.561 --> 02:04:47.394 (crowd laughing) 02:04:47.394 --> 02:04:49.840 I'm just kidding. Well, that's great. 02:04:49.840 --> 02:04:51.593 Okay, no, I'm kidding. 02:04:53.684 --> 02:04:56.201 The, the settlement piece of it 02:04:56.201 --> 02:05:00.450 is there would be settlement system issues 02:05:00.450 --> 02:05:01.853 that would take some time. 02:05:02.790 --> 02:05:04.790 In concept, it's not complicated, 02:05:04.790 --> 02:05:09.663 because you already know who you're paying the ORDC to. 02:05:09.663 --> 02:05:12.470 And so this would run in advance, 02:05:12.470 --> 02:05:13.680 it'd be a very simple auction, 02:05:13.680 --> 02:05:16.240 and it would establish obligations. 02:05:16.240 --> 02:05:18.730 So, in concept, it's not complicated. 02:05:18.730 --> 02:05:20.440 Probably the most complicated part of it 02:05:20.440 --> 02:05:22.710 is doing the accreditation, like 02:05:22.710 --> 02:05:24.850 how much of the hedge should each generator 02:05:24.850 --> 02:05:26.253 have the ability to sell? 02:05:27.730 --> 02:05:30.210 Which, you know, it takes some time, 02:05:30.210 --> 02:05:32.520 and in any time, there'd be a lot 02:05:32.520 --> 02:05:33.700 of money associated with this hedge. 02:05:33.700 --> 02:05:35.760 So anytime you have that much economic value 02:05:35.760 --> 02:05:40.760 that developing the rules is you have to be super careful. 02:05:41.430 --> 02:05:46.220 Take time, so my guess is a year or two. 02:05:46.220 --> 02:05:50.667 So in terms of comparison to the E3 proposal, 02:05:51.570 --> 02:05:54.290 it again, the devils in the details on the accreditation, 02:05:54.290 --> 02:05:56.110 so to speak, I mean, were you're trying 02:05:56.110 --> 02:05:58.780 to establish a standard on that nameplate 02:05:58.780 --> 02:06:01.920 or average unless you have to hedge to? 02:06:01.920 --> 02:06:06.920 Yeah, I think, and I said this to someone at the break, 02:06:08.400 --> 02:06:11.830 I think the accreditation, there's less at stake. 02:06:11.830 --> 02:06:15.330 Like if you're a little more optimistic, 02:06:15.330 --> 02:06:17.370 like your credit somebody a little bit higher 02:06:17.370 --> 02:06:18.590 than what they can perform, 02:06:18.590 --> 02:06:20.800 they're gonna end up buying back, 02:06:20.800 --> 02:06:23.140 they're gonna end up owing you the ORDC. 02:06:23.140 --> 02:06:25.580 So the cost of being a little bit wrong 02:06:25.580 --> 02:06:28.560 is not really high in a capacity 02:06:28.560 --> 02:06:31.183 market proposal, like the E3 proposal. 02:06:33.673 --> 02:06:35.660 You're giving them money 02:06:35.660 --> 02:06:38.920 that you're not gonna take back if they don't perform. 02:06:38.920 --> 02:06:41.310 I mean, there may be some penalty regime, 02:06:41.310 --> 02:06:46.310 but unless, unless the penalty regime is the forward hedge, 02:06:47.630 --> 02:06:50.540 you know, you have to be super careful 02:06:50.540 --> 02:06:52.650 about how well you accredit the resource 02:06:52.650 --> 02:06:55.180 to make sure you're not paying somebody 02:06:55.180 --> 02:06:57.240 for something where they're providing 02:06:57.240 --> 02:07:00.700 you much less reliability than what you paid them for. 02:07:00.700 --> 02:07:04.083 And that's particularly the case for intermittent resources. 02:07:06.578 --> 02:07:08.273 Okay, does anybody have anything on that 02:07:08.273 --> 02:07:10.643 because to ask about ORDC to? 02:07:12.120 --> 02:07:13.360 If I could just clarify your guests 02:07:13.360 --> 02:07:15.230 a little bit on our E3 proposals 02:07:15.230 --> 02:07:19.770 that there is a penalty provision in our proposal, 02:07:19.770 --> 02:07:22.240 where in fact, they would have to give back whatever revenue 02:07:22.240 --> 02:07:23.510 they might have earned through the sale 02:07:23.510 --> 02:07:24.970 of the reliability obligations, 02:07:24.970 --> 02:07:27.600 add a time plus a penalty on top of that, 02:07:27.600 --> 02:07:30.077 plus not being able to sell into the energy market 02:07:30.077 --> 02:07:33.990 and all the natural penalties that they would otherwise see. 02:07:33.990 --> 02:07:35.110 So there is a penalty provision 02:07:35.110 --> 02:07:37.785 that we think would help ensure performance. 02:07:37.785 --> 02:07:40.010 And that's an important part of it. 02:07:40.010 --> 02:07:42.190 Can I say one thing about that penalty, 02:07:42.190 --> 02:07:43.340 and why it's different? 02:07:44.850 --> 02:07:46.950 So if you remember my bar chart where 02:07:46.950 --> 02:07:50.430 the hedge is like a very measured value, 02:07:50.430 --> 02:07:51.713 or it's gonna fluctuate, 02:07:52.752 --> 02:07:56.680 but the ORDC adder is gonna end up being low 02:07:56.680 --> 02:08:00.340 and then be huge when you have shortages. 02:08:00.340 --> 02:08:03.150 Just having them give back what you paid them 02:08:03.150 --> 02:08:04.610 is not nearly enough, 02:08:04.610 --> 02:08:08.490 because the cost of the system during 02:08:08.490 --> 02:08:10.440 the very infrequent event where they happen 02:08:10.440 --> 02:08:14.290 to not be there could be 40 times higher 02:08:14.290 --> 02:08:16.120 than just taking back, you know, 02:08:16.120 --> 02:08:18.803 the expected value payment that you paid them. 02:08:19.860 --> 02:08:21.730 Along those lines on this topic. 02:08:21.730 --> 02:08:26.730 Katie, your final slide says the allocation method 02:08:27.250 --> 02:08:32.250 of the costs to short entities would be 02:08:32.530 --> 02:08:37.530 if applied more broadly, would increase 02:08:38.260 --> 02:08:42.780 long term hedging incentives, which seems 02:08:42.780 --> 02:08:46.770 to indicate that incentivizing 02:08:46.770 --> 02:08:48.970 that would y'all would be supportive 02:08:48.970 --> 02:08:51.010 of even any stronger incentives 02:08:51.010 --> 02:08:54.740 almost requiring long term hedging, physical hedging sorry. 02:08:54.740 --> 02:08:56.990 I think incentivizing hedging 02:08:56.990 --> 02:08:58.770 is a critical part of the market. 02:08:58.770 --> 02:09:00.990 I mean, that's the whole $9,000 price, 02:09:00.990 --> 02:09:05.030 in the first instance, was not about setting prices at 9000. 02:09:05.030 --> 02:09:06.810 It was about scaring the you know, 02:09:06.810 --> 02:09:08.800 what out of everybody so that they hedged. 02:09:08.800 --> 02:09:11.880 And so, you know, different ways to do that. 02:09:11.880 --> 02:09:14.020 You know, I think this is a really interesting idea. 02:09:14.020 --> 02:09:16.540 I think the our capacity, short allocation 02:09:16.540 --> 02:09:18.943 for the services meant to get at the same thing. 02:09:19.910 --> 02:09:23.420 Where we start getting uncomfortable is something 02:09:23.420 --> 02:09:26.580 that's sort of like an administratively determined mandate 02:09:26.580 --> 02:09:29.630 with a long lead time but encouraging hedging on 02:09:29.630 --> 02:09:32.100 a dynamic real time or day ahead basis. 02:09:32.100 --> 02:09:33.923 Yes, we very much support. 02:09:34.863 --> 02:09:38.240 Is the long term nature of some of these proposals, 02:09:38.240 --> 02:09:40.340 or the administrative oversight 02:09:40.340 --> 02:09:41.760 of the proposals that are worried them? 02:09:41.760 --> 02:09:43.820 My experience is those go hand in hand 02:09:43.820 --> 02:09:46.710 because the longer term you're trying to set something, 02:09:46.710 --> 02:09:48.620 you're kind of having to make it up out of thin air 02:09:48.620 --> 02:09:50.390 and set parameters and things like that. 02:09:50.390 --> 02:09:54.400 Whereas what Dr. Patton just said as a great example, 02:09:54.400 --> 02:09:57.150 you can figure out like the value 02:09:57.150 --> 02:09:59.620 of not being hedged based on something 02:09:59.620 --> 02:10:01.300 that we already have, the ORDC. 02:10:01.300 --> 02:10:03.230 And that's gonna change in real time. 02:10:03.230 --> 02:10:06.000 So features like that, that have a dynamic value 02:10:06.000 --> 02:10:08.320 that still incentivize demand response 02:10:08.320 --> 02:10:11.700 or generator performance based on the actual conditions, 02:10:11.700 --> 02:10:14.280 not hypothetical conditions that are, you know, 02:10:14.280 --> 02:10:18.660 laid out in advance, that's a better program, in our view. 02:10:18.660 --> 02:10:20.370 On the penalty side, 02:10:20.370 --> 02:10:23.407 or the original bid side (muffled speaking)? 02:10:24.590 --> 02:10:26.883 So if you think about like our proposal, 02:10:28.063 --> 02:10:31.190 and where we're proposing, like additional reserves 02:10:31.190 --> 02:10:34.200 to cover off this operational uncertainty, 02:10:34.200 --> 02:10:36.510 the value of that is gonna increase 02:10:36.510 --> 02:10:38.850 on days where there's more of that. 02:10:38.850 --> 02:10:42.380 And so if you allocated that on a short basis, 02:10:42.380 --> 02:10:45.080 people who were short on those days would pay 02:10:45.080 --> 02:10:47.040 for the service when it's a higher price. 02:10:47.040 --> 02:10:49.470 On other days, when there's not as big of a risk, 02:10:49.470 --> 02:10:51.920 that service might be close to zero. 02:10:51.920 --> 02:10:53.460 And that's what you want. 02:10:53.460 --> 02:10:54.760 And that's a lot better, 02:10:54.760 --> 02:10:57.010 you know, there's gradations of this. 02:10:57.010 --> 02:10:59.340 And, you know, there's gonna be some 02:10:59.340 --> 02:11:00.970 forward aspect to all of it. 02:11:00.970 --> 02:11:03.370 But the more it's got that sort 02:11:03.370 --> 02:11:06.370 of dynamic tracking what's actually happening, 02:11:06.370 --> 02:11:09.610 the easier it is for us to manage as loads and respond to 02:11:09.610 --> 02:11:12.630 and give you guys extra megawatts manage our costs, 02:11:12.630 --> 02:11:14.350 and the more you're gonna get generator 02:11:14.350 --> 02:11:16.420 incentives to perform so. 02:11:16.420 --> 02:11:19.640 Okay, I need to kind of straighten this out in my head 02:11:19.640 --> 02:11:22.783 because your proposal, Dr. Patton. 02:11:23.950 --> 02:11:26.200 Sounds very similar to the LSE obligation, 02:11:26.200 --> 02:11:29.120 except there's, you know, some key differences 02:11:29.120 --> 02:11:30.020 that you've noted. 02:11:31.640 --> 02:11:32.760 One piece that I just heard 02:11:32.760 --> 02:11:36.670 from you was that it'll take maybe two years to implement. 02:11:36.670 --> 02:11:41.230 And I'm just trying to capture, you know, 02:11:41.230 --> 02:11:42.570 are we actually gonna drive 02:11:42.570 --> 02:11:44.140 dispatchable generation investment 02:11:44.140 --> 02:11:46.570 with a forward hedging proposal? 02:11:46.570 --> 02:11:51.290 Are we just gonna get optimal performance potentially? 02:11:51.290 --> 02:11:53.780 Yes, to be absolutely clear 02:11:55.090 --> 02:12:00.090 that the value in the hedging product is derived from energy 02:12:01.330 --> 02:12:03.070 and ancillary service pricing, 02:12:03.070 --> 02:12:04.290 and the improvement in the energy 02:12:04.290 --> 02:12:05.640 and ancillary service pricing could 02:12:05.640 --> 02:12:08.020 be done within a month or two. 02:12:08.020 --> 02:12:10.120 And so that's where the economic value is. 02:12:11.410 --> 02:12:13.340 The hedge smooths it out. 02:12:13.340 --> 02:12:16.670 So that's probably valuable for investors. 02:12:16.670 --> 02:12:19.150 But the by far the most important component 02:12:19.150 --> 02:12:22.300 of these proposals is the improvement in the energy 02:12:22.300 --> 02:12:24.193 and answer service pricing. 02:12:26.966 --> 02:12:29.890 And so one of the key differences, that mean, 02:12:29.890 --> 02:12:31.690 you asked about the timing, 02:12:31.690 --> 02:12:34.843 I would absolutely not procure those three years ahead. 02:12:35.750 --> 02:12:39.250 I would procure it in advance of the season, perhaps. 02:12:39.250 --> 02:12:42.640 So you're procuring the hedges for each season. 02:12:42.640 --> 02:12:44.990 And the reason I went into it three years ahead 02:12:46.088 --> 02:12:48.653 is there's no reason to buy it three years ahead. 02:12:51.440 --> 02:12:54.130 We monitor and evaluate forward capacity markets. 02:12:54.130 --> 02:12:58.723 And if you think how investors are looking at investments, 02:13:01.010 --> 02:13:03.100 they're not gonna make an investment decision 02:13:03.100 --> 02:13:06.590 three years out based on a one year hedge, right? 02:13:06.590 --> 02:13:08.650 They're building a 30 year power plant, 02:13:08.650 --> 02:13:10.550 what they are gonna do is they're gonna forecast 02:13:10.550 --> 02:13:13.640 what the value of this hedge is gonna be over 30 years. 02:13:13.640 --> 02:13:18.640 And they don't get better information by you're procuring 02:13:19.880 --> 02:13:21.390 that a hedge three years out 02:13:21.390 --> 02:13:23.520 versus in advance of the season. 02:13:23.520 --> 02:13:25.250 In fact, they get better information 02:13:25.250 --> 02:13:29.780 if you do it seasonally, because the quantity, the supply 02:13:29.780 --> 02:13:31.290 and demand and the price of it 02:13:31.290 --> 02:13:32.640 it's gonna be far more accurate 02:13:32.640 --> 02:13:35.630 if you're not forecasting three years in the future. 02:13:35.630 --> 02:13:37.670 There's a lot of big investments made 02:13:37.670 --> 02:13:42.170 on three year five years, say oil, gas, future strips, 02:13:42.170 --> 02:13:45.290 Well, and but think of this hedge, 02:13:45.290 --> 02:13:46.940 this will be priced seasonally, 02:13:46.940 --> 02:13:48.963 and the price will change every season. 02:13:50.730 --> 02:13:53.790 Now you can forward contract around 02:13:53.790 --> 02:13:56.780 that product and energy and ancillary services. 02:13:56.780 --> 02:14:00.180 So the fact that ERCOTs not buying the hedge, 02:14:00.180 --> 02:14:02.410 you know, three years out doesn't mean that investors 02:14:02.410 --> 02:14:07.173 can't engage in contracting that would lock in 02:14:07.173 --> 02:14:09.490 the value of the hedge for three to five years. 02:14:09.490 --> 02:14:11.520 I don't know any oil or gas investors 02:14:11.520 --> 02:14:13.950 who would rather just have a one year future strip rather 02:14:13.950 --> 02:14:18.310 than a five year future strip, even though none of them. 02:14:18.310 --> 02:14:20.790 I mean, that's the pricing mechanism 02:14:20.790 --> 02:14:22.320 in the pro forma, right? 02:14:22.320 --> 02:14:26.750 So is there I guess that leads to the question, 02:14:26.750 --> 02:14:31.750 is there a way to provide price visibility 02:14:33.950 --> 02:14:37.503 because investors they can't see a central point 02:14:41.770 --> 02:14:44.960 of transaction or price formation, 02:14:44.960 --> 02:14:48.170 like WTI if the entire forward market 02:14:48.170 --> 02:14:50.950 is bilateral off the automatic run. 02:14:50.950 --> 02:14:54.600 So is there a way to require or incentivize 02:14:54.600 --> 02:14:58.493 or those transactions to happen, 02:14:59.330 --> 02:15:01.760 I want more forward basis to provide 02:15:01.760 --> 02:15:04.880 price formation information 02:15:04.880 --> 02:15:08.010 and transactions without incurring 02:15:08.010 --> 02:15:12.183 the administrative troubles the non market, 02:15:16.430 --> 02:15:19.810 centralized clearing mechanism. 02:15:19.810 --> 02:15:22.950 So to try to capture, I guess, selfishly 02:15:22.950 --> 02:15:24.720 the best of both worlds? 02:15:24.720 --> 02:15:25.960 Absolutely. 02:15:25.960 --> 02:15:27.950 So if you think of what's happening 02:15:27.950 --> 02:15:31.930 in most forward markets is buyers 02:15:31.930 --> 02:15:36.803 and sellers are voluntarily engaging in forward transactions 02:15:36.803 --> 02:15:39.030 because the buyer presumably is getting 02:15:39.030 --> 02:15:42.631 some hedge value the seller is locking in revenues 02:15:42.631 --> 02:15:44.313 and it's entirely voluntary. 02:15:47.060 --> 02:15:49.100 The one thing that changes in electricity markets 02:15:49.100 --> 02:15:50.860 when you talk about Ford procurement 02:15:50.860 --> 02:15:52.960 is you're forcing the demand 02:15:52.960 --> 02:15:56.380 to buy three years ahead of time, which isn't. 02:15:56.380 --> 02:15:58.250 So you're creating a forward procurement 02:15:58.250 --> 02:16:00.450 that doesn't look anything like for procurements 02:16:00.450 --> 02:16:02.963 and gas or oil or anything else. 02:16:03.880 --> 02:16:08.100 But what you could do, let's say it's mandatory 02:16:08.100 --> 02:16:10.363 for the load to buy these hedges seasonally. 02:16:12.320 --> 02:16:17.320 What you could do is transact voluntary hedge auctions 02:16:19.360 --> 02:16:22.680 that ERCOT could administer a year out, two years out, 02:16:22.680 --> 02:16:26.010 three years out, and you would get 02:16:26.010 --> 02:16:29.670 some portion of the hedges clearing. 02:16:29.670 --> 02:16:31.747 I mean, there's no reason as an LSE, 02:16:33.380 --> 02:16:35.170 you wouldn't be willing to buy ahead 02:16:35.170 --> 02:16:37.830 if you thought the price was attractive, 02:16:37.830 --> 02:16:40.300 and the suppliers could sell ahead. 02:16:40.300 --> 02:16:43.560 But they would all be bidding and asking prices 02:16:43.560 --> 02:16:46.070 that reflect what they imagine they're gonna have 02:16:46.070 --> 02:16:47.540 to pay if they wait until the very 02:16:47.540 --> 02:16:49.380 last auction where it's mandatory. 02:16:49.380 --> 02:16:50.213 Sure. 02:16:50.213 --> 02:16:54.270 So a quick clarifying question, 02:16:54.270 --> 02:16:57.343 I think there's no requirement for oil and gas. 02:16:58.830 --> 02:17:01.597 Central hedgers, like WTI and CME, 02:17:01.597 --> 02:17:03.840 there is no requirement to utilize those futures. 02:17:03.840 --> 02:17:06.380 Those are hedging mechanisms, 02:17:06.380 --> 02:17:10.030 not the physical, like spot contract. 02:17:10.030 --> 02:17:11.080 Correct. There's no requirement, 02:17:11.080 --> 02:17:16.080 but they also don't have a guarantee of being supplied, 02:17:17.270 --> 02:17:20.497 the good they're looking for, like LSE are, right? 02:17:20.497 --> 02:17:22.280 And LSEs just sits back and say, 02:17:22.280 --> 02:17:23.580 hey, I've got this load that's up 02:17:23.580 --> 02:17:25.850 to the control room to serve that load. 02:17:25.850 --> 02:17:26.683 Yeah. That didn't happen 02:17:26.683 --> 02:17:28.997 in a refinery, right? Yeah. 02:17:28.997 --> 02:17:31.210 And that's why the LSE procurement has 02:17:31.210 --> 02:17:33.720 to be mandatory at some point. 02:17:33.720 --> 02:17:36.220 I'm just arguing that it should be mandatory 02:17:36.220 --> 02:17:38.060 in advance of the season. 02:17:38.060 --> 02:17:39.940 Physical procurement at some point. 02:17:39.940 --> 02:17:42.160 Yeah, the hedge. Okay, I got you. 02:17:42.160 --> 02:17:44.593 I mean, they're gonna have to be forced to buy it. 02:17:46.430 --> 02:17:48.380 Whether you force them to buy it three years ahead 02:17:48.380 --> 02:17:51.710 versus in advance of the winter season in the summer season. 02:17:51.710 --> 02:17:53.607 And can I add something to this just from, 02:17:53.607 --> 02:17:55.963 you know, when we're talking about investing, 02:17:56.980 --> 02:17:58.453 bringing the Stephenson LCRA. 02:17:59.970 --> 02:18:01.310 You know, we talk about 02:18:01.310 --> 02:18:03.050 the forward market, like it's liquid. 02:18:03.050 --> 02:18:05.820 And it's not. It's bilateral or ice? 02:18:05.820 --> 02:18:07.700 Bilateral and ice, both of them 02:18:07.700 --> 02:18:09.830 are very illiquid right now. 02:18:09.830 --> 02:18:11.090 Okay, obviously, there's a lot 02:18:11.090 --> 02:18:14.270 of regulatory uncertainty that is creating that. 02:18:14.270 --> 02:18:17.490 But I mean, we've had these conversations over the last 10 02:18:17.490 --> 02:18:19.540 to 15 years, these are the same market signals 02:18:19.540 --> 02:18:22.210 we've talked about, these are the same, 02:18:22.210 --> 02:18:24.350 you know, the load obligation is a little different. 02:18:24.350 --> 02:18:27.360 But I will say that any sophisticated party 02:18:27.360 --> 02:18:30.030 should have already done a load obligation deal 02:18:30.030 --> 02:18:33.250 to hedge their risk looking out two to three years. 02:18:33.250 --> 02:18:35.480 And one counterparty didn't do that, 02:18:35.480 --> 02:18:36.930 and got in really big trouble, 02:18:36.930 --> 02:18:39.310 like we all know, over the winter store, okay? 02:18:39.310 --> 02:18:43.080 And so these theories are very meaningful 02:18:43.080 --> 02:18:45.120 when you think there's a liquid market 02:18:45.120 --> 02:18:47.290 with people wanting to transact. 02:18:47.290 --> 02:18:50.570 But when there is not, this is extremely difficult 02:18:50.570 --> 02:18:55.200 for any generation or load side entity to do and perform. 02:18:55.200 --> 02:18:58.450 And so, you know, as we talk about certainty 02:18:58.450 --> 02:19:02.970 and out of market actions, and what is really a good signal 02:19:02.970 --> 02:19:05.223 for new generation to be built. 02:19:06.940 --> 02:19:10.270 Obviously, anything that provides certainty, 02:19:10.270 --> 02:19:14.060 strong signals, easy to understand, just be very, 02:19:14.060 --> 02:19:17.010 these are some very complicated proposals. 02:19:17.010 --> 02:19:20.410 And a lot of the hedge funds and investment banks are very, 02:19:20.410 --> 02:19:23.060 very smart people that work on these all the time, 02:19:23.060 --> 02:19:24.530 but they're not in the details 02:19:24.530 --> 02:19:27.010 of my load forecast looks like this. 02:19:27.010 --> 02:19:30.587 Therefore, my load obligation is based off this and that. 02:19:30.587 --> 02:19:34.400 And so if we're trying to send signals for folks to invest, 02:19:34.400 --> 02:19:38.080 I think the way to make sure it is meaningful 02:19:38.080 --> 02:19:40.830 and impactful is the rules to be clear. 02:19:40.830 --> 02:19:42.930 The rules to be certain and the rules 02:19:42.930 --> 02:19:46.410 to have some type of reliability mandate 02:19:46.410 --> 02:19:48.140 to get generation on. 02:19:48.140 --> 02:19:50.990 Nobody's gonna fault you for making fun of hedge funds. 02:19:52.107 --> 02:19:56.660 But continue that thought, both bilateral markets 02:19:56.660 --> 02:20:01.030 and centralized hedging markets 02:20:01.030 --> 02:20:03.998 and ice don't have liquidity. 02:20:03.998 --> 02:20:05.670 They do not. Even the sun last year, 02:20:05.670 --> 02:20:09.400 they didn't have adequate liquidity begs the question, 02:20:09.400 --> 02:20:12.950 how do we provide liquidity for (indistinct)? 02:20:12.950 --> 02:20:14.840 And I think regulatory certainty I mean, 02:20:14.840 --> 02:20:18.860 I'll be very honest, having the rules very clear, 02:20:18.860 --> 02:20:22.300 and very understandable with all the different 02:20:22.300 --> 02:20:24.380 financial players is important, 02:20:24.380 --> 02:20:26.780 Of course, always, but I mean, we've changed ORDC, 02:20:26.780 --> 02:20:29.010 in the past, we had regulatory certainty, 02:20:29.010 --> 02:20:32.560 I would guess, last this time, you know, October last year. 02:20:32.560 --> 02:20:34.270 Well, I would argue that ORDC 02:20:34.270 --> 02:20:36.160 does not provide regulatory certainty. 02:20:36.160 --> 02:20:39.280 ORDC duty is pricing during scarce periods 02:20:39.280 --> 02:20:41.680 of time in which you cannot predict. 02:20:41.680 --> 02:20:43.500 Right, but I mean, we heard a lot about ORDC 02:20:43.500 --> 02:20:45.360 today solving all sorts of problems. 02:20:45.360 --> 02:20:48.850 I disagree with it. But I mean, in regulatory, 02:20:48.850 --> 02:20:50.660 we've had in the past 10 years, 02:20:50.660 --> 02:20:52.360 right periods of regulatory certainty. 02:20:52.360 --> 02:20:54.000 I'm new here, but I certainly hope 02:20:54.000 --> 02:20:56.940 there's been more regulatory certainty than we have today. 02:20:56.940 --> 02:20:58.550 Yes. Okay. 02:20:58.550 --> 02:21:01.600 So is there an open question, 02:21:01.600 --> 02:21:02.780 how do we provide more liquidity? 02:21:02.780 --> 02:21:04.080 We're not gonna solve that right now. 02:21:04.080 --> 02:21:06.500 But I'll leave that up. 02:21:06.500 --> 02:21:08.410 Yeah, I mean, I do think it's just clear rules, 02:21:08.410 --> 02:21:11.860 I mean, a bilateral market that function Wales 02:21:11.860 --> 02:21:15.070 has financial and physical players 02:21:15.070 --> 02:21:18.830 that are willing buyers and willing sellers, right? 02:21:18.830 --> 02:21:23.270 And so to make sure everything is as predictable 02:21:23.270 --> 02:21:27.050 and understandable as can be, I think helps. 02:21:27.050 --> 02:21:30.567 It doesn't per se me in a capacity market. 02:21:30.567 --> 02:21:32.767 And I don't think capacity market does that. 02:21:33.610 --> 02:21:37.520 But I do think understanding and implementing rules 02:21:37.520 --> 02:21:42.520 that are, you know, easy for folks to understand. 02:21:42.980 --> 02:21:46.050 I keep saying this, because we over complicate 02:21:46.050 --> 02:21:49.250 things in ERCOT so, so much sometimes 02:21:49.250 --> 02:21:53.410 that it makes investment in this market very difficult, 02:21:53.410 --> 02:21:58.230 and makes it a difficult market to transact in 02:21:58.230 --> 02:22:00.690 and find folks other than literally five 02:22:00.690 --> 02:22:04.480 or six counterparties bilaterally, that transact right now. 02:22:04.480 --> 02:22:06.170 To me, that's not really a true market 02:22:06.170 --> 02:22:09.010 where you can hedge yourselves get the benefits 02:22:09.010 --> 02:22:11.533 of building new generation assets. 02:22:13.600 --> 02:22:14.530 Thank you for your comments. 02:22:14.530 --> 02:22:17.150 I mean, I'm kind of sitting here trying to understand 02:22:17.150 --> 02:22:21.470 that proposal myself, in terms of, you know, 02:22:21.470 --> 02:22:22.950 setting aside economic theory 02:22:22.950 --> 02:22:24.980 and thank you for highlighting 02:22:24.980 --> 02:22:26.420 the elliquidity of the forward markets. 02:22:26.420 --> 02:22:28.090 And we've got to look at all these proposals 02:22:28.090 --> 02:22:31.050 and from a robust, holistic perspective in, 02:22:31.050 --> 02:22:33.200 I'm just trying to, in my mind trying to figure out, 02:22:33.200 --> 02:22:34.810 I know that your proposal is sort 02:22:34.810 --> 02:22:39.810 of maybe geared towards addressing the LSE obligation, 02:22:40.830 --> 02:22:43.040 maybe with less negative impacts, 02:22:43.040 --> 02:22:46.730 but I'm still wondering how this helps 02:22:46.730 --> 02:22:50.243 us solve anything going forward. 02:22:51.590 --> 02:22:53.390 I just don't have that transparency. 02:22:57.310 --> 02:23:00.057 Okay. (crowd laughing) 02:23:00.057 --> 02:23:02.050 It's gonna be hard for me to answer that question quickly. 02:23:02.050 --> 02:23:03.650 And I do have to excuse myself 02:23:05.948 --> 02:23:09.470 but what I will say is that the combination 02:23:11.250 --> 02:23:13.980 of the ORDC reform, which is necessary, 02:23:13.980 --> 02:23:16.823 no matter what else you do, in my mind, 02:23:18.740 --> 02:23:21.310 together with the hedge will provide 02:23:21.310 --> 02:23:24.720 an extremely strong incentive to be available 02:23:24.720 --> 02:23:29.720 and to be flexible, which incense everything 02:23:29.810 --> 02:23:32.550 we say we want firming field, 02:23:32.550 --> 02:23:36.710 batteries behind wind resources, you know, 02:23:36.710 --> 02:23:41.710 dual fuel at gas only units, winterizing units, 02:23:42.120 --> 02:23:44.040 all of those things are incented 02:23:46.000 --> 02:23:51.000 by compelling participants to settle with ERCOT, 02:23:51.640 --> 02:23:55.490 based on the value of energy and ancillary services 02:23:55.490 --> 02:23:57.853 when the conditions are tight, and the need to do that 02:23:57.853 --> 02:24:01.120 it's gonna get higher and higher and higher, 02:24:01.120 --> 02:24:04.040 because we're gonna see more and more 02:24:04.040 --> 02:24:07.340 frequent conditions where fluctuations in 02:24:07.340 --> 02:24:10.390 or intermittent resources as their penetration increases, 02:24:10.390 --> 02:24:14.720 will create ramps shortages and forecast errors 02:24:14.720 --> 02:24:16.010 that cause us to be short when 02:24:16.010 --> 02:24:18.280 we didn't think we were gonna be short. 02:24:18.280 --> 02:24:22.180 Now as we were saying that the ORDC reforms 02:24:22.180 --> 02:24:24.470 aren't relying on periods where we're 02:24:24.470 --> 02:24:26.420 on the verge of turning the lights out, 02:24:28.400 --> 02:24:30.330 but it will greatly increase the revenue 02:24:30.330 --> 02:24:33.210 in periods where ERCOT can't hold the quantity 02:24:33.210 --> 02:24:35.080 of reserves they would like to hold. 02:24:35.080 --> 02:24:38.095 So the probability of losing load instead 02:24:38.095 --> 02:24:42.820 of being you know, one half of 1% is 3%. 02:24:43.690 --> 02:24:45.760 Now, that sounds like a small deal, 02:24:45.760 --> 02:24:48.090 but if you multiply that increased percentage times 02:24:48.090 --> 02:24:51.800 that $25,000 value of lost load, 02:24:51.800 --> 02:24:54.700 there's a lot of money that we should be paying generators 02:24:56.500 --> 02:24:59.330 to make sure they're available or penalizing them 02:24:59.330 --> 02:25:01.290 when they're not have billable and they contribute 02:25:01.290 --> 02:25:03.423 to getting us into those circumstances. 02:25:04.360 --> 02:25:06.700 So to provide very strong incentives 02:25:06.700 --> 02:25:08.450 to move in the direction of 02:25:08.450 --> 02:25:12.813 that your objectives are indicating that you want to go. 02:25:13.820 --> 02:25:17.590 And that hedge, although it's linked back 02:25:17.590 --> 02:25:18.750 to the shortage pricing, 02:25:18.750 --> 02:25:22.830 because it would provide a smoother revenue profile. 02:25:22.830 --> 02:25:25.110 In almost every scenario, it's going to be 02:25:26.043 --> 02:25:28.750 a better starting point to finance investment 02:25:29.736 --> 02:25:34.240 than having, you know, the extremely volatile revenues 02:25:34.240 --> 02:25:36.533 that you get from shortage pricing alone. 02:25:37.530 --> 02:25:39.810 Can I jump in for a second, though? 02:25:39.810 --> 02:25:41.460 Because there are two points that are 02:25:41.460 --> 02:25:42.840 because there's a lot of interest in your proposal. 02:25:42.840 --> 02:25:44.840 I know you have to go and just a second. 02:25:45.934 --> 02:25:47.863 A second ago, I had to go. 02:25:49.100 --> 02:25:51.010 I'll just say there are a couple things 02:25:51.010 --> 02:25:54.083 that I'm still puzzled about. 02:25:55.080 --> 02:25:56.400 Good, I'm glad I'm not the only one. 02:25:56.400 --> 02:25:59.050 So one is, I agree with you that the fundamental 02:25:59.050 --> 02:26:01.010 is the real time signals and they 02:26:01.010 --> 02:26:03.540 and what you change what's in the ORDC. 02:26:03.540 --> 02:26:05.310 And there's already strong signals there. 02:26:05.310 --> 02:26:07.500 And what you're proposing which makes sense 02:26:07.500 --> 02:26:09.173 to me makes that stronger. 02:26:10.040 --> 02:26:11.940 But to some degree, all else equal, 02:26:11.940 --> 02:26:13.710 sure you said the prices would be higher. 02:26:13.710 --> 02:26:17.750 But if you also then attract or retain more supply 02:26:17.750 --> 02:26:20.240 that can be available and realize those prices, 02:26:20.240 --> 02:26:22.560 you've added only maybe 1000 megawatts 02:26:22.560 --> 02:26:25.410 in the picture you had before prices re-equilibrate 02:26:25.410 --> 02:26:27.740 to about the same that they are today. 02:26:27.740 --> 02:26:29.950 So okay, that helps, but it's marginal 02:26:29.950 --> 02:26:32.793 about maybe 1000 megawatts more available supply. 02:26:33.820 --> 02:26:34.930 Then with a forward hedge. 02:26:34.930 --> 02:26:37.150 I don't actually see how that again, 02:26:37.150 --> 02:26:38.930 that doesn't seem to change the fundamental. 02:26:38.930 --> 02:26:41.310 And there's lots of hedging today. 02:26:41.310 --> 02:26:45.620 And so I would be nice to understand 02:26:45.620 --> 02:26:48.420 what you're really adding by making that mandatory. 02:26:48.420 --> 02:26:50.470 And it also then this is to Katie. 02:26:50.470 --> 02:26:51.920 Actually, I was actually surprised 02:26:51.920 --> 02:26:53.210 you thought that sounded okay. 02:26:53.210 --> 02:26:55.600 And this is not comparable to what you proposed at all. 02:26:55.600 --> 02:26:57.620 This is mandating that. 02:26:57.620 --> 02:27:00.610 Yeah, I missed that part that was in the slides. 02:27:00.610 --> 02:27:04.470 Okay, but you need to go (indistinct). 02:27:04.470 --> 02:27:07.810 I do that the short answer is 02:27:07.810 --> 02:27:11.600 that this would motivate far more than 1000 megawatts. 02:27:11.600 --> 02:27:14.380 So I'm not sure how you get to 1000 megawatts, 02:27:14.380 --> 02:27:17.830 but I'd be happy to talk to you offline about that. 02:27:17.830 --> 02:27:20.420 I mean, already, without making any changes, 02:27:20.420 --> 02:27:23.170 we think seeing 1000s of megawatts of response just 02:27:23.170 --> 02:27:25.350 from people for the first time 02:27:25.350 --> 02:27:28.810 seeing the ORDC implication play out, 02:27:28.810 --> 02:27:31.823 which they hadn't really seen before this. 02:27:33.350 --> 02:27:36.720 But you're right, that mandating the hedge in and of itself, 02:27:36.720 --> 02:27:41.710 because it has to be purchased, will move in the direction, 02:27:41.710 --> 02:27:44.120 like you do have some flexibility on the quantity 02:27:44.120 --> 02:27:45.820 of the hedge that you choose to buy. 02:27:45.820 --> 02:27:47.420 And the higher you make that quantity, 02:27:47.420 --> 02:27:49.720 the more you're gonna force the market 02:27:49.720 --> 02:27:50.800 in the direction of having 02:27:50.800 --> 02:27:52.693 to sustain a higher capacity margin. 02:27:53.950 --> 02:27:57.330 And I'll be happy to talk to you offline, it's okay. 02:27:57.330 --> 02:27:58.163 Thanks. 02:27:59.530 --> 02:28:01.610 So the piece that I did not pick up 02:28:01.610 --> 02:28:03.070 from the slides was that there would 02:28:03.070 --> 02:28:07.570 be some administrative assignment of a lot of this 02:28:07.570 --> 02:28:08.860 that wasn't fleshed out to me. 02:28:08.860 --> 02:28:10.210 So I was thinking this was more like 02:28:10.210 --> 02:28:13.066 a broader way to do a rock allocation. 02:28:13.066 --> 02:28:15.210 So that is different. 02:28:15.210 --> 02:28:17.147 And just to put a finer point on that, I mean, this is one 02:28:17.147 --> 02:28:18.789 of the things we're struggling 02:28:18.789 --> 02:28:21.390 with all of these types of proposals 02:28:21.390 --> 02:28:24.200 that have some sort of mandatory obligation. 02:28:24.200 --> 02:28:25.870 So like, one of the things that's really hard 02:28:25.870 --> 02:28:29.910 for my clients is, if you say to one of my members, 02:28:29.910 --> 02:28:32.270 who has demand response capability, 02:28:32.270 --> 02:28:34.300 how interruptible are you? 02:28:34.300 --> 02:28:36.360 How much of your load is interruptible? 02:28:36.360 --> 02:28:38.220 And how much of it is firm? 02:28:38.220 --> 02:28:41.170 They're gonna ask you, what season is it? 02:28:41.170 --> 02:28:43.380 What day of the month is it? 02:28:43.380 --> 02:28:45.930 What are, you know, the product that I sell? 02:28:45.930 --> 02:28:47.580 What is the demand for that product? 02:28:47.580 --> 02:28:49.760 Do I have production quotas with counterparties, 02:28:49.760 --> 02:28:52.000 that I have to meet in a week or not? 02:28:52.000 --> 02:28:54.470 And that's gonna make their interoperability 02:28:54.470 --> 02:28:57.680 and how they participate in the market vary wildly. 02:28:57.680 --> 02:28:59.250 And then when you fix those types 02:28:59.250 --> 02:29:03.050 of requirements in advance, it's not conducive 02:29:03.050 --> 02:29:06.160 to my members being able to manage their costs 02:29:06.160 --> 02:29:07.920 and participate effectively. 02:29:07.920 --> 02:29:10.720 Now, if you can have like obligations in advance 02:29:10.720 --> 02:29:13.200 that then if their situation changes, 02:29:13.200 --> 02:29:16.310 they can liquidate that position in real time. 02:29:16.310 --> 02:29:18.020 That is easier to deal with. 02:29:18.020 --> 02:29:18.900 But some of these things 02:29:18.900 --> 02:29:20.400 that are administratively determined, 02:29:20.400 --> 02:29:23.100 and you pay costs up front, and then that's what it is. 02:29:23.100 --> 02:29:25.910 That much harder for them to manage. 02:29:25.910 --> 02:29:27.880 So, Katie, thank you for touching 02:29:27.880 --> 02:29:31.510 on the demand response impact of some of these proposals. 02:29:31.510 --> 02:29:33.710 What I would like you to address is, 02:29:33.710 --> 02:29:36.580 what is the economic development impact on some 02:29:36.580 --> 02:29:39.220 of your clients with some of these proposals? 02:29:39.220 --> 02:29:41.240 Well, like I said, I think the ones 02:29:41.240 --> 02:29:45.210 that they can understand like how they can manage it 02:29:45.210 --> 02:29:48.140 or not manage it that I think that's really helpful. 02:29:48.140 --> 02:29:50.190 One of the things that I've gotten a lot of questions about 02:29:50.190 --> 02:29:53.740 is we've sort of socialized the NRG proposal is 02:29:55.787 --> 02:29:58.300 and I asked this at the workshop the other day 02:29:58.300 --> 02:30:01.720 and there is an answer but if I'm a large load, 02:30:01.720 --> 02:30:03.790 and I'm looking to site here in Texas, 02:30:03.790 --> 02:30:05.860 and there are these forward obligations, 02:30:05.860 --> 02:30:07.450 I have to not only bottle like, 02:30:07.450 --> 02:30:10.430 what do I think my energy costs would be in the market or, 02:30:10.430 --> 02:30:12.910 you know, buying through a rap or whatever? 02:30:12.910 --> 02:30:14.900 But also, there's this new obligation 02:30:14.900 --> 02:30:17.300 that I've somehow got to figure out how to meet 02:30:17.300 --> 02:30:19.640 and quantify, like, what that's gonna cost me 02:30:19.640 --> 02:30:22.020 for something like an LSE obligation. 02:30:22.020 --> 02:30:24.040 If that's determined three years in advance, 02:30:24.040 --> 02:30:26.860 and then somebody is gonna bring a large new load online. 02:30:26.860 --> 02:30:30.000 No, LSE is gonna have links sitting there 02:30:30.000 --> 02:30:33.140 to accommodate a huge chemical facility, 02:30:33.140 --> 02:30:35.900 or a huge, you know, semiconductor manufacturer. 02:30:35.900 --> 02:30:38.140 And so then that puts the load 02:30:38.140 --> 02:30:40.110 in the position of trying to figure out, 02:30:40.110 --> 02:30:41.950 well, how am I gonna get an LSE 02:30:41.950 --> 02:30:43.970 that can cover this off for me, right? 02:30:43.970 --> 02:30:46.490 And the answer has been, we're gonna create 02:30:46.490 --> 02:30:50.200 this wreck trading program kind of thing. 02:30:50.200 --> 02:30:53.400 But then, you know, they don't know what that cost, 02:30:53.400 --> 02:30:54.980 that's an LSU is gonna have to try 02:30:54.980 --> 02:30:57.770 and go out and get that for them. 02:30:57.770 --> 02:30:59.490 It's extremely complicated. 02:30:59.490 --> 02:31:01.710 And and I think that's what makes it challenging. 02:31:01.710 --> 02:31:04.620 And also what level do they have to cover off based on, 02:31:04.620 --> 02:31:06.670 are they considered interruptible or not? 02:31:08.280 --> 02:31:11.290 To what extent do clients typically hedge other feedstock? 02:31:11.290 --> 02:31:13.420 And how far in advance I know changed by industry? 02:31:13.420 --> 02:31:15.220 And I don't want ask any company specifics, 02:31:15.220 --> 02:31:18.100 but like fertilizer, natural gas, 02:31:18.100 --> 02:31:19.560 just by example, not your client. 02:31:19.560 --> 02:31:20.510 I don't know if you have clients, 02:31:20.510 --> 02:31:24.683 but like fertilizer plants, bio water natural gas features? 02:31:24.683 --> 02:31:27.120 I mean, I do know that they had natural gas, 02:31:27.120 --> 02:31:30.900 I can't speak to a lot of the other ones. 02:31:30.900 --> 02:31:32.510 I don't know about. 02:31:32.510 --> 02:31:34.920 I mean, electricity is another feedstock, right? 02:31:34.920 --> 02:31:35.753 Sure. 02:31:35.753 --> 02:31:36.723 And they do hedge. 02:31:37.980 --> 02:31:39.110 This is the other thing, I mean, 02:31:39.110 --> 02:31:40.880 it kind of depends on their business model. 02:31:40.880 --> 02:31:44.750 So the ones that have more predictable interoperability 02:31:44.750 --> 02:31:46.490 where you know, they can kind of turn 02:31:46.490 --> 02:31:49.500 their process off like that, they tend to hedge less, 02:31:49.500 --> 02:31:52.630 because when prices hedge less in terms of contracts 02:31:52.630 --> 02:31:55.760 with another Counterparty, because when prices rise, 02:31:55.760 --> 02:31:57.300 they have a natural hedge of being able 02:31:57.300 --> 02:32:01.150 to turn off, the ones that can't do that. 02:32:01.150 --> 02:32:02.750 They hedge a lot more. 02:32:02.750 --> 02:32:05.530 And I mean, I like I said, I can't really speak 02:32:05.530 --> 02:32:07.657 to how long they hedge differences. 02:32:07.657 --> 02:32:11.960 Does that concern for your clients diminish 02:32:11.960 --> 02:32:15.340 if the forward mandatory physical hedging 02:32:19.300 --> 02:32:24.090 is a percentage of three years out and slowly ramps up 02:32:24.090 --> 02:32:27.100 to say, a quarter, it's not 100% until a quarter out 02:32:27.100 --> 02:32:30.870 or something, some escalating requirement like that. 02:32:30.870 --> 02:32:34.220 And wouldn't that be on LSE as part 02:32:34.220 --> 02:32:36.770 of the risk book rather than your clients? 02:32:36.770 --> 02:32:38.640 It is their risk. 02:32:38.640 --> 02:32:40.450 But I mean, at some point, they've got 02:32:40.450 --> 02:32:41.900 to recover that from somewhere. 02:32:41.900 --> 02:32:43.570 And if they're gonna get costs assigned 02:32:43.570 --> 02:32:45.780 to them based on our load, they're gonna want 02:32:45.780 --> 02:32:47.150 to charge those to our load. 02:32:47.150 --> 02:32:48.610 So is it one for one? 02:32:48.610 --> 02:32:49.590 No, probably not. 02:32:49.590 --> 02:32:52.830 But it does tend to increase the cost that we would be asked 02:32:52.830 --> 02:32:55.937 to recover from us to pay from an LSE. 02:32:59.506 --> 02:33:00.680 And it's like what I said earlier, 02:33:00.680 --> 02:33:03.880 they want the ability to liquidate a position 02:33:03.880 --> 02:33:06.800 or trade out of a position closer to real time. 02:33:06.800 --> 02:33:09.450 And I think one of the tensions here and I don't know how 02:33:09.450 --> 02:33:13.070 to resolve this is that requires some kind 02:33:13.070 --> 02:33:15.470 of centralized market at some point. 02:33:15.470 --> 02:33:20.190 And the LSE obligation is sort of premised on avoiding that, 02:33:20.190 --> 02:33:21.750 kind of trying to get to the result 02:33:21.750 --> 02:33:23.330 of a centralized capacity market, 02:33:23.330 --> 02:33:24.837 but avoiding that centralized procurement 02:33:24.837 --> 02:33:27.160 and the costs associated with it, 02:33:27.160 --> 02:33:29.660 trying to somehow then translate that into a product 02:33:29.660 --> 02:33:31.130 that you can you liquidate in 02:33:31.130 --> 02:33:33.070 a centralized manner in real time. 02:33:33.070 --> 02:33:34.490 I don't know how to do that. 02:33:34.490 --> 02:33:36.970 I don't know that anybody knows how to do that. 02:33:36.970 --> 02:33:40.060 So doesn't this take place, look, again, 02:33:40.060 --> 02:33:44.550 the whole point of the E3 proposal, 02:33:44.550 --> 02:33:47.893 or at least one of the the crux points of it was, 02:33:49.430 --> 02:33:51.080 again, those LSE are able to offset 02:33:51.080 --> 02:33:53.630 those obligations moving forward, again, 02:33:53.630 --> 02:33:57.940 distributed generation DR your guys kind of do that a lot. 02:33:57.940 --> 02:33:59.780 I mean, it's one of the central components 02:33:59.780 --> 02:34:01.882 of manufacturing in Texas. 02:34:01.882 --> 02:34:04.793 And we've set up our entire system around it. 02:34:06.240 --> 02:34:10.880 So doesn't that sort of offset the industrial concern here? 02:34:10.880 --> 02:34:13.000 I mean, yeah, you're dealing with an LSE 02:34:13.000 --> 02:34:15.130 for some of your members. 02:34:15.130 --> 02:34:18.870 But again, if they modeled their business correctly, 02:34:18.870 --> 02:34:20.670 if they've got their own distributed generation, 02:34:20.670 --> 02:34:24.540 and again, it's credited and then they offset just doesn't 02:34:24.540 --> 02:34:27.640 that neutralize the impact to a certain degree? 02:34:27.640 --> 02:34:29.317 I mean, so it goes back to there's a lot of features 02:34:29.317 --> 02:34:32.933 of this that haven't been ironed out yet. 02:34:32.933 --> 02:34:34.651 I think it's gonna be long process anyway. 02:34:34.651 --> 02:34:37.370 Yeah, I know, but at a high level, the way I understood 02:34:37.370 --> 02:34:39.540 the proposal was that these obligations, 02:34:39.540 --> 02:34:41.430 were gonna get set three years out, 02:34:41.430 --> 02:34:43.860 you didn't have to come in and show proof 02:34:43.860 --> 02:34:46.540 until I think it's a year before. 02:34:46.540 --> 02:34:49.268 It's a year out. A year out. 02:34:49.268 --> 02:34:53.110 And you know, the three year forward setting 02:34:53.110 --> 02:34:56.233 that's really challenging showing it a year out. 02:34:57.180 --> 02:34:59.430 You know, it's less challenging than three years, 02:34:59.430 --> 02:35:01.190 but It's not clear to me 02:35:01.190 --> 02:35:03.680 that the obligations change a year out. 02:35:03.680 --> 02:35:06.053 It's just that they might be traded around. 02:35:07.550 --> 02:35:11.111 But I don't think that we, I mean, to your point about DER, 02:35:11.111 --> 02:35:14.610 and DG, I mean, that's still going toward 02:35:14.610 --> 02:35:16.603 what counts in the static look, 02:35:18.851 --> 02:35:21.650 that still doesn't account for how things actually operate 02:35:21.650 --> 02:35:23.200 in real time and how that interacts 02:35:23.200 --> 02:35:25.650 with what the capacity obligation was in advance. 02:35:25.650 --> 02:35:28.270 So if I'm a load, and you say, 02:35:28.270 --> 02:35:30.046 how interruptible are you gonna be 02:35:30.046 --> 02:35:32.480 and if you're not as interruptible, as this, 02:35:32.480 --> 02:35:35.370 you're gonna have to pay a penalty than my, you know, 02:35:35.370 --> 02:35:36.530 maybe I'm gonna say, 02:35:36.530 --> 02:35:39.090 I'm less interruptible than I actually am. 02:35:39.090 --> 02:35:40.640 And then I'm gonna hedge for that. 02:35:40.640 --> 02:35:42.230 And then when you get to real time, 02:35:42.230 --> 02:35:44.042 what's my incentive to interrupt at that point, 02:35:44.042 --> 02:35:46.540 you know, I already paid for whatever, 02:35:46.540 --> 02:35:48.850 you see how it can interfere 02:35:48.850 --> 02:35:50.740 with the real time performance incentives. 02:35:50.740 --> 02:35:55.400 And that's what I've been very much wondering about 02:35:55.400 --> 02:35:58.500 and invest, you know, in our Genie three about it, 02:35:58.500 --> 02:36:01.050 and all the other stakeholders, 02:36:01.050 --> 02:36:03.793 as we look to address market design changes. 02:36:04.810 --> 02:36:08.860 One very important goal for me anyway, 02:36:08.860 --> 02:36:10.660 and I think I can speak for my colleagues 02:36:10.660 --> 02:36:13.960 to address operational reliability. 02:36:13.960 --> 02:36:17.500 And, you know, as I think somebody mentioned earlier, 02:36:17.500 --> 02:36:21.250 maybe it was Dr. Patton, that said, you know, 02:36:21.250 --> 02:36:25.640 you could accredit a plant, because you know, 02:36:25.640 --> 02:36:28.150 has firm gas or on site storage, 02:36:28.150 --> 02:36:30.940 and you give them a higher accreditation, 02:36:30.940 --> 02:36:33.840 but then there's gas that doesn't have 02:36:33.840 --> 02:36:36.340 those components to it, that could show up 02:36:36.340 --> 02:36:39.590 in a real time condition where we actually need them. 02:36:39.590 --> 02:36:44.190 But they were disadvantaged in the accreditation process. 02:36:44.190 --> 02:36:48.330 Also, you know, real time conditions, 02:36:48.330 --> 02:36:51.710 as I noted earlier, you know, the accreditation process, 02:36:51.710 --> 02:36:53.660 I think the answer has been well, 02:36:53.660 --> 02:36:55.560 you get higher accreditation, if you're weatherize 02:36:55.560 --> 02:36:56.940 and you have onsite fuel 02:36:56.940 --> 02:36:58.510 and dual fuel capability, et cetera, et cetera. 02:36:58.510 --> 02:37:02.970 So that may hopefully address like weather conditions, 02:37:02.970 --> 02:37:05.350 presumably, and then, but then there's 02:37:05.350 --> 02:37:08.620 the real time actual market conditions when all of a sudden, 02:37:08.620 --> 02:37:10.660 we have higher than expected demand. 02:37:10.660 --> 02:37:13.547 And renewable generation drops off or thermal generation, 02:37:13.547 --> 02:37:17.870 we have a higher than expected level of generation outages. 02:37:17.870 --> 02:37:22.870 And then at that point, that's what I'm wondering like, 02:37:23.240 --> 02:37:24.150 where we go from there? 02:37:24.150 --> 02:37:26.660 Do we just turn to our ancillary service market 02:37:26.660 --> 02:37:28.890 or, like, how does it work? 02:37:28.890 --> 02:37:31.020 I can focus on that area. 02:37:31.020 --> 02:37:32.890 If I can jump in there, just real quickly 02:37:32.890 --> 02:37:33.910 to describe that goods, the way 02:37:33.910 --> 02:37:35.890 that we see it playing out is that, you know, 02:37:35.890 --> 02:37:38.140 really, this is just an additional layer, 02:37:38.140 --> 02:37:40.760 that's a three year ahead, forward look based 02:37:40.760 --> 02:37:42.810 on physical capability, right? 02:37:42.810 --> 02:37:45.160 Then it's far enough out that there's still time 02:37:45.160 --> 02:37:46.070 to do something about it. 02:37:46.070 --> 02:37:47.960 If it looks like you're gonna be short. 02:37:47.960 --> 02:37:49.890 It doesn't supplant, you know, 02:37:49.890 --> 02:37:53.170 or replace any of the hedging the activities that would need 02:37:53.170 --> 02:37:56.160 to happen, it doesn't necessarily replace an ORDC reform 02:37:56.160 --> 02:37:57.960 that still provides all of those incentives 02:37:57.960 --> 02:37:59.910 to get the plants operational, have them 02:37:59.910 --> 02:38:01.640 perform in real time, it doesn't replace 02:38:01.640 --> 02:38:03.370 the ancillary service requirements, 02:38:03.370 --> 02:38:05.160 that we're talking about the four hour, 02:38:05.160 --> 02:38:06.340 you know, flexibility requirement 02:38:06.340 --> 02:38:08.440 that helps us address the dark curve and all the wind 02:38:08.440 --> 02:38:09.530 and solar ends, do we still have 02:38:09.530 --> 02:38:12.610 to have all the operational incentives lined up as well. 02:38:12.610 --> 02:38:15.850 This is just an additional layer of insurance that says, 02:38:15.850 --> 02:38:17.510 I know that I need at least 02:38:17.510 --> 02:38:20.070 this much physical capability on the system. 02:38:20.070 --> 02:38:22.180 And you do that look far enough out in time 02:38:22.180 --> 02:38:24.980 to where there's still time for a new investment to come on. 02:38:24.980 --> 02:38:26.720 And maybe somebody hadn't already been planning. 02:38:26.720 --> 02:38:29.780 Okay, compare and contrast to some 02:38:29.780 --> 02:38:31.730 of those other insurance policy proposals 02:38:31.730 --> 02:38:34.410 that are out there, like a Bistra or NextEra, 02:38:34.410 --> 02:38:38.460 that seem to be more right sized for certain conditions? 02:38:40.790 --> 02:38:41.770 Yeah, so good question. 02:38:41.770 --> 02:38:43.010 So a couple of differences. 02:38:43.010 --> 02:38:44.350 I think some of those proposals 02:38:44.350 --> 02:38:46.060 that are more kind of seasonal proposals, 02:38:46.060 --> 02:38:49.480 those are meant to take a certain proportion of the capacity 02:38:49.480 --> 02:38:52.320 and target that and set that aside to make sure 02:38:52.320 --> 02:38:54.080 that at least that amount, and it's a much smaller amount, 02:38:54.080 --> 02:38:56.930 a few 1000, megawatts, 8000, whatever it is, 02:38:56.930 --> 02:38:59.950 are ready to go and able to provide a reserve service 02:38:59.950 --> 02:39:02.700 on let's say, a quarterly or a seasonal basis, 02:39:02.700 --> 02:39:05.178 whereas ours is much more like Dr. Patton's proposal. 02:39:05.178 --> 02:39:07.040 It's market wide, it's the entire market. 02:39:07.040 --> 02:39:08.930 We wanna know how many megawatts 02:39:08.930 --> 02:39:10.990 of load we expect to have, under 02:39:10.990 --> 02:39:12.670 a whole bunch of different weather conditions, 02:39:12.670 --> 02:39:14.840 and how many megawatts of effective capability 02:39:14.840 --> 02:39:18.070 with that the entire fleet provides you. 02:39:18.070 --> 02:39:20.880 So it's much more of a comprehensive system wide look, 02:39:20.880 --> 02:39:22.490 and that gives you some assurance, 02:39:22.490 --> 02:39:24.410 then that when you get into 02:39:24.410 --> 02:39:25.640 these really difficult conditions 02:39:25.640 --> 02:39:28.510 that the system is gonna be able to perform, 02:39:28.510 --> 02:39:30.300 but it's just as simple physical look, 02:39:30.300 --> 02:39:31.990 I think it's actually less burdensome 02:39:31.990 --> 02:39:35.360 on the LLSE than the hedging requirement. 02:39:35.360 --> 02:39:36.940 Because that now gets into well, 02:39:36.940 --> 02:39:38.920 how much hedging should there be what proportion 02:39:38.920 --> 02:39:40.480 of your portfolio should you be hedged 02:39:40.480 --> 02:39:42.500 on energy basis on $1 basis, 02:39:42.500 --> 02:39:45.220 or different LSE have different hedging strategies, 02:39:45.220 --> 02:39:47.400 already, you're getting way into their business 02:39:47.400 --> 02:39:49.600 of how hedged they want their portfolio 02:39:49.600 --> 02:39:51.420 to be rare as we're just saying. 02:39:51.420 --> 02:39:53.660 It's just a physical capability that everyone needs 02:39:53.660 --> 02:39:54.920 to do their share to make sure 02:39:54.920 --> 02:39:56.950 there's enough resources online so 02:39:56.950 --> 02:39:59.190 that the market can clear when people want 02:39:59.190 --> 02:40:02.543 to do both hedging and real time transactions. 02:40:04.160 --> 02:40:05.800 Okay, may have missed this, 02:40:05.800 --> 02:40:08.150 but we've covered a lot of ground today, 02:40:08.150 --> 02:40:10.810 three years versus the one year. 02:40:10.810 --> 02:40:12.550 What does that get us in the system? 02:40:12.550 --> 02:40:14.740 I mean, it allows people to build a power plant, 02:40:14.740 --> 02:40:16.307 apparently, in three years, you know, 02:40:16.307 --> 02:40:21.060 and get themselves right with the system, but what else? 02:40:21.060 --> 02:40:22.920 Yeah, so that's the main rationale 02:40:22.920 --> 02:40:24.370 for the three year hedge forward look is. 02:40:24.370 --> 02:40:26.230 No, the power plant? Enough time that you 02:40:26.230 --> 02:40:28.130 can actually remedy the situation 02:40:28.130 --> 02:40:31.840 with steel in the ground, if you're looking season ahead, 02:40:31.840 --> 02:40:34.710 you really are just limited to hedging, 02:40:34.710 --> 02:40:37.830 you know, maybe doing some maintenance deferral, 02:40:37.830 --> 02:40:39.440 you really are limited to the resources 02:40:39.440 --> 02:40:41.910 that you've already have in the ground, 02:40:41.910 --> 02:40:43.330 and making sure that they were available, 02:40:43.330 --> 02:40:45.940 you really don't have the remedy of looking out 02:40:45.940 --> 02:40:48.250 and developing something new. 02:40:48.250 --> 02:40:51.640 So the system I look would be three years out. 02:40:51.640 --> 02:40:53.330 But there's but we also recognize 02:40:53.330 --> 02:40:55.640 that not everyone knows what their load obligations 02:40:55.640 --> 02:40:56.920 will be three years out. 02:40:56.920 --> 02:40:59.350 So that's why there's a notice period 02:40:59.350 --> 02:41:01.850 that says in two years, there's gonna be a form 02:41:01.850 --> 02:41:04.170 of showing by then we'll have a better idea 02:41:04.170 --> 02:41:06.602 of what each of these obligations are going to be. 02:41:06.602 --> 02:41:11.030 And then here's your what your proportion would be. 02:41:11.030 --> 02:41:14.020 And then then come up with the form of showing 02:41:14.020 --> 02:41:15.390 that says you're doing your part. 02:41:15.390 --> 02:41:17.700 I don't think this may or may not be part of the purpose. 02:41:17.700 --> 02:41:19.050 But I think about if you think back 02:41:19.050 --> 02:41:21.930 to one of these first work sessions, like in June, 02:41:21.930 --> 02:41:24.270 when Ice presented the forward curve, 02:41:24.270 --> 02:41:26.323 remember what product it was. 02:41:27.470 --> 02:41:30.070 And it was backward related. 02:41:30.070 --> 02:41:32.223 And so if you're an investor, 02:41:34.270 --> 02:41:37.570 and typically you literally put those prices in oil, gas, 02:41:37.570 --> 02:41:40.090 soybeans, whatever, you put those prices 02:41:40.090 --> 02:41:43.810 at your revenue discounted for any differential, whatever. 02:41:43.810 --> 02:41:46.980 But if the market is telling you, 02:41:46.980 --> 02:41:49.310 your revenues are going down, 02:41:49.310 --> 02:41:51.410 because the only thing they have to look at right now 02:41:51.410 --> 02:41:56.410 is the CDR, which claims at 28% reserve margin when we know 02:41:57.210 --> 02:42:00.905 that on a bad day, it's really five or six. 02:42:00.905 --> 02:42:01.970 Right. 02:42:01.970 --> 02:42:03.540 You've got no reason to invest. 02:42:03.540 --> 02:42:07.770 But I think a byproduct of a market wide 02:42:07.770 --> 02:42:10.410 essentially saying we need the market 02:42:10.410 --> 02:42:14.810 to be reliable, every day, all day. 02:42:14.810 --> 02:42:16.210 And we're gonna require people 02:42:16.210 --> 02:42:18.463 to put a bid out there in the future. 02:42:19.461 --> 02:42:23.330 You're also requiring them to show what they're willing 02:42:23.330 --> 02:42:28.200 to pay for a reliable asset three years from now. 02:42:28.200 --> 02:42:30.500 In April 2024 or whatever. And I agree with it, 02:42:30.500 --> 02:42:33.400 and I think your summaries absolutely spot on. 02:42:33.400 --> 02:42:37.330 My point is, is that kind of with all the other movements 02:42:37.330 --> 02:42:40.200 that have been suggested by you to stakeholders, 02:42:40.200 --> 02:42:43.240 and that we had talked about leading up to this point. 02:42:43.240 --> 02:42:46.040 And again, that layered strategy on dispatch ability 02:42:46.040 --> 02:42:50.160 and paying for it, from where we came from in 2013, 02:42:50.160 --> 02:42:53.580 to now is light years, I mean, to what we're talking about, 02:42:53.580 --> 02:42:55.170 and we were talking about a lot of stuff. 02:42:55.170 --> 02:42:59.430 So MCL movement on ORDC that means more consistent, 02:42:59.430 --> 02:43:00.810 you know, reaching high cap, 02:43:00.810 --> 02:43:02.890 that means more money into this market. 02:43:02.890 --> 02:43:05.930 Now with, you know, any type of firming obligation, 02:43:05.930 --> 02:43:08.580 three years out, I mean, that's a lot of liquidity plus, 02:43:08.580 --> 02:43:10.070 you're hitting more consistent, 02:43:10.070 --> 02:43:12.550 plus the odds of you hitting more high caps 02:43:12.550 --> 02:43:15.680 because of increased penetration by solar, you know, 02:43:15.680 --> 02:43:17.823 and then curves occurring more often. 02:43:18.730 --> 02:43:22.810 That's a lot of money coming into the market. 02:43:22.810 --> 02:43:25.210 In my view, I'm just hearing a lot of money 02:43:25.210 --> 02:43:27.260 starting to come into this market. 02:43:27.260 --> 02:43:28.370 And then the other thing is changes 02:43:28.370 --> 02:43:31.610 that you all make impact the forward curves 02:43:31.610 --> 02:43:34.680 for years in advance, even if they don't dictate what 02:43:34.680 --> 02:43:36.600 that price is gonna be years in advance 02:43:36.600 --> 02:43:38.490 or set a price years in advance. right? 02:43:38.490 --> 02:43:41.590 So I do think, you know, if you do one of these things, 02:43:41.590 --> 02:43:44.910 that's gonna procure more dispatchable every day 02:43:44.910 --> 02:43:46.350 and assign a value to it. 02:43:46.350 --> 02:43:49.250 Even though you're not doing that three years in advance, 02:43:49.250 --> 02:43:50.910 the market will be able to rationalize 02:43:50.910 --> 02:43:52.450 that three years in advance, as long 02:43:52.450 --> 02:43:55.390 as the structure stays, you know. 02:43:55.390 --> 02:43:57.163 Consistent. Consistent, yes. 02:43:57.163 --> 02:43:58.830 And the only reason I flagged it now is 02:43:58.830 --> 02:44:01.440 because one of the topics that keeps coming up 02:44:01.440 --> 02:44:04.207 and your group has already identified it 02:44:04.207 --> 02:44:06.840 and then that attempt to do address it is the liquidity 02:44:06.840 --> 02:44:08.200 of the market three years in advance 02:44:08.200 --> 02:44:11.620 those independent retailers trying to buy those blocks 02:44:11.620 --> 02:44:14.230 or enter the market, you know, this new entrance 02:44:14.230 --> 02:44:16.050 to be so well capitalized where 02:44:17.234 --> 02:44:19.990 they can be firm enough or. 02:44:19.990 --> 02:44:20.823 Working capital. 02:44:20.823 --> 02:44:22.830 Yeah, working capital three years in advance, 02:44:22.830 --> 02:44:24.715 you know, so it's a little bit higher road. 02:44:24.715 --> 02:44:26.348 Is that good or bad? 02:44:26.348 --> 02:44:28.610 I don't know, I'm thinking about it. 02:44:28.610 --> 02:44:30.010 Well, again, just to be clear, 02:44:30.010 --> 02:44:32.427 the obligation becomes formal one year in advance. 02:44:32.427 --> 02:44:33.990 Right. The three year in advance 02:44:33.990 --> 02:44:35.880 is just the ERCOT wide look 02:44:35.880 --> 02:44:38.070 that says we need X amount of total capability. 02:44:38.070 --> 02:44:39.790 We haven't divided it up among the LSEs yet 02:44:39.790 --> 02:44:42.354 until much closer in time to when they know what 02:44:42.354 --> 02:44:44.493 their loan obligations are gonna be. 02:44:47.260 --> 02:44:48.950 I know I've asked this question a lot 02:44:48.950 --> 02:44:52.300 and I'm trying to understand it sounds like 02:44:52.300 --> 02:44:53.640 at least setting the framework 02:44:53.640 --> 02:44:56.270 of how it'll work would provide 02:44:56.270 --> 02:44:57.840 that one year three year 02:44:57.840 --> 02:45:01.253 out liquidity investments potentially. 02:45:02.540 --> 02:45:04.330 I'm just wondering how long it's gonna take 02:45:04.330 --> 02:45:06.630 to get that framework in place. 02:45:06.630 --> 02:45:10.330 These are, you know, in Brattle, you know, 02:45:10.330 --> 02:45:11.793 Sam and Kathleen. 02:45:14.790 --> 02:45:16.640 I really would like to get a little bit more input 02:45:16.640 --> 02:45:17.860 from you all. 02:45:17.860 --> 02:45:22.860 I know that we took a ride towards this path in 2012. 02:45:24.380 --> 02:45:29.380 And I went back and looked at the report you provided us 02:45:29.637 --> 02:45:31.520 and some of the subsequent answers 02:45:31.520 --> 02:45:35.230 and to before technical conference. 02:45:35.230 --> 02:45:39.210 And I'm just gonna sort of give you some blurbs 02:45:39.210 --> 02:45:41.839 from your report and from the response. 02:45:41.839 --> 02:45:45.370 And one of them, I think I really wanna focus in on 02:45:45.370 --> 02:45:46.800 because I just wanna see 02:45:46.800 --> 02:45:48.660 if anything has changed from back then. 02:45:48.660 --> 02:45:50.730 I know our market has definitely changed. 02:45:50.730 --> 02:45:54.350 But the primary disadvantage of imposing 02:45:54.350 --> 02:45:56.800 a resource adequacy requirement on LSE is not 02:45:56.800 --> 02:46:00.270 that the approach is that the approach is complicated, 02:46:00.270 --> 02:46:02.260 incur substantial implementation costs 02:46:02.260 --> 02:46:03.150 or requires a number 02:46:03.150 --> 02:46:06.500 of new design elements to be introduced. 02:46:06.500 --> 02:46:10.540 Then I go to a chart that was filed after this report. 02:46:10.540 --> 02:46:15.540 And it says that the risk to investors medium to high. 02:46:18.220 --> 02:46:23.160 And then let me actually quote something, 02:46:23.160 --> 02:46:24.310 another piece from the report, 02:46:24.310 --> 02:46:26.910 because this is kind of what I've been sort 02:46:26.910 --> 02:46:31.280 of zooming in on a little bit is with respect 02:46:31.280 --> 02:46:33.030 to the retail market. 02:46:33.030 --> 02:46:35.290 And what that, you know, 02:46:35.290 --> 02:46:40.290 in your report, you talk about how a disadvantage is 02:46:40.900 --> 02:46:45.180 that the requirement, the LSE obligation requirement, 02:46:45.180 --> 02:46:48.220 cannot be imposed on a four basis due to the stranded costs, 02:46:48.220 --> 02:46:50.520 risks that would be imposed on reps in ERCOT, 02:46:50.520 --> 02:46:51.820 retail choice environment. 02:46:54.910 --> 02:46:58.290 Can you speak to some of these statements 02:46:58.290 --> 02:46:59.330 you've made in the past, and let me know 02:46:59.330 --> 02:47:01.960 if there's any difference from then to now? 02:47:01.960 --> 02:47:03.730 Yeah, sure thing. 02:47:03.730 --> 02:47:06.300 So I think a lot of the issues 02:47:06.300 --> 02:47:07.960 that we flagged then are really the same 02:47:07.960 --> 02:47:10.490 that we've been discussing today. 02:47:10.490 --> 02:47:12.763 So for example, forward obligation. 02:47:13.670 --> 02:47:14.750 Three years forward, 02:47:14.750 --> 02:47:19.750 if you impose an obligation such as this on retailers, 02:47:20.350 --> 02:47:21.980 it would be very challenging for them 02:47:21.980 --> 02:47:23.740 to know how many customers 02:47:23.740 --> 02:47:25.760 they're gonna have three years from now, right? 02:47:25.760 --> 02:47:27.980 So that was the issue identified. 02:47:27.980 --> 02:47:31.730 That's why you move that requirement as close 02:47:31.730 --> 02:47:34.750 to the prompt timeframe as possible. 02:47:34.750 --> 02:47:39.750 If you don't have a LSE, like an agnostic for procurement. 02:47:40.030 --> 02:47:42.240 So if you do for procurement, you don't wanna impose 02:47:42.240 --> 02:47:46.320 that on individual entity LSE for showing 02:47:46.320 --> 02:47:48.203 I think that's still true today. 02:47:49.180 --> 02:47:52.530 In terms of the implementation costs, 02:47:52.530 --> 02:47:54.560 I think we need to put that in context 02:47:54.560 --> 02:47:57.070 to the other options on the table. 02:47:57.070 --> 02:47:59.780 I think the costs of implementing that, you know, 02:47:59.780 --> 02:48:01.040 in today's environment, first of all, 02:48:01.040 --> 02:48:02.790 they're absolutely negligible compared 02:48:02.790 --> 02:48:06.350 to the size of the problem, we're talking about solving. 02:48:06.350 --> 02:48:08.860 So they are substantial. 02:48:08.860 --> 02:48:10.890 And they come in the form of, you know, 02:48:10.890 --> 02:48:14.460 timeline to implement upgrades to, 02:48:14.460 --> 02:48:16.960 you know, various systems and so on. 02:48:16.960 --> 02:48:19.271 But you don't you're talking about, 02:48:19.271 --> 02:48:22.780 you know, 10s of millions or up to 50 million or something 02:48:22.780 --> 02:48:25.790 and implementation costs, but compared to the size 02:48:25.790 --> 02:48:27.240 of the problem we're solving, 02:48:28.920 --> 02:48:30.730 it's more about timeline, I would say. 02:48:30.730 --> 02:48:32.518 I'd like to add a couple of things. 02:48:32.518 --> 02:48:34.157 Well, you go ahead but I wanna respond. 02:48:34.157 --> 02:48:36.877 Can you respond to this first because its important. 02:48:38.580 --> 02:48:42.550 Risks investors, medium to high. 02:48:42.550 --> 02:48:44.300 What did you mean, if you can remember? 02:48:44.300 --> 02:48:45.610 Can you remind me what it says 02:48:45.610 --> 02:48:48.110 under centralized capacity market for that? 02:48:48.110 --> 02:48:49.750 Yeah, we need to say it in in context to the other. 02:48:49.750 --> 02:48:51.470 Right yeah. Things it was compared to. 02:48:51.470 --> 02:48:52.303 Yeah. 02:48:52.303 --> 02:48:54.810 It was compared to pure energy only 02:48:54.810 --> 02:48:56.570 with market base reserve margin, 02:48:56.570 --> 02:48:59.940 which is kind of what we had back then without ORDC adders 02:48:59.940 --> 02:49:01.860 to energy only with adders 02:49:01.860 --> 02:49:03.730 to support target reserve margin would, 02:49:03.730 --> 02:49:05.130 which is where we're at now. 02:49:06.650 --> 02:49:09.110 And then a centralized capacity market. 02:49:09.110 --> 02:49:11.720 Yeah, well, I also wanna add 02:49:11.720 --> 02:49:14.240 that you missed one of the concerns, 02:49:14.240 --> 02:49:16.730 which is market power in a bilateral, 02:49:16.730 --> 02:49:20.330 see it's actually the concept 02:49:20.330 --> 02:49:22.910 the problem itself that it's solving. 02:49:22.910 --> 02:49:24.970 What's the demand our resources accredited, 02:49:24.970 --> 02:49:28.030 that's all fairly similar to a centralized capacity market. 02:49:28.030 --> 02:49:29.170 It's just that you don't have 02:49:29.170 --> 02:49:31.320 a centralized auction, it's bilateral. 02:49:31.320 --> 02:49:34.483 And actually the biggest problem is that in that context, 02:49:36.090 --> 02:49:38.000 if it were purely bilateral, 02:49:38.000 --> 02:49:41.350 you cannot I don't think satisfactorily mitigate 02:49:41.350 --> 02:49:46.350 the structural market power that exists in selling a product 02:49:47.000 --> 02:49:50.120 to meet peak load plus of reserve margin 02:49:50.120 --> 02:49:51.580 or a high measure of peak load, 02:49:51.580 --> 02:49:54.350 there's structural market power that has to be addressed. 02:49:54.350 --> 02:49:58.550 And it could be and I was actually having a side chat 02:49:58.550 --> 02:50:01.820 with like a session talk about that. 02:50:01.820 --> 02:50:05.810 But let's just say an idea that, you know, 02:50:05.810 --> 02:50:10.270 you might have to require the biggest generators 02:50:12.640 --> 02:50:17.073 to have to sell all their capacity, 02:50:18.490 --> 02:50:21.420 offering it at cost in an auction, 02:50:21.420 --> 02:50:25.510 maybe administered by market, buyers could decide whether 02:50:25.510 --> 02:50:28.330 to buy there or in the bilateral market, 02:50:28.330 --> 02:50:30.110 you'd have to do something where you're able 02:50:30.110 --> 02:50:33.580 to make sure that the largest generators aren't economically 02:50:33.580 --> 02:50:35.770 or physically withholding from the market. 02:50:35.770 --> 02:50:38.940 Don't be distracted by this is even more fundamental than, 02:50:38.940 --> 02:50:42.150 you know, how much they would charge some other retailer. 02:50:42.150 --> 02:50:44.250 And don't be distracted by when they say, 02:50:44.250 --> 02:50:46.370 no, we're also a retailer, we're a buyer, 02:50:46.370 --> 02:50:47.980 that's not really true. 02:50:47.980 --> 02:50:50.170 They don't have long term obligations such 02:50:50.170 --> 02:50:52.200 that they have a short position in the market, 02:50:52.200 --> 02:50:53.430 they are long in the market, 02:50:53.430 --> 02:50:55.850 they do well, when prices are high. 02:50:55.850 --> 02:50:57.120 The biggest problem here 02:50:57.120 --> 02:51:00.260 is market power by large generators. 02:51:00.260 --> 02:51:02.740 And that would have to be addressed. 02:51:02.740 --> 02:51:04.990 That was our biggest problem with it, then. 02:51:04.990 --> 02:51:06.650 And it would be now if you thought 02:51:06.650 --> 02:51:08.060 let's just do it bilaterally. 02:51:08.060 --> 02:51:10.203 You have to have some way to address that. 02:51:11.150 --> 02:51:13.530 As for the risk for investors, look, 02:51:13.530 --> 02:51:15.900 this is gonna be a risky business no matter what 02:51:15.900 --> 02:51:17.530 I think we'll have to see if 02:51:17.530 --> 02:51:19.970 no design was low, except if we talked 02:51:19.970 --> 02:51:23.823 about some you know, undesirable re-regulate? 02:51:25.721 --> 02:51:28.200 Well, you did have low for an interview only 02:51:28.200 --> 02:51:30.155 with a backstop procurement out of minimum. 02:51:30.155 --> 02:51:31.548 He didn't like it (muffled speaking). 02:51:31.548 --> 02:51:32.766 We actually had lower economic efficiency. 02:51:32.766 --> 02:51:35.092 Sorry, all of them are high. 02:51:35.092 --> 02:51:37.300 (crowd laughing) 02:51:37.300 --> 02:51:40.230 So my generator friends are probably angry 02:51:40.230 --> 02:51:44.050 what I just said, but I will tell you that the business 02:51:44.050 --> 02:51:46.150 that they're in is a tough business. 02:51:46.150 --> 02:51:47.113 It's risky. 02:51:48.050 --> 02:51:51.350 And, you know, you can't expect them to do things forever 02:51:51.350 --> 02:51:52.370 without paying them for it. 02:51:52.370 --> 02:51:55.610 So that's, maybe they'll like that I told you that part. 02:51:55.610 --> 02:51:57.210 Fair enough. 02:51:57.210 --> 02:51:59.860 Being mindful of the clock, we got five minutes left, 02:52:01.869 --> 02:52:05.637 I wanna offer one closing thought and then obviously, 02:52:06.560 --> 02:52:08.373 hear from my fellow Commissioners. 02:52:09.830 --> 02:52:13.800 I started the day by talking about optimizing our portfolio 02:52:13.800 --> 02:52:18.260 and one of the things about the accreditation 02:52:18.260 --> 02:52:23.260 that is not concerning but is a problem I'd love 02:52:23.690 --> 02:52:25.280 as we go continue to move forward. 02:52:25.280 --> 02:52:26.610 I'd love to hear more about not now 02:52:26.610 --> 02:52:31.463 because we're leaving it for the kind of like 02:52:32.430 --> 02:52:34.840 what Katie said, like the ability to hedge a portfolio 02:52:34.840 --> 02:52:38.020 in real time is a feature of this market. 02:52:38.020 --> 02:52:41.910 And if you accredit wind, solar, et cetera, 02:52:41.910 --> 02:52:43.810 only a certain percent like yes, 02:52:43.810 --> 02:52:46.410 that's being realistic about our resources, 02:52:46.410 --> 02:52:49.210 but afford obligation that's married 02:52:49.210 --> 02:52:52.580 to those accreditation standards, 02:52:52.580 --> 02:52:57.340 and limits the ability to flex in real time between 02:52:57.340 --> 02:52:59.900 if the winds blowing gas prices are $6, 02:52:59.900 --> 02:53:02.750 I'm deploying my wind resource, the winds not blowing 02:53:02.750 --> 02:53:05.340 and coal is cheaper than gas, this heat, right? 02:53:05.340 --> 02:53:07.940 I'm deploying my coal. 02:53:07.940 --> 02:53:12.790 So I'll just ask everybody involved 02:53:12.790 --> 02:53:17.790 to think about how do we capture the feature of yes, 02:53:19.700 --> 02:53:24.130 we want the entire market to be reliable every day, 02:53:24.130 --> 02:53:27.905 while still also allowing our participants 02:53:27.905 --> 02:53:30.740 that real time or near real time 02:53:30.740 --> 02:53:33.720 portfolio optimization flexibility, 02:53:33.720 --> 02:53:38.720 without requiring ERCOT to administer an ice or CME, 02:53:38.940 --> 02:53:41.623 like centrally cleared market stuff. 02:53:43.350 --> 02:53:46.080 And that's where I'm coming from how do we ensure 02:53:46.080 --> 02:53:51.080 a year round reliability and address the operational issues 02:53:51.770 --> 02:53:55.150 that we are have been faced with could be faced with again, 02:53:55.150 --> 02:53:57.219 in some form or fashion in the future and are being faced 02:53:57.219 --> 02:53:59.810 with and what I mean by that is cold weather 02:53:59.810 --> 02:54:03.493 and a tremendous amount of variability on our system. 02:54:05.820 --> 02:54:09.210 And oftentimes, real time conditions that we're having 02:54:09.210 --> 02:54:12.450 to deal with as a result of that, but also you know, 02:54:12.450 --> 02:54:15.000 just higher than demand higher than expected demand 02:54:16.780 --> 02:54:18.590 in conjunction or separately 02:54:18.590 --> 02:54:23.410 from higher than expected generation, 02:54:25.780 --> 02:54:27.890 higher than expected lower generation output 02:54:27.890 --> 02:54:30.240 and that could be wind, solar and even thermal. 02:54:31.680 --> 02:54:36.680 So that's how we classify operational reliability issues we 02:54:36.990 --> 02:54:39.370 that I would like to solve for, in addition 02:54:39.370 --> 02:54:44.370 to providing a bedrock of as a bedrock as we can provide 02:54:48.070 --> 02:54:53.070 of year round reliability for the public and Texans. 02:54:58.590 --> 02:55:02.957 Kind of the bottom line then, all right we closed. 02:55:02.957 --> 02:55:05.382 I'll yield my one minute back. 02:55:05.382 --> 02:55:06.810 (crowd laughing) 02:55:06.810 --> 02:55:09.070 Will make an exception for it. 02:55:09.070 --> 02:55:10.023 So do I get two? 02:55:15.490 --> 02:55:17.380 I guess I just wanna thank all the participants. 02:55:17.380 --> 02:55:20.700 I mean, we've gone I put in a lot of work, 02:55:20.700 --> 02:55:23.060 have done a lot of effort. 02:55:23.060 --> 02:55:24.253 It's a good discussion. 02:55:25.090 --> 02:55:26.940 You know, I hope that we come 02:55:26.940 --> 02:55:30.270 to the conclusion that creates the right investment 02:55:31.910 --> 02:55:33.500 atmosphere, that's what we need. 02:55:33.500 --> 02:55:34.370 That's what we want. 02:55:34.370 --> 02:55:37.700 And certainty is I think, 02:55:37.700 --> 02:55:39.010 the name of the game going forward. 02:55:39.010 --> 02:55:41.820 How do we get it we set it and we keep it. 02:55:41.820 --> 02:55:43.500 So thanks. 02:55:43.500 --> 02:55:46.513 All these smart people are not procure to small expense. 02:55:47.920 --> 02:55:50.883 And I would like to thank the stakeholders for that. 02:55:52.060 --> 02:55:56.300 The effort is, as noted, and on behalf 02:55:56.300 --> 02:55:58.570 of public we'd like to thank you. 02:55:58.570 --> 02:55:59.820 This has been productive. 02:56:01.270 --> 02:56:02.560 Well put. 02:56:02.560 --> 02:56:03.830 Many, many thanks. 02:56:03.830 --> 02:56:08.640 And 3:59 at 43 seconds there being no further business. 02:56:08.640 --> 02:56:10.190 This meeting of the Public Utility Commission 02:56:10.190 --> 02:56:12.043 of Texas hereby adjourned.