WEBVTT

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(hammer beating)

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<v ->Good morning.</v>

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This meeting of the Public
Utility Commission of Texas

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will come to order to
consider matters that

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have been duly posted with
the Secretary of State of Texas

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for November 19th, 2021.

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For the record,

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my name is Peter lake and with me today

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are Will McAdams, Lori
Cobos and Jimmy Glotfelty.

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Welcome back everyone.

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Double header feature of
the Public Utility Commission.

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<v ->And a lot of jeans.</v>

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<v ->Jeans, casual and
surprising everyone,</v>

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Commissioner McAdams
actually showed up in jeans.

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(everyone laughing)

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I still think he's going to switch into-

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<v ->I've clip-on back there.</v>

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<v ->All right. I don't have
anything for items 133.</v>

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That will take us to item number four

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regarding electric
market, electric reliability.

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As you all know, we've
got a agenda laid out.

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Before we dive into that,
first step will be Brattle.

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Before we dive into that,

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we want to offer a few thoughts
to folks watching at home,

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as we know, and we've
discussed ad nauseum,

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we've got two very
distinct problems to solve.

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Extreme weather events
and the blue sky problems,

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when we don't have adequate resources

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on otherwise perfectly
normal day due to intermittency.

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Those are our two big challenges.

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We have this Commission,

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and ERCOT have taken extraordinary steps

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in a very short amount
of time to address

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the extreme weather events.

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The weatherization rule's in place.

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The operational changes at ERCOT

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that this Commission directed

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have been nothing short of,

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I would say wholesale changes

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in both the operations and
the management of the grid.

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Operating with a much
larger margin of safety

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and operating grid with
an abundance of caution

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that will continue through this winter.

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And as you all know,

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our winterization
requirements will be in effect,

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starting December 1st.
Inspections will start December 2nd.

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So we will have a
much more resilient grid

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going into this winter
than we had last winter.

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At the direction of Senate Bill 3,

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we've also been working on
evaluating our market design

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and at the direction of Senate Bill 3,

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improving and working on
improving our market design

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to address those two problems as well.

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We know that we don't have
enough dispatchable energy,

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dispatchable resources in ERCOT.

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We know that we're going
to have to get new money

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on the table from somewhere
to pay for those resources.

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It can come from the generation side,

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it can come from load side.

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It can come from the central
administrative body of ERCOT.

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And we know that if somewhere, somehow

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we don't have a new money put for us

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to procure dispatchable resources,

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we will not get new
dispatchable resources.

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That was made very clear
at our last work session.

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And at the end of the day,

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we know we need to take
an all-of-the-above approach.

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There's no silver bullet.

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It's a combination of tools, techniques,

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methodologies, and products.

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And we will continue to
work through those today

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as we narrow our focus
approaching the December meeting,

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where we will put forth our
blueprint for market redesign.

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At that time, we have many
of the short range tools,

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products, and methodologies
that we've discussed

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that will be ready for action very soon.

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And we'll continue to rapidly
narrow the scope of those

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and then focus on solutions.

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We will also be making a
decision on the broad direction

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of where that longer-term market
redesign needs to come from

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gen side, load side, or input
period through our cottage.

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We all know that the details
of the longer-term effort

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won't be completely
solidified in December.

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We have always known that.

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That's the point where
we need to pick a direction,

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show the people of Texas, our investors,

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our market participants
that the State of Texas,

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takes reliability seriously.

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And that this Commission
has chosen a direction.

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From there we can
flush out the best version,

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the best model, the best methodology

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of how to implement
that longer-term reform.

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But we need to chart a course

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to move us in the right direction.

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We've got a path forward.

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We've got a lot of tools and
resources and analysis in hand.

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And so I look forward to
continuing the progress

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that we've made building on
the success we've had so far.

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And with that, we'll
welcome Brattle to come

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start with the first
presentation of the day.

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I suspect that they've got a
few ideas to share as well.

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It'll be allowed, but it's close.

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<v ->But he's got a tie.</v>

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<v ->He's from Boston.</v>

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<v ->Good morning.</v>

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Thank you for having me here.

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I'm again, honored
to, to have this role,

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to try to help with this.

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It's a pretty big challenge
that you have here in ERCOT.

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And my role, actually
today, what I'm going to do

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at the request of Commission staff,

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I'm going to talk about
market design options

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for supporting resource adequacy.

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Basically the problems that
the Chairman just outlined.

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A little bit about the need for ramping

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to deal with more
intermittent reserves and,

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how ECRS could meet that need.

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And then third, I'll
talk a little bit about

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the various ORDCs that
have been considered.

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And my goal for today is to
sum up what we have analyzed,

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what we've seen from other stakeholders,

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the whole set of ideas,

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including ideas from other jurisdictions

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in order to inform your decision.

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Our job is just to do the
analysis and objective analysis

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and to just be informative
to the decisions

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you have to make.

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And, you know,

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I've got the easy job.

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You're the ones that
have to make the decision,

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but I want to make it as
easy for you as possible by

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knowing that you have the
best information in front of you.

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Could go to the next slide, please?

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Okay. You all read our disclaimer.

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And that was good.

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Okay.

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So there are two challenges that

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Market Design can help address.

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And, you know, the really the big one,

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the reason we're here,
is resource adequacy.

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That's my term

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for what the Chairman
described a few minutes ago.

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And that's to ensure
there's enough supply

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that's always available to meet demand.

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And that's under all
reasonably plausible conditions.

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So we're talking about
extreme weather in the winter,

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in the summer, in the shoulder months,

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when there could be a,
perhaps a short heat wave,

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and there's a number of plants
on simultaneous maintenance.

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And when the wind goes down
and when the sun goes down.

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These are all challenges of
making sure there's always

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enough supply that's
available to work with.

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And it, cause it's not
just nominal megawatts,

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it's not just capacity.

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It's available capacity,
including dispatchable capacity.

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So you can always meet demand.

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So that is the,

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that's the primary problem
that we're here to talk about.

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And the main one I'll talk about today.

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Now partly just for clarification,

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I'll talk about this one too,

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but the second problem that is distinct,

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is operational responsiveness.

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And that's just to manage
changes in supply and demand from

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second to second, minute
to minute, and hour to hour.

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And that can arise
because of the contingency,

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the outage of a large nuclear
thermal unit, for example.

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And now increasingly we're
worried about it arising from

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expected and unexpected ramping needs.

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So what the expected,

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I'm talking about things
like the Duck curve,

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you can forecast that
the sun will go down,

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but it's pretty impressive
how quickly you lose

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a lot of supply and you
need to address that.

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That's the expected ramping needs,

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but they're also unexpected
ramping needs when,

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especially there's a
weather front and, you know,

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the wind and the sun perform
very differently from expected

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in that you've, you know,
positioned the fleet to meet.

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Now that whole problem,
particularly managing ramping,

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you can do reliably.

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This is not a question
about reliability.

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You can do it reliably as long
as you've solved problem one.

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As long as you have enough
resources to work with,

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you can manage the ramping.

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I mean, you could even,
you know, for example,

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if you have enough
resources to meet the load

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in the evening, after the
sun goes down, you could just

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turn everything on and
curtail the renewables.

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I mean, that wouldn't be
the most efficient way to do it,

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but my point is, you can be reliable.

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What we're striving for
here is how to manage

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that more efficiently,

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making best use of
flexibility in the fleet

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and meaning economically efficiently,

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not ways to leak or dialing
things when you don't need to.

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But also to do it in-market,

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through ancillary service
products and the energy market.

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And why is that important?

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Actually, to send the
right investment signals.

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You can do it out of market.

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I mean, ERCOT has plenty of authority

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to order on the plants that it wants

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and to dispatch down
plants, curtail plants.

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It can keep it reliable as
long as it has the right rate,

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as long as it has enough resources,

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but we're trying to do it in-market,

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with energy and ancillary
services that not only

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get the job done efficiently
in an operational sense,

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but reward all the resources
that have the flexibility,

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that's valuable and
probably pay less to the ones

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who don't and make it a harder problem.

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'Cause then you get the
right incentives for investment

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in resources that can help meet load,

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you know, reliably at least cost.

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And that includes
dispatchable resources.

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So those are the two problems.

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Again, I'm going to primarily
focus on number one,

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because that's how we got
here. We got here because of Uri,

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which was truly the
largest supply shortfall

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in the history of the grid in the US.

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And so how to avoid
something like that again,

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and there are other weather extremes

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we have to prepare against, right?

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And we're also here
because of the growing amount

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of intermittent supply
that raises questions

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about how do you deal
with it's intermittency?

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So that's primarily why we're here.

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And that's the main thing I'll address.

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Now, it's my duty to also
remind that that, you know,

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this is not just about market design.

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It is most important
to continue to assess

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the particularly catastrophic risks.

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Everything from new
kinds of extreme weather

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to cyber attacks.

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You think February was bad.

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It's much worse if the
whole grid were to go down.

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So you can't get so
focused on market design

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loop side of thinking
through, all the possible,

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particularly catastrophic
risks and making sure

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that you're protected against those,

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mitigating them and
able to recover from.

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So that even gets into
some non-market things like

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doing load shed better.

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We know that was an issue in February.

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It gets into things like
Blackstar procedures.

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I mean, the whole grid goes down,

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bringing it back on is not trivial.

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Making sure that
you're set up to do that.

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And it's just important
that we don't lose sight

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of protecting from
the very worst things,

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rather than getting caught
up in subtle differences

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in market design.

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Or not so subtle but
still the scope of that

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is not the entire scope
we're worried about.

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Okay.

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So could you go to
the next slide, please?

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Wow.

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Well, it's interesting.
This is just fine.

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These were circles on my
slides. I'll work with ovals.

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Now focusing on that
problem of resource adequacy,

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making sure there's always
enough supply that's available,

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dispatchable to work with
to always meet demand.

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There are really two viable options.

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We've heard a lot of ideas.

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Some of them are
different forms of these.

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Some of them are, you
know, quite different,

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but don't really do much
for resource adequacy

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or maybe they're more
about operational issues.

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And I'm trying to sort out

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what the big choices are before you.

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Actually, let me say
you have three choices.

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You could do nothing,

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and that's probably not very attractive.

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That's your option zero.

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<v Peter>We'd all be
looking for new jobs.</v>

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<v ->Okay, well, it didn't
even make it onto the slide.</v>

00:15:00.200 --> 00:15:01.383
Option one,

00:15:06.319 --> 00:15:09.440
is load serving entity
reliability obligation,

00:15:09.440 --> 00:15:11.840
and we're calling it LSERO+.

00:15:11.840 --> 00:15:13.750
And the reason calling it plus,

00:15:13.750 --> 00:15:18.623
this is basically the
concept that E3 and NRG...

00:15:21.398 --> 00:15:23.348
There's Bill. Hi Bill.
<v Bill>Hello.</v>

00:15:24.810 --> 00:15:27.510
<v ->It's basically that proposal,</v>

00:15:27.510 --> 00:15:30.250
but with some additional
features to address

00:15:30.250 --> 00:15:32.680
what we're serious and I
think the biggest concerns

00:15:32.680 --> 00:15:36.160
we heard about it,
regarding market power

00:15:36.160 --> 00:15:40.390
and to address that
there'd be an auction

00:15:40.390 --> 00:15:43.020
that all the large GENCO's
would have to offer

00:15:43.020 --> 00:15:45.613
all their supply in, at cost,

00:15:47.250 --> 00:15:49.520
subject to mitigation
by the market monitor,

00:15:49.520 --> 00:15:51.513
like the market monitor mitigates the,

00:15:52.460 --> 00:15:55.573
you know, centralized
energy market today.

00:15:57.350 --> 00:15:59.913
And, you know, participation
would be voluntary,

00:16:00.785 --> 00:16:03.310
by load serving entities
to buy from them.

00:16:03.310 --> 00:16:04.450
So that's one difference.

00:16:04.450 --> 00:16:06.733
And the other differences is that,

00:16:08.310 --> 00:16:12.130
LLCs in order to accommodate
retail choice better.

00:16:12.130 --> 00:16:13.730
LLCs would be able to

00:16:16.380 --> 00:16:19.750
show that that they have enough credits

00:16:19.750 --> 00:16:22.423
just right before each delivery season.

00:16:24.170 --> 00:16:25.209
So they know how much load they have.

00:16:25.209 --> 00:16:27.400
They don't have to guess in advance

00:16:27.400 --> 00:16:29.670
and there'd be a
mechanism for transferring

00:16:29.670 --> 00:16:31.600
those load shifts within the season,

00:16:31.600 --> 00:16:34.390
using the price from that auction

00:16:34.390 --> 00:16:37.200
that was mandatory for large GENCO's.

00:16:37.200 --> 00:16:38.550
Okay. So that's option one.

00:16:39.650 --> 00:16:41.960
Look, if what you want is to be able

00:16:41.960 --> 00:16:43.037
to look at the fleet and say,

00:16:43.037 --> 00:16:45.684
"Yup, that's good. We're prepared.

00:16:45.684 --> 00:16:48.990
We have a fleet that's
ready for difficult weather,

00:16:48.990 --> 00:16:50.660
that's got enough dispatchability

00:16:50.660 --> 00:16:53.400
for when the wind
and sun aren't shining."

00:16:53.400 --> 00:16:54.360
If you think you're good,

00:16:54.360 --> 00:16:57.447
if you think you're able
to look at the fleet and say,

00:16:57.447 --> 00:16:59.660
"Yup, that's good. That's what we want.

00:16:59.660 --> 00:17:04.660
We're prepared for, you
know, any, any plausible event."

00:17:05.760 --> 00:17:08.650
This option is the most direct way

00:17:08.650 --> 00:17:13.623
to express that to market
to set a requirement.

00:17:14.710 --> 00:17:19.650
And then to put that requirement
on load serving entities.

00:17:19.650 --> 00:17:20.820
They're the natural buyers.

00:17:20.820 --> 00:17:24.107
They're the ones who
consume from load, right?

00:17:26.729 --> 00:17:28.080
And then the suppliers are just,

00:17:28.080 --> 00:17:30.423
it's all the competing suppliers.

00:17:31.826 --> 00:17:37.110
But importantly, it is
subject to accreditation

00:17:38.290 --> 00:17:41.090
that makes sure each
resources only getting credited

00:17:41.090 --> 00:17:43.363
for as much as it
contributes to reliability.

00:17:45.300 --> 00:17:47.940
And that their performance obligations,

00:17:47.940 --> 00:17:50.040
so if they've committed, you know,

00:17:50.040 --> 00:17:53.180
they really get penalized
if they don't deliver.

00:17:53.180 --> 00:17:57.060
So to me, this is the most direct way

00:17:57.060 --> 00:18:02.060
to express a resource
adequacy objective, to the market.

00:18:05.690 --> 00:18:07.800
I will get into pros and cons later.

00:18:07.800 --> 00:18:11.210
As simple as I just made it sound,

00:18:11.210 --> 00:18:15.470
it's not simple in
implementation, and it has some

00:18:15.470 --> 00:18:18.203
other aspects that people
will remain concerned about.

00:18:20.030 --> 00:18:22.920
So we have to have an option two,

00:18:22.920 --> 00:18:24.723
in case that one doesn't fly.

00:18:26.620 --> 00:18:29.370
And the option two, which again I think,

00:18:29.370 --> 00:18:32.650
is a viable way to
address resource adequacy

00:18:34.580 --> 00:18:39.580
is to have a combination
of targeted measures.

00:18:41.000 --> 00:18:45.900
And I will say this combination
of measures is similar

00:18:45.900 --> 00:18:49.020
to the package that NextEra presented

00:18:50.150 --> 00:18:51.623
a couple of sessions ago,

00:18:53.110 --> 00:18:54.833
but it's not identical to that.

00:18:55.690 --> 00:18:56.910
So it's really three components.

00:18:56.910 --> 00:18:59.863
One is leaning more on the
weatherization enforcement,

00:19:01.060 --> 00:19:04.740
the weatherization from
SB-3, we just heard about,

00:19:04.740 --> 00:19:07.663
but truly having to
enforce it more carefully.

00:19:10.076 --> 00:19:11.930
The second component is to have a,

00:19:14.110 --> 00:19:19.750
fuel firming program
that addresses

00:19:19.750 --> 00:19:22.210
particularly the gas-fired
fleet, a lot onsite fuel.

00:19:22.210 --> 00:19:25.340
And I'll talk in a few minutes
about more of the details

00:19:25.340 --> 00:19:27.210
of how that could work.

00:19:27.210 --> 00:19:30.340
And the third component
is backup reserves.

00:19:30.340 --> 00:19:33.630
And don't know if you all got to

00:19:35.640 --> 00:19:37.050
yet read everything filed,

00:19:37.050 --> 00:19:40.730
but I'm talking about something
very, very close to the SRS,

00:19:40.730 --> 00:19:44.023
the Strategic Reserves that
Commissioner Cobos just filed.

00:19:46.740 --> 00:19:49.720
And so, you know again,

00:19:49.720 --> 00:19:52.520
there are other options that
have been thrown out there,

00:19:53.480 --> 00:19:56.020
but that just didn't make it onto here,

00:19:56.020 --> 00:19:58.011
'cause I think that
either wouldn't work or,

00:19:58.011 --> 00:19:58.910
you know, sort of, you know,

00:19:58.910 --> 00:20:01.260
so we didn't look at
options that would create,

00:20:02.119 --> 00:20:03.720
that would try to
create a backup reserve,

00:20:03.720 --> 00:20:05.050
but not hold it out of the market.

00:20:05.050 --> 00:20:08.143
So it would just you know,

00:20:09.760 --> 00:20:12.250
it would just undermine some
of the in-market resources,

00:20:12.250 --> 00:20:14.550
and not actually improved reliability.

00:20:14.550 --> 00:20:17.060
Didn't look at backup reserves that

00:20:17.060 --> 00:20:19.910
were for a huge
commitment to new capacity.

00:20:19.910 --> 00:20:22.067
That would be very inefficient
to hold out of the fleet

00:20:22.067 --> 00:20:23.060
wouldn't be really out of,

00:20:23.060 --> 00:20:26.413
out of the energy market
and would be very costly.

00:20:27.870 --> 00:20:31.530
Didn't look at things to,
for example, you know,

00:20:31.530 --> 00:20:35.130
curtail renewable
resources more than needed

00:20:35.130 --> 00:20:36.543
for operational reasons.

00:20:38.260 --> 00:20:40.320
But these two options, I think,

00:20:40.320 --> 00:20:43.023
are a couple of good options before you.

00:20:44.020 --> 00:20:47.830
And what the alternative
is, is basically do nothing.

00:20:47.830 --> 00:20:51.550
So I hope this framing helps.

00:20:51.550 --> 00:20:55.020
What I'd like to do next,
if you go to the next slide

00:20:55.020 --> 00:20:57.560
is talk a little bit about the details.

00:20:57.560 --> 00:21:00.380
So I'm not gonna go over
everything that's already been

00:21:00.380 --> 00:21:02.440
presented 'cause again,
this builds on the concept

00:21:02.440 --> 00:21:04.853
that E3 and NRG already presented.

00:21:06.756 --> 00:21:08.570
But I do want to elaborate
on a couple things with

00:21:08.570 --> 00:21:12.343
the load serving entity
liability obligation plus.

00:21:13.320 --> 00:21:16.160
So the basic features are the ones

00:21:16.160 --> 00:21:18.850
from the original proposal.

00:21:18.850 --> 00:21:19.730
And as a reminder,

00:21:19.730 --> 00:21:21.130
it starts with static setting out,

00:21:21.130 --> 00:21:22.990
what is the resource adequacy standard?

00:21:22.990 --> 00:21:25.020
What are the, you know,

00:21:25.020 --> 00:21:27.330
to what standard do
you want to be prepared?

00:21:27.330 --> 00:21:30.130
Are there deterministic
events you want to be protected

00:21:30.130 --> 00:21:32.160
against like a repeat of Uri?

00:21:32.160 --> 00:21:33.640
Are there, you know,

00:21:33.640 --> 00:21:36.670
looking at many scenarios of
considering what happens with

00:21:36.670 --> 00:21:39.990
30 years of weather and
how that affects load and wind

00:21:39.990 --> 00:21:42.620
and sun and make sure
you're prepared for basically

00:21:42.620 --> 00:21:45.272
always being able to
keep the lights on in spite of

00:21:45.272 --> 00:21:47.083
all those variations,

00:21:49.400 --> 00:21:50.270
but to what level?

00:21:50.270 --> 00:21:51.103
You know, cause it's not,

00:21:51.103 --> 00:21:53.750
we're not talking
about infinite reliability.

00:21:53.750 --> 00:21:55.800
You have to define
exactly what you mean.

00:21:57.030 --> 00:21:59.160
Once you've done that,
it's putting the requirement

00:21:59.160 --> 00:22:01.730
to load serving entities
expressed in the form of

00:22:01.730 --> 00:22:02.930
how many credits do you need.

00:22:02.930 --> 00:22:05.560
And we usually denote those
in megawatts that are equivalent

00:22:05.560 --> 00:22:08.720
to an always available
dispatchable resource.

00:22:08.720 --> 00:22:12.930
Resources that are
less reliable than that

00:22:12.930 --> 00:22:15.180
don't get as big a credit.

00:22:15.180 --> 00:22:17.190
They get a much lower
credit if they're intermittent

00:22:17.190 --> 00:22:19.960
and correlated with other
intermittent resources.

00:22:19.960 --> 00:22:22.493
They get a lower credit
if they're energy limited.

00:22:23.820 --> 00:22:26.340
And some of these discounts
are actually quite big.

00:22:26.340 --> 00:22:27.890
I mean, what you'll see is that

00:22:29.939 --> 00:22:33.300
a dispatchable resource, if
it really can also demonstrate

00:22:33.300 --> 00:22:35.960
it's well winterized, has secure fuel

00:22:35.960 --> 00:22:37.170
would get a really high credit

00:22:37.170 --> 00:22:39.470
and resources, you
know, much lower credit.

00:22:39.470 --> 00:22:42.056
I mean, it very much speaks to what

00:22:42.056 --> 00:22:43.780
some of the themes we talked about,

00:22:43.780 --> 00:22:46.060
making sure we have
enough of the resources

00:22:46.060 --> 00:22:48.740
that we need to feel
confident to keep the lights on.

00:22:48.740 --> 00:22:49.980
You know another important feature,

00:22:49.980 --> 00:22:51.870
I don't think that I
want to emphasize that

00:22:51.870 --> 00:22:54.460
we're sort of adding
here is, is an opt-out.

00:22:54.460 --> 00:22:58.070
I think it's pretty
important to customers

00:22:58.070 --> 00:22:59.190
who don't need from power and are able

00:23:01.079 --> 00:23:04.270
to really be curtailable
or help self-supply,

00:23:04.270 --> 00:23:05.823
to not be subject to this.

00:23:08.090 --> 00:23:11.710
And now the biggest part that is,

00:23:11.710 --> 00:23:14.960
takes by far the most
market design work,

00:23:14.960 --> 00:23:17.300
and you'll argue about forever frankly,

00:23:17.300 --> 00:23:18.940
is supply accreditation.

00:23:18.940 --> 00:23:20.760
And we can bring best practices

00:23:20.760 --> 00:23:23.330
and some of the things
E3 talked about in the prior

00:23:23.330 --> 00:23:25.440
presentation, and I'll speak to that.

00:23:25.440 --> 00:23:26.790
We know how to think about,

00:23:28.720 --> 00:23:32.040
you know, how to discount
intermittent resources.

00:23:32.040 --> 00:23:32.930
We know how to,

00:23:32.930 --> 00:23:36.180
we have experience
from other jurisdictions,

00:23:36.180 --> 00:23:37.630
how to think about demand response,

00:23:37.630 --> 00:23:40.410
but it's actually pretty tricky.

00:23:40.410 --> 00:23:43.590
And we're talking about
decisions that affect

00:23:43.590 --> 00:23:45.460
how a lot of money flows.

00:23:45.460 --> 00:23:47.560
And so these decisions
will be contentious.

00:23:47.560 --> 00:23:50.453
I have a friend who
is the President of the,

00:23:51.420 --> 00:23:56.420
one of the generator advocacy
groups in the Northeast,

00:23:57.330 --> 00:24:01.790
who says that 90% of his time is on

00:24:03.490 --> 00:24:05.803
issues related to
their capacity markets.

00:24:06.820 --> 00:24:10.890
And that's particularly on
issues that are comparable

00:24:10.890 --> 00:24:13.140
to what we're talking about
here with supply accreditation.

00:24:13.140 --> 00:24:14.090
You'll argue about it a lot.

00:24:14.090 --> 00:24:16.410
There's just a lot of money hinging on.

00:24:16.410 --> 00:24:18.780
Even though they're sort
of industry best practices,

00:24:18.780 --> 00:24:20.457
there's a sort of, you know,

00:24:21.340 --> 00:24:23.150
a lot of objectivity you could bring

00:24:23.150 --> 00:24:24.530
to how to do accreditation.

00:24:24.530 --> 00:24:26.990
What is the marginal
reliability contribution

00:24:26.990 --> 00:24:28.200
of reach resource?

00:24:28.200 --> 00:24:30.350
There actually will
be a lot of a judgment,

00:24:31.210 --> 00:24:33.870
particularly around how
well winterized you are,

00:24:33.870 --> 00:24:35.220
what kind of fuel you have,

00:24:36.726 --> 00:24:39.783
how to deal with limited
calls in with demand response,

00:24:42.366 --> 00:24:43.199
how to deal with imports?

00:24:43.199 --> 00:24:44.110
I mean, there's just

00:24:46.341 --> 00:24:50.870
a pretty big set of questions
that will need to be addressed

00:24:50.870 --> 00:24:52.333
and even updated over time.

00:24:54.600 --> 00:24:57.000
This again is the
essence of this solution.

00:24:57.000 --> 00:24:59.780
It's thinking I want to
be able to look at the fleet

00:24:59.780 --> 00:25:01.850
and see that, you know,
do better than just what's

00:25:01.850 --> 00:25:04.330
in the CDR as an indicator.

00:25:04.330 --> 00:25:07.030
I want to actually
take a really close look

00:25:07.030 --> 00:25:09.900
at what is the reliability
value of each resource.

00:25:09.900 --> 00:25:12.370
And I want to secure it with
a payment that gives them

00:25:12.370 --> 00:25:15.810
a commitment subject to
penalties if they don't perform.

00:25:15.810 --> 00:25:17.870
So that is the essence of it.

00:25:17.870 --> 00:25:21.460
What is the size of the
credit for each resource

00:25:21.460 --> 00:25:23.380
and, you know, intermittents by the way,

00:25:23.380 --> 00:25:25.400
sometimes choose not
to sell it at all because

00:25:25.400 --> 00:25:30.400
they don't want to have the
exposure to the penalties.

00:25:30.500 --> 00:25:32.404
Okay. So credit tracking,

00:25:32.404 --> 00:25:34.100
I've been asked some
questions about that.

00:25:34.100 --> 00:25:35.770
I mean, that's a very manageable issue.

00:25:35.770 --> 00:25:36.853
You can do something.

00:25:37.860 --> 00:25:39.860
That's an issue that's been figured out.

00:25:41.012 --> 00:25:42.090
I think what MISO does,

00:25:42.090 --> 00:25:44.410
the Midcontinent
Independent System Operator

00:25:44.410 --> 00:25:49.010
for its resource adequacy construct,

00:25:49.010 --> 00:25:51.960
which by the way, most people
don't call a capacity market.

00:25:53.076 --> 00:25:58.076
There's bilateral trading
and a last minute auction

00:26:00.270 --> 00:26:04.070
and that they have a tracking mechanism

00:26:04.070 --> 00:26:05.683
that enables those bilateral.

00:26:06.535 --> 00:26:09.110
It starts with the accreditation
to sort of mint a credit.

00:26:09.110 --> 00:26:11.870
It tracks who has them and
when they'd been transferred

00:26:11.870 --> 00:26:14.360
and ultimately the LSEs
get to dispose of them.

00:26:14.360 --> 00:26:17.050
By the way, this is also,
has a lot of attributes

00:26:17.050 --> 00:26:21.500
similar to the REC
crediting tracking system

00:26:21.500 --> 00:26:23.923
that is already in use at ERCOT.

00:26:25.550 --> 00:26:29.810
That's a totally easy,
manageable part of the problem.

00:26:29.810 --> 00:26:32.460
Performance penalties, I
think are quite important.

00:26:32.460 --> 00:26:35.090
You know, you'd have to
decide how big they are/

00:26:35.090 --> 00:26:38.140
You know, there already
are big performance incentives

00:26:38.140 --> 00:26:41.230
with a energy price going up to the cap

00:26:41.230 --> 00:26:42.853
when you have a real shortage.

00:26:44.350 --> 00:26:46.700
This would actually increase those,

00:26:46.700 --> 00:26:49.610
but in a way that doesn't expose loads.

00:26:49.610 --> 00:26:51.880
So generators that
have made a commitment

00:26:51.880 --> 00:26:55.090
and are not performing up to, you know,

00:26:55.090 --> 00:27:00.090
at their committed amount
would get penalized.

00:27:00.140 --> 00:27:02.210
And now the enhancements
that we talked about,

00:27:02.210 --> 00:27:05.653
I mentioned the auction for big fish.

00:27:08.320 --> 00:27:10.580
The reason that's
necessary is to make sure

00:27:10.580 --> 00:27:12.110
that large generator, you know,

00:27:12.110 --> 00:27:15.910
they can't exercise market
power and drive up the price

00:27:15.910 --> 00:27:18.890
and then efficiently,
physically or economically

00:27:18.890 --> 00:27:20.670
withhold resources.

00:27:20.670 --> 00:27:22.900
That's quite important
because this market with large

00:27:22.900 --> 00:27:25.523
generators is structurally
not competitive.

00:27:26.950 --> 00:27:29.160
And it also would help
make sure that they're not

00:27:29.160 --> 00:27:31.283
favoring their own retail arm.

00:27:32.743 --> 00:27:37.520
That any retailer is free
to buy in that auction.

00:27:39.610 --> 00:27:41.260
And the price would be,

00:27:41.260 --> 00:27:42.950
the offers in that auction
would be subject to

00:27:42.950 --> 00:27:44.630
market power mitigation.

00:27:44.630 --> 00:27:47.130
And this auction would
be just before each season.

00:27:49.680 --> 00:27:52.760
And it would be a place
where the, you know,

00:27:52.760 --> 00:27:54.400
and having a competitive price in this

00:27:54.400 --> 00:27:56.290
would also discipline
the bilateral markets

00:27:56.290 --> 00:27:57.290
that can happen before it.

00:27:57.290 --> 00:28:01.730
It would create a transparent
price that can be used

00:28:01.730 --> 00:28:06.080
again to price transfers between

00:28:07.700 --> 00:28:09.700
load serving entities within the season.

00:28:10.960 --> 00:28:12.980
It's an essential element
of making this work.

00:28:12.980 --> 00:28:15.810
And Commissioner Cobos,
so you've asked before,

00:28:15.810 --> 00:28:18.530
how does this differ from
something that we looked at

00:28:18.530 --> 00:28:23.075
in 2012 that we said not to do?

00:28:23.075 --> 00:28:25.370
And we said not to do it,

00:28:25.370 --> 00:28:29.280
if it were a purely
bilateral without this

00:28:30.330 --> 00:28:32.030
auction to deal with market power.

00:28:33.220 --> 00:28:35.240
And the other thing we worried about

00:28:35.240 --> 00:28:37.610
was in a retail choice environment,

00:28:37.610 --> 00:28:41.120
if you were to set up this
requirement and make

00:28:41.120 --> 00:28:43.060
load serving entities buy ahead of time,

00:28:43.060 --> 00:28:44.730
when they don't know
how much load they'll have,

00:28:44.730 --> 00:28:49.390
and they would have to,
you know, buy capacity.

00:28:49.390 --> 00:28:51.790
And then come the delivery period,

00:28:51.790 --> 00:28:53.440
maybe they have too
much, they have to sell it,

00:28:53.440 --> 00:28:56.180
but maybe they took a big loss.

00:28:56.180 --> 00:28:57.740
They take a lot of risk.

00:28:57.740 --> 00:29:00.560
That's why you really, in a
retail choice environment,

00:29:00.560 --> 00:29:02.660
you really don't want
to have this requirement

00:29:02.660 --> 00:29:06.610
until just before the delivery period.

00:29:06.610 --> 00:29:09.580
Now that means you don't
have quite as much transparency

00:29:09.580 --> 00:29:11.520
and on a forward basis.

00:29:11.520 --> 00:29:14.280
So, you know, LSEs
would still face risks.

00:29:14.280 --> 00:29:16.700
This is a new thing they'd have to buy.

00:29:16.700 --> 00:29:17.970
And they wouldn't actually,

00:29:17.970 --> 00:29:22.130
I don't know how liquid and transparent

00:29:22.130 --> 00:29:25.710
the bilateral forward
markets would be in advance.

00:29:25.710 --> 00:29:28.660
So LSEs still would be facing risk

00:29:28.660 --> 00:29:29.920
as they're signing up customers.

00:29:29.920 --> 00:29:33.240
And if they don't have very
good visibility until, you know,

00:29:33.240 --> 00:29:36.320
until this auction right
before the, and again,

00:29:36.320 --> 00:29:38.490
they can buy in the
auction, but if ahead of time,

00:29:38.490 --> 00:29:40.760
they don't know
really what the price is.

00:29:40.760 --> 00:29:42.370
You know, hopefully like other markets,

00:29:42.370 --> 00:29:44.880
you have a liquid transparent enough

00:29:44.880 --> 00:29:48.530
bilateral forward market
that, that they do have an idea.

00:29:48.530 --> 00:29:50.050
So this is workable,

00:29:50.050 --> 00:29:52.140
but I won't deny that it adds some risk

00:29:52.140 --> 00:29:53.390
to load serving entities.

00:29:54.330 --> 00:29:56.840
It's a new thing they have
to buy that's, you know,

00:29:56.840 --> 00:30:01.840
that can't completely
easily be seen in advance

00:30:02.010 --> 00:30:06.453
and to coup the price and hedged.

00:30:08.520 --> 00:30:11.870
Last thing the enhancement
that's needed is that this thing,

00:30:11.870 --> 00:30:14.740
again, mostly because
supply accreditation is,

00:30:14.740 --> 00:30:17.070
takes so much discussion to get right.

00:30:17.070 --> 00:30:19.140
All the elements would
take a lot of design.

00:30:19.140 --> 00:30:23.460
This would take three
years, if all goes well,

00:30:23.460 --> 00:30:26.740
to put in place and you
need something sooner.

00:30:26.740 --> 00:30:29.910
So there'll be interim measures
that you would need here.

00:30:29.910 --> 00:30:33.840
And those are kind of the
same things that are an option to,

00:30:33.840 --> 00:30:38.390
well particularly the
enforcement of the winterization,

00:30:41.620 --> 00:30:42.823
and a fuel program.

00:30:44.700 --> 00:30:45.533
Not going to describe that here,

00:30:45.533 --> 00:30:47.160
cause I will on the next slide,

00:30:47.160 --> 00:30:49.430
because that's a
core part of option two.

00:30:49.430 --> 00:30:51.490
Here it would be just for, you know,

00:30:51.490 --> 00:30:55.093
a year or two and then get
folded into the LSE obligation.

00:30:57.040 --> 00:30:58.610
Any questions or comments or that,

00:30:58.610 --> 00:31:00.830
or should I go on to option two?

00:31:00.830 --> 00:31:02.180
<v Peter>Go on.</v>
<v ->Thanks.</v>

00:31:03.320 --> 00:31:07.070
Okay. So again, this
is another viable option

00:31:07.070 --> 00:31:09.030
for achieving resource adequacy.

00:31:09.030 --> 00:31:10.900
The problem that we
started with this morning

00:31:10.900 --> 00:31:12.760
to make sure you have
enough for extreme weather

00:31:12.760 --> 00:31:16.333
and for when intermittent
resources aren't there.

00:31:19.060 --> 00:31:21.720
But without an LSE
obligation to sort of make sure

00:31:21.720 --> 00:31:24.443
the entire fleet is adequate,

00:31:25.350 --> 00:31:27.390
you need all these
targeted things to look at

00:31:27.390 --> 00:31:29.283
where the risks are.

00:31:32.100 --> 00:31:36.110
And so one of them is,
again the weatherization.

00:31:36.110 --> 00:31:38.923
We don't have commitments
and penalties here,

00:31:39.760 --> 00:31:42.020
financial ones, like we
work with the LSE obligation.

00:31:42.020 --> 00:31:45.300
So enforcing penalties
just from the SB-3

00:31:45.300 --> 00:31:47.270
becomes really important.

00:31:47.270 --> 00:31:50.977
Second thing that
deserves a little discussion

00:31:50.977 --> 00:31:53.370
is the fuel firming product.

00:31:53.370 --> 00:31:55.620
I'm talking about something
that you'd have to decide,

00:31:55.620 --> 00:31:56.840
what are you're trying to protect again?

00:31:56.840 --> 00:31:59.513
So is it four days of onsite fuel?

00:32:00.560 --> 00:32:04.720
And now onsite fuel is helpful
at gas plants, coal plants,

00:32:04.720 --> 00:32:07.563
nuclear plants, anybody who's got that.

00:32:10.226 --> 00:32:12.090
But there are several variants of this.

00:32:12.090 --> 00:32:13.570
You could have it covered all those.

00:32:13.570 --> 00:32:15.460
I think the simplest one
and the one that seems,

00:32:15.460 --> 00:32:19.693
a bit most likely to be
implementable here,

00:32:20.530 --> 00:32:22.453
is to target just the gas-fired fleet.

00:32:24.230 --> 00:32:27.557
So let's talk about gas
fired resources that are,

00:32:29.310 --> 00:32:30.550
that would commit

00:32:32.365 --> 00:32:37.230
to provide a dispatchable
power with reliable resources

00:32:39.190 --> 00:32:42.513
with four days of onsite fuel.

00:32:43.888 --> 00:32:46.933
And the eligibility,
again, I think would,

00:32:48.000 --> 00:32:50.810
it would involve some of
the things like we talked about

00:32:50.810 --> 00:32:51.780
in the LSE obligations.

00:32:51.780 --> 00:32:55.483
That you make sure that they
are satisfactorily winterized.

00:33:00.857 --> 00:33:03.570
That there's probably some testing,

00:33:03.570 --> 00:33:04.770
although I'll get to that later.

00:33:04.770 --> 00:33:07.870
I mean, they really have to
make good on their promise.

00:33:07.870 --> 00:33:09.470
Now the quantity is interesting.

00:33:12.990 --> 00:33:15.060
The way I think about
it is if you want it to be

00:33:15.060 --> 00:33:16.373
ready for another Uri,

00:33:18.610 --> 00:33:20.540
I think there were about
six gigawatts that said

00:33:20.540 --> 00:33:21.760
they couldn't get fuel.

00:33:21.760 --> 00:33:24.830
That understates the
problem of fuel shortage,

00:33:24.830 --> 00:33:28.910
because there was another,
nearly 20 gigawatts of gas-fired

00:33:28.910 --> 00:33:31.950
that was offline for
other stated reasons.

00:33:31.950 --> 00:33:35.500
Now, if they had been
otherwise available,

00:33:35.500 --> 00:33:37.230
they too wouldn't have
been able to get gas.

00:33:37.230 --> 00:33:39.370
Cause the reason that six
gigawatts couldn't get gas

00:33:39.370 --> 00:33:41.230
was a system wide supply shortage.

00:33:41.230 --> 00:33:44.130
We just saw in the NERC
report, it was primarily that

00:33:44.130 --> 00:33:47.137
it was freezing of the supply wellheads,

00:33:48.490 --> 00:33:51.500
and it wasn't just about, you know,

00:33:51.500 --> 00:33:52.950
pipelines losing power or something.

00:33:52.950 --> 00:33:54.440
That was a small part of the problem.

00:33:54.440 --> 00:33:58.010
So basically we had
six that couldn't get gas.

00:33:58.010 --> 00:34:02.323
If you'd had the others able
to not frozen the other plants,

00:34:03.300 --> 00:34:04.570
they wouldn't have been
able to get gas either.

00:34:04.570 --> 00:34:07.790
So in an event like
that, there was about 25,

00:34:07.790 --> 00:34:09.740
and forgive me if my
numbers are slightly off,

00:34:09.740 --> 00:34:12.500
but there was about 25
gigawatts of gas fired resources

00:34:12.500 --> 00:34:14.900
that were still getting
gas from the pipeline,

00:34:14.900 --> 00:34:17.700
but there was about 25 that weren't

00:34:17.700 --> 00:34:19.210
for one reason or another.

00:34:19.210 --> 00:34:21.010
And so that's about
the size that I think

00:34:21.010 --> 00:34:22.580
you'd want this program to be.

00:34:22.580 --> 00:34:24.270
So that you'd be ready for another Uri.

00:34:24.270 --> 00:34:26.540
Where remember the load got us

00:34:26.540 --> 00:34:28.890
the load that would have been there was,

00:34:28.890 --> 00:34:29.730
if it could have been served,

00:34:29.730 --> 00:34:31.490
was it got as high as 77 gigawatts.

00:34:31.490 --> 00:34:34.130
You would have needed
basically the whole fleet.

00:34:34.130 --> 00:34:35.990
So I would think about
something on the order

00:34:35.990 --> 00:34:39.183
of 25 gigawatts of
natural gas-fired plants.

00:34:43.346 --> 00:34:46.538
<v ->Plants that need firm fueling?</v>

00:34:46.538 --> 00:34:50.283
<v ->Yeah. And they would
need to install tanks, you know,</v>

00:34:52.025 --> 00:34:55.120
some modifications
to the plant to deal with,

00:34:55.120 --> 00:34:58.710
you know, NOx emissions,
burning fuel, I assume,

00:34:58.710 --> 00:35:03.150
depending on their environmental
requirements and a few

00:35:03.150 --> 00:35:06.090
other modifications and
they needed to fill the tank.

00:35:06.090 --> 00:35:07.940
And my understanding is that, you know,

00:35:07.940 --> 00:35:10.650
the fuel gets a little old and you know,

00:35:10.650 --> 00:35:13.923
you need to replace it
every year and a half or so.

00:35:15.130 --> 00:35:19.353
Okay. But let's talk
about how to procure it.

00:35:19.353 --> 00:35:21.630
You want to do it competitively.

00:35:21.630 --> 00:35:24.970
I think that's quite important
because you probably

00:35:24.970 --> 00:35:26.550
don't want to make more than, you know,

00:35:26.550 --> 00:35:29.990
a couple of year commitment
with these resources.

00:35:29.990 --> 00:35:33.020
Cause some of them might not,

00:35:33.020 --> 00:35:34.630
well, there are a lot of
reasons that you might want

00:35:34.630 --> 00:35:36.680
to do it more like a
two year commitment.

00:35:37.960 --> 00:35:39.370
And you just ask them how much

00:35:39.370 --> 00:35:41.000
and you solicit from the fleet.

00:35:41.000 --> 00:35:43.923
How much do you need to
be able to provide this product?

00:35:45.130 --> 00:35:46.826
And you take all the ones that

00:35:46.826 --> 00:35:48.633
that'll offer it at the least.

00:35:52.240 --> 00:35:55.190
'Cause they're thinking about
what helps lower the cost,

00:35:55.190 --> 00:35:58.143
why it's not the full, you know,

00:35:58.143 --> 00:36:01.390
1 to $2 billion that this
could cost is because they're

00:36:01.390 --> 00:36:03.980
thinking, well, you know,
"Actually if I install this,

00:36:03.980 --> 00:36:05.740
I'll be able to get value out of it

00:36:05.740 --> 00:36:07.463
for, you know, a good 10 years.

00:36:09.160 --> 00:36:13.620
And so what I need to
be paid as some sort of a,

00:36:13.620 --> 00:36:18.083
some sort of a capacity
payment for providing the service.

00:36:19.400 --> 00:36:20.670
What I need to be, well,

00:36:20.670 --> 00:36:22.970
I just mean it's not on a
per megawatt hour basis.

00:36:22.970 --> 00:36:25.190
I'm not saying that
it's the capacity market,

00:36:25.190 --> 00:36:27.200
it's either that'd be paid, you know,

00:36:27.200 --> 00:36:30.310
for the number of megawatts of you know,

00:36:30.310 --> 00:36:32.560
from a winter deliverability."

00:36:32.560 --> 00:36:35.340
But it would be, you see,

00:36:35.340 --> 00:36:38.927
so if you suppose you get,
you know, 40 gigawatts offering,

00:36:38.927 --> 00:36:40.310
"Yeah, I can do it. I can do it."

00:36:40.310 --> 00:36:43.797
The auction takes the 25
lowest cost ones and it sets

00:36:43.797 --> 00:36:46.550
the market price at the highest offer.

00:36:46.550 --> 00:36:50.090
And everybody gets paid
that, which is, you know,

00:36:50.090 --> 00:36:52.400
sort of a lot of theory on
why that's a good way to do it

00:36:52.400 --> 00:36:54.630
as opposed to through an RFP.

00:36:54.630 --> 00:36:56.890
They're not all that different
and they're not hugely

00:36:56.890 --> 00:37:00.163
different in outcome,
but this is good way to go.

00:37:04.867 --> 00:37:06.680
And truly, it's what I like about that

00:37:06.680 --> 00:37:07.900
more than cost of services.

00:37:07.900 --> 00:37:09.593
You find the cheapest ones,

00:37:10.470 --> 00:37:12.160
that's the most important thing,

00:37:12.160 --> 00:37:17.020
and you're accounting
for their anticipation

00:37:17.020 --> 00:37:19.670
of getting value
from this in the future.

00:37:19.670 --> 00:37:22.460
Because this will be continued
to be valuable in the future,

00:37:22.460 --> 00:37:24.843
assuming this approach such a program.

00:37:26.770 --> 00:37:29.920
Cost allocation would, you know,

00:37:29.920 --> 00:37:31.147
there are several ways to do it.

00:37:31.147 --> 00:37:34.160
You could do it based on
energy used in the winter.

00:37:34.160 --> 00:37:35.910
You can do it based on winter peak.

00:37:37.940 --> 00:37:39.193
But it would go to loads.

00:37:40.850 --> 00:37:45.850
The testing would be
important because you want

00:37:46.526 --> 00:37:49.790
to make sure that they
work, I mean, protect it.

00:37:49.790 --> 00:37:54.130
So it's hard to test under
coldest winter conditions,

00:37:54.130 --> 00:37:56.020
but you can at least make sure that

00:37:56.020 --> 00:37:57.663
the backup fuel is working.

00:37:59.400 --> 00:38:01.740
And then finally you'd
want to make sure that

00:38:01.740 --> 00:38:05.770
use of this fuel would be
only offered at the price cap.

00:38:05.770 --> 00:38:09.980
The reason to do that
is because, you know,

00:38:09.980 --> 00:38:14.540
otherwise they kill the reward
that coal and nuclear get

00:38:14.540 --> 00:38:17.600
and others that are able
to help during those times.

00:38:17.600 --> 00:38:19.720
And why would you want to do
that? You don't want to unde...

00:38:19.720 --> 00:38:22.630
I mean, you could even
include them in the program,

00:38:22.630 --> 00:38:24.070
but if you don't, you better at least

00:38:24.070 --> 00:38:27.250
not undermine the price when
they're doing a good thing too.

00:38:27.250 --> 00:38:28.840
So they at least get the price cap,

00:38:28.840 --> 00:38:31.340
even if they're not getting
this capacity payment.

00:38:34.720 --> 00:38:36.510
Now the back-up reserves program.

00:38:36.510 --> 00:38:38.980
So maybe I don't really
need to describe it,

00:38:38.980 --> 00:38:40.680
'cause what I would describe as a very,

00:38:40.680 --> 00:38:44.170
very similar to what is in
Commissioner Cobos's memo.

00:38:44.170 --> 00:38:46.983
But I do want to highlight
a few things about it.

00:38:48.320 --> 00:38:52.210
So the product definition
and what this is all about

00:38:52.210 --> 00:38:54.253
is having a few more megawatts.

00:38:55.410 --> 00:38:58.330
The fuel firming and the
weatherization are to avoid,

00:38:58.330 --> 00:39:01.300
a really catastrophic problem, to say.

00:39:01.300 --> 00:39:04.440
We actually need to make
sure that the most vulnerable

00:39:04.440 --> 00:39:07.393
aspects of the fleet are secured.

00:39:08.330 --> 00:39:11.103
And what the backup
reserves does though,

00:39:12.567 --> 00:39:13.410
is not so much about that.

00:39:13.410 --> 00:39:15.730
It's just a little like
NextEra described it too.

00:39:15.730 --> 00:39:18.420
It's it's a few thousand megawatts more,

00:39:18.420 --> 00:39:22.008
dispatchable resources that,

00:39:22.008 --> 00:39:25.380
you can have for the many challenges,

00:39:25.380 --> 00:39:30.380
whether it's the blue sky day
or that hotter than expected,

00:39:31.460 --> 00:39:33.850
where it would be nice to have
a few thousand more megawatts

00:39:33.850 --> 00:39:35.910
to keep you out of light load shedding.

00:39:35.910 --> 00:39:37.400
I'm talking about, you know,

00:39:37.400 --> 00:39:40.210
a few thousand
megawatts for a few hours.

00:39:40.210 --> 00:39:43.210
And because our modeling
and a strop based modeling

00:39:43.210 --> 00:39:45.300
says that without that,

00:39:45.300 --> 00:39:48.470
that'll occur about once
every two years on average.

00:39:48.470 --> 00:39:51.640
If you don't want that, you
want to have more cushion,

00:39:51.640 --> 00:39:52.473
and by the way,

00:39:52.473 --> 00:39:54.630
with emergency conditions
occurring a lot more than that,

00:39:54.630 --> 00:39:57.367
but load shedding
maybe a couple of years.

00:39:57.367 --> 00:40:00.610
And we also argue that, that
may be the economic optimal,

00:40:00.610 --> 00:40:05.070
but if that's not what you
all want and you know,

00:40:05.070 --> 00:40:07.935
you do kind of need
a little more cushion.

00:40:07.935 --> 00:40:12.935
And, by the way, before
getting into these elements,

00:40:12.940 --> 00:40:15.390
the most important
thing is that it's held out

00:40:15.390 --> 00:40:16.490
of the energy market.

00:40:16.490 --> 00:40:20.270
You can't have this side
payment to these extra resources

00:40:20.270 --> 00:40:21.440
and just have them in the market.

00:40:21.440 --> 00:40:25.080
All they'll do, if you think
you've added resources,

00:40:25.080 --> 00:40:27.465
actually all you really did
is you undermine the price

00:40:27.465 --> 00:40:29.400
and you're going to
displace exactly that much

00:40:29.400 --> 00:40:30.480
in market resources,

00:40:30.480 --> 00:40:34.220
whether existing units
or other new investment.

00:40:34.220 --> 00:40:35.543
So that is critical.

00:40:37.130 --> 00:40:41.110
I think this works best if
it's targeting existing plants.

00:40:41.110 --> 00:40:44.410
Because you know, the
ones, the last ones in the stack,

00:40:44.410 --> 00:40:47.390
the last ones that are
barely going to run anyway,

00:40:47.390 --> 00:40:51.120
hold them out in reserves
and not until the price cap.

00:40:51.120 --> 00:40:56.120
That is by the way that that
for sure will increase prices.

00:40:58.340 --> 00:40:59.860
It'll increase spot prices,

00:40:59.860 --> 00:41:03.970
it'll increase forward prices
in a way that will attract

00:41:03.970 --> 00:41:05.290
and retain more investment.

00:41:05.290 --> 00:41:06.280
A little bit like,

00:41:06.280 --> 00:41:10.320
I don't know if you
remember, what was it about?

00:41:10.320 --> 00:41:14.833
Was it three or four years
ago when Vistra retired,

00:41:16.320 --> 00:41:18.700
announced retirement about
4,000 megawatts of coal plants.

00:41:18.700 --> 00:41:20.470
Immediately, the forward curves went up.

00:41:20.470 --> 00:41:21.570
<v Will>It was 7,000.</v>

00:41:24.130 --> 00:41:26.560
<v ->It may have, is that right?</v>
<v Will>Yep.</v>

00:41:26.560 --> 00:41:28.303
<v ->Okay. Well even more so.</v>

00:41:33.950 --> 00:41:38.570
So here to holding out
of the energy market,

00:41:38.570 --> 00:41:43.300
a few thousand megawatts for
sure increases the price signal

00:41:43.300 --> 00:41:45.493
that attracts and retains others.

00:41:48.910 --> 00:41:50.480
And you know, certainly
it retains capacity,

00:41:50.480 --> 00:41:52.677
it can attract capacity
to, if people trust that,

00:41:52.677 --> 00:41:54.857
"Yeah, you're always going to do this."

00:41:55.700 --> 00:41:57.960
I know that we're going
to have stronger prices

00:41:57.960 --> 00:42:00.870
in this market than
if you didn't do this.

00:42:00.870 --> 00:42:03.763
So it does depend on
people believing that.

00:42:09.943 --> 00:42:12.660
You know, you can ask
whether it should include,

00:42:12.660 --> 00:42:14.430
well, you could make
new resources eligible.

00:42:14.430 --> 00:42:16.130
I just think they'll never win.

00:42:16.130 --> 00:42:17.183
You know, they're,
they're not the right,

00:42:17.183 --> 00:42:20.050
they have too high of fixed
cost and usually too low

00:42:20.050 --> 00:42:23.530
variable costs to be
good candidates for this.

00:42:23.530 --> 00:42:24.610
You know, there's a question of whether

00:42:24.610 --> 00:42:26.583
to include demand response in this.

00:42:28.250 --> 00:42:33.240
So my inclination is
probably to keep them in ERS.

00:42:33.240 --> 00:42:34.543
And the reason is that,

00:42:36.780 --> 00:42:38.220
if the quantity of this is something

00:42:38.220 --> 00:42:40.523
that actually varies with,

00:42:42.290 --> 00:42:47.290
to get your reserve
margin to like 16% say,

00:42:49.110 --> 00:42:51.750
and to fill in the gap or the,
what the market didn't do.

00:42:51.750 --> 00:42:53.670
And if it says, this is
something that you buy more,

00:42:53.670 --> 00:42:56.070
when you need more and
less, when you need less,

00:42:57.490 --> 00:42:59.760
that's going to be a
pretty inconstant market.

00:42:59.760 --> 00:43:02.790
And I think that works for
existing generators that can,

00:43:02.790 --> 00:43:05.590
all right, they're in market
or they're in this program.

00:43:06.440 --> 00:43:08.930
I don't think it works that
well for demand response

00:43:08.930 --> 00:43:11.040
that doesn't really have
another model for getting paid

00:43:11.040 --> 00:43:14.700
in the years that you're not buying it.

00:43:14.700 --> 00:43:16.630
So that it would be kind of dislocating.

00:43:16.630 --> 00:43:17.670
So that's something to consider.

00:43:17.670 --> 00:43:21.380
You could set this up either
with demand response in or out.

00:43:21.380 --> 00:43:22.980
Forward timeframe.

00:43:22.980 --> 00:43:24.320
You know,

00:43:24.320 --> 00:43:27.530
one concept is to do it on
a three-year forward basis,

00:43:27.530 --> 00:43:31.620
based on the forecast
of how much you'll need.

00:43:31.620 --> 00:43:36.620
That most clearly would
signal to new resources

00:43:36.710 --> 00:43:39.360
in time for them to
do something about it.

00:43:39.360 --> 00:43:40.560
It doesn't have to be that way.

00:43:40.560 --> 00:43:42.830
You could do it only
just before the season.

00:43:42.830 --> 00:43:44.390
And you know, if everybody in the market

00:43:44.390 --> 00:43:46.070
knows you'll do that,

00:43:46.070 --> 00:43:51.070
their forward expectations
of prices will account for that.

00:43:52.420 --> 00:43:53.720
So that could work too,

00:43:53.720 --> 00:43:55.890
but that's an element to
discuss whether to do it just

00:43:55.890 --> 00:43:57.950
before three years in advance or what.

00:43:57.950 --> 00:44:01.020
Cost allocation,
probably be to, you know,

00:44:01.020 --> 00:44:04.783
to all load maybe based
on some measure of peak.

00:44:05.930 --> 00:44:08.260
Okay. So let me just summarize then.

00:44:08.260 --> 00:44:09.910
If we could go to the next slide?

00:44:12.650 --> 00:44:13.653
Comparing these.

00:44:15.650 --> 00:44:18.920
Option zero is grayed
out because I don't think

00:44:18.920 --> 00:44:20.160
we're entertaining it here.

00:44:20.160 --> 00:44:23.393
And the biggest
problem with it is that it,

00:44:24.400 --> 00:44:26.700
you really have less
control to secure the fleet

00:44:26.700 --> 00:44:28.913
against extreme conditions.

00:44:30.250 --> 00:44:33.090
I mean, there's plenty
of there's evidence

00:44:34.268 --> 00:44:35.101
and there's plenty of theory

00:44:35.101 --> 00:44:38.530
that the energy market helps.

00:44:38.530 --> 00:44:40.810
It does. You can
expect it to send a signal

00:44:40.810 --> 00:44:42.510
when there's not going
to be enough resource

00:44:42.510 --> 00:44:44.053
under certain kinds of conditions.

00:44:45.100 --> 00:44:46.630
Resources that can provide

00:44:48.550 --> 00:44:52.030
energy at those times
would expect to get rewarded,

00:44:52.030 --> 00:44:52.863
to get built.

00:44:52.863 --> 00:44:55.870
It's just that in Uri,

00:44:55.870 --> 00:44:59.443
there was such a large supply shortage.

00:45:00.420 --> 00:45:02.240
I think there's probably
a lot of attraction

00:45:02.240 --> 00:45:03.857
to being able to do
something where you say,

00:45:03.857 --> 00:45:06.620
"I can see the fleet and
I'm making sure it's ready

00:45:06.620 --> 00:45:08.210
and not just including weatherization,

00:45:08.210 --> 00:45:12.740
but with a commitment from
the generator of some kind

00:45:12.740 --> 00:45:15.400
and not just weatherization, but fuel."

00:45:15.400 --> 00:45:17.393
So against extremes.

00:45:18.270 --> 00:45:20.713
And the other point that
I mentioned before is,

00:45:21.770 --> 00:45:22.902
even apart from that,

00:45:22.902 --> 00:45:27.080
even if there aren't
extreme weather events,

00:45:27.080 --> 00:45:29.893
just sort of typical, you
know, hotter and colder,

00:45:31.230 --> 00:45:33.070
you'd still have shortages,

00:45:33.070 --> 00:45:35.090
mild shortages every
one to two years or so.

00:45:35.090 --> 00:45:36.930
And I think an urgent
emergency is more often,

00:45:36.930 --> 00:45:39.373
I think that's not acceptable.

00:45:40.660 --> 00:45:45.660
So we talked about option
one, the LLC obligation,

00:45:46.670 --> 00:45:49.370
and we talked about option
two, the targeted measures.

00:45:50.370 --> 00:45:54.690
Both of them would
address resource adequacy,

00:45:54.690 --> 00:45:56.390
the problem we started with today.

00:45:57.936 --> 00:46:00.830
And I'll mention that, you know,

00:46:00.830 --> 00:46:03.803
the reason there's only one
check with option two is just

00:46:03.803 --> 00:46:04.834
because, you know,

00:46:04.834 --> 00:46:06.570
it's targeted and it's not
actually getting control.

00:46:06.570 --> 00:46:09.560
It doesn't control the
preparedness of the entire fleet,

00:46:09.560 --> 00:46:12.790
you know, resources
that aren't part of the

00:46:12.790 --> 00:46:14.743
backup reserves or the targeted fuel.

00:46:16.580 --> 00:46:19.420
You're not actually getting
a commitment from them

00:46:19.420 --> 00:46:21.743
and subject to
penalties if they don't run.

00:46:23.790 --> 00:46:25.260
But nevertheless,

00:46:25.260 --> 00:46:28.850
I think it addresses
the biggest shortfalls

00:46:28.850 --> 00:46:32.260
and the problems with it
are more on the subtle side.

00:46:32.260 --> 00:46:35.590
I don't think there are any
catastrophic problems with it.

00:46:35.590 --> 00:46:39.640
No solution here is going to be perfect.

00:46:39.640 --> 00:46:43.320
They all have trade-offs.

00:46:43.320 --> 00:46:46.820
And I want to be clear
that, you know, this is one

00:46:46.820 --> 00:46:49.780
that could meet your
resource adequacy obligation,

00:46:49.780 --> 00:46:51.310
you know, desires.

00:46:51.310 --> 00:46:55.950
But it has some trade-off.
So does the LSE obligation.

00:46:55.950 --> 00:46:56.920
I think they're both,

00:46:56.920 --> 00:47:01.830
they're both fine for market
and regulatory sustainability.

00:47:01.830 --> 00:47:03.530
I work with generation investors

00:47:03.530 --> 00:47:08.263
and battery storage
investors, across the continent

00:47:12.806 --> 00:47:17.806
and I know people have
viewed Texas with ERCOT

00:47:18.320 --> 00:47:21.350
with particular interest
because they have viewed it

00:47:21.350 --> 00:47:26.090
as having more market
and regulatory sustainability

00:47:26.090 --> 00:47:26.960
than others,

00:47:26.960 --> 00:47:30.120
where they trust that prices
will always fundamentals

00:47:30.120 --> 00:47:32.150
in a market-based framework

00:47:34.313 --> 00:47:38.230
and are interested in investing here.

00:47:38.230 --> 00:47:40.730
And I'm talking about both
new and existing assets.

00:47:40.730 --> 00:47:42.430
So that is really important.

00:47:42.430 --> 00:47:46.470
And I see that being
workable under both option one

00:47:46.470 --> 00:47:49.470
and option two, probably a
little bit more under option one.

00:47:50.500 --> 00:47:51.920
Cost on the bill.

00:47:51.920 --> 00:47:54.450
We've heard concerns
that it's going to cost

00:47:54.450 --> 00:47:57.493
much, much more to do to do these.

00:47:59.090 --> 00:48:01.590
It's not trivial, but I think
what we're talking about

00:48:01.590 --> 00:48:04.130
is on the generation
portion of somebody's bill.

00:48:04.130 --> 00:48:06.680
And I'll show you a little
more detail in a minute on this,

00:48:06.680 --> 00:48:10.220
about a 7% increase
for the LSE obligation

00:48:11.195 --> 00:48:13.713
and about a 3% increase for option two.

00:48:17.130 --> 00:48:19.703
So compared to the size
of the problem, you know,

00:48:19.703 --> 00:48:21.133
is that prohibitive?

00:48:23.526 --> 00:48:26.140
And then the challenges with that,

00:48:26.140 --> 00:48:28.950
I didn't yet mention
here with option one,

00:48:28.950 --> 00:48:32.622
the administrative
intensity of, you know

00:48:32.622 --> 00:48:37.530
this shifts about a third
of the value in the market

00:48:37.530 --> 00:48:42.530
to the LSE obligation, from
energy to LSE obligation,

00:48:43.340 --> 00:48:44.860
in our estimates.

00:48:44.860 --> 00:48:49.300
That is a lot of money that
hinges on administratively

00:48:49.300 --> 00:48:52.820
intensive processes to decide
how much each resource

00:48:52.820 --> 00:48:55.870
gets credited and the
other rules and how you do,

00:48:55.870 --> 00:48:56.940
for example,

00:48:56.940 --> 00:48:59.170
how you do the market power mitigation

00:48:59.170 --> 00:49:01.390
in the big fish auction,
where the market monitor,

00:49:01.390 --> 00:49:03.320
they don't have perfect information.

00:49:03.320 --> 00:49:04.520
So there's just,

00:49:04.520 --> 00:49:09.023
there is a lot of
administrative judgment,

00:49:10.450 --> 00:49:12.040
that goes into this,

00:49:12.040 --> 00:49:15.113
which will be the subject
of ongoing argument.

00:49:16.170 --> 00:49:18.163
And you know,

00:49:19.320 --> 00:49:21.810
what people won't suggest
that could happen here,

00:49:21.810 --> 00:49:25.240
but people talk about this
kind of thing where there's

00:49:25.240 --> 00:49:27.320
a lot of money hinging on
administrative judgements

00:49:27.320 --> 00:49:29.303
as being subject to regulatory capture.

00:49:30.650 --> 00:49:33.290
So, you know, I think
that's the biggest downside.

00:49:33.290 --> 00:49:34.990
I think the, you know,

00:49:34.990 --> 00:49:38.270
there is some increased
risk to the LSEs on the price

00:49:38.270 --> 00:49:41.420
that they're going to pay
as they're getting customers.

00:49:41.420 --> 00:49:45.350
But I think that the measures
that we've suggested

00:49:45.350 --> 00:49:48.300
do address the risk that they'd
otherwise have on quantity,

00:49:49.170 --> 00:49:52.240
which is the biggest concern
I think we heard from them.

00:49:52.240 --> 00:49:55.160
And it also addresses
the market power problem.

00:49:55.160 --> 00:50:00.113
All right. That is my
sum up of those options.

00:50:04.010 --> 00:50:06.500
Let me just show you a
couple of things on the cost.

00:50:06.500 --> 00:50:07.900
if you go to the next slide.

00:50:11.970 --> 00:50:15.013
So this isn't a forecast or anything.

00:50:16.520 --> 00:50:18.280
This is work we did with a strap, a,

00:50:18.280 --> 00:50:22.520
you know, sort of status
quo, assuming $3 gas.

00:50:22.520 --> 00:50:26.900
By the way, this is estimated
with a 2024 type fleet.

00:50:26.900 --> 00:50:30.030
At $3 gas, the total
energy costs in the market,

00:50:30.030 --> 00:50:31.087
for energy plus,

00:50:31.087 --> 00:50:35.330
you know, ancillaries and
any reserves on the RDC,

00:50:35.330 --> 00:50:37.593
that'd be about $20 billion a year.

00:50:38.610 --> 00:50:40.260
That's about what this market is.

00:50:42.460 --> 00:50:44.850
Then how much more or less
do these other options cost?

00:50:44.850 --> 00:50:48.870
Well, maybe I'll start
with option two first,

00:50:48.870 --> 00:50:50.120
cause that's the easiest.

00:51:00.573 --> 00:51:03.970
Because you're holding
both of these measures

00:51:03.970 --> 00:51:05.990
of backup reserves and fuel firming,

00:51:05.990 --> 00:51:09.910
the use of the firm fuel out
of the market at the price cap,

00:51:09.910 --> 00:51:13.090
expect energy prices
to be about the same

00:51:13.090 --> 00:51:14.920
as in the status quo.

00:51:14.920 --> 00:51:18.770
You're just, to the extent
you're holding these reserves,

00:51:18.770 --> 00:51:19.810
they're only at the price cap,

00:51:19.810 --> 00:51:21.410
it's as if you didn't have them.

00:51:23.583 --> 00:51:25.360
So the energy part is
about the same and then

00:51:25.360 --> 00:51:28.350
the cost of each of those
programs, rough estimate,

00:51:28.350 --> 00:51:32.280
maybe $300 million a year
for each of those at the top.

00:51:32.280 --> 00:51:33.682
And that's it.

00:51:33.682 --> 00:51:35.532
That's how you get the plus 3% or so.

00:51:38.500 --> 00:51:40.693
Okay. And then the option one.

00:51:41.840 --> 00:51:43.340
The surprising thing about that is,

00:51:43.340 --> 00:51:46.540
so imagine you got to a
4% higher reserve margin

00:51:46.540 --> 00:51:48.563
than with an energy only market.

00:51:51.114 --> 00:51:52.257
When you do that, you're going to,

00:51:52.257 --> 00:51:55.480
and you have more
capacity and it's all in market.

00:51:55.480 --> 00:51:57.857
None of it gets held
out of the energy market.

00:51:57.857 --> 00:51:59.723
Now it gets dispatched economically.

00:52:02.144 --> 00:52:04.200
You're going to get those shortages.

00:52:04.200 --> 00:52:06.830
You're going to have
much lower energy prices

00:52:06.830 --> 00:52:07.663
as shown there.

00:52:09.180 --> 00:52:10.650
And that's the offset.

00:52:10.650 --> 00:52:12.490
And it's actually
because the energy prices

00:52:12.490 --> 00:52:15.060
went down so much, that
you need to pay somebody a lot

00:52:15.060 --> 00:52:17.820
to be willing to
invest in spite of that.

00:52:17.820 --> 00:52:19.110
But the sum is,

00:52:19.110 --> 00:52:21.690
all right, so you're supporting
about 4% more capacity.

00:52:21.690 --> 00:52:25.220
And you know, there's a, I
won't spend a lot of time on it,

00:52:25.220 --> 00:52:30.220
but there's a nice intuition
why this is about a 7% increase

00:52:30.730 --> 00:52:33.890
and that by the way, that
folds in the fuel cost too.

00:52:33.890 --> 00:52:35.543
So that's our rough estimate.

00:52:36.970 --> 00:52:38.700
Any questions on this stuff?

00:52:38.700 --> 00:52:42.580
'Cause then I just have a
much shorter discussion

00:52:42.580 --> 00:52:44.530
of ramping and RDC.

00:52:44.530 --> 00:52:46.430
<v Peter>Go ahead and
finish up the presentation.</v>

00:52:46.430 --> 00:52:48.056
We'll do questions
at the end for all of it.

00:52:48.056 --> 00:52:48.889
<v Sam>Okay.</v>

00:52:48.889 --> 00:52:50.563
Could you go to the next slide please?

00:52:52.080 --> 00:52:57.080
Okay. Totally changed gears
now for a secondary problem.

00:52:57.330 --> 00:52:59.640
This question of how do you meet

00:52:59.640 --> 00:53:02.440
the ramping needs in this market?

00:53:02.440 --> 00:53:04.490
Especially as we get
more wind and solar.

00:53:05.977 --> 00:53:06.910
And we're talking about both again,

00:53:06.910 --> 00:53:08.980
the expected ramping needs,

00:53:08.980 --> 00:53:10.220
for example with the Duck curve

00:53:10.220 --> 00:53:13.153
and unexpected, when
the forecast changes,

00:53:14.110 --> 00:53:16.160
when the actual
differ from the forecast.

00:53:17.580 --> 00:53:20.160
You can manage a fleet
with a lot more renewables,

00:53:20.160 --> 00:53:22.640
but you absolutely
have to position the fleet

00:53:23.610 --> 00:53:25.150
to handle those.

00:53:25.150 --> 00:53:29.570
And, so we reviewed what
ERCOT's plan is to do that.

00:53:29.570 --> 00:53:34.570
And our conclusion is that
it will work to reliably meet

00:53:35.140 --> 00:53:38.770
the ramping needs and
to do it largely in-market.

00:53:38.770 --> 00:53:43.770
And their plan is to do that
through non-spin and ECRS

00:53:43.810 --> 00:53:45.510
coming in about a year and a half.

00:53:50.705 --> 00:53:51.840
So we've spent a fair amount of time

00:53:51.840 --> 00:53:55.073
with ERCOT's operations folks on this.

00:53:56.674 --> 00:53:59.683
And we think that will work.

00:54:00.980 --> 00:54:05.980
And again, largely in-market
rather than a lot of rocking

00:54:08.120 --> 00:54:10.820
when it's combined with the
changes that we're talking about

00:54:10.820 --> 00:54:14.630
to the RDC, that basically
conform the real-time demand

00:54:14.630 --> 00:54:17.400
for reserves with the
demand for ancillaries,

00:54:17.400 --> 00:54:19.720
that's actually procured only to add.

00:54:19.720 --> 00:54:23.340
Okay. So that's the most
important point here about this.

00:54:23.340 --> 00:54:26.791
I do want to say that the
quantity that you would need

00:54:26.791 --> 00:54:29.450
of non-spin plus ECRS

00:54:29.450 --> 00:54:31.913
is much, much smaller
than the Duck curve itself.

00:54:33.010 --> 00:54:36.940
That even if we were facing
a 20,000 megawatt increase

00:54:36.940 --> 00:54:40.620
and spread a little less than
that, for reasons, you know,

00:54:40.620 --> 00:54:42.810
what he explained before
about meeting some inertia,

00:54:42.810 --> 00:54:44.970
but even imagine it's 20,000 megawatts,

00:54:44.970 --> 00:54:46.950
that's a regular thing day in, day out.

00:54:46.950 --> 00:54:50.230
You know, the energy market
signals, most of you know

00:54:50.230 --> 00:54:51.890
how to handle that combined to,

00:54:51.890 --> 00:54:53.290
you don't even necessarily need really

00:54:53.290 --> 00:54:54.610
flexible resources to do it.

00:54:54.610 --> 00:54:57.600
Combined cycles, might turn
on the afternoon, you know,

00:54:57.600 --> 00:55:01.220
at 3, 3.30, 4, 4.30, you know.

00:55:01.220 --> 00:55:04.057
And day after day they'll see that,

00:55:04.057 --> 00:55:06.207
"Yep, it makes sense
to start coming online

00:55:07.150 --> 00:55:09.270
to meet that rising
load in the evening."

00:55:09.270 --> 00:55:12.470
And you're left with only a
much smaller amount that has

00:55:12.470 --> 00:55:16.663
to be met by more flexible resources

00:55:16.663 --> 00:55:18.140
that you want to make sure,

00:55:18.140 --> 00:55:19.423
really, for two reasons.

00:55:22.328 --> 00:55:23.161
There is really two reasons for it.

00:55:23.161 --> 00:55:26.760
So it's one it's to meet
the unexpected changes,

00:55:26.760 --> 00:55:28.660
but it's also, there's
just some sort of,

00:55:28.660 --> 00:55:31.240
that process I just described
won't be perfectly smooth.

00:55:31.240 --> 00:55:33.290
I mean, there's not perfect
coordination across the fleet.

00:55:33.290 --> 00:55:35.790
There's some sort of
clunkiness and, you know,

00:55:35.790 --> 00:55:39.520
having some reserves or
faster resources will help.

00:55:39.520 --> 00:55:43.210
So the quantity, what we're
talking about is probably,

00:55:43.210 --> 00:55:46.190
I think ERCOT's put out
some numbers a little bit,

00:55:46.190 --> 00:55:50.963
but it's probably, you know, between,

00:55:51.880 --> 00:55:53.510
depending on what time
of day and time of year,

00:55:53.510 --> 00:55:58.510
something like zero to
3,900, where 1100 of that

00:55:58.560 --> 00:56:01.989
is actually not having
to do with this at all.

00:56:01.989 --> 00:56:03.880
It has to do with the
original purpose of ECRS,

00:56:03.880 --> 00:56:08.700
which was for
contingencies to restore RRS,

00:56:08.700 --> 00:56:10.000
following any contingency.

00:56:12.140 --> 00:56:16.813
So the quantity needed for
ramping something like 0 to 2800.

00:56:17.660 --> 00:56:19.460
<v Will>2800 or 3,900?</v>

00:56:19.460 --> 00:56:21.780
<v Sam>The 3,900
includes 1100 or so.</v>

00:56:21.780 --> 00:56:25.050
You would want for contingency
reasons, is my understanding.

00:56:25.050 --> 00:56:27.040
<v Will>Okay. So all in 39.</v>
<v Sam>Yeah.</v>

00:56:27.040 --> 00:56:32.040
And just consider that
at preliminary number.

00:56:33.027 --> 00:56:35.780
And I don't want to speak for her ERCOT,

00:56:35.780 --> 00:56:38.673
'cause if I've misunderstood
that, that's sort of fresh.

00:56:40.080 --> 00:56:42.410
But my point is that a few thousand,

00:56:42.410 --> 00:56:45.180
I also think that there should
be something like there is

00:56:45.180 --> 00:56:48.130
right now on high uncertainty
days where you're able to

00:56:48.130 --> 00:56:50.720
increase the amount of
non-spin by a thousand.

00:56:50.720 --> 00:56:52.770
I really think that kind
of thing is a good idea.

00:56:52.770 --> 00:56:54.980
And you might consider
having that even with more.

00:56:54.980 --> 00:56:56.580
<v ->Oh, we're going to
keep doing that for sure.</v>

00:56:56.580 --> 00:57:00.240
<v ->Yeah. But possibly even with
more and with the ECRS too.</v>

00:57:00.240 --> 00:57:02.700
So I can imagine days,
and there's a weather front,

00:57:02.700 --> 00:57:03.533
for example,

00:57:03.533 --> 00:57:06.080
where you might want to
have even more than that.

00:57:06.080 --> 00:57:07.740
But I think the quantities
that we're talking about,

00:57:07.740 --> 00:57:10.830
it's nothing like 20,000,
it's a few thousand.

00:57:10.830 --> 00:57:12.880
Several thousand in a few days.

00:57:12.880 --> 00:57:16.890
And then, you know, we're
asked about cost allocation.

00:57:16.890 --> 00:57:17.723
First of all,

00:57:17.723 --> 00:57:19.560
because the quantity is smaller
than some people thought,

00:57:19.560 --> 00:57:21.710
I think it's not quite as
important, you know,

00:57:21.710 --> 00:57:22.990
to do something.

00:57:22.990 --> 00:57:26.253
You know, ancillaries are
generally allocated to load.

00:57:27.250 --> 00:57:30.100
That's the simplest thing to
do. Now, there certainly is,

00:57:31.416 --> 00:57:33.570
a theory here that makes
sense to get incentives right,

00:57:33.570 --> 00:57:35.793
to allocate it to people
who are causing it.

00:57:36.693 --> 00:57:38.593
And that's the intermittent resources.

00:57:40.100 --> 00:57:43.460
It might make sense to
allocate the costs of managing

00:57:43.460 --> 00:57:47.870
their fluctuations with like
allocating the cost of these

00:57:47.870 --> 00:57:49.530
particular ancillaries to them.

00:57:49.530 --> 00:57:53.520
The only warning is it's not
as simple as it sounds to do.

00:57:53.520 --> 00:57:54.840
And the reason is, I mean,

00:57:54.840 --> 00:57:58.010
you could imagine rerunning
ERCOT's model that it used

00:57:58.010 --> 00:57:59.690
to figure out the
amounts and figure out,

00:57:59.690 --> 00:58:03.110
well, how much was
attributable to these resources?

00:58:03.110 --> 00:58:04.370
So you can imagine doing that.

00:58:04.370 --> 00:58:06.500
The tricky part is
getting all the way down

00:58:06.500 --> 00:58:07.333
to the resource level,

00:58:07.333 --> 00:58:09.960
because you ought to
recognize differences between

00:58:09.960 --> 00:58:14.520
say wind and solar, between
resources that are, you know,

00:58:14.520 --> 00:58:17.290
solar or fixed tilt versus, you know,

00:58:17.290 --> 00:58:20.380
tracking a wind that's
bigger turbines that have

00:58:20.380 --> 00:58:22.350
higher capacity factors
and can work better

00:58:22.350 --> 00:58:24.000
even in lower wind conditions.

00:58:24.000 --> 00:58:26.723
Coastal versus versus inland.

00:58:29.410 --> 00:58:31.640
You know, whether they have a battery?

00:58:31.640 --> 00:58:34.270
A small battery, big battery.

00:58:34.270 --> 00:58:36.740
So there are so many factors

00:58:36.740 --> 00:58:38.970
that would get pretty complicated.

00:58:38.970 --> 00:58:41.110
There are a couple of
models, we haven't solved this,

00:58:41.110 --> 00:58:42.950
but I will say there are
some models elsewhere,

00:58:42.950 --> 00:58:46.523
like in MISO, how
they allocate, you know,

00:58:48.770 --> 00:58:51.453
basically like rocket costs,

00:58:53.290 --> 00:58:56.450
based on anybody's
deviations in real time,

00:58:56.450 --> 00:58:58.490
from what they said they do.

00:58:58.490 --> 00:59:00.180
So you know, there are
some models for that,

00:59:00.180 --> 00:59:02.740
but that would take some more work.

00:59:02.740 --> 00:59:05.410
I want to say, without
getting into a lot of detail,

00:59:05.410 --> 00:59:07.590
it really is important to start the work

00:59:07.590 --> 00:59:09.460
on long-term improvements where I think

00:59:09.460 --> 00:59:11.880
the most important thing
is real time co-optimization.

00:59:11.880 --> 00:59:13.560
I have to put in a little plug for that

00:59:13.560 --> 00:59:16.440
because it relates
directly to this problem.

00:59:16.440 --> 00:59:19.160
So in today's, or
even in the 2017 fleet,

00:59:19.160 --> 00:59:21.070
the market monitor showed
and ERCOT showed that,

00:59:21.070 --> 00:59:23.060
that has benefits more than the cost.

00:59:23.060 --> 00:59:25.790
The benefits are
multiples bigger in a future

00:59:25.790 --> 00:59:26.877
where you have a lot
more wind and solar.

00:59:26.877 --> 00:59:29.463
And the reason is you've
got more ancillaries.

00:59:30.310 --> 00:59:33.600
You've got more changes
between day ahead in real time

00:59:33.600 --> 00:59:36.500
where you might want
to buy more ancillaries.

00:59:36.500 --> 00:59:38.520
You might want to switch,
who's providing them.

00:59:38.520 --> 00:59:41.280
And then you have way more
deployment of the ancillaries,

00:59:41.280 --> 00:59:42.830
'cause these aren't
just for contingencies.

00:59:42.830 --> 00:59:46.313
They're to manage day-to-day
ongoing ramping issue.

00:59:48.251 --> 00:59:49.400
So it becomes really important

00:59:49.400 --> 00:59:50.960
to have real-time co-optimization.

00:59:50.960 --> 00:59:51.793
Lastly,

00:59:52.784 --> 00:59:55.640
I think the current products
are good and they actually,

00:59:55.640 --> 00:59:57.040
some of them are pretty, you know,

00:59:57.040 --> 01:00:01.010
ECRS is pretty similar to some
other ISO's ramping products

01:00:01.010 --> 01:00:02.840
that they've developed for ramping.

01:00:02.840 --> 01:00:03.750
I think in the long run,

01:00:03.750 --> 01:00:05.780
there are some things you could do

01:00:05.780 --> 01:00:08.300
to revisit the suite of
products to make sure

01:00:08.300 --> 01:00:11.760
you've got the whole
suite that most efficiently

01:00:11.760 --> 01:00:13.760
meets the ramping needs.

01:00:13.760 --> 01:00:14.593
And that,

01:00:16.010 --> 01:00:18.730
just even, for example,
just coming to inform to RTC,

01:00:18.730 --> 01:00:20.510
you don't need the, you know,

01:00:20.510 --> 01:00:25.110
the duration requirements
to be two hours on ECRS.

01:00:25.110 --> 01:00:27.113
When you have RTC, it can be shorter.

01:00:28.150 --> 01:00:29.153
<v Peter>Okay, thanks.</v>

01:00:30.040 --> 01:00:33.130
<v Sam>Last slide, actually,
that's the end of that.</v>

01:00:33.130 --> 01:00:34.993
All I have left is,

01:00:36.310 --> 01:00:39.110
is the ORDCs, and it's,

01:00:39.110 --> 01:00:42.700
I think you've seen a prior
version of that presentation.

01:00:42.700 --> 01:00:46.110
This, what I have now adds three curves.

01:00:46.110 --> 01:00:47.160
And then for each curve,

01:00:47.160 --> 01:00:51.070
it also shows its
effect on prices, costs.

01:00:51.070 --> 01:00:53.900
And so it's up to you how
much you want me to spend on.

01:00:53.900 --> 01:00:55.663
<v Peter>Well, for the second time,</v>

01:00:58.109 --> 01:01:00.490
let's do questions on the
presentation you just made

01:01:00.490 --> 01:01:03.457
and then quickly move to ORDC,

01:01:03.457 --> 01:01:05.610
and we'll move through
that pretty briskly.

01:01:05.610 --> 01:01:08.620
<v ->Yeah. And I'll do that
one really briskly and use it,</v>

01:01:08.620 --> 01:01:11.860
just kind of let you all
ask questions because it's,

01:01:11.860 --> 01:01:14.490
it's so similar to what
we presented before.

01:01:14.490 --> 01:01:17.950
<v Peter>Okay. Questions on the
presentation Sam just gave?</v>

01:01:17.950 --> 01:01:21.503
or we can- <v ->No,
I got a question.</v>

01:01:24.180 --> 01:01:25.793
If all the industrials opt out,

01:01:27.210 --> 01:01:29.410
is that 7% increase on costs,

01:01:29.410 --> 01:01:32.200
reflective of how
concentrated it will be on

01:01:32.200 --> 01:01:37.200
the consumer at the small
commercial and residential level?

01:01:41.320 --> 01:01:43.740
<v ->The only way for all the
industrials to opt out is if they</v>

01:01:43.740 --> 01:01:48.600
all had, you know, either
curtailability or self supply.

01:01:48.600 --> 01:01:49.483
And if they did,

01:01:54.450 --> 01:01:57.800
that would sort of add a lot
of capability to the system.

01:01:57.800 --> 01:02:00.330
The cost too, I think that
the increase for everybody

01:02:00.330 --> 01:02:02.733
else wouldn't be concentrated on that.

01:02:02.733 --> 01:02:05.104
It would look something like that.

01:02:05.104 --> 01:02:06.087
And it might even be less than that

01:02:06.087 --> 01:02:08.537
if the industrials all
have that much capability.

01:02:11.050 --> 01:02:11.883
<v ->Okay.</v>

01:02:11.883 --> 01:02:16.310
<v ->I don't think it's the case
that all industrials have that</v>

01:02:17.540 --> 01:02:21.960
<v ->But would you agree that,
isn't it the broad majority</v>

01:02:21.960 --> 01:02:26.140
of the megawatts consumed in
Texas is our industrial complex

01:02:26.140 --> 01:02:28.750
and those megawatt consumers,

01:02:28.750 --> 01:02:33.750
again, this is volumetrically
assigned on a megawatt basis.

01:02:33.820 --> 01:02:35.010
If they opt out,

01:02:35.010 --> 01:02:38.690
then in terms of
supporting that 60 gigawatts

01:02:38.690 --> 01:02:41.000
of dispatchable, you know,

01:02:41.000 --> 01:02:43.670
that we're paying one way or another,

01:02:43.670 --> 01:02:47.563
it's going to be concentrated
on select consumer classes.

01:02:50.670 --> 01:02:52.060
<v ->No, I don't think so.</v>

01:02:52.060 --> 01:02:56.010
I think it's on anybody
who has a firm power

01:02:56.010 --> 01:02:59.690
and whatever measure you're using too.

01:02:59.690 --> 01:03:02.290
It does matter what
measure you use to allocate it.

01:03:02.290 --> 01:03:06.420
So if it's some measure of,
for a given load serving entity,

01:03:06.420 --> 01:03:08.203
their constituent customers,

01:03:09.170 --> 01:03:13.170
peak loads during a
recent measurement period.

01:03:13.170 --> 01:03:15.330
So it's based on a notion of peak load

01:03:15.330 --> 01:03:18.050
and it would be spread
evenly among people who want

01:03:18.050 --> 01:03:20.670
firm power and based
on their peak consumption.

01:03:20.670 --> 01:03:24.790
People who had more
peak and want to be firm

01:03:24.790 --> 01:03:25.893
is who it would go to.

01:03:26.870 --> 01:03:30.110
I'm having trouble seeing
a particular concentration.

01:03:30.110 --> 01:03:31.650
<v ->Okay.</v>

01:03:31.650 --> 01:03:35.560
In the other areas of the
world who have employed

01:03:35.560 --> 01:03:40.033
any type of LSE obligation,
do they allow an opt-out?

01:03:42.580 --> 01:03:43.690
<v ->In effect, yeah.</v>

01:03:43.690 --> 01:03:46.293
Because I mean,
they may not call it that,

01:03:48.191 --> 01:03:49.691
but either through

01:03:52.970 --> 01:03:55.860
allowing them, you're
in effect, opted out,

01:03:55.860 --> 01:03:58.750
if you're providing demand response,

01:03:58.750 --> 01:04:01.733
cause then it's like supply
matching your demand.

01:04:02.640 --> 01:04:04.187
Or if you have self supply
matching your demand.

01:04:04.187 --> 01:04:06.490
<v ->You would have
purchasing a megawatt.</v>

01:04:06.490 --> 01:04:08.520
<v ->Yeah. I mean, either
way, they're not exposed.</v>

01:04:08.520 --> 01:04:10.920
If you know, they're not
going to be exposed to,

01:04:12.010 --> 01:04:14.340
you know, paying for something.

01:04:14.340 --> 01:04:18.760
<v ->So, if they are purchasing
any megawatt, they're still in.</v>

01:04:18.760 --> 01:04:23.510
So again, it's not like
Occidental Petroleum

01:04:23.510 --> 01:04:25.130
can opt out their facility.

01:04:25.130 --> 01:04:27.740
Any megawatt that they're
going to off-take, they're still

01:04:27.740 --> 01:04:30.763
going to pay their share
of the LSE obligation.

01:04:35.574 --> 01:04:38.380
<v ->Are you assuming that
they're not going to be curtailable</v>

01:04:38.380 --> 01:04:40.430
in there and they
don't have self-supply?

01:04:41.790 --> 01:04:45.440
<v ->Yeah. So the point is when
they curtail either themselves</v>

01:04:45.440 --> 01:04:48.300
or whatever program that ERCOT has,

01:04:48.300 --> 01:04:51.840
they're not buying
megawatts off transmission.

01:04:51.840 --> 01:04:54.570
So again, any megawatt they take

01:04:54.570 --> 01:04:57.940
will have a volumetric
assignment of an LSE obligation.

01:04:57.940 --> 01:05:00.220
<v ->No. It's not volume
metric. I mean,</v>

01:05:00.220 --> 01:05:02.450
you wouldn't want to do this
based on megawatt hours.

01:05:02.450 --> 01:05:05.870
It would be based on a measure
of how many firm megawatts

01:05:05.870 --> 01:05:10.290
you want during sort
of that peak conditions.

01:05:10.290 --> 01:05:12.040
<v ->But where, we
would require them,</v>

01:05:12.040 --> 01:05:15.710
it's still the LSE
obligation and their LSEs.

01:05:15.710 --> 01:05:17.690
So we would require them

01:05:17.690 --> 01:05:20.570
any megawatt that
they're taking off-grid

01:05:20.570 --> 01:05:22.580
to firm that up, right?

01:05:22.580 --> 01:05:23.635
<v ->No, you wouldn't.</v>

01:05:23.635 --> 01:05:26.010
If they say, "Sure, I have been,

01:05:26.010 --> 01:05:29.520
but you were conditions
were perfectly adequate.

01:05:29.520 --> 01:05:32.840
And so there was no
reason for me to cut then.

01:05:32.840 --> 01:05:34.590
But I've showed you
that I'm curtailable,

01:05:34.590 --> 01:05:36.620
so you really don't have to
charge me for this product

01:05:36.620 --> 01:05:38.770
and you don't have to
add my load to the demand

01:05:38.770 --> 01:05:39.990
in considering that firm."

01:05:39.990 --> 01:05:41.250
So there really is-

01:05:41.250 --> 01:05:43.170
<v Peter>That reduces the
total cost of your buying.</v>

01:05:43.170 --> 01:05:44.003
<v ->It does, yeah.</v>

01:05:44.003 --> 01:05:46.460
<v Peter>So that cost wouldn't
land on households.</v>

01:05:47.520 --> 01:05:48.353
<v ->Yeah, right.</v>

01:05:48.353 --> 01:05:49.680
Yeah. Not only would
it not land on them,

01:05:49.680 --> 01:05:51.503
it wouldn't land on anybody.

01:05:51.503 --> 01:05:52.715
<v ->Yup.</v>

01:05:52.715 --> 01:05:53.548
<v ->Okay.</v>

01:05:54.760 --> 01:05:57.763
<v Lori>Can you please
go to, I guess slide six?</v>

01:06:09.170 --> 01:06:10.003
There you go.

01:06:13.760 --> 01:06:15.493
On the cost on bill,

01:06:16.500 --> 01:06:19.350
I just want to make sure I understood.

01:06:19.350 --> 01:06:22.500
So you're calculating
the firm field product costs

01:06:22.500 --> 01:06:24.630
on both options? It's included-

01:06:24.630 --> 01:06:26.272
<v ->It's included in both
included in both. Yeah.</v>

01:06:26.272 --> 01:06:28.450
<v Lori>Okay.</v>
<v ->Yeah.</v>

01:06:28.450 --> 01:06:29.283
<v ->Okay.</v>

01:06:29.283 --> 01:06:32.240
And then on the challenges

01:06:33.440 --> 01:06:37.240
with respect to the backup
reserve do not control

01:06:37.240 --> 01:06:38.690
preparedness of entire fleet.

01:06:39.730 --> 01:06:41.030
Is it fair to say that, you know,

01:06:41.030 --> 01:06:43.360
we do have weatherization
requirements that are applicable

01:06:43.360 --> 01:06:47.430
to the entire fleet and if
we have a firm fuel product,

01:06:47.430 --> 01:06:49.510
they'll have to meet
certain requirements as well.

01:06:49.510 --> 01:06:51.200
So there's some back there.

01:06:51.200 --> 01:06:52.143
<v ->Yeah, that's right.</v>

01:06:52.143 --> 01:06:53.650
Yeah. I think it's just that

01:06:53.650 --> 01:06:56.672
there are other resources
that, you know, probably,

01:06:56.672 --> 01:07:00.880
maybe they'll operate
reliably and they have incentive

01:07:00.880 --> 01:07:03.750
to operate reliably certainly
through the energy market.

01:07:03.750 --> 01:07:06.350
But you're not getting
from them a commitment

01:07:06.350 --> 01:07:08.733
subject to additional penalties.

01:07:10.820 --> 01:07:11.653
<v ->Okay.</v>

01:07:12.954 --> 01:07:15.390
<v ->And even your accreditation.</v>

01:07:15.390 --> 01:07:17.500
But when you do need to
do some sort of accreditation

01:07:17.500 --> 01:07:19.040
and option two, just to have

01:07:19.040 --> 01:07:23.280
an accurate count to how
much preparedness you have.

01:07:23.280 --> 01:07:26.080
And so therefore how much
backup you want to buy. Right?

01:07:27.220 --> 01:07:31.109
But it's not at the same level
as when there's money on it.

01:07:31.109 --> 01:07:33.437
And then the LSE, I mean, you know.

01:07:33.437 --> 01:07:36.903
<v ->And your version of the
option two, did you, I'm sorry.</v>

01:07:38.395 --> 01:07:39.695
Did you include penalties?

01:07:41.153 --> 01:07:42.040
It wasn't too clear.

01:07:42.040 --> 01:07:44.030
It sounded like you may
not have included penalties.

01:07:44.030 --> 01:07:45.315
You did? Okay.

01:07:45.315 --> 01:07:48.030
<v ->Yeah.</v>
<v ->All right.</v>

01:07:48.030 --> 01:07:49.140
Okay.

01:07:49.140 --> 01:07:52.210
<v ->It doesn't add to the
high-level cost estimates we did,</v>

01:07:52.210 --> 01:07:53.143
but yeah.
<v ->Okay.</v>

01:07:54.050 --> 01:07:55.623
I think that's all I have right now.

01:07:57.180 --> 01:07:59.150
<v ->Other questions for Sam
on the first presentation</v>

01:07:59.150 --> 01:08:00.437
before we go to ORDC?.

01:08:02.110 --> 01:08:03.110
<v ->Just one question.</v>

01:08:07.157 --> 01:08:12.142
According to this, they're
only two opportunities here,

01:08:12.142 --> 01:08:13.600
two options..

01:08:13.600 --> 01:08:14.600
<v ->That's my opinion.</v>

01:08:16.101 --> 01:08:18.520
<v ->Of the ideas submitted to-date?</v>

01:08:18.520 --> 01:08:21.210
<v ->Yeah and also that
we've thought through.</v>

01:08:21.210 --> 01:08:22.782
<v ->Well, then you
have thought through.</v>

01:08:22.782 --> 01:08:23.615
<v ->What?</v>

01:08:23.615 --> 01:08:26.908
<v ->Because there were maybe
seven or eight other ideas</v>

01:08:26.908 --> 01:08:29.524
that haven't been looked at.

01:08:29.524 --> 01:08:31.310
<v ->That's not true, they
haven't been looked at.</v>

01:08:31.310 --> 01:08:34.124
So a number of them
are different variants of,

01:08:34.124 --> 01:08:38.030
part of what have been
showed here or sub-parts.

01:08:38.030 --> 01:08:40.160
And some of them were
not about this problem.

01:08:40.160 --> 01:08:41.830
They were about the other problem,

01:08:41.830 --> 01:08:46.483
about sort of, more of
the operational aspects.

01:08:48.830 --> 01:08:50.450
<v ->Thanks.</v>

01:08:50.450 --> 01:08:53.040
<v ->And then, there were
some too that we considered</v>

01:08:53.040 --> 01:08:56.050
and thought wouldn't
help resource adequacy,

01:08:56.050 --> 01:09:01.050
or were kind of

01:09:01.220 --> 01:09:03.580
had enough other
problems that they really

01:09:03.580 --> 01:09:06.430
wouldn't have enough market
and regulatory sustainability

01:09:07.382 --> 01:09:12.382
or economic efficiency, whereas
these options, not perfect-

01:09:13.660 --> 01:09:15.910
<v ->Did you model all those?.</v>

01:09:17.839 --> 01:09:20.609
So it's just kind of a gut reaction?

01:09:20.609 --> 01:09:22.306
<v ->No</v>

01:09:22.306 --> 01:09:25.430
but this is, you know,

01:09:25.430 --> 01:09:27.650
the nice thing about having
looked at these problems

01:09:27.650 --> 01:09:29.450
in lots of jurisdictions is,

01:09:29.450 --> 01:09:31.470
it's a lot more than a gut reaction,

01:09:31.470 --> 01:09:34.122
and it's knowing where
things have been tried,

01:09:34.122 --> 01:09:35.527
where things have
been thought, you know,

01:09:35.527 --> 01:09:37.497
having thought through
these things before

01:09:37.497 --> 01:09:38.873
and the implications.

01:09:40.190 --> 01:09:43.563
So that is fortunately what we,

01:09:44.410 --> 01:09:45.860
that's what we're able to bring.

01:09:45.860 --> 01:09:47.640
<v ->So in all these
other jurisdictions,</v>

01:09:47.640 --> 01:09:51.870
have you recommended anything
other than a capacity market

01:09:52.960 --> 01:09:54.380
or load serving entity observation,

01:09:54.380 --> 01:09:58.110
or affirming option one, option
two work capacity market?

01:09:58.110 --> 01:10:01.880
Have you ever recommended
anything else other than that?

01:10:01.880 --> 01:10:03.790
<v ->It's kind of a
difficult question.</v>

01:10:03.790 --> 01:10:04.623
You know,

01:10:06.760 --> 01:10:09.870
I do such a variety of
work and so many different

01:10:09.870 --> 01:10:12.707
angles on this set of
problems around reliability

01:10:12.707 --> 01:10:15.760
and market mechanisms to meet them.

01:10:15.760 --> 01:10:17.663
Of course. I mean.

01:10:20.400 --> 01:10:22.910
<v ->The reason why I asked
you the questions are,</v>

01:10:22.910 --> 01:10:25.392
'cause I wanted to make
sure we've talked about this,

01:10:25.392 --> 01:10:29.220
but I think there are a lot
more things that we can do

01:10:29.220 --> 01:10:32.700
to solve resource adequacy
and operational responsiveness.

01:10:32.700 --> 01:10:36.820
And I think having just two options here

01:10:36.820 --> 01:10:40.310
is disingenuous to the
amount of thought that

01:10:40.310 --> 01:10:42.670
has gone into this,
from market participants.

01:10:42.670 --> 01:10:43.970
And I just think that,

01:10:43.970 --> 01:10:47.331
that if we get the next presentation,

01:10:47.331 --> 01:10:48.164
we go to have more on this.

01:10:48.164 --> 01:10:50.450
We got to have more discussion about

01:10:50.450 --> 01:10:53.760
more of the options and
understand the costs more

01:10:53.760 --> 01:10:55.430
and the implications more.

01:10:55.430 --> 01:10:57.810
That's where I'm struggling
that I haven't been able

01:10:57.810 --> 01:10:59.860
to get my arms around
some of these things

01:10:59.860 --> 01:11:01.350
because I don't have that information.

01:11:01.350 --> 01:11:05.130
And in a lot of things, a lot
of the documents she filed,

01:11:05.130 --> 01:11:07.840
it says that you've had a lot
of discussions with ERCOT

01:11:07.840 --> 01:11:09.060
on X, Y, and Z.

01:11:09.060 --> 01:11:10.860
You probably had more
discussions with ERCOT

01:11:10.860 --> 01:11:12.193
than you have me.

01:11:13.030 --> 01:11:18.030
And, I know we've
been trying, but I just,

01:11:18.382 --> 01:11:22.250
I want us to have a better

01:11:23.770 --> 01:11:26.710
suite of options and maybe they're not.

01:11:26.710 --> 01:11:28.500
But I think there are
better suites of options

01:11:28.500 --> 01:11:33.100
that can solve parts of the
resource adequacy issue,

01:11:33.100 --> 01:11:35.530
and when you add them
up, you get to another,

01:11:35.530 --> 01:11:38.260
another resource adequacy tool.

01:11:38.260 --> 01:11:42.670
And I just, you know,
a lot of these things,

01:11:42.670 --> 01:11:46.470
I think take a lot of discussion
and we haven't had a lot.

01:11:46.470 --> 01:11:47.303
<v ->So,</v>

01:11:49.490 --> 01:11:52.170
I won't respond to some
of what you said earlier

01:11:52.170 --> 01:11:54.270
in your comments, but I will ask you,

01:11:54.270 --> 01:11:58.320
what specifically do you
think is not shown here

01:11:58.320 --> 01:12:01.400
that contributes to resource adequacy?

01:12:01.400 --> 01:12:02.470
<v ->Well, I mean-</v>

01:12:02.470 --> 01:12:05.423
<v ->And we can talk about
why it's not on here.</v>

01:12:07.720 --> 01:12:09.970
That's my question.
What is left out here?

01:12:09.970 --> 01:12:14.061
<v ->I mean, I've seen lots of
proposals by academics</v>

01:12:14.061 --> 01:12:17.690
in the west that have
come out of our national labs

01:12:17.690 --> 01:12:21.339
that deal with other components that

01:12:21.339 --> 01:12:24.634
contribute to resource adequacy,

01:12:24.634 --> 01:12:26.943
on kind of the demand
side of the equation.

01:12:27.889 --> 01:12:30.910
You know, I just, I
don't see a lot of that.

01:12:30.910 --> 01:12:32.903
Maybe it's in your model. I don't know.

01:12:37.337 --> 01:12:38.780
But I want to be able to see it,

01:12:38.780 --> 01:12:41.740
if I'm going to make
a decision, you know.

01:12:41.740 --> 01:12:44.680
The other thing is, as I said, as I feel

01:12:46.440 --> 01:12:49.410
resource adequacy in
the future is not driven by

01:12:51.250 --> 01:12:52.823
1000 megawatt plants.

01:12:53.980 --> 01:12:57.260
It's driven by smaller
resources that are spread,

01:12:57.260 --> 01:13:00.750
that have less contingencies
on the system when they fail,

01:13:00.750 --> 01:13:03.220
but more resources around the system.

01:13:03.220 --> 01:13:06.110
And I think what these two,

01:13:06.110 --> 01:13:08.730
I think there's value in some of this,

01:13:08.730 --> 01:13:12.540
but I think all we're doing
is taking yesterday's way

01:13:12.540 --> 01:13:16.620
of defining the world in terms
of huge capacity resources

01:13:16.620 --> 01:13:18.160
and say, we need those for the future.

01:13:18.160 --> 01:13:20.410
And I don't think that's
the way the world is going.

01:13:20.410 --> 01:13:24.320
I think it's energy related.
I think it's reliability,

01:13:24.320 --> 01:13:25.550
not on a seasonal basis.

01:13:25.550 --> 01:13:28.650
On a monthly, on a
weekly, on a daily basis,

01:13:28.650 --> 01:13:33.650
because the way we
certify resources is too broad.

01:13:34.760 --> 01:13:37.640
And, in the end we don't need capacity.

01:13:37.640 --> 01:13:41.010
In the end capacity does not serve

01:13:41.010 --> 01:13:43.170
any customers in this state.

01:13:43.170 --> 01:13:44.870
The only thing that does is energy

01:13:46.986 --> 01:13:49.383
and energy is the
valuable commodity here.

01:13:51.050 --> 01:13:52.500
So I just-

01:13:52.500 --> 01:13:54.060
<v ->Okay. Let me step
in there for a second.</v>

01:13:54.060 --> 01:13:57.280
Brattle was asked to evaluate
ideas that were submitted.

01:13:57.280 --> 01:13:59.090
<v ->Agreed.</v>
<v ->And bring us the ones</v>

01:13:59.090 --> 01:14:02.310
they thought were the
best of the ideas submitted.

01:14:02.310 --> 01:14:03.890
They thought were the best ideas.

01:14:03.890 --> 01:14:05.330
<v ->Okay.</v>
<v ->That's what I see up here.</v>

01:14:05.330 --> 01:14:07.740
<v ->Okay.</v>
<v ->If there are other ideas</v>

01:14:07.740 --> 01:14:09.390
and I understand there's, I mean,

01:14:10.270 --> 01:14:12.710
the issues of communication
frequency with the client,

01:14:12.710 --> 01:14:14.590
we can take a ball flying.

01:14:14.590 --> 01:14:17.700
I don't disagree with you.
And that's, that's your call.

01:14:17.700 --> 01:14:20.670
They were asked to submit
ideas or what they thought

01:14:20.670 --> 01:14:23.630
were the best of the
ideas that were submitted.

01:14:23.630 --> 01:14:25.011
<v ->And-</v>

01:14:25.011 --> 01:14:26.681
<v ->I understand why we're here.</v>

01:14:26.681 --> 01:14:28.670
<v ->That's what they did.</v>
<v ->Okay.</v>

01:14:28.670 --> 01:14:29.970
<v ->That's their selection.</v>

01:14:29.970 --> 01:14:31.640
If there were other ideas from the West

01:14:31.640 --> 01:14:36.460
or on demand response,
please bring them forward.

01:14:36.460 --> 01:14:38.180
<v ->I will, I will
submit, you know,</v>

01:14:38.180 --> 01:14:40.380
these other ideas to you and
make sure that you have them

01:14:40.380 --> 01:14:43.350
today, so that you can begin
looking at them along with the

01:14:43.350 --> 01:14:45.650
other ideas that the
other Commissioners shot.

01:14:46.542 --> 01:14:49.990
<v ->And I also want to say
we have from the beginning</v>

01:14:52.010 --> 01:14:54.780
taken the approach
and I know the legislature

01:14:54.780 --> 01:14:59.700
has taken the approach of
being a technology agnostic.

01:14:59.700 --> 01:15:00.533
<v ->Yeah.</v>

01:15:00.533 --> 01:15:05.090
<v ->It's not up to us
to decide if we need</v>

01:15:05.090 --> 01:15:07.270
large base-load thousand
megawatt reactors

01:15:07.270 --> 01:15:08.853
or small modular reactors.

01:15:10.137 --> 01:15:12.960
It's our job to design
a market that solves

01:15:12.960 --> 01:15:14.166
that problem for us.

01:15:14.166 --> 01:15:15.270
<v ->Absolutely.</v>

01:15:15.270 --> 01:15:16.910
<v ->And I would never
presume to think</v>

01:15:16.910 --> 01:15:18.610
that I know what the future holds.

01:15:20.060 --> 01:15:21.320
That's why we have the market.

01:15:21.320 --> 01:15:24.650
And it's probably some
combination of all the above.

01:15:24.650 --> 01:15:25.750
And so I certainly,

01:15:25.750 --> 01:15:27.460
I know the legislature does not want us

01:15:27.460 --> 01:15:29.470
dictating what that should be.

01:15:29.470 --> 01:15:30.303
<v ->I agree.</v>

01:15:31.490 --> 01:15:34.610
<v ->Sam, I apologize for
coming at you like that</v>

01:15:34.610 --> 01:15:37.010
It's a little bit of frustration,

01:15:37.010 --> 01:15:39.310
but it's a little bit of,

01:15:39.310 --> 01:15:44.240
just seeing the same two
alternatives that we've seen

01:15:44.240 --> 01:15:47.220
for the last five months or
four months or three months,

01:15:47.220 --> 01:15:48.053
whatever it is.

01:15:48.053 --> 01:15:49.950
And I'll take responsibility
for not sending

01:15:49.950 --> 01:15:50.950
these others to you.

01:15:52.550 --> 01:15:54.400
<v ->I would like seeing it too.</v>
<v ->Yeah.</v>

01:15:54.400 --> 01:15:56.700
We'll make sure that
everybody gets into that.

01:15:57.990 --> 01:15:59.540
They'll be filed in the docket.

01:16:00.600 --> 01:16:03.030
<v ->Recognize the communication
frequency challenges,</v>

01:16:03.030 --> 01:16:05.893
and we can work on that.
<v ->Absolutely.</v>

01:16:08.690 --> 01:16:11.323
<v ->Can I add a couple of
observations, just one of them?</v>

01:16:12.230 --> 01:16:15.600
And it wasn't included,
well, I guess it is option zero.

01:16:15.600 --> 01:16:18.163
I think it's really
important to be clear that,

01:16:19.620 --> 01:16:23.730
it's not that we've done a
lot and we're going to do a lot.

01:16:23.730 --> 01:16:26.100
So even if, you know, in the interim,

01:16:26.100 --> 01:16:28.400
we didn't move forward with, you know,

01:16:28.400 --> 01:16:30.380
a longer-term solution like the LSE,

01:16:30.380 --> 01:16:33.070
your option to backup reserves.

01:16:33.070 --> 01:16:35.400
It's not that we didn't do anything.

01:16:35.400 --> 01:16:37.110
We were going to do a lot, right.

01:16:37.110 --> 01:16:38.427
With ORDC and firm fueling

01:16:38.427 --> 01:16:40.590
and all the actions we've been taking.

01:16:40.590 --> 01:16:43.290
So I wouldn't want the
public to think that, you know,

01:16:44.550 --> 01:16:46.680
if we don't move forward
with one of those options,

01:16:46.680 --> 01:16:50.740
one or two, or any of the
other options, that you know,

01:16:50.740 --> 01:16:53.370
Commissioner Glotfelty
and Commissioner McAdams

01:16:53.370 --> 01:16:56.130
will put forth that we have done nothing

01:16:56.130 --> 01:16:58.790
because that was the
point of my memo that I filed.

01:16:58.790 --> 01:17:01.490
I really wanted to highlight
all of the matters that

01:17:01.490 --> 01:17:03.870
we've been discussing and
the timelines of how they can be

01:17:03.870 --> 01:17:07.120
phased in to provide more
enhanced spectrum of reliability.

01:17:07.120 --> 01:17:09.780
So I just want to be
clear that the options zero

01:17:09.780 --> 01:17:11.560
is not like we haven't done anything.

01:17:11.560 --> 01:17:14.030
We've done a lot. We've
been at it for months, right?

01:17:14.030 --> 01:17:16.990
Looking at all these
mechanisms that will help enhance

01:17:16.990 --> 01:17:20.420
and improve reliability
and operational reliability.

01:17:20.420 --> 01:17:22.420
So just want to make that clarification.

01:17:23.550 --> 01:17:25.440
The other piece to that,
that I wanted to add,

01:17:25.440 --> 01:17:28.320
and I'll delve more into,
when I talk about my proposal

01:17:28.320 --> 01:17:31.203
is on the option to backup reserve.

01:17:32.818 --> 01:17:36.190
And that is just really that, you know,

01:17:37.220 --> 01:17:40.680
it could be a long-term
market enhancement

01:17:40.680 --> 01:17:42.100
within our competitive market structure.

01:17:42.100 --> 01:17:44.820
But it could also be a
bridge to help us continue

01:17:44.820 --> 01:17:47.893
to evaluate options
that are on the table,

01:17:49.040 --> 01:17:51.930
because all of them will
take some time of, you know,

01:17:51.930 --> 01:17:53.430
we've been looking at all these options

01:17:53.430 --> 01:17:54.870
for a while now, right?

01:17:54.870 --> 01:17:59.220
Some longer, some not
yet and some just now.

01:17:59.220 --> 01:18:04.130
So to buy us more
time to evaluate matters,

01:18:04.130 --> 01:18:07.130
it's I view it as sort of, you know,

01:18:07.130 --> 01:18:08.740
either a long-term market enhancement,

01:18:08.740 --> 01:18:13.740
or a bridge to help us
maybe get some of these

01:18:14.220 --> 01:18:16.480
consensus items in
place and let them play out

01:18:16.480 --> 01:18:20.840
and continue to evaluate
longer-term solutions.

01:18:20.840 --> 01:18:24.803
And that could act as a
supplement to a lot of other,

01:18:26.400 --> 01:18:28.420
you know, items we may consider.

01:18:28.420 --> 01:18:30.021
<v ->Thank you.</v>

01:18:30.021 --> 01:18:30.854
<v ->Any other questions on-</v>

01:18:30.854 --> 01:18:33.550
<v ->Sam, an important question.
If I may, Mr. Chairman?</v>

01:18:33.550 --> 01:18:37.567
Does this plan guarantee new generation?

01:18:37.567 --> 01:18:38.723
<v ->Sorry, which plan?</v>

01:18:39.650 --> 01:18:40.900
<v ->His proposal, sir.</v>

01:18:40.900 --> 01:18:42.210
<v ->He's got two of them.</v>

01:18:42.210 --> 01:18:44.660
<v ->The LSE obligation.</v>
<v ->Okay. Option one.</v>

01:18:44.660 --> 01:18:47.623
<v ->Does it guarantee new
generation will be installed?</v>

01:18:52.615 --> 01:18:55.110
<v ->I wouldn't put it that way.</v>

01:18:55.110 --> 01:18:56.073
I would say that,

01:19:00.886 --> 01:19:03.920
you know, assuming that
load grows and there's a,

01:19:03.920 --> 01:19:05.770
well, assuming there's a need for it,

01:19:07.490 --> 01:19:09.680
which I suppose there are
even if load doesn't grow.

01:19:09.680 --> 01:19:12.130
So I guess the answer is basically, yes.

01:19:12.130 --> 01:19:14.750
You need to add resources for LSEs

01:19:14.750 --> 01:19:16.550
to be able to meet their obligation.

01:19:17.500 --> 01:19:21.767
There would have to be
more accredited capacity

01:19:21.767 --> 01:19:24.500
in the market than there is today.

01:19:24.500 --> 01:19:26.320
How do you get more than there is today?

01:19:26.320 --> 01:19:28.640
There has to be a new generation bill.

01:19:28.640 --> 01:19:30.460
So I guess the answer is yes.

01:19:30.460 --> 01:19:31.293
<v ->Okay.</v>

01:19:33.140 --> 01:19:34.340
<v ->I mean, subject to penalties,</v>

01:19:34.340 --> 01:19:35.610
if people aren't meeting them,

01:19:35.610 --> 01:19:39.470
but those are INO. So
they're, you know, it happens.

01:19:39.470 --> 01:19:43.240
<v ->So on the LSE obligation,
California, Australia,</v>

01:19:43.240 --> 01:19:46.673
and Singapore have LSE
obligations. Is that correct?

01:19:47.760 --> 01:19:50.270
<v ->No.</v>
<v ->Okay. Which ones do not?</v>

01:19:50.270 --> 01:19:52.910
<v ->Singapore.</v>
<v ->Singapore does not.</v>

01:19:52.910 --> 01:19:55.210
California and Australia.

01:19:55.210 --> 01:19:56.603
<v ->Oh, and Australia.</v>

01:19:58.010 --> 01:20:01.690
It's I'm not even sure I'd
quite call it that there is this

01:20:01.690 --> 01:20:03.913
backup mechanism for,

01:20:05.470 --> 01:20:08.340
for supporting resource adequacy.

01:20:08.340 --> 01:20:09.793
<v ->Okay, California.</v>

01:20:11.370 --> 01:20:12.900
<v ->Yes.</v>

01:20:12.900 --> 01:20:16.630
But in a very different
environment that has integrated

01:20:16.630 --> 01:20:21.500
resource planning and not
the kind of competitive market

01:20:21.500 --> 01:20:22.880
that we have here.

01:20:22.880 --> 01:20:26.040
<v ->Has new dispatchable
generation been built</v>

01:20:26.040 --> 01:20:30.610
in a system that has a
centralized resource planning

01:20:30.610 --> 01:20:34.293
and an LSE obligation,
to the point of California?

01:20:35.580 --> 01:20:37.910
<v ->Sorry. What do you mean
to the point of California?</v>

01:20:37.910 --> 01:20:39.760
<v ->Within the California model,</v>

01:20:39.760 --> 01:20:42.960
has new dispatchable
generation been built since

01:20:42.960 --> 01:20:45.630
it was imposed in 2001,

01:20:45.630 --> 01:20:48.450
even with the attributes
that essentialized

01:20:48.450 --> 01:20:52.640
resource planning model
and an LSE obligation.

01:20:52.640 --> 01:20:55.130
<v ->Oh yeah. Plenty of
generation was built</v>

01:20:55.130 --> 01:20:57.350
since going back to the time you said.

01:20:57.350 --> 01:21:00.950
I mean the last several
years it's been almost entirely

01:21:02.210 --> 01:21:04.800
renewables and storage.

01:21:04.800 --> 01:21:06.930
<v ->I asked dispatchable.</v>

01:21:06.930 --> 01:21:07.960
<v ->But before that, yeah.</v>

01:21:07.960 --> 01:21:10.660
I mean, I'm trying to
remember in 2013 or 14,

01:21:10.660 --> 01:21:12.757
it was primarily dispatchable.

01:21:16.122 --> 01:21:19.170
The economics and the
demand for the renewables

01:21:19.170 --> 01:21:21.930
tilted everything that
direction since then.

01:21:21.930 --> 01:21:22.800
<v ->Okay.</v>

01:21:22.800 --> 01:21:25.060
<v ->When was the California
market put in place?</v>

01:21:25.060 --> 01:21:26.360
What year do you remember?

01:21:27.624 --> 01:21:30.693
<v ->Oh, well, which aspect?</v>
<v ->I guess the LSE part of it.</v>

01:21:36.681 --> 01:21:38.363
<v ->You know, I,
it's hard for me to,</v>

01:21:41.079 --> 01:21:42.390
I'm thinking through the history.

01:21:42.390 --> 01:21:45.273
<v Peter>Don't worry. Last
week we've covered the fact</v>

01:21:45.273 --> 01:21:47.670
that California is a very
different circumstance.

01:21:47.670 --> 01:21:51.590
It's very different retail
market and had a lot

01:21:51.590 --> 01:21:53.540
of out-of-market state intervention.

01:21:53.540 --> 01:21:57.445
So it's very hard to draw an
apples to apples comparison.

01:21:57.445 --> 01:21:59.380
We established that
in the last work session.

01:21:59.380 --> 01:22:04.380
<v ->I disagree. No, we are
talking about taking state action</v>

01:22:05.060 --> 01:22:06.770
to overlay an LSE obligation.

01:22:06.770 --> 01:22:08.410
This is what they did in the aftermath

01:22:08.410 --> 01:22:11.710
of the energy crisis of 2004.

01:22:11.710 --> 01:22:13.380
<v Peter>If you...</v>

01:22:13.380 --> 01:22:15.300
They'd also have a very
different retail market.

01:22:15.300 --> 01:22:20.070
They also have had the State
directly invest in generation,

01:22:20.070 --> 01:22:22.380
which throws the market out of whack.

01:22:22.380 --> 01:22:25.850
If you would like a comparison
or a side-by-side of how

01:22:25.850 --> 01:22:30.200
Sam's proposed or his version
of an LSE obligation in Texas

01:22:30.200 --> 01:22:32.070
would work versus California,

01:22:32.070 --> 01:22:33.963
I'm sure he'd be happy
to lay that out for you.

01:22:33.963 --> 01:22:35.480
<v ->I will need that. Yes, sir.</v>

01:22:35.480 --> 01:22:37.230
<v Peter>Okay feel
free to ask for it.</v>

01:22:37.230 --> 01:22:38.910
<v ->The resources that are</v>
<v ->I am asking for it.</v>

01:22:38.910 --> 01:22:40.540
<v ->built, there are based on</v>

01:22:40.540 --> 01:22:43.723
integrated resource planning
that sort of State directed.

01:22:45.819 --> 01:22:46.983
But happy to do that.

01:22:46.983 --> 01:22:50.860
<v ->What about SPP then? I
mean, I think it would be helpful.</v>

01:22:50.860 --> 01:22:51.970
I think I know where you're going.

01:22:51.970 --> 01:22:54.251
It's just sort of seed
and none of them are

01:22:54.251 --> 01:22:55.540
going to be exactly
apples to apples, right?

01:22:55.540 --> 01:22:56.373
They're all different.

01:22:56.373 --> 01:22:59.070
And Texas would be different
from California and SPP,

01:22:59.070 --> 01:23:02.920
but at least to have an idea
of what has the energy mix,

01:23:02.920 --> 01:23:07.137
the new generation investment
been renewables, gas,

01:23:08.370 --> 01:23:10.670
since those markets were put in place.

01:23:10.670 --> 01:23:12.310
<v ->I would barely
say those markets.</v>

01:23:12.310 --> 01:23:14.300
I mean the investment
<v ->Or aspects of the market.</v>

01:23:14.300 --> 01:23:18.430
choices in SPP have nothing,
if little to do with market.

01:23:18.430 --> 01:23:22.633
It's utilities making decisions
what they want to build,

01:23:23.490 --> 01:23:24.920
subject to approval by their

01:23:24.920 --> 01:23:28.180
State Public Utility
Commissions. It's not a market.

01:23:28.180 --> 01:23:29.673
<v ->Vertically
integrated utilities.</v>

01:23:29.673 --> 01:23:30.506
<v ->Yeah.</v>

01:23:30.506 --> 01:23:33.500
<v ->Right, right. So much
different. Yeah with that.</v>

01:23:33.500 --> 01:23:35.240
That does put a whole
different spin on it.

01:23:35.240 --> 01:23:37.940
If you have, you know,

01:23:37.940 --> 01:23:40.910
re linear rate of return
that you're, you know,

01:23:40.910 --> 01:23:43.970
you're investing in generation
and getting to recoup

01:23:43.970 --> 01:23:45.950
the rates from your customer.

01:23:45.950 --> 01:23:47.900
So it's a whole different spin,

01:23:47.900 --> 01:23:50.390
but I don't know if
that would be helpful

01:23:50.390 --> 01:23:54.190
to at least see a comparison
of California SPP and MISO.

01:23:54.190 --> 01:23:56.940
I know Australia just got
theirs up and running maybe

01:23:56.940 --> 01:23:59.430
this summer, so I'm not
sure if there's anything there.

01:23:59.430 --> 01:24:02.040
<v ->Right. Yeah. I mean,
Australia is more comparable.</v>

01:24:02.040 --> 01:24:05.443
I mean, MISO is more like
SPP, the vast majority of MISO.

01:24:07.410 --> 01:24:09.430
Okay. I do want to mention one thing.

01:24:09.430 --> 01:24:11.460
We were looking at these, I mean,

01:24:11.460 --> 01:24:14.150
these are sort of the
big picture options.

01:24:14.150 --> 01:24:16.310
I didn't get into all the details,

01:24:16.310 --> 01:24:19.280
but there are a million
aspects of contributing

01:24:19.280 --> 01:24:22.710
to resource adequacy that might not be

01:24:22.710 --> 01:24:25.850
in the examples I used of
which resources. So for example,

01:24:25.850 --> 01:24:30.850
an LSE obligation that
supports on an equal footing with

01:24:31.250 --> 01:24:35.130
all other technologies, demand
response, energy efficiency,

01:24:35.130 --> 01:24:36.060
they participate.

01:24:36.060 --> 01:24:40.460
In fact, in a place that
has something like this,

01:24:40.460 --> 01:24:43.790
but with a centralized
capacity market to support VGM,

01:24:43.790 --> 01:24:46.010
there's lots of, you know,

01:24:46.010 --> 01:24:50.750
even residential level
demand response activity that is

01:24:50.750 --> 01:24:53.780
getting credited and
that gets actually paid,

01:24:53.780 --> 01:24:55.970
but you can do it the other
way too. You're avoiding paying.

01:24:55.970 --> 01:24:58.340
There are a lot of
ways. It's in the market.

01:24:58.340 --> 01:25:01.577
It's folded into this. I mean,
option two when I said,

01:25:01.577 --> 01:25:04.640
you know, the backup
reserves, you could have a,

01:25:04.640 --> 01:25:07.760
whether it folds into that
or you have, I can do it too,

01:25:07.760 --> 01:25:09.820
or in a separate or
suggested, maybe the way of

01:25:09.820 --> 01:25:11.910
demand response is different and ERS,

01:25:11.910 --> 01:25:14.230
maybe you even have
expanded program there.

01:25:14.230 --> 01:25:17.140
I do think there's a lot
that becomes interesting,

01:25:17.140 --> 01:25:21.270
is more of the load becomes
able to respond, you know

01:25:21.270 --> 01:25:23.620
economically sort of
automatically when their retail

01:25:23.620 --> 01:25:27.210
provider enables that or a
curtailment service provider.

01:25:27.210 --> 01:25:29.740
There's lots of stuff.

01:25:29.740 --> 01:25:34.740
They can fold into this if you
allow them, but they may be,

01:25:35.042 --> 01:25:38.193
you know, in a, in a sort
of technology neutral way.

01:25:39.130 --> 01:25:41.510
Obviously there are also
things you can do outside of the

01:25:41.510 --> 01:25:44.740
market, like energy efficiency,
programs and stuff that,

01:25:44.740 --> 01:25:47.353
you know, that was sort
of outside of our scope.

01:25:49.070 --> 01:25:50.020
<v ->Thank you.</v>

01:25:50.020 --> 01:25:53.057
Any other questions for
Sam before we get to ORDC?.

01:25:55.110 --> 01:25:56.610
<v ->None from me.</v>

01:25:56.610 --> 01:26:01.610
<v ->All right. Any questions
for us on what we need?</v>

01:26:01.760 --> 01:26:03.760
Alright, thanks.
<v ->You. Got it. Thanks.</v>

01:26:05.317 --> 01:26:06.150
<v ->ORDC.</v>

01:26:07.580 --> 01:26:12.580
So this I'm going to go
through pretty quickly cause

01:26:12.810 --> 01:26:17.470
you understand the prior
version was circulated.

01:26:17.470 --> 01:26:18.640
What we're talking about here again,

01:26:18.640 --> 01:26:22.310
this is not about how to significantly

01:26:22.310 --> 01:26:23.740
change reserves adequacy either.

01:26:23.740 --> 01:26:25.070
We're really talking about three things,

01:26:25.070 --> 01:26:28.170
especially when we talked
about lowering the cap

01:26:30.210 --> 01:26:32.940
and immediately raised the
discussion of a wider ORDC

01:26:32.940 --> 01:26:36.040
to make sure you're not
taking money out of the market.

01:26:36.040 --> 01:26:37.340
But it's a couple other things too.

01:26:37.340 --> 01:26:38.680
One is to make sure you're sending

01:26:38.680 --> 01:26:42.376
the strongest price signal
before ERCOT declares,

01:26:42.376 --> 01:26:44.870
advisories and alerts.

01:26:44.870 --> 01:26:48.133
We've heard that pretty loud
and clear that that's desired.

01:26:49.310 --> 01:26:54.310
And especially as there
are actions to do those,

01:26:55.650 --> 01:26:57.700
some of those manual
actions, even earlier,

01:26:57.700 --> 01:26:59.480
even when reserves are not quite as low.

01:26:59.480 --> 01:27:00.750
And we want to make sure that the ORDC

01:27:00.750 --> 01:27:02.600
is consistent with that,
getting to high prices

01:27:02.600 --> 01:27:04.290
and drawing and market response

01:27:04.290 --> 01:27:07.113
before you do those
things that are costly.

01:27:08.460 --> 01:27:11.663
So the third thing is,

01:27:13.060 --> 01:27:16.080
that since ERCOT has
increased the amount

01:27:16.080 --> 01:27:17.940
of ancillary services,

01:27:17.940 --> 01:27:20.053
partly to deal with variability,

01:27:21.870 --> 01:27:23.940
partly to stay away from the alerts.

01:27:23.940 --> 01:27:27.863
You need to, that's actually
just a day ahead thing,

01:27:29.290 --> 01:27:32.020
to also have a comparable
amount of reserves

01:27:32.020 --> 01:27:35.307
in real time, you have
to put that demand in.

01:27:35.307 --> 01:27:38.570
And the only way to do that
without RTC is within the,

01:27:38.570 --> 01:27:40.543
ORDC, sorry for so many acronyms.

01:27:42.130 --> 01:27:43.610
But so anyway,

01:27:43.610 --> 01:27:46.423
that merit to a wider curve
in those circumstances,

01:27:47.672 --> 01:27:48.505
and what I'm gonna show here,

01:27:48.505 --> 01:27:50.840
that's different from last
time is just adding a few new

01:27:50.840 --> 01:27:53.463
curves that were requested
by the Commissioners.

01:27:54.340 --> 01:27:56.520
And then for each one,
we actually, you know,

01:27:56.520 --> 01:28:00.595
the trickiest thing in this
analysis is to, you know,

01:28:00.595 --> 01:28:02.950
not just put in the place
and say, "What's the price?"

01:28:02.950 --> 01:28:05.240
You actually have to model
the behavior of generators

01:28:05.240 --> 01:28:09.813
if you're putting in a richer
ORDC and there's generators

01:28:09.813 --> 01:28:12.723
that could come online
and enjoy the online adder.

01:28:14.483 --> 01:28:15.850
You have to model, how do they do that?

01:28:15.850 --> 01:28:17.560
And a straw, a,

01:28:17.560 --> 01:28:20.680
it did the modeling and
we've iterated with them

01:28:20.680 --> 01:28:22.430
to make sure that that's realistic.

01:28:23.310 --> 01:28:24.240
And when you do that,

01:28:24.240 --> 01:28:27.950
the wider curves add,
they bring on more reserves,

01:28:27.950 --> 01:28:30.770
they don't, you know,
just raise the price.

01:28:30.770 --> 01:28:31.657
Now they bring up more reserves

01:28:31.657 --> 01:28:33.363
and that moderates the effect.

01:28:34.460 --> 01:28:36.570
<v Peter>By bringing more
reserves on sooner, you're</v>

01:28:36.570 --> 01:28:39.030
getting to the highest higher
price point less frequently.

01:28:39.030 --> 01:28:40.640
<v Sam>Exactly.</v>
<v Peter>Okay.</v>

01:28:40.640 --> 01:28:42.750
<v Sam>Thanks. Okay. So if
you could go to the next slide,</v>

01:28:42.750 --> 01:28:46.893
and this is just a picture
of the curves we looked at.

01:28:49.370 --> 01:28:52.110
And the three at the bottom
of the table are the ones

01:28:52.110 --> 01:28:54.870
we added here and for your
reference and we'll file this,

01:28:54.870 --> 01:28:58.103
so you can review the specifics.

01:28:59.250 --> 01:29:00.893
Go onto the next slide please.

01:29:02.670 --> 01:29:05.640
So one of the purposes
was to get the price up to the

01:29:05.640 --> 01:29:09.220
highest levels before
getting to the cap,

01:29:09.220 --> 01:29:12.700
sorry, before doing advisories
and other any out-of-market

01:29:12.700 --> 01:29:16.290
actions and several
of these curves do that,

01:29:16.290 --> 01:29:20.970
especially the ones that put
the minimum capacity level at

01:29:23.335 --> 01:29:26.320
I'm sorry, the MCL at 3000.

01:29:26.320 --> 01:29:29.670
They obviously do it. There
are a couple other curves.

01:29:29.670 --> 01:29:32.710
They would generally
tend to do that as well,

01:29:32.710 --> 01:29:35.033
even though they don't
have the MCL at 3000.

01:29:36.500 --> 01:29:39.600
But so we'll probably focus on

01:29:39.600 --> 01:29:42.620
some of those curves
that solve that problem.

01:29:42.620 --> 01:29:45.920
If we go ahead to the next slide.

01:29:45.920 --> 01:29:49.380
So then the other problem is, you know,

01:29:49.380 --> 01:29:53.180
which ones avoid having to
do a lot of RUCs to support

01:29:53.180 --> 01:29:55.110
real-time online
reserves consistent with

01:29:55.110 --> 01:29:57.190
what we're doing with ancillaries.

01:29:57.190 --> 01:30:02.190
And there are about, you
know, 4 curves in that sweet spot.

01:30:03.830 --> 01:30:05.880
It happens to be, they
have a lot of overlap

01:30:05.880 --> 01:30:07.980
with what we looked
at on the prior slide.

01:30:09.370 --> 01:30:12.110
You know, I guess if anything,

01:30:12.110 --> 01:30:14.470
I'm probably partial to the gold curve,

01:30:14.470 --> 01:30:18.570
seems to be about in the, you
know, a decent one, you know,

01:30:18.570 --> 01:30:22.094
or maybe a version of the gold
curve that maybe even go to

01:30:22.094 --> 01:30:26.360
4,500 cap, but raise the
ball so that, you know,

01:30:26.360 --> 01:30:28.983
the market monitor has
made a point that I agree with it.

01:30:28.983 --> 01:30:32.943
It'd be nice if you didn't have
that strange step, you know,

01:30:32.943 --> 01:30:35.760
with the price jumping at MCL,

01:30:35.760 --> 01:30:38.730
maybe achieve it that way,
but something in this ballpark,

01:30:38.730 --> 01:30:40.340
ballpark at the gold curve maybe,

01:30:40.340 --> 01:30:42.223
go to the next slide.

01:30:46.430 --> 01:30:48.210
This just shows, what if you impose

01:30:48.210 --> 01:30:52.070
this on a market like, you know, 2019,

01:30:53.580 --> 01:30:56.610
well, this is with the 2024
fleet, but with 2019 weather.

01:30:56.610 --> 01:30:58.440
It's sort of a static look where you,

01:30:58.440 --> 01:31:03.440
you do change the unit
commitment response to these curves,

01:31:04.300 --> 01:31:08.000
but without varying,
without changing investment.

01:31:08.000 --> 01:31:10.650
And you know, obviously
if you're not allowed to,

01:31:10.650 --> 01:31:12.520
if this is right in the short term,

01:31:12.520 --> 01:31:13.970
investment doesn't get to respond.

01:31:13.970 --> 01:31:16.030
You have some much bigger
price differences in some of the

01:31:16.030 --> 01:31:18.658
wider curves, richer curves but

01:31:18.658 --> 01:31:20.490
put quite a bit more
money in the market.

01:31:20.490 --> 01:31:23.230
And the top right is how much
a combined cycle would earn

01:31:23.230 --> 01:31:25.353
on the left under the current curve.

01:31:28.497 --> 01:31:29.350
And the reference point

01:31:29.350 --> 01:31:31.900
is sort of levelized cost of a new CC.

01:31:31.900 --> 01:31:35.230
And, you know, at least under
it with a 12% reserve margin,

01:31:35.230 --> 01:31:36.804
we modeled in 2019 weather.

01:31:36.804 --> 01:31:39.260
Number of these curves
would get you even

01:31:39.260 --> 01:31:42.083
over that threshold or else equal.

01:31:42.990 --> 01:31:44.733
And if you go to the next slide,

01:31:45.830 --> 01:31:48.270
you do actually expect
investment to adjust, right?

01:31:48.270 --> 01:31:49.377
You keep this in place for,

01:31:49.377 --> 01:31:54.377
why people keep their resources
online or build new ones.

01:31:55.400 --> 01:31:59.130
And so if the market
equilibrium reserve margin,

01:31:59.130 --> 01:32:01.620
where, you know,
there is an equilibrium,

01:32:01.620 --> 01:32:05.900
because if you added more
capacity, depressed prices more,

01:32:05.900 --> 01:32:09.040
and it wouldn't be worth
investing anymore, for example.

01:32:09.040 --> 01:32:13.603
And so we simulate each
curve with investment up to the,

01:32:14.640 --> 01:32:18.180
you know, where the marginal entrant

01:32:18.180 --> 01:32:23.113
is just earning its cost of
return on enough capital.

01:32:26.352 --> 01:32:28.420
I think people probably
wouldn't want to do a curve

01:32:28.420 --> 01:32:30.110
that takes a lot of
money out of the market.

01:32:30.110 --> 01:32:34.570
That's going to give you
less investment, less reliability.

01:32:34.570 --> 01:32:38.160
So if the current curve would give

01:32:38.160 --> 01:32:41.350
a market equilibrium
reserve margin around 13.8%,

01:32:41.350 --> 01:32:42.650
the way we're counting it.

01:32:43.860 --> 01:32:46.653
there are several curves
that are pretty close.

01:32:49.080 --> 01:32:53.470
For example, the gold
curve just slightly below it,

01:32:53.470 --> 01:32:54.303
or wait, sorry.

01:32:54.303 --> 01:32:56.200
I know I can't quite see that,

01:32:57.580 --> 01:33:01.640
the current if that's
13 point something.

01:33:01.640 --> 01:33:04.660
13, what is it? One five, yeah.

01:33:04.660 --> 01:33:05.640
So, you know,

01:33:05.640 --> 01:33:07.930
the gold curve is only
just a little bit behind that.

01:33:07.930 --> 01:33:09.670
Again, if you did it with a higher vol,

01:33:09.670 --> 01:33:11.100
but kept the price cap the same,

01:33:11.100 --> 01:33:12.950
that might be better for a few reasons.

01:33:12.950 --> 01:33:14.080
Something in that ballpark,

01:33:14.080 --> 01:33:15.980
I think would serve the purposes.

01:33:15.980 --> 01:33:18.540
As a reminder, this
doesn't solve all of the

01:33:20.660 --> 01:33:22.520
resource adequacy problems.

01:33:22.520 --> 01:33:23.450
As another reminder,

01:33:23.450 --> 01:33:27.310
even those resource adequacy
solutions that I talked about,

01:33:27.310 --> 01:33:28.870
they give you a resource adequacy.

01:33:28.870 --> 01:33:31.090
They don't guarantee
delivered reliability,

01:33:31.090 --> 01:33:33.630
particularly under
conditions that, you know,

01:33:33.630 --> 01:33:36.070
you didn't anticipate or
part of your accreditation,

01:33:36.070 --> 01:33:40.363
or whatever, but those
are the disclaimers.

01:33:42.200 --> 01:33:43.200
<v Peter>Well done.</v>

01:33:44.840 --> 01:33:45.700
Anything else on that?

01:33:45.700 --> 01:33:46.533
Okay. All right.

01:33:46.533 --> 01:33:49.420
Any questions for Sam
on ORDC presentation?

01:33:49.420 --> 01:33:52.460
I know we're all in the process
of considering it and we'll-

01:33:52.460 --> 01:33:53.700
<v ->Thank you for doing it.</v>

01:33:53.700 --> 01:33:55.410
Thank you for getting
the numbers in there.

01:33:55.410 --> 01:33:57.763
I appreciate that.
<v ->Thanks Sam. Appreciate it.</v>

01:33:59.800 --> 01:34:01.820
<v ->All right. Thank you, sir.</v>

01:34:01.820 --> 01:34:02.653
<v ->Thank you.</v>

01:34:04.320 --> 01:34:06.110
<v ->Laid out a lot
for us to consider</v>

01:34:07.180 --> 01:34:09.422
and a lot of work went into it.

01:34:09.422 --> 01:34:11.322
<v ->Thank you.</v>
<v ->Thanks. Appreciate it.</v>

01:34:13.033 --> 01:34:16.830
It brings us to the next
segment of our program today.

01:34:16.830 --> 01:34:18.890
Tools on operational reliability,

01:34:18.890 --> 01:34:23.280
including ORDC, ECRS, FRS
when affirming product ERS

01:34:23.280 --> 01:34:25.120
and voltage support.

01:34:25.120 --> 01:34:28.370
I know Commissioner
McAdams filed a memo on that.

01:34:28.370 --> 01:34:29.950
So if you'd like to lay that out,

01:34:29.950 --> 01:34:31.600
that'd be a great starting place for.

01:34:31.600 --> 01:34:32.433
<v ->Yes, sir.</v>

01:34:34.560 --> 01:34:38.130
As instructed, I just
tried to do my homework

01:34:38.130 --> 01:34:40.593
on the phase one.

01:34:41.950 --> 01:34:44.713
Mr. Chairman, what you
challenged us to do on that.

01:34:45.744 --> 01:34:50.744
So on ECRS, well, I'll
stand by my memo on all of it.

01:34:51.470 --> 01:34:53.540
I tried to be as explanatory as I could.

01:34:53.540 --> 01:34:55.183
<v Peter>I think so.</v>
<v ->Yeah.</v>

01:34:56.380 --> 01:34:59.670
In terms of sizing, I just took a swag.

01:34:59.670 --> 01:35:03.150
Okay. We've all been having
conversations with ERCOT

01:35:03.150 --> 01:35:04.970
over the last six
months, leading up to this

01:35:04.970 --> 01:35:09.010
on what their base needs might be.

01:35:09.010 --> 01:35:11.180
I would submit that
my two gigawatt number

01:35:11.180 --> 01:35:12.520
didn't just come out of thin air.

01:35:12.520 --> 01:35:17.520
It was based on where RRS
had started and we've even

01:35:18.150 --> 01:35:22.803
scaled up from there on a
responsive reserve service.

01:35:23.710 --> 01:35:25.720
Now, obviously as my memo alluded,

01:35:25.720 --> 01:35:27.580
we need feedback from ERCOT.

01:35:27.580 --> 01:35:32.580
It needs to be balanced
according to the auction,

01:35:33.430 --> 01:35:35.280
the near term auctions that we'll have

01:35:35.280 --> 01:35:37.150
going into the winter.

01:35:37.150 --> 01:35:41.570
Those will be telling on what we need

01:35:41.570 --> 01:35:44.850
that certainly applies to
emergency response service,

01:35:44.850 --> 01:35:47.600
which is not an ancillary
service, but as we adjust it,

01:35:48.880 --> 01:35:52.490
how to orient ourselves,
once we get into the winter.

01:35:52.490 --> 01:35:55.190
And how much the market will tell us

01:35:55.190 --> 01:35:59.153
is the cost of this new enhanced tool.

01:36:02.320 --> 01:36:05.880
It's my rambling way of,
you know, bouncing around

01:36:05.880 --> 01:36:08.690
this winter firm fuel
ancillary service thought.

01:36:08.690 --> 01:36:10.713
Sam's feedback was very good.

01:36:11.984 --> 01:36:14.980
I'm glad to have a ballpark
of what we're talking about,

01:36:14.980 --> 01:36:16.480
where we're going to drive to.

01:36:17.690 --> 01:36:19.660
But again, we've got to start somewhere.

01:36:19.660 --> 01:36:21.000
It's gotta be scaled up.

01:36:21.000 --> 01:36:24.520
There's a maximum
amount of onsite firm fuel

01:36:24.520 --> 01:36:26.800
that we know of on the system right now.

01:36:26.800 --> 01:36:30.654
So I kinda took that into
consideration as we were,

01:36:30.654 --> 01:36:31.854
we were looking at this.

01:36:32.983 --> 01:36:34.880
The cooperatives have it.

01:36:34.880 --> 01:36:38.380
I know that our competitive
gym fleet is now looking at it

01:36:38.380 --> 01:36:40.810
seriously and starting to talk
about numbers that they're

01:36:40.810 --> 01:36:42.780
going to dedicate to it.

01:36:42.780 --> 01:36:45.330
I know that new pipelines
are being considered right now,

01:36:45.330 --> 01:36:49.070
depending on this new
service that will help provide

01:36:49.070 --> 01:36:53.480
certainty for those firm
contracts as we evaluate

01:36:53.480 --> 01:36:54.853
what firm means.

01:36:57.040 --> 01:36:59.370
Table set. I'll yield back to you sir.

01:36:59.370 --> 01:37:00.570
<v ->Thank you for
laying all this out</v>

01:37:00.570 --> 01:37:02.253
and digging into this issue.

01:37:04.640 --> 01:37:09.260
I think I agree in principle
with direction you're going.

01:37:10.100 --> 01:37:12.400
I know, and this is an
excellent opportunity.

01:37:12.400 --> 01:37:14.820
I mean, we've made as Commissioner Cobos

01:37:14.820 --> 01:37:15.860
said the ERS changes.

01:37:15.860 --> 01:37:19.860
That's a substantial change
to the way this market operates

01:37:19.860 --> 01:37:22.353
and the way we provide reliability.

01:37:23.374 --> 01:37:26.514
And you may have a very
good point that we're going to get

01:37:26.514 --> 01:37:29.814
some real honest market feedback-

01:37:29.814 --> 01:37:31.570
<v ->Soon.</v>
<v ->very soon,</v>

01:37:31.570 --> 01:37:33.990
which will, as you said,

01:37:33.990 --> 01:37:38.350
be an excellent way to inform
how we move forward with it.

01:37:38.350 --> 01:37:41.680
It's worth what the market says it is.

01:37:41.680 --> 01:37:42.513
<v ->Right.</v>

01:37:42.513 --> 01:37:47.467
<v ->So that will be a good
building block to work from the,</v>

01:37:47.467 --> 01:37:52.467
and in terms of the
procedural path forward,

01:37:53.340 --> 01:37:55.490
these are all excellent examples of,

01:37:55.490 --> 01:37:59.070
I think things that in
December we need to,

01:37:59.070 --> 01:38:01.690
we need to make the decision to include

01:38:01.690 --> 01:38:03.290
or not include in our blueprint.

01:38:03.290 --> 01:38:04.123
<v ->Okay.</v>

01:38:04.970 --> 01:38:08.253
<v ->Especially the winter S,
that's a completely new product.</v>

01:38:10.090 --> 01:38:11.980
But we don't have to pick exactly

01:38:11.980 --> 01:38:14.330
the quantity on December 16th.

01:38:14.330 --> 01:38:17.096
It's a big decision just
to build a new product.

01:38:17.096 --> 01:38:17.929
<v ->Okay.</v>

01:38:17.929 --> 01:38:19.930
<v ->So this is a great foundation.</v>

01:38:19.930 --> 01:38:22.480
I mean, I think we
generally are in support

01:38:22.480 --> 01:38:25.890
of a winter I S product, but
that's by way of example,

01:38:25.890 --> 01:38:28.000
December 16th is a
thumbs up, thumbs down.

01:38:28.000 --> 01:38:29.210
If it's a thumbs up,

01:38:29.210 --> 01:38:32.320
then we've got the next
three to six months to figure out

01:38:32.320 --> 01:38:35.330
exactly and work with
ERCOT to figure out exactly

01:38:35.330 --> 01:38:36.820
what it should look like.
<v ->Got you.</v>

01:38:36.820 --> 01:38:38.800
<v ->This is an excellent start.</v>

01:38:38.800 --> 01:38:40.750
Any other questions or comments? Go on.

01:38:43.230 --> 01:38:44.063
<v ->Sure.</v>

01:38:44.063 --> 01:38:46.350
I'll just kind of walk down each item

01:38:47.300 --> 01:38:49.703
with respect to the firm fuel product.

01:38:51.510 --> 01:38:52.577
I strongly support creating it

01:38:52.577 --> 01:38:54.477
and I think we have consensus on that.

01:38:55.620 --> 01:38:57.503
From my perspective is I was looking at

01:38:57.503 --> 01:38:59.970
some of the questions that
you asked us to look into

01:38:59.970 --> 01:39:00.803
Chairman Lake.

01:39:01.730 --> 01:39:04.350
I guess, starting with the type

01:39:04.350 --> 01:39:08.503
of technologies that
we would want to look at.

01:39:09.880 --> 01:39:10.990
I spent a lot of time visiting with

01:39:10.990 --> 01:39:14.850
a variety of stakeholders
and others about this.

01:39:14.850 --> 01:39:17.363
And from my perspective, at this time,

01:39:18.270 --> 01:39:20.490
I would structure the
firm fuel product to focus

01:39:20.490 --> 01:39:24.530
on on-site fuel storage
and offsite fuel storage

01:39:24.530 --> 01:39:26.340
with firm gas contracts

01:39:27.600 --> 01:39:29.893
or control over the
transmission pipeline.

01:39:31.530 --> 01:39:34.530
I would not go as far as firm
gas contracts, cause that's

01:39:34.530 --> 01:39:36.760
an added level of complexity
there that, you know,

01:39:36.760 --> 01:39:39.660
we would have to kind of Zoot
get language and contracts.

01:39:39.660 --> 01:39:42.900
And I'm not sure how
successful we would be

01:39:44.200 --> 01:39:46.842
in getting some of
that language in there.

01:39:46.842 --> 01:39:47.920
And that's just some,

01:39:47.920 --> 01:39:50.620
I think the firm gas contracts
are what the generation

01:39:50.620 --> 01:39:53.930
companies themselves
have a responsibility to do,

01:39:53.930 --> 01:39:56.020
just to be available
and capture the prices

01:39:56.020 --> 01:39:57.620
and not pay performance penalties.

01:39:57.620 --> 01:39:59.960
So I would move firm gas contracts off.

01:39:59.960 --> 01:40:02.690
I would also move dual-fuel
capability off the table

01:40:02.690 --> 01:40:05.000
because it's, from what I
understand is very expensive

01:40:05.000 --> 01:40:07.010
and most generation
plants that had that capability

01:40:07.010 --> 01:40:09.890
got rid of it because
ERCOT wasn't paying them.

01:40:09.890 --> 01:40:11.440
So again, I would just focus

01:40:11.440 --> 01:40:15.010
on on-site fuel storage
and offsite fuel storage

01:40:15.010 --> 01:40:19.313
with a firm gas transportation contract,

01:40:21.160 --> 01:40:24.410
or control over the transmission
pipeline to the storage.

01:40:24.410 --> 01:40:25.870
So that's the bullseye.

01:40:25.870 --> 01:40:29.720
That's what I would focus on,
with respect to procurement.

01:40:29.720 --> 01:40:32.032
I think this could be done how

01:40:32.032 --> 01:40:37.032
ERCOT currently procures black-start.

01:40:37.260 --> 01:40:39.350
So through a competitive RFP process,

01:40:39.350 --> 01:40:41.880
and I think ERCOT
should hire a consultant

01:40:41.880 --> 01:40:46.880
to verify that those offered products

01:40:49.480 --> 01:40:51.620
or generation units rather,

01:40:51.620 --> 01:40:53.740
can actually, you know just to make sure

01:40:53.740 --> 01:40:55.690
they can actually provide this product.

01:40:56.830 --> 01:40:59.980
To help with testing, we'll
want to have them tested.

01:40:59.980 --> 01:41:04.640
And it makes sure that there
are cost-effective solutions

01:41:04.640 --> 01:41:07.700
or offers into the
competitive RFP process.

01:41:07.700 --> 01:41:11.580
A multi-year contract, I think
probably two years as well.

01:41:11.580 --> 01:41:15.320
I think that's what Brattle
recommended quantity.

01:41:15.320 --> 01:41:16.397
I think, you know, Commissioner McAdams,

01:41:16.397 --> 01:41:18.900
you made a very solid point.

01:41:18.900 --> 01:41:21.017
From the statistics that
I've drawn up, there's about,

01:41:21.017 --> 01:41:24.290
you know, 33 generation units out there

01:41:24.290 --> 01:41:29.220
that have about 2,866
megawatts of onsite fuel oil storage

01:41:29.220 --> 01:41:32.640
right now that are primarily
owned by the electric co-op's

01:41:32.640 --> 01:41:36.740
and maybe some other
generation companies out there.

01:41:36.740 --> 01:41:39.260
So if you look at what's out there,

01:41:39.260 --> 01:41:41.627
just a little bit under 3000,

01:41:41.627 --> 01:41:43.490
and then you look at winter storm Uri,

01:41:43.490 --> 01:41:45.360
I think Sam makes a point

01:41:45.360 --> 01:41:47.930
and it's a huge amount of megawatts.

01:41:47.930 --> 01:41:50.660
But the statistics
that I have looked at,

01:41:50.660 --> 01:41:53.683
that ERCOT has provided
me based on the RFIs

01:41:53.683 --> 01:41:56.470
that they sent to the
generators after the storm,

01:41:56.470 --> 01:41:58.670
is that the fuel availability issues,

01:41:58.670 --> 01:42:02.690
that specific bucket that
they got was 6,130 megawatts.

01:42:02.690 --> 01:42:04.880
And then if you look
at the reports that,

01:42:04.880 --> 01:42:07.290
and that probably is
a more accurate figure

01:42:07.290 --> 01:42:11.070
because where I went to look
at was in project number 51617,

01:42:11.070 --> 01:42:14.263
where ERCOT filed the
reports after the winter storm.

01:42:15.347 --> 01:42:19.730
And that ranged on issues with fuel.

01:42:19.730 --> 01:42:22.570
It ranged from about 6,700 to 10,000.

01:42:22.570 --> 01:42:24.870
So I know we're not
deciding megawatts right now,

01:42:24.870 --> 01:42:29.630
but I think from a matter
of prudency and also

01:42:29.630 --> 01:42:32.700
looking at this from a
cost conservative basis

01:42:32.700 --> 01:42:33.620
and just starting somewhere,

01:42:33.620 --> 01:42:35.850
I think that's what you're saying.

01:42:35.850 --> 01:42:37.550
Right now, I think you'd want to capture

01:42:37.550 --> 01:42:39.747
that just under 3000, that 2,800,

01:42:39.747 --> 01:42:42.470
and then add at least
some, you would want to

01:42:42.470 --> 01:42:46.340
add more megawatts to at least
reach some threshold around

01:42:46.340 --> 01:42:50.660
that 6000, 5000-6000, at least.

01:42:50.660 --> 01:42:53.300
<v ->Agreed. We don't want to
just pay the existing assets.</v>

01:42:53.300 --> 01:42:55.500
We got to put money
out there for additional

01:42:57.280 --> 01:43:00.470
firming capability and we
can't get there overnight,

01:43:00.470 --> 01:43:01.303
but that's where we need.

01:43:01.303 --> 01:43:03.380
I agree that that's where
we need to work towards.

01:43:03.380 --> 01:43:06.033
<v ->Absolutely. And I have
heard it myself as well,</v>

01:43:06.033 --> 01:43:08.370
that there are some
stakeholders out there

01:43:08.370 --> 01:43:10.020
that really want to
be part of the solution,

01:43:10.020 --> 01:43:14.600
that want to be able to
help with the firm fuel product

01:43:14.600 --> 01:43:18.040
and would be wanting to help, you know,

01:43:18.040 --> 01:43:19.803
add those additional megawatts.

01:43:21.050 --> 01:43:24.870
In terms of how many days,
2011, from when I got from ERCOT

01:43:24.870 --> 01:43:26.773
was sort of a two day issue,

01:43:28.115 --> 01:43:30.950
2021 in terms of fuel unavailability

01:43:30.950 --> 01:43:32.200
was sort of a three-day issue.

01:43:32.200 --> 01:43:35.173
So you'd want to maybe
plan for two to three days.

01:43:36.170 --> 01:43:39.100
Payment. You know, I don't
have any specifics on there

01:43:39.100 --> 01:43:40.470
other than that you'd
obviously want to pay them

01:43:40.470 --> 01:43:42.980
for fuel and operation
maintenance expenses.

01:43:42.980 --> 01:43:46.300
Cost allocation, it sounds
like load ratio share basis.

01:43:46.300 --> 01:43:47.650
I know we don't
have to figure it all out,

01:43:47.650 --> 01:43:49.340
but that's kind of, as I went down

01:43:49.340 --> 01:43:52.320
the suite of key decision points,

01:43:52.320 --> 01:43:54.740
I wanted to just bring that
information and let you know

01:43:54.740 --> 01:43:56.740
kind of where I was right now.

01:43:56.740 --> 01:43:58.750
And we can continue to refine it

01:43:58.750 --> 01:44:00.460
as we move forward to December.

01:44:00.460 --> 01:44:01.440
But that's where I'm right now.

01:44:01.440 --> 01:44:03.790
I've spent some time looking at it.

01:44:03.790 --> 01:44:06.450
<v ->Similarly, it's an excellent
foundation to build on.</v>

01:44:06.450 --> 01:44:09.210
The big decision in December
is thumbs up, thumbs down,

01:44:09.210 --> 01:44:14.118
and we can build off of the
numbers you all have laid out,

01:44:14.118 --> 01:44:15.410
to put a finer point on it,

01:44:15.410 --> 01:44:17.240
so it'll be ready for next winter.

01:44:17.240 --> 01:44:19.003
<v ->Absolutely.</v>
<v ->But this is,</v>

01:44:19.989 --> 01:44:22.173
these are the kinds of big steps that,

01:44:24.110 --> 01:44:26.730
move us in the right direction
and move us to new solutions.

01:44:26.730 --> 01:44:29.870
So thank you for putting
pen and paper on that.

01:44:29.870 --> 01:44:31.520
<v ->ECRS.</v>

01:44:31.520 --> 01:44:33.930
I too have been having
discussions with ERCOT

01:44:33.930 --> 01:44:36.650
and I would like them
to continue to refine that.

01:44:36.650 --> 01:44:38.963
I know Brattle gave us
some megawatt numbers.

01:44:40.390 --> 01:44:42.610
It's very helpful to
understand that because

01:44:42.610 --> 01:44:44.790
from my perspective, with
the proposal I put out there,

01:44:44.790 --> 01:44:47.870
what I'm trying to find
with the SRS product,

01:44:47.870 --> 01:44:49.210
the strategic reliability services,

01:44:49.210 --> 01:44:51.420
that hole that may not get filled.

01:44:51.420 --> 01:44:53.610
And that hole that may
not get filled is contingent

01:44:53.610 --> 01:44:56.760
upon how much we have
in all our buckets, right?

01:44:56.760 --> 01:44:59.090
How much we have in our
ancillary service buckets?

01:44:59.090 --> 01:45:00.520
How many megawatts?

01:45:00.520 --> 01:45:03.270
And I think as you sort of look at ECRS,

01:45:03.270 --> 01:45:04.740
I think ERCOT should continue to refine

01:45:04.740 --> 01:45:07.230
their solar duck curve analysis,

01:45:07.230 --> 01:45:09.190
and also refine their figures.

01:45:09.190 --> 01:45:12.153
And I know that, I think I
mentioned this last time and,

01:45:13.270 --> 01:45:14.103
you know,

01:45:14.103 --> 01:45:16.900
SB-3 requires that ancillary
service study be looked at.

01:45:16.900 --> 01:45:19.660
I know we've gotten some
money allocated to the agency to do

01:45:19.660 --> 01:45:22.160
that and I think we
should continue as a matter

01:45:22.160 --> 01:45:24.980
of due diligence to really
zoom in on that number,

01:45:24.980 --> 01:45:26.790
so we have a real clear picture.

01:45:26.790 --> 01:45:28.664
In terms of cost allocation,

01:45:28.664 --> 01:45:31.380
I think Sam raised some good points.

01:45:31.380 --> 01:45:33.490
You know, we've got SB-3,

01:45:33.490 --> 01:45:36.950
we've got language in there
that talks about costs causation

01:45:36.950 --> 01:45:37.963
on a non-discriminatory basis.

01:45:37.963 --> 01:45:39.230
I think we need to have a rulemaking.

01:45:39.230 --> 01:45:40.680
I think we add that to our blueprint,

01:45:40.680 --> 01:45:43.180
that we're going to have that
and continue to work through

01:45:43.180 --> 01:45:47.750
that issue to ensure
that we follow as SB-3.

01:45:47.750 --> 01:45:48.583
And

01:45:50.360 --> 01:45:52.640
we can get more information
from ERCOT in that project too,

01:45:52.640 --> 01:45:55.360
to help us really craft a well-rounded

01:45:55.360 --> 01:45:56.610
equitable solution there.

01:45:58.210 --> 01:45:59.520
ERS.

01:45:59.520 --> 01:46:00.353
I agree.

01:46:00.353 --> 01:46:02.710
We're going to get some good
information after the winter.

01:46:02.710 --> 01:46:06.490
And we should add that to, my opinion,

01:46:06.490 --> 01:46:08.840
that can be added to
the blueprint in December.

01:46:09.760 --> 01:46:12.140
Until we don't have to come
up with all of the answers.

01:46:12.140 --> 01:46:14.490
Then we can maybe
lay out what some of the

01:46:14.490 --> 01:46:17.010
major policy questions
would be to look at, you know,

01:46:17.010 --> 01:46:18.390
how we will procure it in the future?

01:46:18.390 --> 01:46:21.400
Is it megawatts or on a dollar basis?

01:46:21.400 --> 01:46:23.780
We've already have an
order granting ourselves

01:46:23.780 --> 01:46:25.390
a good cause exception deployed earlier.

01:46:25.390 --> 01:46:27.133
We can memorialize it in the rule.

01:46:28.630 --> 01:46:30.550
Also just to keep in
mind that, you know,

01:46:30.550 --> 01:46:31.720
we did take a little bit of money

01:46:31.720 --> 01:46:34.520
out of the summer for the winter.

01:46:34.520 --> 01:46:35.940
My best guess is about a million.

01:46:35.940 --> 01:46:38.270
So we wanted to sort of
replenish that, you know,

01:46:38.270 --> 01:46:42.340
we would want to have our
rule done by late April, early May

01:46:42.340 --> 01:46:45.423
so that we can meet the summer RFP.

01:46:46.348 --> 01:46:48.920
<v ->Agreed. And we can work
with the New York hot board</v>

01:46:48.920 --> 01:46:52.560
to manage the budgetary side of that.

01:46:55.830 --> 01:46:58.360
<v ->I think those were your
three main assignments,</v>

01:46:58.360 --> 01:47:01.073
but I know we have to
talk about ORDC as well.

01:47:02.300 --> 01:47:03.910
<v ->Yeah.</v>

01:47:03.910 --> 01:47:06.300
And yes, thank you
for laying all that out.

01:47:06.300 --> 01:47:09.854
As I said, great start
on big steps forward.

01:47:09.854 --> 01:47:11.860
I don't expect Commissioning Glotfelty

01:47:11.860 --> 01:47:15.220
has some thoughts on cost
causation as well as some others.

01:47:15.220 --> 01:47:20.000
<v ->Nothing, no. Nothing that
hasn't already been said by me.</v>

01:47:20.000 --> 01:47:22.190
<v ->Any thoughts across the board?</v>

01:47:22.190 --> 01:47:23.063
<v ->Listen. I mean,</v>

01:47:23.063 --> 01:47:26.840
I think both of them
have laid it out very well.

01:47:26.840 --> 01:47:29.370
These are kind of what I fall

01:47:29.370 --> 01:47:32.591
into the low-hanging fruit
category. We got to do them.

01:47:32.591 --> 01:47:34.870
<v ->No low hanging fruit.</v>
<v Will>No low hanging fruit.</v>

01:47:34.870 --> 01:47:35.703
It's important.

01:47:37.238 --> 01:47:39.938
<v Lori>I'll pull up my ruler</v>
<v ->That's right. Sorry.</v>

01:47:42.040 --> 01:47:42.873
There are,

01:47:42.873 --> 01:47:45.490
I think some of the details
that we've got to work out,

01:47:45.490 --> 01:47:47.683
I'm beginning to get
a little bit nervous with

01:47:47.683 --> 01:47:50.660
what we're doing
with firm fuel on plants,

01:47:50.660 --> 01:47:53.430
and it's just been kind of
hitting me that I'm a little

01:47:53.430 --> 01:47:55.020
nervous about water too.

01:47:55.020 --> 01:47:57.440
So an interdependency on the other side,

01:47:57.440 --> 01:47:59.540
you can't run a power plant without fuel

01:47:59.540 --> 01:48:02.392
and you can't run a
power plant without water.

01:48:02.392 --> 01:48:05.550
<v ->You can't run a water
plant without a power plant.</v>

01:48:05.550 --> 01:48:08.850
<v ->So that's not part
of this, but I'm just,</v>

01:48:08.850 --> 01:48:10.910
I'm trying to think of
these interdependencies

01:48:10.910 --> 01:48:14.430
and, you know, how they
look that might be part of,

01:48:14.430 --> 01:48:15.870
you know, something else going forward.

01:48:15.870 --> 01:48:18.950
But I think, I think both
Commissioners have, you know,

01:48:18.950 --> 01:48:21.207
tried in the sweet spot
of where we need to go.

01:48:21.207 --> 01:48:25.130
<v ->And rightly so to think
about those interdependencies.</v>

01:48:25.130 --> 01:48:26.460
And as we,

01:48:26.460 --> 01:48:29.380
if we decide to include
this kind of thing in the,

01:48:29.380 --> 01:48:30.830
in the blueprint in December,

01:48:32.000 --> 01:48:34.150
there's obviously
there's a lot of nuances,

01:48:35.690 --> 01:48:38.233
even within cost causation,
as Sam pointed out,

01:48:39.540 --> 01:48:41.110
and we can work
through all those things.

01:48:41.110 --> 01:48:45.550
But also on firm fuel, there's very much

01:48:45.550 --> 01:48:47.510
agree with your point
about the firm contracts

01:48:47.510 --> 01:48:51.110
can be so nuanced that
it's kind of productive to

01:48:51.110 --> 01:48:52.263
try to decide for that,

01:48:53.217 --> 01:48:55.840
but we will also need to
dig into firm transport versus

01:48:55.840 --> 01:49:00.840
firm supply and consider
attestations, or, you know,

01:49:01.450 --> 01:49:03.860
we'll have to take a
deep dive in all of this.

01:49:03.860 --> 01:49:05.160
We don't need to solve it by December.

01:49:05.160 --> 01:49:06.740
It's just making the
thumbs up or thumbs down

01:49:06.740 --> 01:49:10.450
going forward with
these new developments.

01:49:10.450 --> 01:49:12.630
You know, the thoughts on, I guess,

01:49:12.630 --> 01:49:16.536
the short term solution, including-

01:49:16.536 --> 01:49:18.193
<v ->No low hanging fruit.</v>

01:49:19.680 --> 01:49:23.230
<v ->Short term, immediately
actionable decisions.</v>

01:49:23.230 --> 01:49:25.833
<v Lori>You needed a ladder
to get to the fruit, okay?</v>

01:49:27.230 --> 01:49:28.210
<v ->Thoughts on ORDC?</v>

01:49:32.420 --> 01:49:33.410
<v Will>Am I going first?</v>

01:49:33.410 --> 01:49:35.187
Man, How did I get in this?

01:49:35.187 --> 01:49:37.540
<v Lori>You like setting the
table. You do such a fine job.</v>

01:49:37.540 --> 01:49:40.160
<v ->It's true. That's what
I told my daughter.</v>

01:49:40.160 --> 01:49:41.370
Okay.

01:49:41.370 --> 01:49:42.490
Yes, sir. Mr. Chairman.

01:49:42.490 --> 01:49:44.120
So with,

01:49:44.120 --> 01:49:48.440
with the scenarios that Sam
was kind enough to run for us,

01:49:48.440 --> 01:49:51.770
on the tail scenarios, again,

01:49:51.770 --> 01:49:56.060
I have concerns with
modifying standard deviation

01:49:56.060 --> 01:49:57.980
or elongating the tail.

01:49:57.980 --> 01:50:01.320
And it is because half of
what we're trying to do here

01:50:01.320 --> 01:50:05.498
is normalize the world with
various super competitive,

01:50:05.498 --> 01:50:10.498
super competitive renewables coming in.

01:50:11.210 --> 01:50:15.240
Long tail means renewables
get a lot of good money

01:50:15.240 --> 01:50:17.310
as a part of the ORDC.

01:50:17.310 --> 01:50:21.060
So in order to, as a policy decision,

01:50:21.060 --> 01:50:24.340
I would assert that we
need to help manage that

01:50:24.340 --> 01:50:26.550
as much as we can in the near term,

01:50:26.550 --> 01:50:30.760
by not incentivizing them any more than

01:50:30.760 --> 01:50:31.850
we have to right now,

01:50:31.850 --> 01:50:33.700
even though there are good resources.

01:50:34.540 --> 01:50:36.760
<v Peter>More than the
avalanche of money from DC?</v>

01:50:36.760 --> 01:50:37.593
<v ->Yes, sir.</v>

01:50:37.593 --> 01:50:38.930
Well, you said it and that's right.

01:50:40.260 --> 01:50:43.330
So I have really focused in,

01:50:43.330 --> 01:50:46.830
on those curves without
the tail, that again,

01:50:46.830 --> 01:50:50.183
we discussed at that
the referenced workshop.

01:50:51.360 --> 01:50:55.930
I'm keenly interested in a 2,800 MCL

01:50:55.930 --> 01:50:59.130
and a 6,000 involved
because it looks like

01:50:59.130 --> 01:51:03.900
on a loss of load event
probability, or on Sam's data,

01:51:03.900 --> 01:51:08.260
that we're right in
a very tight ballpark

01:51:08.260 --> 01:51:10.760
of where the current curve is.

01:51:10.760 --> 01:51:13.080
So in terms of adjustment

01:51:14.440 --> 01:51:18.330
that the 6,000 still gives ample

01:51:18.330 --> 01:51:21.500
load resource response pricing signal.

01:51:21.500 --> 01:51:24.620
<v Peter>Is that just vol,
or vol and high cap?</v>

01:51:24.620 --> 01:51:26.940
<v ->Vol and high cap?</v>
<v Peter>Okay.</v>

01:51:26.940 --> 01:51:29.683
<v ->Yeah, I think about
and carries here.</v>

01:51:30.519 --> 01:51:34.810
I think about trying
to explain vol 20,000

01:51:34.810 --> 01:51:37.453
to the legislature
and the greater public,

01:51:38.360 --> 01:51:39.193
but you're smarter than me.

01:51:39.193 --> 01:51:40.983
I mean, you can take a straight down.

01:51:40.983 --> 01:51:41.910
<v Peter>Start with
your neighbors before</v>

01:51:41.910 --> 01:51:43.250
you get to the legislature.
<v ->Right.</v>

01:51:43.250 --> 01:51:44.260
<v Peter>We'll list some opinions.</v>

01:51:44.260 --> 01:51:47.280
<v ->Can you imagine that sunset
hearing, when you're sitting</v>

01:51:47.280 --> 01:51:50.880
there just trying to justify
the existence of the agency

01:51:50.880 --> 01:51:53.542
<v ->I don't think we'll survive</v>
<v ->and I ask you about vol 20.</v>

01:51:53.542 --> 01:51:55.470
<v ->through sunset.</v>
<v ->And anyway,</v>

01:51:55.470 --> 01:51:57.720
that's neither here or there.

01:51:57.720 --> 01:52:01.390
6,000 is a still a strong price signal

01:52:01.390 --> 01:52:05.883
for load response to behave accordingly.

01:52:06.900 --> 01:52:10.160
2,800 still gives us
room as per my memo,

01:52:10.160 --> 01:52:14.840
indicating if ERS was to
deploy the loss of a peaker

01:52:14.840 --> 01:52:17.910
would still trigger that in before EEA,

01:52:17.910 --> 01:52:18.990
you know, or something like that.

01:52:18.990 --> 01:52:21.660
So envision a world where
the nukes are running.

01:52:21.660 --> 01:52:24.010
Our coal is there, we're matching it.

01:52:24.010 --> 01:52:29.010
And then some 250 watt peaker
gives out. ERS can snap in,

01:52:29.020 --> 01:52:32.223
and we still don't go
into a conservation notice.

01:52:33.070 --> 01:52:35.893
<v Peter>So between the
2,800 and the 3000 MCL,</v>

01:52:38.400 --> 01:52:40.940
is that, you just fill
in the gap with ERS,

01:52:40.940 --> 01:52:43.200
or is that, what's your thinking there?

01:52:43.200 --> 01:52:45.560
<v ->No sir. The 2,800,
because again,</v>

01:52:45.560 --> 01:52:47.623
I was trying to hit that cone,

01:52:48.740 --> 01:52:53.740
where you still have the
cone, "cost of new entry"

01:52:53.857 --> 01:52:57.033
being achieved in terms of the scenario.

01:52:58.290 --> 01:52:59.680
<v ->The only observation I have,</v>

01:52:59.680 --> 01:53:03.830
and I know this is kind of a
moving target sometimes with,

01:53:03.830 --> 01:53:05.223
you know, based on our ERCOT's price,

01:53:06.230 --> 01:53:09.660
but maybe ERCOT has some input.

01:53:09.660 --> 01:53:13.560
But based on my discussions
is we are trying to utilize

01:53:13.560 --> 01:53:16.407
these tools like ORDC and ERS,

01:53:16.407 --> 01:53:20.310
and even the TD voltage
reduction program or measure

01:53:21.810 --> 01:53:24.870
before we get into conservation, right.

01:53:24.870 --> 01:53:27.870
We're trying to even
avoid conservations now.

01:53:27.870 --> 01:53:30.390
So if that is the case,

01:53:30.390 --> 01:53:34.500
then I think ERCOT's conservation,

01:53:34.500 --> 01:53:38.940
at times has gone below
3000 during the summer.

01:53:38.940 --> 01:53:39.773
It's kind of where I got,

01:53:39.773 --> 01:53:40.920
I've gotten two thresholds from them.

01:53:40.920 --> 01:53:44.380
I've got 3000 and I've got 2,800.

01:53:44.380 --> 01:53:46.690
So that's the only thing that I want to,

01:53:46.690 --> 01:53:47.900
kind of put in the background.

01:53:47.900 --> 01:53:51.490
And that is the goal is to
bring these resources online,

01:53:51.490 --> 01:53:54.430
to avoid getting into conservation.

01:53:54.430 --> 01:53:57.360
At least what I understood
last from the trigger was

01:53:57.360 --> 01:53:58.560
when you fall below 300,

01:53:59.820 --> 01:54:02.480
that's kind of the discretion
they've been using now.

01:54:02.480 --> 01:54:04.840
So I know that can vary from, you know,

01:54:04.840 --> 01:54:07.670
just high data tie date, but-

01:54:07.670 --> 01:54:10.450
<v ->Yeah, and I think it's an
important principle considering</v>

01:54:12.240 --> 01:54:15.070
while vol's tricky,
we don't necessarily,

01:54:15.070 --> 01:54:16.750
they don't have to be perfectly matched.

01:54:16.750 --> 01:54:19.507
You can, if we want to have
a high cap is a little lower,

01:54:19.507 --> 01:54:22.318
but still increase the
slope of that curve

01:54:22.318 --> 01:54:24.430
with a different valve.

01:54:24.430 --> 01:54:25.610
I'm certainly open to that.

01:54:25.610 --> 01:54:29.530
Regarding the MCL and your
thoughts on the conservation,

01:54:29.530 --> 01:54:32.070
I don't know what the right answer is,

01:54:32.070 --> 01:54:34.056
while we're going through this process.

01:54:34.056 --> 01:54:35.750
But my logic so far has been

01:54:35.750 --> 01:54:39.440
or my logic on the 3000
was I think, at 2,800,

01:54:39.440 --> 01:54:44.440
that's where you get to a NERC
mandated emergency status.

01:54:45.090 --> 01:54:46.530
And the, so just philosophically,

01:54:46.530 --> 01:54:51.530
I think I would want to
make sure that we have,

01:54:51.980 --> 01:54:56.010
as Will said, all the
resources in our ecosystem,

01:54:56.010 --> 01:54:57.990
generators, demand response.

01:54:57.990 --> 01:54:59.160
We have all of those,

01:54:59.160 --> 01:55:01.990
the price signal is there
for all of those resources

01:55:01.990 --> 01:55:03.440
to be brought to bear,

01:55:03.440 --> 01:55:08.323
before we start asking Texans
to power down their lives.

01:55:09.160 --> 01:55:10.500
I don't know what the exact number is,

01:55:10.500 --> 01:55:14.680
but that was my logic
on the 3000 versus 28.

01:55:14.680 --> 01:55:16.470
<v Will>So I'll tell you,
I have a runner up.</v>

01:55:16.470 --> 01:55:17.470
I have a number two.

01:55:20.789 --> 01:55:24.003
3000 MCL and 5,000 vol is next best.

01:55:27.550 --> 01:55:30.660
<v ->Lori, do you want to ask
Kenan to come up and,</v>

01:55:30.660 --> 01:55:34.250
or Dan, whoever's appropriate
to answer the reserve

01:55:36.170 --> 01:55:40.007
or the trigger points as
we get to decreasing PRC?

01:55:45.810 --> 01:55:46.643
<v Dan>I guess,</v>

01:55:48.040 --> 01:55:49.120
we're mandated to,

01:55:49.120 --> 01:55:51.440
as per conservation
when we get into EA two.

01:55:51.440 --> 01:55:54.050
So whatever that was that be.

01:55:54.050 --> 01:55:58.150
But as far as issuing
an advance, we've set a-

01:55:58.150 --> 01:56:00.610
<v ->Sorry, mandated by?</v>
<v Dan>Mandated by NERC.</v>

01:56:00.610 --> 01:56:02.557
<v ->Okay. Not the board, not
something that we know.</v>

01:56:02.557 --> 01:56:04.320
<v Dan>No, by NERC.
When we get into EA two,</v>

01:56:04.320 --> 01:56:06.380
we have to ask for it then.

01:56:06.380 --> 01:56:09.350
<v Will>But, we can sit?
We can sit EEA two.</v>

01:56:09.350 --> 01:56:10.183
Is that correct?

01:56:10.183 --> 01:56:13.100
Or is there, do they have
a hard and fast number?

01:56:13.100 --> 01:56:15.870
<v Dan>No, I think we
can, we can adjust that.</v>

01:56:15.870 --> 01:56:19.620
And then as far as if we
were to ask for conservation

01:56:19.620 --> 01:56:21.163
in advance of that,

01:56:22.860 --> 01:56:26.142
that's completely discretionary
as to when we would do that,

01:56:26.142 --> 01:56:26.975
or not.

01:56:28.370 --> 01:56:30.100
<v ->Where are those set now?</v>

01:56:30.100 --> 01:56:32.217
<v Dan>Well, what we've been doing,</v>

01:56:32.217 --> 01:56:34.930
well it's changed over time,

01:56:34.930 --> 01:56:36.790
but what we're doing right now is,

01:56:36.790 --> 01:56:39.810
if it looks like we're projecting
that we're going to be

01:56:39.810 --> 01:56:43.370
below 2,800 off everything being used,

01:56:43.370 --> 01:56:45.680
all the resources being
used, then we would

01:56:47.080 --> 01:56:49.356
talk to you guys and
others about whether

01:56:49.356 --> 01:56:50.900
it is your conservation in advance.

01:56:50.900 --> 01:56:54.010
<v ->Okay. And that 2,800 is a
change from this time last year.</v>

01:56:54.010 --> 01:56:56.091
<v ->Correct.</v>
<v ->What was it before?</v>

01:56:56.091 --> 01:56:59.713
<v ->I don't know that there
was a hard and fast number.</v>

01:57:00.700 --> 01:57:02.840
<v ->More art than science.</v>
<v ->Yes, sir.</v>

01:57:02.840 --> 01:57:04.963
<v ->Okay. So thank you.</v>

01:57:06.010 --> 01:57:07.347
<v ->Any other questions?</v>

01:57:08.250 --> 01:57:09.643
<v ->Thanks Dan.</v>
<v ->Appreciate it.</v>

01:57:11.230 --> 01:57:13.430
We don't have to solve
that number precisely today,

01:57:13.430 --> 01:57:18.190
but we do need to
get there pretty quick.

01:57:19.930 --> 01:57:22.307
<v Will>The next time right?
We kind of need to have them-</v>

01:57:22.307 --> 01:57:25.387
<v ->Yeah. And we'll, as
we've done, we'll look for,</v>

01:57:28.920 --> 01:57:30.880
I guess you put it well at
option one and option two.

01:57:30.880 --> 01:57:31.730
<v Will>Okay.</v>

01:57:31.730 --> 01:57:34.730
<v ->And my office can coordinate
with your individual offices,</v>

01:57:35.687 --> 01:57:37.360
and as we did the first time around,

01:57:37.360 --> 01:57:40.270
incorporate everybody's feedback and

01:57:42.393 --> 01:57:45.347
bring some, I guess, final
options to the table next time.

01:57:46.923 --> 01:57:47.756
Does that work?

01:57:49.410 --> 01:57:53.153
All right. Any other thoughts on ORDC?

01:58:02.317 --> 01:58:05.067
<v Lori>Not for me at this time.</v>

01:58:07.010 --> 01:58:08.650
<v ->All right.</v>

01:58:08.650 --> 01:58:12.083
We're dangerously close
to the lunch hour, I think.

01:58:16.230 --> 01:58:17.063
Is there anything else we want to cover

01:58:17.063 --> 01:58:21.770
in the short term immediately
actionable changes

01:58:23.360 --> 01:58:26.450
before we get to lunch? Anything else?

01:58:26.450 --> 01:58:27.300
I know we've got,

01:58:28.300 --> 01:58:33.300
Commissioner McAdams
has a memo on proposal.

01:58:35.349 --> 01:58:37.460
And I know Lori also has one,

01:58:37.460 --> 01:58:41.500
so those will be big
topics to tackle after lunch.

01:58:41.500 --> 01:58:45.573
<v Will>I will stand by
to be the (indistinct)</v>

01:58:49.110 --> 01:58:52.440
<v ->Appreciate your willingness
to step forward. All right.</v>

01:58:52.440 --> 01:58:57.053
At this point, we'll recess until 12.30.

01:59:16.618 --> 01:59:18.951
(loud thud)

01:59:22.940 --> 01:59:25.760
This meeting of the Public
Utility Commission of Texas

01:59:25.760 --> 01:59:27.543
will now resume.

01:59:28.640 --> 01:59:31.700
We have reached the point of our agenda

01:59:31.700 --> 01:59:34.140
where we're going to
address the longer term,

01:59:34.140 --> 01:59:35.770
more substantial structural challenges

01:59:35.770 --> 01:59:37.373
for resource adequacy.

01:59:40.600 --> 01:59:44.920
We've heard from
Brattle extensively so far,

01:59:44.920 --> 01:59:47.080
and I'm sure we'll have
some questions for them

01:59:48.000 --> 01:59:50.630
as we continue through the afternoon.

01:59:50.630 --> 01:59:54.800
We have some new suggestions from both

01:59:54.800 --> 01:59:57.000
Commissioner Cobos and
Commissioner McAdams.

01:59:58.817 --> 02:00:00.680
And Commissioner McAdams
was the first one to file.

02:00:00.680 --> 02:00:02.670
So we'll start with you.
<v ->Yes, sir.</v>

02:00:02.670 --> 02:00:07.010
<v ->Please lay that out for
us. And we'll go from there.</v>

02:00:07.010 --> 02:00:07.843
<v ->Okay.</v>

02:00:08.950 --> 02:00:12.730
In an interest of brevity and
saving time for questions,

02:00:12.730 --> 02:00:17.730
the memo was somewhat
detailed in articulating a framework

02:00:18.090 --> 02:00:22.550
for a dispatchable portfolio standard.

02:00:22.550 --> 02:00:24.240
Which as the memo alluded to,

02:00:24.240 --> 02:00:27.410
could be mirrored after the
renewable portfolio standard

02:00:27.410 --> 02:00:31.770
articulating a system of acquiring

02:00:31.770 --> 02:00:36.330
dispatchable generation or
incenting dispatchable generation

02:00:36.330 --> 02:00:39.083
to be built within the ERCOT system.

02:00:40.130 --> 02:00:42.233
I won't bore with all the,

02:00:43.130 --> 02:00:46.180
stipulations of the framework
that are in type on the memo,

02:00:46.180 --> 02:00:48.360
but I will cover key points.

02:00:48.360 --> 02:00:51.270
And I want that to
be a starting point for,

02:00:51.270 --> 02:00:53.220
<v Peter>Please.</v>
<v ->for consideration.</v>

02:00:54.500 --> 02:00:56.920
With the dispatchable portfolio standard

02:00:56.920 --> 02:01:00.630
and the accompanying
dispatchable energy credits

02:01:00.630 --> 02:01:02.040
that could result.

02:01:02.040 --> 02:01:05.660
We as a Commission
would identify a need.

02:01:05.660 --> 02:01:09.160
What is our target for
dispatchability and dispatchable

02:01:09.160 --> 02:01:12.740
generation relative to growth
within the ERCOT system?

02:01:12.740 --> 02:01:13.573
Again,

02:01:13.573 --> 02:01:15.790
this has been somewhat of a
moving target over the years,

02:01:15.790 --> 02:01:19.253
and hotly contested
from reserve margins,

02:01:20.270 --> 02:01:22.303
capacity market debates, you name it.

02:01:23.490 --> 02:01:27.820
We would have a good
faith process to determine,

02:01:27.820 --> 02:01:29.260
all right, what do we gotta have?

02:01:29.260 --> 02:01:30.700
When do we have to have it?

02:01:30.700 --> 02:01:33.521
How does that relate
to the near term forecast

02:01:33.521 --> 02:01:35.630
of growth in the system?

02:01:35.630 --> 02:01:38.260
We then establish a
performance based incentive.

02:01:38.260 --> 02:01:40.210
That's the dispatchable energy credits.

02:01:41.410 --> 02:01:42.243
Mr. Chairman,

02:01:43.460 --> 02:01:48.270
it's not universally different
than a LSE obligation.

02:01:48.270 --> 02:01:49.230
Again,

02:01:49.230 --> 02:01:52.963
you're imposing a requirement
on load serving entities.

02:01:54.070 --> 02:01:58.060
We would then narrow the
scope of the qualifying generation

02:01:58.060 --> 02:02:01.540
to next generation
technology that would qualify.

02:02:01.540 --> 02:02:03.323
Again, new steel in the ground.

02:02:04.970 --> 02:02:08.430
And that is something I
absolutely want to discuss with this

02:02:08.430 --> 02:02:11.230
Commission, with this group,
of the performance standard.

02:02:11.230 --> 02:02:14.243
Because again, that will be
hotly contested and litigated.

02:02:15.300 --> 02:02:18.180
We would then create a market mechanism

02:02:18.180 --> 02:02:19.390
through this clearing house,

02:02:19.390 --> 02:02:24.390
through this obligation
while allowing optionality

02:02:24.510 --> 02:02:28.010
for loads and resources to continue

02:02:28.010 --> 02:02:31.690
on a bilateral option track,

02:02:31.690 --> 02:02:33.720
or go through a clearing house

02:02:33.720 --> 02:02:37.297
or incur the penalty of an ACP.

02:02:39.410 --> 02:02:43.030
This creates a market and
a mechanism that sizes itself

02:02:43.030 --> 02:02:48.030
over time as more dispatchable
generation becomes qualifying

02:02:48.200 --> 02:02:50.870
for decks, the value
of the decks go down.

02:02:50.870 --> 02:02:52.570
<v Peter>Is it the size or price?</v>

02:02:54.470 --> 02:02:58.091
<v ->Again, you set the percentage
of what you need, and-</v>

02:02:58.091 --> 02:03:00.831
<v Peter>That would never be
a self setting. That would be</v>

02:03:00.831 --> 02:03:03.342
<v ->We do that.</v>
<v Peter>set centrally.</v>

02:03:03.342 --> 02:03:04.960
The price would be self-correcting.

02:03:04.960 --> 02:03:06.330
<v ->Yes. That's right.</v>
<v ->That's what I meant. Okay.</v>

02:03:06.330 --> 02:03:09.740
<v ->The value determined by the</v>

02:03:09.740 --> 02:03:12.800
amount of debt qualifying
generation that's out there,

02:03:12.800 --> 02:03:14.273
setting that market price.

02:03:15.580 --> 02:03:18.080
That limits the overall
impact to consumers

02:03:18.080 --> 02:03:23.080
and has a future limiting
effect on the program itself.

02:03:24.930 --> 02:03:27.870
I know there is great
concerns of a potential

02:03:27.870 --> 02:03:32.780
distorting effect on price
formation in the ERCOT system,

02:03:32.780 --> 02:03:35.540
and especially on the
realtime price, because again,

02:03:35.540 --> 02:03:37.770
depending on where
these decks are valued at,

02:03:37.770 --> 02:03:41.030
they're going to be coming in at that,

02:03:41.030 --> 02:03:44.120
I have heard it asserted
a subsidized value.

02:03:44.120 --> 02:03:44.953
But again,

02:03:44.953 --> 02:03:48.040
if you get steel in the ground
and the value goes down,

02:03:48.040 --> 02:03:50.830
then you're kind of right
there with everybody else.

02:03:50.830 --> 02:03:55.830
There's a limiting
characteristic of the program.

02:03:55.890 --> 02:03:57.350
I do want to point out

02:03:57.350 --> 02:04:00.360
that this is a performance
driven incentive,

02:04:00.360 --> 02:04:02.460
meaning that you have to produce power

02:04:02.460 --> 02:04:04.920
in order to get a deck. Okay?

02:04:04.920 --> 02:04:06.990
So nobody's getting paid to sit there.

02:04:06.990 --> 02:04:11.520
You're still participating
in the lucrative and that

02:04:11.520 --> 02:04:13.660
the lucrative systems
of the ERCOT realtime

02:04:13.660 --> 02:04:15.580
and they had market,

02:04:15.580 --> 02:04:19.210
you still could perform
ancillary services.

02:04:19.210 --> 02:04:24.210
But the old generation still
gets the two revenue streams

02:04:24.350 --> 02:04:28.660
that they get today. They get
realtime price, ORDC adders,

02:04:28.660 --> 02:04:30.880
responsive reserve
service qualifications,

02:04:30.880 --> 02:04:32.888
non-spin reserve service qualifications,

02:04:32.888 --> 02:04:34.790
ERCOT contingency reserve service,

02:04:34.790 --> 02:04:37.430
winter ancillary service,
and voltage support

02:04:37.430 --> 02:04:39.570
that are envisioned in
this potential blueprint

02:04:39.570 --> 02:04:41.970
that we could adopt in December.

02:04:41.970 --> 02:04:45.547
And so with all that, we
have to take into account,

02:04:45.547 --> 02:04:48.650
"Okay, well, how soon could
you see this new generation?"

02:04:48.650 --> 02:04:49.620
All right?

02:04:49.620 --> 02:04:51.260
It's just not all going
to pile in at once,

02:04:51.260 --> 02:04:54.110
but one of the key
attributes of this plan

02:04:54.110 --> 02:04:57.440
is it incentivizes timely
deployment of the steel.

02:04:57.440 --> 02:05:00.373
Those first to market, get the gold.

02:05:02.881 --> 02:05:06.190
And once more pile
in, it dilutes the effect

02:05:06.190 --> 02:05:08.860
and there's that self-governing aspect.

02:05:08.860 --> 02:05:11.110
So those are the
points of the front end.

02:05:11.110 --> 02:05:13.680
I want to make sure that
it's out there for the public,

02:05:13.680 --> 02:05:14.853
for stakeholders.

02:05:16.270 --> 02:05:19.610
There's a lot to debate
here. There's a lot to analyze.

02:05:19.610 --> 02:05:22.200
I hope that this survives
immediate scrutiny,

02:05:22.200 --> 02:05:25.100
and we have time to discuss this further

02:05:25.100 --> 02:05:28.660
with the rest of the market
participant community,

02:05:28.660 --> 02:05:31.600
able to engage and
tell me where I'm wrong.

02:05:31.600 --> 02:05:34.070
With that Mr. Chairman,
I'll yield back to you, sir.

02:05:34.070 --> 02:05:38.543
<v ->Thank you. Nicely
laid out. A lot to consider.</v>

02:05:41.237 --> 02:05:42.070
And as we know,

02:05:42.070 --> 02:05:43.880
this is certainly not
a day for decisions

02:05:44.850 --> 02:05:47.653
and even procedurally as
we get closer to December,

02:05:50.168 --> 02:05:51.940
it's the big questions.

02:05:51.940 --> 02:05:54.590
Thumbs up, thumbs down,
do we do? You said something.

02:05:55.868 --> 02:05:58.180
You mentioned, this is
something substantially similar

02:05:58.180 --> 02:05:59.400
to an LSE obligation.

02:05:59.400 --> 02:06:00.370
<v ->Yes, sir.</v>

02:06:00.370 --> 02:06:03.240
One more condition. If I
could, sir, at the front end,

02:06:03.240 --> 02:06:05.460
this was not my complete idea, okay.

02:06:05.460 --> 02:06:08.680
So I am protecting
the innocent by striding

02:06:08.680 --> 02:06:11.237
stakeholder input into this proposal

02:06:11.237 --> 02:06:14.582
and getting it out there
so we can debate it, but-

02:06:14.582 --> 02:06:16.000
<v ->I bet we can sniff them out.</v>

02:06:16.000 --> 02:06:20.149
<v ->Yeah. And I think they've
talked to everybody, but anyway.</v>

02:06:20.149 --> 02:06:21.660
Just a disclaimer.

02:06:21.660 --> 02:06:22.900
<v ->Fair point.</v>

02:06:22.900 --> 02:06:23.733
But,

02:06:24.619 --> 02:06:26.560
and a chance to
highlight that procedurally

02:06:26.560 --> 02:06:28.630
the December decision is
thumbs up, thumbs down.

02:06:28.630 --> 02:06:30.570
Do we want to do something
for me on the firming side

02:06:30.570 --> 02:06:31.920
or on the generation side.

02:06:31.920 --> 02:06:34.030
We want the money
to come from that side.

02:06:34.030 --> 02:06:35.540
We want coming from some version of

02:06:35.540 --> 02:06:38.420
a LSE obligation that
would include this.

02:06:38.420 --> 02:06:40.340
I would say that's in that bucket.

02:06:40.340 --> 02:06:44.270
We don't have to figure all
of that out on December 16th.

02:06:44.270 --> 02:06:47.670
We've just got to put a flag
in the ground and say, that's,

02:06:47.670 --> 02:06:50.060
this is the path ahead.

02:06:50.060 --> 02:06:52.433
This is the course we're going to chart.

02:06:53.270 --> 02:06:56.410
So thank you for laying that out.

02:06:56.410 --> 02:06:59.180
And thank you for working to bring

02:06:59.180 --> 02:07:01.863
additional new concepts
into the conversation.

02:07:02.850 --> 02:07:04.253
I very much liked the concept of,

02:07:04.253 --> 02:07:08.533
and I know this has been
very quick and very high level.

02:07:10.290 --> 02:07:13.680
So I don't think anybody should expect

02:07:15.520 --> 02:07:18.940
detailed answers on
every element. Is that fair?

02:07:18.940 --> 02:07:20.610
<v Will>I welcome that.</v>

02:07:20.610 --> 02:07:22.733
<v ->Well, I'm trying to
protect the innocent.</v>

02:07:26.350 --> 02:07:29.970
So, and I certainly like the
principle that seems to be

02:07:29.970 --> 02:07:33.310
enshrined here of providing
market incentives for exactly

02:07:33.310 --> 02:07:38.310
what we need more, more
precise tool than a cleansing tool.

02:07:39.480 --> 02:07:41.873
So I think that's
certainly a qualification.

02:07:43.770 --> 02:07:47.270
Two, two quick questions
would, and I know we don't,

02:07:47.270 --> 02:07:52.150
we don't know that the
doing all the details yet

02:07:55.057 --> 02:07:56.640
would in principle,

02:07:59.240 --> 02:08:02.290
I know the performance
metrics are a work in progress,

02:08:02.290 --> 02:08:03.950
a moving target, if you will.

02:08:03.950 --> 02:08:06.270
In principle, would you
anticipate something like this

02:08:06.270 --> 02:08:11.220
being able to include hydrogen, biomass,

02:08:11.220 --> 02:08:15.540
nuclear, basically nuclear SMRs, nukes,

02:08:15.540 --> 02:08:18.010
or is it very specifically gas?

02:08:18.010 --> 02:08:22.252
<v ->So the reason I put
the stake in the ground on</v>

02:08:22.252 --> 02:08:24.940
the performance measures that I did,

02:08:24.940 --> 02:08:28.163
one, there are very few
units on the system today

02:08:28.163 --> 02:08:29.380
that would qualify.

02:08:29.380 --> 02:08:32.800
So again, I was trying to
put a framework of a technical

02:08:32.800 --> 02:08:36.650
specifications that would
ensure new steel and did it,

02:08:36.650 --> 02:08:41.010
the effect was not diluted
by the universal application

02:08:41.010 --> 02:08:42.773
to what we have today,

02:08:44.170 --> 02:08:47.473
even though it's very
important to maintain those units.

02:08:49.450 --> 02:08:51.823
I think that is something
we need to discuss.

02:08:53.695 --> 02:08:58.695
And I also didn't want to
freeze the market for anything

02:08:59.110 --> 02:09:02.193
that is coming in today, if
you know what I'm saying.

02:09:03.100 --> 02:09:06.820
So those projects that were
envisioned to be installed,

02:09:06.820 --> 02:09:09.750
I want us to have a discussion
about what that looks like,

02:09:09.750 --> 02:09:12.283
so that if they can fall
up under that umbrella,

02:09:13.240 --> 02:09:14.433
we can assess this.

02:09:15.460 --> 02:09:17.700
<v Peter>I guess the second
part of that question</v>

02:09:17.700 --> 02:09:19.894
on the performance standard.

02:09:19.894 --> 02:09:22.440
I guess the penciled in version,

02:09:22.440 --> 02:09:24.820
let's say original
proposal is five minutes.

02:09:24.820 --> 02:09:25.653
<v ->Yep.</v>

02:09:25.653 --> 02:09:27.683
<v Peter>Would that
cannibalize the ECRS</v>

02:09:27.683 --> 02:09:30.590
or sort of double
qualify the same units?

02:09:30.590 --> 02:09:33.150
<v ->I believe ECRS is a
10 and 30 minute product</v>

02:09:33.150 --> 02:09:34.200
as envisioned today, sir.

02:09:34.200 --> 02:09:38.980
So no. These would be,
if those are flexible units,

02:09:38.980 --> 02:09:40.780
we're talking super flexible units.

02:09:40.780 --> 02:09:43.380
I mean, rapid responding, work zillows

02:09:43.380 --> 02:09:45.770
and latest generation peakers.

02:09:45.770 --> 02:09:46.603
<v Peter>Right,</v>

02:09:46.603 --> 02:09:48.330
I mean, it's the
cannibalization question is,

02:09:48.330 --> 02:09:50.920
if I'm planning on building
a 10 minute one anyway,

02:09:50.920 --> 02:09:54.340
I can tweak the engineering
a bit and make it a five minute.

02:09:54.340 --> 02:09:56.500
And I get both ECRS and-

02:09:56.500 --> 02:09:58.170
<v ->In answer to your question,</v>

02:09:58.170 --> 02:09:59.750
the deck program is not an either-or.

02:09:59.750 --> 02:10:01.010
That's the beauty of it.

02:10:01.010 --> 02:10:04.580
You are participating in ECRS
and you're issuing that deck.

02:10:04.580 --> 02:10:07.240
So you're not
cannibalizing any of the tools

02:10:07.240 --> 02:10:09.770
that we are currently discussing.

02:10:09.770 --> 02:10:10.603
<v ->Good.</v>

02:10:11.750 --> 02:10:14.920
The only other question
I had was around the

02:10:14.920 --> 02:10:17.865
dispatchability or the
dispatchable requirement.

02:10:17.865 --> 02:10:19.480
From what I understand,
you don't earn a deck

02:10:19.480 --> 02:10:20.870
unless the unit's dispatched.

02:10:20.870 --> 02:10:22.303
Is that correct?
<v Will>That's correct.</v>

02:10:23.780 --> 02:10:26.159
<v ->Which in principle
very much like,</v>

02:10:26.159 --> 02:10:29.423
we're paying for simply
power that you used.

02:10:31.110 --> 02:10:35.360
How would that work in
the anticipated wave of wind

02:10:35.360 --> 02:10:38.993
and solar that you correctly
referenced many times,

02:10:40.030 --> 02:10:42.870
as the penetration
of those intermittents,

02:10:42.870 --> 02:10:46.353
the zero marginal costs
or heavily subsidized,

02:10:48.105 --> 02:10:52.340
not zero cost, but the,

02:10:52.340 --> 02:10:55.680
the front of the stack
as the penetration

02:10:55.680 --> 02:10:59.210
of those intermittents increases
and increases dramatically,

02:10:59.210 --> 02:11:03.023
as you correctly anticipate
in the absence of action.

02:11:09.628 --> 02:11:12.320
How would an investor know
that the unit would be dispatched

02:11:12.320 --> 02:11:14.920
in order to earn the decks?

02:11:14.920 --> 02:11:18.490
<v ->Meeting that very rapid
decline on a duck curve.</v>

02:11:18.490 --> 02:11:21.670
And again, that's where that
performance value comes in.

02:11:21.670 --> 02:11:23.760
Those less than five minute ramps,

02:11:23.760 --> 02:11:25.910
can help check and arrest those falls.

02:11:25.910 --> 02:11:28.700
So they know that's going
to occur on a daily basis.

02:11:28.700 --> 02:11:31.460
And they know that wind
will fall off periodically causing

02:11:31.460 --> 02:11:34.990
scarcity pricing conditions
as in our blue sky event

02:11:34.990 --> 02:11:38.510
or gray sky event, as
other filers have identified

02:11:38.510 --> 02:11:40.250
that problem.

02:11:40.250 --> 02:11:44.870
So the amount of intermittent
penetration into the system

02:11:44.870 --> 02:11:47.770
will only enhance and
exacerbate those scenarios

02:11:47.770 --> 02:11:48.770
that require,

02:11:48.770 --> 02:11:52.093
and send a signal that
this is the type of generation

02:11:52.093 --> 02:11:54.140
that will be needed anyway.

02:11:54.140 --> 02:11:56.610
And the deck will help
put them over the top

02:11:56.610 --> 02:11:59.230
because they know that that
is a third revenue stream that,

02:11:59.230 --> 02:12:01.197
that facility could experience.

02:12:01.197 --> 02:12:03.140
<v Peter>Under that
construct that they would</v>

02:12:03.140 --> 02:12:05.510
only expect that maybe
an hour or two a day.

02:12:05.510 --> 02:12:06.928
<v ->Yes, sir.</v>
<v Peter>Okay.</v>

02:12:06.928 --> 02:12:09.060
<v ->Potentially, depending
on the breaks. Yeah.</v>

02:12:09.060 --> 02:12:11.140
<v ->Okay. So it's a similar
investment model of,</v>

02:12:11.140 --> 02:12:14.000
I make my money an
hour or two at a time,

02:12:14.000 --> 02:12:17.140
not on a kind of
higher utilization factor.

02:12:17.140 --> 02:12:19.600
<v ->But if it's every day or
something like that, you know,</v>

02:12:19.600 --> 02:12:22.580
where we, again, that that sun drops off

02:12:22.580 --> 02:12:24.240
and if that wind did in there,

02:12:24.240 --> 02:12:26.350
it's going to be a very profitable day

02:12:26.350 --> 02:12:29.070
plus decks included for that facility.

02:12:29.070 --> 02:12:29.903
<v ->Okay. So I mean,</v>

02:12:29.903 --> 02:12:31.870
what our experience in summer
has been about once a month,

02:12:31.870 --> 02:12:34.950
we get into those really
tight conditions where we're

02:12:34.950 --> 02:12:38.430
on the edge. So it'd be a
couple hours once a month.

02:12:38.430 --> 02:12:41.010
<v Will>And in case it will-</v>

02:12:41.010 --> 02:12:41.843
<v ->I think it's more that that,</v>

02:12:41.843 --> 02:12:43.273
because if you're dealing with ramping,

02:12:44.204 --> 02:12:45.037
if you're dealing with resources

02:12:45.037 --> 02:12:48.400
that will help in the ramping issue,

02:12:48.400 --> 02:12:50.291
there'll be there every day.

02:12:50.291 --> 02:12:52.610
There'll be in the market
every single day helping solve-

02:12:52.610 --> 02:12:55.010
<v ->If there's a split between
that solar ramp and the-</v>

02:12:55.010 --> 02:12:58.463
<v ->Right. I mean, that's,
that's ECRS, right.</v>

02:12:59.520 --> 02:13:01.065
<v Will>And that's where they-</v>

02:13:01.065 --> 02:13:02.280
<v ->I mean, ECRS isn't built,</v>

02:13:02.280 --> 02:13:04.150
it's not intended to use every day.

02:13:04.150 --> 02:13:06.914
because on average,

02:13:06.914 --> 02:13:08.100
it's the average we're
challenging, right.

02:13:08.100 --> 02:13:10.390
On average, depending
on the time of the year,

02:13:10.390 --> 02:13:14.350
as solar goes down,
wind picks up the slack.

02:13:14.350 --> 02:13:15.960
That's the perfect-

02:13:15.960 --> 02:13:17.880
<v Will>It's the perfect world
that the resources perform-</v>

02:13:17.880 --> 02:13:19.980
<v ->We know that it
doesn't happen that way.</v>

02:13:21.470 --> 02:13:23.250
So I'm just, I'm trying
to get a sense of what,

02:13:23.250 --> 02:13:25.873
what this would look
like in a pro forma DCF.

02:13:27.090 --> 02:13:28.390
That's helpful. Thank you.

02:13:29.520 --> 02:13:31.120
Any other questions or comments?

02:13:34.790 --> 02:13:38.310
<v ->Commissioner McAdams,
thank you for laying this out.</v>

02:13:38.310 --> 02:13:43.310
Certainly very creative
proposal that I think,

02:13:46.140 --> 02:13:48.400
I guess the first question I'm going to,

02:13:48.400 --> 02:13:49.627
and I know this has come up

02:13:49.627 --> 02:13:51.280
and I know you laid it out in your memo.

02:13:51.280 --> 02:13:53.090
I think one of the first questions that,

02:13:53.090 --> 02:13:55.867
that I think may come up
is do we need legislation?

02:13:55.867 --> 02:13:57.310
<v ->Correct.</v>

02:13:57.310 --> 02:13:58.756
<v ->And I know you laid that out.</v>

02:13:58.756 --> 02:14:00.460
Can you kind of talk
a little bit about that?

02:14:00.460 --> 02:14:01.293
<v ->Sure.</v>

02:14:03.250 --> 02:14:07.740
As it applies to the powers
enshrined in Senate Bill 3,

02:14:07.740 --> 02:14:11.047
I would look to the new para 39.159.

02:14:14.190 --> 02:14:16.290
The Commission shall
ensure that ERCOT establishes

02:14:16.290 --> 02:14:19.260
requirements in the section
to meet the reliability needs

02:14:19.260 --> 02:14:24.260
of the grid. And this
includes a reliability service.

02:14:24.310 --> 02:14:26.760
I would argue that the deck program,

02:14:26.760 --> 02:14:29.382
it is exactly the type
of reliability service

02:14:29.382 --> 02:14:33.010
that ultimately helps growth.

02:14:33.010 --> 02:14:36.940
That meet the growth and
demand that the legislature

02:14:36.940 --> 02:14:39.150
contemplates and what
are we going to need

02:14:39.150 --> 02:14:43.503
to meet periods of low
intermittent resource output.

02:14:44.960 --> 02:14:46.390
<v ->Okay.</v>

02:14:46.390 --> 02:14:47.970
Okay. So consistent with SB-3.

02:14:47.970 --> 02:14:50.180
So SB-3 would provide the foundation.

02:14:50.180 --> 02:14:51.500
And the only reason I asked you, I mean,

02:14:51.500 --> 02:14:52.610
that's a question that's come up

02:14:52.610 --> 02:14:55.300
as I start to evaluate the issue,

02:14:55.300 --> 02:14:57.037
and I know maybe some
stakeholders have that question.

02:14:57.037 --> 02:15:00.446
You laid it out on those
boards and trying to, you know,

02:15:00.446 --> 02:15:02.090
I think one of the points
that's come up is, you know,

02:15:02.090 --> 02:15:05.020
the right training program
specifically laid out in statute

02:15:05.020 --> 02:15:08.030
in detail. And so that's why I
think the question's come up.

02:15:08.030 --> 02:15:08.900
The second one-

02:15:08.900 --> 02:15:10.320
<v Peter>So you're
concerned, there's not</v>

02:15:10.320 --> 02:15:13.340
statutory authority to
implement program like this?

02:15:13.340 --> 02:15:17.430
<v ->I'm just wanting to make
sure that we, you know,</v>

02:15:17.430 --> 02:15:18.850
I understand his basis for it.

02:15:18.850 --> 02:15:20.933
I mean, I'm not saying yes or no.

02:15:22.049 --> 02:15:23.180
I think that's a question that's come up

02:15:23.180 --> 02:15:26.070
because it is specifically set forth.

02:15:26.070 --> 02:15:28.084
The right training program
or existing ERCOT training

02:15:28.084 --> 02:15:30.560
program is specifically
delineated in statute.

02:15:30.560 --> 02:15:33.160
So I think that's one
question that has come up,

02:15:33.160 --> 02:15:34.910
at least in my preliminary discussions

02:15:34.910 --> 02:15:36.150
with this type of concept.

02:15:36.150 --> 02:15:39.440
And so I'm not saying
that we need legislation or,

02:15:39.440 --> 02:15:42.030
or we don't, I'm just
kind of just exploring.

02:15:42.030 --> 02:15:44.274
<v Peter>We better figure
that out pretty quick,</v>

02:15:44.274 --> 02:15:45.707
or we can save ourselves a lot of time

02:15:45.707 --> 02:15:48.250
and just get ahead to the
next legislative session.

02:15:48.250 --> 02:15:51.860
<v ->Well, I just, you know,
I want it to just sort of,</v>

02:15:51.860 --> 02:15:53.800
that's the initial question we must ask.

02:15:53.800 --> 02:15:56.380
And so, and, you know,
Commissioner McAdams

02:15:56.380 --> 02:15:59.133
has his position on that
and that'll be something

02:15:59.133 --> 02:16:00.690
that we can do to kind of go along.

02:16:00.690 --> 02:16:03.940
But second piece to that is,

02:16:03.940 --> 02:16:05.300
I think you've said, you know,

02:16:05.300 --> 02:16:08.500
criticisms are too
small that the program

02:16:08.500 --> 02:16:10.810
would focused on a
subset of new generation.

02:16:10.810 --> 02:16:12.089
<v ->New generation.</v>

02:16:12.089 --> 02:16:12.960
<v ->And is there a
way I think you're</v>

02:16:12.960 --> 02:16:15.510
open to kind of opening it
up a little bit more on that?

02:16:15.510 --> 02:16:18.490
<v ->I am. Well, we need, and so,</v>

02:16:18.490 --> 02:16:20.510
we're starting to have
comments filed now.

02:16:20.510 --> 02:16:21.910
WattBridge has filed comments.

02:16:21.910 --> 02:16:25.770
We need to know the universe
of the type of generation

02:16:25.770 --> 02:16:29.710
that again, constitutes latest available

02:16:29.710 --> 02:16:34.710
new generation technology
that is best for the system.

02:16:36.980 --> 02:16:38.156
And so-

02:16:38.156 --> 02:16:42.350
<v Jimmy>Next generation.</v>
<v ->Next generation technology.</v>

02:16:42.350 --> 02:16:45.530
And so look, I am not an engineer.

02:16:45.530 --> 02:16:46.950
I don't think any of us are,

02:16:46.950 --> 02:16:48.760
we need to talk to some engineers

02:16:48.760 --> 02:16:53.170
and ascertain what's
the best qualification

02:16:53.170 --> 02:16:54.820
that we can put in place on this,

02:16:54.820 --> 02:16:58.000
similar to LSE obligation
or any other proposal.

02:16:58.000 --> 02:17:00.760
We've got to figure
out the accreditation

02:17:00.760 --> 02:17:02.960
for what we're going to pay for.

02:17:02.960 --> 02:17:04.500
<v ->Okay.</v>

02:17:04.500 --> 02:17:08.276
The other aspect of
your proposal that I know,

02:17:08.276 --> 02:17:09.380
it's come up a little bit,

02:17:09.380 --> 02:17:11.360
is the alternative compliance payment.

02:17:11.360 --> 02:17:12.210
<v ->That's correct.</v>

02:17:13.140 --> 02:17:15.950
<v ->How can the other
concerns that, you know,</v>

02:17:15.950 --> 02:17:18.990
LSEs would go ahead and
just opt out and pay the payment

02:17:18.990 --> 02:17:22.510
and sort of would defeat
the purpose of increasing

02:17:22.510 --> 02:17:24.200
the investment because they get,

02:17:24.200 --> 02:17:26.210
then that money then
goes to load to reduce

02:17:26.210 --> 02:17:27.420
costs of ancillary services.

02:17:27.420 --> 02:17:29.807
<v ->Well, we get our
ancillary services paid for,</v>

02:17:29.807 --> 02:17:32.180
and I consider that a benefit to me.

02:17:32.180 --> 02:17:36.330
<v ->The roaring costs on the
AAS, which will carry more-</v>

02:17:36.330 --> 02:17:40.170
<v Peter>So to make sure I've
got the flow of funds, right?</v>

02:17:40.170 --> 02:17:44.060
So the noncompliance or the -

02:17:45.363 --> 02:17:46.790
<v ->ACPC</v>

02:17:46.790 --> 02:17:50.860
<v ->In event of an LSE,
does not procure the decks,</v>

02:17:50.860 --> 02:17:52.610
they're obligated for,

02:17:52.610 --> 02:17:56.810
they pay a penalty that
goes into the ERCOT hopper

02:17:56.810 --> 02:18:00.230
to offset existing ancillary services

02:18:00.230 --> 02:18:02.940
or to procure additional
ancillary services

02:18:02.940 --> 02:18:05.710
to offset that decks
that weren't procured.

02:18:05.710 --> 02:18:06.543
<v ->No,</v>

02:18:06.543 --> 02:18:08.890
it would pay for,

02:18:08.890 --> 02:18:12.990
it is a after-the-event
settlement process that goes in.

02:18:12.990 --> 02:18:17.350
They didn't have their deck
and ERCOT will then go in and

02:18:18.330 --> 02:18:23.330
settle the ancillary service
obligations with that money.

02:18:23.770 --> 02:18:25.740
Again, it's ERCOT established clearing.

02:18:25.740 --> 02:18:26.573
<v Peter>What do you mean settled?</v>

02:18:26.573 --> 02:18:29.670
It says reducing the existing fee.

02:18:29.670 --> 02:18:32.000
It's not buying additional.

02:18:32.000 --> 02:18:34.090
<v ->No, sir. It's just reducing
that obligation. Yeah.</v>

02:18:34.090 --> 02:18:37.012
That they have had
to procure in advance.

02:18:37.012 --> 02:18:37.845
<v Jimmy>And I think you obviously-</v>

02:18:37.845 --> 02:18:38.940
<v ->We'll commit to in your auction</v>

02:18:38.940 --> 02:18:40.870
<v Jimmy>you won't have
an ACP that's pretty high.</v>

02:18:40.870 --> 02:18:41.703
<v ->Correct.</v>

02:18:41.703 --> 02:18:43.490
<v Jimmy>You don't want
people to do the ACP.</v>

02:18:43.490 --> 02:18:45.583
You want people to do the
cheaper option, which was.

02:18:45.583 --> 02:18:46.416
<v ->That's right.</v>

02:18:46.416 --> 02:18:49.210
<v Peter>Sure. But if for
whatever whacky reason,</v>

02:18:49.210 --> 02:18:52.410
they procure their decks,

02:18:52.410 --> 02:18:56.950
that leaves a gap in the
dispatchable generation volume,

02:18:56.950 --> 02:18:59.210
right? Which is what we want.
<v ->Right.</v>

02:18:59.210 --> 02:19:00.384
<v Peter>So that's
why I'm asking you,</v>

02:19:00.384 --> 02:19:02.717
that still leaves a hole in our fleet.

02:19:02.717 --> 02:19:03.810
So that's why I'm asking if we,

02:19:03.810 --> 02:19:06.580
if that money would go to add or

02:19:06.580 --> 02:19:09.360
procure additional ancillary service.

02:19:09.360 --> 02:19:11.460
<v ->Yeah. No, I
don't think so, sir.</v>

02:19:11.460 --> 02:19:13.710
I don't think that's a
market signal on this.

02:19:14.680 --> 02:19:15.810
<v Peter>Well, I'm
not a market signal.</v>

02:19:15.810 --> 02:19:16.770
I'm just worried about making sure

02:19:16.770 --> 02:19:17.890
we have the generation we'll need.

02:19:17.890 --> 02:19:18.847
<v ->I understand you.</v>

02:19:20.441 --> 02:19:21.470
<v ->And I'm asking these
questions because</v>

02:19:21.470 --> 02:19:22.850
these are, as I mentioned,

02:19:22.850 --> 02:19:24.690
these criticisms that have come up

02:19:24.690 --> 02:19:27.393
and I just want to give
you the opportunity to-

02:19:28.570 --> 02:19:32.560
<v ->To me, I view it as a mechanism
to pay the bill, you know,</v>

02:19:32.560 --> 02:19:35.384
once the check comes after dinner.

02:19:35.384 --> 02:19:36.709
<v Peter>Sure, but not get
any new generation?</v>

02:19:36.709 --> 02:19:37.542
<v ->No sir.</v>

02:19:38.878 --> 02:19:42.210
Not getting any new
gen for ancillary service.

02:19:42.210 --> 02:19:43.043
Correct, sir.

02:19:43.043 --> 02:19:45.600
And it should not change
the calculus in terms of,

02:19:45.600 --> 02:19:48.380
the deck program would
not change the calculus

02:19:48.380 --> 02:19:49.220
in terms of what-

02:19:49.220 --> 02:19:51.230
<v Peter>No I mean, the penalty,
the funds that come out</v>

02:19:51.230 --> 02:19:52.920
of the wallet, don't go
to buy new generation.

02:19:52.920 --> 02:19:55.540
<v ->Or the ACP should
not change the calculus</v>

02:19:55.540 --> 02:19:56.530
on what Brad feels like.

02:19:56.530 --> 02:19:59.364
He needs to procure to meet that day's

02:19:59.364 --> 02:20:02.170
reliability condition.
<v Peter>Okay.</v>

02:20:02.170 --> 02:20:04.340
<v ->So it sounds like one
way to mitigate that concern</v>

02:20:04.340 --> 02:20:07.070
is to have a high ACP, right?

02:20:07.070 --> 02:20:08.020
<v ->Correct.</v>

02:20:08.020 --> 02:20:11.750
<v ->Maybe think of another
protective measure to sort of</v>

02:20:14.600 --> 02:20:15.923
defray that interest.

02:20:17.702 --> 02:20:18.535
So I know it was just, you know,

02:20:18.535 --> 02:20:23.130
kind of the initial
concept of laying a path.

02:20:23.130 --> 02:20:25.120
If you can't get the deck then,

02:20:25.120 --> 02:20:27.060
if an LSE does not procure the deck,

02:20:27.060 --> 02:20:31.200
then they have another option.
So working on that option,

02:20:31.200 --> 02:20:33.130
so there's not any
independent consequences

02:20:33.130 --> 02:20:35.560
that we need to continue to look at.

02:20:35.560 --> 02:20:38.440
<v ->Well. So the ACP,</v>

02:20:38.440 --> 02:20:41.760
the sizing of the ACP and
scaling was one of the most

02:20:41.760 --> 02:20:44.070
important components of the REC program.

02:20:44.070 --> 02:20:45.880
So this is going to be on the front end,

02:20:45.880 --> 02:20:48.360
one of those things
that is going to take

02:20:48.360 --> 02:20:50.687
a lot of refinement to get that right.

02:20:50.687 --> 02:20:54.020
And just for the reasons
you're highlighting here.

02:20:54.020 --> 02:20:54.950
<v Peter>You sounded
like you were ready</v>

02:20:54.950 --> 02:20:56.873
for coming. It'll be price.

02:20:58.140 --> 02:20:59.677
<v Jimmy>I don't know
if it's that high or not,</v>

02:20:59.677 --> 02:21:03.233
but it's something
high enough, you know.

02:21:03.233 --> 02:21:04.595
<v Peter>People
respond to incentives.</v>

02:21:04.595 --> 02:21:06.511
<v Jimmy>I'm sorry?</v>
<v ->People respond to incentives</v>

02:21:06.511 --> 02:21:08.594
<v Jimmy>Well it's true.</v>

02:21:10.040 --> 02:21:12.620
<v ->Those were my two main
ones that have kind of come up</v>

02:21:12.620 --> 02:21:15.750
as I explored that concept
or were just, you know,

02:21:15.750 --> 02:21:18.610
the subset of the new, and
you can work on expanding that.

02:21:18.610 --> 02:21:19.751
And it's tough, you know,

02:21:19.751 --> 02:21:21.720
you want to sort of
right-size any proposal

02:21:21.720 --> 02:21:22.553
<v ->Yep.</v>

02:21:22.553 --> 02:21:24.700
<v ->to make sure you're
capturing the right resources</v>

02:21:24.700 --> 02:21:27.162
and sending the right
market price signals.

02:21:27.162 --> 02:21:30.230
So that isn't a piece of your
proposal that can get adjusted

02:21:32.410 --> 02:21:35.290
to start to address some
of those issues potentially.

02:21:35.290 --> 02:21:38.023
And then the ACP part in the opt-out,

02:21:39.280 --> 02:21:41.724
addressing some of those
unintended consequences

02:21:41.724 --> 02:21:42.810
that couldn't go with that.

02:21:42.810 --> 02:21:43.643
<v ->Right.</v>

02:21:45.500 --> 02:21:46.500
<v ->That's all I have.</v>

02:21:46.500 --> 02:21:48.490
<v ->Do we want to ask
some smart people up here</v>

02:21:48.490 --> 02:21:50.960
who are going to clearly
disagree and shoot holes in them?

02:21:50.960 --> 02:21:53.440
<v ->I do have a couple of ideas.</v>
<v Peter>Yes of course.</v>

02:21:53.440 --> 02:21:57.210
<v Jimmy>So one of them
is, I mean, I liked the idea.</v>

02:21:57.210 --> 02:21:59.720
I liked the fact that
it's forward-looking,

02:21:59.720 --> 02:22:01.663
that it's money for steel.

02:22:05.437 --> 02:22:06.290
I like these components of it.

02:22:06.290 --> 02:22:08.030
We're not looking back
where we're creating

02:22:08.030 --> 02:22:13.030
new programs off of existing
models that have worked.

02:22:13.380 --> 02:22:14.230
And I liked that.

02:22:17.740 --> 02:22:21.860
I think my view is
there ought to be some

02:22:21.860 --> 02:22:26.010
massaging of resources
that are available in this.

02:22:26.010 --> 02:22:31.010
Perhaps all things that
are within the security,

02:22:31.040 --> 02:22:34.350
the SCED dispatch at
ERCOT, something like that,

02:22:34.350 --> 02:22:38.320
you know, they might be on a
lower voltage, not 69 KV, but,

02:22:38.320 --> 02:22:40.740
you know, I think we're seeing a lot of

02:22:40.740 --> 02:22:42.790
distribution voltage
batteries and other things

02:22:42.790 --> 02:22:45.660
that may provide a
right reliability resource.

02:22:45.660 --> 02:22:48.040
And I would say without
making the decision,

02:22:48.040 --> 02:22:49.890
we ought to at least look
at that universe and see

02:22:49.890 --> 02:22:52.710
what that could be and
if, see if that applies value.

02:22:52.710 --> 02:22:54.700
<v ->Well. And so I
think that is a bit of a,</v>

02:22:54.700 --> 02:22:58.000
it's a Tesla scenario just
on a, on a high level, right?

02:22:58.000 --> 02:23:00.990
If you have aggregated
power walls, but again,

02:23:00.990 --> 02:23:02.640
you have to be able to control it

02:23:02.640 --> 02:23:04.040
at transmission interconnection.

02:23:04.040 --> 02:23:06.320
Cause that's what he's asking, right?

02:23:06.320 --> 02:23:08.920
The controllability, that
we've always talked about.

02:23:10.370 --> 02:23:12.220
If they are able to do that,

02:23:12.220 --> 02:23:15.310
long-term the doors should
not be closed off to them.

02:23:15.310 --> 02:23:17.880
We have to be somewhat nimble with what,

02:23:17.880 --> 02:23:21.683
what could qualify or at
least offsetting the obligation.

02:23:22.660 --> 02:23:24.280
But that's kind of the beauty of this.

02:23:24.280 --> 02:23:27.403
It's happening based on performance.

02:23:28.920 --> 02:23:31.520
And that means that it
is going to be reflective

02:23:31.520 --> 02:23:32.870
of low response.

02:23:32.870 --> 02:23:33.703
So again,

02:23:33.703 --> 02:23:36.490
if that neighborhood is
turning off or they're using their

02:23:36.490 --> 02:23:41.040
own solar at certain times,
or their own power walls,

02:23:41.040 --> 02:23:43.813
that's going to impact
that LSE's DEC obligation.

02:23:46.240 --> 02:23:48.520
<v Peter>So similar to
the way it was laid out,</v>

02:23:48.520 --> 02:23:50.870
Sam laid it out this morning.

02:23:50.870 --> 02:23:53.310
So if you provided a
response, then you're,

02:23:53.310 --> 02:23:54.670
you're relieved of the obligation.

02:23:54.670 --> 02:23:55.858
<v ->That's correct.</v>
<v Peter>Okay.</v>

02:23:55.858 --> 02:23:58.853
So same mechanism or same bottom line.

02:24:00.490 --> 02:24:05.180
<v Jimmy>So when I think
about this, you know,</v>

02:24:05.180 --> 02:24:08.200
think about existing
generators are on the system

02:24:08.200 --> 02:24:11.330
and I'm assuming that unlike

02:24:11.330 --> 02:24:13.710
the total load serving
entity obligation,

02:24:13.710 --> 02:24:15.650
this is a piece of the puzzle,

02:24:15.650 --> 02:24:17.150
that might be it's an entire puzzle

02:24:17.150 --> 02:24:18.560
as a capacity market would be.

02:24:18.560 --> 02:24:22.620
But so this, you have
modifications to ORDC

02:24:22.620 --> 02:24:24.110
and you have other things

02:24:24.110 --> 02:24:27.210
that are keeping existing
resources on the system.

02:24:27.210 --> 02:24:28.930
This is the incentive for new resources

02:24:28.930 --> 02:24:29.910
to come on this system.

02:24:29.910 --> 02:24:32.173
<v ->That's right. Well, said so,</v>

02:24:33.760 --> 02:24:35.130
between Commissioner Cobos

02:24:35.130 --> 02:24:38.920
or Sam's backup fuel ancillary service,

02:24:38.920 --> 02:24:43.920
I do not consider a RPA
DPS and a DEC requirement

02:24:44.060 --> 02:24:47.990
mutually exclusive with those
products, with those services.

02:24:47.990 --> 02:24:49.120
They can come in.

02:24:49.120 --> 02:24:52.687
It all depends on the size
and how much would you-

02:24:54.420 --> 02:24:56.620
<v Peter>Flush that out for
me. What's in your mind,</v>

02:24:56.620 --> 02:25:01.103
what's the difference
between this program and

02:25:02.070 --> 02:25:04.323
invest in just expanding ECRS.

02:25:05.810 --> 02:25:07.390
Other than the five minutes, 10 minutes.

02:25:07.390 --> 02:25:08.740
<v ->Well, you got to perform.</v>

02:25:09.852 --> 02:25:11.530
<v Peter>You got to
perform ancillary services.</v>

02:25:11.530 --> 02:25:14.733
<v ->Yeah. That's right.
Well, yes, that's correct.</v>

02:25:16.870 --> 02:25:21.870
That is correct. But again,
I won't take a thunder at.

02:25:22.590 --> 02:25:23.570
Listen to her proposal.

02:25:23.570 --> 02:25:26.050
And then if we could
try to ask questions,

02:25:26.050 --> 02:25:29.860
because I believe
Commissioner Cobos's proposal,

02:25:29.860 --> 02:25:32.290
it would somewhat have a similar effect

02:25:32.290 --> 02:25:35.343
to non-spin a bit to be there.

02:25:36.420 --> 02:25:39.360
But again, if you don't
use it, do you still get paid?

02:25:39.360 --> 02:25:42.010
And so for mine, you would
have to perform, you'd have

02:25:42.010 --> 02:25:44.560
to generate megawatts to
qualify them for the deck.

02:25:45.730 --> 02:25:48.137
<v Peter>Right. So that seems
to be the only distinction</v>

02:25:48.137 --> 02:25:49.700
other than the five to 10 minute.

02:25:49.700 --> 02:25:52.640
And so that begs the question.

02:25:52.640 --> 02:25:54.563
We just want to expand ECRS,

02:25:56.100 --> 02:25:58.050
because then, you
know, you're getting paid.

02:25:58.050 --> 02:25:58.940
You don't have to worry about

02:25:58.940 --> 02:26:00.253
how often you're being dispatched.

02:26:00.253 --> 02:26:02.090
It's an open question. I
don't know the answer.

02:26:02.090 --> 02:26:02.923
<v ->Sure.</v>

02:26:02.923 --> 02:26:04.617
<v Peter>And the
same could apply for,</v>

02:26:05.490 --> 02:26:09.003
if you said it sounds like
SRS sounds like non-spin,

02:26:09.990 --> 02:26:12.110
probably the same question is, you know,

02:26:12.110 --> 02:26:15.380
do we need to build something
new or just expand the

02:26:15.380 --> 02:26:17.365
existing well, it's open.
<v ->If it's long iteration-</v>

02:26:17.365 --> 02:26:19.910
<v Peter>Well, it's
an open question.</v>

02:26:19.910 --> 02:26:22.920
<v ->Yeah. And one of
the other factors again,</v>

02:26:22.920 --> 02:26:25.990
with the way the deck program is framed,

02:26:25.990 --> 02:26:29.790
I don't know if you get the
incentive to deploy early

02:26:29.790 --> 02:26:31.760
with just expanding ECRS.

02:26:31.760 --> 02:26:33.990
Again, ECRS will be
out there in the future

02:26:33.990 --> 02:26:36.334
and you'll be procuring ECRS depending

02:26:36.334 --> 02:26:39.955
on the amount of
intermittency that you foresee.

02:26:39.955 --> 02:26:43.600
A deck will again
reward those generators

02:26:43.600 --> 02:26:46.250
who do it the fastest,
get here the fastest

02:26:46.250 --> 02:26:48.670
to provide us new steel in the ground.

02:26:48.670 --> 02:26:50.560
Because there'll be less
competition at that point.

02:26:50.560 --> 02:26:53.740
So they can recoup those
costs and then normalize that.

02:26:53.740 --> 02:26:56.783
<v Peter>Right. I mean,
thus the question,</v>

02:26:57.803 --> 02:27:00.420
if you size ECRS instead
of three megawatts,

02:27:00.420 --> 02:27:05.420
or 3000 megawatts to what
size are you expecting on this?

02:27:05.460 --> 02:27:06.850
<v ->It's based upon load growth.</v>
<v ->It is.</v>

02:27:06.850 --> 02:27:11.100
And so that backcast of their peak loads

02:27:11.100 --> 02:27:13.150
on a seasonal interval, you know,

02:27:13.150 --> 02:27:16.790
matched up with ERCOT
formulation of how much growth

02:27:16.790 --> 02:27:19.660
we anticipate over the coming years.

02:27:19.660 --> 02:27:21.200
<v Peter>So it's like
a hypothetical,</v>

02:27:21.200 --> 02:27:22.033
what would that look like?

02:27:22.033 --> 02:27:24.170
<v ->Oh I said 2% as a baseline.</v>

02:27:24.170 --> 02:27:28.530
<v ->I mean the procurement like-</v>
<v Jimmy>3000 megawatts</v>

02:27:28.530 --> 02:27:30.580
<v ->Okay, so this-</v>
<v ->Well early, early,</v>

02:27:30.580 --> 02:27:32.440
and it would be an
additional 3000 megawatts

02:27:32.440 --> 02:27:34.963
that you go and it grows
as population grows.

02:27:35.880 --> 02:27:39.630
<v ->Okay. So it would guarantee
no more than 3000 megawatts</v>

02:27:39.630 --> 02:27:41.223
and grow that 2% a year?

02:27:42.330 --> 02:27:44.650
You got 2% in here.
<v ->That's right.</v>

02:27:46.122 --> 02:27:48.220
<v ->That's the model.</v>
<v Will>That's right.</v>

02:27:48.220 --> 02:27:51.223
<v ->Okay. So it's no more
than 3000 megawatts.</v>

02:27:52.890 --> 02:27:55.060
<v Will>That's correct.</v>
<v ->Okay.</v>

02:27:55.060 --> 02:28:00.060
<v ->Well, I would say it's whatever
the 2% of load growth is,</v>

02:28:00.790 --> 02:28:01.820
you know,

02:28:01.820 --> 02:28:05.910
it's gotta be based upon a
real number of what load was

02:28:05.910 --> 02:28:08.430
and what, you know, future
load growth is going to be.

02:28:08.430 --> 02:28:10.380
It's always perspective looking,

02:28:10.380 --> 02:28:12.760
utilizing the back number
and then looking forward,

02:28:12.760 --> 02:28:16.920
plus 2% to figure out what
the load growth is to be.

02:28:16.920 --> 02:28:19.250
So we're trying to solve
that Delta going forward.

02:28:19.250 --> 02:28:22.020
How are we going to get
those new megawatts in here

02:28:22.020 --> 02:28:23.320
that's going to help sata,

02:28:25.180 --> 02:28:29.700
not be a detriment to those
that are already on the system,

02:28:29.700 --> 02:28:30.533
but in, you know,

02:28:30.533 --> 02:28:33.660
how are we incenting this
3000 megawatts this year

02:28:33.660 --> 02:28:36.350
or maybe 2000 megawatts the next year.

02:28:36.350 --> 02:28:37.183
<v ->I love the-</v>

02:28:37.183 --> 02:28:41.720
<v Will>So I think the concern
is, that if we just create</v>

02:28:41.720 --> 02:28:42.760
that fixed megawatt,

02:28:42.760 --> 02:28:46.590
again I don't want this
to become a catastrophic

02:28:46.590 --> 02:28:50.703
price formation distortive
effect in the near term.

02:28:52.360 --> 02:28:55.045
<v ->We want to get price
formation up for a new generation.</v>

02:28:55.045 --> 02:28:56.086
<v Lori>Can I add one thing?</v>

02:28:56.086 --> 02:28:58.638
<v ->But, but everything is
destructive of price formation.</v>

02:28:58.638 --> 02:29:02.110
Every new generators
disruptive of price formation,

02:29:02.110 --> 02:29:04.940
every new transmission line's
destructive of price formation

02:29:04.940 --> 02:29:07.431
I mean, we can't be
scared of price formation.

02:29:07.431 --> 02:29:08.623
That is what we do.
<v Will>I agree,</v>

02:29:08.623 --> 02:29:09.456
Question around this is, one,

02:29:09.456 --> 02:29:12.517
what type of generation
qualifies in the sizing of it

02:29:12.517 --> 02:29:15.380
and the ACP, the penalty. Three core.

02:29:15.380 --> 02:29:16.213
<v Lori>And, yeah.</v>

02:29:16.213 --> 02:29:18.688
And, and to your point
earlier about new generation,

02:29:18.688 --> 02:29:20.892
I think that's one of the
concerns out there, right?

02:29:20.892 --> 02:29:22.767
The existing generators
won't be able to participate

02:29:22.767 --> 02:29:24.553
and they get, you know,

02:29:26.180 --> 02:29:28.690
the new subset of the
new generation that will be

02:29:28.690 --> 02:29:31.840
participating in the deck
program would receive an

02:29:31.840 --> 02:29:35.420
advantage, a pathway to get in,

02:29:35.420 --> 02:29:37.980
versus, you know, other new generation

02:29:37.980 --> 02:29:41.610
that doesn't qualify an
existing generation, I guess,

02:29:41.610 --> 02:29:42.590
from their perspective would be

02:29:42.590 --> 02:29:44.670
slugging it out in the market.

02:29:44.670 --> 02:29:46.790
And so that, that's
when that's, that's kind of,

02:29:46.790 --> 02:29:51.400
I think that that sort of
criticism potentially out there,

02:29:51.400 --> 02:29:53.500
but I think what you're saying
Commissioner McAdams,

02:29:53.500 --> 02:29:55.500
is that you could maybe work on those,

02:29:55.500 --> 02:29:57.450
the participation aspect of it,

02:29:57.450 --> 02:30:00.180
the resources to sort of
try to address those issues.

02:30:00.180 --> 02:30:01.710
<v ->That's right.</v>

02:30:01.710 --> 02:30:03.360
Yeah. That's correct.

02:30:03.360 --> 02:30:05.961
<v Peter>Okay. I'm going to ask
the sizing question because</v>

02:30:05.961 --> 02:30:08.540
<v ->It's critical.</v>
<v ->I'm thinking I had to yeah,</v>

02:30:08.540 --> 02:30:12.690
a cold evening in January,
where the sun is set by 6:00 PM.

02:30:12.690 --> 02:30:15.530
Loads increasing as
the night gets colder.

02:30:15.530 --> 02:30:18.050
So you have zero solar
and the wind doesn't blow,

02:30:18.050 --> 02:30:21.182
I think right now, we're, I think

02:30:21.182 --> 02:30:25.310
the high peak demand for
this winter we're expecting

02:30:25.310 --> 02:30:28.927
like 72,000, our dispatchable
fleet is rated for 67,000.

02:30:30.536 --> 02:30:31.480
<v ->That's right.</v>

02:30:31.480 --> 02:30:33.120
<v Peter>So under that framework,</v>

02:30:33.120 --> 02:30:35.260
we don't have enough power.

02:30:35.260 --> 02:30:38.193
So for 6:00 PM on January 5th.

02:30:39.597 --> 02:30:44.080
And and if this is
getting me from 67 to 70,

02:30:44.080 --> 02:30:47.230
but I need 72, that's why I'm
asking the sizing questions.

02:30:47.230 --> 02:30:48.063
<v ->That's right.</v>

02:30:49.148 --> 02:30:53.290
And so how much are you
going to get in and when?

02:30:53.290 --> 02:30:55.570
And again, the value of the deck,

02:30:55.570 --> 02:31:00.023
the initial issue of the
deck is going to drive that.

02:31:01.489 --> 02:31:06.489
In January, or take a
take January of 2023.

02:31:07.320 --> 02:31:09.480
Okay. You have a
cold front blow through,

02:31:09.480 --> 02:31:12.690
and you have the
scenario that you described.

02:31:12.690 --> 02:31:16.100
In that year, you're still
going to have maximum need,

02:31:16.100 --> 02:31:19.630
which means the existing
fleet will be getting paid,

02:31:19.630 --> 02:31:22.110
their contracted
ancillary service price,

02:31:22.110 --> 02:31:27.850
or the realtime
price at that time.

02:31:27.850 --> 02:31:31.560
And so these guys were
only going to take up so much,

02:31:31.560 --> 02:31:34.040
you know, if they get
their stuff built now.

02:31:34.040 --> 02:31:35.620
<v Peter>Well, that's what
I'm concerned about.</v>

02:31:35.620 --> 02:31:38.960
We've got 67,000 dispatchable rated now.

02:31:38.960 --> 02:31:42.150
We're going to need to go to 72 and-

02:31:42.150 --> 02:31:45.630
<v ->Hopefully we get our
72 by that point. And then-</v>

02:31:45.630 --> 02:31:47.080
<v Peter>I mean, that's now.</v>

02:31:47.970 --> 02:31:51.346
So if the new program
is only 3000 megawatts-

02:31:51.346 --> 02:31:53.650
<v Jimmy>How do you add up your 67?</v>

02:31:53.650 --> 02:31:56.993
<v Peter>That's what the
latest ERCOT numbers</v>

02:31:56.993 --> 02:32:00.030
rated for dispatchable are.

02:32:00.030 --> 02:32:01.820
And so that's why I'm
asking the sizing question.

02:32:01.820 --> 02:32:03.270
I know we're not going to solve it now,

02:32:03.270 --> 02:32:08.270
but I know at some point we
will need 72,000 megawatts

02:32:09.610 --> 02:32:12.170
of dispatchable because
the sun sets early

02:32:12.170 --> 02:32:16.640
and sometimes once a
month when the sun goes up.

02:32:16.640 --> 02:32:21.040
I'm trying to put some like
a concrete framing around it,

02:32:21.040 --> 02:32:22.340
so we know what we're solving for.

02:32:22.340 --> 02:32:24.060
<v Jimmy>Again, the
way I think about it</v>

02:32:24.060 --> 02:32:28.170
as we go forward is, it's not
all a thousand megawatt plant

02:32:28.170 --> 02:32:31.340
that is going to be providing
this capacity going forward.

02:32:31.340 --> 02:32:34.260
It may be a hundred small
batteries that are providing

02:32:34.260 --> 02:32:36.703
the energy needed in that hour.

02:32:37.956 --> 02:32:40.360
<v Peter>Sure that's my
point earlier. I don't care.</v>

02:32:40.360 --> 02:32:42.937
<v Jimmy>But batteries are
not in, as I understand it</v>

02:32:42.937 --> 02:32:45.220
and most of the other ERCOT models,

02:32:45.220 --> 02:32:47.559
they aren't even given capacity values

02:32:47.559 --> 02:32:49.250
at this point in time. Is that right?

02:32:49.250 --> 02:32:51.004
<v ->No. Kenan?</v>

02:32:51.004 --> 02:32:52.960
<v Kenan>Sorry, what's the question?</v>

02:32:52.960 --> 02:32:54.080
<v Jimmy>ERCOT doesn't provide</v>

02:32:54.080 --> 02:32:56.330
capacity value in
batteries right now, right?

02:32:58.020 --> 02:33:00.040
<v Kenan>That's correct.</v>
<v ->Yes.</v>

02:33:00.040 --> 02:33:02.100
<v Peter>Zero, well, we've
only got what, 400.</v>

02:33:02.100 --> 02:33:05.440
<v ->Yeah. So, point
being that as these grow</v>

02:33:05.440 --> 02:33:07.290
and as we're getting more
on the system, I mean,

02:33:07.290 --> 02:33:11.149
we still need to
understand what that is.

02:33:11.149 --> 02:33:13.090
<v ->That trigger, yeah.</v>

02:33:13.090 --> 02:33:13.923
<v Peter>I know what the Delta is.</v>

02:33:13.923 --> 02:33:16.373
It's 5,000 megawatts right now.

02:33:18.240 --> 02:33:19.307
And if we do it,

02:33:19.307 --> 02:33:22.393
and that was my point earlier
about the technology agnostic.

02:33:23.960 --> 02:33:25.780
As long as it's dispatchable,
it can be batteries,

02:33:25.780 --> 02:33:30.089
it can be 150 watt or
50 megawatt batteries

02:33:30.089 --> 02:33:33.030
to get you to 5,000. That's great.

02:33:33.030 --> 02:33:36.903
That's fine. It can be a few
peakers and one base load.

02:33:38.996 --> 02:33:40.835
That's not something
I want to figure out.

02:33:40.835 --> 02:33:42.200
I want the market to figure out.

02:33:42.200 --> 02:33:47.200
I'm just making sure we get to
the total need that ERCOT has

02:33:47.520 --> 02:33:49.373
and we have that
we're able to provide that

02:33:49.373 --> 02:33:52.582
through whatever
product we offer out there.

02:33:52.582 --> 02:33:57.582
<v ->All this breaks down into
how we identify our target.</v>

02:33:59.680 --> 02:34:03.470
How we use, you know,
the trends in low growth,

02:34:03.470 --> 02:34:06.090
again using that past data.

02:34:06.090 --> 02:34:09.210
And then where ERCOT
beliefs, as you say,

02:34:09.210 --> 02:34:10.820
we're going to need to be.

02:34:10.820 --> 02:34:14.870
And you asked me about
the percentage versus

02:34:14.870 --> 02:34:17.360
how many megawatts
are we talking about here?

02:34:17.360 --> 02:34:19.160
We're just talking about a baseline,

02:34:19.160 --> 02:34:21.933
but it's something that
can be manipulated.

02:34:23.272 --> 02:34:27.100
<v Peter>The same as
move it to 5,000 or 6,000.</v>

02:34:27.100 --> 02:34:29.230
I mean, that work too.

02:34:29.230 --> 02:34:31.090
<v ->Yeah. As long as long
as we have a methodology</v>

02:34:31.090 --> 02:34:33.420
that everybody can get
anticipate. Sure, absolutely.

02:34:33.420 --> 02:34:35.020
Yep.

02:34:35.020 --> 02:34:36.620
<v ->The other thing I want to know</v>

02:34:37.493 --> 02:34:39.377
is that the Delta between
where we are now

02:34:39.377 --> 02:34:41.223
and when the CRS is going to be in place

02:34:41.223 --> 02:34:43.527
and the amount of solar generation

02:34:43.527 --> 02:34:45.440
that is going to be coming online,

02:34:45.440 --> 02:34:47.670
right now ERCOT
prospectively has it targeted

02:34:47.670 --> 02:34:51.020
to be online in 2024.
<v Will>Right.</v>

02:34:51.020 --> 02:34:52.660
<v ->You know, we don't know
what's going to happen.</v>

02:34:52.660 --> 02:34:54.460
There could be delays. I hope not,

02:34:54.460 --> 02:34:58.660
but we're talking about a
two and a half year Delta,

02:34:58.660 --> 02:35:00.430
where we could get
flooded with solar because

02:35:00.430 --> 02:35:02.770
of all the federal actions taking place.

02:35:02.770 --> 02:35:05.150
And we're trying to
send signals for the solar

02:35:05.150 --> 02:35:06.330
to show up the storage,

02:35:06.330 --> 02:35:08.960
but there could be a
lot of storage or solar

02:35:08.960 --> 02:35:10.780
rather than shows up without storage.

02:35:10.780 --> 02:35:13.393
So we're going to be dealing
with Oliver in the interim.

02:35:15.752 --> 02:35:17.343
<v Peter>Do we think we can get this</v>

02:35:17.343 --> 02:35:18.843
implemented before ECRS?

02:35:19.700 --> 02:35:21.640
<v ->Alright. It is
possible. Yes, sir.</v>

02:35:21.640 --> 02:35:24.150
I mean, that's the great
thing about it. It's possible.

02:35:24.150 --> 02:35:26.357
So until those guys tell the difference.

02:35:26.357 --> 02:35:28.017
<v ->And in fairness to the solar-</v>

02:35:28.017 --> 02:35:31.100
<v Peter>I am looking at Kenan.</v>

02:35:31.100 --> 02:35:32.869
<v Audience member>Pick
up the REC program.</v>

02:35:32.869 --> 02:35:35.030
<v Peter>Oh, that's what
the NRG said, right?</v>

02:35:35.030 --> 02:35:36.940
We built it off the REC program.

02:35:36.940 --> 02:35:39.400
<v ->And just as a report,
or if I get started,</v>

02:35:39.400 --> 02:35:42.143
I just want to say that
ERCOT plants that handle

02:35:42.143 --> 02:35:47.130
the solar ramping with
non-spin and souped up ORDC

02:35:48.237 --> 02:35:51.290
<v Peter>And curtailment</v>
<v ->if needed.</v>

02:35:51.290 --> 02:35:56.010
That's what I hear, but,
you know, it's not like

02:35:56.010 --> 02:35:59.270
we're going to be
completely caught flat-footed.

02:35:59.270 --> 02:36:02.850
But my thought on this is
that we need to be planning

02:36:02.850 --> 02:36:05.100
for that Delta, that gap,

02:36:05.100 --> 02:36:07.560
even if we have those tools in place,

02:36:07.560 --> 02:36:09.598
<v Peter>Absolutely.</v>
<v ->because like you said,</v>

02:36:09.598 --> 02:36:10.486
we need more dispatchable.

02:36:10.486 --> 02:36:13.233
We don't have enough of it
to fill all those buckets, then-

02:36:14.549 --> 02:36:16.810
<v Peter>We've got to
make sure we got enough.</v>

02:36:16.810 --> 02:36:19.180
Question to Kenan on implementation.

02:36:19.180 --> 02:36:21.130
I know this is, this is a
relatively new proposal,

02:36:21.130 --> 02:36:22.123
very new proposal.

02:36:23.490 --> 02:36:25.500
<v ->Yeah. So I mean,
the way I look at it,</v>

02:36:25.500 --> 02:36:27.840
there's kind of two
components to this proposal.

02:36:27.840 --> 02:36:32.203
One is the front end, kind
of the deck calculation.

02:36:33.729 --> 02:36:34.590
<v ->Right.</v>

02:36:34.590 --> 02:36:37.712
<v ->And that, I mean,</v>

02:36:37.712 --> 02:36:41.003
we build some new system around that,

02:36:41.920 --> 02:36:45.560
but it could come from a
vendor similar to the one

02:36:45.560 --> 02:36:47.543
that provides the REC program.

02:36:48.490 --> 02:36:52.773
Then the, the other half
of this is a settlement issue.

02:36:54.380 --> 02:36:59.380
Both of those in isolation
are relatively straightforward,

02:36:59.620 --> 02:37:01.583
like the LSE obligation.

02:37:04.587 --> 02:37:08.530
The challenge for
ERCOT will be trying to fit in

02:37:08.530 --> 02:37:10.370
the settlement changes with all

02:37:10.370 --> 02:37:12.410
the other settlement
activity that's happening.

02:37:12.410 --> 02:37:14.280
<v Peter>That's one of
Commissioner Cobos's</v>

02:37:14.280 --> 02:37:15.163
favorite topics.

02:37:17.250 --> 02:37:20.620
<v ->And that is where we, you know,</v>

02:37:20.620 --> 02:37:22.480
there's securitization going on,

02:37:22.480 --> 02:37:26.475
so when I can even get that in line is,

02:37:26.475 --> 02:37:29.771
the biggest challenge for ERCOT.

02:37:29.771 --> 02:37:31.820
<v Peter>And the point of
being the settlements team</v>

02:37:31.820 --> 02:37:35.070
is also the same group of
people working on securitization.

02:37:35.070 --> 02:37:35.903
<v ->Correct.</v>

02:37:35.903 --> 02:37:40.330
And would it be the same
team working on a fuel reserve

02:37:40.330 --> 02:37:45.330
product or some, some
of all of the items as well.

02:37:45.340 --> 02:37:48.360
<v Will>You're not saying that
securitization is holding up</v>

02:37:48.360 --> 02:37:51.143
the reliability aspects
of this grid, are you?

02:37:52.080 --> 02:37:56.120
<v ->No. What I'm saying is
I've got a queue and I've got,</v>

02:37:56.120 --> 02:37:59.510
I would have to manage that potentially

02:37:59.510 --> 02:38:01.410
and recognize that. I mean,

02:38:01.410 --> 02:38:05.530
it's the same group of
people that are working

02:38:05.530 --> 02:38:09.090
on securitization right
now, that would be working

02:38:09.090 --> 02:38:13.240
on the settlement side of this proposal.

02:38:13.240 --> 02:38:17.630
So to me, it's a deliverable product.

02:38:17.630 --> 02:38:20.850
It's not touching our
energy management system.

02:38:20.850 --> 02:38:23.333
It's not touching our
market management system,

02:38:23.333 --> 02:38:25.890
some of these core systems,

02:38:25.890 --> 02:38:28.823
but I have to find
a place in line for it.

02:38:30.080 --> 02:38:31.580
That's the challenge.

02:38:31.580 --> 02:38:33.280
<v ->Anything. Not just this?</v>
<v ->Correct.</v>

02:38:33.280 --> 02:38:35.756
<v Will>Sounds like our
ancillary services as well,</v>

02:38:35.756 --> 02:38:38.852
you know, that's gonna get balled up.

02:38:38.852 --> 02:38:39.724
<v ->So that.</v>

02:38:39.724 --> 02:38:42.160
<v ->That's why it's one of
Commission Cobos's favorite topics</v>

02:38:42.160 --> 02:38:44.400
is anything that touches settlements,

02:38:44.400 --> 02:38:47.013
is, this or anything
else? It's just that the

02:38:48.087 --> 02:38:51.400
resource constraint
part of the organization.

02:38:51.400 --> 02:38:53.610
<v ->Yeah. I mean, the
distinction I would make around</v>

02:38:53.610 --> 02:38:57.440
ancillary services that are
procured on a daily basis

02:38:57.440 --> 02:39:00.152
is that does touch a core system.

02:39:00.152 --> 02:39:00.985
<v Will>Correct.</v>

02:39:00.985 --> 02:39:05.550
<v ->So this is, from that
perspective, a lighter touch.</v>

02:39:07.400 --> 02:39:09.390
<v Will>Important to us,</v>

02:39:09.390 --> 02:39:12.203
but bottom line is
it's still falls behind.

02:39:13.450 --> 02:39:16.508
<v Peter>Anything less. I
mean, Lori's made that point.</v>

02:39:16.508 --> 02:39:18.130
I mean, that's a very good point.

02:39:18.130 --> 02:39:20.490
<v Lori>Even if you don't go
through the EMS upgraded,</v>

02:39:20.490 --> 02:39:22.590
it's not an ancillary
service or any other

02:39:24.203 --> 02:39:28.050
product that would touch the
EMS upgrades or the EMS and MMS

02:39:28.050 --> 02:39:32.038
then that would obviously
have to wait until after 2024.

02:39:32.038 --> 02:39:35.750
So you're trying to avoid
going through the EMS,

02:39:35.750 --> 02:39:37.070
you still have to go through settlements

02:39:37.070 --> 02:39:40.180
and there's challenges because
across the team is working on

02:39:40.180 --> 02:39:42.970
securitization and resource constraint.

02:39:42.970 --> 02:39:45.370
And they're going to have
to use the settlements aspect

02:39:45.370 --> 02:39:48.480
for any one of our
actions like the, firm fuel,

02:39:48.480 --> 02:39:51.340
any of our proposals
no matter what it is.

02:39:51.340 --> 02:39:54.378
So, you know, it's just
setting expectations.

02:39:54.378 --> 02:39:56.041
<v ->Expectation management.</v>

02:39:56.041 --> 02:39:56.913
<v ->It's just real.</v>

02:39:57.770 --> 02:40:00.509
It has nothing to do with the
merits of any given proposal.

02:40:00.509 --> 02:40:02.470
It's just a fact that
we've got to be realistic.

02:40:02.470 --> 02:40:03.303
<v ->That's right.</v>

02:40:04.940 --> 02:40:07.781
Any other questions for Kenan?

02:40:07.781 --> 02:40:10.930
<v ->But it's easier
than other things or</v>

02:40:10.930 --> 02:40:11.810
where are we on the spectrum Kenan?

02:40:11.810 --> 02:40:14.493
You need to give us a hard versus easy.

02:40:16.410 --> 02:40:20.170
<v ->So as a standalone
implementation,</v>

02:40:20.170 --> 02:40:25.170
it is easier than anything
that touches the core systems.

02:40:25.556 --> 02:40:26.389
<v ->Yeah okay.</v>

02:40:26.389 --> 02:40:28.600
<v ->I think that is an important
distinction to make.</v>

02:40:28.600 --> 02:40:31.597
So I think when
Mr. Maggio was here before

02:40:31.597 --> 02:40:34.730
you talking about the LSE obligation,

02:40:34.730 --> 02:40:36.250
he also said that's a relatively

02:40:36.250 --> 02:40:38.580
straightforward implementation.

02:40:38.580 --> 02:40:40.430
I think the, you know,

02:40:40.430 --> 02:40:42.410
the market power issues
and some of those are,

02:40:42.410 --> 02:40:44.253
are the real heavy lifts there.

02:40:45.330 --> 02:40:48.210
This is a relatively
straightforward implementation.

02:40:48.210 --> 02:40:51.318
It's just a matter of
freeing up the resources.

02:40:51.318 --> 02:40:52.884
<v ->Okay.</v>

02:40:52.884 --> 02:40:54.884
<v ->Thank you.</v>
<v ->Thank you.</v>

02:40:56.830 --> 02:40:57.880
<v ->We're still on you.</v>

02:41:01.645 --> 02:41:03.063
I think I'm done.

02:41:04.750 --> 02:41:07.855
(indistinct)

02:41:07.855 --> 02:41:10.105
<v ->It's ADD, that has
nothing to do with this.</v>

02:41:11.700 --> 02:41:13.218
<v ->Shut up Peter, shut up Peter.</v>

02:41:13.218 --> 02:41:15.468
(laughing)

02:41:16.972 --> 02:41:20.180
I know I would love to hear
at some point from Sam,

02:41:20.180 --> 02:41:22.920
since he's been doing
the comparison across

02:41:22.920 --> 02:41:25.790
the various proposals that have come up.

02:41:25.790 --> 02:41:29.090
Anybody start with Sam or
anybody else you'll want to call?

02:41:29.090 --> 02:41:30.960
<v ->Yes, so we did
have some filings.</v>

02:41:30.960 --> 02:41:35.610
I want to start with Sam
and then I would bring up

02:41:35.610 --> 02:41:37.940
Aaron from Eolian. He
had a good filing in there.

02:41:37.940 --> 02:41:42.510
And then go from there,
Mr. Chairman. See where that leads.

02:41:42.510 --> 02:41:45.040
<v ->Since this is Aaron' proposal,</v>

02:41:45.040 --> 02:41:47.170
they probably know
more about than anybody.

02:41:47.170 --> 02:41:48.230
<v ->Right.</v>

02:41:48.230 --> 02:41:50.350
<v ->So let's start there,
so Sam has the context.</v>

02:41:50.350 --> 02:41:53.403
<v Will>Think you just unmasked
someone, in federal terms.</v>

02:41:54.994 --> 02:41:56.844
<v ->Did you have some
security outside?</v>

02:42:00.114 --> 02:42:01.000
<v ->Welcome.</v>

02:42:01.000 --> 02:42:01.833
<v ->Thanks for having me.</v>

02:42:01.833 --> 02:42:02.800
<v ->He's brave enough
to stand up here.</v>

02:42:02.800 --> 02:42:03.633
<v ->He is.</v>

02:42:03.633 --> 02:42:06.553
<v ->I'm Aaron Zubaty,
CEO of Eolian.</v>

02:42:06.553 --> 02:42:07.760
I'm going to be ducking laser beams

02:42:07.760 --> 02:42:09.360
coming from behind me, probably.

02:42:11.520 --> 02:42:13.690
<v Jimmy>That's the way we roll.</v>

02:42:13.690 --> 02:42:18.580
<v ->So Aaron, describe the
practical process for the public,</v>

02:42:18.580 --> 02:42:20.777
and then we'll throw bombs at you

02:42:20.777 --> 02:42:22.320
and kind of work through this.

02:42:22.320 --> 02:42:26.613
So how functionally would
this work on a seasonal

02:42:26.613 --> 02:42:30.523
or annual basis in ERCOT mechanically?

02:42:33.150 --> 02:42:34.853
<v ->I want to answer
that. I'm sure.</v>

02:42:35.700 --> 02:42:38.610
I do want to say one thing
about the impetus for it,

02:42:38.610 --> 02:42:42.610
which was the meeting, I
guess, 15 days ago. Right?

02:42:42.610 --> 02:42:45.480
And so I think it's an
important distinction

02:42:45.480 --> 02:42:46.350
about the starting point,

02:42:46.350 --> 02:42:49.100
which was looking at
the fundamental question

02:42:49.100 --> 02:42:51.113
of how do you create an
incentive for new generation?

02:42:51.113 --> 02:42:52.070
<v ->Yeah.</v>

02:42:52.070 --> 02:42:54.010
<v ->A lot of people filed
comments about that.</v>

02:42:54.010 --> 02:42:57.530
How do you create a longterm, you know,

02:42:57.530 --> 02:43:00.233
viable financial incentive?

02:43:01.320 --> 02:43:03.670
One way is through the
ancillary service expansion.

02:43:03.670 --> 02:43:04.503
And you mentioned specifically,

02:43:04.503 --> 02:43:06.560
ECRS will be there, right?

02:43:06.560 --> 02:43:07.560
It will be expanded.

02:43:08.550 --> 02:43:10.770
It's unclear to me
how the prices will be,

02:43:10.770 --> 02:43:12.600
but the bigger challenge
is also what you said.

02:43:12.600 --> 02:43:15.610
It's unclear today who will
even participate in the ECRS.

02:43:15.610 --> 02:43:18.100
If you have a five gigawatt ECRS,

02:43:18.100 --> 02:43:19.260
who's there to participate,

02:43:19.260 --> 02:43:21.670
if today we don't have enough capacity?

02:43:21.670 --> 02:43:23.020
<v ->Well, that's the goal is,</v>

02:43:23.020 --> 02:43:24.330
we know we have to put new months,

02:43:24.330 --> 02:43:26.577
somebody somewhere to get the money out.

02:43:26.577 --> 02:43:28.666
<v ->And so, that's
answering that question.</v>

02:43:28.666 --> 02:43:33.428
<v ->The only distinction
is where it says</v>

02:43:33.428 --> 02:43:35.720
one of the features of this concept,

02:43:35.720 --> 02:43:38.780
we're only paying for
megawatts deployed.

02:43:38.780 --> 02:43:40.470
Whereas any of the ancillary services

02:43:40.470 --> 02:43:42.103
are much more of a capacity,

02:43:43.220 --> 02:43:46.510
like centrally procured capacity,
we may or may not use it.

02:43:46.510 --> 02:43:47.670
So, yes.

02:43:47.670 --> 02:43:49.620
<v Aaron>Right. So there are
multiple ways to address</v>

02:43:49.620 --> 02:43:51.071
how it gets implemented.

02:43:51.071 --> 02:43:52.700
<v ->That's the feature.</v>

02:43:52.700 --> 02:43:56.370
<v Aaron>Yes. We, we describe
it as, you know, pay to play,</v>

02:43:56.370 --> 02:44:00.140
or you know, it's
performance-based, so the goal is that,

02:44:00.140 --> 02:44:01.380
if you're there during specific hours,

02:44:01.380 --> 02:44:04.770
there are targeted hours
that incentivizes people

02:44:04.770 --> 02:44:08.020
to highlight availability
during those hours.

02:44:08.020 --> 02:44:11.160
There's also performance
requirements that are the specific

02:44:11.160 --> 02:44:14.260
generation that admittedly
everyone in this room has said,

02:44:14.260 --> 02:44:18.020
it doesn't exist today to
meet the specific technology

02:44:18.020 --> 02:44:20.080
and performance
requirements needed to hit

02:44:20.080 --> 02:44:21.620
some of these moments in these ramps.

02:44:21.620 --> 02:44:24.270
<v Will>I would say, a
better way to put that is,</v>

02:44:24.270 --> 02:44:26.290
you have to play to get paid.

02:44:26.290 --> 02:44:27.873
<v Aaron>Yes.</v>
<v ->That's different.</v>

02:44:31.470 --> 02:44:32.763
<v ->Very important nuance.</v>

02:44:34.810 --> 02:44:38.300
<v Aaron>And so I think,
what we heard, you know,</v>

02:44:38.300 --> 02:44:41.500
15 days ago was there was no
one who would come up and say,

02:44:41.500 --> 02:44:44.300
I guarantee that anything on the table,

02:44:44.300 --> 02:44:46.890
I guarantee that we will build capacity.

02:44:46.890 --> 02:44:49.040
<v ->We got some
guarantees that it won't.</v>

02:44:49.040 --> 02:44:50.217
Some options that it won't.

02:44:50.217 --> 02:44:52.330
<v Aaron>Exactly.
Guarantees that it won't.</v>

02:44:52.330 --> 02:44:54.931
And when questioned, no
one said, I guarantee that it will.

02:44:54.931 --> 02:44:56.380
So that was the starting point.

02:44:56.380 --> 02:44:58.590
So again, this is about
how do you guarantee

02:44:58.590 --> 02:45:01.240
new steel on the ground that matches

02:45:01.240 --> 02:45:03.440
that performance
requirements and specifications

02:45:03.440 --> 02:45:05.203
that the market is asking for.

02:45:06.280 --> 02:45:08.500
One way is by the market
signal, through ECRS

02:45:08.500 --> 02:45:10.840
you know specifically laying
out where we're going to

02:45:10.840 --> 02:45:11.883
take these actions,

02:45:12.810 --> 02:45:15.270
but this is the other way to
send a market signal to the

02:45:15.270 --> 02:45:18.780
specific type of
generation for specific hours

02:45:18.780 --> 02:45:21.850
that has a very specific
need in the system.

02:45:21.850 --> 02:45:23.760
There are a couple of things
about it that were designed

02:45:23.760 --> 02:45:25.653
to protect the existing fleet.

02:45:26.520 --> 02:45:27.660
If you can, you know,

02:45:27.660 --> 02:45:30.920
have specific ability to
turn it on and off quickly,

02:45:30.920 --> 02:45:34.507
that's very different than a lot
of the CCGT's on the system

02:45:34.507 --> 02:45:35.697
and that's on purpose.

02:45:35.697 --> 02:45:36.750
<v Lori>Those are batteries?</v>

02:45:36.750 --> 02:45:38.630
<v ->No, you can have a five minute.</v>

02:45:38.630 --> 02:45:42.010
There's an LM, 6,000
with a five minute cold start,

02:45:42.010 --> 02:45:44.270
zero to 100, the GE makes.

02:45:44.270 --> 02:45:46.610
It's being installed in our
car right now by some parties.

02:45:46.610 --> 02:45:49.900
So there is technology
already being deployed

02:45:49.900 --> 02:45:52.700
that meets these requirements today.

02:45:52.700 --> 02:45:54.023
Both batteries, you know,

02:45:54.023 --> 02:45:56.950
a long duration and than most
people in deployment today

02:45:56.950 --> 02:45:58.520
and also thermals.

02:45:58.520 --> 02:46:00.000
There are multiple plants on the system.

02:46:00.000 --> 02:46:04.160
They're small numbers of
megawatts that meet the criteria,

02:46:04.160 --> 02:46:05.490
you know, Steck, Denton,

02:46:05.490 --> 02:46:08.430
basically people who saw
this problem a few years ago,

02:46:08.430 --> 02:46:11.560
started investing to this type
of dispatchable generation.

02:46:11.560 --> 02:46:14.480
So the idea was, no
one would commit to it,

02:46:14.480 --> 02:46:16.310
so how do you force, you know,

02:46:16.310 --> 02:46:18.010
create a market signal for the product

02:46:18.010 --> 02:46:19.970
that's needed for these hours.

02:46:19.970 --> 02:46:22.293
It would not be needed overnight.

02:46:22.293 --> 02:46:26.170
There was normally plenty
of, you know, energy at night

02:46:26.170 --> 02:46:29.580
and that market signal
would be based on two things.

02:46:29.580 --> 02:46:33.400
One would be, you
must be there to perform.

02:46:33.400 --> 02:46:34.890
So if you clear,

02:46:34.890 --> 02:46:36.770
so there are two ways
to handle the question of,

02:46:36.770 --> 02:46:39.230
how do you get a deck
and how you get paid?

02:46:39.230 --> 02:46:41.700
One is a clearing mechanism.

02:46:41.700 --> 02:46:43.707
So the key is you cannot
have a contract where

02:46:43.707 --> 02:46:46.907
or you can't have a
construct where people say,

02:46:46.907 --> 02:46:49.080
"I exist. I want to get a deck,

02:46:49.080 --> 02:46:51.895
but I'll purposely put in a
super high price and not clear,

02:46:51.895 --> 02:46:53.460
and then not have to perform."

02:46:53.460 --> 02:46:55.770
There are other jurisdictions
that have some RA contracts

02:46:55.770 --> 02:46:57.050
like that, that I'm familiar with.

02:46:57.050 --> 02:47:00.073
We actually have one in
California. It's not very effective.

02:47:02.660 --> 02:47:07.430
So the goal is you must
clear a product to get the deck.

02:47:07.430 --> 02:47:09.090
So you either clear the ancillaries,

02:47:09.090 --> 02:47:10.150
or if you have not cleared,

02:47:10.150 --> 02:47:13.210
then you have every
incentive during those ramps

02:47:13.210 --> 02:47:15.000
to be there, you know,

02:47:15.000 --> 02:47:17.420
to basically be there
during those peak hours,

02:47:17.420 --> 02:47:20.580
during this critical kind of,
you know, kinship point hours.

02:47:20.580 --> 02:47:21.413
So there,

02:47:21.413 --> 02:47:24.700
there are ways to handle how
you truly generate the deck.

02:47:24.700 --> 02:47:27.570
You could make it
only when you dispatch.

02:47:27.570 --> 02:47:28.820
What that would mean is you probably

02:47:28.820 --> 02:47:30.750
have less decks generated.

02:47:30.750 --> 02:47:33.050
And so the imputed price
per deck would be higher.

02:47:33.050 --> 02:47:34.110
And it's harder to predict,

02:47:34.110 --> 02:47:35.350
which is what Gen Elec said,

02:47:35.350 --> 02:47:37.550
it's hard to predict exactly
the volume that you get

02:47:37.550 --> 02:47:42.550
dispatched and when the other
approaches cleared amounts.

02:47:42.900 --> 02:47:44.630
<v Will>Sorry. Important nuance.</v>

02:47:44.630 --> 02:47:45.990
I was trying to make the point that

02:47:45.990 --> 02:47:48.190
you got to play to get paid.

02:47:48.190 --> 02:47:52.570
And so the nuance is you
bid in into the day ahead.

02:47:52.570 --> 02:47:53.470
<v ->Physically committed.</v>

02:47:53.470 --> 02:47:55.033
<v ->Yes sir.</v>
<v ->No upright?</v>

02:47:56.000 --> 02:47:56.833
<v ->So you have to-</v>

02:47:56.833 --> 02:47:58.833
<v ->You can't financially
scratch your offer.</v>

02:47:59.680 --> 02:48:03.200
<v ->Yes. You get the deck by
physically committing clearing.</v>

02:48:03.200 --> 02:48:04.980
And again, if you've, you know,

02:48:04.980 --> 02:48:07.420
like everyone in this
room bid the wrong price

02:48:07.420 --> 02:48:08.460
and you think, you know,

02:48:08.460 --> 02:48:10.100
you can get the highest
price and it turns out

02:48:10.100 --> 02:48:10.970
you've been wrong,

02:48:10.970 --> 02:48:14.100
then you've got an incentive
to be there the next day,

02:48:14.100 --> 02:48:15.340
during those peak hours,

02:48:15.340 --> 02:48:18.020
to push energy out of the
system, to drive 10, you know,

02:48:18.020 --> 02:48:20.940
to basically help keep
those prices in check.

02:48:20.940 --> 02:48:21.960
<v ->But I guess the,</v>

02:48:21.960 --> 02:48:24.867
the withholding offer
deliberately high offer can go.

02:48:24.867 --> 02:48:26.680
And that's the problem you identified.

02:48:26.680 --> 02:48:29.340
Could you not do that
in the day ahead as well?

02:48:29.340 --> 02:48:31.190
<v ->You could, but then
you don't clear, right?</v>

02:48:31.190 --> 02:48:32.790
So, every day with our, you know,

02:48:32.790 --> 02:48:35.940
you have to choose what
price per hour, if you're thinking,

02:48:35.940 --> 02:48:37.410
you know, "Ooh, it's
gonna be high price."

02:48:37.410 --> 02:48:40.670
<v ->So it's the day ahead clearing
that you're worried about.</v>

02:48:40.670 --> 02:48:43.720
<v ->Yes. So you can't game
the game the day ahead.</v>

02:48:43.720 --> 02:48:44.920
So once you, and if you
have not clear day ahead,

02:48:44.920 --> 02:48:47.450
then you have a big
incentive to participate in the

02:48:47.450 --> 02:48:50.530
real-time market, which is
Commissioner McAdams's point.

02:48:50.530 --> 02:48:54.180
The goal is to incentivize
active participation at all times

02:48:54.180 --> 02:48:58.210
as much as possible to drive
down the cost of both energy

02:48:58.210 --> 02:48:59.980
and ancillaries over time.

02:48:59.980 --> 02:49:03.170
And that's the other
critical piece of this.

02:49:03.170 --> 02:49:06.460
By incentivizing generation
that can actually be there

02:49:06.460 --> 02:49:08.030
when ECRS is ready,

02:49:08.030 --> 02:49:11.600
you ensure that the price of
ECRS is not extremely high.

02:49:11.600 --> 02:49:14.360
You basically make sure
that the generation is there,

02:49:14.360 --> 02:49:16.080
that the new ancillary products

02:49:16.080 --> 02:49:17.880
are giving a market signal toward,

02:49:17.880 --> 02:49:20.700
to help make sure
that all ancillary costs

02:49:20.700 --> 02:49:23.380
basically do not get extremely high.

02:49:23.380 --> 02:49:25.930
And there are people in this
room who are concerned about

02:49:25.930 --> 02:49:28.110
these volumes and what
the cost implications are,

02:49:28.110 --> 02:49:29.020
which is-

02:49:29.020 --> 02:49:30.200
<v Peter>We're gonna need
a high price at some point,</v>

02:49:30.200 --> 02:49:31.890
whichever product is
the first one out, right?

02:49:31.890 --> 02:49:36.890
If it's ECRS deck or Acme
proposal number 17, it's,

02:49:38.860 --> 02:49:40.700
you know, we don't have the generation,

02:49:40.700 --> 02:49:44.270
the first program out there
with the first new money

02:49:44.270 --> 02:49:46.602
will be a high price
until we get the supply.

02:49:46.602 --> 02:49:47.435
<v ->And the goal-</v>

02:49:47.435 --> 02:49:50.170
<v Peter>It's a
self-correcting mechanism.</v>

02:49:50.170 --> 02:49:51.257
<v ->Exactly.</v>

02:49:51.257 --> 02:49:54.393
And to your point, the goal of having a,

02:49:55.240 --> 02:49:58.300
a program set out from day
one with a clear delineation

02:49:58.300 --> 02:50:00.540
of how long it will be,

02:50:00.540 --> 02:50:03.220
what that actually does is
unlike the ancillary market,

02:50:03.220 --> 02:50:05.360
which, you know, you can expand it,

02:50:05.360 --> 02:50:07.530
but people have much
less visibility about that

02:50:07.530 --> 02:50:09.686
versus a tenure or whatever.

02:50:09.686 --> 02:50:12.260
You know that a timeline's
there with specific volume

02:50:12.260 --> 02:50:15.420
compliance over time, that
is the long-term price signal,

02:50:15.420 --> 02:50:17.800
that many people in this room
and whose final comments

02:50:17.800 --> 02:50:18.760
have asked for.

02:50:18.760 --> 02:50:21.330
To say, we want
something that will ensure

02:50:21.330 --> 02:50:23.860
that there's some form
of long-term price signal.

02:50:23.860 --> 02:50:27.920
What this is not, is a PTC.
I'm going to be very clear.

02:50:27.920 --> 02:50:30.185
This is not something
with a fixed price signal

02:50:30.185 --> 02:50:33.570
for a long period of time.
And that's really important.

02:50:33.570 --> 02:50:35.377
It is why it becomes self-correcting.

02:50:35.377 --> 02:50:37.533
When there's enough
supply, that price will go down

02:50:37.533 --> 02:50:40.560
and you could say, well,
will people invest to that?

02:50:40.560 --> 02:50:42.820
That is part of the
risk of any investment,

02:50:42.820 --> 02:50:44.850
but unlike a PTC,

02:50:44.850 --> 02:50:46.690
which does lead to
these price distortions,

02:50:46.690 --> 02:50:48.940
because everyone knows
it's there at a very clear price,

02:50:48.940 --> 02:50:51.100
it lets you bid at a very clear price.

02:50:51.100 --> 02:50:53.890
When you have a market
mechanism on what this is worth,

02:50:53.890 --> 02:50:56.250
it doesn't give the same freedom to bid

02:50:56.250 --> 02:50:58.840
the way that a PTC does, for example.

02:50:58.840 --> 02:51:00.450
<v Lori>So Aaron, is it</v>

02:51:02.810 --> 02:51:06.410
fair to say or clear enough
to say that the program,

02:51:06.410 --> 02:51:07.243
as you said, you know,

02:51:07.243 --> 02:51:10.700
over time the price moves
down and to trigger a certain

02:51:10.700 --> 02:51:14.103
amount of new dispatchable resources.

02:51:16.840 --> 02:51:19.870
Is it fair to characterize this
program as sort of a glide

02:51:19.870 --> 02:51:23.460
path to ECRS to make
sure that that bucket is full

02:51:23.460 --> 02:51:25.697
or at least get some, I mean,

02:51:25.697 --> 02:51:28.820
is this a glide path for
certain resources to start

02:51:28.820 --> 02:51:31.740
getting in the market to
fill up the ECRS bucket?

02:51:31.740 --> 02:51:33.678
<v Will>Possible generation, right?</v>

02:51:33.678 --> 02:51:35.880
<v ->It's a very good question.</v>

02:51:35.880 --> 02:51:38.130
I would say, this is one
of the pieces toward,

02:51:38.130 --> 02:51:39.660
how do you have all
these market signals?

02:51:39.660 --> 02:51:41.760
I mean, you know, you mentioned the 2%

02:51:41.760 --> 02:51:45.750
and you were mentioning the
low growth versus even today.

02:51:45.750 --> 02:51:47.360
Again, 2% load growth,

02:51:47.360 --> 02:51:50.920
if you started a hole of 5,000
megawatts means in 10 or 15

02:51:50.920 --> 02:51:54.220
years, there's a 15 to 20 gigawatt hole.

02:51:54.220 --> 02:51:57.750
That's like a $20 billion
plus investment hole that,

02:51:57.750 --> 02:52:00.730
has to be filled. So to your point,

02:52:00.730 --> 02:52:04.065
even if ECRS hopefully
comes on and you know,

02:52:04.065 --> 02:52:07.270
one, two, whatever many years,

02:52:07.270 --> 02:52:09.850
the worst thing that could
happen is there's a waiting

02:52:09.850 --> 02:52:12.100
period because people
don't know how long it takes,

02:52:12.100 --> 02:52:14.240
for ECRS will be, and
there's no price signal.

02:52:14.240 --> 02:52:17.210
No one really knows yet.
And so you wait to see.

02:52:17.210 --> 02:52:18.940
The worst thing that could happen is

02:52:18.940 --> 02:52:20.860
those generators that
are needed for ECRS,

02:52:20.860 --> 02:52:23.870
wait two to three years to
see what ECRS looks like,

02:52:23.870 --> 02:52:25.790
and then start trying to deploy,

02:52:25.790 --> 02:52:27.670
because it's already
too late to a point.

02:52:27.670 --> 02:52:29.600
And that would actually
be a bad outcome.

02:52:29.600 --> 02:52:32.170
So this is one way to
bridge the uncertainty

02:52:32.170 --> 02:52:34.860
on how long ERCOT will take.

02:52:34.860 --> 02:52:36.560
And again, Kenan was just up here.

02:52:37.429 --> 02:52:39.670
It's unclear how long it will take,

02:52:39.670 --> 02:52:41.440
as there a lot of resources
required to do everything.

02:52:41.440 --> 02:52:44.380
I think that's the challenge
is, if it takes a number

02:52:44.380 --> 02:52:47.180
of years for ECRS to come to fruition

02:52:47.180 --> 02:52:48.640
in that intervening period,

02:52:48.640 --> 02:52:51.110
it's hard to make a
lot of decisions without

02:52:51.110 --> 02:52:52.880
necessarily knowing those.

02:52:52.880 --> 02:52:55.840
This is one way to
bridge that period of time

02:52:55.840 --> 02:52:58.210
because it's a different price signal.

02:52:58.210 --> 02:53:01.340
And the nice thing is, it's
solving the broader need,

02:53:01.340 --> 02:53:04.370
which is functional
dispatchability with generating

02:53:04.370 --> 02:53:07.367
resources that currently
do not exist on the system.

02:53:07.367 --> 02:53:10.150
And it's forward looking for
new technologies and it sets

02:53:10.150 --> 02:53:13.240
a target to say, these are
what we want in the future,

02:53:13.240 --> 02:53:16.830
because this is the type of
product we need in the future.

02:53:16.830 --> 02:53:18.880
<v Peter>You mentioned the
forward pricing looks like</v>

02:53:18.880 --> 02:53:21.060
an ECRS or any other ancillary service,

02:53:21.060 --> 02:53:23.070
you don't know how much volume,

02:53:23.070 --> 02:53:26.060
you can look at current
prices or historic prices

02:53:26.060 --> 02:53:31.060
of ancillary services and just
what volumes you don't know,

02:53:31.577 --> 02:53:32.900
the investor would not know

02:53:32.900 --> 02:53:35.773
how much would be
procured in the future.

02:53:38.908 --> 02:53:40.410
The question is how far in the future

02:53:40.410 --> 02:53:43.658
would you propose procuring the decks?

02:53:43.658 --> 02:53:45.310
So, or setting that volume?

02:53:45.310 --> 02:53:47.420
<v Aaron>Since I'm here to
pile on of people, you know,</v>

02:53:47.420 --> 02:53:50.850
I would ask even a question
of someone like Brattle,

02:53:50.850 --> 02:53:53.840
how effective have
consultants been at forecasting

02:53:53.840 --> 02:53:55.173
ancillary price markets?

02:53:56.210 --> 02:53:57.700
It's a rhetorical question.

02:53:57.700 --> 02:53:58.914
It's extremely hard because-

02:53:58.914 --> 02:54:01.070
<v ->Everybody's bad at forecasting.</v>

02:54:01.070 --> 02:54:03.630
<v ->Exactly and it's
marginal units, right?</v>

02:54:03.630 --> 02:54:06.540
So the problem with
a lot of ancillaries,

02:54:06.540 --> 02:54:10.040
they are asymmetric, because
when they can be very low

02:54:10.040 --> 02:54:12.290
for a long time, and then
when someone doesn't show up,

02:54:12.290 --> 02:54:14.150
the price is very, very high.

02:54:14.150 --> 02:54:18.370
That type of volatility is
extremely hard to forecast

02:54:18.370 --> 02:54:22.120
and predict in any econometric
model. And so to your point,

02:54:22.120 --> 02:54:24.210
it's extremely hard to predict.

02:54:24.210 --> 02:54:26.130
I would give our own personal example,

02:54:26.130 --> 02:54:29.190
when we decided to make
starting three years ago,

02:54:29.190 --> 02:54:31.410
investments in our
energy storage projects,

02:54:31.410 --> 02:54:33.460
they're now operating
under construction.

02:54:34.720 --> 02:54:36.208
We looked at every consultant,

02:54:36.208 --> 02:54:37.760
we looked at the models and we said,

02:54:37.760 --> 02:54:39.168
this is not a justification.

02:54:39.168 --> 02:54:40.970
This literally doesn't work because

02:54:40.970 --> 02:54:42.640
it captures no volatility.

02:54:42.640 --> 02:54:45.677
You don't have any visibility
on what the price signal is.

02:54:46.920 --> 02:54:49.840
<v Peter>How would
the deck correct that?</v>

02:54:49.840 --> 02:54:51.580
<v ->Because if you set out
from the beginning and said,</v>

02:54:51.580 --> 02:54:55.220
this is either a ten-year
program at 15 year program,

02:54:55.220 --> 02:54:57.390
or like RPS,

02:54:57.390 --> 02:54:59.480
there's a minimum requirement
that we're going to start

02:54:59.480 --> 02:55:03.860
at 5,000 at year one and
go to 15,000 by year 10

02:55:03.860 --> 02:55:05.480
to match load growth.

02:55:05.480 --> 02:55:07.787
That sets that target
over like a 10 year volume.

02:55:07.787 --> 02:55:10.260
<v Peter>The volume
target, not the price target.</v>

02:55:10.260 --> 02:55:14.710
<v ->That's right. There's a
volume target. And then the-</v>

02:55:14.710 --> 02:55:17.544
<v Will>The price target
on year to year,</v>

02:55:17.544 --> 02:55:21.000
that's a self-correcting mechanism.

02:55:21.000 --> 02:55:23.319
<v ->Well, there's the ACPS.</v>
<v ->Oh, I'm sorry. The ACPS.</v>

02:55:23.319 --> 02:55:24.152
<v ->Right. But so,</v>

02:55:24.152 --> 02:55:26.720
I mean the ancillary service
volumes are set a year

02:55:26.720 --> 02:55:28.500
in advance, traditionally
they have been.

02:55:28.500 --> 02:55:31.330
You could move that further, you know,

02:55:31.330 --> 02:55:33.260
you could move that out.
I think it's December when

02:55:33.260 --> 02:55:37.711
ERCOT has traditionally set
AS for the next year by volume.

02:55:37.711 --> 02:55:40.080
So the volume predictions very easy.

02:55:40.080 --> 02:55:42.640
ERCOT tells you what
they're going to buy.

02:55:42.640 --> 02:55:46.380
The price prediction or
forecasting is the hard part,

02:55:46.380 --> 02:55:49.232
very asymmetric. As soon
as you run out of offers,

02:55:49.232 --> 02:55:51.700
it gets real expensive real quick.

02:55:51.700 --> 02:55:56.700
So I can see on the deck
program, how the volume,

02:55:57.120 --> 02:56:00.590
you can set the volume
forecast very easily.

02:56:00.590 --> 02:56:03.730
But how does that improve
on the price forecast?

02:56:03.730 --> 02:56:06.310
<v Aaron>It's the ACP, that's
the way to think about-</v>

02:56:06.310 --> 02:56:07.460
<v ->That's the benchmark.</v>

02:56:08.668 --> 02:56:11.863
<v ->Well, it's the max and
this is why it's important.</v>

02:56:12.810 --> 02:56:17.170
What is important about an
ACP is that that's the maximum

02:56:17.170 --> 02:56:18.923
exposure that consumers will see.

02:56:20.230 --> 02:56:22.060
That's very different
than other proposals

02:56:22.060 --> 02:56:23.560
where there's a floor price,

02:56:23.560 --> 02:56:26.380
because it's one thing to say
that generator's guaranteed

02:56:26.380 --> 02:56:30.960
a floor that does not cap
consumer exposure whatsoever.

02:56:30.960 --> 02:56:32.570
It's basically the inverse.

02:56:32.570 --> 02:56:36.580
So knowing there's an ACP
means as a, you know, again,

02:56:36.580 --> 02:56:39.680
a participant in REC markets,
for example, over the country,

02:56:39.680 --> 02:56:41.440
you know, there's a
price, you know, there's a,

02:56:41.440 --> 02:56:43.290
a demand for a product.

02:56:43.290 --> 02:56:45.780
Maybe there's a band like
anything in life. There's some,

02:56:45.780 --> 02:56:46.940
you know, statistical uncertainty.

02:56:46.940 --> 02:56:48.900
You can say it's likely
to between, you know,

02:56:48.900 --> 02:56:50.780
five and 10 or whatever.

02:56:50.780 --> 02:56:52.530
But, you know, there's
demand for product

02:56:52.530 --> 02:56:53.781
years in the future.

02:56:53.781 --> 02:56:57.040
And there's at least some
sense that there's some realistic

02:56:57.040 --> 02:56:58.280
price formation for that.

02:56:58.280 --> 02:57:01.000
You know that if people
don't show up, there is an ACP.

02:57:01.000 --> 02:57:03.730
So maybe that happened, you know,

02:57:03.730 --> 02:57:05.920
I don't want to say you'd
hope for that as a participant,

02:57:05.920 --> 02:57:06.753
but-

02:57:06.753 --> 02:57:08.260
<v Peter>Theoretically the
first deck ever traded should</v>

02:57:08.260 --> 02:57:09.310
trade it with ACP.

02:57:09.310 --> 02:57:10.840
<v ->Yes. And so there are
markets, there are REC markets-</v>

02:57:10.840 --> 02:57:13.125
<v ->And they never trade higher?</v>
<v ->Yes.</v>

02:57:13.125 --> 02:57:16.140
<v Peter>I'll never do that again.</v>

02:57:16.140 --> 02:57:18.470
Well, I mean, if it like by definition

02:57:18.470 --> 02:57:19.947
and you don't have the
generation you need,

02:57:19.947 --> 02:57:23.370
the very first trade is ACP.

02:57:23.370 --> 02:57:28.370
And then as long as you
have zero plus in supply,

02:57:28.856 --> 02:57:31.770
by definition, that
price has to get that.

02:57:31.770 --> 02:57:33.400
<v ->But one of the
interesting things</v>

02:57:33.400 --> 02:57:34.960
about a market like this,

02:57:34.960 --> 02:57:36.660
when there's an ACP,
<v Peter>That's a good thing.</v>

02:57:36.660 --> 02:57:39.800
<v ->Yeah. It incentivizes
a generator to actually</v>

02:57:39.800 --> 02:57:41.490
see if someone will take their product

02:57:41.490 --> 02:57:44.310
at a known price for
multiple years in the future.

02:57:44.310 --> 02:57:47.720
So unlike the retailers being
sort of, I'll say, you know,

02:57:47.720 --> 02:57:51.000
naked on, you know,
short term contracts,

02:57:51.000 --> 02:57:53.630
if you have a generator and you think

02:57:53.630 --> 02:57:56.590
there could be a lot of
competition coming in,

02:57:56.590 --> 02:57:59.330
you go look for people to
take a three or five-year strip

02:57:59.330 --> 02:58:01.940
of your product now at a known price.

02:58:01.940 --> 02:58:02.773
And guess what?

02:58:02.773 --> 02:58:04.273
That trait's normally
significantly below the ACP,

02:58:04.273 --> 02:58:06.150
because the whole
point of someone lacking

02:58:06.150 --> 02:58:08.560
and on the other
side is they get a deal.

02:58:08.560 --> 02:58:10.100
They know they don't
have to pay something

02:58:10.100 --> 02:58:12.144
that's even close to
ACP. So when you look at-

02:58:12.144 --> 02:58:13.750
<v Peter>Moving risk.</v>
<v ->Yes.</v>

02:58:13.750 --> 02:58:15.469
And so a lot of the markets, again,

02:58:15.469 --> 02:58:17.880
I'll just use their REC
markets that look like this,

02:58:17.880 --> 02:58:20.570
where there's an ACP that
declines or increases through

02:58:20.570 --> 02:58:24.010
time, those markets typically
have people trying to lock in.

02:58:24.010 --> 02:58:26.580
You know, multi-year, if
you're on the retail side,

02:58:26.580 --> 02:58:27.620
you want to do that too.

02:58:27.620 --> 02:58:29.020
<v Peter>That's financial
risk management.</v>

02:58:29.020 --> 02:58:30.040
<v ->Yes, sir.</v>

02:58:30.040 --> 02:58:33.593
<v ->Very straightforward in
most places, power markets.</v>

02:58:35.250 --> 02:58:37.750
<v ->But to your point, it's
the ACP that helps set.</v>

02:58:37.750 --> 02:58:40.500
There is a price signal of
some in almost knowing that

02:58:40.500 --> 02:58:43.000
there's an ACP out for a long duration,

02:58:43.000 --> 02:58:46.810
helps people then come
to terms on some duration,

02:58:46.810 --> 02:58:50.383
of contracting, that's
typically not just spot.

02:58:51.290 --> 02:58:54.973
<v Peter>Oh I mean, the
feature is it forces the price up,</v>

02:58:57.294 --> 02:58:59.713
but you forced the first
price to be with ACP.

02:59:01.050 --> 02:59:03.370
And the absence of that penalty,

02:59:03.370 --> 02:59:04.930
nobody has any incentive to do anything

02:59:04.930 --> 02:59:06.420
and nobody has any idea
what the price would be.

02:59:06.420 --> 02:59:07.253
<v ->Right.</v>

02:59:07.253 --> 02:59:09.883
<v ->So that's a feature.</v>
<v ->Yeah.</v>

02:59:11.020 --> 02:59:15.130
But the key features is it
caps the cost to consumers.

02:59:15.130 --> 02:59:16.790
And I think that's
really important point,

02:59:16.790 --> 02:59:19.320
and like Commissioner McAdams said,

02:59:19.320 --> 02:59:22.686
the dollars that would flow
from ACP would basically go to

02:59:22.686 --> 02:59:25.130
the ancillary costs for
the rest of the system

02:59:25.130 --> 02:59:29.470
to buy them down. It would
be a friendly loop, right?

02:59:29.470 --> 02:59:32.980
The point being, if this
generation does not come,

02:59:32.980 --> 02:59:35.420
it is likely that the
ancillary costs in the market

02:59:35.420 --> 02:59:38.303
will be higher. So in effect-

02:59:38.303 --> 02:59:40.480
<v Lori>Then we wouldn't
have generation.</v>

02:59:40.480 --> 02:59:42.805
<v Peter>I mean, at some
point it's all academic</v>

02:59:42.805 --> 02:59:43.888
as rights go.

02:59:44.900 --> 02:59:48.120
<v ->Right, within the bounds
of right, within some bounds,</v>

02:59:48.120 --> 02:59:49.160
there's some supply and demand.

02:59:49.160 --> 02:59:52.280
The goal is to use
this, to help drive down,

02:59:52.280 --> 02:59:56.033
ultimately ancillary costs
by having enough generators

02:59:56.033 --> 02:59:57.760
that can really participate.

02:59:57.760 --> 03:00:01.638
And if you can't then, or if
you choose to not participate,

03:00:01.638 --> 03:00:05.270
then you are helping
reduce the costs for the other

03:00:05.270 --> 03:00:07.613
participants who
actually did participate.

03:00:09.280 --> 03:00:10.950
<v Peter>Excellent.</v>

03:00:10.950 --> 03:00:11.963
Questions, comments?

03:00:15.286 --> 03:00:17.950
<v Will>I want to hear Sam.
Sam is going to come up here.</v>

03:00:17.950 --> 03:00:19.720
I liked everything he said.

03:00:19.720 --> 03:00:22.703
Sam will smoke out the devils.

03:00:25.060 --> 03:00:27.124
<v ->Done?</v>
<v ->Thank you. Don't go far.</v>

03:00:27.124 --> 03:00:29.470
<v ->Yeah, don't go far.</v>

03:00:29.470 --> 03:00:32.713
<v ->All right. Sam, come
on. Come on back up.</v>

03:00:39.760 --> 03:00:41.350
<v ->Thanks. Good afternoon.</v>

03:00:41.350 --> 03:00:42.813
<v ->Welcome back.</v>
<v ->Thanks.</v>

03:00:44.003 --> 03:00:46.030
<v ->Name for the record.</v>

03:00:46.030 --> 03:00:47.913
<v ->Sam Newell from
the Brattle group.</v>

03:00:49.260 --> 03:00:50.093
<v ->Thank you, sir.</v>

03:00:50.093 --> 03:00:51.980
You've compared a
lot of different ideas.

03:00:51.980 --> 03:00:53.791
You presented the two,

03:00:53.791 --> 03:00:58.070
you and your team
rose to the top to date.

03:00:58.070 --> 03:00:59.423
We've got a new proposal.

03:01:00.320 --> 03:01:01.153
I would love to hear your thoughts

03:01:01.153 --> 03:01:03.793
on pros, cons, features, bugs.

03:01:06.230 --> 03:01:08.840
<v ->Don't forget when we
said the rose to the top,</v>

03:01:08.840 --> 03:01:12.360
it was for solving the
resource adequacy problem.

03:01:12.360 --> 03:01:13.500
Right?
<v Peter>Yes.</v>

03:01:13.500 --> 03:01:14.333
<v ->Okay.</v>

03:01:15.450 --> 03:01:20.450
This proposal does not help
the resource adequacy problem.

03:01:20.740 --> 03:01:21.963
Not one little bit.

03:01:23.080 --> 03:01:25.690
It does other things, but

03:01:27.670 --> 03:01:30.440
it may tilt to some of
the supply a little bit

03:01:30.440 --> 03:01:32.943
more towards stuff that can meet ECRS.

03:01:34.996 --> 03:01:36.550
And I'm not even sure that's something

03:01:36.550 --> 03:01:38.350
we should be trying to do right now.

03:01:39.610 --> 03:01:40.720
As for the problem of,

03:01:40.720 --> 03:01:45.390
do you have enough
supply to serve demand,

03:01:45.390 --> 03:01:48.980
even when things get tough
and you're close to shortage?

03:01:48.980 --> 03:01:50.110
Remember, that's the problem.

03:01:50.110 --> 03:01:52.020
That's the primary one
we're worried about.

03:01:52.020 --> 03:01:57.020
In weather extremes
when the wind is not there.

03:01:57.460 --> 03:02:02.100
And those things are, you know,

03:02:02.100 --> 03:02:03.850
all the times we've experienced it.

03:02:04.718 --> 03:02:06.420
They've been predictable
a day in advance.

03:02:06.420 --> 03:02:08.060
And it's not even a
question that we don't have

03:02:08.060 --> 03:02:09.530
enough flexible supply.

03:02:09.530 --> 03:02:13.660
It's about enough dispatchable
supply that can be there,

03:02:13.660 --> 03:02:15.780
whether it takes a day to start.

03:02:15.780 --> 03:02:17.660
Cause you know,

03:02:17.660 --> 03:02:19.880
you know when it's the
hottest day of the year coming

03:02:19.880 --> 03:02:22.493
and that's actually what's in shortage.

03:02:23.530 --> 03:02:24.880
And then I'll tell you why I think

03:02:24.880 --> 03:02:29.390
this possibly makes
that problem even worse,

03:02:29.390 --> 03:02:30.910
but for sure it doesn't help it us.

03:02:30.910 --> 03:02:34.939
<v Peter>Okay. We'll start
with that before we get to-</v>

03:02:34.939 --> 03:02:38.780
<v ->So it's very tempting to
come up with something.</v>

03:02:38.780 --> 03:02:40.700
We got into a lot of details,

03:02:40.700 --> 03:02:42.250
many of which were very clever,

03:02:44.835 --> 03:02:48.130
but it's tempting to look at
it targeted program like this

03:02:48.130 --> 03:02:50.880
in isolation and see how
that'll help certain resources.

03:02:50.880 --> 03:02:53.290
These are resources we'd like to have

03:02:53.290 --> 03:02:56.190
without seeing the
unintended consequences.

03:02:56.190 --> 03:02:58.890
Let me talk about what the
unintended consequences are

03:03:00.421 --> 03:03:02.210
and cause we heard,
"Oh, it won't run all the time.

03:03:02.210 --> 03:03:04.260
So it won't always distort prices."

03:03:04.260 --> 03:03:05.490
It will run. First of all,

03:03:05.490 --> 03:03:08.430
we'll be providing
ancillaries a lot of the time

03:03:08.430 --> 03:03:09.263
and reserves.

03:03:10.610 --> 03:03:14.733
It will be providing energy
or ancillaries, especially-

03:03:15.860 --> 03:03:17.178
<v Peter>From a generating asset or?</v>

03:03:17.178 --> 03:03:20.670
<v ->Anything that's
providing decks. Okay.</v>

03:03:20.670 --> 03:03:22.610
<v Peter>Okay. So it meets
the performance standards.</v>

03:03:22.610 --> 03:03:27.070
<v ->Yeah. And it will be
providing energy or ancillaries,</v>

03:03:27.070 --> 03:03:30.010
for sure. I mean,
especially if it's reliable.

03:03:30.010 --> 03:03:33.440
For sure, during the periods
when prices are very sensitive,

03:03:33.440 --> 03:03:36.040
that is in the higher
demand periods, right.

03:03:36.040 --> 03:03:39.550
In the higher price
periods, it will be there then.

03:03:39.550 --> 03:03:42.640
And it will be undermining prices then.

03:03:42.640 --> 03:03:44.910
Here's the way, just take a step back

03:03:44.910 --> 03:03:46.960
from all the details for a sec.

03:03:46.960 --> 03:03:47.906
Sorry. What were you gonna say?

03:03:47.906 --> 03:03:50.400
<v ->Well, I was going to say,
you said undermining prices,</v>

03:03:50.400 --> 03:03:52.320
Can you flush that out?
I am not sure I follow.

03:03:52.320 --> 03:03:54.210
<v ->Okay. So you are,</v>

03:03:54.210 --> 03:03:57.870
suppose this incentive
does cause 2000 megawatts

03:03:57.870 --> 03:04:01.853
of this attractive supply to
invest in and come online.

03:04:02.689 --> 03:04:03.950
<v ->The LM-</v>
<v ->6000's.</v>

03:04:03.950 --> 03:04:05.960
<v ->LM6000's</v>

03:04:05.960 --> 03:04:09.020
<v ->Batteries, whatever qualifies.</v>

03:04:09.020 --> 03:04:11.523
And you really get that
and you can point to them.

03:04:12.420 --> 03:04:15.270
Now let's talk about the
unintended consequences.

03:04:15.270 --> 03:04:17.070
And let's back up for just a second,

03:04:17.070 --> 03:04:20.510
where and why you
have to put it in the context

03:04:20.510 --> 03:04:22.110
of the market that we're talking about.

03:04:22.110 --> 03:04:25.050
So we actually depend
on the market for it,

03:04:25.050 --> 03:04:27.070
unless we're going to
do all new investment

03:04:27.070 --> 03:04:28.530
through special programs.

03:04:28.530 --> 03:04:30.640
I don't think we're
looking to do that. Right?

03:04:30.640 --> 03:04:34.760
We actually depend
on merchant investment

03:04:34.760 --> 03:04:38.540
that is willing to invest because they

03:04:38.540 --> 03:04:40.493
expect prices to be high enough.

03:04:41.950 --> 03:04:46.950
And so there's enough
room in the market for say

03:04:49.210 --> 03:04:53.580
for so much capacity
that is able to produce

03:04:53.580 --> 03:04:55.600
during those short periods.

03:04:55.600 --> 03:04:59.403
And that's when so much
of the shortage value is.

03:05:01.340 --> 03:05:02.970
There's only room for so much because

03:05:02.970 --> 03:05:04.693
if you added a little bit more,

03:05:05.750 --> 03:05:08.077
it would reduce the
price and you'd realize,

03:05:08.077 --> 03:05:10.680
"Ooh, it doesn't make sense to invest."

03:05:10.680 --> 03:05:12.370
<v ->Equilibrium is
the point to make.</v>

03:05:12.370 --> 03:05:14.900
<v ->Exactly. Yeah. And
so, there's a room</v>

03:05:14.900 --> 03:05:16.200
for a certain amount.

03:05:16.200 --> 03:05:17.227
What happens if you say,

03:05:17.227 --> 03:05:20.360
"Oh, I came up with a
way to give a side payment,

03:05:20.360 --> 03:05:21.700
that's not in the rest of the market

03:05:21.700 --> 03:05:23.410
that everybody's eligible for.

03:05:23.410 --> 03:05:27.080
Give a side payment to
a certain kind of resource,

03:05:27.080 --> 03:05:29.790
you bring them in and then boop,

03:05:29.790 --> 03:05:33.070
you're going to knock
off exactly that much.

03:05:33.070 --> 03:05:37.120
So if you brought in 2000
megawatts of this supply,

03:05:37.120 --> 03:05:41.370
you will lose 2000
megawatts of other supplies.

03:05:41.370 --> 03:05:43.500
<v Peter>Explain the
knocking out part.</v>

03:05:43.500 --> 03:05:45.269
<v ->Well, because this is this,</v>

03:05:45.269 --> 03:05:46.790
this is just what we were talking about.

03:05:46.790 --> 03:05:47.643
Imagine that,

03:05:52.637 --> 03:05:55.950
<v Jimmy>That doesn't account
for low growth, does it?</v>

03:05:55.950 --> 03:05:57.550
<v ->Let's hold, you
know, all else equal.</v>

03:05:57.550 --> 03:05:59.900
Cause we're not changing load growth.

03:05:59.900 --> 03:06:02.660
And actually I like that
point. So here's the total,

03:06:02.660 --> 03:06:05.430
if demand is only so
big, I have to make it,

03:06:05.430 --> 03:06:10.280
so it works in the, you
know, transcript, you know,

03:06:10.280 --> 03:06:12.040
I can't just use symbols, right?

03:06:12.040 --> 03:06:14.979
If it's only so big, the demand,

03:06:14.979 --> 03:06:18.190
the amount of room for it for supply,

03:06:18.190 --> 03:06:23.190
given how high load gets
during these shortage periods,

03:06:23.230 --> 03:06:24.670
whether it's because
it's the highest load

03:06:24.670 --> 03:06:26.333
or low wind or whatever, right.

03:06:27.240 --> 03:06:28.633
There's so much demand,

03:06:29.630 --> 03:06:34.110
that gives you so much
demand for supplies.

03:06:34.110 --> 03:06:38.953
The only thing that can
increase the amount of supply

03:06:40.190 --> 03:06:41.910
is if you increase the load

03:06:43.870 --> 03:06:47.963
or increase the demand for ancillaries,

03:06:49.010 --> 03:06:51.910
and see it through
with online reserves too,

03:06:51.910 --> 03:06:54.960
with the ORDC are ultimately
our real-time compensation,

03:06:54.960 --> 03:06:57.840
but you actually have
to increase physical,

03:06:57.840 --> 03:07:00.173
real time demand.

03:07:01.350 --> 03:07:02.703
If you don't do that,

03:07:03.554 --> 03:07:06.900
and that actually does expand
how much supply you can get.

03:07:06.900 --> 03:07:08.170
But if you're not doing that,

03:07:08.170 --> 03:07:11.540
you're actually holding demand,
physical, realtime demand,

03:07:11.540 --> 03:07:15.003
which is actually what
determines the shortage pricing.

03:07:16.850 --> 03:07:17.870
<v Peter>Okay. Let me
see if I can understand.</v>

03:07:17.870 --> 03:07:20.150
<v ->Hold on. If you
don't change demand-</v>

03:07:20.150 --> 03:07:21.846
<v Will>You've got to
build new generation</v>

03:07:21.846 --> 03:07:23.171
under this construct.

03:07:23.171 --> 03:07:25.090
I mean, it just wouldn't happen, right?

03:07:25.090 --> 03:07:27.850
<v ->Well, no, you do.
Hold on, just a sec.</v>

03:07:27.850 --> 03:07:29.340
So you are, in fact,

03:07:29.340 --> 03:07:31.560
unless you're planning
to use special programs

03:07:31.560 --> 03:07:34.830
for all new investment, forget
about merchant investment,

03:07:34.830 --> 03:07:37.763
you are actually
depending on people to see.

03:07:38.760 --> 03:07:40.460
You know, when the forward price goes up

03:07:40.460 --> 03:07:42.250
and when their forecast
for when there's going

03:07:42.250 --> 03:07:45.020
to be a good pricing
enough to build a unit,

03:07:45.020 --> 03:07:47.510
you actually are having them,
you're depending on them,

03:07:47.510 --> 03:07:51.000
looking at this dynamic of, you know,

03:07:51.000 --> 03:07:53.320
how much supply is
there compared to demand

03:07:53.320 --> 03:07:55.073
and what do I expect prices to be?

03:07:56.001 --> 03:07:58.220
You were going to say
something Chairman.

03:07:58.220 --> 03:07:59.350
<v ->Well, I mean,</v>

03:07:59.350 --> 03:08:03.380
I wanna make sure I've
got the concept down,

03:08:03.380 --> 03:08:05.200
the knocking in the blueprint.

03:08:08.800 --> 03:08:11.440
If you have essentially a
subsidized side payment,

03:08:11.440 --> 03:08:15.793
like subsidized segment of supply yeah.

03:08:16.889 --> 03:08:20.400
And it's still this year's
load or load with next year,

03:08:20.400 --> 03:08:24.666
whatever that load
demand is, it will, the,

03:08:24.666 --> 03:08:28.443
the subsidized product will beat out,

03:08:29.600 --> 03:08:34.070
will beat the economics of
the other 2000 and essentially

03:08:34.070 --> 03:08:37.290
forced retirement because
they don't get the revenues

03:08:37.290 --> 03:08:40.070
because the substitute good is cheaper.

03:08:40.070 --> 03:08:40.903
<v Sam>Exactly.</v>

03:08:40.903 --> 03:08:42.730
<v ->And the same thing would
happen if you built transmission</v>

03:08:42.730 --> 03:08:45.360
and you solve bottlenecks
on the transmission system,

03:08:45.360 --> 03:08:49.037
or if you built a new gas
plant, it's the exact same thing.

03:08:49.037 --> 03:08:52.880
They're all, it's all price
formation. Well in competition.

03:08:52.880 --> 03:08:55.230
<v ->And I agree with you
if those are actually,</v>

03:08:55.230 --> 03:08:57.880
but I only agree with you
if those are out of market.

03:08:59.271 --> 03:09:00.104
<v ->Why is that?</v>
<v ->Well, no,</v>

03:09:00.104 --> 03:09:01.580
I mean, it's true in general,

03:09:01.580 --> 03:09:05.930
if you add one that, you
know, somebody else isn't, but,

03:09:07.380 --> 03:09:11.013
but with growing demand or,
you know, retirements and stuff,

03:09:12.164 --> 03:09:14.700
there actually is a
signal for people to build.

03:09:14.700 --> 03:09:15.630
I think it's-

03:09:15.630 --> 03:09:18.240
<v ->What's the difference
between that signal and the signal</v>

03:09:18.240 --> 03:09:20.390
that's in Commissioner
McAdam's memo that says

03:09:20.390 --> 03:09:24.780
we need 15,000 megawatts in 10 years?

03:09:24.780 --> 03:09:25.613
<v ->I'm sorry.</v>

03:09:26.588 --> 03:09:28.960
<v ->2% load growth
every year for 10 years,</v>

03:09:28.960 --> 03:09:30.973
just say we need 15,000 megawatts.

03:09:33.960 --> 03:09:36.700
<v ->And can you complete
the question now?</v>

03:09:36.700 --> 03:09:39.643
<v ->What's the difference
between the price signal that,</v>

03:09:39.643 --> 03:09:43.200
that the market price
signal that you think the new,

03:09:43.200 --> 03:09:47.900
that the generators get from
the existing market signals on

03:09:47.900 --> 03:09:52.900
it today and the price
signal or the signal that

03:09:53.620 --> 03:09:57.340
new generation is needed
by having a 2% goal that we're

03:09:57.340 --> 03:10:02.150
paying for an additional
15,000 megawatts over 10 years.

03:10:02.150 --> 03:10:04.860
<v ->Well if this payment
that you're offering is,</v>

03:10:04.860 --> 03:10:06.600
is just a side payment.

03:10:06.600 --> 03:10:08.080
I mean, it doesn't necessarily hurt.

03:10:08.080 --> 03:10:08.913
It's just costly,

03:10:08.913 --> 03:10:11.310
but it doesn't increase the
total amount of supply because

03:10:11.310 --> 03:10:13.770
the total, and just an easy
way to think about it, you know,

03:10:13.770 --> 03:10:15.260
there are a lot of hours in a year.

03:10:15.260 --> 03:10:16.880
Just as a simple mental model,

03:10:16.880 --> 03:10:19.380
imagine there's one
really challenging hour.

03:10:19.380 --> 03:10:21.470
And that's where a lot of the value is.

03:10:21.470 --> 03:10:25.290
There's enough demand
for just that many resources.

03:10:25.290 --> 03:10:27.600
And, you know, imagine if
you had one more resource,

03:10:27.600 --> 03:10:30.020
you'd kill the price and it
shouldn't be there, you know,

03:10:30.020 --> 03:10:32.020
it should have retired or not dealt.

03:10:32.020 --> 03:10:33.920
And that is essentially that's,

03:10:33.920 --> 03:10:37.340
there's this stack here where
if you make a side payment,

03:10:37.340 --> 03:10:40.320
whether it's, you know,
to some resources that,

03:10:40.320 --> 03:10:45.140
and not others, it, it
actually pops somebody off.

03:10:45.140 --> 03:10:47.470
So you could take an idea like this.

03:10:47.470 --> 03:10:50.730
It's just that you'd have
to expand it to eligibility,

03:10:50.730 --> 03:10:52.680
not just to new resources,

03:10:52.680 --> 03:10:55.849
but to all resources that are
providing competitive value.

03:10:55.849 --> 03:10:58.220
<v Peter>And it's, to
your point, you mean,</v>

03:10:58.220 --> 03:11:01.890
it's important that we can't
be afraid of price formation.

03:11:01.890 --> 03:11:05.720
I think when I, make
sure I get this right,

03:11:05.720 --> 03:11:10.720
in the case of a more
economic unit displacing

03:11:11.930 --> 03:11:15.230
as a substance and more
economic substitute good

03:11:15.230 --> 03:11:17.880
for an old unit, that unit's
losing a hundred percent of

03:11:17.880 --> 03:11:20.360
revenue clearing up congestion,

03:11:20.360 --> 03:11:25.360
or is not that reduces
price point by 5%, not 100%.

03:11:26.560 --> 03:11:27.930
<v ->Quick questioning.</v>

03:11:27.930 --> 03:11:30.070
Isn't that in fact, the
definition of equilibrium

03:11:30.070 --> 03:11:30.903
at that point?

03:11:30.903 --> 03:11:32.920
<v ->Yeah, the market's always
searching for equilibrium.</v>

03:11:32.920 --> 03:11:35.580
<v ->And remember, if
you want more supply,</v>

03:11:35.580 --> 03:11:38.470
you have to supply a,

03:11:38.470 --> 03:11:41.610
total supply increase only
if you increase total demand

03:11:41.610 --> 03:11:45.840
for either, you know,
real time physical energy,

03:11:45.840 --> 03:11:48.720
which is the load plus
ancillaries that are going to be held

03:11:48.720 --> 03:11:52.430
out in real-time or as expressed
in our cups market without

03:11:52.430 --> 03:11:54.930
real time co-optimization
through the ORDC,

03:11:54.930 --> 03:11:57.630
other, you know, those reserves.

03:11:57.630 --> 03:11:59.900
That and actually
right, shifting, enriching,

03:11:59.900 --> 03:12:01.883
the ORDC does increase demand,

03:12:02.920 --> 03:12:05.410
but unless you're increasing demand,

03:12:05.410 --> 03:12:08.440
you've actually not helped the supply.

03:12:08.440 --> 03:12:10.510
You've actually not
increased the supply,

03:12:10.510 --> 03:12:12.460
even if you do a side
payment to somebody.

03:12:12.460 --> 03:12:14.623
Somebody else will pop out
the same number of megawatts.

03:12:14.623 --> 03:12:16.950
<v ->It's the same phenomenon that</v>

03:12:16.950 --> 03:12:18.783
a federally subsidized intermittents,

03:12:18.783 --> 03:12:20.253
that you correctly point to.

03:12:20.253 --> 03:12:22.870
It's the same phenomenon
they've had on dispatchable.

03:12:22.870 --> 03:12:24.260
<v ->Yeah.</v>

03:12:24.260 --> 03:12:25.222
<v ->Is that fair?</v>
<v ->It is.</v>

03:12:25.222 --> 03:12:26.120
<v ->I mean, they're just,</v>

03:12:26.120 --> 03:12:28.463
the subsidy makes them
cheaper and knocks out.

03:12:29.760 --> 03:12:34.040
<v ->I'm confused on this
because that is exactly right,</v>

03:12:34.040 --> 03:12:37.150
I think if you're not growing the load.

03:12:37.150 --> 03:12:38.500
<v Will>Right, it's increasing-</v>

03:12:38.500 --> 03:12:43.340
<v ->Its intent is to focus
it on a percentage.</v>

03:12:43.340 --> 03:12:44.860
<v ->But that the load
is growing anyway,</v>

03:12:44.860 --> 03:12:46.380
you have to treat that all else equal.

03:12:46.380 --> 03:12:48.580
I mean, you really have to
think about this all else equal.

03:12:48.580 --> 03:12:50.680
Am I better off with this side payment

03:12:52.420 --> 03:12:54.360
to help me whatever demand that's,

03:12:54.360 --> 03:12:56.970
growing over time or without
the side payment and how

03:12:56.970 --> 03:13:00.120
the market will meet that
growing demand over time.

03:13:00.120 --> 03:13:02.093
You have to think about it as,

03:13:03.270 --> 03:13:06.312
cause it's not like load
growth is being created

03:13:06.312 --> 03:13:10.330
by having this program. If it
were, I would agree with it.

03:13:10.330 --> 03:13:13.600
But load growth is a given
and for whatever load there is,

03:13:13.600 --> 03:13:15.450
for whatever physical demand there is,

03:13:15.450 --> 03:13:18.480
there's only a limited
appetite for supply.

03:13:18.480 --> 03:13:20.520
And I can estimate if you put in,

03:13:20.520 --> 03:13:24.400
so let me guess that if this
program adds 2000 megawatts

03:13:24.400 --> 03:13:26.860
of supply, that is quite nice to have.

03:13:26.860 --> 03:13:29.370
I can estimate quite accurately

03:13:29.370 --> 03:13:31.400
how much other supply you'll lose.

03:13:31.400 --> 03:13:32.233
2000.

03:13:38.968 --> 03:13:39.801
And then the question is,

03:13:39.801 --> 03:13:42.500
is that even better
because this proposal has,

03:13:42.500 --> 03:13:44.130
remember the biggest
problem we're here to solve

03:13:44.130 --> 03:13:45.230
is resource adequacy.

03:13:45.230 --> 03:13:47.980
This program would have
two hour battery qualify.

03:13:47.980 --> 03:13:50.480
What if that knocks off a
combined cycle that would have

03:13:50.480 --> 03:13:53.950
been built that can run for
days when in an extended event.

03:13:53.950 --> 03:13:55.593
Is reliability actually better?

03:13:56.510 --> 03:13:59.040
Now we heard arguments
about, and then here's another.

03:13:59.040 --> 03:14:02.100
So I'm not sure it helps.
I think it may even hurt.

03:14:02.100 --> 03:14:03.410
Second of all,

03:14:03.410 --> 03:14:05.910
it actually creates, we
got into a lot of details,

03:14:05.910 --> 03:14:06.823
but by having,

03:14:07.745 --> 03:14:10.140
a per megawatt hour payment
for something where what we

03:14:10.140 --> 03:14:14.600
actually value truly is
Reserve's ability to be there at

03:14:14.600 --> 03:14:15.960
these really challenging times.

03:14:15.960 --> 03:14:18.450
It's not to produce all the
time. You don't need to.

03:14:18.450 --> 03:14:21.860
I mean, it's not really
an energy concept.

03:14:21.860 --> 03:14:23.790
You don't need to pay them every day.

03:14:23.790 --> 03:14:26.970
It's just a payment formation,
payment mechanism.

03:14:26.970 --> 03:14:28.510
You might as well just give a subsidy

03:14:28.510 --> 03:14:30.120
to some new generators.

03:14:30.120 --> 03:14:32.910
But by doing the volume
metrically, you distort things.

03:14:32.910 --> 03:14:36.010
So imagine if an 8,500
megawatt heat rate plant and it,

03:14:36.010 --> 03:14:41.010
sorry, 8,500 heat rate
plant qualifies is getting this,

03:14:41.490 --> 03:14:43.720
they'll say, "Great."
You know, it's true.

03:14:43.720 --> 03:14:45.980
It's easier to implement
in the ERCOT systems

03:14:45.980 --> 03:14:48.560
because the private
participant is saying great.

03:14:48.560 --> 03:14:51.030
I'm going to get the side
payment. How much am I?

03:14:51.030 --> 03:14:53.630
What's my offer for
energy? Really low price.

03:14:53.630 --> 03:14:56.130
In fact, I'll push off
for energy purposes

03:14:56.130 --> 03:14:58.110
at that 7,000 heat rate unit.

03:14:58.110 --> 03:15:00.170
You know, that's not a good thing to do.

03:15:00.170 --> 03:15:01.573
It's not, it's not healthy.

03:15:02.520 --> 03:15:03.993
<v ->Scenario for you, Sam.</v>

03:15:04.880 --> 03:15:08.580
Look, the production tax
credit and federal subsidies.

03:15:08.580 --> 03:15:11.380
It has been asserted, create
a distortion in the market.

03:15:12.700 --> 03:15:16.300
With so long of a depreciation schedule

03:15:16.300 --> 03:15:19.010
for a new dispatchable facility,

03:15:19.010 --> 03:15:21.270
30 years, 20 years, something like that,

03:15:21.270 --> 03:15:23.780
takes to pay off the thing, right?

03:15:23.780 --> 03:15:28.780
How do you invest in the
face of that, without, I mean,

03:15:29.080 --> 03:15:32.860
your capacity payment spread
across the system, you know,

03:15:32.860 --> 03:15:37.130
to all of the old, we've got
1974 facilities in the system,

03:15:37.130 --> 03:15:40.080
say if we've got 1960
facilities in the system.

03:15:40.080 --> 03:15:45.080
My daughter will see one of
these systems running in 2060,

03:15:45.210 --> 03:15:47.800
you know, under that model.

03:15:47.800 --> 03:15:51.990
So how you get the
new technology installed

03:15:51.990 --> 03:15:54.120
in the face of all that
intermittent penetration,

03:15:54.120 --> 03:15:56.730
that's going to be constantly
suppressing prices without

03:15:56.730 --> 03:15:59.823
getting them a fighting chance
with something like a deck.

03:16:00.680 --> 03:16:03.210
<v ->You know, you have a much
bigger problem on your hands.</v>

03:16:03.210 --> 03:16:05.140
If you don't believe in
the energy only market

03:16:05.140 --> 03:16:09.688
being able to give you
price signals to attract new.

03:16:09.688 --> 03:16:11.380
<v Will>Let's not like this
religious debate here.</v>

03:16:11.380 --> 03:16:14.303
I mean, this is talking about
federal subsidies versus-

03:16:16.240 --> 03:16:17.910
<v ->Oh well, but I
don't think those,</v>

03:16:17.910 --> 03:16:19.290
of course those subsidies don't help

03:16:19.290 --> 03:16:21.583
the resource adequacy
problem, which is what we're-

03:16:21.583 --> 03:16:24.160
<v ->I mean, the same thing
you're describing of knocking out</v>

03:16:24.160 --> 03:16:26.850
other ones is what the federal
services did to dispatchable.

03:16:26.850 --> 03:16:28.217
<v ->That's right.</v>

03:16:28.217 --> 03:16:30.540
<v ->And how do we remedy
that? That's what we're here for.</v>

03:16:30.540 --> 03:16:31.723
<v ->Well, and I guess
what I'm saying is</v>

03:16:31.723 --> 03:16:35.100
some of the elements of
that are present here too.

03:16:35.100 --> 03:16:36.350
And what I,

03:16:36.350 --> 03:16:40.200
and all I was suggesting
is that sometimes it is hard

03:16:40.200 --> 03:16:41.960
to believe why somebody would invest

03:16:41.960 --> 03:16:45.603
in a dispatchable resource
without something special.

03:16:48.106 --> 03:16:49.970
And I know it's hard to believe
because we've had several

03:16:49.970 --> 03:16:53.040
years of not a lot of investment
in dispatchable resources.

03:16:53.040 --> 03:16:55.360
It does in fact, and I don't
mean a religious point,

03:16:55.360 --> 03:16:58.770
but it does take some
faith that, you know,

03:16:58.770 --> 03:17:00.770
if load grows or more retires,

03:17:00.770 --> 03:17:03.180
we really will see forward prices go up.

03:17:03.180 --> 03:17:07.197
We really will see investors say,

03:17:07.197 --> 03:17:10.620
"Hmm, I am very interested
now in building this battery

03:17:10.620 --> 03:17:12.547
or building this generator."

03:17:17.409 --> 03:17:18.242
<v ->Let me try to clarify
what another point</v>

03:17:18.242 --> 03:17:21.923
you made about the demand
and make sure I get this.

03:17:22.860 --> 03:17:24.453
Knocking And booping.

03:17:25.680 --> 03:17:29.570
The other scenario laid out earlier,

03:17:29.570 --> 03:17:32.230
cold January, winter evening,

03:17:32.230 --> 03:17:36.000
sun is set, wind
doesn't blow for that day.

03:17:36.000 --> 03:17:38.240
Or we saw in October, several days,

03:17:38.240 --> 03:17:43.240
just doesn't show up and
we need 70,000 megawatts.

03:17:44.540 --> 03:17:46.440
For what I hear you saying is that's,

03:17:46.440 --> 03:17:50.470
that's 70,000 megawatts and
demand response can be part of,

03:17:50.470 --> 03:17:53.010
will be part of answering,
not the surprise.

03:17:53.010 --> 03:17:55.670
But I think what I'm
hearing you say is you have

03:17:55.670 --> 03:17:58.493
to have some form of fashion,

03:18:00.360 --> 03:18:04.216
the demand for 70,000 of dispatchable

03:18:04.216 --> 03:18:06.440
through some mechanism.
<v Sam>Some mechanism, yeah.</v>

03:18:06.440 --> 03:18:09.790
<v ->So could you make this
instead of 3000, 70,000?</v>

03:18:09.790 --> 03:18:10.630
<v ->Yeah, you could.</v>

03:18:10.630 --> 03:18:13.730
I mean, but then it starts
to look a lot more like the,

03:18:13.730 --> 03:18:14.950
you know,

03:18:14.950 --> 03:18:18.040
like the LSE obligation,
but you've obviously

03:18:18.040 --> 03:18:20.720
suggested different
accreditation criteria.

03:18:20.720 --> 03:18:22.650
So we're, you know, here-

03:18:22.650 --> 03:18:24.700
What's that?
<v Will>New.</v>

03:18:24.700 --> 03:18:28.520
<v ->Well, no, because unless
you pay it to new and existing,</v>

03:18:28.520 --> 03:18:32.240
you're actually going to
undermine. And I heard it.

03:18:32.240 --> 03:18:35.580
And what I'm saying is that
this starts to look like that,

03:18:35.580 --> 03:18:40.020
but of course this had,
other than the new point,

03:18:40.020 --> 03:18:42.050
this had, you know, flexible, you know,

03:18:42.050 --> 03:18:43.860
certain heat rate and faster.

03:18:43.860 --> 03:18:45.580
It had certain things.

03:18:45.580 --> 03:18:48.290
Now I don't think you'd need to have

03:18:48.290 --> 03:18:50.023
the whole fleet look like that.

03:18:52.313 --> 03:18:56.010
But that is, that's sort of
the insight that leads to,

03:18:56.010 --> 03:18:59.230
in some ways you could
call this a capacity payment,

03:18:59.230 --> 03:19:00.400
a side payment,

03:19:00.400 --> 03:19:04.290
but at least it's going to
everybody who provides, you know,

03:19:04.290 --> 03:19:06.150
comparable, accredited value.

03:19:06.150 --> 03:19:07.930
And so you don't have
this bump-out problem.

03:19:07.930 --> 03:19:10.563
It's in effect actually
increasing the demand.

03:19:11.690 --> 03:19:14.030
<v Jimmy>So do we have to
do anything to the ORDC?</v>

03:19:14.030 --> 03:19:16.480
<v ->Well, that is another
way to increase demand.</v>

03:19:16.480 --> 03:19:17.683
I mean, that's how we-

03:19:18.717 --> 03:19:20.517
<v Peter>How do we increase demand?</v>

03:19:21.450 --> 03:19:24.430
<v ->So the ORDC is an
expression in real time</v>

03:19:24.430 --> 03:19:26.870
of demand that we're
really going to pay.

03:19:26.870 --> 03:19:29.170
So if you're providing energy,

03:19:29.170 --> 03:19:31.080
if you're providing online reserves.

03:19:31.080 --> 03:19:33.477
<v Peter>Oh, you're not
increasing 70,000 to 72,000,</v>

03:19:33.477 --> 03:19:37.910
you're just saying you're
artificially bumping the price up

03:19:37.910 --> 03:19:42.910
to act as if you had 75,000.
And instead of just 70.

03:19:43.156 --> 03:19:44.369
<v ->Yeah. And it's actually,</v>

03:19:44.369 --> 03:19:48.510
because what matters is the
real-time demand for energy plus

03:19:48.510 --> 03:19:51.030
ancillaries or reserves
you're willing to pay for a lot,

03:19:51.030 --> 03:19:54.150
which is another way
of saying, you know,

03:19:54.150 --> 03:19:57.403
physical energy plus ORDC.

03:19:59.117 --> 03:20:01.070
<v ->Well, I mean, I just wanted
to clarify that we're not,</v>

03:20:01.070 --> 03:20:02.330
nothing changes the seventies,

03:20:02.330 --> 03:20:06.730
whatever the realtime demand
is, including the banners.

03:20:06.730 --> 03:20:09.410
So you hear the rest of
that answer to that question.

03:20:09.410 --> 03:20:11.670
<v ->By the way. So there's
just one other point here.</v>

03:20:11.670 --> 03:20:13.564
And, you know, cause it's,

03:20:13.564 --> 03:20:16.760
it's just acknowledging the
market construct that makes it

03:20:16.760 --> 03:20:21.640
hard to do something on the
side. That's why, you know,

03:20:21.640 --> 03:20:23.740
sort of one option is just energy only

03:20:23.740 --> 03:20:26.100
with a more goosed up ORDC.

03:20:28.600 --> 03:20:30.500
Of course that's not perfect
because when you do that,

03:20:30.500 --> 03:20:33.603
you have too much online,
more than you need all the time.

03:20:34.470 --> 03:20:35.303
Okay.

03:20:35.303 --> 03:20:39.680
So another way is a side
payment with capacity

03:20:39.680 --> 03:20:43.320
and it avoids this problem of, you know,

03:20:43.320 --> 03:20:45.680
knocking somebody else out
because it's actually paying to

03:20:45.680 --> 03:20:48.410
everybody, but let's still
call it a side payment,

03:20:48.410 --> 03:20:49.420
but it's to everybody.

03:20:49.420 --> 03:20:51.460
So it doesn't have
that knockout problem.

03:20:51.460 --> 03:20:53.060
Then there's this third approach,

03:20:53.060 --> 03:20:58.060
which is the SRS or reserves
where it avoids the knockout

03:20:59.460 --> 03:21:04.460
problem by deploying you
only at the price cap, right.

03:21:06.251 --> 03:21:08.676
<v ->It's not what I
proposed but yes.</v>

03:21:08.676 --> 03:21:10.667
<v ->Oh, I'm sorry, I
won't call it SRS.</v>

03:21:10.667 --> 03:21:14.092
(indistinct conversation)

03:21:14.092 --> 03:21:16.472
<v ->Oh, market price because
you may need the product,</v>

03:21:16.472 --> 03:21:18.356
when you're not at the price cap.

03:21:18.356 --> 03:21:19.400
<v ->Oh well.</v>
<v ->It was my goal.</v>

03:21:19.400 --> 03:21:20.233
<v ->Oh, I see.</v>

03:21:20.233 --> 03:21:21.870
Well, I think we can
talk about that more later,

03:21:21.870 --> 03:21:23.290
but if you, you know,

03:21:23.290 --> 03:21:26.530
if you pay somebody truly
kind of a capacity payment to be

03:21:26.530 --> 03:21:28.720
on standby, backup reserves,

03:21:28.720 --> 03:21:31.070
you really do kind of have to say,

03:21:31.070 --> 03:21:33.120
and we're not going to run
you except at the price cap.

03:21:33.120 --> 03:21:35.200
Otherwise you do have
this bump-out problem.

03:21:35.200 --> 03:21:37.640
And that's why at
least the concept that,

03:21:37.640 --> 03:21:40.400
that I presented the backup reserves

03:21:40.400 --> 03:21:43.140
was actually that and all it is,

03:21:43.140 --> 03:21:48.140
all of these things are
recognizing that we,

03:21:48.200 --> 03:21:51.040
it's reminding ourselves,
we are not actually

03:21:51.040 --> 03:21:55.230
programmatically
deciding what to build when,

03:21:55.230 --> 03:21:57.870
and that we're going to rely
on that for all our resources.

03:21:57.870 --> 03:22:02.710
We're actually primarily relying
on the market price signal,

03:22:02.710 --> 03:22:06.940
which is driven by the demand.

03:22:06.940 --> 03:22:10.737
And if you pay something special to one,

03:22:10.737 --> 03:22:12.470
you got the bump-out problem.

03:22:12.470 --> 03:22:17.010
Unless either you pay everybody
or you still just pay a few,

03:22:17.010 --> 03:22:18.510
but you don't let them
in the energy market.

03:22:18.510 --> 03:22:21.070
So they don't have the bump-out problem.

03:22:21.070 --> 03:22:22.740
<v Jimmy>Do you think
those less efficient units</v>

03:22:22.740 --> 03:22:24.910
to get bumped down
anyway, if you pay everybody?

03:22:24.910 --> 03:22:26.150
<v ->Sorry, which one's?</v>

03:22:26.150 --> 03:22:28.950
<v Jimmy>The less efficient,
more costly unit because that,</v>

03:22:28.950 --> 03:22:32.503
that bump-out payment is
not going to cover the cost.

03:22:35.146 --> 03:22:35.979
I mean, even the...

03:22:38.680 --> 03:22:39.513
<v ->Can you,</v>

03:22:40.570 --> 03:22:44.090
<v Jimmy>Well, I think -</v>
<v ->explain more what.</v>

03:22:44.090 --> 03:22:46.117
<v Jimmy>You're saying that,</v>

03:22:46.117 --> 03:22:50.860
if you just give a side
payment to 500 megawatts,

03:22:50.860 --> 03:22:51.693
<v ->Yeah.</v>

03:22:52.820 --> 03:22:55.360
<v ->then you're going to
kick 500 megawatts out.</v>

03:22:55.360 --> 03:22:58.653
If you give it to everybody,

03:22:59.950 --> 03:23:00.783
let me say it this way.

03:23:00.783 --> 03:23:03.023
If you give it to everybody
and new units come in,

03:23:04.530 --> 03:23:06.880
ultimately you're going
to kick other people out.

03:23:06.880 --> 03:23:07.713
<v Sam>Oh, well, no.</v>

03:23:07.713 --> 03:23:11.190
Cause and the idea
of in a LSE obligation,

03:23:11.190 --> 03:23:13.020
it's saying, oh, you know,

03:23:13.020 --> 03:23:15.939
how much capacity
we're going to pay this to?

03:23:15.939 --> 03:23:19.940
Not just peak demand, but you know,

03:23:19.940 --> 03:23:22.693
your 90 10 demand or your,

03:23:24.570 --> 03:23:26.800
demand forecast plus
servers plus, you know,

03:23:26.800 --> 03:23:28.820
15% reserve margin or something.

03:23:28.820 --> 03:23:31.935
So that actually is expanding
total demand in the market.

03:23:31.935 --> 03:23:34.259
<v ->So do you think-</v>

03:23:34.259 --> 03:23:35.760
<v Sam>Again, I'm not
advocating for that.</v>

03:23:35.760 --> 03:23:38.030
I'm just trying to
deal with this reality

03:23:38.030 --> 03:23:40.760
of what it takes to accomplish
more resource adequacy.

03:23:40.760 --> 03:23:44.020
<v ->If you kick somebody out
with this alternate payment,</v>

03:23:44.020 --> 03:23:46.350
do you think you'll kick
out the most efficient plant

03:23:46.350 --> 03:23:47.840
or the least efficient plant?

03:23:47.840 --> 03:23:49.370
<v ->It's whoever has,</v>

03:23:49.370 --> 03:23:51.860
so there are a bunch of
resources that are kind of

03:23:51.860 --> 03:23:54.860
on the margin in an investment sense.

03:23:54.860 --> 03:23:57.350
So they may have a,

03:23:57.350 --> 03:24:02.053
it could be an old steam
plant that has, you know,

03:24:02.990 --> 03:24:04.473
I don't know, $40.

03:24:05.910 --> 03:24:07.423
I don't know, you know,

03:24:08.477 --> 03:24:13.477
$50 a kilowatt year
ongoing fixed O&amp;M costs and

03:24:14.310 --> 03:24:17.253
is making very little in the
energy margin in the markets.

03:24:18.940 --> 03:24:22.240
It could be a well, actually
a better way to think about it.

03:24:22.240 --> 03:24:23.380
It's not even fixed on them. You know,

03:24:23.380 --> 03:24:27.010
they would have to do some
major cap backs to keep going and

03:24:27.010 --> 03:24:29.510
they just don't see
prices quite high enough.

03:24:29.510 --> 03:24:32.250
So it could be an
existing unit like that,

03:24:32.250 --> 03:24:34.150
or it could be, you know,

03:24:34.150 --> 03:24:37.350
that somebody who's just
about to build that many batteries

03:24:37.350 --> 03:24:38.460
or just about to,

03:24:38.460 --> 03:24:41.820
and there were a lot in the
queue or maybe about to build a

03:24:41.820 --> 03:24:45.693
gas fired unit and then they don't.

03:24:49.402 --> 03:24:52.410
So that's the dynamic
that I'm thinking that.

03:24:52.410 --> 03:24:55.180
Yeah, it's probably some
combination of old, you know,

03:24:55.180 --> 03:24:57.420
retirees are most likely
steam units that would

03:24:57.420 --> 03:25:00.110
need to do a big capex to keep going.

03:25:00.110 --> 03:25:04.020
And- <v ->How hard a
problem it is to solve?</v>

03:25:04.020 --> 03:25:05.853
<v ->But isn't that what you want,</v>

03:25:07.960 --> 03:25:10.350
regeneration within the fleet.

03:25:10.350 --> 03:25:12.710
We want that new
technology to come in there.

03:25:12.710 --> 03:25:17.143
We want them to retire on their
own, I mean, economic path.

03:25:18.160 --> 03:25:20.450
<v ->Well, Yeah. It should
be on the economic path.</v>

03:25:20.450 --> 03:25:23.390
Now it's also true that if you
have some old generators

03:25:23.390 --> 03:25:27.433
that just are really
unreliable, you do kind of want,

03:25:30.774 --> 03:25:32.324
you hope that doesn't hurt you.

03:25:33.627 --> 03:25:35.720
<v ->Okay. So what happens
if the Biden administration</v>

03:25:35.720 --> 03:25:38.100
comes out tomorrow with
an attainment standard

03:25:38.100 --> 03:25:42.110
in the Houston ship channel
that puts half of NRG's fleet

03:25:42.110 --> 03:25:43.670
out of Commission tomorrow,

03:25:43.670 --> 03:25:46.626
which frankly was a
concern five years ago.

03:25:46.626 --> 03:25:48.500
I mean, it was a real potential

03:25:48.500 --> 03:25:53.500
and we have no mechanism
to sort of incentivize near term,

03:25:54.370 --> 03:25:55.203
you know,

03:25:56.950 --> 03:26:01.923
installation of a comparable
megawatt of a facility.

03:26:06.060 --> 03:26:07.540
<v ->Yeah.</v>

03:26:07.540 --> 03:26:11.440
<v ->So, these are dynamics where
we're trying to work through,</v>

03:26:11.440 --> 03:26:13.870
you know, in an LSE, anyway.

03:26:13.870 --> 03:26:16.394
<v ->Well, by the way,</v>
<v ->I didn't get there.</v>

03:26:16.394 --> 03:26:20.730
<v ->the fundamental concept
would be LSE obligation,</v>

03:26:20.730 --> 03:26:21.563
by the way.

03:26:21.563 --> 03:26:22.396
And just,

03:26:22.396 --> 03:26:24.110
I'm glad we got a chance
to have this conversation.

03:26:24.110 --> 03:26:25.120
It's not about, you know,

03:26:25.120 --> 03:26:28.310
some mechanism that's kind
of cool and that is especially

03:26:28.310 --> 03:26:31.053
good for certain resources or something.

03:26:32.070 --> 03:26:34.200
It's just dealing with this concept that

03:26:34.200 --> 03:26:36.690
if you want to expand
the amount of supply,

03:26:36.690 --> 03:26:40.850
you have to expand the demand
and you have to, you know,

03:26:40.850 --> 03:26:43.423
pay everybody who
you're hoping to get it from.

03:26:44.733 --> 03:26:48.920
The thing you value and you
value it just from so much from

03:26:48.920 --> 03:26:50.910
existing resources as from new.

03:26:50.910 --> 03:26:51.770
So you have,

03:26:51.770 --> 03:26:54.840
and that's all that was acknowledging.

03:26:54.840 --> 03:26:58.134
Not that I'm particularly
enamored of that.

03:26:58.134 --> 03:27:01.373
It's just that, you know, and we've for-

03:27:03.470 --> 03:27:07.520
<v ->And do we value capacity
in an energy only market?</v>

03:27:07.520 --> 03:27:08.730
<v ->You do.</v>

03:27:08.730 --> 03:27:12.210
You do because, so imagine if,

03:27:12.210 --> 03:27:14.510
you know there's sometimes
going to be shortages.

03:27:14.510 --> 03:27:16.190
You don't know exactly
when, but, you know,

03:27:16.190 --> 03:27:18.450
you know when there's
less capacity around,

03:27:18.450 --> 03:27:19.700
you'll have more of them.

03:27:21.282 --> 03:27:23.890
And then you have a
resource that you realize

03:27:23.890 --> 03:27:27.130
maybe I'm even very
high heat rate or whatever,

03:27:27.130 --> 03:27:30.100
but Sam reliable enough
and dispatchable enough.

03:27:30.100 --> 03:27:32.860
I can take advantage of those because

03:27:32.860 --> 03:27:34.300
I can be there when it's hot,

03:27:34.300 --> 03:27:35.350
I can be there when it's cold,

03:27:35.350 --> 03:27:37.593
I can be there when
the wind suddenly stops.

03:27:38.600 --> 03:27:43.030
And, and so that actually
does value that capacity.

03:27:43.030 --> 03:27:45.990
Even if they're providing
very little energy all year,

03:27:45.990 --> 03:27:49.300
what actually matters is
that they have this option

03:27:49.300 --> 03:27:52.443
to come in and be helpful.

03:27:53.820 --> 03:27:56.680
And the energy only market is actually

03:27:56.680 --> 03:27:58.270
pretty good at distinguishing,

03:27:58.270 --> 03:28:01.220
who's the most helpful
because the most available,

03:28:01.220 --> 03:28:05.460
reliable dispatchable
resources can capture all those

03:28:05.460 --> 03:28:07.290
shortage prices.

03:28:07.290 --> 03:28:09.830
Whereas resources that are, you know,

03:28:09.830 --> 03:28:14.010
intermittent producing
at the same time as other

03:28:14.010 --> 03:28:17.530
intermittent resources, the
more you get the worse it gets,

03:28:17.530 --> 03:28:19.290
you know, they're not
even going to get there.

03:28:19.290 --> 03:28:21.270
Their average energy
price will be really low.

03:28:21.270 --> 03:28:25.110
So the energy market is
actually quite good at rewarding

03:28:25.110 --> 03:28:27.370
capacity and the
capacity that's the best

03:28:27.370 --> 03:28:29.370
at being available during the shortages.

03:28:30.460 --> 03:28:34.630
It's just that we want to
also feel better prepared

03:28:34.630 --> 03:28:36.420
for certain extremes that

03:28:36.420 --> 03:28:38.830
didn't work for well
enough this past year.

03:28:38.830 --> 03:28:41.500
And we also want to have
a little more capacity to stay

03:28:41.500 --> 03:28:44.333
further from the edge of
shortage then we have.

03:28:45.881 --> 03:28:46.714
<v Jimmy>I guess we're,</v>

03:28:46.714 --> 03:28:51.700
I struggle on many
of these and it is that,

03:28:51.700 --> 03:28:56.700
to me, paying for capacity
is a historical rate of return

03:28:57.500 --> 03:28:59.413
vertically integrated utility concept.

03:29:01.451 --> 03:29:04.150
What we want is a daily.

03:29:04.150 --> 03:29:06.883
We want to make sure we
have energy on a daily basis.

03:29:07.860 --> 03:29:08.693
And-

03:29:08.693 --> 03:29:11.570
<v ->Yeah. Ultimately it's
only energy that matters.</v>

03:29:11.570 --> 03:29:12.403
Right?
<v Jimmy>That's right.</v>

03:29:12.403 --> 03:29:16.420
<v ->I totally agree. And the
energy-only market embraced that.</v>

03:29:16.420 --> 03:29:19.190
It's just that don't be
confused that, you know,

03:29:19.190 --> 03:29:22.990
like producing energy in
times when there's no shortage,

03:29:22.990 --> 03:29:25.970
you know, when they're easy substitute,

03:29:25.970 --> 03:29:28.480
somebody else who can
provide it at a, you know,

03:29:28.480 --> 03:29:31.380
another low cost, eh.

03:29:31.380 --> 03:29:34.060
You know, the times that we
really care about with energy

03:29:34.060 --> 03:29:36.160
or when it's going
to be in short supply,

03:29:36.160 --> 03:29:40.270
and there are resources that
might be kind of almost never

03:29:40.270 --> 03:29:42.570
producing that are
great at helping with that.

03:29:43.870 --> 03:29:46.840
So it is a bit of a capacity construct.

03:29:46.840 --> 03:29:50.920
I mean, I totally granted
that it's a long discussion

03:29:50.920 --> 03:29:53.290
how you want to best reward that.

03:29:53.290 --> 03:29:56.030
I do have to say a lot of people loved,

03:29:56.030 --> 03:29:57.260
from all over the world,

03:29:57.260 --> 03:29:59.530
look to ERCOT as the
ones who had gotten it right

03:29:59.530 --> 03:30:01.370
with the energy-only market.

03:30:01.370 --> 03:30:06.370
because it does so well at
valuing just what you want.

03:30:07.050 --> 03:30:09.910
It's just that it's not giving
us a level of reliability

03:30:09.910 --> 03:30:11.610
that we're fully comfortable with.

03:30:12.511 --> 03:30:16.530
<v ->And that's the point is
that under the one-in-one-out</v>

03:30:16.530 --> 03:30:21.530
kind of, or we shouldn't
have to wait for a catastrophe,

03:30:22.490 --> 03:30:26.233
even under any construct
that we adopt for you to get

03:30:26.233 --> 03:30:30.260
a new plant built, and
that's the point, right.

03:30:30.260 --> 03:30:32.933
<v ->Get away from the crisis.</v>
<v ->We got to get ahead of that.</v>

03:30:32.933 --> 03:30:35.990
And we got to get new
steel in the ground quick

03:30:37.220 --> 03:30:39.420
and no guarantees.

03:30:39.420 --> 03:30:40.890
<v ->Yeah. Part of
that challenge is,</v>

03:30:40.890 --> 03:30:43.400
and I'll spend some more
time talking about this is that,

03:30:43.400 --> 03:30:44.437
right, we are moving away from

03:30:44.437 --> 03:30:46.290
the crisis based business model.

03:30:46.290 --> 03:30:49.620
And we have taken out tools
that we've historically had

03:30:49.620 --> 03:30:52.303
in ERCOT's toolbox with a latch on it

03:30:52.303 --> 03:30:55.600
that we only take out
when we're in emergency.

03:30:55.600 --> 03:30:59.000
And so, because we are now
moving away from the crisis based

03:30:59.000 --> 03:31:03.703
business model that
the crisis based market

03:31:05.630 --> 03:31:07.450
had tight conditions and scarcity,

03:31:07.450 --> 03:31:08.860
and that's an energy-only market.

03:31:08.860 --> 03:31:10.650
That's when generator make money, right.

03:31:10.650 --> 03:31:12.727
During tight conditions,
during scarcity.

03:31:12.727 --> 03:31:15.260
And maybe because we're moving away

03:31:15.260 --> 03:31:17.223
from tight conditions and scarcity,

03:31:18.770 --> 03:31:21.270
we need to send a
signal somehow because,

03:31:21.270 --> 03:31:23.600
we're living in an
energy only market world

03:31:26.680 --> 03:31:28.909
moving away from
scarcity and tight conditions

03:31:28.909 --> 03:31:31.307
because that's what the
public wants and deserves.

03:31:31.307 --> 03:31:32.760
And that's what the leadership wants.

03:31:32.760 --> 03:31:37.370
So how do you inset new
generation in an energy-only

03:31:37.370 --> 03:31:41.820
market construct if has no
scarcity or tight conditions

03:31:41.820 --> 03:31:46.280
because we're pulling everything
out, ORDC, ERS, everything.

03:31:46.280 --> 03:31:50.140
So that's why you need to
somehow raise energy prices

03:31:50.140 --> 03:31:53.490
in a very conservative
and efficient manner

03:31:53.490 --> 03:31:55.990
to send a stronger price
signal over the long run,

03:31:58.820 --> 03:32:01.250
to get that investment
over a 20-30 year life

03:32:01.250 --> 03:32:03.840
and sustain your existing
generation because,

03:32:03.840 --> 03:32:05.310
we can't fool ourselves and think that,

03:32:05.310 --> 03:32:08.020
oh, we're just going to
somehow attract investment with,

03:32:08.020 --> 03:32:10.530
you know, no scarcity
and tight conditions.

03:32:10.530 --> 03:32:12.600
We have to somehow increase prices.

03:32:12.600 --> 03:32:14.580
<v ->I agree.</v>
<v ->New money on the table.</v>

03:32:14.580 --> 03:32:17.190
<v ->And don't forget also
the IMN will still say,</v>

03:32:17.190 --> 03:32:19.240
well, first principle is
prices should only be high

03:32:19.240 --> 03:32:21.110
when you are in those
shortage conditions.

03:32:21.110 --> 03:32:22.980
And yet it's also true
what you're saying.

03:32:22.980 --> 03:32:25.173
We don't want to be
in shortage conditions,

03:32:26.989 --> 03:32:28.767
and if you're never in shortage
conditions and that's the

03:32:28.767 --> 03:32:31.700
only time high prices are,
you don't get a price signal.

03:32:31.700 --> 03:32:33.303
So it's sort of a catch 22.

03:32:35.260 --> 03:32:37.120
<v ->Well, I mean, you can also,</v>

03:32:37.120 --> 03:32:38.970
we want to get away from the
crisis based business model.

03:32:38.970 --> 03:32:41.580
That doesn't mean we
don't ever have price spikes.

03:32:41.580 --> 03:32:44.300
That's right. And you can also,

03:32:44.300 --> 03:32:46.870
you can increase revenues
to generators by increasing

03:32:46.870 --> 03:32:49.500
the price per unit, in
this case megawatts,

03:32:49.500 --> 03:32:51.940
and the number of units deployed, right?

03:32:51.940 --> 03:32:53.160
Part of our challenge is,

03:32:53.160 --> 03:32:56.050
we've got a very low utilization factor

03:32:56.050 --> 03:32:58.470
on a lot of our dispatchable assets.

03:32:58.470 --> 03:33:00.157
<v ->And so one thing that
is important to say is,</v>

03:33:00.157 --> 03:33:03.190
I'm sitting here saying
these things is for the public

03:33:03.190 --> 03:33:05.440
and whoever's listening
because cost is important.

03:33:05.440 --> 03:33:09.510
Cost is important for the
consumers of Texas with any type

03:33:09.510 --> 03:33:12.003
residential, industrial,
large commercial.

03:33:13.860 --> 03:33:17.100
We have to balance that consideration,

03:33:17.100 --> 03:33:19.000
the cost impact
consideration with the fact

03:33:19.000 --> 03:33:23.260
that generators have to be
able to make some money,

03:33:23.260 --> 03:33:26.090
to sustain their existing
generation and provide us

03:33:26.090 --> 03:33:30.089
that year-round reliability
and to drive new generation

03:33:30.089 --> 03:33:31.583
into the market.

03:33:32.456 --> 03:33:35.510
New dispatchable resources
into the market so that we

03:33:35.510 --> 03:33:38.980
can maintain reliability
today and in the future.

03:33:38.980 --> 03:33:42.010
And the only way generators
are able to make money

03:33:42.010 --> 03:33:45.850
is by selling their power
and getting paid for it.

03:33:45.850 --> 03:33:47.130
And right now,

03:33:47.130 --> 03:33:49.950
because we don't have tight
system conditions very often

03:33:49.950 --> 03:33:52.740
in our energy-only market,
they're not making money.

03:33:52.740 --> 03:33:56.210
So we have to be able to
sustain the generation companies

03:33:56.210 --> 03:33:59.620
like any other business, any
other regular business in the

03:33:59.620 --> 03:34:02.620
state that needs to have
customers that needs to make money.

03:34:06.240 --> 03:34:08.440
I wanted to make that
clarification for anybody listening

03:34:08.440 --> 03:34:09.273
out there is just not,

03:34:09.273 --> 03:34:11.241
we're not wholesale just
trying to increase prices

03:34:11.241 --> 03:34:12.710
for the sake of increasing prices.

03:34:12.710 --> 03:34:16.630
We're increasing, we have
to figure out a way to send

03:34:16.630 --> 03:34:17.463
<v ->We've got to get
something to term.</v>

03:34:17.463 --> 03:34:19.610
<v ->a stable price signal,</v>

03:34:19.610 --> 03:34:23.340
a stabilized price
signal to drive investment

03:34:25.300 --> 03:34:29.310
in long-term assets, 20, 30 year assets,

03:34:29.310 --> 03:34:31.613
and to keep our existing
generation in the market.

03:34:31.613 --> 03:34:34.930
<v ->I think stable is a
different, oh, sorry, can I?</v>

03:34:34.930 --> 03:34:37.530
<v ->Yeah. Well, I do want
to, I know we're getting to,</v>

03:34:40.632 --> 03:34:43.520
or sorry for, it's going
to break here in a minute.

03:34:43.520 --> 03:34:45.250
<v ->And we want to hear a proposal.</v>

03:34:45.250 --> 03:34:47.150
<v ->We want to make sure
we reserve time for Lori.</v>

03:34:47.150 --> 03:34:48.700
<v ->Did we earn the
right to continue</v>

03:34:48.700 --> 03:34:50.691
the conversation on maybe
this one, Mr. Chairman?

03:34:50.691 --> 03:34:51.524
<v ->Absolutely.</v>
<v ->Okay.</v>

03:34:51.524 --> 03:34:53.290
<v ->I mean, absolutely.</v>

03:34:53.290 --> 03:34:54.610
Like I said, there's a
lot of features in this

03:34:55.645 --> 03:34:57.573
that I think were very compelling.

03:34:59.400 --> 03:35:03.640
This is not an easy
problem to solve, universally.

03:35:03.640 --> 03:35:05.290
That's not something that can be,

03:35:06.480 --> 03:35:11.480
there's a silver bullet for
or some magic formula

03:35:11.710 --> 03:35:13.490
that we just need to conjure up.

03:35:13.490 --> 03:35:14.370
So yes, this, I mean,

03:35:14.370 --> 03:35:19.340
there's certainly a compelling
proposal and certainly,

03:35:19.340 --> 03:35:21.620
I mean, absolutely.

03:35:21.620 --> 03:35:23.160
I mean, at worst case scenario,

03:35:23.160 --> 03:35:24.780
there's some great ideas in here, right?

03:35:24.780 --> 03:35:26.370
And there's a lot of other and that's,

03:35:26.370 --> 03:35:30.640
and there's more good
things than that in this proposal.

03:35:30.640 --> 03:35:33.380
And like the most important
thing is procedurally

03:35:33.380 --> 03:35:36.910
as we move forward, the
decision point we have for

03:35:36.910 --> 03:35:41.910
these big longterm structural
changes in December is

03:35:42.750 --> 03:35:46.490
in addition to the immediately
actionable items that,

03:35:46.490 --> 03:35:49.690
we're taking a big strides on.

03:35:49.690 --> 03:35:51.990
This is the kind of thing
where in December,

03:35:51.990 --> 03:35:54.130
we just need to make the
thumbs up, thumbs down.

03:35:54.130 --> 03:35:58.280
Are we going to focus on a
load side solution like this?

03:35:58.280 --> 03:36:00.954
Or are we going to go to the, you know,

03:36:00.954 --> 03:36:05.954
more generation side, kind of
a, more of a blunt instrument.

03:36:07.170 --> 03:36:09.380
But if we go to the load
side, then this is, you know,

03:36:09.380 --> 03:36:13.250
this is very much in that
bucket of solution sets that

03:36:13.250 --> 03:36:17.623
we'll continue to get a finer point on.

03:36:19.207 --> 03:36:21.540
And we want to make
sure to reserve time,

03:36:21.540 --> 03:36:24.393
plenty of time to cover your
memo and your proposal.

03:36:26.220 --> 03:36:27.390
Anything?

03:36:27.390 --> 03:36:28.470
<v ->Can we take a little break?</v>

03:36:28.470 --> 03:36:30.373
<v ->There you go.
Let's do 15 minutes.</v>

03:36:31.455 --> 03:36:32.343
<v ->Yeah.</v>

03:36:32.343 --> 03:36:33.350
<v ->All right. Thank you Sam.</v>

03:36:33.350 --> 03:36:35.203
15 minutes, be back at 2.30.

03:36:39.790 --> 03:36:40.623
All right.

03:36:40.623 --> 03:36:43.880
This meeting of the Public
Utility Commission of Texas

03:36:43.880 --> 03:36:44.973
will reconvene.

03:36:46.360 --> 03:36:49.930
We've covered a lot today.

03:36:49.930 --> 03:36:52.200
This final segment of our
programming, we're gonna-

03:36:52.200 --> 03:36:54.870
Thank you Commissioner
McAdams for laying out your memo,

03:36:54.870 --> 03:36:56.460
and leading that discussion.

03:36:56.460 --> 03:36:59.270
And thank you participants.
<v ->Thank you.</v>

03:37:03.570 --> 03:37:05.070
<v ->Good progress on all points.</v>

03:37:07.120 --> 03:37:10.103
Next up, we will go to
Commissioner Cobos's memo.

03:37:12.580 --> 03:37:14.407
Love to hear you lay it out,

03:37:14.407 --> 03:37:15.960
and I'm sure there'll be some questions.

03:37:15.960 --> 03:37:19.593
And then we'll open it up,

03:37:21.120 --> 03:37:23.150
if folks want to call up stakeholders.

03:37:23.150 --> 03:37:25.067
<v Lori>All right.</v>
<v ->Forward to you.</v>

03:37:25.067 --> 03:37:26.320
<v ->All right. Thank
you Chairman Lake.</v>

03:37:26.320 --> 03:37:29.410
So, before you know,
kind of as a backdrop,

03:37:29.410 --> 03:37:32.298
before I lay out the broad
strokes of the specifics

03:37:32.298 --> 03:37:34.603
of my strategic reliability service.

03:37:36.730 --> 03:37:37.563
You know,

03:37:37.563 --> 03:37:39.823
I worked at the Commission
a little over 10 years ago.

03:37:39.823 --> 03:37:42.370
We were going through
this whole resource adequacy

03:37:42.370 --> 03:37:46.000
discussion and trying to
figure out how to incentive

03:37:46.000 --> 03:37:49.350
dispatchable generation,
trying to fill some hole,

03:37:49.350 --> 03:37:50.430
trying to, you know,

03:37:50.430 --> 03:37:53.283
sort of almost the exact
same deliberation, right?

03:37:56.952 --> 03:37:59.650
The way I've looked at this problem,

03:37:59.650 --> 03:38:01.970
and I continue to just identify it that

03:38:01.970 --> 03:38:04.233
what we're searching
for is some kind of,

03:38:06.520 --> 03:38:08.870
some kind of insurance policy,

03:38:08.870 --> 03:38:12.710
something to help us fill in those gaps.

03:38:12.710 --> 03:38:15.340
That we are now starting
to see more prolifically

03:38:15.340 --> 03:38:19.600
because of, you know, these,
these unexpected blue sky days,

03:38:19.600 --> 03:38:23.840
these low probability,

03:38:23.840 --> 03:38:26.438
high impact days that
seem to be occurring.

03:38:26.438 --> 03:38:29.497
<v ->More and more probable.</v>
<v ->More and more probable.</v>

03:38:29.497 --> 03:38:31.770
And so, as I sort of went back,

03:38:31.770 --> 03:38:34.910
I thought after our last work
session and had, you know,

03:38:34.910 --> 03:38:37.440
it started really kind of putting
pen to paper and thinking

03:38:37.440 --> 03:38:39.220
about, well, what are we
trying to solve for, you know,

03:38:39.220 --> 03:38:41.820
one hand you are right,
we're trying to insert more

03:38:41.820 --> 03:38:44.163
dispatchable resources into the market.

03:38:46.100 --> 03:38:50.582
And, how do we get there in,

03:38:50.582 --> 03:38:52.720
in the market that
we are creating today,

03:38:52.720 --> 03:38:56.930
which is moving away from a
crisis based business model and,

03:38:56.930 --> 03:39:00.240
and where we're trying to
avoid having tight conditions,

03:39:00.240 --> 03:39:02.560
we're trying to avoid
emergency conditions

03:39:02.560 --> 03:39:04.833
and rightfully so.

03:39:05.993 --> 03:39:09.070
So what do we need to sort
of plan for the future as an

03:39:10.360 --> 03:39:13.990
enhancement to our existing
energy competitive market,

03:39:13.990 --> 03:39:18.580
but also potentially as
sort of a bridge to get us to

03:39:19.570 --> 03:39:21.803
evaluating more longterm solutions.

03:39:22.830 --> 03:39:27.100
And so giving us some
versatility as we move forward with

03:39:27.100 --> 03:39:31.660
our market design
evaluations towards December,

03:39:31.660 --> 03:39:32.620
after December.

03:39:32.620 --> 03:39:36.210
So the strategic reliability
service that I put together,

03:39:36.210 --> 03:39:39.030
is it does have pieces
of prior proposals.

03:39:39.030 --> 03:39:40.563
It's different in some ways.

03:39:42.850 --> 03:39:45.600
The strategic reliability
service is intended to be a new

03:39:45.600 --> 03:39:49.520
dynamic, flexible
reliability tool that will serve

03:39:49.520 --> 03:39:51.240
as an insurance policy.

03:39:51.240 --> 03:39:54.890
To help ensure grid reliability
in our state, you know,

03:39:54.890 --> 03:39:57.130
rapidly evolving market
that is experiencing

03:39:57.130 --> 03:39:59.520
a high penetration of
renewable generation

03:39:59.520 --> 03:40:02.810
and rising electricity demand
resulting from significant

03:40:02.810 --> 03:40:04.360
economic and population growth.

03:40:05.200 --> 03:40:08.090
SRS is consistent with,

03:40:08.090 --> 03:40:10.700
I would venture to say
directly consistent with the

03:40:10.700 --> 03:40:14.070
reliability service envisioned by SB-3.

03:40:14.070 --> 03:40:16.970
And will preserve the integrity
of our competitive market.

03:40:18.410 --> 03:40:21.080
SRS will prospectively
target and meet specific

03:40:21.080 --> 03:40:23.700
reliability needs that
will not be addressed

03:40:23.700 --> 03:40:26.150
by ERCOT's realtime and
ancillary service market.

03:40:27.220 --> 03:40:31.150
SRS will expand and
contract based on dynamic

03:40:31.150 --> 03:40:34.510
market conditions and specific
seasonal reliability needs.

03:40:34.510 --> 03:40:36.550
Again, it's an insurance policy,

03:40:36.550 --> 03:40:38.120
that's there when you need it,

03:40:38.120 --> 03:40:41.090
that can be adjusted
to meet specific risks.

03:40:41.090 --> 03:40:41.940
How will it work?

03:40:43.330 --> 03:40:45.440
The way I've laid it out in my memo is,

03:40:45.440 --> 03:40:48.040
is a forward annual procurement.

03:40:48.040 --> 03:40:50.990
I'm open to discussing
if it needs to be longer,

03:40:50.990 --> 03:40:54.470
but in terms of just getting
an initial stake on the ground

03:40:54.470 --> 03:40:56.473
on an annual basis
ERCOT will conduct either

03:40:56.473 --> 03:40:59.480
a competitive RFP or competitive auction

03:40:59.480 --> 03:41:02.630
to partial procure a
percentage of the needed SRS

03:41:02.630 --> 03:41:05.400
on a forward basis for the four seasons

03:41:05.400 --> 03:41:08.000
into one year into the future.

03:41:08.000 --> 03:41:11.430
So ERCOT will prepare a
portion, a certain percentage.

03:41:11.430 --> 03:41:13.130
Let's just say, for example, you know,

03:41:13.130 --> 03:41:17.720
40% of what's needed
for the next four seasons.

03:41:17.720 --> 03:41:22.720
Then ERCOT would
conduct a final seasonal,

03:41:22.720 --> 03:41:26.330
competitive RFP process
or auction three weeks before

03:41:26.330 --> 03:41:28.980
the beginning of each season to procure

03:41:28.980 --> 03:41:32.980
the remaining percentage of
the SRS that was not procured

03:41:33.920 --> 03:41:36.480
at the annual RFP process or auction.

03:41:36.480 --> 03:41:38.868
And so you would,

03:41:38.868 --> 03:41:41.730
and this could be like the
remaining 60%, that's then

03:41:41.730 --> 03:41:46.730
broken down for the three
month period for that season.

03:41:46.750 --> 03:41:49.620
So you have a more
closer look at to what

03:41:49.620 --> 03:41:52.830
your specific reliability needs will be.

03:41:52.830 --> 03:41:56.210
And you could either maybe
procure less or procure more

03:41:56.210 --> 03:41:59.820
depending on what you
are seeing on a more closer

03:41:59.820 --> 03:42:00.770
and seasonal basis.

03:42:01.720 --> 03:42:03.770
A competitive RFP process
or competitive auction

03:42:03.770 --> 03:42:06.740
will ensure that the lowest
cost dispatchable resources

03:42:06.740 --> 03:42:07.993
are procured for SRS.

03:42:08.860 --> 03:42:11.730
Seasonal procurements will
allow again for adjustments

03:42:11.730 --> 03:42:13.960
to be dynamic market
conditions associated with,

03:42:13.960 --> 03:42:16.330
firm demand and available supply.

03:42:16.330 --> 03:42:18.970
It will ensure that
it's not over procuring.

03:42:18.970 --> 03:42:20.660
Again, trying to focus on

03:42:20.660 --> 03:42:23.173
low probability high impact scenarios,

03:42:24.090 --> 03:42:27.530
higher than expected
demand, coupled with lower or

03:42:27.530 --> 03:42:31.440
extremely low wind and
solar output and higher thermal

03:42:31.440 --> 03:42:34.800
generation outages
both planned and forced,

03:42:34.800 --> 03:42:37.260
as we see in our several reports.

03:42:37.260 --> 03:42:39.930
What resources would
be allowed to participate?

03:42:39.930 --> 03:42:43.040
Accredited dispatchable
resources that are weatherized,

03:42:43.040 --> 03:42:45.090
have secure fuel supply arrangements

03:42:45.090 --> 03:42:47.900
and are seasonally tested
to ensure that they will

03:42:47.900 --> 03:42:52.253
be available to provide the SRS
when ERCOT needs to service.

03:42:53.300 --> 03:42:55.720
SRS resources can
synchronize to the grid,

03:42:55.720 --> 03:42:57.680
must be able to synchronize to the grid,

03:42:57.680 --> 03:42:59.538
within two hours or longer,

03:42:59.538 --> 03:43:02.840
and I'll add some more
explanation there in a second,

03:43:02.840 --> 03:43:04.530
to provide ERCOT
with flexibility to meet

03:43:04.530 --> 03:43:07.880
its operational needs
and will run for a minimum

03:43:07.880 --> 03:43:12.080
of eight hours a day for
multiple consecutive days.

03:43:12.080 --> 03:43:14.620
They must have that ability.

03:43:14.620 --> 03:43:16.960
New and existing dispatchable resources

03:43:16.960 --> 03:43:18.740
and potentially demand
response would be able

03:43:18.740 --> 03:43:20.563
to participate in SRS.

03:43:22.630 --> 03:43:26.020
And the reason that I put
the initial stake in the ground

03:43:26.020 --> 03:43:28.713
for within two hours
or longer is because,

03:43:29.600 --> 03:43:31.620
if you make it within one hour,

03:43:31.620 --> 03:43:33.300
you're probably just
going to get peakers,

03:43:33.300 --> 03:43:35.940
and that's great, we
need that flexibility.

03:43:35.940 --> 03:43:39.680
But as SRS is the
backend insurance policy,

03:43:39.680 --> 03:43:42.580
I want to be able to give
ERCOT operational flexibility,

03:43:42.580 --> 03:43:45.600
to be able to procure
more than just peakers

03:43:45.600 --> 03:43:46.650
through this program.

03:43:49.560 --> 03:43:53.970
And also to address kind
of longer term, you know,

03:43:53.970 --> 03:43:57.010
more hours than just
like the two hour problems.

03:43:57.010 --> 03:44:00.180
You know, when we see those
days up ahead in our reports,

03:44:00.180 --> 03:44:02.133
we get from ERCOT, those
seven days out or we see maybe

03:44:02.133 --> 03:44:04.780
we have three tight days coming,

03:44:04.780 --> 03:44:09.780
SRS will be able to match
those longer timeframes

03:44:09.810 --> 03:44:12.380
that we are seeing in the future,

03:44:12.380 --> 03:44:14.250
or will be available for unexpected,

03:44:14.250 --> 03:44:16.800
again, blue sky problems, et cetera.

03:44:16.800 --> 03:44:19.190
SRS would be deployed
last in the bid stack to support

03:44:19.190 --> 03:44:22.890
market efficiency and to
avoid any impact on real-time

03:44:22.890 --> 03:44:27.890
prices and will be deployed
to avoid emergency conditions.

03:44:29.393 --> 03:44:30.617
SRS will be paid.

03:44:30.617 --> 03:44:32.917
The market clearing price,

03:44:32.917 --> 03:44:34.780
the way I've structured it now,

03:44:34.780 --> 03:44:36.440
I know Sam mentioned the price cap,

03:44:36.440 --> 03:44:38.310
we can have that discussion

03:44:38.310 --> 03:44:40.810
of what are the pros
and cons of doing that?

03:44:40.810 --> 03:44:43.850
I started with the market
clear price because

03:44:43.850 --> 03:44:47.960
SRS could be deployed when
the prices are not at the cap.

03:44:47.960 --> 03:44:49.980
We sometimes have had very tight days

03:44:49.980 --> 03:44:52.350
where the price is lower than the cap.

03:44:52.350 --> 03:44:55.930
So we want to make sure that
they're capturing that market

03:44:55.930 --> 03:45:00.540
clearing price that has arise
during those tight conditions.

03:45:00.540 --> 03:45:03.560
Failure to perform will be
met with an assessment

03:45:03.560 --> 03:45:06.290
of a stringent non-performance
penalty and the clawback

03:45:06.290 --> 03:45:08.640
of any payment that's
paid to the SRS resource.

03:45:09.710 --> 03:45:10.543
Cost recovery.

03:45:10.543 --> 03:45:12.620
The cost of SRS would
be recovered from load,

03:45:12.620 --> 03:45:14.990
on the load ratio share
basis that is measured

03:45:14.990 --> 03:45:17.900
on a coincident net peak interval.

03:45:17.900 --> 03:45:19.983
And that cost allocation method is,

03:45:21.420 --> 03:45:24.730
I proposed it in order
to help further support

03:45:24.730 --> 03:45:26.803
adoption by demand response.

03:45:28.180 --> 03:45:33.180
And so what's it, an epic
load is basically your peak load,

03:45:33.550 --> 03:45:34.690
knitting out solar and wind.

03:45:34.690 --> 03:45:39.690
And so providing that that
cost allocation functionality

03:45:40.150 --> 03:45:42.280
would better accommodate
and then help support

03:45:42.280 --> 03:45:43.790
demand response.

03:45:43.790 --> 03:45:48.710
So SRS will send a forward signal,

03:45:48.710 --> 03:45:51.700
a clear forward signal to
help incent investment in

03:45:51.700 --> 03:45:54.220
new dispatchable generation
help maintain the existing

03:45:54.220 --> 03:45:57.190
generation fleet in
ERCOT. And this is how.

03:45:57.190 --> 03:45:58.860
So as I explained earlier today,

03:45:58.860 --> 03:46:02.240
we have a variety of operational
tools that were previously

03:46:02.240 --> 03:46:05.530
used by ERCOT during emergency
conditions and are now going

03:46:05.530 --> 03:46:08.340
to be used by ERCOT to
avoid conservation appeals

03:46:08.340 --> 03:46:10.700
and prevent emergency conditions.

03:46:10.700 --> 03:46:15.377
And so in a market that's
built around scarcity conditions

03:46:16.370 --> 03:46:18.660
to provide generators

03:46:20.490 --> 03:46:22.970
the pricing and the
price signal that's needed

03:46:22.970 --> 03:46:24.513
to make long-term investment.

03:46:26.406 --> 03:46:30.440
We've got to compensate
for the fact that we are now

03:46:30.440 --> 03:46:35.440
even reducing even
those times of scarcity, that,

03:46:35.570 --> 03:46:39.530
that the market would typically rely on

03:46:39.530 --> 03:46:41.650
to look to make investment.

03:46:41.650 --> 03:46:46.390
So therefore stronger
pricing models will need to be

03:46:48.740 --> 03:46:51.400
there to drive longterm
investment in dispatchable

03:46:51.400 --> 03:46:52.570
generation assets.

03:46:52.570 --> 03:46:57.040
We've got to find a way to
send stronger price signals

03:46:57.040 --> 03:46:59.920
because of the actions
we've taken by moving away

03:46:59.920 --> 03:47:02.310
from the crisis based business model.

03:47:02.310 --> 03:47:07.310
So SRS in combination
with an enhanced ORDC,

03:47:07.530 --> 03:47:10.030
ultimately whatever we decided on ORDC,

03:47:10.030 --> 03:47:13.790
will efficiently raise prices
in the real time market

03:47:13.790 --> 03:47:16.340
to drive investment in new
dispatchable generation.

03:47:17.210 --> 03:47:19.100
Qualifying existing resources,

03:47:19.100 --> 03:47:21.800
will have another avenue
to participate in the market.

03:47:23.170 --> 03:47:27.527
Implementation based on
my conversations with ERCOT,

03:47:28.508 --> 03:47:30.849
SRS is not an ancillary service,

03:47:30.849 --> 03:47:33.091
so it will be procured
through the day ahead market.

03:47:33.091 --> 03:47:35.397
As I said, it would be procured
through a competitive RFP

03:47:35.397 --> 03:47:36.746
or competitive option.

03:47:36.746 --> 03:47:40.038
So it will not have to go
through the EMS upgrade.

03:47:40.038 --> 03:47:44.233
However, you know, there
will be settlement, you know,

03:47:44.233 --> 03:47:45.680
work that has to be done by ERCOT.

03:47:45.680 --> 03:47:48.670
And based on my
conversations with ERCOT,

03:47:48.670 --> 03:47:51.913
that SRS could be implemented in 2023,

03:47:52.977 --> 03:47:55.067
potentially the first half of 2023.

03:47:55.067 --> 03:47:57.220
But of course we will
all work with ERCOT

03:47:57.220 --> 03:47:59.113
to try to get things moving faster.

03:48:00.260 --> 03:48:03.013
But, you know, as ERCOT has said,

03:48:03.013 --> 03:48:06.260
their settlements team is challenged

03:48:06.260 --> 03:48:07.960
and with any one of our proposals,

03:48:09.740 --> 03:48:12.000
we're going to have to
expect a little bit of a delay

03:48:12.000 --> 03:48:14.470
because of all the ERCOT's
team is working on right now.

03:48:14.470 --> 03:48:18.900
So as I said earlier,
and we'll continue to say,

03:48:18.900 --> 03:48:20.860
SRS is a versatile reliability tool

03:48:20.860 --> 03:48:23.770
that can serve as a long-term
market design enhancement

03:48:24.700 --> 03:48:27.050
to help ensure grid
reliability in the future,

03:48:27.050 --> 03:48:29.800
or conserve as a bridge
while the Commission

03:48:29.800 --> 03:48:32.000
continues to evaluate and implement

03:48:32.000 --> 03:48:36.050
other long-term market design
changes and await ECRS.

03:48:37.620 --> 03:48:41.196
<v Will>That means the first
deck could go out in 2023.</v>

03:48:41.196 --> 03:48:43.446
(laughing)

03:48:45.625 --> 03:48:47.792
<v Peter>Thank you Kenan.</v>

03:48:50.710 --> 03:48:55.540
<v ->So that's kind of just
the broad overview of</v>

03:48:55.540 --> 03:48:57.740
the strategic reliability
service that I proposed

03:48:57.740 --> 03:48:59.370
in my memo that I followed yesterday.

03:48:59.370 --> 03:49:02.430
Of course, I've included
more details in my memo.

03:49:02.430 --> 03:49:06.130
And at this time I'll be happy
to answer any questions

03:49:06.130 --> 03:49:09.790
and make any
distinguishing comments back

03:49:10.970 --> 03:49:13.513
to distinguish about
what it is and what it's not.

03:49:17.318 --> 03:49:20.210
So I'm happy to answer
any questions or comments.

03:49:20.210 --> 03:49:22.210
<v Peter>Thank you
for laying that out.</v>

03:49:24.400 --> 03:49:29.400
Most importantly, God
grateful to have your new ideas.

03:49:29.620 --> 03:49:33.123
That's the most important
element of all this.

03:49:35.140 --> 03:49:35.990
<v Jimmy>Thanks.</v>

03:49:37.349 --> 03:49:39.599
(laughing)

03:49:43.466 --> 03:49:46.383
<v ->Thank you
Commissioner Glotfelty.</v>

03:49:48.450 --> 03:49:51.943
Appreciate it Lori. Thank
you for laying that out on the,

03:49:53.810 --> 03:49:57.943
one of the things that
sticks out about this is,

03:49:59.361 --> 03:50:01.960
is it 40 or 4 year for procurement?

03:50:01.960 --> 03:50:02.793
<v Lori>I said one year.</v>

03:50:02.793 --> 03:50:04.645
<v ->One year.</v>
<v Lori>For the four seasons.</v>

03:50:04.645 --> 03:50:06.870
<v ->The four seasons for 40%.</v>

03:50:06.870 --> 03:50:09.150
<v Lori>Whatever percentage.
There is no rhyme or reason.</v>

03:50:09.150 --> 03:50:10.430
You'd want to get a good chunk of it,

03:50:10.430 --> 03:50:12.280
so you could send a signal to the market

03:50:12.280 --> 03:50:13.663
as to how much you're going to procure,

03:50:13.663 --> 03:50:16.040
but you would want to
procure all of it so that you can.

03:50:16.040 --> 03:50:17.860
<v ->More precise as
you get closer to the-</v>

03:50:17.860 --> 03:50:18.810
<v Lori>Exactly.</v>

03:50:18.810 --> 03:50:22.760
<v ->Yeah, that's forward
pricing is much better</v>

03:50:22.760 --> 03:50:27.660
for the investor universe
than a day ahead or

03:50:27.660 --> 03:50:29.237
closer to the operating thing.

03:50:29.237 --> 03:50:33.100
That's something that they've
been pretty consistent about,

03:50:33.100 --> 03:50:34.923
certainly about that component.

03:50:35.940 --> 03:50:38.340
Implementation of course would be tough.

03:50:38.340 --> 03:50:42.610
I know we all love to hear
Sam's thoughts at some point,

03:50:42.610 --> 03:50:44.723
but any questions or comments for Lori?

03:50:48.810 --> 03:50:49.760
Go straight to Sam.

03:50:51.540 --> 03:50:53.098
<v Lori>I'm getting off easy.</v>

03:50:53.098 --> 03:50:54.580
<v Will>Well, I think
it may be tougher.</v>

03:50:54.580 --> 03:50:57.300
I just want to compare notes
about between what he's,

03:50:57.300 --> 03:50:59.620
you know, and then sizing to.

03:50:59.620 --> 03:51:01.660
<v ->Yeah. And I mean, it's the
same question I asked earlier</v>

03:51:01.660 --> 03:51:02.957
is, you know,

03:51:05.729 --> 03:51:08.312
what is the difference between,

03:51:09.340 --> 03:51:11.700
I guess we'll start with
sizing. Let's do that.

03:51:11.700 --> 03:51:14.280
I mean, how does this
differ from non-spin?

03:51:14.280 --> 03:51:16.280
<v Lori>Okay. And that's
a great question.</v>

03:51:16.280 --> 03:51:19.060
Okay. So first of all, it's
not an ancillary service.

03:51:19.060 --> 03:51:21.060
It's not going in
prepared on a daily basis,

03:51:21.060 --> 03:51:24.113
centrally procured or
an RP or bit of auction,

03:51:25.910 --> 03:51:29.873
so this will better.

03:51:30.790 --> 03:51:33.590
So instead of buying non-spin, you know,

03:51:33.590 --> 03:51:35.513
on a one year forward basis,

03:51:38.150 --> 03:51:40.060
what that would do, let me backtrack.

03:51:40.060 --> 03:51:44.040
So if you bought non-spin
on a one-year annual forward

03:51:44.040 --> 03:51:48.143
basis, you basically just
be paying certain resources.

03:51:49.860 --> 03:51:53.370
You'd be basically paying
all the resources pay non-spin,

03:51:53.370 --> 03:51:55.720
and then other new resources
that can qualify for non-spin

03:51:55.720 --> 03:51:58.537
which is our resources that
can synchronize to the grid,

03:51:58.537 --> 03:52:00.420
within 30 minutes.

03:52:00.420 --> 03:52:05.420
My product is much more
expanded than within 30 minutes.

03:52:06.352 --> 03:52:07.736
<v ->A broader performance standard.</v>

03:52:07.736 --> 03:52:11.380
<v ->Broader performance,
and, and it'll incent investment</v>

03:52:13.780 --> 03:52:16.640
because this product

03:52:17.918 --> 03:52:19.373
will essentially,

03:52:20.410 --> 03:52:23.600
number one, attract
different resources, but two,

03:52:23.600 --> 03:52:28.520
by having some resources
come in last than the bid stack

03:52:29.470 --> 03:52:34.470
that you will have energy
pricing and the real-time market

03:52:36.000 --> 03:52:38.670
increase through the ORDC.

03:52:38.670 --> 03:52:40.970
So the new dispatchable
generation can be part

03:52:40.970 --> 03:52:45.970
of my SRS program, but we'll
probably be very interested

03:52:46.580 --> 03:52:49.660
in the real-time prices
and the real-time market.

03:52:49.660 --> 03:52:53.100
<v ->A clarifying question.
Did you say that ORDC</v>

03:52:53.100 --> 03:52:55.340
will incentivize new
investment generation?.

03:52:55.340 --> 03:52:59.160
<v ->It's a combination with
SRS and ORDC together,</v>

03:52:59.160 --> 03:53:03.650
will work in concert to incent

03:53:03.650 --> 03:53:06.400
new dispatchable resources generation.

03:53:06.400 --> 03:53:09.060
So I guess with non-spin
you're basically would just,

03:53:09.060 --> 03:53:10.110
I mean,

03:53:10.110 --> 03:53:12.950
what the difference is is that
you buy it forward non-spin,

03:53:12.950 --> 03:53:16.900
you're only going to be
basically paying non-spin,

03:53:16.900 --> 03:53:20.370
instead of the existing
resources that pay not-spin,

03:53:20.370 --> 03:53:21.980
that participate in non-spin,

03:53:21.980 --> 03:53:26.980
or maybe creating some
incremental investment in resources

03:53:27.173 --> 03:53:30.230
that can respond within 30
minutes, which are peakers.

03:53:31.340 --> 03:53:36.340
But because with SRS is
you're holding certain programs,

03:53:37.590 --> 03:53:39.933
I'm sorry, certain resources
would be part of SRS

03:53:39.933 --> 03:53:41.983
that would come in
last in the bid stack,

03:53:43.830 --> 03:53:47.693
you would be serving those
for specific reliability reasons.

03:53:49.500 --> 03:53:53.050
The real-time pricing would
increase because of ORDC

03:53:54.520 --> 03:53:55.810
and because some of these resources

03:53:55.810 --> 03:53:58.120
are now coming in the backup bid stack.

03:53:58.120 --> 03:54:01.290
So energy prices would increase and

03:54:01.290 --> 03:54:04.970
you would have a dispatchable
generation of any type,

03:54:04.970 --> 03:54:07.300
not just speakers, would be incented.

03:54:07.300 --> 03:54:08.350
Does that make sense?

03:54:09.280 --> 03:54:11.480
<v ->I certainly appreciate
the fact that it's a</v>

03:54:11.480 --> 03:54:15.110
broader performance standard
that leaves more flexibility

03:54:15.110 --> 03:54:17.659
for the market to determine,

03:54:17.659 --> 03:54:20.170
what is best at that
moment in time on fuel costs

03:54:20.170 --> 03:54:22.893
or technologies or what not.

03:54:24.710 --> 03:54:28.137
<v ->Also, sorry, SRS fills
a hole that's not met by</v>

03:54:28.137 --> 03:54:31.520
the real time and ancillary
service market, right?

03:54:31.520 --> 03:54:33.870
So we've had some of
those days where, I mean,

03:54:33.870 --> 03:54:36.540
if you don't have dispatchable
resources, enough of them,

03:54:36.540 --> 03:54:39.510
then you're not going to have
enough of them to be able to

03:54:39.510 --> 03:54:42.580
fill the real time market to
participate in real time market

03:54:42.580 --> 03:54:45.760
and also provide the ancillary
services that are needed.

03:54:45.760 --> 03:54:49.453
So it's outside of those two constructs.

03:54:52.490 --> 03:54:54.030
I think that's the way I would

03:54:54.030 --> 03:54:54.863
sort of describe how it's different.

03:54:54.863 --> 03:54:55.696
<v ->Okay.</v>

03:54:57.464 --> 03:54:59.503
The follow up question,

03:55:01.240 --> 03:55:05.170
it has a broader performance
standard to kind of, I guess,

03:55:05.170 --> 03:55:10.170
backfill non-spin or insurance
in case you run out of the

03:55:10.878 --> 03:55:15.340
non-spin, but non-spin because
of the non-spin has a higher

03:55:15.340 --> 03:55:18.580
performance standard resources
that currently participated

03:55:18.580 --> 03:55:22.680
in non-spin could
participate in SRS too, right?

03:55:22.680 --> 03:55:25.720
<v ->Yeah. Cause it's within
two hours or whatever.</v>

03:55:25.720 --> 03:55:28.337
So I'm just trying to broaden
it out so that we're not just

03:55:28.337 --> 03:55:30.650
having just peakers, right.

03:55:30.650 --> 03:55:34.100
Since it's the backend resource
you'd want to have ERCOT

03:55:34.100 --> 03:55:36.773
have different types of
resources to fill, you know,

03:55:36.773 --> 03:55:41.300
peakers and other resources
to fill that operationally,

03:55:41.300 --> 03:55:43.360
that'd be operational
flexibility to fill that,

03:55:43.360 --> 03:55:46.350
that specific reliability.

03:55:46.350 --> 03:55:47.630
<v ->'Cause they could ramp into it.</v>

03:55:47.630 --> 03:55:50.950
They'd have more time to
gauge and use the different,

03:55:50.950 --> 03:55:54.010
the different resources
that they had contracted for,

03:55:54.010 --> 03:55:56.623
to ramp into that need period.

03:55:58.070 --> 03:55:58.903
<v ->Gotcha.</v>
<v ->Yep.</v>

03:55:58.903 --> 03:55:59.736
<v ->Thank you.</v>

03:56:00.850 --> 03:56:02.350
Questions, comments?

03:56:02.350 --> 03:56:03.970
<v ->I think that's exactly
what's going to happen.</v>

03:56:03.970 --> 03:56:07.603
So I want to talk more
about this, but I think that,

03:56:08.530 --> 03:56:13.530
I think that, you know, as
we see this market evolve,

03:56:13.810 --> 03:56:17.430
we're gonna have to kind
of feel like we're building,

03:56:17.430 --> 03:56:18.950
we build ancillary services now,

03:56:18.950 --> 03:56:21.780
we'll go more and more
and more, and we're more,

03:56:21.780 --> 03:56:23.280
we almost need to
like start over and go.

03:56:23.280 --> 03:56:25.023
So what do we need in the future?

03:56:26.470 --> 03:56:28.163
But we are,

03:56:30.470 --> 03:56:35.440
the resource mix, it's going
to be interesting as we see

03:56:35.440 --> 03:56:38.390
how these new resources
play in each one of these

03:56:38.390 --> 03:56:40.160
ancillary service markets.

03:56:40.160 --> 03:56:41.940
It is, they're going to
start filling in short term,

03:56:41.940 --> 03:56:44.420
short term, short term until
we get to the longer spin.

03:56:44.420 --> 03:56:47.680
I mean, you know, as we
said, we may see, you know,

03:56:47.680 --> 03:56:49.190
thermal plants have batteries,

03:56:49.190 --> 03:56:51.460
so that can plan additional
markets, you know.

03:56:51.460 --> 03:56:55.770
And you know, those will
change as these incentives

03:56:55.770 --> 03:56:57.763
and these ancillary services change.

03:56:58.659 --> 03:57:00.550
So I'm glad you, you put this out here.

03:57:00.550 --> 03:57:04.440
<v ->Well, the other important
element of what you're saying is</v>

03:57:04.440 --> 03:57:07.390
economics will change faster
than we can change the market.

03:57:08.550 --> 03:57:10.113
<v ->It's exactly what I was saying.</v>

03:57:11.340 --> 03:57:13.557
<v ->There's still lot
to change here.</v>

03:57:14.399 --> 03:57:16.649
<v ->That's what I was saying.</v>

03:57:19.170 --> 03:57:20.770
<v ->Well, put Jimmy.</v>
<v ->Thank you.</v>

03:57:23.890 --> 03:57:26.423
<v ->It kind of gets
back to the old,</v>

03:57:29.040 --> 03:57:30.470
this isn't Berkshire,

03:57:30.470 --> 03:57:33.133
but the argument that
this is not Berkshire.

03:57:34.062 --> 03:57:36.479
(indistinct)

03:57:37.610 --> 03:57:41.840
<v ->But it played into one of
the arguments that was had</v>

03:57:41.840 --> 03:57:45.200
during the session is how much
do you need the right sizing?

03:57:45.200 --> 03:57:47.470
Because it's, it's being
held out there, right?

03:57:47.470 --> 03:57:50.320
And then what metrics do you use?

03:57:50.320 --> 03:57:52.330
<v ->That's held out there,
but I just want to say, it's,</v>

03:57:52.330 --> 03:57:54.973
you know, it's going to come
in at the end of the bid's line

03:57:54.973 --> 03:57:57.633
<v ->At the end of the
bid's line, yeah. So.</v>

03:57:59.981 --> 03:58:02.754
<v Peter>Well, finish the question.</v>

03:58:02.754 --> 03:58:05.990
What are you
anticipating in (indistinct)?

03:58:05.990 --> 03:58:07.906
Is that an important
part of all of these?

03:58:07.906 --> 03:58:09.320
<v ->Absolutely. You know,</v>

03:58:09.320 --> 03:58:10.960
I can't sit here and just
throw out a megawatt number

03:58:10.960 --> 03:58:13.277
at you, but I think if you
look at the SARA, right,

03:58:13.277 --> 03:58:15.810
and you see those holes
that are not being met

03:58:15.810 --> 03:58:18.334
because of the scenarios.

03:58:18.334 --> 03:58:21.880
<v ->You do that on a historic
average basis maybe, or-</v>

03:58:21.880 --> 03:58:23.970
<v ->Yeah and what ERCOT's
projecting out through their SARA,</v>

03:58:23.970 --> 03:58:26.040
I mean, that's one
tool how to use it, right.

03:58:26.040 --> 03:58:28.620
I mean, how to determine
how much you need,

03:58:28.620 --> 03:58:31.780
because the whole purpose
of the SARA report is to project,

03:58:31.780 --> 03:58:35.450
you know, how ERCOT is going to look

03:58:35.450 --> 03:58:37.870
from a reliability standpoint
for the next season.

03:58:37.870 --> 03:58:40.190
And so, as you look
at all the scenarios,

03:58:40.190 --> 03:58:42.380
like for instance, you know,

03:58:42.380 --> 03:58:43.610
more than one thing going wrong,

03:58:43.610 --> 03:58:45.873
you have a higher than expected demand,

03:58:47.230 --> 03:58:51.350
low wind and solar and
higher thermal outages,

03:58:51.350 --> 03:58:54.437
then you can see at that bottom
row, you're going to be out,

03:58:54.437 --> 03:58:58.280
you know, 2,500
megawatts for that season.

03:58:58.280 --> 03:59:01.740
And so, you know,
that's how you size it.

03:59:01.740 --> 03:59:06.600
So it's its size based
on specific reliability that

03:59:06.600 --> 03:59:11.010
ERCOT's able to
identify for the year out,

03:59:11.010 --> 03:59:14.210
but then closer in to each season,

03:59:14.210 --> 03:59:16.423
really zoom in and be able to tell,

03:59:17.490 --> 03:59:21.700
on a seasonal basis, based
on something like the SARA,

03:59:21.700 --> 03:59:24.560
how much they would need
to plug in for those holes.

03:59:24.560 --> 03:59:26.000
<v ->Yeah. And that's, I
think that's one of the,</v>

03:59:26.000 --> 03:59:28.770
when we spoke about
this earlier this week,

03:59:28.770 --> 03:59:31.520
and I think that's one of the
very clever elements of this

03:59:31.520 --> 03:59:36.520
is very precisely focusing
on the vulnerability gap.

03:59:38.460 --> 03:59:39.550
And I think,

03:59:39.550 --> 03:59:41.636
I think the way that
things would work with this,

03:59:41.636 --> 03:59:42.469
these are all moving targets,

03:59:42.469 --> 03:59:45.610
but essentially the Delta
between spatch bowl and your

03:59:45.610 --> 03:59:47.660
intermittence, because
that's where your,

03:59:48.650 --> 03:59:52.010
the correlation of outages
and intermittence is much higher

03:59:52.010 --> 03:59:53.773
than dispatchable, right?

03:59:53.773 --> 03:59:55.200
Like use,

03:59:55.200 --> 03:59:58.801
we've never lost 100% of
the dispatchable fleet, right.

03:59:58.801 --> 03:59:59.960
That can happen.

03:59:59.960 --> 04:00:03.080
That happens when the
sunsets or the, you know,

04:00:03.080 --> 04:00:04.090
the wind drops off.

04:00:04.090 --> 04:00:06.740
So that's a very clever
component of this, I think is,

04:00:06.740 --> 04:00:10.920
is focusing on that specific
vulnerability where we can have

04:00:10.920 --> 04:00:12.860
where we've have the once a month event,

04:00:12.860 --> 04:00:16.960
where we have 8,000, 10,000 megawatts

04:00:16.960 --> 04:00:20.253
that we expected to have, are not there.

04:00:23.080 --> 04:00:25.290
All right, anything?

04:00:25.290 --> 04:00:28.920
Sam, come up and share some thoughts.

04:00:28.920 --> 04:00:29.820
<v Sam>Yeah sure.</v>

04:00:36.510 --> 04:00:37.770
Thanks.

04:00:37.770 --> 04:00:40.100
So I'd like to respond
first at a high level

04:00:40.100 --> 04:00:42.350
and then with a few possible
adjustments to the concept.

04:00:42.350 --> 04:00:43.563
So at a high level,

04:00:44.447 --> 04:00:48.790
as you know, I think
this is a viable option that,

04:00:48.790 --> 04:00:50.940
and at a high level,

04:00:50.940 --> 04:00:54.610
the problem we face is, right
now in the energy-only market

04:00:54.610 --> 04:00:57.220
prices are high only
when you're in shortage.

04:00:57.220 --> 04:00:59.690
Investment requires high prices.

04:00:59.690 --> 04:01:03.620
And so we're going to
be an operating shortage.

04:01:03.620 --> 04:01:06.510
And that, you may say that's,

04:01:06.510 --> 04:01:08.560
some of us might think
that's economically optimal

04:01:08.560 --> 04:01:10.310
or something, but it's not desired.

04:01:11.590 --> 04:01:15.060
And we want more
supply and more cushion.

04:01:15.060 --> 04:01:19.360
And there are, I think
only two thematically,

04:01:19.360 --> 04:01:20.710
two ways to get that.

04:01:20.710 --> 04:01:25.263
One is to increase the
total demand either through,

04:01:26.710 --> 04:01:31.260
you know, real-time reserves
like with an ORDC shift,

04:01:31.260 --> 04:01:34.270
we'll probably end up
only doing so much of that.

04:01:34.270 --> 04:01:38.470
Or through demand for
capacity in an LSE obligation.

04:01:38.470 --> 04:01:40.560
More demand for physical supply

04:01:40.560 --> 04:01:42.110
that you're willing to pay for.

04:01:42.950 --> 04:01:45.653
Then just what you consume is energy.

04:01:47.720 --> 04:01:49.070
That's one theme.

04:01:49.070 --> 04:01:54.070
And the other theme is you
pay something aside payment,

04:01:55.010 --> 04:01:56.950
but hold it out of the market so that

04:01:56.950 --> 04:01:58.730
you don't have the bump-out problem.

04:01:58.730 --> 04:02:03.070
Because there truly is only
so much room for supply

04:02:03.070 --> 04:02:07.440
and there's only so much
demand for only so much supply.

04:02:07.440 --> 04:02:09.670
And if you want to add
something on the side payment,

04:02:09.670 --> 04:02:12.263
you get the bump-out
problem. And this avoids that-

04:02:13.442 --> 04:02:15.310
(indistinct)

04:02:15.310 --> 04:02:16.420
This avoids that-

04:02:16.420 --> 04:02:17.561
<v Will>We're going to
have another meeting,</v>

04:02:17.561 --> 04:02:21.340
you can try and kill the deck
in another meeting, Sam.

04:02:21.340 --> 04:02:22.790
<v Sam>I'm really sorry, but</v>

04:02:24.610 --> 04:02:26.790
because now we get to the adjustments.

04:02:26.790 --> 04:02:30.020
So I would say, you said
at the top of the bed stack,

04:02:30.020 --> 04:02:32.500
actually the top of the bed
stack is at 9,000, I believe.

04:02:32.500 --> 04:02:34.580
And Carrie could tell us.

04:02:34.580 --> 04:02:36.090
<v Lori>What would it
be like? 45 Or 5,000?</v>

04:02:36.090 --> 04:02:36.923
Whatever it is, right?

04:02:36.923 --> 04:02:37.800
<v Sam>Yeah. The price cap,</v>

04:02:37.800 --> 04:02:40.560
because I mean the voluntary
mitigation plans and some of

04:02:40.560 --> 04:02:42.930
the small fish, they
have little bit probably at-

04:02:42.930 --> 04:02:45.871
<v Lori>And the energy
storage, there is always</v>

04:02:45.871 --> 04:02:47.600
(indistinct)

04:02:47.600 --> 04:02:49.460
So if you put a truly at
the end of the bit stack,

04:02:49.460 --> 04:02:51.399
it's probably going to be.

04:02:51.399 --> 04:02:53.250
<v Sam>If you do
that, it works best.</v>

04:02:53.250 --> 04:02:54.500
<v Lori>What I'm trying to avoid</v>

04:02:54.500 --> 04:02:59.030
is an impact on price
reversal, price distribution,

04:02:59.030 --> 04:03:01.270
because that's not
what SRS is meant to do.

04:03:01.270 --> 04:03:02.103
It's meant to just, you know,

04:03:02.103 --> 04:03:05.970
make sure we have that
backstop insurance policy to ensure

04:03:05.970 --> 04:03:10.780
reliability in those days
where we just have a hole

04:03:10.780 --> 04:03:12.700
and we don't have enough power.

04:03:12.700 --> 04:03:14.790
And so by moving those resources,

04:03:14.790 --> 04:03:17.000
having that, that pot of resources,

04:03:17.000 --> 04:03:19.190
you're essentially
allowing existing generation

04:03:19.190 --> 04:03:21.110
that wouldn't be running anyway,

04:03:21.110 --> 04:03:24.490
but it's tested, performance tested

04:03:24.490 --> 04:03:26.141
in certain performance operations.

04:03:26.141 --> 04:03:27.950
So you're not having cash for clunkers.

04:03:27.950 --> 04:03:30.560
You're basically making
sure that you have some,

04:03:30.560 --> 04:03:32.660
I mean, they're going to have to

04:03:32.660 --> 04:03:34.563
meet the operational characteristics,

04:03:36.180 --> 04:03:39.080
be tested on a seasonal
basis and if they don't perform,

04:03:39.080 --> 04:03:41.100
they get penalized and they
get their payment callback.

04:03:41.100 --> 04:03:42.560
So you're just talking to throw in

04:03:42.560 --> 04:03:44.490
your so-called clunker in there, right?

04:03:44.490 --> 04:03:45.323
I mean,

04:03:45.323 --> 04:03:46.850
you don't want to put yourself
through a penalty or get your

04:03:46.850 --> 04:03:49.150
payment called back and
you picked out of the program.

04:03:49.150 --> 04:03:52.660
So you're going to have
some reliable assets in there,

04:03:52.660 --> 04:03:56.023
but by having this insurance policy,

04:03:56.884 --> 04:04:00.833
you are essentially one
providing the public leadership,

04:04:00.833 --> 04:04:04.240
some confidence, right.

04:04:04.240 --> 04:04:05.080
Which is important.

04:04:05.080 --> 04:04:06.900
And that's what we're
trying to do here too.

04:04:06.900 --> 04:04:11.520
But then you're also sending
a stronger price signal in the

04:04:11.520 --> 04:04:14.690
real-time market that will
drive investment and help push

04:04:14.690 --> 04:04:16.137
some of that generation that's in,

04:04:16.137 --> 04:04:18.227
in the interconnection queue right now,

04:04:18.227 --> 04:04:21.090
the dispatchable resources
over the line hopefully,

04:04:21.090 --> 04:04:23.703
with SRS and ORDC combined.

04:04:24.550 --> 04:04:26.025
<v Sam>Totally agree
with the concept.</v>

04:04:26.025 --> 04:04:27.723
And I think the way
to make sure it works

04:04:27.723 --> 04:04:31.700
is that they would
offer it at the price cap.

04:04:31.700 --> 04:04:33.870
And imagine, by the way, with the ORDC,

04:04:33.870 --> 04:04:36.600
imagine they're coming
in at the price cap and that

04:04:36.600 --> 04:04:38.960
it's the cap at, you know, 3000.

04:04:38.960 --> 04:04:42.460
You will use them before
you have advisories and alerts.

04:04:42.460 --> 04:04:43.610
You probably like that.

04:04:44.810 --> 04:04:48.220
And okay, so there are two
other issues on the design.

04:04:48.220 --> 04:04:49.920
One is eligibility.

04:04:49.920 --> 04:04:52.120
I would probably make it, you know,

04:04:53.330 --> 04:04:56.426
you can start within
six hours or something.

04:04:56.426 --> 04:04:58.360
(indistinct)

04:04:58.360 --> 04:05:01.210
Something more than, I mean
you want combined cycles,

04:05:01.210 --> 04:05:05.980
maybe even steam units
to be able to participate.

04:05:05.980 --> 04:05:07.110
And it was for a couple of reasons.

04:05:07.110 --> 04:05:07.943
One is,

04:05:08.860 --> 04:05:12.270
you don't want to be tying
up the stuff that you'd hope

04:05:12.270 --> 04:05:17.270
would be fairly frequently,
but you know, more frequently,

04:05:17.820 --> 04:05:20.210
you don't want it to just be
the quick start that you'd like

04:05:20.210 --> 04:05:22.179
to be more frequently
playing in the energy

04:05:22.179 --> 04:05:23.940
and ancillary service markets,

04:05:23.940 --> 04:05:26.080
because this is stuff
is really being held out.

04:05:26.080 --> 04:05:30.820
So I'd make it probably
include some of the slower stuff.

04:05:30.820 --> 04:05:33.610
Don't forget that actually will
help the problem we're most

04:05:33.610 --> 04:05:37.400
worried about, which is,
you know, not the quickness,

04:05:37.400 --> 04:05:41.060
it's the, "Whoa, it's going
to be really hot tomorrow,

04:05:41.060 --> 04:05:43.797
really cold tomorrow,
really low wind tomorrow."

04:05:45.050 --> 04:05:48.447
Any of those. So I would expand that.

04:05:48.447 --> 04:05:50.180
And the last thing is on the timing.

04:05:50.180 --> 04:05:52.620
I think this deserves more discussion,

04:05:52.620 --> 04:05:54.210
the timing and quantity.

04:05:54.210 --> 04:05:55.160
I think there, you know,

04:05:55.160 --> 04:05:59.150
I can imagine one approach
where it's 4,000 megawatts

04:05:59.150 --> 04:05:59.983
all the time.

04:06:01.120 --> 04:06:02.190
You know, and, and just,

04:06:02.190 --> 04:06:05.100
everybody knows you're going.
And maybe you, maybe I don't,

04:06:05.100 --> 04:06:06.070
it doesn't matter how,

04:06:06.070 --> 04:06:07.900
I don't know how far forward
you buy it, but we're just,

04:06:07.900 --> 04:06:09.299
everybody would know, oh yeah,

04:06:09.299 --> 04:06:11.570
it's just always a 4,000
megawatt question or something.

04:06:11.570 --> 04:06:13.020
Something like that.

04:06:13.020 --> 04:06:14.520
There would be another approach,

04:06:14.520 --> 04:06:17.160
which I think is closer
to you were saying.

04:06:17.160 --> 04:06:19.770
And I think this deserves
more thought whether you would

04:06:19.770 --> 04:06:22.763
look forward and you would
say, Hm, three years forward,

04:06:23.970 --> 04:06:26.580
you know, we're projecting
only a 10% reserve margin.

04:06:26.580 --> 04:06:28.330
And when we count everything right.

04:06:29.350 --> 04:06:30.333
And that's too low.

04:06:31.470 --> 04:06:36.100
So we want, you know, we wish
we had 5,000 megawatts more,

04:06:36.100 --> 04:06:41.100
so do a reserve for 5,000
and hopefully that'll then

04:06:42.900 --> 04:06:46.890
draw in more investment and
we'll get total reserve margin

04:06:46.890 --> 04:06:47.723
we're more comfortable with.

04:06:47.723 --> 04:06:49.650
You know, the one
thing it's just a tiny bit

04:06:49.650 --> 04:06:50.483
weird about that.

04:06:50.483 --> 04:06:51.316
Two things.

04:06:51.316 --> 04:06:54.980
One is that, just when the
reserve margin is projected

04:06:54.980 --> 04:06:57.170
to be low, you're pulling
stuff out of the reserve.

04:06:57.170 --> 04:06:59.290
I mean, you almost, you
know, if you want to support,

04:06:59.290 --> 04:07:01.820
you know, more stable high prices,

04:07:01.820 --> 04:07:04.940
you'd actually pull it out when
things are long, you know.

04:07:04.940 --> 04:07:07.368
<v Lori >They are long. Have
you seen her CDR report?</v>

04:07:07.368 --> 04:07:08.300
<v Sam>So, you know,</v>

04:07:08.300 --> 04:07:10.290
so I'm somewhat more inclined to do more

04:07:10.290 --> 04:07:14.580
of a constant pull up, but
this is worth more thought.

04:07:14.580 --> 04:07:17.680
But I do think everything
you put forward I think,

04:07:17.680 --> 04:07:20.057
is helpful in that, you know,

04:07:20.057 --> 04:07:22.880
and it's creating a
viable option. And I don't.

04:07:22.880 --> 04:07:25.583
So those are just a couple adjustments.

04:07:27.500 --> 04:07:29.780
<v Peter>Relative to the
option to you laid out</v>

04:07:29.780 --> 04:07:33.649
this morning where are the
overlaps, where the differences?

04:07:33.649 --> 04:07:35.610
<v Sam>The core ideas are the same.</v>

04:07:35.610 --> 04:07:37.080
It's in the concept of,

04:07:37.080 --> 04:07:40.000
if you don't want to expand
total demand and pay everything

04:07:40.000 --> 04:07:42.520
that's reliable, you
have to pay a few things,

04:07:42.520 --> 04:07:45.460
you got to hold them out of
the market. Same core idea.

04:07:45.460 --> 04:07:47.550
<v Peter>Same conversation.</v>
<v Sam>Same.</v>

04:07:47.550 --> 04:07:49.020
<v Peter>Okay.</v>

04:07:49.020 --> 04:07:51.923
<v Lori>Thank you Sam, and
really the goal here is to,</v>

04:07:53.320 --> 04:07:55.790
I do want to make sure
we get the right resources,

04:07:55.790 --> 04:08:00.660
that SRS peakers will have an
opportunity and you know RRS

04:08:00.660 --> 04:08:05.420
and non-spin ultimately ECRS,
but they're able to want to,

04:08:05.420 --> 04:08:07.303
and want to play in this,

04:08:09.052 --> 04:08:12.670
SRS product that they can do so as well.

04:08:12.670 --> 04:08:15.440
But I think having that wider spectrum

04:08:15.440 --> 04:08:16.360
is what I was going for,

04:08:16.360 --> 04:08:18.663
because I do think that there
are other types of resources

04:08:18.663 --> 04:08:22.210
that we would want to
have to come in, you know,

04:08:22.210 --> 04:08:23.810
should we have one of those way,

04:08:25.854 --> 04:08:29.413
that to accomplish the
goal that SRS is intended

04:08:30.770 --> 04:08:33.130
to accomplish and with
respect to, you know,

04:08:33.130 --> 04:08:36.170
how they're paid, I mean,
I'm open to hearing that too.

04:08:36.170 --> 04:08:39.197
What I'm trying to
avoid is price reversal

04:08:39.197 --> 04:08:40.343
and price distortion.

04:08:41.390 --> 04:08:42.223
<v ->Yeah. Yep.</v>

04:08:42.223 --> 04:08:45.143
And I think that's,
I think you got that.

04:08:46.344 --> 04:08:49.530
I want to add one other
observation about it though.

04:08:49.530 --> 04:08:52.130
It's kind of what I showed
before, just to be clear this,

04:08:52.130 --> 04:08:55.240
you know, the cost of this is modest.

04:08:55.240 --> 04:08:57.570
Like, you know, in our estimate,

04:08:57.570 --> 04:09:00.610
this could be in a $20
billion in your market.

04:09:00.610 --> 04:09:03.160
This could be, you know,
300 million or something.

04:09:03.160 --> 04:09:04.950
That's just a rough estimate.

04:09:04.950 --> 04:09:07.572
And imagine if that's allocated
to everybody, you know,

04:09:07.572 --> 04:09:09.930
the people who don't
like paying for capacity,

04:09:09.930 --> 04:09:11.680
they're not going to pay for very much.

04:09:11.680 --> 04:09:14.890
I mean, this is a pretty
small ladder for everybody.

04:09:14.890 --> 04:09:17.630
<v ->So that's why I put that
condition in the peak net load.</v>

04:09:17.630 --> 04:09:19.560
What I'm understanding
is that would help

04:09:19.560 --> 04:09:22.113
some of our consumers.
<v ->Well, that too.</v>

04:09:22.113 --> 04:09:24.940
<v ->And so, and would
like for, I know there,</v>

04:09:24.940 --> 04:09:28.570
you could either keep
those resources in ERS,

04:09:28.570 --> 04:09:32.631
but if there's a way, you
know, to balance this out,

04:09:32.631 --> 04:09:33.464
you know,

04:09:33.464 --> 04:09:35.260
that's why I put possibly
demand response, so this works.

04:09:35.260 --> 04:09:39.180
I mean, we want dispatchable,
we want, you know,

04:09:39.180 --> 04:09:44.180
tested reliable resources
to participate in SRS.

04:09:45.700 --> 04:09:50.283
And so it's really what I'm
trying to go for my proposal.

04:09:51.970 --> 04:09:54.740
<v ->All right. Any other questions,
comments we're saying?</v>

04:09:54.740 --> 04:09:56.731
<v ->Nope. I don't think so.</v>

04:09:56.731 --> 04:09:59.590
<v ->Thank you.</v>
<v ->Thank you Sam.</v>

04:09:59.590 --> 04:10:03.112
<v ->Thank you Lori for working
on that and laying it out.</v>

04:10:03.112 --> 04:10:05.253
A lot of good elements to consider.

04:10:07.070 --> 04:10:10.620
And I know I've said
it many, many times.

04:10:10.620 --> 04:10:12.050
I say it again,
there's no silver bullet.

04:10:12.050 --> 04:10:16.463
There's no readily apparent
solution, but I will add.

04:10:19.980 --> 04:10:24.060
We're not in the business of
endorsing or killing anything.

04:10:24.060 --> 04:10:27.700
We're in the business
of Frankensteining,

04:10:27.700 --> 04:10:31.017
the best components of each and the,

04:10:33.430 --> 04:10:35.030
like I said about the strong
and the only guarantee

04:10:35.030 --> 04:10:37.310
is the first crack, that
first crack that we take,

04:10:37.310 --> 04:10:38.967
won't be the right answer.

04:10:38.967 --> 04:10:42.080
And I think that probably
applies to the first crack

04:10:42.080 --> 04:10:43.763
any of us take it at anything.

04:10:45.830 --> 04:10:48.660
We very much want to capture
the good elements of all of

04:10:48.660 --> 04:10:53.660
these proposals and make
sure we continue to keep working

04:10:53.700 --> 04:10:55.573
forward towards the best solution.

04:10:57.710 --> 04:10:59.040
So thank you again for laying that out.

04:10:59.040 --> 04:11:01.020
Thank you Commissioner
McAdams for laying that out.

04:11:01.020 --> 04:11:05.134
Thank you for your company.
<v ->My pleasure.</v>

04:11:05.134 --> 04:11:07.843
(laughing)

04:11:07.843 --> 04:11:09.320
<v ->Thank you for your
consideration Chairman Lake,</v>

04:11:09.320 --> 04:11:12.429
and I hope I've earned
the right to be added for

04:11:12.429 --> 04:11:14.127
the next round.

04:11:14.127 --> 04:11:15.030
<v ->Yeah, of course, of course.</v>

04:11:15.030 --> 04:11:19.956
We're in the business of
vetting ideas and continually

04:11:19.956 --> 04:11:24.707
iterating to closer and
closer to the solution,

04:11:24.707 --> 04:11:27.960
the right solutions, set of solutions.

04:11:27.960 --> 04:11:29.390
All right. Unless there's anything else,

04:11:29.390 --> 04:11:33.900
I think that'll cover our
agenda for structural changes

04:11:33.900 --> 04:11:35.560
for resource adequacy.

04:11:35.560 --> 04:11:39.863
And that is the last item I
have on the agenda for today,

04:11:40.870 --> 04:11:43.163
unless you all have anything else that.

04:11:44.880 --> 04:11:46.190
<v ->Mr. Chairman,</v>

04:11:46.190 --> 04:11:49.520
Commissioner Glotfelty
and I may give you an update

04:11:49.520 --> 04:11:52.380
at the next open meeting or workshop.

04:11:52.380 --> 04:11:55.983
We had a good productive workshop

04:11:55.983 --> 04:11:58.820
on the prioritization for transmit.

04:11:58.820 --> 04:12:00.251
<v ->Excellent.</v>
<v ->Yeah.</v>

04:12:00.251 --> 04:12:01.379
<v ->That's interconnection.</v>

04:12:01.379 --> 04:12:04.090
<v ->Yeah, transmission
interconnection.</v>

04:12:04.090 --> 04:12:06.950
And so I know everybody's tired today,

04:12:06.950 --> 04:12:10.180
but we will have an
update for you at the next.

04:12:10.180 --> 04:12:12.523
<v ->Appreciate that.
Thank y'all both for it.</v>

04:12:13.670 --> 04:12:14.910
Fortunate head on that.

04:12:16.140 --> 04:12:19.140
Look forward to that
update. It'll be December 2nd.

04:12:19.140 --> 04:12:21.810
<v ->Great.</v>
<v ->Waiting for that.</v>

04:12:21.810 --> 04:12:23.210
All right. Having no further business,

04:12:23.210 --> 04:12:25.440
this meeting of the Public
Utility Commission of Texas

04:12:25.440 --> 04:12:27.240
is hereby adjourned.(loud thud)

04:12:27.240 --> 04:12:29.090
<v Will>Thank you Sir.</v>
<v ->Thank you.</v>