WEBVTT
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(gavel banging)
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Right, we will reconvene
this work session
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of the Public Utility
Commission of Texas.
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I think we covered
all of the first bucket
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or the primary topics
in the first bucket
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of SB3 related changes.
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We've designated the second
part of our work session today
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to talk about another,
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what I call above and beyond
more fundamental changes
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that I believe that SB2,
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the spirit of SB2 directed us to do.
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A lot of the things we
talked about this morning
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were mechanisms that
have been used before,
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or were already in place.
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That doesn't diminish the
value of making those changes.
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But I'm also confident
that we need to not,
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we can't stop there.
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We need to strongly
and thoroughly consider
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additional changes
to firm up our market.
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As we've said multiple times,
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I think we're solving two problems.
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We're solving an extreme
weather event problem,
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as we saw last February,
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and we're also solving
the blue sky problem.
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When we have resource
adequacy challenges
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on a perfectly normal day
with beautiful blue skies,
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like we saw last April, and
June, and July, and August,
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and late October, that is
a substantial challenge.
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We have plenty of generation in Texas.
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We've got over 110,000
megawatts installed
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and our highest peak load
demand, I think was 76,000.
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The peak this summer was 75,000.
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We've got a hundred and 110,000.
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We've got plenty of generation,
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but a good portion of
that is not firmed up.
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It can disappear leaving us
with just the 75,000 megawatts
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that we have of dispatchable.
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SB3 calls for fundamental change
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and the regular resource
adequacy challenges
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that we face periodically are I think,
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giant red flags waving
in our face that we need
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in addition to all the changes
we discussed this morning,
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above and beyond fundamental change,
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that firms up our grid.
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We've got plenty of generation.
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We need more firm dispatchable
generation and that direction
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was clear in SB3 in
the Governor's letter
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and other direction
from the legislature.
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I don't know exactly what a a
firming mechanism looks like.
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There are a variety of
ways to accomplish that.
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As you heard at our last work session,
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so far I think the LSE, some
version of an LSE obligation
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is the best solution I've heard so far.
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Of course, there's a
spectrum of versions
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of what an LSE could look like.
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And if you'll, my
colleagues will hear me,
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I'll try to lay out
the short version of,
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or array of options of
what that could look like.
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And then of course, we want to hear
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y'all's thoughts and questions.
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And then as the later
part of the conversation ,
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have a discussion about if
we don't utilize some form
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of an LSE obligation,
then what, what do we do?
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I'm happy to consider other ideas,
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and there's some
interesting ideas submitted
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in the comments this week
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though we can discuss
those at that appropriate time.
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At the end of the day,
our goal for December,
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the blueprint is, in addition
to everything we talked
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about this morning, I
think as I told Lori I'm very,
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very trigger happy,
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and the legislature wants
us to be trigger happy.
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And there are these giant red
flags that we see periodically
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are demanding, our grid is demanding
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that we be trigger happy.
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The goal is for December
is to make decisions
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about what mechanisms to choose,
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what horse to back, if you will.
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That does not mean that we will have
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every single detail figured out.
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That does not mean
every single nut and bolt
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will be in place, of course,
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but we need to provide our market,
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and our stakeholders and
investors, and most importantly,
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the people of Texas some
indication of where we're going,
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what we we're doing
to solve this problem,
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to make this grid reliable
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and show them how we're gonna do it.
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Of course, there'll be more
analysis and implementation.
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Of course there'll be more
work to be done after that point.
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But like I said, we need
to, on all of these tools
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that we're discussing
need to get to the point,
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we can pick a direction
and go from there.
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With that, I'll lay out some brief
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additional thoughts on
the LSE obligation to build
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on the conversation
from last work session.
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I mentioned the spectrum
of LSE obligations.
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The NRG proposal is
what I call, land somewhere
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on what I would call the
heavier handed approach.
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And I'll offer these
comments as bookends,
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not suggestions from the
heaviest most robust version
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to the lightest touch version.
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The heaviest hand,
whether it's energy or any,
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some variation of that
proposal creates a new product,
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a new capacity type credit.
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In order to provide transparency
and ensure there's no,
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or there's mitigation of market powers
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would require that
capacity credit to be traded
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and exchanged in a transparent way,
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probably through a central
clearing mechanism at ERCOT,
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I think CRR on steroids.
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That shows price, volume, counterparties
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so that everybody especially the IMM,
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but also the entire marketplace
can see who's selling what
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to who, when, how
much and at what price.
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That is as you can imagine,
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you asked the implementation
question last time,
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that's a big time
implementation exercise.
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That's a major undertaking,
it provides transparency,
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it provides a market
mechanism to require the retailers
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to procure the ability
and the capability
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to provide power to the
customers that they promised
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they were gonna deliver that good too.
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That's the heaviest hand approach,
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the other bookend you've
got the lightest touch.
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That would be something
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or a solution that does
not create a new product,
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no new capacity credit,
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no new product is created,
or traded, or exchanged.
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So that's what we could
call simply proof of purchase.
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The Commission sets
an accreditation standard
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that holds each
resource type accountable
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for the level of
reliability it can provide,
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or is expected to provide
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and we simply ask for proof of purchase
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of an LSE's expected
load for the set timeframes,
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very much an audit exercise.
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It could even be as simple
as asking LSEs to ensure
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that they are fully hedged
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and only with dispatchable resources.
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And if they show up
in the real-time market,
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unhedged, accounting for forecast error,
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that will always be there.
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But if they show up short
in the real-time market,
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there's some sort of
penalty associated with that.
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So that's a much lighter touch
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that doesn't have any public
transparency component to it.
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So I'd offer those as the
bookends of what an LSE obligation
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could look like.
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Like I said, we're not gonna
figure that out by December,
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but I know we must continue
to evaluate options like this.
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And so there's also of course,
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market protection mechanisms
that can be put in place.
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For new entrance in the market,
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you could easily have
a two-year exemption
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for any obligation, or until
they reach a certain load size.
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You could have price
caps in the first few years
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of implementation to ensure
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that the financial liability is limited,
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especially as the new
dispatchable generation
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that we've been directed to incentivize,
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and that we need so badly
is brought into the system.
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We know we don't have
enough dispatchable generation
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and whatever form that takes.
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We know we need more.
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We know it's not built now.
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And so somebody somewhere
somehow has to put their money
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on the table and pay
somebody to build it.
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The reason I have
favor an LSE obligation
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is 'cause that's just requiring
the marketplace to buy it,
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rather than the central
administration of ERCOT.
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The other reason the market
participants are the ones mixing
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and matching the resources,
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according to the prescribed
accreditation standard.
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It's not us, it's not the
central administration,
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the other reason, but
somebody has got to put money
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out there and buy these resources
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and pay for dispatchable resources.
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It can be the market.
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It can be the Centrally
Administrated ISO.
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That's the choice we've got to make.
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I prefer to the market.
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I think our, in general Texas prefers
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market based solutions,
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and also suggested the LSE obligation
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because especially in the
absence of creating a new product
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and just on the proof of purchase side,
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show us your receipt,
you're just requiring LSEs
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to purchase the power
that they expect to use.
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You're not spending money on resources
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that are deliberately intended
to be held out of the market,
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except when there's scarcity and crisis.
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So, those are a few thoughts.
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I'll stop there.
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Happy to try to answer any questions.
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I know we've got multiple resources here
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that can provide a lot
more detail if needed.
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So, open it up.
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This is the pinata part.
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So, I'll go first.
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I mean, so Chairman
Lake, thank you for laying out
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where you're at right
now and everything.
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I've spent some time
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looking at Senate Bill
3 and what it requires
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and what it doesn't require.
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And I believe that if we wanted to make
00:11:53.450 --> 00:11:56.600
a market redesign change,
we have the authority to do so,
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but what SB3 asks from us
00:11:58.700 --> 00:12:00.970
is not directly a firming requirement.
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It asks from us a variety of measures
00:12:05.180 --> 00:12:07.363
to reach a reliability requirement.
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And what I mean by that
00:12:10.403 --> 00:12:14.881
is they've got a specific
section, a new section, 39 151.
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I don't wanna sit here and read it all,
00:12:16.200 --> 00:12:19.990
but it talks about
establishing your requirement
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to meet the reliability
needs of the power region.
00:12:22.250 --> 00:12:24.000
And that in my mind, you can interpret
00:12:24.000 --> 00:12:26.290
that as a reliability standard
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or at least some kind of
requirement that we have
00:12:28.919 --> 00:12:31.473
to meet with dispatchable generation.
00:12:32.340 --> 00:12:33.720
We still don't have any feedback
00:12:33.720 --> 00:12:35.570
on our reliability
requirement, or target,
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or anything at this point.
00:12:37.770 --> 00:12:39.380
It requires us to periodically,
00:12:39.380 --> 00:12:41.570
but at least annually
determine the quantity
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and characteristics
of the ancillary service
00:12:43.410 --> 00:12:46.080
or reliability service necessary
00:12:46.080 --> 00:12:49.520
to ensure appropriate
reliability during extreme heat,
00:12:49.520 --> 00:12:51.380
extreme cold weather, and during times
00:12:51.380 --> 00:12:54.030
of low dispatchable power
generation priority region.
00:12:54.030 --> 00:12:55.530
That sounds like blue sky day.
00:12:57.600 --> 00:13:01.790
And so it requires those
ancillary and reliability services
00:13:01.790 --> 00:13:05.720
to be procured on a
competitive basis to ensure
00:13:05.720 --> 00:13:08.120
that reliability is maintained
during extreme heat
00:13:08.120 --> 00:13:09.740
and extreme cold weather conditions.
00:13:09.740 --> 00:13:12.720
And during times of low
non-dispatchable power production
00:13:12.720 --> 00:13:14.030
in the power region.
00:13:14.030 --> 00:13:15.800
We have to come up with qualifications
00:13:15.800 --> 00:13:19.757
and performance
requirements for those services
00:13:19.757 --> 00:13:22.980
and sizes for the services.
00:13:22.980 --> 00:13:26.700
And so from my perspective,
00:13:26.700 --> 00:13:31.390
and I certainly respect
the fact and the charge
00:13:31.390 --> 00:13:34.280
that we've been mandated
with to drive more steel
00:13:34.280 --> 00:13:35.870
in the ground for
dispatchable generation,
00:13:35.870 --> 00:13:40.870
but for I'm sitting here today,
I want, from my perspective,
00:13:40.980 --> 00:13:44.090
I think we got to focus
on what SB3 requires,
00:13:44.090 --> 00:13:46.630
and we've got to keep a little
bit more broader perspective
00:13:46.630 --> 00:13:47.610
on what it requires.
00:13:47.610 --> 00:13:52.290
I don't see a straight firming
requirement being required.
00:13:52.290 --> 00:13:54.230
So, from where I'm coming from,
00:13:54.230 --> 00:13:57.500
I just want to keep at
least a broader perspective
00:13:57.500 --> 00:14:02.140
as to what maybe long-term solutions,
00:14:02.140 --> 00:14:04.180
I mean, we'll continue to
look at the LSE obligation,
00:14:04.180 --> 00:14:09.180
but I do wanna open our perspective
00:14:10.660 --> 00:14:13.210
to think about other
proposals, because I think
00:14:14.327 --> 00:14:17.230
there's a lot in SB3 that
ties to ancillary services
00:14:17.230 --> 00:14:19.220
and reliability services.
00:14:19.220 --> 00:14:22.480
And we must be mindful of that language.
00:14:22.480 --> 00:14:24.930
The other thing that I
think is really important,
00:14:26.880 --> 00:14:30.610
Senate Bill 7 created our
ERCOT competitive market
00:14:30.610 --> 00:14:32.393
over 20 years ago.
00:14:32.393 --> 00:14:37.280
And it moved that risk of
investment away from the consumers
00:14:39.630 --> 00:14:40.490
that were being served
00:14:40.490 --> 00:14:42.770
by regulated vertically
integrated utilities
00:14:43.750 --> 00:14:45.520
to the investment community.
00:14:45.520 --> 00:14:48.560
I fear that with an LSE
obligation construct
00:14:48.560 --> 00:14:49.580
that we're looking at right now,
00:14:49.580 --> 00:14:52.120
where we're taking that
risk and putting it right back
00:14:52.120 --> 00:14:54.170
on the consumers and departing
00:14:54.170 --> 00:14:57.170
from the underlying
principles of Senate Bill 7.
00:14:57.170 --> 00:15:00.990
And I don't think that SB3 can be read
00:15:00.990 --> 00:15:02.913
to move us in that direction.
00:15:04.560 --> 00:15:06.200
While we're trying to ensure reliability
00:15:06.200 --> 00:15:07.590
and insent dispatchable generation
00:15:07.590 --> 00:15:08.890
using a competitive market
00:15:11.160 --> 00:15:12.990
that was established by Senate Bill 7,
00:15:12.990 --> 00:15:14.193
we must be vigilant,
00:15:15.650 --> 00:15:18.040
and make sure that we're
not weakening our market
00:15:18.040 --> 00:15:19.240
and in shifting the risk
00:15:20.720 --> 00:15:23.240
from the investment community
back to the consumers.
00:15:23.240 --> 00:15:25.990
And so I just with that backdrop,
00:15:25.990 --> 00:15:28.833
but, I just want to lay that out.
00:15:29.900 --> 00:15:32.423
And as we continue to
look at long-term solutions,
00:15:33.500 --> 00:15:35.197
whether the LSE obligation
00:15:35.197 --> 00:15:37.163
and any other solution
that's out there that,
00:15:37.163 --> 00:15:40.280
that I really would like to
bring some more options.
00:15:40.280 --> 00:15:41.113
I don't wanna be looking
at just one option--
00:15:41.113 --> 00:15:42.820
I'd welcome
any and other options.
00:15:42.820 --> 00:15:43.750
I didn't see a lot.
00:15:43.750 --> 00:15:46.340
There were a few in
the comments this week.
00:15:46.340 --> 00:15:50.056
And if you'll, go ahead.
00:15:50.056 --> 00:15:51.479
Oh, sure.
00:15:51.479 --> 00:15:55.220
So, to close all this, I just wanna say,
00:15:55.220 --> 00:15:57.930
I continue to believe
that we need to move
00:15:57.930 --> 00:16:01.600
in a strategic targeted phase manner
00:16:01.600 --> 00:16:04.694
to ensure greater
reliability and resiliency.
00:16:04.694 --> 00:16:07.950
While we take the time to thoughtfully,
00:16:07.950 --> 00:16:10.210
deliberately and holistically evaluate
00:16:10.210 --> 00:16:11.810
all potential long-term options
00:16:11.810 --> 00:16:13.960
that can help maintain
grid reliability in the future,
00:16:13.960 --> 00:16:15.903
as our industry continues to evolve.
00:16:18.010 --> 00:16:19.510
The Commission's evaluation
00:16:19.510 --> 00:16:22.720
from my perspective of
potential long-term actions
00:16:22.720 --> 00:16:24.860
that would result in a mass redesign
00:16:24.860 --> 00:16:27.800
of the ERCOT competitive
market must be fully evaluated
00:16:27.800 --> 00:16:30.460
and vetted before
we can pull the trigger.
00:16:30.460 --> 00:16:32.320
I know we're all ready
to pull the trigger,
00:16:32.320 --> 00:16:37.320
but I would prefer to pull the
trigger in a very calculated,
00:16:37.330 --> 00:16:39.140
strategic, targeted way, right?
00:16:39.140 --> 00:16:42.870
We shoot a gun to hit the target, right?
00:16:42.870 --> 00:16:43.703
Sure.
00:16:43.703 --> 00:16:45.770
On moving forward
with the implementation.
00:16:45.770 --> 00:16:48.640
So too much is at stake for us
00:16:48.640 --> 00:16:51.700
not to really scrub down
every long-term proposal
00:16:51.700 --> 00:16:54.300
in a very, very diligent way.
00:16:54.300 --> 00:16:55.710
It's critically important matter.
00:16:55.710 --> 00:16:57.890
And well, that will have
long lasting impacts
00:16:57.890 --> 00:17:00.040
on our market and our state.
00:17:00.040 --> 00:17:01.490
That's where I'm coming from.
00:17:02.560 --> 00:17:07.560
I just wanted to set the table
as to kind of how I'm seeing
00:17:09.950 --> 00:17:13.040
potential LSE obligation
and how I would like
00:17:13.040 --> 00:17:16.740
to look at other potential
long-term solutions
00:17:16.740 --> 00:17:19.490
as we move forward in our
evaluation of those measures.
00:17:20.490 --> 00:17:22.600
Sure, let's start scrubbing.
00:17:22.600 --> 00:17:24.013
We've been asking for ideas.
00:17:25.270 --> 00:17:28.690
We've got a very narrow scope of ideas.
00:17:28.690 --> 00:17:32.120
And so let's start scrubbing.
00:17:32.120 --> 00:17:34.053
You mentioned investor risk.
00:17:34.940 --> 00:17:39.560
I wanna clarify that an LSE obligation
00:17:39.560 --> 00:17:42.050
is not risk on consumers.
00:17:42.050 --> 00:17:47.050
It's risk on companies that
have promised to provide power
00:17:47.050 --> 00:17:50.253
to the consumers when
they took their money.
00:17:51.340 --> 00:17:53.440
The risk isn't on the
consumer, it's on the company,
00:17:53.440 --> 00:17:54.920
the retail company.
00:17:54.920 --> 00:17:57.330
Those retail companies
also have investors
00:17:57.330 --> 00:17:59.280
just like generators have investors.
00:17:59.280 --> 00:18:00.910
Oftentimes it's the same investor
00:18:00.910 --> 00:18:04.170
when it's an affiliated
generator with retailers.
00:18:04.170 --> 00:18:07.110
So in no way would an
LSE obligation move the risk
00:18:07.110 --> 00:18:08.380
to the individual consumer.
00:18:08.380 --> 00:18:12.220
It would move it to a
different set of customers.
00:18:12.220 --> 00:18:16.727
And I know you care deeply
about consumers as I do
00:18:16.727 --> 00:18:17.630
and we all do.
00:18:17.630 --> 00:18:19.490
That's why we're here
at the end of the day.
00:18:19.490 --> 00:18:22.470
We're not here to create
new revenue streams
00:18:22.470 --> 00:18:25.490
for these companies or to
juice their operating income.
00:18:25.490 --> 00:18:27.980
We're here for the consumers of Texas.
00:18:27.980 --> 00:18:32.980
And my part of the concern
with the current framework
00:18:33.410 --> 00:18:38.410
is that when asking about
what an LSE obligation
00:18:39.090 --> 00:18:44.090
might look like to a
retailer and their investors,
00:18:46.610 --> 00:18:51.360
one response I got
was a retail provider,
00:18:51.360 --> 00:18:54.320
picking up a coaster, waving in my face,
00:18:54.320 --> 00:18:57.670
saying we don't provide
power, we sell things.
00:18:57.670 --> 00:18:58.960
We don't do, it doesn't matter.
00:18:58.960 --> 00:18:59.990
It could be this coaster.
00:18:59.990 --> 00:19:01.000
We're just sales.
00:19:01.000 --> 00:19:05.440
That's all we do,
which is not in my mind,
00:19:05.440 --> 00:19:09.430
providing reliable
power to our customers,
00:19:09.430 --> 00:19:11.680
our consumers, our businesses,
00:19:11.680 --> 00:19:14.410
that's a sales shop that
doesn't care what they're selling
00:19:14.410 --> 00:19:17.120
as long as they get
more people to sell it to.
00:19:17.120 --> 00:19:20.340
And I have no problem starting
to add some accountability
00:19:20.340 --> 00:19:22.080
to people like that.
00:19:22.080 --> 00:19:24.350
Okay, well, I would just
like to say that the retailers
00:19:24.350 --> 00:19:26.787
are not required to own generation.
00:19:26.787 --> 00:19:28.550
That is not the way our
competitive market is structured.
00:19:28.550 --> 00:19:30.019
So
They're prohibited.
00:19:30.019 --> 00:19:32.240
They're prohibited, so.
00:19:32.240 --> 00:19:33.470
Sure, but at
the same, I mean,
00:19:33.470 --> 00:19:35.950
you can't pretend like retail providers
00:19:35.950 --> 00:19:37.450
don't have investors.
00:19:37.450 --> 00:19:41.970
If you own shares of any
of the affiliated generators
00:19:41.970 --> 00:19:43.210
that we have in our market.
00:19:43.210 --> 00:19:45.120
And we're glad to have them,
00:19:45.120 --> 00:19:48.343
any of them NRG, Vista, Calpine, Exelon,
00:19:50.180 --> 00:19:51.720
any of them.
00:19:51.720 --> 00:19:55.110
You are an investor in both
the underlying generators
00:19:55.110 --> 00:19:57.690
and the underlying retailers.
00:19:57.690 --> 00:20:00.920
So the risk is on the
investors and those retailers.
00:20:00.920 --> 00:20:02.053
That's the objective.
00:20:03.990 --> 00:20:07.300
Mr. Chairman, listening
to the spectrum of proposals
00:20:07.300 --> 00:20:11.310
that you've laid out,
one as we move forward,
00:20:11.310 --> 00:20:13.750
and again, as Sam's
watching this and Brattle,
00:20:13.750 --> 00:20:18.083
as he is developing his
recommendations and his study,
00:20:19.560 --> 00:20:20.713
what's important to me,
00:20:21.862 --> 00:20:25.200
and I believe it should remain
consistent with the products
00:20:25.200 --> 00:20:27.740
that we have already discussed.
00:20:27.740 --> 00:20:31.830
Price responsive behavior
on the part of the market.
00:20:31.830 --> 00:20:34.850
In real time, it's been the
beauty of the ERCOT market.
00:20:34.850 --> 00:20:39.703
Again, it will allow us to
better manage the resource mix
00:20:39.703 --> 00:20:43.353
than most because our
market is already accustomed to,
00:20:43.353 --> 00:20:45.180
I've got to be responsive
to price somehow.
00:20:45.180 --> 00:20:47.210
Other markets don't
necessarily have that.
00:20:47.210 --> 00:20:52.210
So as Sam's listening and
as Brattle is taking notes,
00:20:52.410 --> 00:20:53.960
we've got to continue that
00:20:53.960 --> 00:20:56.090
because it is my foundational belief
00:20:56.090 --> 00:21:01.090
that whatever firming
requirement vision on loads
00:21:02.070 --> 00:21:04.330
or resources is pursued,
00:21:04.330 --> 00:21:08.900
or if we pursue it in the
coming months or years,
00:21:08.900 --> 00:21:12.970
it's still must remain
a bedrock principle
00:21:12.970 --> 00:21:16.510
and an attribute of the
ERCOT marketplace.
00:21:16.510 --> 00:21:19.440
Absolutely.
With that, I think
00:21:19.440 --> 00:21:22.020
it would be useful subject
00:21:22.020 --> 00:21:25.083
to Commissioner Gloflefty's
comments or questions to you,
00:21:28.240 --> 00:21:30.960
to be able to call someone
up who can answer
00:21:30.960 --> 00:21:34.300
some kind of a practical
exercise questions
00:21:34.300 --> 00:21:37.433
on what firming requirements look like.
00:21:38.380 --> 00:21:40.430
And with having said that I'd like
00:21:40.430 --> 00:21:45.430
to call up Lubbock Power
and Light to talk through, okay,
00:21:45.770 --> 00:21:49.693
SBP in that market, and
again, they just transitioned.
00:21:50.610 --> 00:21:53.100
What does that look like in SBP?
00:21:53.100 --> 00:21:55.340
How is your proposal different?
00:21:55.340 --> 00:21:58.760
And again, how does that
harness the best aspects of both?
00:21:58.760 --> 00:21:59.593
Could we?
00:21:59.593 --> 00:22:01.274
Sure.
Okay.
00:22:01.274 --> 00:22:02.107
It looks like they already did.
00:22:02.107 --> 00:22:05.520
Welcome.
(all laughing)
00:22:05.520 --> 00:22:07.620
Quickly before we go
through this line of questioning.
00:22:07.620 --> 00:22:12.510
I would say that in any
version of an LSE obligation
00:22:12.510 --> 00:22:16.130
on that spectrum, demand
response should be treated exactly
00:22:16.130 --> 00:22:19.260
as any other generating
source with both the benefits
00:22:19.260 --> 00:22:20.163
and the penalties.
00:22:21.130 --> 00:22:24.640
So I think that would not only continue
00:22:26.890 --> 00:22:31.360
to allow demand response, it
would enhance it dramatically
00:22:31.360 --> 00:22:35.340
because now that demand
response has to be quantified
00:22:35.340 --> 00:22:37.780
and you have to be accountable for it.
00:22:37.780 --> 00:22:42.780
The command, it's a reinforced
version of the command
00:22:42.880 --> 00:22:47.150
and control you've correctly
identified as so important
00:22:47.150 --> 00:22:48.090
to demand response.
00:22:48.090 --> 00:22:50.470
Not only does ERCOT need
to be able to have the command
00:22:50.470 --> 00:22:51.980
and control for distributed resources,
00:22:51.980 --> 00:22:54.180
we're gonna count on
that demand response.
00:22:54.180 --> 00:22:56.400
As you correctly suggest,
00:22:56.400 --> 00:22:58.140
it's not much good if you don't have
00:22:58.140 --> 00:23:01.680
that command and control to rely on
00:23:01.680 --> 00:23:05.280
this would not only require that,
00:23:05.280 --> 00:23:08.040
but any version of those LSE
requirements would require
00:23:08.040 --> 00:23:11.580
the quantification of it
and the accountability of it.
00:23:11.580 --> 00:23:13.980
So this would be one
of the most, I mean,
00:23:13.980 --> 00:23:17.840
this would supercharged demand response
00:23:17.840 --> 00:23:21.290
because it's not just
kinda, as it happens go with,
00:23:21.290 --> 00:23:25.280
it's now accountable, it's
quantified and it's valued.
00:23:25.280 --> 00:23:26.520
So I would say
00:23:26.520 --> 00:23:30.020
it's not only continuing
to allow demand response
00:23:30.020 --> 00:23:31.960
it's reinforcing and encouraging it.
00:23:31.960 --> 00:23:36.960
In your view, if this
panacea of demand response
00:23:37.600 --> 00:23:41.620
behaving as generation is
developed, again accountable
00:23:41.620 --> 00:23:45.360
on the same standards as
frankly, a resource, again,
00:23:45.360 --> 00:23:50.267
aggregated DG, how
is an unaffiliated retailer,
00:23:53.338 --> 00:23:54.750
and again, this would be accounted for
00:23:54.750 --> 00:23:56.430
in the CDR and for our purposes,
00:23:56.430 --> 00:23:59.010
reliability metrics moving forward.
00:23:59.010 --> 00:24:02.280
How would an unaffiliated
rep who is again,
00:24:02.280 --> 00:24:06.280
not a generator first own those assets
00:24:06.280 --> 00:24:08.844
and still not run afoul of PURA.
00:24:08.844 --> 00:24:10.620
Own demand response?
00:24:10.620 --> 00:24:14.140
Well, DG to an aggregated
degree where there, I mean,
00:24:14.140 --> 00:24:16.730
thousand megawatt plays, Octopus Energy.
00:24:16.730 --> 00:24:20.090
If they harness enough DG
where they're commanding
00:24:20.090 --> 00:24:22.550
and committing a thousand megawatts.
00:24:22.550 --> 00:24:23.800
Well, if we're gonna say
00:24:23.800 --> 00:24:28.370
we can't accept distributed
generation from retailers,
00:24:28.370 --> 00:24:29.930
because that runs afoul PURA,
00:24:29.930 --> 00:24:31.943
we've gotta open up a whole nother--
00:24:31.943 --> 00:24:33.160
I know, I'm just
trying to think
00:24:33.160 --> 00:24:36.510
through legal can of norms
type issues and stuff like that.
00:24:36.510 --> 00:24:41.510
I mean, if that's the,
regardless of an LSE obligation,
00:24:41.670 --> 00:24:43.790
if distributed generation
00:24:43.790 --> 00:24:48.580
can be treated as a retailer
regardless of affiliation,
00:24:48.580 --> 00:24:53.470
if the subsidiary of
the corporate structure
00:24:53.470 --> 00:24:55.730
owns and treats, if we're gonna treat
00:24:55.730 --> 00:25:00.730
that distributed generation
as a retailer owning generation,
00:25:02.730 --> 00:25:04.450
and you read that contrary to PURA,
00:25:04.450 --> 00:25:07.750
then we need to put the brakes
on any distributed generation
00:25:07.750 --> 00:25:08.900
coming on to ERCOT at all.
00:25:08.900 --> 00:25:10.730
I don't wanna do
that, but I just raised it--
00:25:10.730 --> 00:25:12.180
Okay, well, if
we're gonna do it,
00:25:12.180 --> 00:25:13.650
let's do it everywhere.
00:25:13.650 --> 00:25:16.730
Not just on a specific proposal.
00:25:16.730 --> 00:25:18.800
It's a fair question
we need to consider,
00:25:18.800 --> 00:25:20.570
but let's consider universally.
00:25:20.570 --> 00:25:23.293
Okay.
Lubbock.
00:25:24.970 --> 00:25:27.120
Hi, do you wanna
explain your experience?
00:25:27.120 --> 00:25:28.650
I'm David McCullough,
I'm the Director
00:25:28.650 --> 00:25:31.380
of Electric Utilities with
Lubbock Power and Light.
00:25:31.380 --> 00:25:32.213
Welcome.
00:25:32.213 --> 00:25:35.213
I can tell you a little bit
about our experience in 2014.
00:25:36.349 --> 00:25:38.780
When I started with
Lubbock Power and Light,
00:25:38.780 --> 00:25:42.500
we undertook to secure
power supply for a contract
00:25:42.500 --> 00:25:44.370
that was expiring in 2019,
00:25:44.370 --> 00:25:47.380
long in advance of when
it was actually expiring.
00:25:47.380 --> 00:25:50.040
And so we went through an RFP process,
00:25:50.040 --> 00:25:51.830
looked at a number of options,
00:25:51.830 --> 00:25:54.933
including local
generation build options.
00:25:56.240 --> 00:26:01.170
And the most attractive
option we got was a PPA option
00:26:01.170 --> 00:26:03.160
that was ERCOT based
when we did the RFP,
00:26:03.160 --> 00:26:05.630
we opened it up to ERCOT and SBP options
00:26:05.630 --> 00:26:08.700
because the CREZ lines were
in close proximity to Lubbock.
00:26:08.700 --> 00:26:09.660
We thought that it was an option
00:26:09.660 --> 00:26:12.030
that we should at least
consider and look at.
00:26:12.030 --> 00:26:14.580
So the PPA option was
far and away the best option
00:26:14.580 --> 00:26:16.960
that we looked at, it was ERCOT based.
00:26:16.960 --> 00:26:19.670
So the first thing we did
was ask that company,
00:26:19.670 --> 00:26:22.830
if they could structure
that as an SBP product.
00:26:22.830 --> 00:26:24.490
And they tried really hard to do that.
00:26:24.490 --> 00:26:27.680
We all took a trip to
Little Rock, Arkansas
00:26:27.680 --> 00:26:30.630
and met with the executives
of Southwest Power Pool
00:26:30.630 --> 00:26:33.670
in Little Rock and went back and forth.
00:26:33.670 --> 00:26:34.880
And because of their
00:26:36.250 --> 00:26:39.940
load responsible entity
resource adequacy obligation,
00:26:39.940 --> 00:26:42.373
it's a physical generation requirement.
00:26:43.670 --> 00:26:45.680
You've got to prove that you have access
00:26:45.680 --> 00:26:46.720
to physical generation.
00:26:46.720 --> 00:26:49.390
And not only that, but it's
deliverable to your load.
00:26:49.390 --> 00:26:52.470
The deliverability
problem was where we got
00:26:52.470 --> 00:26:54.180
wrapped around the axle with,
00:26:54.180 --> 00:26:56.807
with their program is because
Lubbock was kind of at the end
00:26:56.807 --> 00:27:00.200
of the transmission system and SBP,
00:27:00.200 --> 00:27:02.300
we were in a constrained
part of the grid.
00:27:03.290 --> 00:27:05.660
There were capacity options available
00:27:05.660 --> 00:27:07.890
in Nebraska and other places that were
00:27:07.890 --> 00:27:11.660
economically priced, but we
could not get those delivered
00:27:11.660 --> 00:27:12.890
into Lubbock.
00:27:12.890 --> 00:27:15.600
So, ultimately we decided
00:27:17.170 --> 00:27:18.910
not to exercise the build options,
00:27:18.910 --> 00:27:20.640
but to pursue integration with ERCOT,
00:27:20.640 --> 00:27:22.870
that happened in 2015.
00:27:22.870 --> 00:27:23.703
Okay.
00:27:26.330 --> 00:27:30.583
So in the accreditation portion for SBP,
00:27:31.530 --> 00:27:34.563
how functionally did that
work in your experience?
00:27:35.540 --> 00:27:38.773
How do you get different
resources accounted for?
00:27:39.750 --> 00:27:43.070
Well, they do have an
accreditation process.
00:27:43.070 --> 00:27:47.783
They look at generally
the fossil fuel units,
00:27:50.150 --> 00:27:53.980
gas and coal and nuclear and all those,
00:27:53.980 --> 00:27:56.930
they generally get a
hundred percent accreditation,
00:27:56.930 --> 00:28:00.660
the wind resources get a
much lower accreditation
00:28:00.660 --> 00:28:01.963
and then solar,
00:28:04.150 --> 00:28:06.280
kind of at lower percentage as well.
00:28:06.280 --> 00:28:10.590
But generally, when
you sign up for a capacity,
00:28:10.590 --> 00:28:15.120
you've gotta know what
its accreditation value is.
00:28:15.120 --> 00:28:18.480
SBP determines that,
and you've gotta cover
00:28:18.480 --> 00:28:20.540
a hundred percent of your load
00:28:20.540 --> 00:28:23.420
with these deliverable resources.
00:28:23.420 --> 00:28:26.640
And then the 12% reserve
margin can be covered
00:28:26.640 --> 00:28:28.527
with non-deliverable assets.
00:28:28.527 --> 00:28:29.940
That's something that changed
00:28:29.940 --> 00:28:31.420
after we went through this process.
00:28:31.420 --> 00:28:33.360
Okay, and in the
real-time market,
00:28:33.360 --> 00:28:36.470
how does SBP sort of
look compared to ERCOT
00:28:36.470 --> 00:28:38.290
now that you're in?
00:28:38.290 --> 00:28:39.840
What was your experience there?
00:28:42.364 --> 00:28:45.660
They have LMPs, you can
offer into the day ahead market
00:28:45.660 --> 00:28:47.080
and settle in the real-time market,
00:28:47.080 --> 00:28:51.610
but there's not a robust,
actively traded forward market
00:28:51.610 --> 00:28:55.800
in SBP that we could make access to.
00:28:55.800 --> 00:29:00.800
So it's not a actively traded
liquid, wholesale market
00:29:01.445 --> 00:29:02.470
like what we have in ERCOT.
00:29:02.470 --> 00:29:05.460
And that was one of the
features that was attractive to us
00:29:05.460 --> 00:29:07.232
as well coming to ERCOT.
00:29:07.232 --> 00:29:10.000
Is that because they're
vertically integrated utilities,
00:29:10.000 --> 00:29:12.750
or because of some requirement on LSEs
00:29:12.750 --> 00:29:14.360
to prove they've purchased the power,
00:29:14.360 --> 00:29:16.380
they promise to their customers?
00:29:16.380 --> 00:29:17.970
It's a good question,
00:29:17.970 --> 00:29:20.070
I can't tell you that I
know the answer precisely.
00:29:20.070 --> 00:29:22.281
I think it has probably has
something to do with the fact
00:29:22.281 --> 00:29:24.900
that vertically integrated utilities
00:29:24.900 --> 00:29:28.040
and it's primarily a physical market,
00:29:28.040 --> 00:29:30.670
unlike in ERCOT where you
have a lot of financial traders,
00:29:30.670 --> 00:29:33.590
you've got active financial institutions
00:29:33.590 --> 00:29:34.423
that are active in this market.
00:29:34.423 --> 00:29:37.020
And that creates a lot of
liquidity in the ERCOT market
00:29:38.615 --> 00:29:39.765
and financial strength.
00:29:41.530 --> 00:29:43.630
Fair not to blame
that lack of liquidity
00:29:44.758 --> 00:29:46.643
solely on the liability obligate.
00:29:47.590 --> 00:29:51.220
No, but I would say about
the reliability obligation,
00:29:51.220 --> 00:29:54.230
SBP had 23% reserves
00:29:54.230 --> 00:29:56.440
in their latest resource
adequacy report.
00:29:56.440 --> 00:30:00.903
And it declines in 2026 to 12%.
00:30:02.000 --> 00:30:05.570
They're seeing generation
retirements just like ERCOT is.
00:30:05.570 --> 00:30:08.220
And I think nationwide
we'll continue to see
00:30:08.220 --> 00:30:09.770
because of the pressures
that y'all talked about
00:30:09.770 --> 00:30:11.950
this morning, the
environmental pressures,
00:30:11.950 --> 00:30:14.810
the financial pressures,
we'll continue to see
00:30:16.170 --> 00:30:17.793
conventional resources retired.
00:30:18.750 --> 00:30:20.100
So Commissioner McAdams touched
00:30:20.100 --> 00:30:22.393
on operational reliability issues.
00:30:24.370 --> 00:30:27.380
Was LP&L and SBP
during winter storm, Larry ?
00:30:27.380 --> 00:30:30.740
We were, we did
experience rotating outages.
00:30:30.740 --> 00:30:34.010
It wasn't, we experienced
rotating outages
00:30:34.010 --> 00:30:36.170
on the 15th and the 16th.
00:30:36.170 --> 00:30:38.597
A longer period of time
on the morning of the 16th.
00:30:38.597 --> 00:30:41.673
And what drove those
interruptions was SBP
00:30:44.450 --> 00:30:47.630
was importing about
six gigawatts of power
00:30:47.630 --> 00:30:50.030
from adjacent RTOs.
00:30:50.030 --> 00:30:53.990
That's an advantage that
ERCOT doesn't present have,
00:30:53.990 --> 00:30:56.920
but so it was the imports
that really saved them
00:30:56.920 --> 00:31:00.113
from more lengthy
rotating outage scenario.
00:31:02.530 --> 00:31:04.789
Those tide lines were interrupted
00:31:04.789 --> 00:31:06.287
on the Tuesday morning event
00:31:06.287 --> 00:31:10.990
and that's what caused a
lot of the rotating outages
00:31:10.990 --> 00:31:11.823
that we experienced.
00:31:11.823 --> 00:31:12.980
Yeah, we participated in that.
00:31:12.980 --> 00:31:15.910
I've been through three rotating
outage events in my career,
00:31:15.910 --> 00:31:20.563
'89, 2011, and last year
as well, and this year.
00:31:21.430 --> 00:31:22.263
Thank you.
00:31:26.960 --> 00:31:31.960
Load growth forecast,
how does, because again,
00:31:32.530 --> 00:31:37.040
under the concepts, both
in SBP and E3 proposed
00:31:39.100 --> 00:31:41.550
and Mr. Chairman, I'm not
sure kind of the modifications,
00:31:41.550 --> 00:31:46.550
but the way we
account for the reliability
00:31:47.350 --> 00:31:50.690
or the way we account
for the need to firm
00:31:50.690 --> 00:31:53.919
is based on load
growth forecast, correct?
00:31:53.919 --> 00:31:54.752
Right.
00:31:54.752 --> 00:31:57.560
So I've seen in comments, but again,
00:31:57.560 --> 00:32:01.350
you're out there in,
Lubbock's interesting animal.
00:32:01.350 --> 00:32:02.603
I grew up south of you.
00:32:03.510 --> 00:32:06.000
It's got a good urban core dynamic,
00:32:06.000 --> 00:32:08.310
and it's got rural areas going out.
00:32:08.310 --> 00:32:11.180
It's got an oil field
play right next door.
00:32:11.180 --> 00:32:14.113
So you've had a little bit of
everything on load growth,
00:32:15.410 --> 00:32:19.640
but what are the considerations
we should take into account
00:32:19.640 --> 00:32:21.710
on the forecasting of load growth,
00:32:21.710 --> 00:32:24.680
conservative versus you
wanna get those numbers right,
00:32:24.680 --> 00:32:27.250
otherwise you're
overpaying or underpaying,
00:32:27.250 --> 00:32:28.420
or you're not gonna be there.
00:32:28.420 --> 00:32:30.790
Talk through that, how does it work?
00:32:30.790 --> 00:32:34.200
It's a challenge for all of
us and load forecasting,
00:32:34.200 --> 00:32:38.170
because particularly
for a city like Lubbock
00:32:38.170 --> 00:32:42.100
that's undergoing a fair
amount of renovation.
00:32:42.100 --> 00:32:44.420
Some of the older facilities
that are getting torn down
00:32:44.420 --> 00:32:47.080
are replaced with much
more energy efficient facilities.
00:32:47.080 --> 00:32:51.480
So you don't get a one for
one growth with new facilities
00:32:51.480 --> 00:32:52.313
that come in.
00:32:52.313 --> 00:32:54.410
Even though they're large compared
00:32:54.410 --> 00:32:55.490
to what might've been there before.
00:32:55.490 --> 00:32:57.500
So the energy efficiency
is really had a big
00:32:57.500 --> 00:32:59.820
effect on overall demand growth.
00:32:59.820 --> 00:33:02.033
It slowed down pretty significantly.
00:33:04.019 --> 00:33:06.870
We have a forecaster that works for us
00:33:06.870 --> 00:33:10.590
that develops our, our energy
forecast and demand forecasts.
00:33:10.590 --> 00:33:13.520
So that's, it's an art and a science
00:33:13.520 --> 00:33:15.753
that is beyond my
level of expertise to do.
00:33:17.140 --> 00:33:19.610
Is it subject to manipulation?
00:33:19.610 --> 00:33:21.083
Sure can be.
Great.
00:33:22.960 --> 00:33:25.750
So you mentioned
transmission constraints,
00:33:25.750 --> 00:33:29.250
keeping LP&L from being able
to meet obligation requirements
00:33:29.250 --> 00:33:31.680
in SBP, you're kind of out
there on the end of the line,
00:33:31.680 --> 00:33:32.970
on the ERCOT grid too.
00:33:32.970 --> 00:33:34.160
I mean, you're in between.
00:33:34.160 --> 00:33:35.970
We are, but we have,
00:33:37.550 --> 00:33:40.330
the advantage in the
ERCOT market is that again,
00:33:40.330 --> 00:33:44.640
we buy firm LD block
energy products for them,
00:33:44.640 --> 00:33:47.450
for the most part to hedge our load.
00:33:47.450 --> 00:33:51.400
And the wholesale
market is very functional
00:33:51.400 --> 00:33:53.080
from that standpoint, you can buy,
00:33:53.080 --> 00:33:54.670
we're buying two years
ahead of time right now,
00:33:54.670 --> 00:33:56.820
firm LD products.
00:33:56.820 --> 00:34:01.820
They're backed by
credit worthy entities that,
00:34:01.980 --> 00:34:03.860
that sell us those packages.
00:34:03.860 --> 00:34:07.103
And so we have a lot
of trust that they'll deliver
00:34:07.103 --> 00:34:08.380
when the time comes.
00:34:08.380 --> 00:34:10.223
Who determines
they're credit worthy?
00:34:11.190 --> 00:34:15.760
We work with a energy
market administrator,
00:34:15.760 --> 00:34:17.470
or third party.
00:34:17.470 --> 00:34:18.340
I probably shouldn't mention their name.
00:34:18.340 --> 00:34:19.630
That's a hired vendor.
00:34:19.630 --> 00:34:20.463
It's hired vendor.
00:34:20.463 --> 00:34:22.222
So, that's on y'all,
that's the risk on you.
00:34:22.222 --> 00:34:24.970
They do a credit
check on all the vendors
00:34:24.970 --> 00:34:27.250
that are doing business with.
00:34:27.250 --> 00:34:29.490
Okay, so that, that,
that risk is on you?
00:34:29.490 --> 00:34:31.190
It is.
In both ERCOT and SBP?
00:34:31.190 --> 00:34:33.160
Yes.
All right.
00:34:33.160 --> 00:34:38.110
You mentioned the
deliverability requirement
00:34:38.110 --> 00:34:39.630
was the key concern.
00:34:39.630 --> 00:34:40.463
It was.
00:34:40.463 --> 00:34:42.900
You said there are two
components of the SBP requirement,
00:34:42.900 --> 00:34:46.450
proving that you've procured according
00:34:46.450 --> 00:34:48.800
to the accreditation
standard of the power
00:34:48.800 --> 00:34:50.940
of your expected load plus the reserve.
00:34:50.940 --> 00:34:52.010
Right.
00:34:52.010 --> 00:34:54.830
And then the second
component was the requirement
00:34:54.830 --> 00:34:57.040
to prove that you
can get it to your load.
00:34:57.040 --> 00:34:57.873
Correct.
00:34:59.400 --> 00:35:02.050
And from your
comments, it sounded like
00:35:02.050 --> 00:35:04.700
the second part was a problem,
not so much the first part.
00:35:04.700 --> 00:35:07.770
The second part was the
problem of the, primarily,
00:35:07.770 --> 00:35:10.240
just because of the
length of time it took to run,
00:35:10.240 --> 00:35:12.050
the SBP to run this studies.
00:35:12.050 --> 00:35:13.950
You had to participate in the aggregate
00:35:13.950 --> 00:35:15.400
transmission service study,
00:35:15.400 --> 00:35:18.053
took six to 12 months
to go from start to finish.
00:35:18.053 --> 00:35:20.870
Right, but the proving
you purchased the power
00:35:20.870 --> 00:35:21.990
you were gonna purchase anyway,
00:35:21.990 --> 00:35:23.920
doesn't sound like it was too onerous.
00:35:23.920 --> 00:35:26.590
Well, there was a,
it's a bilateral market,
00:35:26.590 --> 00:35:30.740
so you could, you'd have
to get out and talk to people,
00:35:30.740 --> 00:35:32.627
but there's, there
was capacity available.
00:35:32.627 --> 00:35:34.386
It was just a matter of getting
00:35:34.386 --> 00:35:36.103
proven that it was
deliverable to your load.
00:35:36.103 --> 00:35:37.603
That was the hard part for us.
00:35:39.310 --> 00:35:40.590
So the first part,
00:35:40.590 --> 00:35:42.170
just proving that you've
purchased the power
00:35:42.170 --> 00:35:43.510
that you're going to purchase anyway,
00:35:43.510 --> 00:35:45.840
it doesn't sound like
it's a dematic departure
00:35:45.840 --> 00:35:47.447
from business, in business as usual.
00:35:47.447 --> 00:35:49.460
No, that was not the problem.
00:35:49.460 --> 00:35:51.920
Okay, and I don't
think any other proposals
00:35:51.920 --> 00:35:54.220
on the spectrum of our LSEs obligations
00:35:54.220 --> 00:35:56.960
have a deliverability requirement.
00:35:56.960 --> 00:35:59.300
In fact, the centrally cleared
00:35:59.300 --> 00:36:01.250
that even the heaviest hand approach
00:36:02.300 --> 00:36:06.087
by definition being a centrally
cleared capacity credit,
00:36:06.087 --> 00:36:08.320
can't have a deliverability
component to it
00:36:08.320 --> 00:36:11.630
because it's gotta be
fungible between all parties.
00:36:11.630 --> 00:36:14.620
On the lightest end of the
spectrum the proof of purchase
00:36:14.620 --> 00:36:18.290
shows your receipts
sounds similar to the first part
00:36:18.290 --> 00:36:20.500
that you did the first
element of SBP requirements,
00:36:20.500 --> 00:36:22.820
which you described as
not really changing business.
00:36:22.820 --> 00:36:25.120
And it is normal, no departure
00:36:25.120 --> 00:36:27.040
from your normal business
practices substantially.
00:36:27.040 --> 00:36:28.510
It was the second
part, proving you could
00:36:28.510 --> 00:36:30.360
get it to your load that
was the real challenge.
00:36:30.360 --> 00:36:33.713
That is not being considered
in any of our LSE obligations.
00:36:35.090 --> 00:36:36.973
Yeah, the IMM,
00:36:36.973 --> 00:36:38.950
read through some of the other comments,
00:36:38.950 --> 00:36:41.277
the IMM mentioned that
that might be something
00:36:41.277 --> 00:36:42.730
that would have to be
looked at at some point,
00:36:42.730 --> 00:36:44.910
but I haven't heard y'all say that
00:36:44.910 --> 00:36:45.743
that would be a requirement.
00:36:45.743 --> 00:36:48.440
And that was in my testimony
that y'all please don't make
00:36:48.440 --> 00:36:50.040
that part of your requirement.
00:36:50.040 --> 00:36:51.073
'Cause it's very problematic.
00:36:51.073 --> 00:36:53.480
It's not under
consideration in any
00:36:53.480 --> 00:36:56.060
of the versions we've seen.
00:36:56.060 --> 00:36:59.800
You mentioned you got about
a hundred percent plus the 12%.
00:36:59.800 --> 00:37:03.210
I know it was in an
additional reserve margin
00:37:03.210 --> 00:37:04.540
was in some of the proposals.
00:37:04.540 --> 00:37:07.893
And as you saw in my memo last week,
00:37:09.184 --> 00:37:11.250
that's not under consideration
00:37:12.473 --> 00:37:14.393
and the straw man, I offered.
00:37:15.270 --> 00:37:20.130
So we would, again, never
ask LSEs to buy more power
00:37:20.130 --> 00:37:23.060
than they expect to
use for their customers
00:37:23.960 --> 00:37:27.363
during some metric
related to peak demand.
00:37:29.875 --> 00:37:33.630
And finally, you
mentioned the challenges
00:37:33.630 --> 00:37:37.203
with load growth or
forecasting load growth.
00:37:38.860 --> 00:37:43.400
I think it's fair to say
that the U.S. stock market
00:37:43.400 --> 00:37:47.300
is one of the most quantified
evaluated ecosystems
00:37:47.300 --> 00:37:52.180
on the planet, and nobody
can get that one right tomorrow.
00:37:52.180 --> 00:37:54.170
So under no circumstances does any,
00:37:54.170 --> 00:37:56.810
I think any of us expect
load growth forecast
00:37:56.810 --> 00:37:59.393
to be accurate even a week out.
00:38:01.760 --> 00:38:05.970
And that is exactly why my
straw man proposal last week
00:38:05.970 --> 00:38:08.810
had a escalating requirement
00:38:08.810 --> 00:38:11.210
starting at 50%, three years out.
00:38:11.210 --> 00:38:15.530
Is there any scenario where
you see Lubbock losing 50%
00:38:15.530 --> 00:38:17.330
of its load in the next three years?
00:38:21.910 --> 00:38:24.890
Well, as you know, as
most of you might know,
00:38:24.890 --> 00:38:26.450
we're planning on
joining the retail market.
00:38:26.450 --> 00:38:29.480
So in theory, if we join the
retail market in two years,
00:38:29.480 --> 00:38:30.730
we will lose a hundred
percent of our load.
00:38:30.730 --> 00:38:33.490
Somebody else will be
responsible for the demand
00:38:33.490 --> 00:38:35.100
at that point in time.
00:38:35.100 --> 00:38:38.670
Okay, sure. (all laughing)
00:38:38.670 --> 00:38:39.753
Welcome to ERCOT.
00:38:42.660 --> 00:38:46.553
As previously,
00:38:47.972 --> 00:38:50.272
in SBP, when you're
responsible for that load,
00:38:51.250 --> 00:38:54.440
was there any scenario
where you expected to lose 50%
00:38:54.440 --> 00:38:57.097
of your load within the
timeframe of 36 months.
00:38:57.097 --> 00:39:00.630
No, absolutely, our
load is fairly stable.
00:39:00.630 --> 00:39:03.200
Weather is the biggest
factor year to year
00:39:03.200 --> 00:39:05.830
'cause you can't predict
weather three years in advance.
00:39:05.830 --> 00:39:06.920
But if you have--
Of course not.
00:39:06.920 --> 00:39:09.930
Long hot summer, your
load is gonna be 10%, 20%
00:39:09.930 --> 00:39:13.870
higher than it would
be in a mild summer.
00:39:13.870 --> 00:39:15.860
Okay, so you said
00:39:15.860 --> 00:39:20.860
you were buying the
bilateral arrangements
00:39:21.260 --> 00:39:23.930
for your power two years out, right?
00:39:23.930 --> 00:39:26.383
Yes.
Or even more with the 2019?
00:39:27.580 --> 00:39:30.120
We're buying through a summer,
00:39:30.120 --> 00:39:33.510
well, let's see, we're buying
through May of 23 right now.
00:39:33.510 --> 00:39:36.490
Okay, so you were already
buying power multiple years out?
00:39:36.490 --> 00:39:37.793
Right.
Okay.
00:39:38.970 --> 00:39:40.140
It's firm LD products though.
00:39:40.140 --> 00:39:44.020
I don't know if they qualify
under the LSE obligation,
00:39:44.020 --> 00:39:45.630
approach the chart considering.
00:39:45.630 --> 00:39:47.380
As always devil's
in the details.
00:39:48.410 --> 00:39:49.820
I mean, they're firm
from my standpoint
00:39:49.820 --> 00:39:51.630
because they're
financially firm for sure
00:39:51.630 --> 00:39:53.240
from our perspective.
00:39:53.240 --> 00:39:56.540
So Mr. McCauley, LP&L is,
00:39:57.575 --> 00:39:58.900
you're in the process of unbundling.
00:39:58.900 --> 00:40:02.220
I mean, your experience in SBP
00:40:02.220 --> 00:40:04.880
is a vertically
integrated utility, right?
00:40:04.880 --> 00:40:05.850
Right, it was.
00:40:06.820 --> 00:40:08.660
So it's a little bit of
a different experience
00:40:08.660 --> 00:40:12.640
than say a rep would have,
traditional rep would have
00:40:12.640 --> 00:40:13.893
with an LSE obligation?
00:40:15.548 --> 00:40:18.203
Yes, and the reps,
00:40:20.150 --> 00:40:23.530
reps are adding load
and losing load all the time.
00:40:23.530 --> 00:40:25.140
So I think it'd be a
little harder for a rep
00:40:25.140 --> 00:40:27.468
to predict what they're load might be
00:40:27.468 --> 00:40:29.820
two years, three years in advance.
00:40:29.820 --> 00:40:32.135
So there's a lot
of wind in SBP?
00:40:32.135 --> 00:40:32.968
Yes.
00:40:32.968 --> 00:40:35.580
Are they experiencing some
of the issues we experienced
00:40:35.580 --> 00:40:37.683
here in ERCOT where it's a low load,
00:40:40.040 --> 00:40:41.433
higher than expected load,
00:40:42.350 --> 00:40:44.453
lower than expected wind generation?
00:40:46.510 --> 00:40:47.343
They are.
00:40:47.343 --> 00:40:50.230
I think every RTO is experiencing
the same phenomenon
00:40:50.230 --> 00:40:52.650
that y'all are experiencing.
00:40:52.650 --> 00:40:56.902
SBP has got a major wind
resources coming into the grid.
00:40:56.902 --> 00:40:59.350
I don't know if they've
got as much solar
00:40:59.350 --> 00:41:00.830
as ERCOT has coming in,
00:41:00.830 --> 00:41:03.533
but they're all dealing with
the same kind of problems.
00:41:03.533 --> 00:41:07.730
And how do they manage
those operational reliability
00:41:07.730 --> 00:41:10.720
scenarios or experiences
they have with a lot of wind
00:41:10.720 --> 00:41:12.420
on the system that they drop off?
00:41:12.420 --> 00:41:15.620
And I know they're multi-state market.
00:41:15.620 --> 00:41:18.793
So, they have access
to a lot of resources,
00:41:19.665 --> 00:41:20.640
but what are some of the tools,
00:41:20.640 --> 00:41:23.090
do they have an ancillary
service market as well?
00:41:24.310 --> 00:41:26.330
They do, they deploy
a lot of the same tools
00:41:26.330 --> 00:41:27.950
that ERCOT is using?
00:41:27.950 --> 00:41:30.050
They may be a little more
aggressive about curtailing.
00:41:30.050 --> 00:41:32.547
I know we've got some wind resources
00:41:32.547 --> 00:41:35.510
that they get curtail frequently, so.
00:41:35.510 --> 00:41:40.510
So even with an SBP, some
version of an LSE obligation,
00:41:41.130 --> 00:41:42.550
they continue to rely heavily
00:41:42.550 --> 00:41:45.710
on their ancillary service
market on those types of days?
00:41:45.710 --> 00:41:48.155
Yes.
Okay, thank you.
00:41:48.155 --> 00:41:52.040
And the point I made a
minute ago, there 23% reserves
00:41:52.040 --> 00:41:54.427
and which is above where ERCOT is today
00:41:54.427 --> 00:41:56.030
and they still had rotating outages.
00:41:56.030 --> 00:41:58.230
So I think that they call it
00:41:58.230 --> 00:42:03.230
the LRE resource adequacy
requirement does not guarantee
00:42:03.300 --> 00:42:06.133
that you're gonna have a
hundred percent liability.
00:42:06.133 --> 00:42:10.993
The winter storm area was in
the extreme black swan event
00:42:13.150 --> 00:42:16.783
that affected and affected
all of us nationwide.
00:42:19.890 --> 00:42:22.680
But the wind degeneration
days are not black swan events.
00:42:22.680 --> 00:42:25.140
They're issues that all
markets are experiencing,
00:42:25.140 --> 00:42:26.133
including ERCOT.
00:42:28.400 --> 00:42:31.450
SBP has large and
growing percentage
00:42:31.450 --> 00:42:33.603
of wind in their
mix, in their portfolio.
00:42:36.660 --> 00:42:39.930
Do they have, does SBP
experience rolling blackouts
00:42:39.930 --> 00:42:43.210
on blue sky days that
you've heard us talk about?
00:42:43.210 --> 00:42:45.103
No, sir, the event in
February was the first one
00:42:45.103 --> 00:42:48.250
that'd had 80 years of being around.
00:42:48.250 --> 00:42:50.450
Yeah, the extreme
weather event is one problem.
00:42:50.450 --> 00:42:53.000
The blue sky problem
is a different problem.
00:42:53.000 --> 00:42:54.207
Okay, thank you.
00:42:54.207 --> 00:42:55.040
But that's primarily
the structure
00:42:55.040 --> 00:42:56.810
of the vertically integrated utilities
00:42:56.810 --> 00:43:00.260
that have rate-based
plants that have been in there
00:43:00.260 --> 00:43:02.290
for 50 years.
00:43:02.290 --> 00:43:05.403
So we have a very
different market from that.
00:43:07.960 --> 00:43:12.180
Sorry, it's the blue sky
problem is the result of what?
00:43:12.180 --> 00:43:14.440
Yeah, the blue, I mean,
obviously the blue sky problem,
00:43:14.440 --> 00:43:16.470
in my view, the blue sky problem there,
00:43:16.470 --> 00:43:17.670
and here it's very different
00:43:17.670 --> 00:43:20.160
because they have
vertically integrated utilities
00:43:20.160 --> 00:43:22.730
with power plants that
are in their rate base.
00:43:22.730 --> 00:43:24.840
We don't have those.
00:43:24.840 --> 00:43:25.910
They shouldn't be--
That would be called
00:43:25.910 --> 00:43:28.945
a capacity market in this space.
00:43:28.945 --> 00:43:31.057
Right, so they shouldn't
be having those problems.
00:43:31.057 --> 00:43:32.525
They shouldn't be
having those problems.
00:43:32.525 --> 00:43:34.550
And that gets us to a,
00:43:36.130 --> 00:43:38.760
if there's a capacity market issue here,
00:43:38.760 --> 00:43:41.380
that's persona non grata,
00:43:41.380 --> 00:43:45.380
but that's what they have.
00:43:45.380 --> 00:43:48.474
Sure, they'll have to
talk to the, I mean, right.
00:43:48.474 --> 00:43:50.120
If anybody wants to go
straight to the capacity market,
00:43:50.120 --> 00:43:51.340
they'll have to talk to the legislature.
00:43:51.340 --> 00:43:52.380
That's right.
00:43:52.380 --> 00:43:55.453
Well, I mean, right.
00:43:57.810 --> 00:43:58.940
I'm pretty sure the legislature
00:43:58.940 --> 00:44:00.163
would want to way in on that.
00:44:00.163 --> 00:44:03.230
I mean, anywhere near
capacity market, right.
00:44:03.230 --> 00:44:06.110
They're gonna weigh
in, I can guarantee that.
00:44:06.110 --> 00:44:07.050
They did weigh in.
00:44:07.050 --> 00:44:09.783
They're gonna weigh in
again, I guarantee you that too.
00:44:11.030 --> 00:44:16.030
Sir, on your filing, how did
you come up with the costs
00:44:17.340 --> 00:44:18.340
that you put down there?
00:44:18.340 --> 00:44:19.870
'Cause again, we're
all trying to come up
00:44:19.870 --> 00:44:24.090
with a menu of costs
that we're looking at it.
00:44:24.090 --> 00:44:26.020
Well, it was based on
00:44:26.020 --> 00:44:29.840
what we have paid
historically for capacity and SBP
00:44:29.840 --> 00:44:31.713
and just multiplied it out.
00:44:31.713 --> 00:44:35.530
It was anywhere from
$4 to $8 per KW month
00:44:35.530 --> 00:44:38.620
is what we paid for capacity and SBP,
00:44:38.620 --> 00:44:43.114
multiply that out times 12 months,
00:44:43.114 --> 00:44:45.410
times how many megawatts you need
00:44:45.410 --> 00:44:48.427
and then divide it by
your annual energy sales.
00:44:48.427 --> 00:44:50.560
And that's how I came up with that cost.
00:44:50.560 --> 00:44:51.910
Okay.
00:44:51.910 --> 00:44:53.220
I actually do have a question.
00:44:53.220 --> 00:44:57.790
So would you describe
the LSE obligation and SBP,
00:44:57.790 --> 00:45:00.570
which bookend that the
chairman talked about,
00:45:00.570 --> 00:45:04.183
is it much more proof of purchase?
00:45:04.183 --> 00:45:06.713
I would say it is a,
00:45:08.660 --> 00:45:10.560
if you look at just
the capacity part of it,
00:45:10.560 --> 00:45:12.210
it's probably the light touch approach.
00:45:12.210 --> 00:45:13.650
It's this deliverability aspect
00:45:13.650 --> 00:45:16.052
that made it so unworkable for us.
00:45:16.052 --> 00:45:17.760
Okay, so the proof
of purchase side of it
00:45:17.760 --> 00:45:19.320
is not very problematic.
00:45:19.320 --> 00:45:21.610
No, that part was not,
it was not that difficult,
00:45:21.610 --> 00:45:23.590
There's annual filings
that you have to do,
00:45:23.590 --> 00:45:26.720
show you the load forecast
and show you your contracts
00:45:26.720 --> 00:45:30.443
and generation that you
own and just match all that up.
00:45:31.410 --> 00:45:32.243
Accounting and Auditing.
00:45:32.243 --> 00:45:33.180
That part wasn't tough.
00:45:34.784 --> 00:45:36.113
Thank you.
00:45:36.113 --> 00:45:38.683
Any other questions?
No sir.
00:45:38.683 --> 00:45:40.166
All right, thank you sir.
00:45:40.166 --> 00:45:40.999
Thank you.
00:45:40.999 --> 00:45:42.580
Could we have
Bill Barnes come up
00:45:42.580 --> 00:45:47.113
and offer some thoughts
on the Lubbock perspective?
00:45:53.480 --> 00:45:54.313
Thank you.
00:45:58.090 --> 00:46:02.250
I think what you heard from Lubbock
00:46:02.250 --> 00:46:04.610
pointing out some pretty
big structural differences
00:46:04.610 --> 00:46:07.790
between the SBP market
and in the ERCOT market.
00:46:07.790 --> 00:46:11.680
So in terms of comparing--
00:46:11.680 --> 00:46:13.623
Bill, current
or as proposed?
00:46:15.370 --> 00:46:20.370
I would say current, current
markets and as proposed.
00:46:20.550 --> 00:46:21.830
Okay.
00:46:21.830 --> 00:46:23.631
The evolution of
all we need to get to.
00:46:23.631 --> 00:46:24.964
Okay.
Right.
00:46:26.690 --> 00:46:28.210
And we keep coming back
00:46:28.210 --> 00:46:31.660
to this capacity versus
energy discussion,
00:46:31.660 --> 00:46:33.980
similar to what we see in
SBP in other markets, ERCOT.
00:46:33.980 --> 00:46:37.270
So I think we need a
brief therapy session
00:46:37.270 --> 00:46:39.543
on what energy versus capacity means.
00:46:40.600 --> 00:46:43.900
We've never had an energy only market.
00:46:43.900 --> 00:46:47.135
We've always had an
energy, mostly market.
00:46:47.135 --> 00:46:49.660
And that means like
any other power market,
00:46:49.660 --> 00:46:52.640
you have two sources of
revenue that support operations
00:46:52.640 --> 00:46:54.390
and investment, and
that is energy revenues
00:46:54.390 --> 00:46:55.543
and capacity revenues.
00:46:56.620 --> 00:46:57.780
Ancillary service revenues.
00:46:57.780 --> 00:47:00.140
Our capacity revenues
have been traditionally
00:47:00.140 --> 00:47:02.540
a much smaller piece
of the overall picture,
00:47:02.540 --> 00:47:03.673
ancillary services.
00:47:04.710 --> 00:47:08.950
As we have evolved
through time and learned that
00:47:10.636 --> 00:47:12.940
a system that depends
on frequent scarcity
00:47:12.940 --> 00:47:16.220
is not in the public interest,
00:47:16.220 --> 00:47:17.820
we have recognized that we need
00:47:17.820 --> 00:47:22.160
to increase the capacity
revenue side of the equation.
00:47:22.160 --> 00:47:24.100
We buy more ancillary services.
00:47:24.100 --> 00:47:26.120
We've implemented the ORDC in a way
00:47:26.120 --> 00:47:30.440
that does not reflect the
fundamentals of a scarcity price.
00:47:30.440 --> 00:47:32.800
It reflects the fundamentals of needing
00:47:32.800 --> 00:47:36.473
to get a higher price at
a farther portion of time.
00:47:38.730 --> 00:47:43.730
And so when you hear
the phrase capacity market,
00:47:45.500 --> 00:47:49.960
to me, that is interpreted
widely by all of us
00:47:49.960 --> 00:47:52.310
to mean something that's,
00:47:52.310 --> 00:47:55.053
it costs a lot of money that
buys stuff we don't want.
00:47:56.320 --> 00:47:59.520
And in my perspective,
there isn't a proposal in here
00:47:59.520 --> 00:48:01.200
that is doing that.
00:48:01.200 --> 00:48:04.370
That is not what the
LSE obligation proposal
00:48:04.370 --> 00:48:05.730
is intended to do,
00:48:05.730 --> 00:48:10.230
but at what it is intended
to do is to recognize
00:48:10.230 --> 00:48:13.940
that as we meet our
reliability objectives,
00:48:13.940 --> 00:48:18.520
we need a competitive
product that values reliability
00:48:18.520 --> 00:48:20.423
in a better way than what we have today.
00:48:21.260 --> 00:48:22.747
That's what it's intended to do.
00:48:22.747 --> 00:48:27.747
And it's intended to use
mechanisms that have been
00:48:29.020 --> 00:48:33.070
and are reflective of what
we see in our market today.
00:48:33.070 --> 00:48:36.010
When we went through the
process of developing this,
00:48:36.010 --> 00:48:40.260
we stopped at every part,
every bucket of proposals
00:48:41.380 --> 00:48:44.515
that we've seen in this, ORDC reforms,
00:48:44.515 --> 00:48:48.400
expansion of ancillary service products
00:48:48.400 --> 00:48:50.870
which when we spent time thinking
00:48:50.870 --> 00:48:52.903
about how those would work,
00:48:53.840 --> 00:48:56.450
we kept getting back
to the point of, well,
00:48:56.450 --> 00:49:00.790
if you're buying a substantially
00:49:00.790 --> 00:49:02.753
higher amount of ancillary services,
00:49:04.230 --> 00:49:07.400
which is a central
procurement of capacity.
00:49:07.400 --> 00:49:09.380
So let's, again, let's talk freely about
00:49:09.380 --> 00:49:11.023
what were these concepts.
00:49:12.600 --> 00:49:14.070
Which we have
in place right now,
00:49:14.070 --> 00:49:15.110
right, through our
ancillary service market?
00:49:15.110 --> 00:49:16.440
We have that in place now.
00:49:16.440 --> 00:49:20.960
And we're one bucket of
solutions is to increase that
00:49:20.960 --> 00:49:23.310
and create new ones.
00:49:23.310 --> 00:49:25.440
And so to me--
00:49:25.440 --> 00:49:27.134
We're just
expanding existing ones?
00:49:27.134 --> 00:49:28.356
We're expanding existing ones.
00:49:28.356 --> 00:49:29.189
Just moving on,
00:49:29.189 --> 00:49:30.022
spending 20 thousand megawatts.
00:49:30.022 --> 00:49:34.540
To me, the market design
is a, from a high level,
00:49:34.540 --> 00:49:36.663
very simply a risk management exercise.
00:49:37.880 --> 00:49:38.850
On one of the spectrum,
00:49:38.850 --> 00:49:42.270
you have the lowest cost, highest risk.
00:49:42.270 --> 00:49:43.750
on the other end of the spectrum,
00:49:43.750 --> 00:49:45.860
you have a higher cost, lower risk.
00:49:45.860 --> 00:49:47.680
And so we're trying to
find something in the middle
00:49:47.680 --> 00:49:50.453
that works the best for our market.
00:49:51.410 --> 00:49:54.730
With concern about
expanding ancillary services
00:49:54.730 --> 00:49:57.490
and relying just on it, which
is a path we can go down.
00:49:57.490 --> 00:49:59.890
That's envisioned in SB3
00:49:59.890 --> 00:50:01.783
with respect to ancillary
service and reliability services.
00:50:01.783 --> 00:50:04.560
I think SB3
addresses that as well,
00:50:04.560 --> 00:50:06.370
but we obviously believe that SB3
00:50:06.370 --> 00:50:09.230
also provides a clear framework
00:50:09.230 --> 00:50:12.290
for a more comprehensive approach,
00:50:12.290 --> 00:50:17.060
but our worry is the ancillary
service route eventually ends
00:50:17.060 --> 00:50:19.880
in a spot where you've
compensated capacity
00:50:19.880 --> 00:50:20.950
to be dispatchable.
00:50:20.950 --> 00:50:24.400
You've compensated a portion
of capacity to be able to meet
00:50:24.400 --> 00:50:26.320
very specific operational needs.
00:50:26.320 --> 00:50:28.890
But then you have the,
the rest of this capacity
00:50:28.890 --> 00:50:31.053
that's not getting
compensated that will eventually
00:50:31.053 --> 00:50:32.130
have to exit.
00:50:32.130 --> 00:50:33.290
And then you're talking about
00:50:33.290 --> 00:50:35.480
adding another ancillary
service to keep them around.
00:50:35.480 --> 00:50:37.940
And you basically backed
yourself into a central procurement
00:50:37.940 --> 00:50:40.770
of capacity for everything, okay.
00:50:40.770 --> 00:50:43.510
So when we thought
about the LSE obligation
00:50:43.510 --> 00:50:46.313
and we looked at SBP,
we looked at Australia,
00:50:49.551 --> 00:50:52.250
and this is where, when I
look at all the proposals filed,
00:50:52.250 --> 00:50:56.150
I think, and probably
not apparent to you all,
00:50:56.150 --> 00:50:58.344
but we've gone through
this process a few times
00:50:58.344 --> 00:51:00.520
in the last 20 years.
00:51:00.520 --> 00:51:04.164
And I feel like there's
more agreement and support
00:51:04.164 --> 00:51:06.490
for high level principles
than we've had before.
00:51:06.490 --> 00:51:08.970
And that is one, make sure we achieve
00:51:08.970 --> 00:51:10.010
our reliability objectives,
00:51:10.010 --> 00:51:12.483
but also preserve our
competitive market.
00:51:15.270 --> 00:51:17.070
Whatever we end up with, right,
00:51:17.070 --> 00:51:18.520
has to check those two boxes.
00:51:20.155 --> 00:51:23.103
Now, the difference, I think,
between the proposals is,
00:51:24.630 --> 00:51:28.040
maybe a matter of the sense of urgency,
00:51:28.040 --> 00:51:29.550
but I can tell you from our perspective,
00:51:29.550 --> 00:51:32.263
what informed our path
and our decision-making was,
00:51:33.220 --> 00:51:35.170
do we think we will get another chance.
00:51:36.920 --> 00:51:40.720
If this doesn't work, if
we go down the route
00:51:40.720 --> 00:51:43.320
of a certain direction
and it doesn't work,
00:51:43.320 --> 00:51:46.020
do we think we'll have
another chance at this?
00:51:46.020 --> 00:51:50.520
And I spent more time at the
legislature this last session.
00:51:50.520 --> 00:51:53.570
And I can tell you, I agree,
but I don't think we do.
00:51:53.570 --> 00:51:57.062
And so to me, the
solution has to be forceful
00:51:57.062 --> 00:51:59.410
in how it addresses reliability,
00:51:59.410 --> 00:52:02.702
but we have to address
the issues and the concerns
00:52:02.702 --> 00:52:05.320
that we've heard and you've seen
00:52:05.320 --> 00:52:07.390
filed for the LSE obligation.
00:52:07.390 --> 00:52:09.630
Market power, impact on retail.
00:52:09.630 --> 00:52:12.223
We got to make sure
that it meets those things,
00:52:13.090 --> 00:52:16.860
which is what kind of coming
back to the original question.
00:52:16.860 --> 00:52:20.060
That's what makes ERCOT
so different from SBP, right?
00:52:20.060 --> 00:52:22.220
You've got a kind of
handful of utilities up there.
00:52:22.220 --> 00:52:27.220
It's just a very different
structure in terms of the ability
00:52:27.360 --> 00:52:32.360
for participants to provide
liquidity, to provide products.
00:52:32.540 --> 00:52:35.920
You hear folks talk
about how our ERCOT is,
00:52:35.920 --> 00:52:39.410
the product is a liquid,
energy product is a liquid.
00:52:39.410 --> 00:52:43.450
That to me is a
function of price volatility,
00:52:43.450 --> 00:52:44.770
not necessarily structure.
00:52:44.770 --> 00:52:48.270
So why is there ERCOT
product so volatile
00:52:48.270 --> 00:52:50.500
or so illiquid at times
is because the bid-ask
00:52:50.500 --> 00:52:52.780
is 9,000 or a hundred dollars, right?
00:52:52.780 --> 00:52:55.080
And that I don't care
what market you have.
00:52:55.080 --> 00:52:57.110
That's going to be a very liquid market.
00:52:57.110 --> 00:52:59.410
So lowering the vol will help address
00:52:59.410 --> 00:53:01.240
some of those issues.
00:53:01.240 --> 00:53:04.650
But structurally there is ample amount
00:53:04.650 --> 00:53:06.930
of financial intermediaries.
00:53:06.930 --> 00:53:09.230
There are brokers, there are mechanisms
00:53:09.230 --> 00:53:12.010
that help provide liquidity
for the energy products
00:53:12.010 --> 00:53:12.930
that we have, right.
00:53:12.930 --> 00:53:15.990
So that to me, I think is
one of the bigger differences
00:53:15.990 --> 00:53:20.990
with, the LSE obligation
in ERCOT versus SBP,
00:53:21.440 --> 00:53:24.893
in terms of the mechanisms
on how you implement it.
00:53:26.690 --> 00:53:29.250
Accreditation, we have a
version of accreditation now
00:53:29.250 --> 00:53:31.610
with the SAR and the
CDR that would absolutely
00:53:31.610 --> 00:53:36.610
have to be revamped and
thought through and bolstered.
00:53:37.020 --> 00:53:40.813
And when I look at section
25,173 of the substandard rules,
00:53:42.020 --> 00:53:46.385
that creates a process
to incentivize investment
00:53:46.385 --> 00:53:50.490
in a very specific amount of capacity.
00:53:50.490 --> 00:53:54.770
That's assigned full load
serving entities, retail entities,
00:53:54.770 --> 00:53:55.960
in that, in aspects that,
00:53:55.960 --> 00:53:57.650
that's the renewable energy credit,
00:53:57.650 --> 00:54:00.020
the structure is similar.
00:54:00.020 --> 00:54:02.090
The concerns that you hear about it is
00:54:02.090 --> 00:54:05.540
because that type of
product in this market,
00:54:05.540 --> 00:54:08.200
we think we are of short supply.
00:54:08.200 --> 00:54:10.870
We're not short supply of
renewable energy credits, right?
00:54:10.870 --> 00:54:13.310
But structurally, it's similar.
00:54:13.310 --> 00:54:15.540
Our ancillary service market,
00:54:15.540 --> 00:54:18.940
we administratively set an
amount of ancillary services
00:54:18.940 --> 00:54:21.780
that we want to procure for
a specific reliability reason
00:54:21.780 --> 00:54:24.033
and we assign it to LSEs.
00:54:25.093 --> 00:54:27.650
This is not a foreign
concept in our market,
00:54:27.650 --> 00:54:29.370
but we do have issues
that we need to work through
00:54:29.370 --> 00:54:32.070
to make sure that it does not do harm.
00:54:32.070 --> 00:54:34.760
It maintains the parts of our market
00:54:34.760 --> 00:54:36.240
that have worked so well.
00:54:36.240 --> 00:54:40.070
But, again, reps are
specifically authorized and statued
00:54:40.070 --> 00:54:41.970
by specific legislation.
Agree.
00:54:41.970 --> 00:54:44.120
We are talking about
making something
00:54:44.120 --> 00:54:45.690
out of whole cloth here.
00:54:45.690 --> 00:54:46.523
Yep.
00:54:46.523 --> 00:54:50.450
Tied to two sections of a
somewhat ambiguous section
00:54:50.450 --> 00:54:54.940
of law that has profound
consequences for the retail segment
00:54:54.940 --> 00:54:58.440
of the market, in the
energy only market design.
00:54:58.440 --> 00:54:59.570
Would you agree with that?
00:54:59.570 --> 00:55:02.500
I don't wanna minimize
the effort involved
00:55:02.500 --> 00:55:04.910
with implementing an LSE obligation.
00:55:04.910 --> 00:55:06.113
It's not a small change,
00:55:07.050 --> 00:55:10.890
which is why we have
encouraged a longer term process
00:55:10.890 --> 00:55:12.600
to develop that because
we wanna make sure
00:55:12.600 --> 00:55:14.799
we get it right and we explore it.
00:55:14.799 --> 00:55:16.470
I do think Senate Bill 3
00:55:16.470 --> 00:55:18.883
provides the foundation
to pursue this path,
00:55:19.890 --> 00:55:24.080
but it is one that like
the Chairman has said,
00:55:24.080 --> 00:55:27.000
this isn't a today thing
tomorrow, next month,
00:55:27.000 --> 00:55:28.650
there are issues that we
would need to work through.
00:55:28.650 --> 00:55:33.180
But when we look across
the spectrum of proposals
00:55:33.180 --> 00:55:36.320
and we look at them
through the perspective of,
00:55:36.320 --> 00:55:37.803
do we have another chance,
00:55:39.440 --> 00:55:42.340
I don't see a proposal
that is comparable
00:55:42.340 --> 00:55:46.360
in terms of its ability
to reduce the risk
00:55:46.360 --> 00:55:48.303
of reliability event.
00:55:50.120 --> 00:55:51.870
And so that's where we get concerned,
00:55:51.870 --> 00:55:55.170
is what else is out there that helps us
00:55:55.170 --> 00:55:58.573
solve the reliability problem
and achieves the objectives
00:55:58.573 --> 00:56:00.750
that we want in terms
of preserving our market.
00:56:00.750 --> 00:56:04.660
So two things, you've
said multiple times
00:56:04.660 --> 00:56:06.333
we don't have another chance.
00:56:07.580 --> 00:56:09.603
This is not a today, tomorrow thing.
00:56:13.610 --> 00:56:15.730
It's unknown how long
the LSE obligations
00:56:15.730 --> 00:56:16.870
is gonna take to implement.
00:56:16.870 --> 00:56:20.110
I mean, we can be moving
towards your proposed path
00:56:20.110 --> 00:56:21.883
and still not have a chance.
00:56:22.756 --> 00:56:25.300
So, I mean, I don't view this as, like,
00:56:25.300 --> 00:56:26.190
we don't have another chance,
00:56:26.190 --> 00:56:28.860
we need to go down
the LSE obligation route
00:56:28.860 --> 00:56:29.960
because we don't have another chance.
00:56:29.960 --> 00:56:31.310
I see it as we need to attack
00:56:31.310 --> 00:56:34.080
our operational reliability issues now,
00:56:34.080 --> 00:56:35.730
because we certainly
won't even get a chance
00:56:35.730 --> 00:56:39.525
to get to your LSE obligation
in the mean, if we don't--
00:56:39.525 --> 00:56:41.300
I agree with that.
Okay.
00:56:41.300 --> 00:56:43.780
Yeah, this isn't a just
pick this and do that.
00:56:43.780 --> 00:56:44.613
Forget everything else.
00:56:44.613 --> 00:56:47.433
No, I think this is all the above.
00:56:48.530 --> 00:56:52.930
What's the downside of
exploring a longer-term solution
00:56:52.930 --> 00:56:55.063
while you do the things
you just mentioned.
00:56:55.063 --> 00:56:57.573
And you said
another thing that I just,
00:56:57.573 --> 00:56:59.860
I have to say, you said, well,
00:56:59.860 --> 00:57:01.710
this is the way we maintain reliability
00:57:01.710 --> 00:57:03.070
and make sure the lights don't go out.
00:57:03.070 --> 00:57:04.650
Something like that at the
tail end of your statement.
00:57:04.650 --> 00:57:06.073
But I have to say,
00:57:07.990 --> 00:57:12.990
SBP might as well have
LSE obligation related markets
00:57:13.120 --> 00:57:15.900
and had rotating
outages during the storm,
00:57:15.900 --> 00:57:18.870
California has a more similar market
00:57:18.870 --> 00:57:21.570
and their Governor had
to take extraordinary action
00:57:21.570 --> 00:57:24.630
to address energy supply shortfalls.
00:57:24.630 --> 00:57:29.630
So we gotta be
cognizant of the fact that
00:57:29.860 --> 00:57:31.750
absolutely you wanna
maintain reliability,
00:57:31.750 --> 00:57:34.170
absolutely everything we
can to figure out a solution
00:57:34.170 --> 00:57:35.640
to get there.
00:57:35.640 --> 00:57:39.090
But we really have to
be cognizant of the fact
00:57:39.090 --> 00:57:41.730
that these market constructs
exist in one form or fashion
00:57:41.730 --> 00:57:43.230
and ours will be different
'cause we'll be cutting it
00:57:43.230 --> 00:57:48.230
out of cloth, but I'm
not sure they ensure
00:57:48.530 --> 00:57:50.830
complete reliability and
nothing will, nothing will,
00:57:50.830 --> 00:57:53.730
but we can't be saying
that this will definitely do that
00:57:54.870 --> 00:57:57.660
or help us get there when
we have real-world examples
00:57:57.660 --> 00:57:58.900
of where it has not.
00:57:58.900 --> 00:58:00.610
Agreed and we
shouldn't say that,
00:58:00.610 --> 00:58:01.800
we can't make any guarantees.
00:58:01.800 --> 00:58:02.737
I certainly will not.
00:58:02.737 --> 00:58:04.230
And I wanna work the problem.
00:58:04.230 --> 00:58:05.670
So in that interest, okay.
00:58:05.670 --> 00:58:09.750
So Singapore has one
of these, don't they?
00:58:09.750 --> 00:58:11.253
Sort of?
It was proposed.
00:58:12.270 --> 00:58:13.103
Okay.
00:58:14.070 --> 00:58:17.730
Well, so I'd heard
that we're talking about
00:58:17.730 --> 00:58:21.670
under your concept,
Mr. Chairman, a hundred percent,
00:58:21.670 --> 00:58:23.650
we're trying to firm
to a hundred percent
00:58:23.650 --> 00:58:25.830
of what we're gonna
need on a given day, right?
00:58:25.830 --> 00:58:27.543
That's what we're gonna try to trade.
00:58:27.543 --> 00:58:29.130
The first straw
man's a starting point.
00:58:29.130 --> 00:58:29.997
I understand.
00:58:29.997 --> 00:58:31.670
But no under no circumstances,
00:58:31.670 --> 00:58:33.799
would I ask LSEs to buy more
power than they expect to use.
00:58:33.799 --> 00:58:36.083
That's where my question's
goin, toward the straw man.
00:58:38.290 --> 00:58:41.630
In order to allow
flexibility in the market
00:58:41.630 --> 00:58:43.430
for price responsive behavior.
00:58:43.430 --> 00:58:46.740
Again, in real time, I'm
worried about suppressing
00:58:46.740 --> 00:58:49.830
the animal spirits of real-time, Bill
00:58:49.830 --> 00:58:52.200
on the steel which has
been extremely effective
00:58:52.200 --> 00:58:54.983
in Texas and made power affordable.
00:58:56.520 --> 00:58:59.890
Do you need to procure all
a hundred percent or over?
00:58:59.890 --> 00:59:03.960
Should there just be a
minimum procurement there
00:59:03.960 --> 00:59:06.793
to allow the market to market?
00:59:08.320 --> 00:59:13.320
So, I think the main
question that you raise
00:59:15.040 --> 00:59:20.040
on this particular topic is
how should the responsibility
00:59:20.490 --> 00:59:24.200
to provide reliability, be distributed
00:59:24.200 --> 00:59:26.453
amongst market participants, sir, right?
00:59:28.020 --> 00:59:31.850
Which raises the question
of free ridership for liability
00:59:31.850 --> 00:59:34.480
is that something that we
think should be addressed
00:59:34.480 --> 00:59:36.690
or should be left to
the market to decide?
00:59:36.690 --> 00:59:38.000
The wagon coaster.
00:59:38.000 --> 00:59:39.920
Exactly, right?
00:59:39.920 --> 00:59:42.260
Say that again.
The wagon coaster
00:59:42.260 --> 00:59:44.850
from retailer, we don't,
we just sell things.
00:59:44.850 --> 00:59:46.480
I'll sell you a coaster,
I'll sell you a pen.
00:59:46.480 --> 00:59:48.510
If it's power or coasters, I don't care.
00:59:48.510 --> 00:59:51.090
I think that's not the
right approach for retailers
00:59:51.090 --> 00:59:53.600
in Texas who were
responsible for powering the lives
00:59:53.600 --> 00:59:54.603
of their customers.
00:59:55.850 --> 00:59:59.893
So that's part of the decision
with the LSE obligation,
01:00:02.140 --> 01:00:04.000
but to your question Will,
01:00:04.000 --> 01:00:07.610
which is part of what's allowed
this market to work so well
01:00:07.610 --> 01:00:11.540
is that freedom and the ability
01:00:14.101 --> 01:00:16.980
to be as flexible as possible
01:00:16.980 --> 01:00:20.250
in meeting real-time obligations, right?
01:00:20.250 --> 01:00:24.630
And if a retailer decides
that they wanna be
01:00:24.630 --> 01:00:28.120
completely unhedged
and take that risk, right,
01:00:28.120 --> 01:00:31.720
that's a market risk,
they're free to wear today
01:00:31.720 --> 01:00:33.700
and they will bear the
financial consequences
01:00:33.700 --> 01:00:35.310
if they're wrong.
01:00:35.310 --> 01:00:36.590
We all make that decision every day
01:00:36.590 --> 01:00:39.290
in operating our businesses
in the competitive market.
01:00:41.050 --> 01:00:45.500
I think that is a separate
from the question
01:00:45.500 --> 01:00:46.420
that the Chairman raises,
01:00:46.420 --> 01:00:48.920
which is who's gonna help us solve
01:00:48.920 --> 01:00:50.860
the reliability problems?
01:00:50.860 --> 01:00:54.390
And in a central procurement,
01:00:54.390 --> 01:00:56.684
if we increase the ancillary services,
01:00:56.684 --> 01:01:01.620
ERCOTs procuring that
amounts and then distributing
01:01:01.620 --> 01:01:03.030
it to everyone, right?
01:01:03.030 --> 01:01:05.763
Or LSEs based on low ratio share.
01:01:08.820 --> 01:01:13.820
The question with the
requirement to hedge energy,
01:01:15.230 --> 01:01:18.580
which this is part one that
I've been thinking about
01:01:18.580 --> 01:01:22.960
quite a bit, which again,
this is a complicated thing
01:01:22.960 --> 01:01:25.293
that was gonna take
time to work through.
01:01:26.790 --> 01:01:29.773
If LSEs are required
to hedge their energy,
01:01:32.500 --> 01:01:33.730
What I've been thinking about is,
01:01:33.730 --> 01:01:37.320
how will the bilateral market evolve
01:01:37.320 --> 01:01:39.363
and respond to that requirement?
01:01:41.220 --> 01:01:44.060
And I think it actually manifests itself
01:01:44.060 --> 01:01:47.720
in more of a product
that looks like capacity.
01:01:47.720 --> 01:01:52.000
'Cause as an LSE, I don't
know exactly what my load's
01:01:52.000 --> 01:01:55.760
gonna be next week, or
next month, or next year.
01:01:55.760 --> 01:01:59.200
So in order to meet a
hundred percent requirement
01:01:59.200 --> 01:02:00.853
to match my load,
01:02:02.460 --> 01:02:07.150
I'm gonna want as much
flexible resources as I can,
01:02:07.150 --> 01:02:09.563
that can ramp up or ramp
down to meet my load.
01:02:10.590 --> 01:02:15.330
Now, in any construct that is pursuing
01:02:15.330 --> 01:02:17.233
this type of attribute,
01:02:20.397 --> 01:02:23.750
you want that same ability in real time.
01:02:23.750 --> 01:02:24.900
You don't wanna be constrained
01:02:24.900 --> 01:02:28.070
to have to go buy
something very specific.
01:02:28.070 --> 01:02:29.470
You may wanna use demand response.
01:02:29.470 --> 01:02:30.380
You may wanna have batteries.
01:02:30.380 --> 01:02:31.860
You may wanna have whatever.
01:02:31.860 --> 01:02:35.580
So that's part of their
proposal that we thought
01:02:35.580 --> 01:02:40.580
was attractive, is not
constraining to a specific resource.
01:02:41.340 --> 01:02:46.340
And providing a range of
options of certain resources
01:02:46.810 --> 01:02:49.590
that can provide certain
percentages of reliability
01:02:49.590 --> 01:02:51.060
and allow the market
to solve the problem
01:02:51.060 --> 01:02:53.430
in the way they prefer.
01:02:53.430 --> 01:02:56.710
Some may wanna lean
towards solar and batteries
01:02:56.710 --> 01:02:58.750
because it's has green attributes.
01:02:58.750 --> 01:03:00.500
Some may wanna use demand response,
01:03:01.810 --> 01:03:04.993
others like us that will have
a much bigger obligation,
01:03:05.961 --> 01:03:10.260
we'll have to probably invest
in conventional generation
01:03:10.260 --> 01:03:14.163
'cause the smaller bites of
the apple won't be enough,
01:03:15.990 --> 01:03:20.950
but the attribute or the
function that you described,
01:03:20.950 --> 01:03:23.080
I think is important to try to preserve,
01:03:23.080 --> 01:03:27.200
which is the ability and
flexibility to solve that problem.
01:03:27.200 --> 01:03:29.733
It should be up to
the market to do that.
01:03:32.506 --> 01:03:34.490
And again, this is really premised
01:03:34.490 --> 01:03:39.423
on the notion of having
a reliability standard,
01:03:39.423 --> 01:03:40.790
which you haven't
talked a whole lot about
01:03:40.790 --> 01:03:43.700
or having some goal that all of us,
01:03:43.700 --> 01:03:45.130
market participants know exactly
01:03:45.130 --> 01:03:47.270
what it is that we want to accomplish
01:03:47.270 --> 01:03:48.490
and we can go out and try to do that
01:03:48.490 --> 01:03:50.650
without making the
guarantees, but lowering the risk.
01:03:50.650 --> 01:03:53.260
Oh, sorry, Commissioner,
I wanna hear your thoughts.
01:03:53.260 --> 01:03:54.290
Yeah, yeah, yeah, go ahead.
01:03:54.290 --> 01:03:56.810
I'm gonna go off
on a different direction
01:03:56.810 --> 01:03:58.900
if you wanna carry,
keep on this thought.
01:03:58.900 --> 01:04:01.270
Okay, well, so the
problem I'm trying to solve
01:04:01.270 --> 01:04:03.630
is look, everybody sells
01:04:04.643 --> 01:04:07.650
or buys their
dispatchable energy credits
01:04:09.324 --> 01:04:14.324
and they've got it
locked up 95% month out.
01:04:14.550 --> 01:04:16.193
Not everybody.
Who?
01:04:17.250 --> 01:04:18.290
Who is not?
01:04:18.290 --> 01:04:20.510
Well, everybody who
comes and talks says they do
01:04:20.510 --> 01:04:21.343
and promises they do.
01:04:21.343 --> 01:04:22.810
No, no, no, I'm talking about
01:04:22.810 --> 01:04:25.330
in the functionality of the proposal.
01:04:25.330 --> 01:04:26.390
Oh, yeah.
What we're talking about?
01:04:26.390 --> 01:04:28.040
Yeah, yeah.
Sure.
01:04:28.040 --> 01:04:30.410
So you go out there
and you buy your decks
01:04:30.410 --> 01:04:32.830
and you're going into real time.
01:04:32.830 --> 01:04:37.070
And so everybody's got their paper
01:04:37.070 --> 01:04:38.860
that says they're good for that day.
01:04:38.860 --> 01:04:41.223
And then STP trips.
01:04:43.170 --> 01:04:44.003
Yep.
01:04:44.003 --> 01:04:45.123
A lot of megawatts.
01:04:46.210 --> 01:04:49.060
And then how do we respond to that?
01:04:49.060 --> 01:04:51.710
Well, we hope we have excess
01:04:51.710 --> 01:04:53.663
dispatchable generation to kind of try,
01:04:54.530 --> 01:04:55.830
and the wind's not blowing
01:04:57.277 --> 01:05:00.100
and we hope we have
excess dispatchable generation
01:05:00.100 --> 01:05:02.850
that already hasn't locked
in and sold their paper
01:05:02.850 --> 01:05:05.520
at X value in the deck market, right?
01:05:05.520 --> 01:05:06.740
To meet that challenge
01:05:08.060 --> 01:05:10.050
'cause it's kind of way the other
01:05:10.050 --> 01:05:12.183
forward capacity markets work.
01:05:14.230 --> 01:05:15.720
They don't ramp up as quickly.
01:05:15.720 --> 01:05:18.020
They're not as nimble.
Yup.
01:05:18.020 --> 01:05:22.750
So I think a mechanism
01:05:22.750 --> 01:05:25.660
that provides additional
dispatchable capacity
01:05:25.660 --> 01:05:29.891
which is another thing, that's
the product we need, right?
01:05:29.891 --> 01:05:32.033
So an ancillary service?
01:05:32.033 --> 01:05:35.090
A longterm
dispatchable capacity,
01:05:35.090 --> 01:05:37.200
the product that ERCOT needs
01:05:37.200 --> 01:05:40.930
is dispatchable capacity so
that we can meet the duck curve.
01:05:40.930 --> 01:05:44.350
We can meet situations when
there's a lot of forced outages
01:05:44.350 --> 01:05:47.440
and not every everything's
trying to take an outage at once
01:05:47.440 --> 01:05:50.550
when it increases or decreases.
01:05:50.550 --> 01:05:55.493
So that product, right, will increase,
01:05:59.490 --> 01:06:00.640
create incentives for more investment
01:06:00.640 --> 01:06:02.300
that will increase reserve margins
01:06:02.300 --> 01:06:05.580
which helps you in operations.
01:06:05.580 --> 01:06:09.700
So when plants trip,
when STP trips offline,
01:06:09.700 --> 01:06:12.710
and we have a more robust reserve margin
01:06:12.710 --> 01:06:15.150
that's composed of
dispatchable capacity,
01:06:15.150 --> 01:06:16.730
not a reserve margin that has
01:06:16.730 --> 01:06:18.860
a good deal of renewables in it,
01:06:18.860 --> 01:06:21.210
then you're able to
withstand those events.
01:06:21.210 --> 01:06:26.210
So, long-term incentives
for that type of capacity
01:06:27.000 --> 01:06:31.510
reserve margins
translate into an easier way
01:06:31.510 --> 01:06:33.453
to manage through operational issues.
01:06:34.357 --> 01:06:35.530
Like a product like this
01:06:35.530 --> 01:06:38.170
you're saying a long-term dispatch,
01:06:38.170 --> 01:06:40.940
an LSE obligation of some
form or fashion would be that,
01:06:40.940 --> 01:06:42.383
you're not talking
about a different product.
01:06:42.383 --> 01:06:44.120
I'm not talking about
different product.
01:06:44.120 --> 01:06:46.820
I guess I'm confused
because it almost sounded like,
01:06:47.851 --> 01:06:48.960
and I'm just trying to envision it
01:06:48.960 --> 01:06:50.640
and we've gone around
and round on this issue,
01:06:50.640 --> 01:06:51.680
I think to some degree
01:06:51.680 --> 01:06:54.367
and that is if you had LSE obligation
01:06:54.367 --> 01:06:56.210
and we have these operational issues
01:06:56.210 --> 01:06:58.130
as in minus one minus one scenario
01:06:58.130 --> 01:07:00.167
where STP trips off
and the wind's not there,
01:07:00.167 --> 01:07:01.890
and maybe solar has some cloud coverage,
01:07:01.890 --> 01:07:03.590
so maybe that's another minus one.
01:07:07.020 --> 01:07:11.020
How do you nimbly address those issues?
01:07:11.020 --> 01:07:12.970
And it sounds like we would rely
01:07:12.970 --> 01:07:17.970
on our ancillary service
market, whatever product it is,
01:07:18.480 --> 01:07:20.520
whether it's an existing
ancillary service product
01:07:20.520 --> 01:07:22.320
or a new one like TCRS.
01:07:22.320 --> 01:07:25.280
And so I guess what you're asking is,
01:07:25.280 --> 01:07:27.860
what happens in a scenario like that?
01:07:27.860 --> 01:07:29.600
It sounds like the same thing
01:07:29.600 --> 01:07:30.860
would happen that happens today.
01:07:30.860 --> 01:07:33.160
We would rely on our
ancillary service market,
01:07:34.680 --> 01:07:36.400
but I guess, at the tail end,
01:07:36.400 --> 01:07:38.670
I was trying to connect the dots, Bill
01:07:38.670 --> 01:07:41.180
'cause he said, well, we would have
01:07:41.180 --> 01:07:43.210
more dispatchable generation
01:07:43.210 --> 01:07:46.883
and that would be
driven by what's signal?
01:07:47.930 --> 01:07:49.953
I see now,
there's a difference.
01:07:51.470 --> 01:07:53.800
In my opinion there are
two different problems.
01:07:53.800 --> 01:07:56.470
There's the operational need, right?
01:07:56.470 --> 01:08:01.470
And so we see a huge net
load ramp, we see solar drop-off.
01:08:02.650 --> 01:08:07.650
We need enough operational
capacity to be online,
01:08:08.150 --> 01:08:10.170
to better manage that event.
01:08:10.170 --> 01:08:11.253
That's problem one.
01:08:12.540 --> 01:08:15.298
Problem two is enough,
01:08:15.298 --> 01:08:20.298
additional installed
dispatchable capacity
01:08:20.430 --> 01:08:24.710
to be able to provide the
operating reserve, right?
01:08:24.710 --> 01:08:26.900
So, two different problems,
01:08:26.900 --> 01:08:29.780
ECRS and the suite of ancillary services
01:08:29.780 --> 01:08:31.300
addresses the operational issues
01:08:31.300 --> 01:08:33.653
and so it is the RDC reforms.
01:08:35.790 --> 01:08:39.843
The hole is what solving
the investment incentives?
01:08:41.110 --> 01:08:43.860
Now, our market has operated
01:08:45.610 --> 01:08:50.070
almost entirely up to this
point that the operational issues
01:08:50.070 --> 01:08:53.480
are expected to connect the
dots downstream to investment
01:08:53.480 --> 01:08:55.010
or incentives, right?
01:08:55.010 --> 01:08:57.720
So as we have operational
issues and we stand,
01:08:57.720 --> 01:09:02.450
we dispatch more ancillary
services which will increase,
01:09:02.450 --> 01:09:03.553
as we buy more ancillary services
01:09:03.553 --> 01:09:06.190
that increases ancillary service prices.
01:09:06.190 --> 01:09:08.350
As we have operational issues
01:09:08.350 --> 01:09:11.970
in real-time energy
prices go higher, right?
01:09:11.970 --> 01:09:13.480
The current framework of a market says,
01:09:13.480 --> 01:09:17.220
well, eventually that
will manifest itself
01:09:17.220 --> 01:09:21.887
into enough expected revenues
where investment will come in.
01:09:21.887 --> 01:09:23.700
And I think what we've seen
01:09:23.700 --> 01:09:28.550
is that those dots are challenged
01:09:28.550 --> 01:09:31.160
in terms of fully connecting
that investors want,
01:09:31.160 --> 01:09:32.170
more certainty
01:09:33.050 --> 01:09:35.640
and our market isn't
great at providing certainty,
01:09:35.640 --> 01:09:39.280
which is why I think we're
challenged in those aspects.
01:09:39.280 --> 01:09:43.590
So, the mechanism that the
LSE obligation provides is,
01:09:43.590 --> 01:09:45.470
let's provide longer-term certainty,
01:09:45.470 --> 01:09:48.060
or, I mean, I've seen
other proposals filed as well,
01:09:48.060 --> 01:09:51.580
seasonal procurement of reserves
01:09:51.580 --> 01:09:54.516
which is a short-term capacity market.
01:09:54.516 --> 01:09:56.860
Those provide more certainty
01:09:57.890 --> 01:10:00.110
to help solve the same problem.
01:10:00.110 --> 01:10:01.480
Centralized procurement,
01:10:01.480 --> 01:10:03.730
short like a smaller
centralized procurement.
01:10:05.000 --> 01:10:07.960
Okay, so as we're trying to incent more
01:10:07.960 --> 01:10:10.130
dispatchable generation it sounds like
01:10:12.340 --> 01:10:14.037
the two mechanisms are the energy
01:10:14.037 --> 01:10:16.270
and the ancillary service
market revenue streams
01:10:16.270 --> 01:10:17.434
that we currently have in our market
01:10:17.434 --> 01:10:20.580
and we know at least we're
sending some signals right now
01:10:20.580 --> 01:10:22.063
with ECRS,
01:10:23.180 --> 01:10:24.310
but what you're saying is
01:10:24.310 --> 01:10:27.420
with this additional market
design change on top,
01:10:27.420 --> 01:10:32.080
it'll drive additional
generation investment.
01:10:32.080 --> 01:10:33.440
And what I'm trying to figure out,
01:10:33.440 --> 01:10:35.260
because we are solving a today problem,
01:10:35.260 --> 01:10:38.370
we're trying to solve
a near term problem
01:10:38.370 --> 01:10:41.830
with operational reliability
issues as we await
01:10:41.830 --> 01:10:43.167
long-term solution, let's just say,
01:10:43.167 --> 01:10:44.770
it's the LSE obligation.
01:10:44.770 --> 01:10:49.603
So when would that signal,
01:10:50.877 --> 01:10:53.435
'cause I know, and you
may have a different,
01:10:53.435 --> 01:10:55.530
and I can't remember if
you did three year look ahead
01:10:55.530 --> 01:10:58.860
or one year look ahead, but
when would we get the signal?
01:10:58.860 --> 01:11:00.410
Like when would we get investment?
01:11:00.410 --> 01:11:03.350
Would it be, is the investment community
01:11:03.350 --> 01:11:06.000
gonna be waiting
for us to get our rules,
01:11:06.000 --> 01:11:08.770
our framework in place
first as they shape up.
01:11:08.770 --> 01:11:10.340
And then we start
sending signals that way.
01:11:10.340 --> 01:11:12.470
So that could be, we could start,
01:11:12.470 --> 01:11:14.700
it sounds like to me,
and please clarify,
01:11:14.700 --> 01:11:16.380
'cause we're all trying
01:11:16.380 --> 01:11:19.070
to incent more dispatchable generation
01:11:19.070 --> 01:11:21.070
that it could be, I don't know.
01:11:21.070 --> 01:11:23.660
It could be a couple of years
before we send a clear signal
01:11:23.660 --> 01:11:28.320
and then you still need
two to three more years
01:11:28.320 --> 01:11:30.887
to build a plant depending
on what size or what it is.
01:11:30.887 --> 01:11:35.363
So, is it five years when
we get steel in the ground?
01:11:36.500 --> 01:11:41.483
So, I think the answer to
that question has a lot to do,
01:11:42.570 --> 01:11:45.120
unfortunately with what
you guys decide what to do.
01:11:46.112 --> 01:11:46.945
If--
Which will go on
01:11:46.945 --> 01:11:47.903
for a little while, right?
Yeah--
01:11:47.903 --> 01:11:49.820
If we went with it.
And I'm not trying to put
01:11:49.820 --> 01:11:52.353
pressure on you, certainly
you don't wanna speed up this,
01:11:53.320 --> 01:11:55.300
the deliberation on
a longer-term solution
01:11:55.300 --> 01:11:57.210
because I do think the
details are important
01:11:57.210 --> 01:11:59.210
and there's complexities too.
01:11:59.210 --> 01:12:00.760
But I'll use a couple examples.
01:12:02.720 --> 01:12:06.360
One, if this Commission were very clear
01:12:06.360 --> 01:12:10.030
that they were gonna
adopt a reliability standard
01:12:10.030 --> 01:12:13.930
and that standard was
known to be some amount
01:12:13.930 --> 01:12:17.410
and the message was we're gonna develop
01:12:17.410 --> 01:12:20.270
some market-based approach to achieve
01:12:20.270 --> 01:12:23.440
that reliability standard
that provides a signal
01:12:23.440 --> 01:12:25.486
that there is going to be at some point
01:12:25.486 --> 01:12:28.150
a revenue stream for this reliability.
01:12:28.150 --> 01:12:31.483
So I think that helps get
the gears turning quickly,
01:12:33.670 --> 01:12:37.500
or even just, we're gonna require,
01:12:37.500 --> 01:12:39.210
basically a 0% reserve margin,
01:12:39.210 --> 01:12:42.670
which would be loads have
to meet their own obligations.
01:12:42.670 --> 01:12:44.000
And that's very clear
01:12:44.000 --> 01:12:46.550
that we're gonna develop a solution
01:12:47.420 --> 01:12:49.870
that solves that problem
01:12:49.870 --> 01:12:53.193
or achieves that outcome
is a better way to say it.
01:12:54.700 --> 01:12:58.320
That will start people thinking,
investors thinking about,
01:12:58.320 --> 01:13:02.540
okay, well, this is going to be
an additional revenue stream
01:13:02.540 --> 01:13:04.620
that can help justify investment.
01:13:04.620 --> 01:13:05.890
I know there's a requirement.
01:13:05.890 --> 01:13:07.070
If I build dispatchable power,
01:13:07.070 --> 01:13:08.290
I know there will be a requirements
01:13:08.290 --> 01:13:09.470
by my dispatchable power.
Yes, you know that
01:13:09.470 --> 01:13:11.640
there's going to be
something there which is--
01:13:11.640 --> 01:13:13.380
It does not exist today.
Does not exist today.
01:13:13.380 --> 01:13:15.730
We confirmed earlier at the
opening of this conversation,
01:13:15.730 --> 01:13:18.560
over the day that I already see,
01:13:18.560 --> 01:13:20.610
or you're researching comments
01:13:20.610 --> 01:13:25.610
and our general, all of our
experiences does not drive new
01:13:26.090 --> 01:13:28.750
dispatchable generation
That's right.
01:13:28.750 --> 01:13:30.773
That is one of the other things
01:13:30.773 --> 01:13:32.740
I think that makes ERCOT unique
01:13:34.260 --> 01:13:36.680
is it is very attractive for investments
01:13:37.620 --> 01:13:41.490
even with the history
of our market design,
01:13:41.490 --> 01:13:43.120
when we have ancillary service floors,
01:13:43.120 --> 01:13:45.523
you already enhancements,
01:13:46.850 --> 01:13:50.260
you see a willingness to invest
01:13:50.260 --> 01:13:52.310
based on a higher risk profile
01:13:52.310 --> 01:13:55.280
than potentially what
you see in other markets.
01:13:55.280 --> 01:13:57.780
So just signaling that
there's more certainty coming
01:13:57.780 --> 01:13:59.060
from a reliability perspective
01:13:59.060 --> 01:14:00.560
that will support investments.
01:14:01.810 --> 01:14:03.040
That will start the gears turning,
01:14:03.040 --> 01:14:06.630
and you'll start to see
folks get more serious,
01:14:06.630 --> 01:14:10.880
but it's hard to put your
finger on a timeframe, right?
01:14:10.880 --> 01:14:14.810
The more certainty we
see in the solution, right?
01:14:14.810 --> 01:14:17.100
The more certainty we
have to show to our investors
01:14:17.100 --> 01:14:19.610
and to say, see, look,
we need to start moving.
01:14:19.610 --> 01:14:21.140
So, it's a dance.
01:14:21.140 --> 01:14:23.120
So, and I know you talked about
01:14:23.120 --> 01:14:24.630
central procurement
versus LSE obligation
01:14:24.630 --> 01:14:26.130
and just for comparison.
01:14:26.130 --> 01:14:29.520
So let's just say, we went out and said
01:14:29.520 --> 01:14:34.460
we're gonna have
ancillary or reliability service.
01:14:34.460 --> 01:14:37.850
And just for example,
01:14:37.850 --> 01:14:40.200
and we said, we're gonna
procure, I don't know,
01:14:41.143 --> 01:14:44.820
5,000 megawatts of
these types of resources
01:14:44.820 --> 01:14:46.810
with these types of characteristics
01:14:48.200 --> 01:14:51.820
that would play in the
market in a certain way
01:14:52.950 --> 01:14:56.320
strategically and it's all well-defined
01:14:56.320 --> 01:15:00.183
and setting aside all, the
price impacts and all that.
01:15:01.730 --> 01:15:03.960
Versus an LSE obligation
01:15:03.960 --> 01:15:06.040
that we'd have to
spend a couple of years
01:15:06.040 --> 01:15:07.450
developing a framework on.
01:15:07.450 --> 01:15:10.000
What do you think is gonna
send the signal quicker,
01:15:10.900 --> 01:15:12.160
honestly?
01:15:12.160 --> 01:15:14.170
Well, so that
will send a signal.
01:15:14.170 --> 01:15:17.220
So, let's talk about the
ancillary service path.
01:15:17.220 --> 01:15:19.470
Or reliability service.
Reliability service path.
01:15:19.470 --> 01:15:20.460
Which you acknowledged
01:15:20.460 --> 01:15:22.340
we have to kind of pursue that path.
01:15:22.340 --> 01:15:24.290
I think, well, we already
have, I started in July
01:15:24.290 --> 01:15:26.530
when our company bought
5,000 megawatts of non-spin.
01:15:26.530 --> 01:15:30.023
So we're already moving
in that direction, right?
01:15:31.900 --> 01:15:33.840
And so the question is with ECRS,
01:15:34.870 --> 01:15:37.140
how do we want that to
look, do we wanna buy more?
01:15:37.140 --> 01:15:40.520
Is there some other
ancillary service product?
01:15:40.520 --> 01:15:44.300
So, let's talk about how that
creates investment incentives.
01:15:44.300 --> 01:15:46.900
That will, one is the demand for,
01:15:46.900 --> 01:15:50.660
that short-term capacity
product will go up.
01:15:50.660 --> 01:15:52.700
So the revenue streams that you get
01:15:52.700 --> 01:15:57.273
from selling that product
increase to some extent.
01:15:58.848 --> 01:16:01.470
And I also think there's probably
a temporary phenomenon
01:16:01.470 --> 01:16:06.230
where when you're buying that capacity,
01:16:06.230 --> 01:16:09.660
you're reserving those resources
01:16:09.660 --> 01:16:11.630
and you're holding them
outside of the energy market
01:16:11.630 --> 01:16:12.893
until they're deployed,
01:16:13.990 --> 01:16:15.990
which means you have less resources
01:16:15.990 --> 01:16:17.910
that are participating
in energy markets.
01:16:17.910 --> 01:16:20.390
So energy prices will naturally increase
01:16:20.390 --> 01:16:21.600
to some extent as well.
01:16:21.600 --> 01:16:23.330
But I think that's a
temporary phenomenon.
01:16:23.330 --> 01:16:25.510
As you see other resources come in,
01:16:25.510 --> 01:16:29.453
then that'll naturally
find an equilibrium there.
01:16:30.720 --> 01:16:31.760
That sort of, I mean,
01:16:31.760 --> 01:16:35.390
our ancillary service market
works very similar to that.
01:16:35.390 --> 01:16:37.840
It is, that's exactly
what I'm describing, yup.
01:16:38.810 --> 01:16:41.250
Lori also think about
quantity of ancillary services.
01:16:41.250 --> 01:16:42.740
It's a fair question.
01:16:42.740 --> 01:16:47.740
So we, this summer, or going
into the summer, we added,
01:16:48.390 --> 01:16:53.280
I think total AS from 4,500 to 6,500,
01:16:53.280 --> 01:16:55.973
which is almost 50% increase.
01:16:57.430 --> 01:17:00.210
We've heard multiple
proposals that said,
01:17:00.210 --> 01:17:01.360
well, you just need to build
01:17:01.360 --> 01:17:02.763
this reliability, ancillary service.
01:17:02.763 --> 01:17:05.970
It's only gonna be two
or 3000 megawatts.
01:17:05.970 --> 01:17:09.380
We've already done that, we
didn't get any new generation.
01:17:09.380 --> 01:17:10.443
And on top of that,
01:17:11.730 --> 01:17:16.730
we've got 75, 76,000 megawatts
of dispatchable generation
01:17:18.340 --> 01:17:20.710
in ERCOT right now, some of it's old,
01:17:20.710 --> 01:17:24.160
some of it will be
retiring, but we've got a lot
01:17:24.160 --> 01:17:29.160
and I'll be interested to
hear Bill's perspective on this.
01:17:29.240 --> 01:17:32.380
But if you've got an
existing fleet of dispatchable
01:17:32.380 --> 01:17:37.380
and you set up a new reliability service
01:17:38.730 --> 01:17:43.410
or ancillary service to buy
10,000 or 20,000 megawatts,
01:17:43.410 --> 01:17:46.580
that's gonna be filled by
the stuff you've already got
01:17:46.580 --> 01:17:48.880
because it's cheaper to buy that power
01:17:48.880 --> 01:17:53.230
than it is to buy power
from a new generator.
01:17:53.230 --> 01:17:54.867
It's just by definition.
01:17:54.867 --> 01:17:56.170
But again, that's
why we get back
01:17:56.170 --> 01:17:59.190
to that question, Mr. Chairman,
that we asked Woody
01:17:59.190 --> 01:18:02.260
what kind of generation
do you need to match that?
01:18:02.260 --> 01:18:04.650
And again, a coal plant will break
01:18:04.650 --> 01:18:08.100
trying to arrest that
fall, ramping that quickly.
01:18:08.100 --> 01:18:10.410
Sure, but that's fine,
I mean, like again,
01:18:10.410 --> 01:18:13.710
ECRS is needed and we need to do that.
01:18:13.710 --> 01:18:16.150
No one here is saying to not do that
01:18:16.150 --> 01:18:18.903
and to do it expeditiously, robustly,
01:18:19.810 --> 01:18:24.810
but we need more than a
hundred megawatt band-aids
01:18:25.330 --> 01:18:26.778
strapped across ERCOT.
01:18:26.778 --> 01:18:29.160
May I ask and actually NRG
01:18:29.160 --> 01:18:30.711
this is an appropriate question.
01:18:30.711 --> 01:18:32.660
Let me finish the thought.
01:18:32.660 --> 01:18:35.790
We had a scarcity pricing
event in late October,
01:18:35.790 --> 01:18:38.190
the price went to a
thousand dollars a megawatt.
01:18:39.600 --> 01:18:43.920
Because ERCOT correctly
allowed thermal generators
01:18:43.920 --> 01:18:47.013
to go down for maintenance
to prepare for the winter.
01:18:48.320 --> 01:18:51.770
We expected 12,000 megawatts of wind.
01:18:51.770 --> 01:18:56.113
We got 1500 to 2000 megawatts
for that sequence of days.
01:18:58.785 --> 01:19:03.010
And ERCOT and our
stakeholders did an extraordinary job
01:19:03.010 --> 01:19:05.690
making sure that we
had adequate supplies,
01:19:05.690 --> 01:19:07.223
but it was very, very tight.
01:19:08.410 --> 01:19:13.410
That wasn't a couple,
that was 8,000 megawatts,
01:19:13.680 --> 01:19:15.183
10,000 megawatts short.
01:19:17.370 --> 01:19:21.980
You'd have to add 8,000 megawatt peakers
01:19:21.980 --> 01:19:24.050
just for a blue sky day in October
01:19:25.210 --> 01:19:29.680
when it's just a normal fall day.
01:19:29.680 --> 01:19:31.990
That's 10% increase to
the total number of units
01:19:31.990 --> 01:19:33.580
in our cart right there.
01:19:33.580 --> 01:19:36.300
So, yes, we need to do that
01:19:36.300 --> 01:19:39.320
but days like that and make
it abundantly clear to me
01:19:39.320 --> 01:19:41.703
that we need to go above
and beyond, just that.
01:19:42.880 --> 01:19:45.610
So, what I will say can,
if I can add real quick,
01:19:45.610 --> 01:19:47.254
because we did hear from,
01:19:47.254 --> 01:19:49.820
and this is where I'm
trying to understand
01:19:49.820 --> 01:19:50.653
this a little bit more
01:19:50.653 --> 01:19:53.350
because we heard from
Mr. McCullough earlier,
01:19:53.350 --> 01:19:55.690
and we know from live experience here
01:19:55.690 --> 01:19:57.540
and your blue sky days
01:19:57.540 --> 01:20:00.403
and what we're
experiencing on those days.
01:20:01.400 --> 01:20:03.220
But it seems like we
would still be relying
01:20:03.220 --> 01:20:04.930
on our ancillary service market, right?
01:20:04.930 --> 01:20:07.100
Sure, you'd still use it.
01:20:07.100 --> 01:20:09.510
That's the question, I think
Bill's hit on several times.
01:20:09.510 --> 01:20:12.300
To get new dispatchable, you
need to put money on the table.
01:20:12.300 --> 01:20:13.950
Somebody needs to put money on the table
01:20:13.950 --> 01:20:15.520
to pay for new dispatchable.
01:20:15.520 --> 01:20:18.290
Do you want it to be centrally procured?
01:20:18.290 --> 01:20:23.290
Eight, 10, 8,000,10,000,
20,000, 30,000 megawatts?
01:20:23.490 --> 01:20:26.260
Or do you want that won't be used
01:20:26.260 --> 01:20:29.200
except in scarcity incidence?
01:20:29.200 --> 01:20:31.490
Or do you want to set a standard
01:20:31.490 --> 01:20:35.820
that requires the market
participants to buy dispatchable
01:20:35.820 --> 01:20:39.549
as in a mix that they best
see fit for that moment in time?
01:20:39.549 --> 01:20:41.300
But you're not doing that, sir.
01:20:41.300 --> 01:20:42.930
You're asking them to go out
01:20:42.930 --> 01:20:45.300
and buy a thousand megawatt facilities.
01:20:45.300 --> 01:20:48.040
And the answer is
250 megawatt facilities,
01:20:48.040 --> 01:20:49.120
and they're not band-aids.
01:20:49.120 --> 01:20:52.500
On aggregated they're a suit
of armor against these threats.
01:20:52.500 --> 01:20:54.880
And then I would ask Mr. Barnes,
01:20:54.880 --> 01:20:57.030
given this, what are you
gonna go out and build?
01:20:57.030 --> 01:20:58.850
You're gonna build peakers, aren't you?
01:20:58.850 --> 01:21:00.550
Because that's the headroom you need
01:21:00.550 --> 01:21:02.610
to meet these ancillary
service type products
01:21:02.610 --> 01:21:06.420
plus an LSE obligation
so you double dip in both.
01:21:06.420 --> 01:21:08.950
Plus there's ECRS that
provides a fine revenue stream
01:21:08.950 --> 01:21:11.340
for peakers in the near future.
01:21:11.340 --> 01:21:14.720
I think the, again,
this goes back
01:21:14.720 --> 01:21:19.160
to the same foundation
that I was trying to portray
01:21:19.160 --> 01:21:22.860
which is certainty and cost
01:21:22.860 --> 01:21:24.410
versus what you're trying to achieve.
01:21:24.410 --> 01:21:27.410
So sufficient dispatchable resources
01:21:27.410 --> 01:21:29.857
to solve an operational reserve problem.
01:21:29.857 --> 01:21:32.407
You need 10,000 megawatts,
whatever, pick a number,
01:21:33.650 --> 01:21:35.810
but you also need enough
01:21:35.810 --> 01:21:40.130
that you can have
outages during that time.
01:21:40.130 --> 01:21:42.850
You need enough if the load outperforms
01:21:42.850 --> 01:21:46.630
and the wind under-performs,
or if it's a cloudy.
01:21:46.630 --> 01:21:50.690
So you need enough
installed dispatchable capacity
01:21:50.690 --> 01:21:53.910
to make sure you can meet
your operational reserve needs
01:21:55.090 --> 01:21:56.620
doing it just through
ancillary services,
01:21:56.620 --> 01:22:00.780
which again, up to this point,
that's what we've relied on,
01:22:00.780 --> 01:22:05.620
will increase revenues
for ancillary services.
01:22:05.620 --> 01:22:08.760
It will, I think, temporarily
impact energy prices
01:22:08.760 --> 01:22:12.540
but you will rely on those
two revenue streams.
01:22:12.540 --> 01:22:15.370
The capacity revenue
stream will be a little bit
01:22:15.370 --> 01:22:16.913
higher than it is today.
01:22:18.050 --> 01:22:22.530
But again, in terms of the
amount of dispatchable capacity
01:22:22.530 --> 01:22:25.600
that you need to provide
reserves and have one outage,
01:22:25.600 --> 01:22:27.440
it's not gonna address
that issue, right?
01:22:27.440 --> 01:22:31.900
It's not the longer
term investment signal.
01:22:31.900 --> 01:22:34.800
It will help with the investment signal.
01:22:34.800 --> 01:22:39.100
So again, in my opinion,
it would be a lower cost,
01:22:39.100 --> 01:22:42.640
higher uncertainty path
than an LSE obligation,
01:22:42.640 --> 01:22:47.530
which would be a higher
certainty, but a higher cost.
01:22:50.210 --> 01:22:51.870
And maybe higher, okay.
01:22:51.870 --> 01:22:53.730
So I have one question left on this,
01:22:53.730 --> 01:22:58.730
and that is for the Chairman's
latest straw mans parameters.
01:23:00.880 --> 01:23:03.370
And Mr. Chairman, you
mentioned that in the first two years,
01:23:03.370 --> 01:23:07.283
you could maybe consider
an exemption for new reps,
01:23:08.390 --> 01:23:12.160
as you work for a competitive rep.
01:23:12.160 --> 01:23:17.160
Is that something you
would be comfortable with
01:23:17.260 --> 01:23:18.350
in the competitive market
01:23:18.350 --> 01:23:21.270
if some reps were exempt for two years
01:23:21.270 --> 01:23:23.170
for meeting an
obligation, but you were--
01:23:23.170 --> 01:23:24.833
Yeah, an exemption?
01:23:27.290 --> 01:23:31.720
I mean, we've been really
thinking hard about this concern
01:23:31.720 --> 01:23:36.620
that's been raised about
whether this proposal
01:23:36.620 --> 01:23:39.873
creates advantages or
disadvantages for retailers.
01:23:41.740 --> 01:23:44.910
And we thought about an
exemption or having some
01:23:45.760 --> 01:23:47.800
other type of mechanism
01:23:47.800 --> 01:23:51.860
that smaller reps that don't
have affiliate generation
01:23:51.860 --> 01:23:54.330
could use to help address
01:23:54.330 --> 01:23:56.603
the reliability issue
without an obligation.
01:23:58.490 --> 01:24:00.910
This I would put in the
category of something
01:24:00.910 --> 01:24:03.310
that we need to talk
about and think about more.
01:24:04.547 --> 01:24:06.880
To clarify, so any new
rep, not just on affiliate.
01:24:06.880 --> 01:24:09.060
Any new rep, yes.
01:24:09.060 --> 01:24:11.924
Exempted for two years
or up to a certain load.
01:24:11.924 --> 01:24:13.430
Yep, yep.
Excuse.
01:24:15.350 --> 01:24:16.430
This topic has come up
01:24:16.430 --> 01:24:17.410
a couple of times in your discussion.
01:24:17.410 --> 01:24:18.810
So I didn't wanna touch on it.
01:24:18.810 --> 01:24:22.350
And it's the concept of Gene Taylor
01:24:22.350 --> 01:24:23.890
or the fact that we've got
01:24:24.850 --> 01:24:27.883
retailers that have affiliated
generation in our market.
01:24:29.440 --> 01:24:32.540
This, in my opinion, has
been a natural evolution
01:24:32.540 --> 01:24:36.563
of our market to find the lowest cost,
01:24:37.443 --> 01:24:39.740
and ability to be able to be competitive
01:24:39.740 --> 01:24:41.363
on a cost to meet supply.
01:24:44.140 --> 01:24:49.140
As a large independent rep
which reliant was at one point,
01:24:49.840 --> 01:24:54.840
you have to procure a lot of
capacity and a lot of energy.
01:24:55.240 --> 01:24:59.030
Let's just say you have a
10,000 megawatt peak load,
01:24:59.030 --> 01:25:00.680
it would be very difficult for you
01:25:00.680 --> 01:25:05.340
to purchase 10,000 megawatts
on the open market, right?
01:25:05.340 --> 01:25:06.740
The cheaper way to do that
01:25:06.740 --> 01:25:09.580
is have some affiliated generation
01:25:09.580 --> 01:25:12.430
and then that way you
can go out and get the rest.
01:25:12.430 --> 01:25:15.330
It's almost would price
you out of the market today,
01:25:15.330 --> 01:25:19.610
so the market has evolved to that point
01:25:19.610 --> 01:25:21.530
to be able to provide the supply
01:25:21.530 --> 01:25:23.810
in the cheapest way for our customers.
01:25:23.810 --> 01:25:25.230
Now, if you are always a rep
01:25:25.230 --> 01:25:27.610
you're always looking for the maximum,
01:25:27.610 --> 01:25:31.380
the optimal mix of supply to
make sure you have a lower cost
01:25:31.380 --> 01:25:35.463
and meet your targets and
what you're trying to achieve.
01:25:36.830 --> 01:25:38.370
But I just wanna make sure that
01:25:38.370 --> 01:25:40.830
that that business model is understood
01:25:41.740 --> 01:25:44.690
as a natural progression
and evolution of our market
01:25:44.690 --> 01:25:48.400
that has had to go in that
direction in order to provide
01:25:48.400 --> 01:25:50.030
a lower cost structure.
01:25:50.030 --> 01:25:53.610
If I had to buy 10,000 megawatts
01:25:53.610 --> 01:25:55.020
from you, Commissioner Cobos,
01:25:55.020 --> 01:25:57.090
the margin that I would
have to post and credit
01:25:57.090 --> 01:25:59.360
would be extraordinary, right?
01:25:59.360 --> 01:26:03.940
And so that's how large
retailers have evolved
01:26:03.940 --> 01:26:07.070
to be able to meet that
problem in a more economic way
01:26:07.070 --> 01:26:08.370
and with more flexibility.
01:26:09.800 --> 01:26:10.740
Do you have another question
01:26:10.740 --> 01:26:12.297
or can I go?
No.
01:26:12.297 --> 01:26:13.450
Go, go, go, please.
01:26:13.450 --> 01:26:16.660
But I do want to, I have
a lot other questions
01:26:16.660 --> 01:26:18.160
for a lot of stakeholders as well.
01:26:18.160 --> 01:26:19.770
And so for the sake of time,
01:26:19.770 --> 01:26:20.778
and I'm not trying to lower you
01:26:20.778 --> 01:26:21.679
but I'm just trying to --
01:26:21.679 --> 01:26:26.679
So my questions deal
more with the retail market.
01:26:27.631 --> 01:26:29.540
Then they do the wholesale market.
01:26:29.540 --> 01:26:31.270
I think we're trying to make solutions
01:26:31.270 --> 01:26:32.170
for the wholesale market,
01:26:32.170 --> 01:26:35.650
which is important and reliability
is managed through there.
01:26:35.650 --> 01:26:36.594
But the retail market
01:26:36.594 --> 01:26:39.980
was the crown jewel back in the '90s
01:26:39.980 --> 01:26:41.650
when we pass retail competition.
01:26:41.650 --> 01:26:46.650
And we've seen a lot of
retail providers come and go.
01:26:47.180 --> 01:26:51.540
And according to this
study that I read since 2018,
01:26:51.540 --> 01:26:55.200
you all have acquired
five of the eight largest
01:26:56.080 --> 01:26:59.710
and NRG accounts for almost 50%,
01:26:59.710 --> 01:27:03.093
under 50% of the
residential load in the state.
01:27:04.070 --> 01:27:07.573
So 45%, according to one study.
01:27:08.720 --> 01:27:11.450
So your acquisition of direct energy
01:27:13.820 --> 01:27:16.010
totally skewed the HHI index
01:27:16.010 --> 01:27:19.320
which basically said that this
market is very concentrated
01:27:20.170 --> 01:27:21.700
and that disturbs me.
01:27:21.700 --> 01:27:25.580
It disturbs me that the crown
jewel that we tried to pass
01:27:25.580 --> 01:27:30.580
to give consumers a choice is
becoming, you get one to five
01:27:31.040 --> 01:27:34.883
and one of those five corners
their generation market,
01:27:36.450 --> 01:27:37.283
and then there are five
01:27:37.283 --> 01:27:38.580
that corner of their generation market.
01:27:38.580 --> 01:27:40.590
And then there are no
small reps that come in here
01:27:40.590 --> 01:27:42.310
because they can't build.
01:27:42.310 --> 01:27:45.140
You yourself just said,
you are trying to get
01:27:46.140 --> 01:27:47.710
a economy of scale
01:27:47.710 --> 01:27:51.000
by pairing your retail load
with your generation load.
01:27:51.000 --> 01:27:53.670
Not everybody has that
balance sheet and that ability.
01:27:53.670 --> 01:27:55.580
And that's what scares me about this.
01:27:55.580 --> 01:27:58.800
It scares me that you
all are pushing something
01:27:59.780 --> 01:28:02.883
that you all can achieve,
but nobody else can.
01:28:03.910 --> 01:28:06.080
Maybe you and your four other brothers
01:28:07.100 --> 01:28:09.770
that are the big Gene
Taylors, but nobody else can
01:28:09.770 --> 01:28:11.223
and that concerns me.
01:28:12.280 --> 01:28:16.943
And I did ask you if
this would allow you all
01:28:19.070 --> 01:28:21.740
or you would bring on new generation
01:28:21.740 --> 01:28:24.193
if they LSE obligation and you said,
01:28:25.100 --> 01:28:28.500
paraphrasing it, you
said, if there's a deficiency
01:28:28.500 --> 01:28:30.820
and the rules were
implemented correctly,
01:28:30.820 --> 01:28:34.563
and we needed it for our
load, then yes, we would.
01:28:35.960 --> 01:28:40.610
And I think that's the
mentality that I'm scared of
01:28:40.610 --> 01:28:43.723
is that you all are gonna
be doing just stuff for you all.
01:28:45.160 --> 01:28:47.110
And this market was built on the premise
01:28:47.110 --> 01:28:49.540
that we were all in this together.
01:28:49.540 --> 01:28:52.200
We socialize transmission costs,
01:28:52.200 --> 01:28:54.250
we're all selling into a pool
01:28:54.250 --> 01:28:55.670
and we're pulling out of a pool.
01:28:55.670 --> 01:28:57.480
And if we have five big Gene Taylors
01:28:57.480 --> 01:29:01.620
that are gonna be just doing
it for them, that's an issue.
01:29:01.620 --> 01:29:04.480
And that is a
fair question to ask
01:29:04.480 --> 01:29:05.510
that we would have to address
01:29:05.510 --> 01:29:07.200
as we work through this proposal,
01:29:07.200 --> 01:29:09.620
'cause I can tell you
at the end of the day,
01:29:09.620 --> 01:29:13.440
a market structure
that is not competitive
01:29:13.440 --> 01:29:16.027
and does not have a robust retail market
01:29:16.027 --> 01:29:18.760
would ruin it for
everyone, including us.
01:29:18.760 --> 01:29:20.690
That is not the objective of this.
01:29:20.690 --> 01:29:21.523
The number--
What consists
01:29:21.523 --> 01:29:23.187
a robust retail market, sir?
01:29:23.187 --> 01:29:24.900
One second.
Okay.
01:29:24.900 --> 01:29:28.300
The number one
threat, without a doubt
01:29:28.300 --> 01:29:32.070
to the retail market
and to reps is reliability.
01:29:32.070 --> 01:29:35.980
That is to me has
been made crystal clear.
01:29:35.980 --> 01:29:38.000
So we have to solve that problem
01:29:38.000 --> 01:29:40.380
in a way that preserves
the competitive market.
01:29:40.380 --> 01:29:43.890
Now, on the retail side,
01:29:43.890 --> 01:29:46.863
and we've mentioned
this and I'll say it again.
01:29:48.270 --> 01:29:50.670
We are the largest buyer
under our own proposal.
01:29:52.250 --> 01:29:54.100
In terms of physical capacity
01:29:54.100 --> 01:29:56.240
with the acquisition of direct energy,
01:29:56.240 --> 01:29:59.603
we are the shortest entity
in terms of physical capacity.
01:30:01.360 --> 01:30:03.840
That means you've got
twice as much load to serve
01:30:03.840 --> 01:30:05.720
than generation--
We have a lot
01:30:05.720 --> 01:30:09.260
of these things that would
be part of this proposal,
01:30:09.260 --> 01:30:12.420
and we would do that
through many different ways.
01:30:12.420 --> 01:30:14.830
The annual report
strategic plan lays out
01:30:14.830 --> 01:30:17.380
the fact that that is
the expansion of load
01:30:17.380 --> 01:30:19.500
is the intended business plan.
01:30:19.500 --> 01:30:20.460
Yep.
01:30:20.460 --> 01:30:23.090
You're planning
on getting shorter.
01:30:23.090 --> 01:30:25.240
You're gonna have, the
plan is for your company
01:30:25.240 --> 01:30:27.390
to have more load to
serve than generation,
01:30:28.287 --> 01:30:29.120
you can't more than generation.
01:30:29.120 --> 01:30:33.530
We have widely, this
is years in the making,
01:30:33.530 --> 01:30:36.851
but we've mentioned that
we are an asset light company,
01:30:36.851 --> 01:30:38.530
and that's what we continue to do.
01:30:38.530 --> 01:30:43.530
We are assigning more
contracts and building less,
01:30:44.600 --> 01:30:47.473
but financing the
construction of other things.
01:30:49.490 --> 01:30:53.023
But your concern that
you raised, I understand,
01:30:54.810 --> 01:30:57.773
we think other structures
would be much worse,
01:30:58.950 --> 01:31:01.830
but everything you just described.
01:31:01.830 --> 01:31:03.050
We would have to address.
01:31:03.050 --> 01:31:04.850
We'd have to make
sure that that is satisfied.
01:31:04.850 --> 01:31:06.700
We'd have to make sure that market power
01:31:06.700 --> 01:31:08.090
was sufficiently mitigated
01:31:08.090 --> 01:31:12.630
which if you look at these
concerns of market power
01:31:12.630 --> 01:31:15.400
and you'd go back
and look at 20 years ago
01:31:15.400 --> 01:31:17.590
with filings on when we
developed Tizona market,
01:31:17.590 --> 01:31:19.320
they're the same.
01:31:19.320 --> 01:31:20.603
And we figured it out.
01:31:22.790 --> 01:31:25.310
It's all been done
before, and we can do it.
01:31:25.310 --> 01:31:28.150
But just to emphasize this point,
01:31:28.150 --> 01:31:32.600
is any reliability construct
01:31:32.600 --> 01:31:35.460
that does not have a active
and robust retail market
01:31:35.460 --> 01:31:38.010
would be a failure for
everyone, including us,
01:31:38.010 --> 01:31:40.840
because if it's not
competitive and it doesn't work,
01:31:40.840 --> 01:31:43.490
the legislature will
take it away from office.
01:31:43.490 --> 01:31:44.323
On that note,
01:31:44.323 --> 01:31:46.540
because you have very
much focused on market power.
01:31:46.540 --> 01:31:48.557
I would like to call Carrie Bivens.
01:31:49.403 --> 01:31:52.040
Let's see if anybody
else has questions.
01:31:52.040 --> 01:31:55.010
Sure, sorry, go ahead,
Jimmy are you done?
01:31:55.010 --> 01:31:56.860
Anybody else?
No, I'm good, sir.
01:31:59.920 --> 01:32:02.100
Actually I do have
one very quick question.
01:32:02.100 --> 01:32:07.100
So under your construct,
I hope I get this right.
01:32:07.400 --> 01:32:08.233
I'm sorry if I don't,
01:32:08.233 --> 01:32:12.100
but I think today, this
was in someone's filing.
01:32:12.100 --> 01:32:12.933
I don't know who it was,
01:32:12.933 --> 01:32:14.420
but it made a good point
and it just kind of stuck with me
01:32:14.420 --> 01:32:17.570
and that is, ERCOT or
does not talk to reps today.
01:32:17.570 --> 01:32:20.203
They talk to qualified
scheduling entities.
01:32:22.130 --> 01:32:26.370
What's the mechanism
for getting a rep obligation
01:32:26.370 --> 01:32:30.530
information to ERCOT in that
process, the LSE obligation?
01:32:30.530 --> 01:32:32.380
That happens
through the queasy,
01:32:32.380 --> 01:32:35.570
that same construct exist today
in renewable energy credits.
01:32:35.570 --> 01:32:36.950
So that would roll
up to the queasy,
01:32:36.950 --> 01:32:38.700
the queasy would be the one responsible
01:32:38.700 --> 01:32:40.653
for relaying that information to ERCOT?
01:32:40.653 --> 01:32:42.610
So when ERCOT
settles the market,
01:32:42.610 --> 01:32:43.937
they know the load by LSE,
01:32:43.937 --> 01:32:46.980
and that's how they calculate
the compliance penalties
01:32:46.980 --> 01:32:50.220
or the requirement to
have retired enough reps
01:32:50.220 --> 01:32:51.870
to meet your share under 25, 173.
01:32:52.978 --> 01:32:54.210
Okay.
Yeah.
01:32:54.210 --> 01:32:56.320
That's a great question
and I would love to explore
01:32:56.320 --> 01:33:00.413
some of that with ERCOT
as our discussion continues.
01:33:01.950 --> 01:33:03.388
Thank you, Bill.
01:33:03.388 --> 01:33:04.750
Thank you guys.
01:33:04.750 --> 01:33:05.590
Just want to say,
01:33:05.590 --> 01:33:08.800
having been part of this
process and other processes
01:33:08.800 --> 01:33:10.700
where we've discussed market design
01:33:10.700 --> 01:33:13.910
at this Commission is
a very complicated topic
01:33:13.910 --> 01:33:17.970
that has many issues,
and it is often been divisive.
01:33:17.970 --> 01:33:21.370
It'll always be divisive among
stakeholders, right, Katie,
01:33:21.370 --> 01:33:23.630
but it is often been divisive
01:33:23.630 --> 01:33:26.060
and I just appreciate the open candor
01:33:26.060 --> 01:33:28.360
and discussion and
dialogue you guys have had.
01:33:30.250 --> 01:33:33.150
It's helpful for stakeholders
and we know it's contentious.
01:33:33.150 --> 01:33:36.500
So thank you for taking in all
of our opinions and feedback.
01:33:36.500 --> 01:33:37.550
Absolutely.
Yep.
01:33:39.690 --> 01:33:41.470
Any changes that's
substantial meaningful
01:33:41.470 --> 01:33:46.007
is going to upset some people
and probably a lot of people.
01:33:46.007 --> 01:33:50.030
And I appreciate you bringing that issue
01:33:51.610 --> 01:33:54.323
front and center in no uncertain terms,
01:33:55.810 --> 01:33:59.840
but I would also remind folks
01:33:59.840 --> 01:34:03.620
that there's no prohibition on somebody
01:34:03.620 --> 01:34:06.350
other than the big five
building new generation.
01:34:06.350 --> 01:34:07.300
Absolutely right.
01:34:09.470 --> 01:34:13.050
They're actually
constrained by law
01:34:13.050 --> 01:34:16.900
from going beyond that
20% of the generation side,
01:34:16.900 --> 01:34:19.450
which is the whole point
of the exercise is getting
01:34:20.860 --> 01:34:24.570
new folks to build
dispatchable generation,
01:34:24.570 --> 01:34:27.770
which would then be
available for not only
01:34:28.890 --> 01:34:30.920
their excess load, but everybody else.
01:34:30.920 --> 01:34:34.120
Which we encourage that
20% to be 10 but was a lot--
01:34:34.120 --> 01:34:35.603
That's another one you have
to check with the legislature.
01:34:35.603 --> 01:34:38.186
That's a question to the IMM.
01:34:41.493 --> 01:34:45.064
All right, you wanna
order from the IMM, Carrie?
01:34:45.064 --> 01:34:47.597
Yes, if I can, thank you.
Come on up.
01:34:52.880 --> 01:34:55.880
Good afternoon, Carrie
Bivens with Potomac Economics.
01:34:55.880 --> 01:34:57.060
Hi Carrie, how are you doing?
01:34:57.060 --> 01:34:58.040
Doing great.
01:34:58.040 --> 01:35:02.350
So I think before we resume
asking questions with you,
01:35:02.350 --> 01:35:05.230
I think just for the
purposes of the public,
01:35:05.230 --> 01:35:07.130
can you give us just a brief background
01:35:07.130 --> 01:35:10.550
on what the main roles or
duties of the ERCOT IMM are?
01:35:10.550 --> 01:35:12.300
Yeah, there are twofold.
01:35:12.300 --> 01:35:14.930
So we monitor the market
01:35:14.930 --> 01:35:18.853
and we recommend market
design changes as we see fit.
01:35:19.930 --> 01:35:24.350
The second role is to look
for market power abuse,
01:35:24.350 --> 01:35:25.760
market manipulation,
01:35:25.760 --> 01:35:28.683
and refer those cases for
enforcement if appropriate.
01:35:30.260 --> 01:35:32.410
In your current
duties of serving
01:35:32.410 --> 01:35:36.040
as a ERCOT IMM, do you
monitor market power abuse
01:35:36.040 --> 01:35:38.213
in the bilateral market?
No, we do not.
01:35:39.680 --> 01:35:41.100
What are some of the challenges
01:35:41.100 --> 01:35:44.900
that monitoring market
power in a bilateral market
01:35:44.900 --> 01:35:49.150
under an LSEO construct would
present for you as ERCOT IMM?
01:35:49.150 --> 01:35:51.340
Yes, our role is limited
01:35:51.340 --> 01:35:55.080
to the central ERCOT energy market.
01:35:55.080 --> 01:35:58.700
And obviously if the
Commission creates new products
01:35:58.700 --> 01:36:01.900
or creates new markets,
we will monitor those markets.
01:36:01.900 --> 01:36:04.440
There are some unique
challenges that we see
01:36:04.440 --> 01:36:09.123
with the LSE obligation proposal
centrally because they are,
01:36:11.340 --> 01:36:13.700
these transactions are taking place
01:36:13.700 --> 01:36:14.850
through the bilateral markets.
01:36:14.850 --> 01:36:17.170
So one is that these contracts
01:36:18.110 --> 01:36:20.060
may not necessarily be standardized.
01:36:20.060 --> 01:36:23.720
So you might have contracts
that are for accredited capacity
01:36:23.720 --> 01:36:26.640
for uncredited capacity,
for other types of products.
01:36:26.640 --> 01:36:29.500
You're talking the light
touch proof of purchase,
01:36:29.500 --> 01:36:31.403
no new product version.
01:36:32.770 --> 01:36:37.310
Any other one because
there could be contracts that are
01:36:37.310 --> 01:36:38.750
from--
In the new product,
01:36:38.750 --> 01:36:40.230
create a new product by definition,
01:36:40.230 --> 01:36:41.660
it would be standardized.
01:36:41.660 --> 01:36:43.280
The product itself
might be standardized,
01:36:43.280 --> 01:36:45.710
but doesn't necessarily
mean the contract would be.
01:36:45.710 --> 01:36:48.070
So if you're, you
could sell that product
01:36:48.070 --> 01:36:49.200
and sell other products,
01:36:49.200 --> 01:36:51.320
all packaged together in one contract,
01:36:51.320 --> 01:36:54.630
and it would be difficult
to know whether or not,
01:36:54.630 --> 01:36:58.430
what the actual price of
that standardized product was
01:36:58.430 --> 01:37:00.830
because there might've
been consideration
01:37:00.830 --> 01:37:02.173
in the other products.
01:37:03.179 --> 01:37:08.179
If somebody was trying to
artificially inflate or deflate
01:37:08.560 --> 01:37:11.480
the price of that capacity
product they could do so
01:37:11.480 --> 01:37:15.270
by adjusting the terms or
changing the other terms
01:37:15.270 --> 01:37:17.250
of the contract so it'll be--
01:37:17.250 --> 01:37:20.264
They could do that with
any contract between two
01:37:20.264 --> 01:37:21.591
sophisticated parties--
Absolutely.
01:37:21.591 --> 01:37:23.047
Except for those
two parties just like --
01:37:23.047 --> 01:37:26.630
So if you hand me
contracts and you asked me,
01:37:26.630 --> 01:37:29.932
is this entity exercising market power
01:37:29.932 --> 01:37:33.170
and I'm trying to
compare multiple contracts
01:37:33.170 --> 01:37:36.400
to find out what the true
cost of that capacity was,
01:37:36.400 --> 01:37:40.610
it'll be very difficult to
compare apples to apples
01:37:40.610 --> 01:37:42.840
amongst all these bilateral contracts.
01:37:42.840 --> 01:37:46.200
Have you ever reviewed
a bilateral contract?
01:37:46.200 --> 01:37:47.183
We have not.
01:37:49.168 --> 01:37:50.730
When we go through our RFI processes,
01:37:50.730 --> 01:37:53.280
we ask for particular
data and we'll often get
01:37:54.750 --> 01:37:58.340
kind of information
about those contracts,
01:37:58.340 --> 01:37:59.960
but there is a lot of hesitancy
01:37:59.960 --> 01:38:03.413
to provide the actual
contracts themselves.
01:38:05.120 --> 01:38:09.130
So in order to be able to
review a bilateral contract,
01:38:09.130 --> 01:38:10.420
I guess, first that the companies
01:38:10.420 --> 01:38:11.550
would have to provide them to you,
01:38:11.550 --> 01:38:13.810
which they're highly confidential
01:38:13.810 --> 01:38:15.250
and there's a lot surrounding there,
01:38:15.250 --> 01:38:17.173
but in order to review them,
01:38:18.340 --> 01:38:20.710
would you have to
have the entire contract?
01:38:20.710 --> 01:38:22.750
Yes, we'd have to
have the entire contract
01:38:22.750 --> 01:38:26.280
and another issue, again,
01:38:26.280 --> 01:38:28.520
our role is to find market a power abuse
01:38:28.520 --> 01:38:30.540
and refer it to the
Commission for enforcement.
01:38:30.540 --> 01:38:35.080
So let's say that we were
able to detect and identify
01:38:35.080 --> 01:38:37.280
market power abuse
in the bilateral market
01:38:37.280 --> 01:38:38.510
through these contracts
01:38:38.510 --> 01:38:40.440
and we referred to the
Commission for enforcement,
01:38:40.440 --> 01:38:42.610
the Commission enforces,
maybe there's penalties,
01:38:42.610 --> 01:38:45.040
there's still a contract
that was executed
01:38:45.040 --> 01:38:49.150
and that the LSE is subject
to for a year or longer
01:38:49.150 --> 01:38:53.660
and that contract cannot
be canceled necessarily.
01:38:53.660 --> 01:38:57.260
And so even if
something, we like to try to,
01:38:57.260 --> 01:39:00.060
and that's why we participate so heavily
01:39:00.060 --> 01:39:01.440
in the market design process
01:39:01.440 --> 01:39:04.610
is that it's better to design markets
01:39:04.610 --> 01:39:09.150
that prevent the exercise of
market power in the first place
01:39:09.150 --> 01:39:10.730
than trying to come behind it
01:39:10.730 --> 01:39:13.870
and use penalties or
enforcement after the fact,
01:39:13.870 --> 01:39:16.230
because the harm is
already done at that point.
01:39:16.230 --> 01:39:18.160
How do you know
there's not market power
01:39:18.160 --> 01:39:19.800
enacted in the current bilateral market
01:39:19.800 --> 01:39:21.800
if you're not reviewing those contracts?
01:39:22.910 --> 01:39:25.440
Well, every entity has access
01:39:25.440 --> 01:39:26.980
to the ERCOT energy market.
01:39:26.980 --> 01:39:29.930
So if you weren't able
to access good terms
01:39:29.930 --> 01:39:31.110
in the bilateral market,
01:39:31.110 --> 01:39:32.690
then you can purchase
everything you need
01:39:32.690 --> 01:39:34.330
from the day ahead market at ERCOT.
01:39:34.330 --> 01:39:36.200
So there's that backstop.
01:39:36.200 --> 01:39:38.709
Would that change
with the LSE obligation?
01:39:38.709 --> 01:39:43.709
Okay, so, one option
would be a backstop
01:39:46.410 --> 01:39:48.120
or residual type market,
01:39:48.120 --> 01:39:53.120
so that if LSE had difficulty accessing
01:39:53.620 --> 01:39:55.220
good terms in the bilateral market,
01:39:55.220 --> 01:39:58.200
there would be a backstop
or a residual type auction
01:39:58.200 --> 01:39:59.800
and it would have all of the features--
01:39:59.800 --> 01:40:01.790
This is in a new
product scenario.
01:40:01.790 --> 01:40:03.670
In a new product scenario.
01:40:03.670 --> 01:40:04.860
It would have all the features
01:40:04.860 --> 01:40:07.130
of any other centralized market
01:40:07.130 --> 01:40:09.133
that would have market power mitigation,
01:40:09.990 --> 01:40:13.880
reliability based demand
curve, all of those features.
01:40:13.880 --> 01:40:17.800
And it would probably in the end
01:40:17.800 --> 01:40:20.470
just become a
centralized capacity market
01:40:20.470 --> 01:40:22.200
with a self supply option
01:40:23.770 --> 01:40:26.080
is what it would migrate to over time.
01:40:26.080 --> 01:40:27.893
And just to be clear, okay.
01:40:29.860 --> 01:40:32.793
You're saying that a protective measure,
01:40:34.672 --> 01:40:39.290
or a process to help
you monitor market power
01:40:42.238 --> 01:40:45.293
in the bilateral market
under LSE obligation.
01:40:46.700 --> 01:40:49.730
The one that you're pointing
to, the residual auction
01:40:50.860 --> 01:40:54.530
is essentially part of
the capacity market?
01:40:54.530 --> 01:40:59.130
It's essentially the
heavier touch version--
01:40:59.130 --> 01:41:01.714
What about in a proof
of purchase scenario?
01:41:01.714 --> 01:41:03.930
I'm not sure I understand
how that would work.
01:41:03.930 --> 01:41:07.550
Like the SBP,
the first part of SBP
01:41:07.550 --> 01:41:09.640
where you just, without
the deliverability problem.
01:41:09.640 --> 01:41:12.100
The part that Lubbock said
was pretty straightforward
01:41:12.100 --> 01:41:14.940
and easy as administrative accounting.
01:41:14.940 --> 01:41:15.773
Didn't really change business.
01:41:15.773 --> 01:41:20.773
You just need to prove that
you purchased reliable power
01:41:20.820 --> 01:41:21.680
for the customers
01:41:21.680 --> 01:41:24.083
that you believe you
were gonna need to serve.
01:41:25.590 --> 01:41:28.653
And it would be based
on accredited capacity?
01:41:30.550 --> 01:41:32.530
Yes, an accreditation standard
01:41:32.530 --> 01:41:36.530
that holds each
resource type accountable
01:41:36.530 --> 01:41:37.760
for their level of reliability,
01:41:37.760 --> 01:41:41.220
just like you would do in
the heavy touch version.
01:41:41.220 --> 01:41:46.040
But if you're hedged, and
then escalating fashion,
01:41:46.040 --> 01:41:48.320
as you get closer to the operating day,
01:41:48.320 --> 01:41:50.650
the only change in your day-to-day life
01:41:50.650 --> 01:41:52.700
would be showing
the receipt essentially.
01:41:53.930 --> 01:41:56.710
And you don't have to,
there's nothing saying that,
01:41:56.710 --> 01:42:01.130
the wisdom of the contract you signed
01:42:01.130 --> 01:42:03.460
between two sophisticated
and competent parties,
01:42:03.460 --> 01:42:07.210
you just need to show that
you purchased the power
01:42:07.210 --> 01:42:10.520
that you expect to have to deliver.
01:42:10.520 --> 01:42:14.470
Right, I think that has the
same market power issues,
01:42:14.470 --> 01:42:17.550
because it's wholly relying
on the bilateral market.
01:42:17.550 --> 01:42:18.970
How do you know
that's not happening
01:42:18.970 --> 01:42:20.423
now in the bilateral market?
01:42:20.423 --> 01:42:24.880
Because right now you have
access to the ERCOT market.
01:42:24.880 --> 01:42:27.639
You still would.
You still would--
01:42:27.639 --> 01:42:28.472
Nobody is getting rid
01:42:28.472 --> 01:42:29.305
of the real time of the data.
01:42:29.305 --> 01:42:30.940
But you're telling me
I have to prove to you
01:42:30.940 --> 01:42:33.940
that I have purchased for capacity
01:42:33.940 --> 01:42:37.013
and if I don't do that, I
have some penalty, right?
01:42:39.040 --> 01:42:41.420
You're forcing me into
the bilateral afford market
01:42:41.420 --> 01:42:43.943
whereas nobody's forced there today.
01:42:43.943 --> 01:42:45.930
That's the problem.
01:42:45.930 --> 01:42:49.738
Nobody's buying dispatchable
power in the future.
01:42:49.738 --> 01:42:52.363
That's the problem, that's
why we're running out.
01:42:54.150 --> 01:42:57.720
So Carrie, under our
PUC rules right now,
01:42:57.720 --> 01:42:59.270
you're not required
01:42:59.270 --> 01:43:01.065
to monitor market
power in the bilateral.
01:43:01.065 --> 01:43:01.898
In the bilateral.
01:43:01.898 --> 01:43:03.240
Yeah, that would be an expansion--
01:43:03.240 --> 01:43:04.590
Of your role.
Of the role
01:43:04.590 --> 01:43:06.590
under the substantive rules.
01:43:06.590 --> 01:43:07.460
So what would that mean?
01:43:07.460 --> 01:43:10.840
I mean, are you gonna have
to add more staff, expertise?
01:43:10.840 --> 01:43:12.470
I mean, what does all this mean?
01:43:12.470 --> 01:43:13.640
Oh yes, absolutely.
01:43:13.640 --> 01:43:15.300
We would need more staff.
01:43:15.300 --> 01:43:16.660
We would probably issue
01:43:16.660 --> 01:43:19.870
many more RFI, request for information
01:43:19.870 --> 01:43:22.750
whereby folks would have
to answer all of our questions
01:43:22.750 --> 01:43:24.040
and provide all of our contracts
01:43:24.040 --> 01:43:26.463
and we would have
this iterative process.
01:43:27.970 --> 01:43:29.720
But that's fine, we're happy to do it.
01:43:29.720 --> 01:43:33.020
Just note that for every RFI we issue,
01:43:33.020 --> 01:43:34.430
I'm sure everybody in
this room can tell you
01:43:34.430 --> 01:43:36.580
how much they don't enjoy
having to respond to that.
01:43:36.580 --> 01:43:39.000
It's quite an administrative
burden for them as well.
01:43:39.000 --> 01:43:40.020
So no matter what,
01:43:40.020 --> 01:43:41.720
and what construct of an LSE obligation,
01:43:41.720 --> 01:43:45.610
whether it's the souped
up one or the light one,
01:43:45.610 --> 01:43:47.030
you're still gonna have to have
01:43:47.030 --> 01:43:51.530
some kind of new approach
to addition to reviewing
01:43:51.530 --> 01:43:53.420
and you'll still have
to read those contracts
01:43:53.420 --> 01:43:54.610
that you've never read before.
01:43:54.610 --> 01:43:56.960
And we'll need some sounds
like some additional staff
01:43:56.960 --> 01:43:58.471
and maybe some expertise, perhaps.
01:43:58.471 --> 01:43:59.671
That's right.
01:44:01.490 --> 01:44:04.893
So if you're gonna need
all these things, right?
01:44:06.103 --> 01:44:07.483
Who pays for the IMM?
01:44:09.204 --> 01:44:10.710
The IMM is paid
01:44:12.260 --> 01:44:15.270
essentially through the
ERCOT administration fee.
01:44:15.270 --> 01:44:16.750
So the archive administration fee
01:44:16.750 --> 01:44:19.313
is assessed on a
megawatt hour basis to load.
01:44:20.400 --> 01:44:23.300
Okay, I'm gonna kind of
change the subject here
01:44:23.300 --> 01:44:26.040
because this is another
piece of the lighter approach
01:44:27.420 --> 01:44:30.300
or I actually, I guess just
the one you had proposed
01:44:30.300 --> 01:44:32.923
last time, Chairman,
the public bulletin board,
01:44:34.450 --> 01:44:35.323
will that help?
01:44:40.286 --> 01:44:41.780
I'm not sure I see the benefit
01:44:41.780 --> 01:44:43.903
of the public bulletin board.
01:44:48.220 --> 01:44:50.520
there's no guarantee that what's posted
01:44:50.520 --> 01:44:52.823
on the bulletin board is accessible.
01:44:53.840 --> 01:44:55.338
What do you mean
it's not accessible?
01:44:55.338 --> 01:44:56.770
It's a public bulletin board.
01:44:56.770 --> 01:44:58.323
It's a public bulletin board.
01:44:59.770 --> 01:45:01.820
Maybe I need a little
bit more description.
01:45:01.820 --> 01:45:04.050
Oh, I mean.
Natural gas pipeline
01:45:04.050 --> 01:45:06.090
is a delivery point bulletin board.
01:45:06.090 --> 01:45:07.530
It's a public facing website,
01:45:07.530 --> 01:45:10.210
has prices and volumes
of every transaction.
01:45:10.210 --> 01:45:12.600
And so maybe I call
you and I say I would like
01:45:12.600 --> 01:45:16.360
whatever you posted and
you tell me, oh, I'm sorry,
01:45:16.360 --> 01:45:17.340
that's not available,
01:45:17.340 --> 01:45:20.913
but I've got this other
thing for different terms.
01:45:22.030 --> 01:45:22.993
It's not a--
01:45:24.290 --> 01:45:27.210
So you're saying that if
the IMM called companies
01:45:27.210 --> 01:45:30.895
under the Commission's
jurisdiction to ask about
01:45:30.895 --> 01:45:33.390
specific transaction,
01:45:33.390 --> 01:45:34.990
they would swap out the contracts
01:45:34.990 --> 01:45:36.240
and give you a different contract
01:45:36.240 --> 01:45:38.360
than the one you really want.
01:45:38.360 --> 01:45:40.670
And are we sure that's
not happening today
01:45:40.670 --> 01:45:42.303
when you put out an RFI?
01:45:45.533 --> 01:45:48.753
Are we just conjuring up
ghosts that already, I mean,
01:45:50.510 --> 01:45:52.410
if you're worried about
people switching out contracts
01:45:52.410 --> 01:45:54.400
on you, that's a now problem as well.
01:45:54.400 --> 01:45:56.700
No, I guess I'm
just trying to say that
01:45:56.700 --> 01:46:00.130
a bulletin board is not the
same thing as a cleared market.
01:46:00.130 --> 01:46:03.770
And so it's just somebody
putting up a post-it that says,
01:46:03.770 --> 01:46:05.860
I'll sell you this at this dollar amount
01:46:05.860 --> 01:46:08.580
and that doesn't necessarily mean that
01:46:08.580 --> 01:46:12.433
the other contract terms are
going to be favorable to you.
01:46:14.111 --> 01:46:17.210
So, the bulletin board
with post executed prices
01:46:17.210 --> 01:46:18.200
and this would be--
01:46:18.200 --> 01:46:21.140
Oh, this is an
after the fact, maybe,
01:46:21.140 --> 01:46:21.973
I apologize.
01:46:21.973 --> 01:46:23.790
I thought the bulletin
board concept was,
01:46:23.790 --> 01:46:26.910
because Australia has
like a trading platform
01:46:26.910 --> 01:46:29.904
where they do some brokerage
services and that's the before.
01:46:29.904 --> 01:46:31.470
Okay this is an after.
And do both.
01:46:31.470 --> 01:46:34.590
I know this is not the way
ERCOT works but most,
01:46:34.590 --> 01:46:36.770
a lot of markets have the bid stack,
01:46:36.770 --> 01:46:38.120
the offer stack all in one,
01:46:38.120 --> 01:46:40.860
you can see price transactions
cleared and you can see--
01:46:40.860 --> 01:46:42.150
Okay, absolutely that,
01:46:42.150 --> 01:46:44.260
increasing transparency would help, yes.
01:46:44.260 --> 01:46:45.093
Or real time, I mean,
01:46:45.093 --> 01:46:47.030
these are updated every five minutes.
01:46:47.030 --> 01:46:48.300
If it's cleared, it's posted,
01:46:48.300 --> 01:46:50.920
if it's a bid or offer
always subject detained,
01:46:50.920 --> 01:46:52.260
but you can see the stack.
01:46:52.260 --> 01:46:53.460
Yeah.
01:46:53.460 --> 01:46:56.263
The only thing, I just wanna
go back to the fact that,
01:46:58.910 --> 01:47:03.170
these contracts may contain
terms that are not comparable.
01:47:04.540 --> 01:47:08.360
It's not necessarily
that one and another
01:47:08.360 --> 01:47:09.350
are gonna be the same.
01:47:09.350 --> 01:47:12.370
So let's say you've got
two affiliated entities.
01:47:12.370 --> 01:47:14.150
One is selling to the other,
01:47:14.150 --> 01:47:16.570
the capacity part of that contract
01:47:16.570 --> 01:47:19.190
might look lower and it,
01:47:19.190 --> 01:47:20.670
I don't wanna go into too much detail
01:47:20.670 --> 01:47:22.820
because I feel like
I'm just telling people
01:47:24.290 --> 01:47:25.861
how to get in trouble.
Said by monitor.
01:47:25.861 --> 01:47:26.940
Yeah.
01:47:26.940 --> 01:47:30.110
Maybe I need to be a little
bit more cautious, but anyway,
01:47:30.110 --> 01:47:31.560
I can certainly see examples
01:47:31.560 --> 01:47:34.597
under which you could try
01:47:34.597 --> 01:47:38.253
to make things look
different than they are.
01:47:39.690 --> 01:47:41.678
Take it from the
other side though.
01:47:41.678 --> 01:47:46.530
Is there a reason to have
different terms and contracts
01:47:46.530 --> 01:47:49.310
for different counterparties,
valid reasons?
01:47:49.310 --> 01:47:50.540
Yes.
Okay.
01:47:50.540 --> 01:47:52.150
So just because they're different terms,
01:47:52.150 --> 01:47:53.950
doesn't mean they're
evil or manipulative?
01:47:53.950 --> 01:47:54.783
No.
01:47:54.783 --> 01:47:57.150
And there's a very good
reason you could sell power
01:47:57.150 --> 01:47:59.520
or any good or service
to one counter party
01:47:59.520 --> 01:48:01.233
at a higher price than you did it,
01:48:02.440 --> 01:48:04.290
the same product to
the next counterparty.
01:48:04.290 --> 01:48:05.810
Yes.
They're very legit
01:48:05.810 --> 01:48:07.323
and I'm gonna make sure
everybody's clear on that.
01:48:07.323 --> 01:48:08.330
There are very legitimate business
01:48:08.330 --> 01:48:09.680
and risk management reasons for that.
01:48:09.680 --> 01:48:11.610
Okay, because
different counterparties
01:48:11.610 --> 01:48:12.607
have different risk profiles.
01:48:12.607 --> 01:48:15.020
Different risk profiles,
different delivery terms,
01:48:15.020 --> 01:48:16.890
different--
Yes.
01:48:16.890 --> 01:48:18.840
Financial risk management
01:48:18.840 --> 01:48:20.010
and payment terms associated with it,
01:48:20.010 --> 01:48:20.910
there are a lot of reasons
01:48:20.910 --> 01:48:23.410
for different contract terms to exist.
01:48:23.410 --> 01:48:24.480
And just because they're different
01:48:24.480 --> 01:48:26.091
doesn't mean that they're malicious.
01:48:26.091 --> 01:48:27.550
No, no, absolutely.
01:48:27.550 --> 01:48:28.460
I'm just saying that,
01:48:28.460 --> 01:48:30.620
if you're selling a megawatt
of energy in real time,
01:48:30.620 --> 01:48:32.620
that megawatt of energy
is the same for everybody
01:48:32.620 --> 01:48:34.817
and so I can say if you're offering $30
01:48:34.817 --> 01:48:37.750
and you're offering $800,
01:48:37.750 --> 01:48:39.670
I can very easily compare those two
01:48:39.670 --> 01:48:42.070
and I can make some
judgment calls about.
01:48:42.070 --> 01:48:45.010
Sure, and also just to
be a point of clarification
01:48:45.010 --> 01:48:48.930
on all of these proposals,
none of these proposals,
01:48:48.930 --> 01:48:53.430
anywhere on the spectrum,
envisions a real time
01:48:53.430 --> 01:48:56.720
constant checking of exactly
how many credits you have,
01:48:56.720 --> 01:48:58.050
or exactly how hedged you are.
01:48:58.050 --> 01:49:01.010
In my straw man at most
it was a one month away
01:49:01.010 --> 01:49:02.160
from the operating day.
01:49:04.110 --> 01:49:06.190
At which point, and you
asked about the realtime
01:49:06.190 --> 01:49:10.020
and the head market
earlier, that's what they're for.
01:49:10.020 --> 01:49:12.890
I mean, after one month
ahead, under the first straw man,
01:49:12.890 --> 01:49:14.440
which is just a starting point,
01:49:15.420 --> 01:49:16.650
we don't care.
01:49:16.650 --> 01:49:19.040
We've got the proof of
purchase in the lightest touch.
01:49:19.040 --> 01:49:22.710
We've seen that you bought 95%
01:49:22.710 --> 01:49:26.280
or a hundred percent or
whatever the number is
01:49:26.280 --> 01:49:28.200
and you go about your business.
01:49:28.200 --> 01:49:30.250
Nobody's checking every morning
01:49:30.250 --> 01:49:34.070
or every four hours that would prevent.
01:49:34.070 --> 01:49:36.060
So you can still go
to the realtime market.
01:49:36.060 --> 01:49:38.900
You can still go to the day ahead market
01:49:38.900 --> 01:49:40.663
to meet your energy needs.
01:49:42.368 --> 01:49:45.380
There's no requirement
in any of these proposals
01:49:45.380 --> 01:49:46.970
anywhere on the spectrum,
01:49:46.970 --> 01:49:49.460
that if your load changes a week ahead,
01:49:49.460 --> 01:49:51.450
you've got to scramble
to get more credits,
01:49:51.450 --> 01:49:53.020
capacity credits, or decks,
01:49:53.020 --> 01:49:57.450
that's not proposed anywhere
in any of these versions.
01:49:57.450 --> 01:49:59.630
It's a monthly at most,
probably more likely
01:49:59.630 --> 01:50:04.630
quarterly checkpoint with ERCOT.
01:50:04.680 --> 01:50:06.923
For the 5% that has
not been procured?
01:50:09.760 --> 01:50:12.450
In January you've got
to submit your report.
01:50:12.450 --> 01:50:15.430
Some subset of those would be audited.
01:50:15.430 --> 01:50:19.970
And they look at essentially
your book three years out,
01:50:19.970 --> 01:50:23.440
here's the expected load, do
you have 50% of that, check.
01:50:23.440 --> 01:50:26.940
Do you have two years
out, do you have 75% of that
01:50:26.940 --> 01:50:31.540
or whatever the escalating
requirement the obligation is,
01:50:31.540 --> 01:50:35.220
that's a milestone or check-in,
01:50:35.220 --> 01:50:38.353
there's no real time penalty.
01:50:40.050 --> 01:50:41.270
And they'll check all
your operating days.
01:50:41.270 --> 01:50:44.650
Three or seasons is months, weeks.
01:50:44.650 --> 01:50:47.300
I don't know what metric we'd wanna use,
01:50:47.300 --> 01:50:50.060
but you look ahead and
say, hey, if it's January,
01:50:50.060 --> 01:50:52.430
what do you have lined up for February?
01:50:52.430 --> 01:50:55.610
We're only gonna look a
month ahead out and further
01:50:55.610 --> 01:50:57.720
because once you get within the month,
01:50:57.720 --> 01:51:01.563
it's too dynamic and
it's moving too fast.
01:51:03.510 --> 01:51:06.683
So it's not a real-time buzzer.
01:51:07.770 --> 01:51:10.443
Nobody's sewing a flag in
the middle of the football game.
01:51:13.486 --> 01:51:15.350
Whether it's a new credit product
01:51:15.350 --> 01:51:18.650
or the light touch proof of purchase,
01:51:18.650 --> 01:51:21.804
they're just checkpoints
and milestones along the way.
01:51:21.804 --> 01:51:25.170
Nobody's gonna grab you two
days before your operating day
01:51:25.170 --> 01:51:28.590
and say you're two token short.
01:51:28.590 --> 01:51:29.570
That's not envisioned at all.
01:51:29.570 --> 01:51:32.473
I just wanna make that
important clarification.
01:51:35.470 --> 01:51:40.470
And I got to say that I'm
gonna need the (indistinct)
01:51:42.310 --> 01:51:45.190
I think to properly evaluate
what you're recommending
01:51:45.190 --> 01:51:46.810
and this now new lighter touch approach.
01:51:46.810 --> 01:51:49.570
I think it would be helpful to have it
01:51:50.520 --> 01:51:54.260
scripted out because I'm now beginning
01:51:54.260 --> 01:51:55.250
to get a little bit confused
01:51:55.250 --> 01:51:57.280
as to what the purpose
of the reliability tokens are
01:51:57.280 --> 01:51:59.980
and everything, and in
order to properly evaluate it,
01:51:59.980 --> 01:52:02.720
I think we gotta get it sort of
shaped so we can look at it
01:52:02.720 --> 01:52:04.370
and be able to ask
appropriate questions.
01:52:04.370 --> 01:52:06.070
But at the end of the day I think,
01:52:07.710 --> 01:52:08.980
it sounds like no matter what,
01:52:08.980 --> 01:52:11.370
you're still gonna have to
look at the bilateral contracts
01:52:11.370 --> 01:52:13.790
and they're just not
standardized contracts, right?
01:52:13.790 --> 01:52:16.560
And that's fine if
they're not standardized,
01:52:16.560 --> 01:52:19.210
but I think what you're saying is,
01:52:19.210 --> 01:52:20.890
it's not that there's
any malicious intent
01:52:20.890 --> 01:52:23.340
because they're not
standardized, they never are.
01:52:25.320 --> 01:52:27.650
The point I think that
you're trying to make
01:52:27.650 --> 01:52:31.600
is that it's gonna be a
very complex administrative
01:52:31.600 --> 01:52:34.780
process for you to look
for market manipulation
01:52:34.780 --> 01:52:37.200
in an area that you've
never monitored before.
01:52:37.200 --> 01:52:40.470
That's accurate,
yeah, that's a challenge.
01:52:41.520 --> 01:52:43.870
Under this scheme,
how would you,
01:52:43.870 --> 01:52:46.990
what are your fears about manipulation?
01:52:46.990 --> 01:52:48.830
Because we've got large actors
01:52:48.830 --> 01:52:52.023
on both sides of the field now.
01:52:53.480 --> 01:52:54.660
What worries you?
01:52:54.660 --> 01:52:56.970
I think Commissioner
Gloflefty spoke very well
01:52:56.970 --> 01:52:59.890
to my largest concern which is around
01:53:01.360 --> 01:53:03.310
the fact that there are large retailers
01:53:03.310 --> 01:53:04.830
that have affiliated generation.
01:53:04.830 --> 01:53:09.830
And so they're going to, I
think it was even stated here,
01:53:11.150 --> 01:53:13.780
they're gonna reserve that
generation for their own use.
01:53:13.780 --> 01:53:16.763
And let's say they had more
generation than they have load.
01:53:18.790 --> 01:53:23.790
You have a retail arm that
you could, now I'm being,
01:53:25.300 --> 01:53:26.480
I feel like, again,
like I'm talking about
01:53:26.480 --> 01:53:27.530
how you could do it--
01:53:29.050 --> 01:53:30.700
Well, this is the future.
01:53:30.700 --> 01:53:33.943
I know, I know, anyway.
01:53:35.025 --> 01:53:36.520
That's a blueprint, she
does not wanna lay out.
01:53:36.520 --> 01:53:39.067
Yeah.
I mean, maybe one or two.
01:53:39.067 --> 01:53:42.110
But you have an advantage
over smaller retailers
01:53:42.110 --> 01:53:45.070
because you have access
to this affiliated generation.
01:53:45.070 --> 01:53:48.030
And why would you want
to help out your competitors
01:53:48.030 --> 01:53:50.043
by offering that generation to them,
01:53:51.390 --> 01:53:54.630
knowing that they'll be
penalized if they don't have access
01:53:54.630 --> 01:53:58.690
to enough generation
to meet their obligation
01:53:58.690 --> 01:54:01.513
and there's a limited amount of,
01:54:02.780 --> 01:54:04.710
there are pivotal suppliers.
01:54:04.710 --> 01:54:09.710
And so you could have an advantage there
01:54:10.110 --> 01:54:12.950
by forcing the small retailers to go
01:54:12.950 --> 01:54:14.350
to ERCOT with their penalty,
01:54:14.350 --> 01:54:16.880
which could be very extensive.
01:54:16.880 --> 01:54:19.480
And the backstop to using the penalty
01:54:19.480 --> 01:54:22.920
is to have ERCOT procure
some sort of resource for them.
01:54:22.920 --> 01:54:27.640
And I would love to ask for more detail
01:54:27.640 --> 01:54:28.857
on how that would work.
Best offer (indistinct)
01:54:28.857 --> 01:54:30.630
mentioned earlier can be helpful.
01:54:30.630 --> 01:54:34.883
Yeah, but I mean,
if you have retailers
01:54:34.883 --> 01:54:38.400
that don't meet the showing
and they pay a penalty.
01:54:38.400 --> 01:54:41.020
There was a statement
in the obligation proposal
01:54:41.020 --> 01:54:43.790
that then ERCOT would
procure on their behalf
01:54:43.790 --> 01:54:46.830
and I would love to see more
detail on how that would work,
01:54:46.830 --> 01:54:48.160
especially month ahead.
01:54:48.160 --> 01:54:50.942
Would the must
offer requirement help?
01:54:50.942 --> 01:54:53.120
What is your thought on that?
01:54:53.120 --> 01:54:55.170
I definitely think if you
have a capacity product
01:54:55.170 --> 01:54:57.460
that it means you need to
have a must offer requirement
01:54:57.460 --> 01:54:59.360
into the ERCOT market, yes.
01:54:59.360 --> 01:55:02.380
I mean, otherwise I'm not
sure what that credit gets you.
01:55:02.380 --> 01:55:04.793
The other piece is I
think is interesting is that,
01:55:04.793 --> 01:55:06.530
we were talking about penalizing
01:55:06.530 --> 01:55:08.763
and not penalizing and penalties.
01:55:10.040 --> 01:55:13.400
These are contracts
that you're penalized,
01:55:13.400 --> 01:55:17.550
that you pay your penalty and
you're still gonna keep going.
01:55:17.550 --> 01:55:22.550
Well, the entity that
is subject to a penalty
01:55:22.760 --> 01:55:24.180
would just keep going
01:55:24.180 --> 01:55:28.483
and that LSE is locked
into your contract.
01:55:31.980 --> 01:55:35.810
They're still on the hook
for getting into a bad contract
01:55:35.810 --> 01:55:39.060
that Carrie has discovered has issues.
01:55:39.060 --> 01:55:40.250
Is that a fair representation?
01:55:40.250 --> 01:55:43.260
Yeah, again, so that's
kind of where you come
01:55:43.260 --> 01:55:46.560
after the fact monitoring,
which definitely has its place,
01:55:46.560 --> 01:55:49.223
but the before,
01:55:51.740 --> 01:55:53.220
because it's in the bilateral market,
01:55:53.220 --> 01:55:57.260
there's a mitigation that
can be really handled
01:55:57.260 --> 01:55:58.930
before the contract is signed
01:55:59.770 --> 01:56:01.920
because it's all
happening party to party
01:56:01.920 --> 01:56:06.090
instead of through some entity
that can impose a mitigation
01:56:07.000 --> 01:56:08.780
ahead of time.
01:56:08.780 --> 01:56:11.483
Do you think there
could be affiliate,
01:56:12.390 --> 01:56:16.020
well, like most favored
nation status kind of contracts
01:56:16.020 --> 01:56:21.020
that if you're a
affiliated retail provider
01:56:21.510 --> 01:56:24.890
that your generator has to provide
01:56:24.890 --> 01:56:26.059
under the same terms and conditions
01:56:26.059 --> 01:56:27.950
to other retailers in the market?
01:56:27.950 --> 01:56:30.480
Is that something
that would be a viable?
01:56:30.480 --> 01:56:31.501
Yeah.
Yes.
01:56:31.501 --> 01:56:35.080
Is that something that
happens today in bilaterals?
01:56:35.080 --> 01:56:37.016
No, but it is something--
01:56:37.016 --> 01:56:37.849
How do you know?
01:56:37.849 --> 01:56:39.381
You don't read the bilaterals today.
01:56:39.381 --> 01:56:44.381
There's no requirement
in the statute that you offer--
01:56:44.460 --> 01:56:46.740
Okay, so simply
having an LSE obligation
01:56:46.740 --> 01:56:51.210
would not necessarily introduce
behavior or the opportunity
01:56:51.210 --> 01:56:53.500
for malicious behavior
that's not there today.
01:56:53.500 --> 01:56:57.243
Yeah, I'm pretty sure
that there's some cases
01:56:57.243 --> 01:57:02.243
in non ISO markets in which
there are rules such as that,
01:57:03.430 --> 01:57:06.510
that you have to offer
non-affiliated entities
01:57:06.510 --> 01:57:08.970
the same terms as an affiliate.
01:57:08.970 --> 01:57:10.410
Sure, but let's not pretend
01:57:10.410 --> 01:57:13.020
that just by bringing
in an LSE obligation
01:57:13.020 --> 01:57:14.760
and that would suddenly introduce them.
01:57:14.760 --> 01:57:15.593
I know, I'm just being,
01:57:15.593 --> 01:57:17.670
it's just a clarification
for folks watching at home
01:57:17.670 --> 01:57:20.050
that this would magically
introduce the opportunity
01:57:20.050 --> 01:57:23.430
for malicious behavior
and bilateral agreements.
01:57:23.430 --> 01:57:25.720
That's a challenge today.
01:57:25.720 --> 01:57:28.033
And my point of
bringing it up was more that
01:57:28.033 --> 01:57:31.030
it could be a viable
mitigation measure--
01:57:31.030 --> 01:57:33.260
Sure, sure.
If something like--
01:57:33.260 --> 01:57:36.160
If today there's no LSE
obligation, that's the difference.
01:57:36.160 --> 01:57:40.100
The LSEs are physically
financial responsible
01:57:40.100 --> 01:57:44.060
for procuring their obligation
at whatever percentage.
01:57:44.060 --> 01:57:45.810
So that's the difference.
01:57:45.810 --> 01:57:48.050
And that's why they will
honor our market counts today
01:57:48.050 --> 01:57:51.010
and that's why we got to
make sure the ERCOT IMM
01:57:51.010 --> 01:57:53.430
can effectively monitor
the bilateral market.
01:57:53.430 --> 01:57:54.823
But there's risk
in not doing so,
01:57:54.823 --> 01:57:56.920
as I think somebody pointed out earlier,
01:57:56.920 --> 01:58:01.610
if you go into the operating
day short and un-hedged,
01:58:01.610 --> 01:58:03.090
you better hope that whatever price
01:58:03.090 --> 01:58:04.860
you get in the spot market
01:58:04.860 --> 01:58:07.110
is lower than what you
charge your customers.
01:58:08.030 --> 01:58:09.620
So there's financial risk,
01:58:09.620 --> 01:58:11.830
and a lot of people will
take advantage of that
01:58:11.830 --> 01:58:14.740
by just showing up to ERCOT and saying,
01:58:14.740 --> 01:58:16.880
I'm sure I didn't hedge,
01:58:16.880 --> 01:58:19.366
ERCOT, it's your
responsibility to serve--
01:58:19.366 --> 01:58:21.698
Well, I'll say that
we had a slow of reps
01:58:21.698 --> 01:58:24.913
that after the storm,
which was extraordinary,
01:58:25.790 --> 01:58:29.250
but typically we don't
have a lot of that go on.
01:58:29.250 --> 01:58:30.840
We've spent a lot of time
01:58:30.840 --> 01:58:32.710
strengthening our
rep certification rules,
01:58:32.710 --> 01:58:35.120
strengthening our rules of the PUC
01:58:35.120 --> 01:58:40.020
and ensuring that we have
solid reps come into the market.
01:58:40.020 --> 01:58:42.900
So it's not something
that's happening a lot,
01:58:42.900 --> 01:58:45.740
but I understand we saw
that a little bit more recently
01:58:45.740 --> 01:58:47.710
because of the storm,
01:58:47.710 --> 01:58:52.710
so I wouldn't classify that
as a reoccurring problem.
01:58:53.900 --> 01:58:56.220
I think it's one that we
definitely experienced
01:58:56.220 --> 01:58:58.330
because of the storm,
and ERCOT got some reps
01:58:58.330 --> 01:59:00.130
on their books right now that defaulted,
01:59:00.130 --> 01:59:05.113
and that's all true,
but with respect to,
01:59:08.856 --> 01:59:10.578
does that happen all the time?
01:59:10.578 --> 01:59:11.700
I just don't know.
01:59:11.700 --> 01:59:13.650
I mean, this is a
different kind of obligation.
01:59:13.650 --> 01:59:17.123
Sure, but if all of these
LSEs are hedged anyway,
01:59:18.040 --> 01:59:19.890
what burden are we?
01:59:19.890 --> 01:59:23.480
I mean, they're forcing
themselves to go buy those hedges.
01:59:23.480 --> 01:59:25.460
I mean, we heard two years earlier,
01:59:25.460 --> 01:59:26.370
we've heard other people
01:59:26.370 --> 01:59:30.630
that are buying power
five, seven, 10 years out.
01:59:30.630 --> 01:59:34.300
So if they're doing it
anyway, what's the change?
01:59:34.300 --> 01:59:36.390
I mean, how does life change
for that individual in LSE?
01:59:36.390 --> 01:59:39.763
Well, you're you gotta
do it, or you will penalized.
01:59:41.360 --> 01:59:43.040
I mean, they're
doing it anyway.
01:59:43.040 --> 01:59:44.440
I would just say
the other difference
01:59:44.440 --> 01:59:46.510
is a lot of folks today
are financially hedged,
01:59:46.510 --> 01:59:48.190
but they may not be physically hedged,
01:59:48.190 --> 01:59:50.460
and what the LSE obligation
01:59:50.460 --> 01:59:53.450
puts a physical hedge
requirement on you,
01:59:53.450 --> 01:59:55.030
that does not exist today.
01:59:55.030 --> 01:59:58.660
And so if you're going out
with, you might have exist,
01:59:58.660 --> 02:00:00.810
so that's something that we
brought up in our comments
02:00:00.810 --> 02:00:03.150
is that you have
existing contracts today,
02:00:03.150 --> 02:00:04.950
Lubbock talked about first,
02:00:04.950 --> 02:00:06.940
if that's not tied to physical units
02:00:06.940 --> 02:00:11.410
that can determine what
they're accredited capacity are,
02:00:11.410 --> 02:00:13.760
then those contracts would not count
02:00:13.760 --> 02:00:14.880
towards an LSE obligation.
02:00:14.880 --> 02:00:16.437
So there is--
Sure.
02:00:16.437 --> 02:00:17.480
That's also the important part,
02:00:17.480 --> 02:00:19.530
making sure the physical power's there
02:00:19.530 --> 02:00:24.503
and not just hoping that
my financial book works out.
02:00:27.060 --> 02:00:27.893
All right.
02:00:28.770 --> 02:00:30.023
Thank you, Carrie.
Sure.
02:00:31.033 --> 02:00:33.983
We're at a good spot
for a 10 minute break.
02:00:34.960 --> 02:00:38.920
So we'll step away for,
10 minutes are good?
02:00:38.920 --> 02:00:41.273
All right, we'll be back at 2:40.
02:01:01.850 --> 02:01:03.450
All right, this meeting
02:01:03.450 --> 02:01:06.080
of the Public Utility
Commission of Texas
02:01:06.080 --> 02:01:07.913
is now reconvening.
02:01:08.850 --> 02:01:10.470
We certainly had a thorough discussion
02:01:10.470 --> 02:01:12.320
about the LSE obligation
02:01:14.690 --> 02:01:18.890
and heard a lot of the
benefits and the challenges,
02:01:18.890 --> 02:01:23.890
concerns, and possible ways
to mitigate those concerns.
02:01:24.070 --> 02:01:26.860
Obviously, like everything else,
02:01:26.860 --> 02:01:29.960
not at something to
make a decision on today.
02:01:29.960 --> 02:01:32.670
The most important
thing is that we keep,
02:01:32.670 --> 02:01:36.853
as always said, scrubbing all options.
02:01:40.660 --> 02:01:43.573
And in the sake of time,
02:01:45.910 --> 02:01:50.430
let's move on to any
other firming options
02:01:50.430 --> 02:01:55.430
or above and beyond
reliability standards.
02:01:56.350 --> 02:02:01.350
Obviously, we've covered my
proposal of an LSE obligation,
02:02:02.180 --> 02:02:04.580
would love to hear thoughts
on other mechanisms.
02:02:05.920 --> 02:02:10.920
Chairman Lake, so I really
had a lot more questions
02:02:14.000 --> 02:02:16.477
for some key folks we
gotta hear from at ERCOT
02:02:16.477 --> 02:02:18.370
and I think even the independent reps,
02:02:18.370 --> 02:02:20.780
I would love to be able to
ask them some questions
02:02:20.780 --> 02:02:22.780
since we're not gonna
have an opportunity
02:02:22.780 --> 02:02:24.680
potentially to ask them
any more questions
02:02:24.680 --> 02:02:26.120
throughout our process.
02:02:26.120 --> 02:02:28.600
Okay, just for the sake
of time management,
02:02:28.600 --> 02:02:31.973
have you to call them
back up or call folks back up,
02:02:32.969 --> 02:02:35.510
are there any other firming concepts
02:02:35.510 --> 02:02:37.973
that we wanna discuss
in the time we've got?
02:02:37.973 --> 02:02:41.180
If I may, Mr. Chairman
your gavel, LCRA,
02:02:41.180 --> 02:02:43.420
could they talk about their reliability?
02:02:43.420 --> 02:02:45.590
Is that, yes, that one.
02:02:45.590 --> 02:02:47.560
Okay, so you do
wanna fit that in--
02:02:47.560 --> 02:02:48.520
Sure, I like that.
02:02:48.520 --> 02:02:52.150
To get us out of
here by 3:34, hopefully.
02:02:52.150 --> 02:02:53.270
Do you have
two minutes is for--
02:02:53.270 --> 02:02:55.570
No, I'm happy to, I'm
just trying to think about
02:02:55.570 --> 02:02:57.900
how much we gotta
cover in the time we've got.
02:02:57.900 --> 02:03:00.220
So yes, I would love
to hear more about it.
02:03:00.220 --> 02:03:01.600
Any other concepts?
02:03:01.600 --> 02:03:03.086
I know there were some TDU concepts.
02:03:03.086 --> 02:03:05.370
I give my time
Commissioner Cobos.
02:03:05.370 --> 02:03:06.230
And I'll try to make this quick
02:03:06.230 --> 02:03:07.520
so we can have LCRA
come up and talk about that.
02:03:07.520 --> 02:03:10.060
Okay, I'm trying to get--
02:03:11.310 --> 02:03:13.610
I'm sorry, I keep hitting
you in the chin on this
02:03:13.610 --> 02:03:15.560
when I don't have some
alternative right here
02:03:15.560 --> 02:03:19.000
to hand to you, so we'll keep at it,
02:03:19.000 --> 02:03:20.050
we'll keep figuring it out.
02:03:20.050 --> 02:03:22.410
Yeah, and I'll say,
Chairman Lake,
02:03:22.410 --> 02:03:27.303
I mean, you coming
out boldly with a concept.
02:03:29.840 --> 02:03:32.120
I really am interested in
going back to the drawing board
02:03:32.120 --> 02:03:34.430
and coming up with some
strategic reliability service
02:03:34.430 --> 02:03:36.994
to also look at it as an option
02:03:36.994 --> 02:03:40.130
and I'm gonna do my best to
come back with something else
02:03:40.130 --> 02:03:42.270
'cause I do think we need to be looking
02:03:42.270 --> 02:03:44.540
at more than one option
02:03:44.540 --> 02:03:47.260
and not all of them
are gonna be perfect,
02:03:47.260 --> 02:03:48.800
all of them have positive and negatives
02:03:48.800 --> 02:03:52.140
and so I think we,
02:03:52.140 --> 02:03:55.230
it is a matter of due diligence
that we continue to look
02:03:55.230 --> 02:03:57.978
for at least one to two other options
02:03:57.978 --> 02:04:00.830
near the finish line in December.
02:04:00.830 --> 02:04:02.780
As I've said,
open to all ideas,
02:04:02.780 --> 02:04:04.660
there's no apparent silver bullet,
02:04:04.660 --> 02:04:07.360
but a key part of that is
actually having other ideas.
02:04:08.595 --> 02:04:10.303
And be little bit more
open-minded about it
02:04:10.303 --> 02:04:11.373
because I think that--
02:04:11.373 --> 02:04:12.900
I am very open-minded about it.
02:04:12.900 --> 02:04:15.770
I'm happy to consider
the TDU purchasing,
02:04:15.770 --> 02:04:18.170
the capacity credit so it
doesn't touch the retail market.
02:04:18.170 --> 02:04:20.923
That was one of the interesting
suggestions that came in.
02:04:22.829 --> 02:04:26.233
I'm happy to consider any and all ideas.
02:04:29.280 --> 02:04:34.280
We've got to move past
reading the same comments
02:04:34.610 --> 02:04:36.100
from the same folks over and over again,
02:04:36.100 --> 02:04:41.100
and start making decisions
and picking a path forward
02:04:43.007 --> 02:04:45.780
and like you said, to scrubbing, so--
02:04:45.780 --> 02:04:46.927
Yes, sir.
02:04:46.927 --> 02:04:48.290
And I know you've been very open
02:04:48.290 --> 02:04:49.860
to hearing a lot about
different concepts.
02:04:49.860 --> 02:04:52.530
And so, by no means, we're all trying
02:04:52.530 --> 02:04:53.870
to just keep an open mind here.
02:04:53.870 --> 02:04:56.120
I guess what I'm just saying is,
02:04:56.120 --> 02:04:57.690
kind of continuing to look for something
02:04:57.690 --> 02:04:59.060
that accomplishes our goal
02:04:59.060 --> 02:05:00.820
of ensuring reliability for the future
02:05:00.820 --> 02:05:01.920
in our evolving market
02:05:03.100 --> 02:05:06.290
without necessarily calling
it affirming requirement.
02:05:06.290 --> 02:05:07.890
'Cause I think when we
call it affirming requirement,
02:05:07.890 --> 02:05:11.130
we get really narrowed in on one path
02:05:11.130 --> 02:05:13.270
and that's the LSE obligation,
you're absolutely right,
02:05:13.270 --> 02:05:14.610
that is, if you're gonna affirm,
02:05:14.610 --> 02:05:18.150
then that's, well,
structures are out there.
02:05:18.150 --> 02:05:20.200
We can do it on the
generator side too.
02:05:21.080 --> 02:05:22.880
You can do it with just curtailment.
02:05:24.120 --> 02:05:25.750
I think everything's on the table,
02:05:25.750 --> 02:05:28.500
but I certainly am not gonna
go back to the legislature
02:05:29.520 --> 02:05:30.544
in the ADA.
02:05:30.544 --> 02:05:32.390
We thought real hard about it
02:05:32.390 --> 02:05:35.831
and did a couple of
studies, they want action.
02:05:35.831 --> 02:05:38.910
So, one thing to consider,
02:05:38.910 --> 02:05:40.803
I know I'm gonna terrify people now.
02:05:43.510 --> 02:05:46.960
Okay, we mentioned
this before, gas credits.
02:05:46.960 --> 02:05:49.584
We're very close to that threshold--
02:05:49.584 --> 02:05:51.850
Like what?
The gas credits.
02:05:51.850 --> 02:05:54.070
Remember the statutory--
Th 51%?
02:05:54.070 --> 02:05:54.903
Yes, sir.
02:05:54.903 --> 02:05:55.736
Oh yeah.
02:05:55.736 --> 02:05:56.910
So we're close to it.
02:05:56.910 --> 02:05:58.560
You're above it, depending
on the operating hour.
02:05:58.560 --> 02:06:00.120
Depending on how define it.
02:06:00.120 --> 02:06:01.050
Or the operating hour.
02:06:01.050 --> 02:06:01.883
Yeah.
02:06:05.250 --> 02:06:06.690
And we may not be there yet,
02:06:06.690 --> 02:06:09.450
but with the amount of
penetration that we're talking about,
02:06:09.450 --> 02:06:10.823
we may cross the threshold.
02:06:12.370 --> 02:06:13.203
It was put in there,
02:06:13.203 --> 02:06:15.563
at least it's since I
can read the statute,
02:06:16.460 --> 02:06:19.023
it's clear, it's statue, just like Rec.
02:06:19.860 --> 02:06:21.790
Read the key part so
folks with watching the home
02:06:21.790 --> 02:06:22.810
know what you're talking--
Sure, sure.
02:06:22.810 --> 02:06:24.033
Go for natural gas.
02:06:25.490 --> 02:06:30.437
And this is pure a section 39, 9044 A.
02:06:30.437 --> 02:06:32.100
"It is the intent of the legislature
02:06:32.100 --> 02:06:35.330
that 50% of the megawatts
of generating capacity
02:06:35.330 --> 02:06:38.137
installed in the state
after January 1st, 2000
02:06:38.137 --> 02:06:39.820
and use natural gas.
02:06:39.820 --> 02:06:41.630
To the extent permitted by law,
02:06:41.630 --> 02:06:44.120
the Commission shall establish a program
02:06:44.120 --> 02:06:46.430
to encourage utilities to
comply with this section
02:06:46.430 --> 02:06:49.180
by using natural gas
produced in this state
02:06:49.180 --> 02:06:50.950
as the preferential fuel.
02:06:50.950 --> 02:06:53.640
This section does not
apply to generating capacity
02:06:53.640 --> 02:06:55.920
for renewable energy technologies.
02:06:55.920 --> 02:06:58.640
And it is the way that we define that
02:06:58.640 --> 02:07:00.087
that could be considered."
02:07:01.830 --> 02:07:04.390
What would your suggestion be?
02:07:04.390 --> 02:07:09.030
How would you compute the
resource mix of renewable energy
02:07:09.030 --> 02:07:12.030
technologies as a
part of a big pie chart?
02:07:12.030 --> 02:07:14.580
Or are we talking about
natural gas once it falls?
02:07:14.580 --> 02:07:16.430
Because it's at 46% today
02:07:17.580 --> 02:07:19.640
in terms of the overall resource mix.
02:07:19.640 --> 02:07:21.090
Capacity or energy?
02:07:23.700 --> 02:07:26.000
Well, Jimmy, I think we
need to read the statute
02:07:26.000 --> 02:07:29.713
many, many times and they might appear,
02:07:30.810 --> 02:07:32.020
but that's like many things.
02:07:32.020 --> 02:07:33.833
So I'm saying we got options.
02:07:35.460 --> 02:07:37.463
It is a mechanism just like Rec.
02:07:38.518 --> 02:07:41.343
The statute is mirrored
after the Rec program,
02:07:44.240 --> 02:07:46.440
something to think about as we--
02:07:46.440 --> 02:07:48.810
So what would that
look like in practice?
02:07:48.810 --> 02:07:50.840
Just like the Rec program.
02:07:50.840 --> 02:07:54.160
Everybody's got
to buy gas credits.
02:07:54.160 --> 02:07:58.910
To a proportion
that gets us to 51%
02:07:58.910 --> 02:08:01.130
of a dispatchable resource mix,
02:08:01.130 --> 02:08:02.530
depending on the definition.
02:08:05.550 --> 02:08:08.610
And the proceeds
of those gas credits
02:08:08.610 --> 02:08:11.398
would go to the purchase of gas supply.
02:08:11.398 --> 02:08:13.315
That's correct, yeah.
02:08:14.690 --> 02:08:16.990
That's something that
you wanna put it on the table
02:08:16.990 --> 02:08:20.320
for consideration, let's put
it on the table for scrubbing.
02:08:20.320 --> 02:08:22.510
Well, heck yeah, I mean, easy.
02:08:22.510 --> 02:08:23.423
Yeah, we'll do it.
02:08:24.530 --> 02:08:29.530
But I'm just saying that
it may be an answer.
02:08:31.300 --> 02:08:33.230
Yeah, that we've got to
turn over every stone, right?
02:08:33.230 --> 02:08:34.670
Sorry, I don't sound
more optimistic,
02:08:34.670 --> 02:08:37.730
but you know what I mean,
we've got a lot on the table.
02:08:37.730 --> 02:08:40.200
Yeah, but we've
got a big challenge.
02:08:40.200 --> 02:08:43.920
It's a challenge that
a lot of other places
02:08:45.200 --> 02:08:46.900
grids around the world are facing.
02:08:47.970 --> 02:08:50.730
None of them seem
to have handled it well,
02:08:50.730 --> 02:08:52.930
a lot of them are watching us,
02:08:52.930 --> 02:08:57.400
so we need to tackle it head on
02:08:57.400 --> 02:09:01.053
and we need to be aggressive about it.
02:09:03.190 --> 02:09:05.060
And as I mentioned earlier,
02:09:05.060 --> 02:09:06.790
the ask for each of your offices
02:09:06.790 --> 02:09:11.060
is to work on laying out your thoughts
02:09:11.060 --> 02:09:12.320
on each of these components.
02:09:12.320 --> 02:09:15.406
And Carrie and I talked
about the winter, I guess earlier,
02:09:15.406 --> 02:09:18.583
an ERS, I'd include ECRS,
02:09:20.120 --> 02:09:22.340
what did each of you independently think
02:09:22.340 --> 02:09:23.640
what that would look like,
02:09:25.450 --> 02:09:29.212
I guess, and include
that, flush that out.
02:09:29.212 --> 02:09:30.045
What would it look like?
02:09:30.045 --> 02:09:30.878
What would the benefits be?
02:09:30.878 --> 02:09:34.003
What would be the
concerns, pros and cons.
02:09:35.320 --> 02:09:36.850
Next.
02:09:36.850 --> 02:09:39.270
And do include the pros.
02:09:39.270 --> 02:09:40.133
Yes.
Yeah.
02:09:41.950 --> 02:09:43.070
All right.
02:09:43.070 --> 02:09:46.540
So we wanna hear about
the LCRA reliability at ERCOT,
02:09:46.540 --> 02:09:48.883
but before then, Lori's
got some questions.
02:09:49.990 --> 02:09:51.140
Does that work?
02:09:51.140 --> 02:09:53.262
Yes, that's fine, if
you're good with that.
02:09:53.262 --> 02:09:54.095
Thank you.
02:09:54.095 --> 02:09:57.080
I wanted to ask ERCOT
about their implementation
02:09:57.080 --> 02:10:00.640
of the LSE obligation
and just some questions
02:10:00.640 --> 02:10:03.540
to see what you may be
able to share with us today,
02:10:03.540 --> 02:10:06.910
because a big part
obviously, of these proposals
02:10:06.910 --> 02:10:10.340
is trying to figure out
what the timeline is
02:10:10.340 --> 02:10:11.800
for implementation.
02:10:11.800 --> 02:10:14.060
I know right now, I
think largely, I think--
02:10:14.060 --> 02:10:15.508
You gotta pick a
place on the spectrum
02:10:15.508 --> 02:10:16.390
before you can figure it out.
02:10:16.390 --> 02:10:17.940
Right, we gotta
get some definition,
02:10:17.940 --> 02:10:21.700
but I gotta also understand
what are we looking
02:10:21.700 --> 02:10:23.130
at ERCOT, if you're able to share
02:10:23.130 --> 02:10:24.780
any glimpse at this point, right?
02:10:26.030 --> 02:10:30.380
So, are we looking at system changes
02:10:30.380 --> 02:10:32.010
that are impacted by the MS upgrade
02:10:32.010 --> 02:10:34.380
or just settlement
billing system changes
02:10:34.380 --> 02:10:35.270
and how significant?
02:10:35.270 --> 02:10:37.860
Yeah, I think in the
way we've envisioned
02:10:37.860 --> 02:10:39.407
sort of the ideas have been laid out
02:10:39.407 --> 02:10:41.760
in terms of impacting existing systems,
02:10:41.760 --> 02:10:43.690
it would primarily be settlements.
02:10:43.690 --> 02:10:47.440
And so we've talked about
some of the other priority,
02:10:47.440 --> 02:10:49.620
things going on that
affects settlements,
02:10:49.620 --> 02:10:53.170
but largely, it seems
like it would stay away
02:10:53.170 --> 02:10:54.760
from a lot of our other core systems.
02:10:54.760 --> 02:10:57.010
So I think that is certainly a benefit,
02:10:57.010 --> 02:11:00.800
there'd be investment in
whatever the new systems might be.
02:11:00.800 --> 02:11:04.080
There maybe be some
need for additional personnel,
02:11:04.080 --> 02:11:07.700
but from a conflicting
with existing systems,
02:11:07.700 --> 02:11:10.470
I think it really is primarily around
02:11:10.470 --> 02:11:11.710
our settlement systems.
02:11:11.710 --> 02:11:14.700
Okay, and how significant,
02:11:14.700 --> 02:11:16.555
because I've heard different things,
02:11:16.555 --> 02:11:20.500
I've heard tremendous impact
on settlement billing process.
02:11:20.500 --> 02:11:22.300
So I just wanna make
sure, like what kind of scale,
02:11:22.300 --> 02:11:23.780
because we've got securitization,
02:11:23.780 --> 02:11:25.250
we've got a lot of things on the,
02:11:25.250 --> 02:11:27.680
I wanna make sure I
understand what that impact is
02:11:27.680 --> 02:11:30.470
because you have a lot on your table
02:11:30.470 --> 02:11:34.070
and the settlements
processes keeps coming up
02:11:34.070 --> 02:11:36.188
over and over with
everything we're talking about
02:11:36.188 --> 02:11:37.173
in anything, right?
02:11:38.590 --> 02:11:41.540
I think again, that's probably
the devil's in the details
02:11:41.540 --> 02:11:44.290
as you've all been describing
on a lot of these things.
02:11:45.640 --> 02:11:47.540
Again, maybe even one of the benefits,
02:11:47.540 --> 02:11:50.100
I do think they would
be fairly significant
02:11:50.100 --> 02:11:51.093
settlements to changes.
02:11:51.093 --> 02:11:53.570
That being said again, there'd be new.
02:11:53.570 --> 02:11:55.620
So in processes I envisioned largely.
02:11:55.620 --> 02:11:58.100
So to some degree,
we're not again, necessarily
02:11:58.100 --> 02:12:01.650
affecting some of the existing
settlement that we have.
02:12:01.650 --> 02:12:03.330
I think there's no
doubt that it would be
02:12:03.330 --> 02:12:05.910
a significant project,
02:12:05.910 --> 02:12:07.480
but there is some of the benefits again
02:12:07.480 --> 02:12:10.930
of it being new systems in some cases
02:12:10.930 --> 02:12:13.810
and new processes in
something like settlements.
02:12:13.810 --> 02:12:14.960
What about forecasting?
02:12:14.960 --> 02:12:17.450
I know E3 proposal has ERCOT--
02:12:19.463 --> 02:12:21.610
Sorry, not E3 proposal,
I mean, when we've got
02:12:21.610 --> 02:12:23.640
my proposal is very
different from the E3 proposal,
02:12:23.640 --> 02:12:24.490
which is very different
02:12:24.490 --> 02:12:26.180
than which is in the
middle of a spectrum.
02:12:26.180 --> 02:12:27.420
So there's a range here.
02:12:27.420 --> 02:12:29.840
I don't wanna be beholden
to just the E3 proposal.
02:12:29.840 --> 02:12:32.300
Right, so, okay, understood.
02:12:32.300 --> 02:12:34.230
So in your proposal,
02:12:34.230 --> 02:12:36.720
is ERCOT involved in the forecasting?
02:12:36.720 --> 02:12:39.020
Yeah, it would be
some to be determined
02:12:39.020 --> 02:12:44.020
but some ERCOT based
load forecast by season,
02:12:44.640 --> 02:12:47.830
like I said earlier by
season, by month, by week,
02:12:47.830 --> 02:12:49.610
the more granular, the more beneficial,
02:12:49.610 --> 02:12:52.890
but of course, the more
granular, the more complex
02:12:52.890 --> 02:12:56.450
and more challenging to
implement and operate.
02:12:56.450 --> 02:13:00.600
That's something that
would be a decision
02:13:00.600 --> 02:13:05.600
to be made further on
through the process.
02:13:06.040 --> 02:13:06.873
But yes,
02:13:06.873 --> 02:13:09.250
it would be some version of
load-share ratio of forecast.
02:13:09.250 --> 02:13:10.650
And of course that would be,
02:13:11.630 --> 02:13:15.760
the obligation would be some
percent of whatever that is,
02:13:15.760 --> 02:13:18.130
which is why there's such
a tremendous discount
02:13:18.130 --> 02:13:20.610
on the four dated three year, two year
02:13:20.610 --> 02:13:24.200
because there's always forecast error.
02:13:24.200 --> 02:13:27.343
Forecast error increases
the longer you project out.
02:13:28.440 --> 02:13:33.440
The important part is for
LSEs to procure physical power
02:13:35.370 --> 02:13:38.410
to provide a price signal
in the future for investors
02:13:38.410 --> 02:13:42.880
so that investors that
are considering building
02:13:42.880 --> 02:13:47.570
dispatchable generation in
Texas of any variety know
02:13:48.440 --> 02:13:51.680
they have real hard numbers
on what kind of megawatt
02:13:53.150 --> 02:13:55.270
or value they can get for each megawatt
02:13:55.270 --> 02:13:56.400
that they'll provide
02:13:56.400 --> 02:13:59.050
by the time they bring that unit online,
02:13:59.050 --> 02:14:01.150
like knowing what a megawatt
worth today isn't very good
02:14:01.150 --> 02:14:03.130
if your assets are not
gonna be ready for two years,
02:14:03.130 --> 02:14:04.930
you need to afford price visibility.
02:14:05.920 --> 02:14:10.500
So in any LSE that loses
50% of their expected load
02:14:10.500 --> 02:14:12.180
over two, three years,
02:14:12.180 --> 02:14:14.440
ain't gonna be in
business very long anyway.
02:14:14.440 --> 02:14:15.273
Okay.
02:14:16.415 --> 02:14:17.650
And thank you for that clarification
02:14:17.650 --> 02:14:21.513
'cause I know already E3s and
I know you had a different way
02:14:22.690 --> 02:14:24.113
of approaching it.
02:14:24.113 --> 02:14:27.320
So I was just trying to
understand is this something,
02:14:27.320 --> 02:14:29.860
in any proposal whether it's
something ERCOT can do,
02:14:29.860 --> 02:14:31.878
and do you have the capability right now
02:14:31.878 --> 02:14:33.430
and do you have to have system changes
02:14:33.430 --> 02:14:35.270
to be able to get information from LSEs
02:14:35.270 --> 02:14:37.093
or anything like that?
02:14:37.093 --> 02:14:38.900
I mean, I think we
already have the capabilities
02:14:38.900 --> 02:14:41.859
to the type of forecasting
out and the system-wide,
02:14:41.859 --> 02:14:43.380
obviously, there has
to be some mechanism
02:14:43.380 --> 02:14:44.920
to come up with some ratio share
02:14:44.920 --> 02:14:46.679
to handle it out, again,
02:14:46.679 --> 02:14:48.177
I don't think
What's the ratio
02:14:48.177 --> 02:14:49.400
of existing settlement system.
02:14:49.400 --> 02:14:51.990
I mean, there's ways that
we do load ratio share today.
02:14:51.990 --> 02:14:55.010
So I'm sure there could be
some methodology that come up.
02:14:55.010 --> 02:14:57.010
So I don't see a change
in systems associated
02:14:57.010 --> 02:14:58.700
with that part of the process.
02:14:58.700 --> 02:15:00.830
I think maybe where there,
02:15:00.830 --> 02:15:02.180
something that would
be a little bit new,
02:15:02.180 --> 02:15:05.330
although there's some work
that we've done in this area
02:15:05.330 --> 02:15:08.460
and Mr. Barn mentioned it
is related to accreditation.
02:15:08.460 --> 02:15:10.430
So we obviously have to
develop those processes
02:15:10.430 --> 02:15:12.950
and come up with those look alike.
02:15:12.950 --> 02:15:15.720
Okay, well, for
the sake of time,
02:15:15.720 --> 02:15:17.210
because I think to some degree,
02:15:17.210 --> 02:15:19.670
we still got to get
more details on paper
02:15:19.670 --> 02:15:23.230
before I can really
kind of drill down deeper
02:15:23.230 --> 02:15:24.460
into ERCOT's implementation.
02:15:24.460 --> 02:15:25.470
So for the sake of time,
02:15:25.470 --> 02:15:27.870
I think I'll release you Mr. Roger.
02:15:27.870 --> 02:15:30.563
Okay.
Anybody got a question?
02:15:31.430 --> 02:15:32.591
Oh, I'm sorry.
02:15:32.591 --> 02:15:34.793
Thank you.
Thank you.
02:15:36.670 --> 02:15:39.810
I really would like to ask
Cathy Webking some questions.
02:15:39.810 --> 02:15:41.192
Sure.
02:15:41.192 --> 02:15:42.942
I give you my time.
02:15:56.760 --> 02:15:58.240
Good afternoon,
Chairman, Commissioners,
02:15:58.240 --> 02:15:59.342
Cathy Webking
02:15:59.342 --> 02:16:02.288
with the law firm of Scott
Douglas McConnicko.
02:16:02.288 --> 02:16:05.650
Hi Cathy, so I know you
submitted some comments
02:16:05.650 --> 02:16:10.370
and I just wanna make sure that
02:16:10.370 --> 02:16:12.985
'cause we've been very
fast through this process
02:16:12.985 --> 02:16:17.985
and the potential impacts
that the LSEO proposal
02:16:20.100 --> 02:16:21.170
in one form or fashion
02:16:21.170 --> 02:16:22.940
and really just speaking to actually
02:16:22.940 --> 02:16:24.290
just German Lake's proposal
02:16:25.210 --> 02:16:27.810
since that's the one we're
focusing on at this time.
02:16:29.880 --> 02:16:34.030
Is that something
that would be palatable
02:16:34.030 --> 02:16:36.320
for your independent reps?
02:16:36.320 --> 02:16:38.343
Do you still have lingering concerns?
02:16:39.470 --> 02:16:40.810
Because that's what we're focused
02:16:40.810 --> 02:16:42.697
on the Chairman's
approach at this point.
02:16:42.697 --> 02:16:43.930
And so I just wanna make sure
02:16:43.930 --> 02:16:46.133
I get an apples to apples comparison.
02:16:47.290 --> 02:16:50.290
Speaking from the
perspective of independent reps
02:16:50.290 --> 02:16:53.030
that don't own generation today,
02:16:53.030 --> 02:16:54.700
or don't have affiliates
that own generation,
02:16:54.700 --> 02:16:55.720
as has been pointed out,
02:16:55.720 --> 02:16:58.250
we're prohibited from owning generation.
02:16:58.250 --> 02:16:59.560
We have very grave concerns
02:16:59.560 --> 02:17:04.510
with a capacity obligation on reps.
02:17:04.510 --> 02:17:07.870
That is not to say that reps don't hedge
02:17:07.870 --> 02:17:11.080
and buy firm power for
all of their expected usage,
02:17:11.080 --> 02:17:14.140
which they do today from contracts.
02:17:14.140 --> 02:17:17.550
But this is a separate, my understanding
02:17:17.550 --> 02:17:19.142
of what we've seen in this period--
02:17:19.142 --> 02:17:21.670
That'd be handled, it
would be a separate product
02:17:21.670 --> 02:17:22.970
and there's also no requirement
02:17:22.970 --> 02:17:25.451
for independent reps to
hedge their power today.
02:17:25.451 --> 02:17:27.560
Many of them do that as
a business choice, correct?
02:17:27.560 --> 02:17:29.090
Correct.
02:17:29.090 --> 02:17:32.070
And to my knowledge, most.
Not all of them.
02:17:32.070 --> 02:17:33.750
I am not aware of any
02:17:33.750 --> 02:17:36.870
that are in business today that do not.
02:17:36.870 --> 02:17:39.290
But for sure were
a lot less February.
02:17:39.290 --> 02:17:42.600
I don't know that that's been
demonstrated Mr. Chairman,
02:17:42.600 --> 02:17:44.230
and I'm happy to look at it.
02:17:44.230 --> 02:17:47.640
There were other non
reps who were not hedged.
02:17:47.640 --> 02:17:49.210
I can think of a
few, a couple of them.
02:17:49.210 --> 02:17:52.130
Yes, but in terms of
retail electric providers,
02:17:52.130 --> 02:17:53.170
that is not my understanding
02:17:53.170 --> 02:17:54.890
of what the concern was in February.
02:17:54.890 --> 02:17:58.980
They had firm power purchase agreements
02:17:58.980 --> 02:18:01.280
that were not able to
be satisfied physically,
02:18:02.340 --> 02:18:04.070
but it was not because they didn't have
02:18:04.070 --> 02:18:05.410
a firm contract in place.
02:18:05.410 --> 02:18:07.676
Perhaps a combination of both.
02:18:07.676 --> 02:18:08.759
Absolutely.
02:18:10.530 --> 02:18:15.530
With regard to the intermediate
understanding of just,
02:18:17.280 --> 02:18:20.770
of course, it's a just a basic structure
02:18:20.770 --> 02:18:22.750
that's in the summary sheet
02:18:22.750 --> 02:18:24.470
as we would understand at this point,
02:18:24.470 --> 02:18:28.610
but it still looks to the LSE
02:18:28.610 --> 02:18:31.810
to demonstrate a capacity procurement
02:18:33.090 --> 02:18:35.710
specific to a physical resource
02:18:35.710 --> 02:18:38.140
which is not how it's done today.
02:18:38.140 --> 02:18:41.830
Today our firm contracts are,
as Mr. McCullough described
02:18:43.740 --> 02:18:47.290
from contracts with
LDS liquidated damages
02:18:47.290 --> 02:18:51.100
and they do, a retail electric provider
02:18:51.100 --> 02:18:54.380
will have a QSC that
represents them at ERCOT,
02:18:54.380 --> 02:18:58.010
that QSC will procure resources
02:18:58.010 --> 02:19:00.480
on behalf of the
retail electric provider
02:19:00.480 --> 02:19:01.313
as they enter into contracts
02:19:01.313 --> 02:19:04.300
and that may be through another QSC
02:19:04.300 --> 02:19:06.030
who may be through another QSC.
02:19:06.030 --> 02:19:08.930
Ultimately there is a
physical obligation in there,
02:19:08.930 --> 02:19:13.510
but the individual reps
qualified scheduling entity
02:19:13.510 --> 02:19:16.140
does not necessarily have to demonstrate
02:19:16.140 --> 02:19:19.600
which unit and which megawatts
02:19:19.600 --> 02:19:21.933
associated with that
unit are being procured.
02:19:23.670 --> 02:19:25.350
And so it is a new product.
02:19:25.350 --> 02:19:27.020
Could you speak
to the lighter touch,
02:19:27.020 --> 02:19:27.853
the proof of purchase
02:19:27.853 --> 02:19:30.730
into the spectrum and
what that impact might have.
02:19:30.730 --> 02:19:32.790
If the lighter touches
just demonstration
02:19:32.790 --> 02:19:37.023
of energy hedge.
Physical energy, I guess.
02:19:38.089 --> 02:19:40.180
When you start putting
the physical in there,
02:19:40.180 --> 02:19:43.180
and then you start saying it
has to be individual attributes
02:19:43.180 --> 02:19:45.300
of the individual physical unit.
02:19:45.300 --> 02:19:46.710
So you're not
attributes of a unit,
02:19:46.710 --> 02:19:48.210
just a classification of unit.
02:19:49.470 --> 02:19:51.780
So it doesn't have to be a gas facility
02:19:51.780 --> 02:19:52.920
for this accreditation.
02:19:52.920 --> 02:19:54.410
It doesn't have to be the gas facility.
02:19:54.410 --> 02:19:57.890
It's gotta be a gas
gets so many credits.
02:19:57.890 --> 02:19:59.927
Solar gets so many credits,
02:19:59.927 --> 02:20:00.910
nuclear get so many credits,
02:20:00.910 --> 02:20:02.923
it's by class, not by individual unit.
02:20:04.400 --> 02:20:06.410
But as I understand
the proposal,
02:20:06.410 --> 02:20:08.846
it would be that the LSE
would still have to say,
02:20:08.846 --> 02:20:12.880
I am saying that these
physical generation resources
02:20:12.880 --> 02:20:16.266
are the ones from which
I am procuring power.
02:20:16.266 --> 02:20:17.925
That certainly could
be a version, yes.
02:20:17.925 --> 02:20:18.820
Okay.
02:20:18.820 --> 02:20:21.650
In that version, that is
still a tied to a physical unit
02:20:21.650 --> 02:20:25.760
and physical megawatts,
which are capacity of that unit.
02:20:25.760 --> 02:20:28.650
And that is a much different scenario
02:20:28.650 --> 02:20:29.850
than what we have today.
02:20:32.570 --> 02:20:35.223
Would the exemption
for the first two years help?
02:20:38.257 --> 02:20:39.670
I went with Mr. Barnes on that,
02:20:39.670 --> 02:20:40.730
trying to evaluate that
02:20:40.730 --> 02:20:44.510
from a competitive
position is very difficult.
02:20:44.510 --> 02:20:48.370
And again, if you have
this forward procurement,
02:20:48.370 --> 02:20:52.290
there's still a much
different issue there
02:20:53.500 --> 02:20:58.470
because you're in essence being asked
02:20:58.470 --> 02:21:01.840
to demonstrate forward
capacity purchases
02:21:01.840 --> 02:21:04.570
which are not able to be
billed to the customer that day.
02:21:04.570 --> 02:21:05.760
You may not know
02:21:05.760 --> 02:21:08.360
that you're gonna have
that customer in three years.
02:21:09.761 --> 02:21:12.400
There's no revenue stream associated
02:21:12.400 --> 02:21:14.720
with that forward capacity purchase.
02:21:14.720 --> 02:21:16.460
Under our energy market today,
02:21:16.460 --> 02:21:21.460
there's a very close correlation
between the revenue stream
02:21:21.750 --> 02:21:24.753
and the customer
contract and the physical,
02:21:25.610 --> 02:21:28.433
firm power procurement
for that customer.
02:21:29.290 --> 02:21:33.870
Okay, what about
the forecasting process
02:21:33.870 --> 02:21:35.313
that the Chairman laid out?
02:21:36.200 --> 02:21:41.147
Is that something that you
believe the LSEs that, I mean,
02:21:42.790 --> 02:21:44.740
do you have any thoughts on that again?
02:21:45.830 --> 02:21:47.520
And I have Steve Madden here
02:21:47.520 --> 02:21:51.530
who's also an expert on the
kind of forecasting and supply,
02:21:51.530 --> 02:21:53.730
and we can certainly
get into those details,
02:21:58.550 --> 02:22:03.490
forecasting by LSE,
for particular customers.
02:22:03.490 --> 02:22:05.800
That's the exciting
thing about our market
02:22:05.800 --> 02:22:10.010
is that customers get to
determine their options by shopping
02:22:10.010 --> 02:22:12.310
and moving and moving freely.
02:22:12.310 --> 02:22:15.130
And so forecasting that
what my customer base
02:22:15.130 --> 02:22:19.040
might look like years ahead is a very...
02:22:19.040 --> 02:22:21.630
So do the retailers
provide their investors
02:22:21.630 --> 02:22:24.300
with forecast of customers
and forecast of revenue,
02:22:24.300 --> 02:22:25.600
or just say.
02:22:25.600 --> 02:22:27.430
Those would be
proformas, right?
02:22:27.430 --> 02:22:29.370
So you could do that but--
02:22:29.370 --> 02:22:32.190
You just make them up or
where do you get those numbers?
02:22:32.190 --> 02:22:34.526
I mean, yes, I
mean, quite honestly,
02:22:34.526 --> 02:22:36.270
I mean, that's what you're doing, right?
02:22:36.270 --> 02:22:38.240
I mean, it is honest,
it is just made up,
02:22:38.240 --> 02:22:39.870
I mean, business models change.
02:22:39.870 --> 02:22:42.417
So is it based on any analysis
02:22:42.417 --> 02:22:45.240
and I hope some of your
investors are watching.
02:22:45.240 --> 02:22:46.073
So you have a strategy
02:22:46.073 --> 02:22:48.042
that you've set as
an entity corporation,
02:22:48.042 --> 02:22:49.020
and then you look out
02:22:49.020 --> 02:22:50.820
and you look at the
market size and potential,
02:22:50.820 --> 02:22:52.267
and you decide what
percentage of that market
02:22:52.267 --> 02:22:53.690
you think can capture
02:22:53.690 --> 02:22:55.570
and you build that into your proforma,
02:22:55.570 --> 02:22:57.530
but it has nothing to
do with reality, right?
02:22:57.530 --> 02:23:01.503
So now reality comes in
and I change my business.
02:23:02.360 --> 02:23:04.457
I'd love to invest with you.
02:23:04.457 --> 02:23:06.207
You would've
made a lot of money.
02:23:07.060 --> 02:23:08.180
You're good at guessing.
02:23:08.180 --> 02:23:10.003
I've sold two
reps, yeah, I know.
02:23:11.120 --> 02:23:12.440
Are you one of
the coaster guys?
02:23:12.440 --> 02:23:14.850
I don't care what I'm selling,
02:23:14.850 --> 02:23:16.140
I make it up.
I heard that.
02:23:16.140 --> 02:23:18.060
We really do care
about our customers.
02:23:18.060 --> 02:23:19.470
I mean, February--
You just said
02:23:19.470 --> 02:23:22.590
you make it up.
Well, yeah, we make it.
02:23:22.590 --> 02:23:24.483
Chairman, let me please,
02:23:25.382 --> 02:23:28.150
the proforma was it a forward projection
02:23:28.150 --> 02:23:30.740
for a business plan is
a much different thing
02:23:30.740 --> 02:23:33.770
than a cash obligation today,
02:23:33.770 --> 02:23:35.850
three years forward for a
customer you don't want.
02:23:35.850 --> 02:23:38.820
How do you pay for
the power you purchased
02:23:38.820 --> 02:23:40.780
two or three years,
five years, seven years--
02:23:40.780 --> 02:23:44.670
As you sign contracts now
this is where you hit reality.
02:23:44.670 --> 02:23:46.520
So now like today, I'm sitting here,
02:23:46.520 --> 02:23:49.620
I have 10,000 customers
and in three years,
02:23:49.620 --> 02:23:51.940
I'm hoping I have half a million, right?
02:23:51.940 --> 02:23:53.287
And that's what I'm
gonna tell my investors
02:23:53.287 --> 02:23:55.630
that's what I'm gonna work on towards.
02:23:55.630 --> 02:23:57.700
But if I went out and bought capacity
02:23:57.700 --> 02:23:59.870
for that half a million
at today's prices,
02:23:59.870 --> 02:24:03.684
let's say I bought that at,
I spent $10 million on that.
02:24:03.684 --> 02:24:05.560
And then all of a sudden
it's worth $2 million.
02:24:05.560 --> 02:24:07.083
I'm out of business
02:24:07.083 --> 02:24:08.966
and if I don't get those
500,000 customers,
02:24:08.966 --> 02:24:10.520
what if I only get a hundred thousand?
02:24:10.520 --> 02:24:13.140
So just again,
for the 300th time,
02:24:13.140 --> 02:24:14.950
nobody's asking you to
buy a hundred percent
02:24:14.950 --> 02:24:17.520
of anybody's load
projection three years out.
02:24:17.520 --> 02:24:19.383
It's a percentage of.
02:24:20.608 --> 02:24:22.790
Right, but what
would I base that off of.
02:24:22.790 --> 02:24:25.390
So I'm sitting here today,
like, back to that example,
02:24:25.390 --> 02:24:27.710
I have 1000 customers
02:24:27.710 --> 02:24:31.030
and I hope to have
500,000 in three years.
02:24:31.030 --> 02:24:32.670
And I very well could, right?
02:24:32.670 --> 02:24:34.003
I mean--
Sure.
02:24:35.300 --> 02:24:37.650
You can base it on
ERCOT load projections,
02:24:37.650 --> 02:24:39.240
load share ratio projections.
02:24:39.240 --> 02:24:41.610
If it's a young company
and a high growth mode,
02:24:41.610 --> 02:24:43.383
that's why the exemption is there.
02:24:44.230 --> 02:24:46.490
If it's below a certain load threshold,
02:24:46.490 --> 02:24:48.240
you can certainly accommodate that.
02:24:49.240 --> 02:24:51.820
But I'd tackle it from the other side.
02:24:51.820 --> 02:24:56.820
If we're expecting such
explosive load growth,
02:24:57.150 --> 02:25:00.570
where are we gonna get the
dispatchable power if nobody's,
02:25:00.570 --> 02:25:01.820
for three years from now.
02:25:02.950 --> 02:25:04.780
People are buying that
for three years from now,
02:25:04.780 --> 02:25:06.950
this company that's coming in
02:25:06.950 --> 02:25:09.910
and is signing up this
customer to serve them,
02:25:09.910 --> 02:25:12.060
they buy that power today.
02:25:12.060 --> 02:25:14.110
They enter into a
contract for that power
02:25:15.670 --> 02:25:17.510
before they sign that customer and--
02:25:17.510 --> 02:25:20.470
All 500,000 customers
or a thousand, or?
02:25:20.470 --> 02:25:21.860
As we sign them up.
02:25:21.860 --> 02:25:24.010
So that's what we have to be responsive
02:25:24.010 --> 02:25:25.348
to market prices, right?
02:25:25.348 --> 02:25:27.660
This market is very efficient.
02:25:27.660 --> 02:25:30.310
So as market prices are changing,
02:25:30.310 --> 02:25:32.920
we have to adjust our
prices to end use customers.
02:25:32.920 --> 02:25:37.920
Sure, but you don't have
the 499,000 customers yet,
02:25:38.040 --> 02:25:40.940
but you and a lot of
other folks out there
02:25:40.940 --> 02:25:43.870
are buying power that won't
be delivered or obligated
02:25:43.870 --> 02:25:45.247
until three years ago.
02:25:46.458 --> 02:25:49.150
If I would sign up a customer
on a three-year agreement,
02:25:49.150 --> 02:25:50.090
I'm gonna go out right now
02:25:50.090 --> 02:25:51.670
and buy that power for that customer
02:25:51.670 --> 02:25:53.430
for the next three years.
02:25:53.430 --> 02:25:56.490
So you're not buying any
power and expectation of growth.
02:25:56.490 --> 02:25:57.710
None ever.
02:25:57.710 --> 02:25:59.080
Very little, you can't,
02:25:59.080 --> 02:26:02.410
because if the market
falls, you're out of business,
02:26:02.410 --> 02:26:04.430
very quickly, if you do that.
02:26:04.430 --> 02:26:06.990
All kinds of businesses
and all kinds of sectors
02:26:06.990 --> 02:26:11.620
buy future supply and
their plight prices fluctuate.
02:26:11.620 --> 02:26:12.510
And that's in fact
02:26:12.510 --> 02:26:16.170
the point of our
financial hedging system
02:26:16.170 --> 02:26:18.770
in any industry is to mitigate that risk
02:26:18.770 --> 02:26:22.363
yet provide a mechanism
for ensuring supply.
02:26:23.590 --> 02:26:26.300
Mr. Chairman,
for the entire grid,
02:26:26.300 --> 02:26:30.880
if the concern is we need
to tell the generation market
02:26:30.880 --> 02:26:34.373
how much generation is gonna
be needed and going forward,
02:26:35.510 --> 02:26:38.780
system-wide that number is understood.
02:26:38.780 --> 02:26:41.760
ERCOT forecast that number system-wide.
02:26:41.760 --> 02:26:44.090
And system-wide that
number can be evaluated
02:26:44.090 --> 02:26:47.200
and we can decide, you
know what, system-wide,
02:26:47.200 --> 02:26:52.200
we don't have enough resources
looking forward that we want.
02:26:52.840 --> 02:26:57.650
So we can look to ERCOT
to use a reliability product.
02:26:57.650 --> 02:27:01.800
I think LCRA and others
have talked about that
02:27:01.800 --> 02:27:04.730
to meet that forecasted gap.
02:27:04.730 --> 02:27:07.010
The (indistinct)
as Jimmy currently says.
02:27:07.010 --> 02:27:10.370
On an entity by entity basis,
02:27:10.370 --> 02:27:13.180
with a competitive market
on the retail side of it,
02:27:13.180 --> 02:27:15.370
it becomes a much different prospect,
02:27:15.370 --> 02:27:18.570
but for the entire grid, the
generation can get the signal.
02:27:18.570 --> 02:27:23.090
Sure, okay, so it clearly
hasn't in the last, it hasn't,
02:27:23.090 --> 02:27:25.150
I mean, that's why we're here.
02:27:25.150 --> 02:27:28.830
I mean, that's why we have
SB3 for both of the problems,
02:27:28.830 --> 02:27:31.720
extreme weather event
problem, and the blue sky problem.
02:27:31.720 --> 02:27:34.460
And so if, I mean, it brings,
02:27:34.460 --> 02:27:37.470
comes back to the buying another 5,000
02:27:37.470 --> 02:27:39.400
of reliability, ancillary service,
02:27:39.400 --> 02:27:41.440
it's just gonna be filled by definition
02:27:41.440 --> 02:27:43.650
with the units you've got.
02:27:43.650 --> 02:27:47.710
There's this carve out for
performance standards for ECRS,
02:27:47.710 --> 02:27:50.250
to address a very specific problem,
02:27:50.250 --> 02:27:52.000
but we know we haven't gotten
02:27:52.000 --> 02:27:54.800
the new dispatchable
investment that we need.
02:27:54.800 --> 02:27:57.590
That's abundantly clear.
02:27:57.590 --> 02:28:02.590
And so by expanding our
existing ancillary service suite,
02:28:02.960 --> 02:28:03.938
you could double it.
02:28:03.938 --> 02:28:05.729
What difference would that make?
02:28:05.729 --> 02:28:08.020
If I can, 'cause this is part
02:28:08.020 --> 02:28:11.950
of what I was trying to get
at earlier, Chairman Lake
02:28:11.950 --> 02:28:15.130
with ERCOT is we know
they're buying ECRS.
02:28:15.130 --> 02:28:16.570
We don't know how many megawatts,
02:28:16.570 --> 02:28:21.570
we gotta sort of get a real
good view of what we're buying,
02:28:22.490 --> 02:28:23.653
what services.
02:28:25.200 --> 02:28:27.400
I don't know this
answer, and I'm not saying
02:28:29.080 --> 02:28:30.570
anybody's wrong or right.
02:28:30.570 --> 02:28:32.493
I don't know this answer of,
02:28:33.770 --> 02:28:36.420
we're trying to set new
dispatchable generation,
02:28:36.420 --> 02:28:38.270
we have these revenue streams
02:28:38.270 --> 02:28:40.630
whether they be through
existing or new ancillary services
02:28:40.630 --> 02:28:42.113
or some reliability service.
02:28:42.960 --> 02:28:43.980
Do we know for certain,
02:28:43.980 --> 02:28:45.820
it's just gonna be the
existing generation
02:28:45.820 --> 02:28:47.010
that moves from pot to pot.
02:28:47.010 --> 02:28:48.885
I mean, is there even enough to cover
02:28:48.885 --> 02:28:52.610
all of the buckets that
ERCOT finally gives us
02:28:53.670 --> 02:28:58.560
however many megawatts are
gonna buy for ECRS, for non spin.
02:28:58.560 --> 02:29:01.840
I mean--
That's a great, great point
02:29:01.840 --> 02:29:04.810
because they will have to
procure those ancillary services,
02:29:04.810 --> 02:29:06.340
those dispatchable resources
02:29:06.340 --> 02:29:09.800
to meet those specific
performance profiles that they need.
02:29:09.800 --> 02:29:12.560
And so once that, and that
is the priority of the system,
02:29:12.560 --> 02:29:13.650
'cause we've got renewables out here,
02:29:13.650 --> 02:29:16.700
they are gonna provide low cost power.
02:29:16.700 --> 02:29:20.420
So once you procure all
those gigawatts of power,
02:29:20.420 --> 02:29:24.640
how much is left for you guys
to go and procure three years,
02:29:24.640 --> 02:29:29.640
one year, one month, six
months, one month in advance.
02:29:29.650 --> 02:29:32.100
So it's a good question, valid.
02:29:32.100 --> 02:29:33.240
And my point with that
02:29:33.240 --> 02:29:35.140
is from the generation
investment side too.
02:29:35.140 --> 02:29:36.857
If we're gonna have streams
02:29:36.857 --> 02:29:39.220
and the existing
generation is gonna play,
02:29:39.220 --> 02:29:43.690
and the real-time market,
the ancillary service market,
02:29:43.690 --> 02:29:48.180
ECRS, at some point, we're probably,
02:29:48.180 --> 02:29:51.100
I would hope through all the
mechanisms of RDC and ECRS
02:29:53.119 --> 02:29:56.700
and whatever other ancillary
service/reliability service
02:29:56.700 --> 02:30:00.093
if we were to put one out there per SB3,
02:30:01.920 --> 02:30:03.940
eventually we're gonna
attract some generation needs
02:30:03.940 --> 02:30:07.650
to fill those megawatts that
ERCOT has said we need.
02:30:07.650 --> 02:30:09.811
So that's what I'm
trying to come up with,
02:30:09.811 --> 02:30:13.870
is I need a view as to
what we're gonna need.
02:30:13.870 --> 02:30:15.570
Sure, I'll give you
a quick example.
02:30:15.570 --> 02:30:17.870
We've got, depending on exactly
02:30:17.870 --> 02:30:19.700
what the winter fuel
standard is for winter RNs,
02:30:19.700 --> 02:30:22.690
we've got between 10
and 15,000 megawatts
02:30:22.690 --> 02:30:25.470
of firm winter in place.
02:30:25.470 --> 02:30:28.560
So until our winter
ancillary service product
02:30:28.560 --> 02:30:33.160
gets above 15,000
megawatts of procurement,
02:30:33.160 --> 02:30:36.063
there's gonna be no
new investment if that's,
02:30:37.179 --> 02:30:38.720
call out the number,
don't quote me on it,
02:30:38.720 --> 02:30:43.030
but it's in that range,
until we get to that number,
02:30:43.030 --> 02:30:46.340
there's absolutely no
incentive for anybody to invest
02:30:46.340 --> 02:30:48.060
in additional winter farming
02:30:48.060 --> 02:30:51.550
because by definition is
cheaper for the existing asset
02:30:51.550 --> 02:30:55.223
to clear that market than
spending money on a new asset.
02:30:56.130 --> 02:30:57.360
So that's just an example.
02:30:57.360 --> 02:30:59.410
It's a fair question, it's an
absolutely valid question,
02:30:59.410 --> 02:31:01.120
and we need to know that,
02:31:01.120 --> 02:31:03.450
but that's all for that example
02:31:03.450 --> 02:31:08.450
as a practical way of showing that
02:31:08.700 --> 02:31:13.700
if we're going to expect
these suite of ancillary services
02:31:14.820 --> 02:31:19.820
to solve a 75,000,
80,000 megawatt problem,
02:31:21.180 --> 02:31:24.460
or even a 40,000 or
30,000 megawatt problem,
02:31:24.460 --> 02:31:29.260
we need to be prepared
to procure lots and lots
02:31:29.260 --> 02:31:31.470
of ancillary services
02:31:31.470 --> 02:31:35.470
and spend our consumer's
money on generating assets
02:31:35.470 --> 02:31:38.230
that will not be used
on a day-to-day basis,
02:31:38.230 --> 02:31:41.260
except in scarcity events.
02:31:41.260 --> 02:31:43.500
That's a choice we've got to make.
02:31:43.500 --> 02:31:46.140
The first step of that is
the evaluation process
02:31:46.140 --> 02:31:49.390
that you just laid out,
which we should pursue.
02:31:49.390 --> 02:31:51.793
And we have to, per
SB3 in my opinion anyway.
02:31:53.070 --> 02:31:55.000
And so I guess I'll say to that,
02:31:55.000 --> 02:31:57.703
is that, what I'll say to that is,
02:31:58.792 --> 02:32:00.890
and that's part of the
view we need to get
02:32:00.890 --> 02:32:03.140
from ERCOT is how
big is this problem, right?
02:32:04.020 --> 02:32:06.970
Commissioner McAdams
laid out a really good
02:32:06.970 --> 02:32:09.040
briefing on what's going on globally
02:32:09.040 --> 02:32:10.290
and on the federal level.
02:32:11.400 --> 02:32:14.690
But I hear from ERCOT that if
they reach a certain threshold
02:32:14.690 --> 02:32:18.289
of solar that they'll just curtail it.
02:32:18.289 --> 02:32:23.000
So, I mean, are we really
needing to have 30, 40,000?
02:32:23.000 --> 02:32:23.833
I mean, that's fair.
02:32:23.833 --> 02:32:24.890
We may need to look at, I mean,
02:32:24.890 --> 02:32:27.460
that's a generator side
curtailment mechanism
02:32:27.460 --> 02:32:28.760
or farming mechanism.
02:32:28.760 --> 02:32:32.530
You just reach a certain
point of intermittent on the grid
02:32:32.530 --> 02:32:34.350
and you say we're gonna curtail it
02:32:34.350 --> 02:32:37.620
for a number of reliability reasons
02:32:37.620 --> 02:32:39.850
that is a clear signal to the market
02:32:39.850 --> 02:32:43.190
that some portion of our dispatch energy
02:32:43.190 --> 02:32:45.777
will always be dispatchable.
02:32:48.900 --> 02:32:51.180
That's a clear signal
that if you put money
02:32:51.180 --> 02:32:52.870
in a dispatchable resource in Texas,
02:32:52.870 --> 02:32:56.120
it will be utilized and it
will generate revenue.
02:32:56.120 --> 02:32:57.580
And I'm sure these folks would love
02:32:57.580 --> 02:32:59.423
the implementation timeline on that.
02:33:01.590 --> 02:33:03.656
So that's an option.
Okay.
02:33:03.656 --> 02:33:04.489
So I didn't mean to veer off
02:33:04.489 --> 02:33:06.120
into the broader policy discussion,
02:33:06.120 --> 02:33:07.490
but as we were sort
of talking about this,
02:33:07.490 --> 02:33:10.120
and it just kind of started
up some additional thoughts,
02:33:10.120 --> 02:33:11.550
but I have one question,
02:33:11.550 --> 02:33:15.193
you talked about reps going
out of business defaulting.
02:33:16.570 --> 02:33:18.177
When there are polar events.
02:33:19.870 --> 02:33:23.250
If your rep went out of business
and there was a polar event
02:33:24.540 --> 02:33:26.497
who acquires typically your rep?
02:33:29.786 --> 02:33:32.080
If it's an actual polar event,
02:33:32.080 --> 02:33:33.310
then the customers get dropped
02:33:33.310 --> 02:33:35.330
to the provider of last resort.
02:33:35.330 --> 02:33:38.860
In this past year, there
were significant volunteers
02:33:38.860 --> 02:33:40.640
and I think they all went to voluntary
02:33:40.640 --> 02:33:43.210
retail electric providers for
the residential customers.
02:33:43.210 --> 02:33:44.580
There were some commercial customers,
02:33:44.580 --> 02:33:47.870
I think that went to other
providers of last resort.
02:33:47.870 --> 02:33:50.810
Some of these companies
that we're talking about
02:33:50.810 --> 02:33:53.540
and otherwise they get transitioned,
02:33:53.540 --> 02:33:56.150
more customers, I think
then got dropped to polar,
02:33:56.150 --> 02:33:57.720
got transitioned
02:33:57.720 --> 02:34:01.160
to other retail electric
providers right before polar drop.
02:34:01.160 --> 02:34:03.610
So when a rep
goes out of business,
02:34:03.610 --> 02:34:08.500
either there's a
voluntary mass transition
02:34:08.500 --> 02:34:10.140
and there's V reps, right?
02:34:10.140 --> 02:34:12.460
Voluntary reps that sign up.
02:34:12.460 --> 02:34:15.310
I think it's a yearly
process that sign up
02:34:15.310 --> 02:34:17.083
to acquire those customers.
02:34:18.240 --> 02:34:20.253
And at least based on this past year,
02:34:21.210 --> 02:34:24.350
who typically are they the bigger reps?
02:34:24.350 --> 02:34:26.020
This past year
that's the case, yes.
02:34:26.020 --> 02:34:26.853
Okay.
02:34:26.853 --> 02:34:29.320
And if there's a polar event,
02:34:29.320 --> 02:34:31.203
is it still the same set of reps?
02:34:32.250 --> 02:34:34.630
The V reps are
for the polar event
02:34:34.630 --> 02:34:36.180
for the classes of customers,
02:34:36.180 --> 02:34:37.870
which they designate ahead of time
02:34:37.870 --> 02:34:40.330
that they're willing to
accept through a polar drop.
02:34:40.330 --> 02:34:42.140
Okay, so it's the
same companies
02:34:42.140 --> 02:34:46.270
that are V reps and polar, so
they're the same companies?
02:34:46.270 --> 02:34:47.340
There are other companies
02:34:47.340 --> 02:34:49.763
that are polars that are not V reps.
02:34:51.030 --> 02:34:52.670
Yeah, and that's how
I understood it, right?
02:34:52.670 --> 02:34:55.430
Every year the Commission
goes and puts out
02:34:55.430 --> 02:34:58.920
some kind of requests for V
reps and companies sign up.
02:34:58.920 --> 02:35:00.413
And when we had the storm,
02:35:01.500 --> 02:35:03.280
a lot of the customers
that were mass transition
02:35:03.280 --> 02:35:05.660
went to V reps 'cause they had to offer
02:35:05.660 --> 02:35:09.300
a market-based plan and
that's the better path than a polar,
02:35:09.300 --> 02:35:11.990
which might be a
little bit of a higher rate,
02:35:11.990 --> 02:35:14.240
but maybe not because
they're interested in keeping
02:35:14.240 --> 02:35:15.550
the customer.
Right.
02:35:15.550 --> 02:35:16.810
But I guess what
I'm trying to say
02:35:16.810 --> 02:35:17.770
or what I'm trying to get to,
02:35:17.770 --> 02:35:20.160
it sounds like to me
that if there are defaults,
02:35:20.160 --> 02:35:24.020
then those customers, at
least the residential customers
02:35:24.020 --> 02:35:27.100
all go to the bigger affiliated reps.
02:35:27.100 --> 02:35:28.420
Is that a fair assessment?
02:35:28.420 --> 02:35:30.760
Because I'm trying to assess
what Jimmy is saying over here
02:35:30.760 --> 02:35:33.340
about all this consolidation going on.
02:35:33.340 --> 02:35:34.840
And I'm just wondering
where to get more,
02:35:34.840 --> 02:35:38.580
if there's more pressure on
the independent rep segment.
02:35:38.580 --> 02:35:40.810
And I think you need to
look at not just the ones
02:35:40.810 --> 02:35:42.870
that actually went
through the polar process,
02:35:42.870 --> 02:35:44.960
but those that transitioned otherwise
02:35:45.870 --> 02:35:47.594
which there are a lot of them.
02:35:47.594 --> 02:35:49.653
Those that purchased?
Yes, okay.
02:35:51.540 --> 02:35:52.730
Good, good question.
02:35:52.730 --> 02:35:54.920
Who did you sell to your two reps to?
02:35:54.920 --> 02:35:56.990
Exelon and Vista
02:35:58.020 --> 02:35:59.582
Gene Taylor's
affiliate generators.
02:35:59.582 --> 02:36:01.800
Right, right.
Okay, so,
02:36:01.800 --> 02:36:05.290
twice that business model
seems to have been used to move
02:36:05.290 --> 02:36:08.050
an independent retailer out
of the independent category
02:36:08.050 --> 02:36:09.600
into the Gene Taylor category,
02:36:09.600 --> 02:36:13.433
which we despise so much, okay.
02:36:14.820 --> 02:36:16.250
Mr. Chairman, I wanna be clear
02:36:16.250 --> 02:36:18.179
that is not despised so much at all.
02:36:18.179 --> 02:36:20.720
It's just a market power issue
02:36:20.720 --> 02:36:22.500
if you're gonna start changing
02:36:22.500 --> 02:36:25.880
the statutory structure
and requiring retail electric--
02:36:25.880 --> 02:36:29.200
Sure, but it's also
a key consideration
02:36:29.200 --> 02:36:32.320
to ask this Commission to ensure
02:36:32.320 --> 02:36:36.940
the competitiveness of
independent unaffiliated retailers.
02:36:36.940 --> 02:36:40.420
When the end result of helping
02:36:40.420 --> 02:36:43.070
independent retailers flourish
02:36:43.070 --> 02:36:47.869
is just shuffling them
into the affiliated retailers.
02:36:47.869 --> 02:36:49.960
I think in a healthy,
competitive market,
02:36:49.960 --> 02:36:52.100
as long as you have
low barriers to entry
02:36:52.100 --> 02:36:54.400
and people can continue
to work in that market,
02:36:54.400 --> 02:36:57.780
there continues to be a
downward pressure on prices
02:36:57.780 --> 02:37:00.950
from competitive options,
as well as innovations
02:37:00.950 --> 02:37:03.640
retail electric providers that
can come into this market
02:37:03.640 --> 02:37:08.640
and are not obligated to
own centralized generation
02:37:10.040 --> 02:37:12.340
that may have a 30
year depreciable life.
02:37:12.340 --> 02:37:14.697
They have a lot more ability
to offer some nimble products
02:37:14.697 --> 02:37:17.190
in this market and in
any competitive market.
02:37:17.190 --> 02:37:18.690
There's market consolidation--
02:37:18.690 --> 02:37:21.950
Competition is the
hallmark of this market,
02:37:21.950 --> 02:37:22.830
the crown jewel
02:37:22.830 --> 02:37:25.480
and that is for the ultimate
benefit of the customers
02:37:28.720 --> 02:37:32.390
enhancing or protecting business models
02:37:32.390 --> 02:37:37.390
just so they can be absorbed
or purchased for profit
02:37:39.060 --> 02:37:41.860
to go to the affiliated less competitive
02:37:44.240 --> 02:37:47.950
Gene Taylors is another matter
that we should keep in mind.
02:37:47.950 --> 02:37:50.340
This is about preserving
customer options,
02:37:50.340 --> 02:37:54.050
not any particular individual
company's business model.
02:37:54.050 --> 02:37:56.763
Sure, Gene Taylors
provide customers options.
02:37:58.320 --> 02:37:59.530
Any other questions?
02:37:59.530 --> 02:38:04.170
I do not, I did invite
someone to come down
02:38:04.170 --> 02:38:08.180
to share their business siting
experience in another market.
02:38:08.180 --> 02:38:11.460
And I'd rather have
an opportunity to ask
02:38:11.460 --> 02:38:13.730
because I asked them to come down
02:38:13.730 --> 02:38:16.173
based on some conversations
that I had, Garrett.
02:38:20.830 --> 02:38:22.630
Thank you for staying all this long.
02:38:23.610 --> 02:38:25.160
So, I think this is important.
02:38:25.160 --> 02:38:26.333
State your name and who
you are here with , please.
02:38:26.333 --> 02:38:28.600
Yes, sir, Garrett Kent
02:38:28.600 --> 02:38:30.430
representing commercial metals company
02:38:30.430 --> 02:38:31.980
of steel mill in Seguin, Texas.
02:38:33.240 --> 02:38:38.070
Mr. Kent, we visited a little
bit in the last several days
02:38:38.070 --> 02:38:41.120
and I thought you had
an interesting experience
02:38:42.970 --> 02:38:46.900
as you have had steel mill
operations and in other markets.
02:38:46.900 --> 02:38:48.870
And the reason I think this is important
02:38:48.870 --> 02:38:52.320
is because one of the questions we pose
02:38:52.320 --> 02:38:54.630
to the stakeholders out there was about
02:38:54.630 --> 02:38:58.230
whether or not this
proposal, the LSE obligation
02:38:58.230 --> 02:39:00.460
would impact business development.
02:39:00.460 --> 02:39:03.723
There was a lot of different
perspectives on that.
02:39:06.320 --> 02:39:08.690
Some say no, some say yes.
02:39:08.690 --> 02:39:13.190
And I just like to hear about
someone that is actually
02:39:13.190 --> 02:39:17.740
in the business of siting
businesses, industrial businesses,
02:39:17.740 --> 02:39:19.503
that was our specific question.
02:39:21.380 --> 02:39:24.470
What has been your experience
with an LSE obligation?
02:39:24.470 --> 02:39:27.187
Yeah, thank you
for the opportunity.
02:39:27.187 --> 02:39:29.700
One of the biggest things
is I wanna start out with.
02:39:29.700 --> 02:39:33.950
I'm very sure that I'm in
Austin, Texas, not California,
02:39:33.950 --> 02:39:34.880
or a different market.
02:39:34.880 --> 02:39:36.930
We're a unique market here in ERCOT.
02:39:36.930 --> 02:39:41.330
But when we hear things
like resource adequacy,
02:39:41.330 --> 02:39:43.710
which we experienced in California
02:39:43.710 --> 02:39:47.640
or a capacity obligation,
our ears definitely perk up.
02:39:47.640 --> 02:39:51.913
And we recently scuttled
a mill in California.
02:39:52.750 --> 02:39:56.520
Part of that is because
of some of the costs
02:39:56.520 --> 02:40:01.390
we incurred in that market,
having the higher costs,
02:40:01.390 --> 02:40:02.910
also reliability issues
02:40:02.910 --> 02:40:04.783
that we've experienced in California.
02:40:06.240 --> 02:40:10.807
We monthly work and
we're in that market,
02:40:12.310 --> 02:40:16.010
but the last month we
melted steel, 20% of our costs
02:40:16.010 --> 02:40:18.620
for electricity was in
resource adequacy.
02:40:18.620 --> 02:40:21.090
That's something that was hard,
02:40:21.090 --> 02:40:23.280
but really it's also
just the bureaucracy
02:40:23.280 --> 02:40:27.070
of working through
that and as a consumer,
02:40:27.070 --> 02:40:31.490
I have concerns that the
best interest for all Texas
02:40:33.080 --> 02:40:35.523
consumers is a program,
02:40:36.450 --> 02:40:39.570
maybe isn't a program
that could affect choice
02:40:39.570 --> 02:40:44.060
and possibly in our experience
02:40:44.060 --> 02:40:46.200
does not have a history
of helping investing
02:40:46.200 --> 02:40:48.383
in dispatchable generation.
02:40:50.160 --> 02:40:51.770
Is that the sole factor
02:40:51.770 --> 02:40:54.590
in the management
of the California system
02:40:54.590 --> 02:40:55.500
that impacts investors?
No.
02:40:55.500 --> 02:40:57.300
There are many, many parts to it,
02:40:57.300 --> 02:41:00.580
but it is definitely one of the biggest.
02:41:00.580 --> 02:41:04.560
Would state intervention
and financing power plants
02:41:04.560 --> 02:41:05.510
play a role in that
02:41:06.760 --> 02:41:10.140
as occurred over the last several years?
02:41:10.140 --> 02:41:14.640
Would that dampen investor
enthusiasm in California
02:41:14.640 --> 02:41:16.710
by the state procuring
natural gas plants?
02:41:16.710 --> 02:41:18.040
Yeah.
02:41:18.040 --> 02:41:20.790
Well, they read it, they
shouldn't have to, if they had--
02:41:20.790 --> 02:41:22.270
Reliability.
They did.
02:41:22.270 --> 02:41:23.103
I'm saying they did.
02:41:23.103 --> 02:41:23.936
Right they did
02:41:23.936 --> 02:41:26.430
because the construct they
had in place wasn't working,
02:41:26.430 --> 02:41:28.860
if it wasn't, they wouldn't
be trying to meet a shortfall
02:41:28.860 --> 02:41:32.717
through ordering generation--
02:41:33.570 --> 02:41:34.870
Could you tell us
in your experience
02:41:34.870 --> 02:41:36.410
how long that LSE obligation
02:41:36.410 --> 02:41:38.690
had been in place in California?
02:41:38.690 --> 02:41:40.140
Well, it's a very
good question.
02:41:40.140 --> 02:41:43.770
So almost three years to today,
02:41:43.770 --> 02:41:46.940
we acquired that steel
mill from another company.
02:41:46.940 --> 02:41:49.680
We took that over and over two years,
02:41:49.680 --> 02:41:53.730
we put a lot of manpower,
02:41:53.730 --> 02:41:56.250
focused a lot of interests,
worked with the right groups,
02:41:56.250 --> 02:41:57.990
everything like that
to try to make it work.
02:41:57.990 --> 02:42:00.810
We had important jobs
and important peoples there,
02:42:00.810 --> 02:42:03.303
and we could not make it happen.
02:42:06.900 --> 02:42:08.500
You operate in
the ERCOT market?
02:42:08.500 --> 02:42:13.003
What are your top two,
top three main, I guess,
02:42:13.890 --> 02:42:17.140
important aspects of our
market as an industrial consumer?
02:42:17.140 --> 02:42:19.850
Reliability is
definitely very important.
02:42:19.850 --> 02:42:24.040
Also, yes, cost is going to be important
02:42:24.040 --> 02:42:28.200
and making sure that
we are using the tools
02:42:29.060 --> 02:42:29.893
that are available to us,
02:42:29.893 --> 02:42:32.569
whether it's ancillary
service or anything else
02:42:32.569 --> 02:42:34.943
as smart as possible.
02:42:36.500 --> 02:42:37.707
I don't have any
more questions.
02:42:37.707 --> 02:42:39.580
All right, and a
point of clarification
02:42:39.580 --> 02:42:41.173
on those gas plants that were procured,
02:42:41.173 --> 02:42:43.480
there's a big part of that is locational
02:42:43.480 --> 02:42:46.730
due to transmission being
shut down to prevent wildfires.
02:42:46.730 --> 02:42:50.570
So it's not a resource
adequacy challenge necessarily.
02:42:50.570 --> 02:42:52.110
It's a wildfire prevention
02:42:53.060 --> 02:42:55.070
and transmission challenge as well.
02:42:55.070 --> 02:42:58.780
And they've got a lot going
on over there that I will say,
02:42:58.780 --> 02:43:00.470
but it is extraordinary action
02:43:00.470 --> 02:43:02.550
when the Governor sends a proclamation
02:43:03.490 --> 02:43:07.780
asking agencies to
look at getting more gas
02:43:07.780 --> 02:43:10.320
and I don't know if a wildfire
would necessarily on its own
02:43:10.320 --> 02:43:12.280
dictate the need for more power plants.
02:43:12.280 --> 02:43:15.451
So, I mean that they've
got a lot going on over there.
02:43:15.451 --> 02:43:16.482
I know it's hard to understand.
02:43:16.482 --> 02:43:17.388
Yeah.
Thank you.
02:43:17.388 --> 02:43:22.388
Thank you for the time.
You bet, any other guests?
02:43:22.410 --> 02:43:25.650
Well, I do, but it's just that
02:43:25.650 --> 02:43:27.580
I got a lot of comments out there
02:43:27.580 --> 02:43:29.820
that it was interesting
some of the dynamics
02:43:29.820 --> 02:43:31.620
because there were statements made
02:43:31.620 --> 02:43:36.200
that the LSE obligation
would have an impact on LSEs.
02:43:36.200 --> 02:43:38.722
And as you heard, and through comment
02:43:38.722 --> 02:43:42.510
and through, I guess,
feedback here today,
02:43:42.510 --> 02:43:45.630
those LSEs have different answers.
02:43:45.630 --> 02:43:47.490
And I could sit here all
day and go through that.
02:43:47.490 --> 02:43:49.740
But I think I'd just
rather yield my time
02:43:49.740 --> 02:43:51.710
so that you can have LCRA.
02:43:51.710 --> 02:43:54.840
Sure, and you're,
of course, welcome
02:43:54.840 --> 02:43:59.660
to ask people these
questions with your staff.
02:43:59.660 --> 02:44:01.392
Absolutely, I just
think it's important
02:44:01.392 --> 02:44:04.640
as we go through this
market design process
02:44:04.640 --> 02:44:06.863
to have this public conversation,
02:44:06.863 --> 02:44:11.320
because we asked for
stakeholder comments
02:44:11.320 --> 02:44:14.200
and we have a lot on our plate.
02:44:14.200 --> 02:44:17.260
And so we limited, we're
trying to be as robust as we can
02:44:17.260 --> 02:44:18.830
and do this all transparently,
02:44:18.830 --> 02:44:21.300
and we asked for comments
on a lot of questions
02:44:21.300 --> 02:44:25.350
that were limited to
sort of specific page limit
02:44:25.350 --> 02:44:27.210
and a short turnaround time.
02:44:27.210 --> 02:44:29.880
And these are colossal policy issues
02:44:29.880 --> 02:44:31.440
and impacts to the market.
02:44:31.440 --> 02:44:33.740
And I just wanna make sure that,
02:44:33.740 --> 02:44:35.430
with everybody out there
02:44:35.430 --> 02:44:38.540
that doesn't have the
time to read our comments,
02:44:38.540 --> 02:44:40.980
that is not down in
the weeds like we are,
02:44:40.980 --> 02:44:43.400
that they have an opportunity to hear
02:44:43.400 --> 02:44:46.860
all sides of the story, but
I'm happy to continue to--
02:44:46.860 --> 02:44:49.440
Sure, and you're welcome
to continue those questions
02:44:49.440 --> 02:44:52.550
and aggregate the responses
that you and your staff get
02:44:52.550 --> 02:44:54.190
and present those
02:44:56.760 --> 02:44:59.670
when you put pen to paper
for our next next meeting.
02:44:59.670 --> 02:45:00.640
Sure.
02:45:00.640 --> 02:45:02.917
All right, we've
got, we wanna do--
02:45:02.917 --> 02:45:04.670
Really quick.
Sure.
02:45:04.670 --> 02:45:06.078
Randall, you're up.
02:45:06.078 --> 02:45:08.411
(all laugh)
02:45:12.890 --> 02:45:14.014
Easiest question in the world,
02:45:14.014 --> 02:45:15.040
tell us about your proposal.
02:45:15.040 --> 02:45:16.290
Sure, no problem.
02:45:16.290 --> 02:45:19.340
Randall Stephenson, Chief
Commercial Officer LCRA.
02:45:20.380 --> 02:45:22.010
This proposal is something
that's been worked on
02:45:22.010 --> 02:45:23.520
even before the winter storm.
02:45:23.520 --> 02:45:27.490
So I wanna make that
very loud and clear.
02:45:27.490 --> 02:45:30.020
We have been as market
participants talking about ways
02:45:30.020 --> 02:45:31.330
to adjust market prices,
02:45:31.330 --> 02:45:34.707
to reflect the cost affirming
load with firm generation.
02:45:34.707 --> 02:45:36.520
And we all know what the issue is,
02:45:36.520 --> 02:45:40.240
but obviously federal
incentives have kind of disrupted
02:45:40.240 --> 02:45:43.490
the market dynamics and
the volatility in our market.
02:45:43.490 --> 02:45:45.860
And so we had worked on with a group,
02:45:45.860 --> 02:45:48.820
this idea of resource adequacy adder,
02:45:48.820 --> 02:45:51.830
which is really a energy only component,
02:45:51.830 --> 02:45:55.000
which is part of the
real-time market pricing.
02:45:55.000 --> 02:45:58.550
So right now, when you look
at what is cleared real time
02:45:58.550 --> 02:46:00.220
in your settlement point price,
02:46:00.220 --> 02:46:03.320
it's the LMP plus the ORDC ERCOT
02:46:03.320 --> 02:46:07.480
plus the real-time
online deployment adder.
02:46:07.480 --> 02:46:09.920
And this now adds another piece,
02:46:09.920 --> 02:46:12.860
which is the resource adequacy adder.
02:46:12.860 --> 02:46:16.970
So again, we're trying
to just address the issue
02:46:16.970 --> 02:46:21.970
about firming the power in
a energy only type concept.
02:46:23.450 --> 02:46:26.293
The way you would do that is,
02:46:27.210 --> 02:46:29.610
when a non firm resources produce
02:46:29.610 --> 02:46:32.053
it's affected low carrying capacity,
02:46:33.100 --> 02:46:36.250
we've all known that
there is not really a value
02:46:36.250 --> 02:46:37.600
for that backup power.
02:46:37.600 --> 02:46:40.550
So what we're trying to do
is create that additional value.
02:46:41.550 --> 02:46:45.540
What you do is you look
at each type of resources,
02:46:45.540 --> 02:46:47.200
effective load carrying capacity,
02:46:47.200 --> 02:46:50.320
kind of like what we've
talked about in the certificates
02:46:50.320 --> 02:46:53.110
for LSEs or the CDRO process.
02:46:53.110 --> 02:46:56.140
And you figure out their contribution
02:46:56.140 --> 02:46:57.663
to resiliency in real-time.
02:46:58.510 --> 02:47:00.370
And the resource adequacy adder
02:47:00.370 --> 02:47:02.300
is only paid to firm generators.
02:47:02.300 --> 02:47:07.300
And so how it would
clear is non firm generator
02:47:07.700 --> 02:47:10.710
would clear at a certain
market clearing price.
02:47:10.710 --> 02:47:13.200
And then there would
be an additional adder
02:47:13.200 --> 02:47:17.020
in which firm generation would get
02:47:17.020 --> 02:47:21.520
based off if they were
there to back up power.
02:47:21.520 --> 02:47:25.300
So ERCOT is counting on
certain amount of renewables
02:47:25.300 --> 02:47:27.650
based off their ELCC.
02:47:27.650 --> 02:47:29.830
What we do is we would
really clear the market,
02:47:29.830 --> 02:47:33.650
assuming any generation
above that was not available
02:47:33.650 --> 02:47:35.500
and see what that additional adder
02:47:35.500 --> 02:47:37.730
would have been to the market.
02:47:37.730 --> 02:47:41.590
And you can do this after
the fact, if you wanted to,
02:47:41.590 --> 02:47:44.360
as a settlement piece,
02:47:44.360 --> 02:47:46.560
or you could do it
through the skid process.
02:47:47.790 --> 02:47:50.890
There was a lot of different
ways to calculate that piece
02:47:50.890 --> 02:47:53.137
and different ideas on how to do that.
02:47:53.137 --> 02:47:55.940
But that is in general
what we were trying to do,
02:47:55.940 --> 02:47:58.600
is really value firm generation
02:47:58.600 --> 02:48:02.990
and look at trying to
get additional price adder
02:48:02.990 --> 02:48:04.690
for that backup power.
02:48:04.690 --> 02:48:09.290
In your estimation, would
implementation of such a plan
02:48:09.290 --> 02:48:11.990
be put on hold until after EMS.
02:48:11.990 --> 02:48:12.823
I think, yes.
02:48:12.823 --> 02:48:13.656
Okay.
02:48:13.656 --> 02:48:14.541
I'll be very honest,
02:48:14.541 --> 02:48:16.123
this is a complicated piece.
Yeah, price settlement.
02:48:16.123 --> 02:48:17.649
Yes, and so we definitely
02:48:17.649 --> 02:48:19.230
didn't have to get into
the settlement engine.
02:48:19.230 --> 02:48:20.830
If we wanted to do it through skid,
02:48:20.830 --> 02:48:24.530
we'd have to open up
EMS, there are different ways
02:48:24.530 --> 02:48:27.600
and that's why we kind
of parked it on the side,
02:48:27.600 --> 02:48:30.490
just because I think
there's a longer term
02:48:30.490 --> 02:48:31.920
implementation planned for.
02:48:31.920 --> 02:48:34.030
Is there, we've got
several other programs
02:48:34.030 --> 02:48:35.270
that have that restraint
02:48:36.470 --> 02:48:41.470
that have, I guess,
call it duct tape version
02:48:42.090 --> 02:48:45.903
that has a watered
down version, I guess,
02:48:45.903 --> 02:48:46.930
that has been put in place.
02:48:46.930 --> 02:48:51.220
And the development has been
put on hold until EMS is ready.
02:48:51.220 --> 02:48:54.250
Would there be some similar
kind of temporary version
02:48:54.250 --> 02:48:55.728
that could be implemented more?
02:48:55.728 --> 02:48:58.580
You could duct tape it (laugh)
02:48:58.580 --> 02:49:02.190
and it's still gonna have to
impact the settlement systems,
02:49:02.190 --> 02:49:03.710
but you don't have
to run it through skid.
02:49:03.710 --> 02:49:06.860
This could be an after
effect, a price adjustment
02:49:06.860 --> 02:49:09.510
that would come in and hit
your settlement statement.
02:49:11.222 --> 02:49:12.060
And then you would,
02:49:12.060 --> 02:49:14.640
it's kind of post real-time
settlement solution.
02:49:14.640 --> 02:49:17.960
What type of generation
do you expect to deploy
02:49:17.960 --> 02:49:18.800
in this world?
02:49:18.800 --> 02:49:22.030
Again, is it your
combined cycles or is it,
02:49:22.030 --> 02:49:24.110
what kind of steel should we expect?
02:49:24.110 --> 02:49:27.030
I think when you're
looking at the firming,
02:49:27.030 --> 02:49:31.190
it's an adder for everybody
who is thermal or a nuclear,
02:49:31.190 --> 02:49:34.680
Or just dispatchable.
Oh dispatchable, period.
02:49:34.680 --> 02:49:38.540
It's trying to be technology
agnostic on everybody
02:49:38.540 --> 02:49:42.150
to provide this, that don't
have intermittent base,
02:49:42.150 --> 02:49:44.160
but a battery could
also get this as well.
02:49:44.160 --> 02:49:47.470
Yup, the key tech
neutral performance base
02:49:47.470 --> 02:49:49.176
is a key element of all of these.
02:49:49.176 --> 02:49:50.843
Correct, correct.
02:49:53.660 --> 02:49:55.480
I think, it's
a good question
02:49:55.480 --> 02:49:59.113
to ask what to expect,
02:50:00.080 --> 02:50:04.080
but this, with many of the
things we're considering,
02:50:04.080 --> 02:50:05.260
doesn't necessarily have to be either,
02:50:05.260 --> 02:50:08.833
or I'd be very happy
with all of the above.
02:50:09.750 --> 02:50:12.640
And I think that would
provide all of the above works
02:50:12.640 --> 02:50:13.473
just fine.
02:50:14.350 --> 02:50:17.570
Sure, and we tried to
come up with this idea
02:50:17.570 --> 02:50:19.540
based off a lot of work
02:50:19.540 --> 02:50:21.180
with a lot of the folks in this room,
02:50:21.180 --> 02:50:25.250
but also, we had talked earlier about
02:50:25.250 --> 02:50:29.430
two different skid
stacks and a $20 floor,
02:50:29.430 --> 02:50:30.990
and this is a little more elegant.
02:50:30.990 --> 02:50:32.670
I think this is more based off
02:50:32.670 --> 02:50:37.670
some of the economic
dispatch models that we have
02:50:38.210 --> 02:50:40.160
already in our cot based off the way
02:50:40.160 --> 02:50:44.090
we're running the LRDC
adders as well as this new adder.
02:50:44.090 --> 02:50:46.090
Bill's kind of
nodding his head.
02:50:46.090 --> 02:50:48.423
I mean, this is competing plans here.
02:50:49.350 --> 02:50:50.233
Is it workable?
02:50:51.840 --> 02:50:54.378
(all laugh)
02:50:54.378 --> 02:50:56.598
If I hadn't got it, I
would now have a question.
02:50:56.598 --> 02:50:58.410
(all laugh)
02:50:58.410 --> 02:50:59.534
Try to dispute.
02:50:59.534 --> 02:51:02.010
That's another way to
solve the problem, I think.
02:51:02.010 --> 02:51:03.393
Here's is a more elegant--
02:51:03.393 --> 02:51:05.290
I think there's a
more efficient way to do it,
02:51:05.290 --> 02:51:08.590
but again, I think all
options is validated.
02:51:08.590 --> 02:51:11.060
All right, I'm gonna come
up with more questions for this.
02:51:11.060 --> 02:51:12.060
I don't have any at this time,
02:51:12.060 --> 02:51:15.390
but I think as we have
new proposals like this,
02:51:15.390 --> 02:51:17.540
we can have Randall
look at him too, right?
02:51:18.400 --> 02:51:20.880
We should have him study all proposals.
02:51:20.880 --> 02:51:22.400
Not all proposals.
02:51:22.400 --> 02:51:27.400
Well, yeah, but I would like
to see more robust analysis
02:51:27.620 --> 02:51:32.097
of variety of proposals
and this is one that we can--
02:51:32.097 --> 02:51:35.220
But again, this lives
within the real time.
02:51:35.220 --> 02:51:36.053
Correct.
Yeah.
02:51:36.053 --> 02:51:37.470
And when is it paid?
02:51:37.470 --> 02:51:38.530
It's after the fact.
02:51:38.530 --> 02:51:41.280
I mean, on what
performance basis is it,
02:51:41.280 --> 02:51:45.220
does it rely on scarcity
to pay out, of ORDC.
02:51:45.220 --> 02:51:49.240
It relies on what is needed
02:51:49.240 --> 02:51:52.210
for firm generation in that interval.
02:51:52.210 --> 02:51:54.150
So it's really based on what's needed
02:51:54.150 --> 02:51:56.687
for firm generation in that interval.
02:51:56.687 --> 02:51:58.680
In that interval.
02:51:58.680 --> 02:52:02.710
It's fair to say, it's does
not rely on scarcity to--
02:52:02.710 --> 02:52:04.263
No.
Pay off.
02:52:04.263 --> 02:52:06.730
Specializes on peak
net load, sounds like--
02:52:06.730 --> 02:52:08.590
Partly yes, I'd agree.
02:52:08.590 --> 02:52:10.480
Well, and that's the next,
02:52:10.480 --> 02:52:13.080
yes that's the next question is
02:52:14.100 --> 02:52:17.100
from out a third-party investor,
02:52:17.100 --> 02:52:19.480
do you all have a captive right base
02:52:19.480 --> 02:52:21.440
and a different kind
of investment criteria
02:52:21.440 --> 02:52:24.100
than the IOU's of the world,
02:52:24.100 --> 02:52:29.100
but I guess put your
independent financer hat on.
02:52:29.160 --> 02:52:32.780
How do you think this would be viewed
02:52:32.780 --> 02:52:35.680
versus like the increasing I already see
02:52:35.680 --> 02:52:38.140
which we know won't
drive new generation?
02:52:38.140 --> 02:52:38.973
How does this--
02:52:38.973 --> 02:52:41.370
I would put it in the
bucket like the ORDC,
02:52:41.370 --> 02:52:44.350
it's not gonna drive new generation?
02:52:44.350 --> 02:52:45.773
I don't think there's,
02:52:46.660 --> 02:52:49.860
it's very hard, I think we
just did a backcast of this
02:52:49.860 --> 02:52:52.170
and try to like re-look at the last year
02:52:52.170 --> 02:52:54.530
and how much more money
would have add to the market.
02:52:54.530 --> 02:52:55.453
And it was between one,
02:52:55.453 --> 02:52:58.470
one and a half billion
dollars of total cost.
02:52:58.470 --> 02:53:02.560
And so I don't know if that
adds enough new generation
02:53:02.560 --> 02:53:04.190
to be quite honest, it helps.
02:53:04.190 --> 02:53:06.860
It definitely provides
incentives to get there
02:53:06.860 --> 02:53:09.810
and a ability to back up the power.
02:53:09.810 --> 02:53:12.910
But I do think the big
benefit of this proposal
02:53:12.910 --> 02:53:16.173
is also helping the existing
generation stay online.
02:53:17.200 --> 02:53:18.970
A little point and
bounce this off of you,
02:53:18.970 --> 02:53:21.260
as solar increases,
02:53:21.260 --> 02:53:24.480
and again, is that peak
net load margin increases
02:53:24.480 --> 02:53:26.000
that's more money under this concept,
02:53:26.000 --> 02:53:26.960
It is, correct.
02:53:26.960 --> 02:53:30.330
Get enhances with
the degree of variability.
02:53:30.330 --> 02:53:32.210
Yeah, and I would think this,
02:53:32.210 --> 02:53:35.240
would be utilized more
frequently than I already see.
02:53:35.240 --> 02:53:39.700
Yes, I would
sell that a thousand--
02:53:39.700 --> 02:53:42.100
Drive more gender,
new generation,
02:53:42.100 --> 02:53:46.210
we know we needed a various
performing for more standards,
02:53:46.210 --> 02:53:47.923
prefer to have all of the above.
02:53:48.830 --> 02:53:53.830
So certainly would be
interested in scrubbing this more,
02:53:54.870 --> 02:53:57.520
but would also like to scrub it
02:53:58.850 --> 02:54:02.490
while keeping in mind,
how can we adjust it
02:54:02.490 --> 02:54:07.490
and tweak it to move more
towards that new generation,
02:54:09.340 --> 02:54:13.870
not just keeping the
cash for clunkers only.
02:54:13.870 --> 02:54:15.260
Try this on for size, sir,
02:54:15.260 --> 02:54:17.200
just because we're, again,
02:54:17.200 --> 02:54:19.760
to the operational
scenario of the duck curve,
02:54:19.760 --> 02:54:21.140
but also the Blue Sky event,
02:54:21.140 --> 02:54:24.073
which are what you
wanna solve for, again,
02:54:25.517 --> 02:54:27.380
that's kind of a nighttime
phenomenon, right?
02:54:27.380 --> 02:54:29.610
Wind drops off at
night, all of a sudden,
02:54:29.610 --> 02:54:31.913
in a 30 gig solar environment,
02:54:33.010 --> 02:54:36.643
this would track those
reliable units, I'm sorry,
02:54:37.530 --> 02:54:39.930
somebody is gonna catch
this dispatchable units,
02:54:40.910 --> 02:54:42.960
would track their performance at night
02:54:42.960 --> 02:54:47.230
to counter the variability
of the wind at that point.
02:54:47.230 --> 02:54:48.700
So it would cover the gap
02:54:48.700 --> 02:54:50.700
and it would pay them to cover that gap.
02:54:51.740 --> 02:54:56.600
Yeah, I mean, I
support all of that.
02:54:58.139 --> 02:54:59.500
The fundamental question is,
02:54:59.500 --> 02:55:04.030
does it clear the threshold
of meeting investor criteria
02:55:04.030 --> 02:55:08.820
for new generation and that's
what we've got to figure out.
02:55:08.820 --> 02:55:11.327
No way.
02:55:11.327 --> 02:55:14.070
No way? Okay.
02:55:14.070 --> 02:55:15.630
I hope--
02:55:15.630 --> 02:55:16.550
I hope's not a strategy.
02:55:16.550 --> 02:55:18.201
I understand that.
02:55:18.201 --> 02:55:19.034
Okay.
02:55:19.034 --> 02:55:21.701
I feel like we're at a
sports book in Vegas.
02:55:21.701 --> 02:55:22.534
(all laughing)
02:55:22.534 --> 02:55:24.060
Okay, we can go on record
02:55:24.060 --> 02:55:25.830
saying this in no way
will drive new generations.
02:55:25.830 --> 02:55:27.557
No way, I
wouldn't say that.
02:55:27.557 --> 02:55:28.860
No, you just said, "No way."
02:55:28.860 --> 02:55:33.860
No, you said, "Does it create
financeable power plants,
02:55:34.350 --> 02:55:35.183
steel on the ground?"
02:55:35.183 --> 02:55:37.171
And I don't think this by itself,
02:55:37.171 --> 02:55:40.100
I think that all of these
strategies together,
02:55:40.100 --> 02:55:43.340
even together are
challenging our ability
02:55:45.202 --> 02:55:47.700
for banks to finance power plants.
02:55:47.700 --> 02:55:49.810
They don't like the wind.
02:55:49.810 --> 02:55:51.710
They don't like--
02:55:51.710 --> 02:55:53.690
They like the tax credits,
they finance a lot of that.
02:55:53.690 --> 02:55:55.477
Nobody's saying, they
don't like fighting the wind
02:55:55.477 --> 02:55:57.427
and they don't like fighting the solar.
02:55:59.248 --> 02:56:00.580
It's too much risk.
02:56:00.580 --> 02:56:02.630
So, and I think somebody, whoever,
02:56:02.630 --> 02:56:04.320
I don't remember who
it was who to talk to me,
02:56:04.320 --> 02:56:06.400
that they built a plant in Illinois
02:56:06.400 --> 02:56:09.360
funding the same issues,
and it took them 14 banks,
02:56:09.360 --> 02:56:12.740
they syndicate 14 banks
to finance a power plant
02:56:12.740 --> 02:56:14.030
because nobody wanted to bear the risk.
02:56:14.030 --> 02:56:15.730
So what are we gonna do?
02:56:17.640 --> 02:56:19.691
I'm not saying the words.
02:56:19.691 --> 02:56:20.740
(all laugh)
02:56:20.740 --> 02:56:22.868
You're gonna have to
take that to the legislature.
02:56:22.868 --> 02:56:25.451
(all laughing)
02:56:26.560 --> 02:56:28.810
You got a lot to think about.
02:56:28.810 --> 02:56:30.260
You can continue scrubbing.
02:56:31.930 --> 02:56:33.160
You scrub all you want,
02:56:33.160 --> 02:56:38.093
but we have a very real
problem that's right here right now.
02:56:39.210 --> 02:56:44.210
So we either need to saddle
up and head to the legislature
02:56:44.860 --> 02:56:47.740
or figure out some other
way to finally to screw it up.
02:56:47.740 --> 02:56:49.780
And I do think
multiple solutions
02:56:49.780 --> 02:56:52.840
that have been discussed
today really do get you there
02:56:54.250 --> 02:56:58.940
and help you justify getting
the financing you need
02:56:58.940 --> 02:57:03.120
to build a new power
plant, but it's not just,
02:57:03.120 --> 02:57:05.050
like there's no one
silver bullet here, right?
02:57:05.050 --> 02:57:08.280
It's gotta be a lot of these
multiple solutions that come in
02:57:08.280 --> 02:57:11.050
and help see this value.
02:57:11.050 --> 02:57:15.280
The reason the resource
adequacy adder is a nice companion
02:57:15.280 --> 02:57:17.990
to the ancillary service piece too.
02:57:17.990 --> 02:57:19.330
You're getting on your energy side
02:57:19.330 --> 02:57:21.666
as well as your ancillary service side.
02:57:21.666 --> 02:57:24.190
Prevent retirements
of existing plans.
02:57:24.190 --> 02:57:26.590
Yes, and hopefully enhance
02:57:26.590 --> 02:57:28.450
when we see more and
more solar penetration
02:57:28.450 --> 02:57:31.010
and two, three years that add
02:57:31.010 --> 02:57:32.733
or should continue to increase.
02:57:34.430 --> 02:57:35.730
Thank you.
Thank you.
02:57:37.204 --> 02:57:38.204
All right.
02:57:41.980 --> 02:57:42.980
By the way, I'd love for you
02:57:42.980 --> 02:57:46.200
to build a new power
plant on your balance sheet
02:57:46.200 --> 02:57:48.203
Mr Chairman.
I'm a public servant.
02:57:49.089 --> 02:57:50.739
It's not much of a balance sheet.
02:57:52.560 --> 02:57:54.760
I can get you a little
gas station windmill.
02:57:57.820 --> 02:58:01.680
Alright, thank you again
to all our participants today
02:58:03.130 --> 02:58:05.603
and for the thoughtful
comments that we received.
02:58:08.270 --> 02:58:10.370
Clearly we still have
a lot of work to do.
02:58:13.230 --> 02:58:14.740
I'll ask each of your offices,
02:58:14.740 --> 02:58:16.890
as I said earlier, to put pen to paper
02:58:19.540 --> 02:58:21.520
as we go through the next week or two
02:58:21.520 --> 02:58:24.690
ahead of the next work session
02:58:24.690 --> 02:58:29.690
on details of what
ECRS should look like.
02:58:29.893 --> 02:58:33.620
I think the technical details
are pretty well ironed out,
02:58:33.620 --> 02:58:36.530
the cost allocation is
the big question there.
02:58:36.530 --> 02:58:38.430
Winter ancillary services,
02:58:38.430 --> 02:58:41.140
the fuel standard duration, structure
02:58:42.930 --> 02:58:46.350
and quantity of winter
ancillary services to be procured
02:58:49.050 --> 02:58:50.643
details on ERS.
02:58:51.541 --> 02:58:52.810
We know what the deployment looks like.
02:58:52.810 --> 02:58:56.683
What should the procurement
look like by megawatt,
02:58:57.690 --> 02:59:02.690
by dollar, if by megawatt or by dollar,
02:59:03.890 --> 02:59:05.160
what metrics should we use
02:59:05.160 --> 02:59:09.113
to set that amount for ERS procurement?
02:59:10.520 --> 02:59:13.923
And then finally,
02:59:17.160 --> 02:59:20.683
any thoughts on affirming mechanisms?
02:59:23.550 --> 02:59:28.550
Obviously everyone's got a
good sense of the pros and cons
02:59:29.850 --> 02:59:34.170
or initial sense of the pros
and cons of the LSE obligation.
02:59:34.170 --> 02:59:35.723
I'll continue to refine that,
02:59:39.030 --> 02:59:41.970
and of course, look, would welcome
02:59:41.970 --> 02:59:45.033
any suggestions on
actually how to make it work.
02:59:46.840 --> 02:59:47.823
And of course,
02:59:49.730 --> 02:59:53.253
if any of you want to
refine the reliability adder,
02:59:54.550 --> 02:59:55.460
please include that
02:59:55.460 --> 03:00:00.053
in your draft straw
man or the straw man.
03:00:00.960 --> 03:00:03.757
And finally, if you want to flush--
03:00:05.090 --> 03:00:06.620
Gas energy credits final.
03:00:06.620 --> 03:00:09.125
Yup, the gas energy credit,
what that would look like.
03:00:09.125 --> 03:00:09.958
Okay.
03:00:13.130 --> 03:00:15.606
If it's credits, if
it's curtailment,
03:00:15.606 --> 03:00:16.993
or any version thereof,
03:00:20.810 --> 03:00:24.390
and we'll coordinate with
each of your individual offices
03:00:24.390 --> 03:00:27.900
to continue to flush that out.
03:00:27.900 --> 03:00:31.473
As we know, we've got a big challenge.
03:00:33.680 --> 03:00:37.200
As we've seen last spring,
this summer, this fall,
03:00:37.200 --> 03:00:39.590
late October, the problem
is here, it's is here now.
03:00:39.590 --> 03:00:43.100
It's a big challenge and
it's gonna take big solutions.
03:00:43.100 --> 03:00:44.900
Thank you all for participating.
03:00:44.900 --> 03:00:46.510
Chairman Lake,
if I may real quick,
03:00:46.510 --> 03:00:49.280
can I assign myself something
to add to the blueprint?
03:00:49.280 --> 03:00:50.113
Yeah.
03:00:50.960 --> 03:00:54.150
So aside from
affirming requirement
03:00:54.150 --> 03:00:55.340
I'd really like to continue
03:00:55.340 --> 03:00:57.220
to look for a strategic
reliability service and--
03:00:57.220 --> 03:01:00.080
You are welcome to come
up with any concrete ideas
03:01:00.080 --> 03:01:01.100
that you can come up with.
03:01:01.100 --> 03:01:02.063
Okay, thank you.
03:01:03.213 --> 03:01:04.863
I look forward to hearing them.
03:01:06.360 --> 03:01:08.120
All right there being
no further business,
03:01:08.120 --> 03:01:10.160
this meeting of the Public
Utility Commission of Texas
03:01:10.160 --> 03:01:11.463
is here by adjourned.
03:01:12.566 --> 03:01:15.233
(gavel banging)