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[00:00:04]

OKAY.

IF PEOPLE WANNA TAKE THEIR SEATS, WE'LL BEGIN THE MEETING.

SO BEFORE WE

[1. Antitrust Admonition]

GET INTO THE DISCUSSION TODAY, I'VE JUST SHARED ON THE SCREEN THE ERCOT ANTITRUST ADMONITION.

SO I WILL JUST LEAVE IT UP THERE FOR A MOMENT OR TWO BEFORE WE GET INTO THE DISCUSSION.

OKAY.

WELL, THANK YOU VERY MUCH.

UH, THIS IS RYAN KING WITH ERCOT.

UH, VERY PLEASED TO BE HOSTING, UH, TODAY'S SESSION ON THE PERFORMANCE CREDIT MECHANISM WORKSHOP.

LEMME JUST MAKE SURE.

SO BEFORE WE GET INTO THE BULK OF THE DISCUSSION, UH, I JUST WANTED TO HIGHLIGHT A FEW THINGS TO HELP GUIDE THE DISCUSSION TODAY.

TALK A LITTLE BIT ABOUT GOALS PROCESS, UH, A FEW NOTES AND NEXT STEPS SO THAT WE'RE ALL ON THE SAME PAGE WITH RESPECT TO THIS WORKSHOP.

SO THE, THE PRIMARY FOCUS FOR TODAY'S WORKSHOP REALLY IS AROUND, UH, EDUCATION, UH, ON THE PCM CONCEPT IN PARTICULAR, SO THAT STAKEHOLDERS AND OTHER INTERESTED PARTIES CAN HAVE THE BACKGROUND TO PROVIDE FEEDBACK AND WRITTEN COMMENTS ON THE PUC PROJECT, WHICH IS 5 5 0 0 0.

SO THIS WILL INCLUDE, UH, SOME HISTORY AND CONTEXT AROUND THE PERFORMANCE CREDIT MECHANISM, UH, AND AN OVERVIEW OF SOME OF THE MECHANICS INFORMATION ON THE MODELING AND STUDY APPROACH BEING USED BY E THREE, INCLUDING INPUTS AND ASSUMPTIONS ON THE MODEL, AND AN EXPLANATION OF THE INDIVIDUAL PCM DESIGN PARAMETERS AND SOME ILLUSTRATION OF HOW DIFFERENT PARAMETER CHOICES WILL BE EVALUATED IN THIS FRAMEWORK.

SO IN TERMS OF PROCESS, UH, IF YOU HAVE REVIEWED THE MATERIALS, WE HAVE A FAIRLY SUBSTANTIVE AMOUNT OF INFORMATION TO GO THROUGH.

UM, WE WANT TO MAKE SURE THAT THERE IS SUFFICIENT TIME FOR E THREE TO GO THROUGH THIS MATERIAL.

UM, WITH THAT IN MIND, WE'LL PLAN TO TAKE SUBSTANTIVE QUESTIONS AT THE END OF EACH SUBSECTION OF THE AGENDA.

WE ALSO WANNA MAKE SURE THAT THERE'S TIME AT THE END OF THE WORKSHOP FOR ADDITIONAL Q AND A.

AND, UH, WE'RE, WE'RE OKAY TO GO A LITTLE BIT BEYOND THE SCHEDULED TIME TODAY BASED ON THE DISCUSSION AND THE NUMBER OF REMAINING QUESTIONS.

ERCOT STAFF, UH, FOR THOSE REMOTELY WILL BE MANAGING THE QUEUE FOR QUESTIONS USING THE CHAT IN WEBEX.

BUT FOR THOSE IN THE ROOM, UH, IF YOU WOULDN'T MIND JUST INTRODUCING YOURSELF WHEN YOU'RE ANSWERING YOUR QUESTION, THAT WILL ENSURE THAT WE'VE CAPTURED EVERYTHING ACCURATELY.

AND JUST A NOTE THAT THIS WORKSHOP, UH, WILL BE RECORDED USING SWAG IT, UM, AND YOU ARE ABLE TO VIEW THE WORKSHOP ON THE ERCOT WEBSITE AT A LATER DATE.

ONE NOTE, UH, THIS HAS BEEN RAISED BEFORE, BUT IT, IT DOES BEAR REPEATING THAT, UH, WHEN IT COMES TO THE DISCUSSION AROUND DEFAULT PARAMETERS, IT'S IMPORTANT TO UNDERSTAND WHAT WE MEAN BY DEFAULT PARAMETERS.

UM, SO YOU WILL SEE REFERENCES TO DEFAULT, UH, THROUGHOUT A NUMBER OF THE PCM DESIGN PARAMETERS.

JUST TO NOTE HERE, THAT THESE VALUES ARE NOT INTENDED TO BE A FINAL PROPOSAL, BUT WILL BE USED TO ESTABLISH A BASELINE FOR FUTURE ANALYSIS WHEN WE'RE LOOKING AT THE SENSITIVITIES OF DIFFERENT COMBINATIONS OF DESIGN PARAMETERS.

AND THAT'S SOMETHING THAT WILL BE DISCUSSED, UH, UH, SIGNIFICANTLY THROUGHOUT THE DAY.

AND, UH, FINAL SLIDE HERE IS JUST A REITERATION OF THE NEXT STEPS FOLLOWING THE, UH, WORKSHOP.

OUTLINED SOME, UH, UH, IMPORTANT TIMELINES THAT WERE INCLUDED IN THE MEMO FROM PUCT STAFF THAT WERE LAID OUT ON APRIL 4TH.

SO RIGHT NOW, WE'RE KIND OF ON THE THIRD LEVEL HERE.

SO WE WILL HOLD THIS WORKSHOP WITH STAKEHOLDERS.

AND THEN ERCOT HAS COMMITTED TO FILING PCM DESIGN PARAMETERS POST-WORKSHOP UPDATE.

SO THAT WILL BE LARGELY BASED ON THE, THE FEEDBACK AND, AND THE DISCUSSION THAT WE HAVE TODAY.

UM, FOLLOWING THAT, UM, STAFF WILL FILE A MEMO TO ASK FOR STAKEHOLDER COMMENTS ON THIS PROJECT.

AND AT THE MAY 16TH OPEN MEETING, THE COMMISSION WILL CONSIDER STAFF QUESTIONS AND TIMELINES AND, UH, A PLAN TO EVALUATE NEXT STEPS BASED ON STAKEHOLDER COMMENTS IN JUNE.

[00:05:02]

SO MAYBE BE PLEASE BILL.

THANKS BILL BARNES N RRG, UH, ON THE COMMENT, STAKEHOLDER COMMENT TIMING, IT, UM, LOOKS LIKE ON THE MAY 9TH ITEM, THERE'S GONNA BE A DRAFT SOLICITATION FOR COMMENTS, BUT THAT WON'T BE FINAL UNTIL MAY 16TH, AND THEN THERE'LL BE SOME COMMENT PERIOD WITH THE DUE DATE AFTER THAT.

IS THAT A FAIR? YES, I BELIEVE THAT'S RIGHT.

BUT, UH, UNDERSTAND THE TIMING OF STAKEHOLDER COMMENTS WOULD BE DUE, AND IT LOOKS LIKE IT'S PROBABLY GONNA BE IN JUNE.

YES, WE ARE PLANNING, UH, DO WANNA USE THE, AFTER THIS WORKSHOP AND ERCOT FILING MAY ONE WE'LL REVIEW AND WE'LL COME UP WITH A TIMELINE AND QUESTIONS, AND THEN WE WILL TAKE IT, UH, MAY TIME OPEN.

UH, WE WILL FILE IT AND MAY 16, WE ARE GONNA TAKE IT TO THE COMMISSIONERS AND THEY'RE GONNA DECIDE IS IT OKAY OR NOT.

AND THEN DEFINITELY WE WILL GIVE YOU AMPLE TIME.

AMPLE TIME, YEAH.

HOW MUCH WOULD WE APPRECIATE AMPLE TIME? THREE WEEKS, 40, LIKE 30 DAYS? WHAT ARE WE THINKING HERE? THREE WEEKS, FOUR WEEKS? DO WE HAVE ANY NUMBER? BUT IT'S GONNA BE, EITHER OF THOSE WOULD BE GREAT.

OKAY.

MINIMUM TO, OKAY.

THANK YOU SO MUCH.

WE APPRECIATE THAT.

ABSOLUTELY.

ABSOLUTELY.

GREAT.

OKAY, THANK YOU.

OH, ANOTHER QUESTION.

YES, THANK YOU.

THIS IS LAURIE BLOCK ON BEHALF OF, UH, THE TEXAS SOLAR POWER ASSOCIATION.

MY QUESTION IS, UM, OBVIOUSLY WE HAVE A LOT OF MATERIAL TODAY TO GO OVER, UM, AND, UM, THERE'S GONNA BE A BIG PRESENTATION, I'M SURE TO GO OVER, UM, THE WHITE PAPER THAT WAS FILED, AND I'M SURE STAKEHOLDERS HAVE LOTS OF QUESTIONS.

IF WE DON'T GET TO GO THROUGH ALL THE STAKEHOLDER QUESTIONS, UM, IT'S GONNA BE DIFFICULT TO FILE COMMENTS ON SOMETHING THAT WE REALLY HAVEN'T FULLY DISCUSSED.

IS THERE ANY CONTEMPLATION OF ANY ADDITIONAL WORKSHOPS BEFORE OUR COMMENTS ARE DUE IF WE RUN OUT OF TIME TODAY? THANK YOU.

SO, I, I DON'T KNOW IF WE WOULD NECESSARILY HAVE A, A SPECIFIC EXTRA WORKSHOP, BUT WE WOULD WANT TO MAKE SURE THAT WE WOULD FIND SOME FRAMEWORK TO MAKE SURE THAT THE, THE QUESTIONS ARE ANSWERED.

SO PERHAPS, UH, AT THE END OF THIS, WE CAN HAVE SOME DISCUSSION ABOUT IF, IF, IF THERE ARE SOME OTHER THINGS, MAYBE WE CAN FIND A, A, A FORM THAT, THAT, THAT SUITS EVERYONE'S, UH, CONVENIENCE AND TIMELINES.

BUT WE DO, BUT WE DO WANNA MAKE SURE THAT WE COVER EVERYTHING.

SO THANK YOU.

YES.

AHI ONE SUGGESTION, AHI SHARMA, FRANK, UM, ONE WAY TO DO THAT WOULD BE TO HAVE AN INITIAL COMMON PERIOD AND A 15 DAY REPLY PERIOD.

THAT MIGHT BE A GREAT WAY THIS HAPPENS AT OTHER, UM, ENERGY, YOU KNOW, ISSUES THAT ARE SO BIG ALL THE TIME, RIGHT? SO IF THAT'S AMENABLE, WE COULD DO 45 DAYS OR FOR FIVE WEEKS, 15 DAYS, OR 20 DAYS AS A REPLY PERIOD.

THAT'S GOOD FEEDBACK.

YOU WON'T TAKE IT .

OKAY.

THERE'S QUESTION.

I CAN'T SEE IT.

OKAY.

OH, IT LOOKS LIKE, UM, WE HAVE A QUESTION FROM NARAJ.

GO AHEAD.

NARAJ FROM OPAC.

JUST A QUESTION FOR IKA, IF I UNDERSTOOD CORRECTLY.

SO, COMMISSION STAFF FILING A DRAFT MEMO ON MAY 9TH.

SO THAT WILL START FROM MAY 9TH TO ANOTHER 30 DAYS.

IS THAT A COM UH, COMMENT PAGE? NO.

DID I UNDERSTAND CORRECTLY, ERICA? NO.

MAY NINE.

WE HAVE TO FILE ONE WEEK BEFORE THE OPEN MEETING, OUR MEMO, SO WE WILL FILE IT, YOU WILL SEE IT.

AND MAY 16 COMMISSIONERS ARE GONNA GIVE US FEEDBACK IN A PUBLIC FORUM BASED ON THE TIMELINES, THE, I DON'T EXPECT THE COMMENT STARTING IMMEDIATELY, MAY 16.

SO WE, I CAN PROMISE YOU, YOU WILL HAVE ENOUGH TIME TO COMMENT.

THIS IS A BIG THING, SO THANK YOU.

UM, MAYBE JUST A REMINDER FOR THOSE IN THE ROOM TO, UH, USE YOUR STAGE VOICE SPEAKING TO THE MIC JUST TO MAKE SURE THAT THOSE ON THE WEBEX CAN HEAR.

THANKS.

ANY OTHER, ANY OTHER QUESTIONS? ALL RIGHT, WELL, IF YOU GIVE ME JUST ONE MOMENT, I WILL PULL UP, UH, THE OTHER PRESENTATION FOR TODAY.

SORRY, JUST ONE SECOND.

HOW DO I GET OUTTA THIS?

[00:10:23]

OKAY.

THANK YOU FOR YOUR PATIENCE ON THAT.

ALRIGHT, WELL

[2. Part 1: PCM Strawman Design Overview]

THAT, I AM GOING TO TURN THINGS OVER TO ZACH, WHO IS GOING TO LEAD US THROUGH THE, UH, BULK OF THE DISCUSSION TODAY.

SO OVER TO YOU, ZACH.

OKAY, THANK YOU RYAN.

AND HELLO EVERYONE.

IT'S FANTASTIC TO BE HERE.

MY NAME IS ZACH MING, I'M A SENIOR DIRECTOR AT E THREE.

WE'VE BEEN WORKING CLOSELY WITH ERCOT OVER THE PAST SEVERAL MONTHS TO PUT TOGETHER A LOT OF THE MATERIALS THAT WE'RE GONNA BE PRESENTING THROUGH TODAY.

AS HAS BEEN ALLUDED TO BY SEVERAL PEOPLE.

WE HAVE A LOT TO GET TO, BUT I'M, I'M VERY HOPEFUL THAT IT'S GONNA BE A BENEFICIAL EXPERIENCE FOR EVERYONE AND EVERYONE'S GONNA COME OUT WITH A LOT MORE CLARITY ABOUT EXACTLY WHAT THE PERFORMANCE CREDIT MECHANISM IS AND WHAT IT POTENTIALLY COULD BE ALONG A NUMBER OF THE DIMENSIONS AND DECISIONS THAT NEED TO BE MADE IN ITS IMPLEMENTATION.

SO IF WE GO TO THE NEXT SLIDE, JUST TO INTRODUCE WHO'S GONNA BE TALKING TODAY FROM E THREE, WE HAVE MYSELF AND DAVID DELGADO, AND WE'LL KIND OF BE TAG TEAMING THIS PRESENTATION.

SO WE'LL BE SPLITTING UP SOME DIFFERENT PRESENTATIONS AND WE'LL BOTH BE CHIMING IN AS WE GO THROUGH THINGS.

I DUNNO IF DAVID, DO YOU WANNA SAY HELLO REAL QUICK? YEAH.

HI EVERYONE.

DAVID DEO, SENIOR MANAGING CONSULTANT, EDDIE THREE.

AND THEN ON THE LINE AS WELL, WE HAVE KEVIN CARDIN FROM RAE.

RAE IS THE DEVELOPERS OF THE S MODEL.

AND THAT'S WHAT WE'VE USED FOR THE ANALYSIS.

SO ANY TECHNICAL QUESTIONS ABOUT THE MODELING FRAMEWORK OR ASSUMPTIONS, WE, WE WILL BE ABLE TO LOOP KEVIN IN AS WELL.

SO IF WE GO TO THE NEXT SLIDE, JUST A BIT OF AN OVERVIEW ABOUT E THREE FOR THOSE THAT ARE NOT FAMILIAR.

WE'RE AN CONSULTING FIRM THAT FOCUSES EXCLUSIVELY ON ENERGY AND SPECIFICALLY ELECTRICITY.

WE DO A LOT OF WORK ON TOPICS RELATED TO RELIABILITY AND MARKET DESIGN.

YOU CAN SEE SOME OF OUR WORK AND SAMPLE REPORTS THAT WE'VE PRODUCED IN THE PAST.

MOST NOTABLY ON THE LEFT, THE EVALUATION OF DIFFERENT POTENTIAL MARKET REFORM OPTIONS, WHICH IS A PROJECT WE WORKED ON A COUPLE YEARS AGO FOR THE COMMISSION HERE IN TEXAS THAT THE OUTCOME OF THAT PROJECT WAS THE PERFORMANCE CREDIT MECHANISM THAT WE'RE NOW DIVING INTO MORE IN, IN DETAIL HERE.

BUT I THINK IN GENERAL, YOU KNOW, THE ONLY THING I'D LIKE TO CONVEY ABOUT E THREE IS THAT WE WORK FOR A VERY BROAD ARRAY OF STAKEHOLDERS WITHIN THE ELECTRICITY SECTOR, UTILITIES, DEVELOPERS, GOVERNMENT AGENCIES, ENVIRONMENTAL GROUPS.

SO WE DON'T, YOU KNOW, WE, WE HAVE A VERY BROAD PERSPECTIVE AND EVERY PROJECT WE TRY TO BRING A VERY DATA-DRIVEN, UNBIASED, RIGOROUS, ANALYTICAL FRAMEWORK.

AND THAT'S EXACTLY HOW WE'RE APPROACHING THE PERFORMANCE CREDIT MECHANISM AS WELL.

JUST TRYING TO MAKE SURE, YOU KNOW, UH, AS, AS AGENDA FREE AS POSSIBLE, BUT WHAT ARE, WHAT ARE THE FACTS? WHAT ARE THE NUMBERS, WHATS THE INFORMATION THAT EVERYONE CAN HAVE FULL VISIBILITY INTO THE RAMIFICATIONS OF DIFFERENT DECISIONS THAT NEED TO BE MADE IN THE IMPLEMENTATION OF PCM? SO IF WE GO TO THE NEXT SLIDE, THIS IS JUST AN OVERVIEW OF WHAT WE'RE GONNA COVER TODAY.

WE HAVE THREE MAJOR SECTIONS.

FIRST SECTION IS AN OVERVIEW OF PCM, INCLUDING A LITTLE BIT OF HISTORY AND HIGH LEVEL HOW IT WORKS.

THE SECOND SECTION IS HOW WE'RE GONNA BE EVALUATING THE PCM, THE SOME DIFFERENT, THE MODELING FRAMEWORK.

WE'RE USING THE ASSUMPTIONS IN THAT AND HOW WE'RE GONNA APPROACH EVALUATING, YOU KNOW, CHANGING ONE PARAMETER HERE, CHANGING ONE PARAMETER THERE AND WHAT THAT LOOKS LIKE.

AND THEN IN THE THIRD SECTION, WE'RE GONNA KIND OF WALK THROUGH SOME EXAMPLES WHERE WE'VE DONE SOME PRELIMINARY ANALYSIS AND KIND OF A PREVIEW FOR HOW WE'RE THINKING ABOUT A MORE COMPREHENSIVE ANALYSIS AS WE GO INTO THIS NEXT PHASE OF THE PROJECT.

YOU KNOW, WE'RE GONNA BE COVERING A LOT OF THINGS MULTIPLE TIMES, SO I THINK THAT'S GOOD BECAUSE THERE'S, THERE'S SO MUCH INFORMATION HERE THAT IT'S, WE'RE GONNA BE TALKING ABOUT EVERYTHING MULTIPLE TIMES.

YOU'LL SEE THINGS RECURRING, YOU'LL SEE THE SAME CHARTS AND STYLE OF CHARTS POPPING UP OVER AND OVER AGAIN AND AGAIN, THAT'S JUST, I, I THINK TO JUST GET, GET FAMILIAR WITH THINGS.

AND REALLY THE IDEA HERE, AS RYAN SAID, IS THIS IS AN EDUCATIONAL SESSION.

SO THE GOAL IS TO GET EVERYONE MORE FAMILIAR WITH PCM AND THE POTENTIAL DECISIONS

[00:15:01]

THAT NEED TO BE MADE AND WHAT THE DIFFERENT OPTIONS ARE.

WITH THAT SAID, WE ARE VERY MUCH LOOKING FOR FEEDBACK AND IDEAS ON THIS, AND IT'S NOT NECESSARILY, I THINK TODAY IS MORE ABOUT EDUCATION.

SO WE WANT QUESTIONS, I THINK IS THE APPROPRIATE FORUM FOR INTERACTION TODAY.

BUT THERE WILL BE SEVERAL SECTIONS HERE WHERE WE'RE PRESENTING INFORMATION AND ARE VERY MUCH OPEN TO IDEAS.

YOU KNOW, WE ARE, WE'RE GONNA PRESENT SOME CHALLENGES OF SAYING, YOU KNOW, IF, IF THIS DECISION IS MADE, THIS IS THE IMPACT.

AND, AND WE'RE LOOKING FOR, YOU KNOW, OTHER FEEDBACK ON UNINTENDED CONSEQUENCES OF THINGS THAT WE SHOULD BE LOOKING OUT FOR OR IDEAS THAT STAKEHOLDERS HAVE FOR HOW TO ADDRESS CERTAIN THINGS.

SO THERE'S ALSO GONNA BE A LOT OF CHARTS.

SO I WANT TO GIVE A FAIR WARNING, IF YOU'VE LOOKED AT THE PRESENTATION, YOU ALREADY KNOW THAT WE'RE GONNA TRY TO WALK THROUGH THOSE TO MAKE SURE THAT EVERYONE IS CLEAR.

AND, AND THEN THE OTHER THING IS WE DO HAVE A NUMBER OF, I'LL CALL IT QUOTE UNQUOTE RESULTS THAT WE'LL BE LOOKING AT TODAY.

AGAIN, THOSE RESULTS ARE MAINLY THERE FOR EDUCATIONAL PURPOSES TO LOOK AT THE TYPES OF FINDINGS THAT WE'RE GONNA BE SEEING AS WE CONTINUE ALONG THIS PROJECT.

I DON'T FOLKS TO GET TOO HUNG UP AND ANCHORED ON SPECIFIC RESULTS BECAUSE THINGS, THINGS ARE GONNA BE CHANGING AS WE GO.

SO, YOU KNOW, WE'LL KIND OF PLAY, PLAY WHAT WE CAN WITH TIME.

WE'RE, WE'RE HOPING TO GET THROUGH THE FIRST TWO SECTIONS, MAYBE EVEN A LITTLE BIT INTO THE THIRD SECTION BEFORE LUNCH, BUT KIND OF BE FLEXIBLE DEPENDING ON QUESTIONS AS WE COME.

SO YEAH, WE WILL TAKE A BREAK AT THE END OF EACH SECTION FOR QUESTIONS.

IF THERE ARE ABSOLUTE BURNING CLARIFICATION QUESTIONS AS WE GO, THEN I THINK THAT'S FINE TO ASK AS WE'RE GOING THROUGH EACH SECTION.

BUT WE DO RESERVE THE RIGHT TO DEFER QUESTIONS TO THE END OF A SECTION IF WE THINK THAT'S MORE APPROPRIATE.

SO, ALRIGHT, SO LET'S, LET'S HIT THE FIRST SECTION.

SO I THINK WE CAN GO ALL THE WAY TO SLIDE SEVEN.

SO AS FOLKS KNOW, THE KIND OF WHERE THIS ENTIRE PROCESS STARTED WAS IN THE AFTERMATH OF WINTER STORM, YURI, THE LEGISLATURE PASSED SB THREE IN MAY OF 2021.

AND THERE WERE SEVERAL REQUIREMENTS IN THAT LAW.

ONE OF THOSE WAS FOR THE FIRST TIME DIRECTING ERCOT TO ESTABLISH A RELIABILITY REQUIREMENT AND ESTABLISH A MECHANISM TO ENSURE THAT THE SYSTEM WILL ACHIEVE THAT RELIABILITY REQUIREMENT.

THE SPECIFIC TERMS WERE, UH, ESTABLISH ANCILLARY OR RELIABILITY SERVICES NECESSARY TO ACHIEVE THIS STANDARD.

AND SO THAT IS THE DIRECTIVE THAT WAS GIVEN FROM THE LEGISLATURE TO THE COMMISSION.

AND THAT'S, AND THAT'S WHERE THE PROCESS HAS LED TO PCM TODAY.

THE COMMISSION ISSUED A BLUEPRINT ON DIFFERENT POTENTIAL WAYS THAT THEY COULD COMPLY WITH THIS SB THREE LAW.

THEY, THAT'S WHEN THE COMMISSION RETAINED E THREE.

WE WORKED FOR SEVERAL MONTHS AND AT THE END OF 2022 RELEASED A REPORT THAT EVALUATED SIX POTENTIAL OPTIONS THAT COULD BE COMPLIANT WITH THE REQUIREMENTS OF SB THREE.

ONE OF THOSE SIX OPTIONS WAS THE PERFORMANCE CREDIT MECHANISM.

AND AFTER STAKEHOLDER FEEDBACK IN EARLY 2023, THAT IS THE DIRECTION THAT THE COMMISSION DECIDED TO GO WHEN THEY UNANIMOUSLY ADOPTED THE PERFORMANCE CREDIT MECHANISM.

THERE WAS A LOT OF, YOU KNOW, STILL RECOGNITION OF JUST THAT A LOT OF WORK WAS GONNA HAVE TO BE DONE ON FLESHING OUT EXACTLY WHAT THAT WAS.

AND THEN AFTER THE COMMISSION ADOPTED THE PERFORMANCE CREDIT MECHANISM, THE LEGISLATURE PASSED AN ADDITIONAL LAW THAT SPECIFIED SEVERAL GUARDRAILS FOR HOW THE PERFORMANCE CREDIT MECHANISM SHOULD BE IMPLEMENTED.

SO REALLY THE POINT THAT WE WANT TO MAKE ON THIS SLIDE IS THAT THE PERFORMANCE CREDIT MECHANISM AND WHY WE'RE ALL HERE TODAY IS AS A DI DIRECT OUTCOME OF SB THREE IN THE AFTERMATH OF WINTER STORM YURI, THAT ESSENTIALLY REQUIRES ERCOT TO MOVE AWAY FROM THE ENERGY ONLY MARKET THAT THE, YOU KNOW, ERCOT HAS KNOWN FOR CLOSE TO TWO DECADES, EIGHT.

SO IF WE, YOU KNOW, SO THERE ARE THESE GUARDRAILS THAT THE LEGISLATURE PASSED.

SO IF WE GO TO THE NEXT SLIDE, I JUST WANT TO TALK THROUGH QUICKLY SOME OF WHAT THOSE GUARDRAILS ARE, AND YOU'LL SEE THESE POPPING UP OVER AND OVER THROUGH THE PRESENTATION.

BUT IF WE JUST GO TO THE NEXT SLIDE.

SO THE FIRST GUARDRAIL

[00:20:01]

IS A $1 BILLION ANNUAL NET COST CAP.

WE'LL BE TALKING A LOT ABOUT WHAT THIS MEANS, HOW IT CAN BE MEASURED, HOW IT CAN BE IMPLEMENTED, BUT IT ESSENTIALLY REQUIRES THE PERFORMANCE CREDIT MECHANISM TO NOT INCREASE COSTS, TOTAL SYSTEM COSTS BY MORE THAN $1 BILLION ANNUALLY.

THE SECOND GUARDRAIL IS THAT ANY PAYMENTS FROM THE PERFORMANCE CREDIT MECHANISM CAN ONLY FLOW TO DISPATCHABLE GENERATORS.

AND DISPATCHABLE GENERATORS ARE DEFINED AS GENERATORS WHOSE OUTPUT IS NOT FROM FORCES OUTSIDE OF HUMAN CONTROL.

SO WE'LL TALK ABOUT HOW THAT'S BEING IMPLEMENTED, BUT CLEARLY WIND AND SOLAR WOULD NOT BE CLASSIFIED AS DISPATCHABLE UNDER THIS FRAMEWORK.

THE THIRD GUARDRAIL IS THAT THE PERFORMANCE CREDIT MECHANISM NEEDS TO BE CENTRALLY CLEARED AS AN EFFORT TO PREVENT MARKET MANIPULATION AND POTENTIAL DISCREPANCIES BETWEEN AFFILIATED GENERATION WITH RETAIL COMPANIES.

THE FOURTH IS THAT PERFORMANCE CREDITS, WHICH IS WHAT RESOURCES CAN EARN AND GET COMPENSATED FOR.

YOU'RE ONLY ALLOWED TO EARN PERFORMANCE CREDITS IF YOU OFFERED IN THE FORWARD MARKET.

SO THERE'S GOING TO BE A PERFORMANCE CREDIT MECHANISM MARKET, AND THEN THERE'S GOING TO BE A FORWARD MARKET THAT TAKES PLACE BEFORE THE COMPLIANCE PERIOD.

AND IF A GENERATOR WANTS TO EARN PERFORMANCE CREDITS, IT NEEDS TO OFFER THOSE BY BIDDING INTO THE FORWARD MARKET.

AND SO WE'LL TALK ABOUT POTENTIALLY SOME IMPLICATIONS OF THAT REQUIREMENT AND HOW THAT MIGHT WORK.

THE NEXT IS THAT PERFORMANCE CREDITS? I, I'M SORRY.

YES.

UM, CAN WE INTERRUPT YOU? DID YOU WANT US TO DO QUESTIONS AT THE VERY END OR? YES.

CLARIFICATION QUESTIONS? YES, CLARIFICATION.

UM, SO DISPATCHABLE GENERATION CYRUS READS SIERRA CLUB DISPATCHABLE GENERATION ONLY.

UM, DOES, DOES THAT MEAN STORAGE CANNOT EARN PCMS UNDER THIS FRAMEWORK? IS THAT CORRECT? WE WILL, WE WILL BE TALKING MORE ABOUT HOW THIS WILL BE IMPLEMENTED, BUT YES.

OKAY.

AND THEN THE DEFAULT, THE DEFAULT ASSUMPTION RIGHT NOW IS THAT STORAGE IS ELIGIBLE.

OH, IS ELIGIBLE, OKAY.

AND THEN, YEAH, BUT, BUT AGAIN, THAT'S A DECISION THAT NEEDS TO BE MADE AND WE'LL BE TALKING MORE ABOUT, OKAY.

AND THEN SECOND CLARIFYING QUESTION, CAN DISPATCHABLE GENERATION INCLUDE GENERATION THAT'S ON THE DISTRIBUTION AS OPPOSED TO ON THE TRANSMISSION LEVEL? SO WE'LL BE, WE'LL BE TALKING MORE ABOUT THAT.

WE HAVE A WHOLE SECTION ON ELIGIBILITY.

OKAY.

SO WE'LL BE TALKING, I'LL BE QUIET A LOT MORE ABOUT THAT.

YES, ZACH? ZACH, ZACH, ONE QUESTION.

OKAY.

OR SHE START MY FRIEND AGAIN.

JUST ONE, UM, REQUESTING GUIDEPOST FOR KIND OF GOING TO CYRUS'S QUESTION.

I THINK IT'LL BE VERY VALUABLE IN THE COMMON PERIOD FOR US TO DISTINGUISH WHICH ISSUES HAVE DISCRETIONARY, UM, I GUESS, OR WHICH ONES ARE DISCRETIONARY BUILDING BLOCKS IN THE COMMISSION'S JURISDICTION.

LIKE WHAT COULD THE COMMISSION ACTUALLY OPINE ON THAT WE'RE COMMENTING ON VERSUS WHICH THINGS ARE CLEAR MANDATES, UM, FROM THE LEGISLATURE.

RIGHT? AND I SAY THAT BECAUSE THE QUESTION OF STORAGE, FOR EXAMPLE, IS STORAGE PERMISSIBLE IS THE DISCRETIONARY QUESTION THAT WILL BE DEBATED, ADJUDICATED IN THE CONTEXT OF RULEMAKING, ET CETERA, ET CETERA.

BUT MAYBE THERE'S OTHER ISSUES THAT ARE GOING TO BE CLEAR, HARD LINES LIKE THE COST CAP THAT ARE, ARE NOT UP FOR DEBATE BECAUSE THEY'RE, THEY'RE IN LEGISLATION.

SO, UM, ITEMIZING THE DIFFERENCE BETWEEN THOSE THINGS, THINGS THAT, THOSE THAT ARE HARD GUIDELINES IN LEGISLATION FROM THE ONES THAT WHICH WE CAN ACTUALLY COMMENT ON BECAUSE THERE IS LIKELIHOOD OF AN OUTCOME THAT IS BASED ON, YOU KNOW, DELIBERATIVE NOTICE AND COMMON PROCESS THAT'LL BE SUPER USEFUL FOR THE PUBLIC.

UM, ESPECIALLY FOR FOLKS WHO CAN'T COME TODAY AND ARE GOING TO SEE THIS AND PUT COMMENTS POTENTIALLY IN THE WRONG AREA WITHOUT REALIZING THAT THERE IS NO MOVEMENT POSSIBLE.

SO LOOKS LIKE I, I DO APPRECIATE THAT COMMENT.

I I DO JUST WANNA REMIND FOLKS THAT UNTIL WE GET TO THE END OF A SECTION, IF WE COULD KEEP COMMENTS TO BURNING CLARIFICATION QUESTIONS AND SAVE MORE COMMENTARY AND IDEAS FOR THE END, THAT THAT WILL HELP ENSURE WE STAY ON TRACK JUST BECAUSE WE GOTTA HAVE A LOT TO GET THROUGH.

OKAY.

I, I JUST WANNA NOTE THERE, THERE WERE A COUPLE COMMENTS IN THE QUEUE THAT I THINK ARE PROBABLY TIMELY TO THIS.

OKAY.

SO, OKAY, PERFECT.

SO DAVE, UH, DAVE MAGGIO.

THANK YOU RYAN.

AND I'LL, I'LL KEEP THIS VERY QUICK.

AND THIS IS MAYBE TO HELP ZACH POINT ALSO POINT TO SOME LATER MATERIAL.

UH, WHEN WE TALK ABOUT THE, THE VARIOUS DESIGN PARAMETERS, SOME OF THEM WILL BE IDENTIFIED AS REQUIRED, UH, EFFECTIVELY INDICATED THAT THEY ARE CLEAR IN OUR MINDS AND IN DISCUSSION RELATIVE TO THE LANGUAGE IN THE HOUSE BILL AND, AND

[00:25:01]

SOHI TO YOUR SPECIFIC COMMENT, I, I THINK THAT'LL BECOME CLEAR AND WE CAN TALK ABOUT THAT PARTICULARLY AS WE GET INTO THE DESIGN PARAMETERS.

OKAY, PERFECT.

SO THE NEXT GUARDRAIL IS THAT, SORRY IF WE JUST STAY ON THIS SLIDE YET REAL QUICK.

SO THE, THE NEXT GUARDRAIL IS THAT PERFORMANCE CREDITS ARE REWARDED BASED ON REAL TIME SYSTEM NEED.

SO AS DEFINED IN THE GUARDRAILS BILL, THIS MEANS AVAILABILITY TO PERFORM DURING THE TIGHTEST IN REAL TIME DURING THE TIGHTEST INTERVALS OF LOW SUPPLY AND HIGH DEMAND.

SO WE'LL BE TALKING A LOT ABOUT WHAT THIS MEANS, AND THIS IS A DECISION AS EXACTLY HOW YOU DEFINE THESE TIME PERIODS.

BUT I THINK SUFFICE IT TO SAY THESE ARE NOT NECESSARILY THE TRADITIONAL GROSS PEAK HOURS, THEY'RE THE HOURS WHERE THE SYSTEM IS ACTUALLY TIGHTEST AND ARE LIKELY GOING TO BE HOURS WHERE SUPPLY IS LOW, MEANING RENEWABLES, PARTICULARLY WIND AND SOLAR ARE LOW.

SO IF WE GO TO THE NEXT SLIDE, AGAIN, THESE ARE THE, THE LAST SET OF GUARDRAILS THAT THE PERFORMANCE CREDIT MECHANISM HAS TO ADHERE TO.

SO IT NEEDS TO BE DEFINED ON A SEASONAL BASIS.

SO THERE'S GOING TO BE DIFFERENT SEASONS WHERE RESOURCES CAN EARN PERFORMANCE CREDITS AND BE COMPENSATED FOR THOSE.

THE NEXT GUARDRAIL IS THAT THERE ARE PENALTIES FOR UNDER PERFORMANCE.

SO THERE'S, THERE WILL BE PENALTIES FOR GENERATORS THAT DO NOT MEET THEIR FORWARD OBLIGATIONS.

WE'LL BE TALKING A LOT ABOUT HOW THIS COULD BE INTERPRETED OR DIFFERENT FRAMEWORKS FOR IMPLEMENTING THIS.

AND THE LAW ALSO REQUIRES THAT ANY PENALTIES SHOULD RESULT IN A QUOTE, NET BENEFIT TO LOAD NEXT GUARDRAIL IS THAT THERE CAN BE NO LOCATIONAL DIFFERENTIATION.

SO ALL DISPATCHABLE GENERATORS IN THE STATE, REGARDLESS OF LOCATION, WOULD EARN THE SAME PRICE OR VALUE.

SO THERE'S NO LOCATIONAL ATTRIBUTE, A SINGLE ERCOT WIDE CLEARING PRICE.

THE NEXT GUARDRAIL IS TO ENSURE EQUAL TREATMENT OF LOAD SERVING ENTITIES WITH AFFILIATED GENERATION.

SO, SO IN OTHER WORDS, THERE CANNOT BE AN ADVANTAGE TO COMPANIES THAT HAVE BOTH RETAIL LOAD AND GENERATION.

UH, THERE SHOULD ALSO STRIVE TO BE NO ADVANTAGE FOR COMPANIES THAT HAVE A PORT LARGE PORTFOLIO OF GENERATORS RELATIVE TO A COMPANY THAT JUST HAS A SINGLE GENERATOR.

SO WE'LL BE TALKING ABOUT SOME OPTIONS TO ENSURE THAT.

AND THEN FINALLY, THE PERFORMANCE CREDIT MECHANISM WILL NEED TO ENSURE THAT APPROPRIATE COLLATERAL IS COLLECTED TO NOT PUT UNDUE RISKS ONTO OTHER MARKET PARTICIPANTS.

AND THAT THE ABILITY TO EXERT MARKET POWER IS MITIGATED, WHICH WE WILL BE TALKING A LITTLE BIT ABOUT, BUT WILL BE A KEY ROLE OF THE INDEPENDENT MARKET MONITOR IN ENSURING THAT.

OKAY, SO THAT IS AN OVERVIEW OF THE GUARDRAILS THAT THE PERFORMANCE CREDIT MECHANISM HAS TO ADHERE TO.

SO LET'S GO COUPLE SLIDES AHEAD.

SO AGAIN, THE PERFORMANCE CREDIT MECHANISM IS AS REQUIRED BY SB THREE, A MOVE AWAY FROM THE ENERGY ONLY MARKET AS THE ERCOT MARKET HAS BEEN DESIGNED NOW FOR, FOR CLOSE TO TWO DECADES.

THE TWO KEY FEATURES OF THE ENERGY ONLY MARKET IN TEXAS TODAY ARE THAT THERE'S NO RELIABILITY STANDARD, NO EXPLICIT RELIABILITY STANDARD.

AND AS THE SYSTEM GETS TIGHT, PRICES RISE AS THE SYSTEM IS LONG PRICES FALL.

AND THAT CAN HAPPEN EITHER THROUGH JUST INVESTMENT CYCLES, BUT IT CAN ALSO HAPPEN THROUGH NATURAL VARIATIONS OF WEATHER AND RENEWABLE PERFORMANCE YEARS WITH MILD WEATHER TEND TO YIELD LOWER ENERGY AND ANCILLARY SERVICE PRICES YEARS WITH MORE SEVERE WEATHER WOULD DO THE OPPOSITE.

AND THIS GENERAL FRAMEWORK HAS, YOU KNOW, AS OUR ORIGINAL REPORT DISCUSSES, CREATES TWO, TWO CHALLENGES.

ONE, AGAIN, THERE IS NO RELIABILITY STANDARD.

AND TWO, THE REVENUE VOLATILITY ASSOCIATED WITH THIS STANDARD HAS CREATED INVESTMENT CHALLENGES IN TERMS OF CERTAINTY TO ATTRACT INVESTMENT AND THE COST OF CAPITAL ASSOCIATED WITH INVESTMENT IN THE ERCOT MARKET.

AND SO THE PERFORMANCE CREDIT MECHANISM, PRIMARILY WHAT IT'S DESIGNED TO DO IS, AGAIN, FOR THE FIRST TIME, ACHIEVE A SPECIFIED RELIABILITY STANDARD BY PROVIDING COMPETITIVE SIGNALS FOR ENTRY AND EXIT OF RESOURCES INTO THE ERCOT MARKET.

SO

[00:30:01]

IT DOES ESTABLISH A RELIABILITY STANDARD.

THE, THE, THERE IS A PROCEEDING ONGOING RIGHT NOW TO DECIDE EXACTLY WHAT THAT STANDARD WILL LOOK LIKE.

THE DEFAULT VALUE THAT WE'RE USING TODAY IS THE MOST COMMON STANDARD IN THE COUNTRY.

IT'S THE 0.1 DAYS PER YEAR LOSS OF LOAD EXPECTATION STANDARD, OTHERWISE KNOWN AS THE ONE DAY AND 10 YEAR STANDARD, WHICH ESSENTIALLY SAYS IT'S OKAY TO SHED LOAD NO MORE THAN ONE DAY EVERY DECADE.

AND THAT'S THE MAXIMUM AMOUNT OF A ALLOWABLE LOSS OF LOAD.

AND SO THE PERFORMANCE CREDIT MECHANISM ESTABLISHES A RELIABILITY STANDARD.

AGAIN, THAT'S WHAT WE'RE USING TODAY AND IT HELPS ACHIEVE THAT STANDARD BY ENSURING THERE'S SUFFICIENT REVENUES IN THE MARKET AND THROUGH PROVIDING MORE STABLE AND PREDICTABLE PRICE SIGNALS THAN EXISTS UNDER THE CURRENT ENERGY ONLY FRAMEWORK.

SO THERE'S A RE ESSENTIALLY A STABILIZATION OF COMPENSATION TO HELP ENSURE, PROVIDE CERTAINTY FOR INVESTMENT AND MEET THE SPECIFIED RELIABILITY STANDARD.

OKAY.

SO IF WE GO TO THE NEXT SLIDE, THIS IS OUR FIRST GRAPH OF THE DAY.

SO WE'RE, I WANT TO TAKE A MINUTE TO, TO WALK THROUGH THIS GRAPH AND WHAT IT REPRESENTS, BUT WE'RE GONNA BE SEEING A LOT OF GRAPHS THAT LOOK LIKE THIS.

SO I WOULD, YOU KNOW, RECOMMEND TAKING THE TIME TO GET FAMILIAR WITH WHAT WE'RE SEEING HERE.

SO IF WE LOOK ON THE LEFT, ESSENTIALLY WHAT WE'RE SHOWING HERE IS UNDER THE CURRENT ENERGY ONLY MARKET FRAMEWORK, WE'RE SHOWING POTENTIAL SYSTEM COST OUTCOMES.

EVERYTHING THAT WE'RE LOOKING AT TODAY IS USING THE SER MODEL, WHICH SIMULATES THE SYSTEM UNDER HUNDREDS OF YEARS OF DIFFERENT CONDITIONS.

IT'S BECAUSE, AS WE SAID, NOT EVERY YEAR LOOKS THE SAME.

THERE ARE YEARS WITH EXTREME WEATHER, THERE ARE YEARS WITH MILD WEATHER, THERE ARE YEARS WITH GREAT SOLAR, GREAT WIND YEARS WHERE COOL THE WIND AND SOLAR'S NOT AS GOOD.

SO, UM, YES, QUESTION ON THE PHONE.

OKAY, MIGHT NEED TO GO ON MUTE THERE.

SO WHAT THIS CHART IS SHOWING ON THE LEFT IS A BUNCH OF SHADED BARS.

EACH OF THOSE BARS REPRESENTS ONE SIMULATED YEAR.

SO THIS, THIS SYSTEM ON THE LEFT IS IF WE TAKE THE ENERGY ONLY MARKET FRAMEWORK AND WE SAY WHAT WOULD WE EXPECT THE SYSTEM TO YIELD UNDER MARKET EQUILIBRIUM, THIS IS THE DISTRIBUTION OF POTENTIAL SYSTEM COSTS ON AN ANNUAL BASIS.

SO YOU CAN SEE ON AVERAGE UNDER THE ENERGY ONLY MARKET FRAMEWORK SYSTEM COSTS AVERAGE $20.7 BILLION PER YEAR.

ON THE VERY LOW END, THEY COULD FALL TO ABOUT AS LOW AS $13 BILLION PER YEAR.

ON THE ULTRA HIGH END, THEY COULD FALL CLOSE TO $50 BILLION PER YEAR.

SO THAT ULTRA HIGH END WOULD BE AN EXTREME YEAR WHERE POTENTIALLY LOADS WERE VERY HIGH BECAUSE OF EXTREME HOTTER COLD TEMPERATURES AND MAYBE RENEWABLES WERE NOT HELPING DURING THOSE PERIODS, OR A LOT OF THERMAL GENERATION WAS FORCED OFFLINE.

A LOT OF DIFFERENT, YOU KNOW, COMPOUNDING FACTORS CAN LEAD TO THESE EXTREME EVENTS.

BUT EVEN FOR A A GIVEN SYSTEM, THERE'S GONNA BE A LOT OF YEAR TO YEAR VARIABILITY DUE TO WEATHER FACTORS AND GENERATION AVAILABILITY.

SO THIS GRAPH HERE ON THE LEFT, WHAT WE'VE DONE IS ESSENTIALLY PUT THE SYSTEM INTO EQUILIBRIUM.

AND WHAT THAT MEANS IS WE'VE TAKEN THE SYSTEM AND SAID, GIVEN THE CURRENT INCENTIVES OF THE ENERGY ONLY FRAMEWORK, HOW MUCH GENERATION WOULD WE EXPECT TO ENTER OR EXIT THE MARKET BASED ON RATIONAL PARTICIPANT INVESTMENT? AND AS GENERATION ENTERS THE MARKET, THAT CREATES MORE SUPPLY, WHICH DEPRESSES PRICES AS GENERATION EXITS THE MARKET THAT INCREASES PRICES.

AND IN EQUILIBRIUM GENERATORS WILL NOT ENTER THE MARKET IF THEY DO NOT EXPECT TO RECOVER THEIR COSTS.

SO WHEN, WHAT THIS GRAPH IS SHOWING ON THE LEFT IS A MARKET WHERE THERE IS ENOUGH REVENUES IN THE MARKET TO INCENTIVIZE NEW GENERATORS TO ENTER THE MARKET.

AND THAT IS FUNDAMENTALLY WHAT WE MEAN BY MARKET EQUILIBRIUM.

IT'S NOT A MARKET THAT HAS AN EXCESS OF SUPPLY, IT IS A MARKET THAT HAS JUST ENOUGH SUPPLY SUCH THAT THE ENERGY

[00:35:01]

PRICES ARE SUFFICIENT TO INCENTIVIZE NEW ENTRY INTO THE MARKET.

AND WHAT THAT IS EVIDENCED BY IS IF YOU LOOK HERE ON THE LEFT, THE COMBUSTION TURBINE MARGIN OF $103 PER KILOWATT YEAR, THAT IS THE COST OF NEW ENTRY THAT WE'RE ASSUMING HERE.

AND SO THIS MARKET IS DELIVERING ENOUGH REVENUES ON AVERAGE TO COMBUSTION TURBINES FOR THEM TO RECOVER THEIR COST.

AND SO THAT IS ESSENTIALLY THE DEFINITION OF MARKET EQUILIBRIUM.

AND THIS IS NOT A NEW CONCEPT, THIS IS A CONCEPT THAT HAS BEEN STUDIED AND PUBLISHED MANY TIMES THROUGH RESERVE MARGIN STUDIES FOR MANY YEARS IN ERCOT.

SO WHAT ARE THE OBSERVATIONS THAT WE SEE FROM THIS ENERGY ONLY MARKET FRAMEWORK? ONE IS THAT, AS WE ALREADY COVERED, THERE'S A TREMENDOUS VARIABILITY IN ANNUAL SYSTEM COSTS, RIGHT? COSTS THAT RANGE FROM 13 TO CLOSE TO $50 BILLION PER YEAR, THAT AVERAGE $20 BILLION PER YEAR.

SO JUST THE VOLATILITY OF ANNUAL COSTS PRESENT A CHALLENGE TO BOTH GENERATORS FOR CERTAINTY AS WELL AS CUSTOMERS IN TERMS OF, YOU KNOW, BEING ABLE TO PLAN FOR HOW MUCH ELECTRICITY IS GONNA COST IN A GIVEN YEAR.

BUT THE OTHER PROBABLY MORE IMPORTANT TAKEAWAY IS THAT IN THIS ENERGY ONLY EQUILIBRIUM, THE RELIABILITY OF THE SYSTEM DOES NOT MEET THE ONE DAY AND 10 YEAR STANDARD.

IN FACT, WE SEE HERE ON THE LEFT, THE LOSS OF LOAD EXPECTATION OR LOLE IS 3.2 DAYS PER YEAR.

SO THIS IS A FAR CRY FROM THE 0.1 DAYS PER YEAR THAT A TYPICAL RELIABILITY STANDARD WOULD TARGET.

SO INSTEAD OF HAVING, YOU KNOW, ONE DAY EVERY DECADE OF LOST LOAD, THIS WOULD'VE THREE DAYS PER YEAR OR 30 DAYS PER DECADE.

SO THIS IS, I THINK, YOU KNOW, SAFE TO SAY AN UNACCEPTABLY HIGH OR UNACCEPTABLY UNRELIABLE SYSTEM THAT THE ENERGY ONLY MARKET IS EXPECTED TO YIELD.

SO, SORRY, I I HAVE TWO CLARIFYING QUESTIONS.

YES.

UH, CYRUS, THIS SIERRA CLUB FIRST, IS THIS FOR A CERTAIN YEAR? IS THIS PROJE? ARE YOU, IS THIS FOR 2026 OR IS THIS SOME YEAR IN THE FUTURE? YES, GREAT QUESTION.

THIS IS FOR 2026.

WE'LL, WE'LL BE TALKING A LITTLE BIT MORE ABOUT THE ASSUMPTIONS THAT GO INTO THE PORTFOLIO, BUT THIS IS FOR 2026 AND THIS ASSUMES A DECENT AMOUNT OF NEW RENEWABLES COMING ONLINE BETWEEN THAT.

OKAY.

AND THAT WAS GONNA BE MY SECOND QUESTION.

YES.

WHAT ARE THE ASSUMPTIONS IN TERMS OF ACTUALLY RETIREMENTS? YES.

ARE YOU GONNA COVER THAT LATER? WE WILL, WE WILL COVER THAT.

OKAY, THANKS.

YEAH.

BUT YEAH, THAT'S A GREAT QUESTION.

THERE'S, UH, ONE QUESTION, ANOTHER QUESTION IN THE ROOM.

AND ACTUALLY WE DO HAVE A COUPLE OF SMALL QUESTIONS YES.

ON THE PHONE AS WELL.

SO WE'LL, WE'LL START, GO AHEAD.

YEAH.

THANKS.

THANKS FOR COMING, ZACH.

UM, QUICK QUESTION ON THE CONE VALUE.

DID YOU USE THE INTERIM CONE VALUE OR THE, THE PREVIOUS VALUE WE USED? YEAH, $103 PER KILOWATT YEAR.

OKAY.

SO THANKS NED, DID YOU WANNA GO? YEAH, THANKS ZACH.

UH, AND I THINK THERE'S ANOTHER QUESTION IN THE QUEUE THAT PROBABLY GETS TO THE SIMILAR QUESTION AND IT'S, AND I THINK I'VE, I'VE ANSWERED THIS FOR MYSELF AS I'VE BEEN LOOKING AT IT, BUT, UH, WHEN REVIEWING THESE, THESE SYSTEM COST SLIDES, UM, IT'LL BE HELPFUL JUST TO LEVEL SET WHAT WE'RE LOOKING AT.

AND THIS ONE, IT LOOKS LIKE IT'S JUST THE ENERGY AND ANCILLARY SERVICES, UH, COSTS.

SO NOT INCLUDING PCM COSTS, BUT ALSO NOT INCLUDING THE VALUE OF LOST LOAD.

IS THAT, IS THAT CORRECT? THAT IS CORRECT, YES.

YEAH, THAT'S A GREAT POINT.

SO THIS, WHAT THIS SLIDE HERE IS SHOWING IS SYSTEM COSTS, BUT IN AN ENERGY ONLY MARKET, THE ONLY SYSTEM COSTS ARE ENERGY AND ANCILLARY SERVICE COSTS.

SO THIS IS TOTAL SYSTEM COSTS, BUT IT'S ALSO JUST ENERGY AND ANCILLARY SERVICE COSTS.

YES.

OKAY.

AND THERE'S A SECOND QUESTION, I KNOW WE'LL GET TO THIS LATER, BUT IN TOTAL SYSTEM COSTS, DOES THAT INCLUDE THE VALUE OF LOST LOAD? NO, WE DO NOT, WE DO NOT EVER INCLUDE THE VALUE OF LOST LOAD.

OKAY.

SO BUT THAT, THAT, THAT COULD BE SOMETHING THAT WOULD BE WORTH INCLUDING.

YES.

OKAY.

UH, NEXT WE HAVE LAUREN KUNZ.

LAUREN, UH, MY QUESTION WAS JUST COVERED BY THE PERSON BEFORE ME, SO I'M GOOD.

OKAY.

OKAY.

UM, AND ONE QUESTION IN THE QUEUE WITH THE SHAMS. GO AHEAD.

UM, SO ON THE L LO E SIDE, THAT DOESN'T INCLUDE THE COST OF PCMS, RIGHT? IT'S JUST ENERGY AND YES, THERE'S NO, NO PCM INCLUDED ANY, ANYTHING ON THIS SLIDE.

OKAY.

SO GIVEN A CAP OF 1 BILLION, I JUST DON'T SEE HOW YOU'RE GONNA, UH,

[00:40:01]

YOU KNOW, MEET THAT GAP.

IT SEEMS LIKE THERE'S A HUGE GAP WE'LL BE, YEAH, WE'LL BE GETTING A LOT INTO THAT.

YEAH.

LOT MORE TO COME.

OKAY.

SO STAY TUNED.

SO, SO, OKAY.

SO THE CHART ON THE LEFT IS THE EXPECTED OUTCOME OF THE MARKET UNDER THE CURRENT DESIGN, THE ENERGY ONLY DESIGN, WHAT WE WOULD EXPECT IN EQUILIBRIUM, THE VARIABILITY OF ANNUAL SYSTEM COSTS TO BE AND THE EXPECTED RELIABILITY OF THE SYSTEM.

AGAIN, IT'S NOT MEETING THE 0.1 DAYS PER YEAR STANDARD.

SO IF WE TAKE THAT SYSTEM ON THE LEFT AND ADD ENOUGH DISPATCHABLE CAPACITY TO GET IT TO A 0.1 RELIABILITY STANDARD, THAT'S WHAT THE CHART ON THE RIGHT IS SHOWING.

SO ANYTIME YOU TAKE A SYSTEM AND YOU ADD CAPACITY TO IT, THAT'S GONNA HAVE AN EFFECT OF DEPRESSING PRICES.

THE REASON FOR THAT IS BECAUSE PRICES RISE WHEN THE SYSTEM IS IN SCARCITY.

AND WHEN YOU ADD CAPACITY TO A SYSTEM, THE FREQUENCY OF SCARCITY DECREASES SIGNIFICANTLY.

SO IN FACT, THIS GRAPH ON THE RIGHT IS SHOWING A SYSTEM WHERE WE'VE ACTUALLY HAD TO ADD 13 GIGAWATTS OF DISPATCHABLE CAPACITY TO THE SYSTEM TO GET IT TO A LEVEL WHERE IT'S ACHIEVING TARGET RELIABILITY OF ONE DAY IN 10 YEARS OR 0.1 LOSS OF LOAD EXPECTATION.

AND SO THE OUTCOME OF THAT IS YES, THIS SYSTEM IS AT TARGET RELIABILITY, BUT PRICES HAVE FALLEN SUBSTANTIALLY.

AND IN FACT, NOT ONLY CAN SEE SYSTEM COSTS HAVE GONE DOWN AND THE VARIABILITY OF THOSE COSTS HAVE SHRUNK, BUT IF WE LOOK ON THE RIGHT, WE CAN SEE THE MARGINS THAT A COMBUSTION TURBINE IS EARNING, UH, HAVE FALLEN AS WELL.

SO COMBUSTION TURBINES ARE NOW EARNING $24 PER KILOWATT YEAR FAR BELOW THE COST OF NEW ENTRY OF $103 PER KILOWATT YEAR.

SO THE REALLY KEY OBSERVATION HERE IS THAT UNDER THE CURRENT ENERGY ONLY FRAMEWORK, YOU CAN'T HAVE A RELIABLE SYSTEM AND WHILE INCENTIVIZING THE RESOURCES NEEDED TO ENTER THAT RELIABLE SYSTEM, RIGHT, YOU WOULD NEVER HAVE THIS SYSTEM ON THE RIGHT BECAUSE RESOURCES ARE NOT EARNING ENOUGH MONEY SO THEY WOULDN'T ENTER THE MARKET.

SO YEAH, IT'D BE GREAT IF WE COULD HAVE THE SYSTEM ON THE RIGHT LOW COSTS, HIGH RELIABILITY, BUT IT'S ESSENTIALLY AN INTERNALLY INCONSISTENT WORLD, RIGHT? THERE'S NOT ENOUGH MARKET, THERE'S NOT ENOUGH MONEY IN THE MARKET TO INCENTIVIZE THESE RESOURCES TO ENTER THAT ARE NEEDED TO MEET THIS LEVEL OF RELIABILITY.

SO THAT'S SPECIFICALLY WHAT THE PERFORMANCE CREDIT MECHANISM IS DESIGNED TO ADDRESS.

SO IF WE GO TO THE NEXT SLIDE, UH, ZACH, JUST ONE SEC.

WE, WE DID GET A NOTE HERE THAT FOLKS ON THE WEBEX HAVE LOST AUDIO.

UM, WOULD SOMEBODY BE ABLE TO, UH, CONFIRM IF THAT'S ACROSS EVERYONE OR MAYBE JUST ONE PERSON'S NOT, NOT HERE YET.

I CAN HEAR YOU FINE.

OKAY.

ALRIGHT.

GOOD TO HEAR.

THANK YOU.

OKAY.

AND UH, BEFORE WE GO TO THE NEXT SLIDE, WE DO HAVE A SMALL QUEUE, UH, TO GO THROUGH HERE.

UH, I THINK FIRST UP, IS ROY TRUE? ROY, EXCUSE ME? YEAH, I JUST WANTED TO ASK A QUESTION.

THE PARENTHETICAL AT THE TOP OF THIS CHART IN THE CENTER HERE, DOLLAR SIGN 2026 AND BILLION, WHAT, WHAT'S THE SIGNIFICANCE OF THE DOLLAR SIGN? OH, THIS IS SAYING THAT THIS IS SHOWING THE SYSTEM IN 2026 IN 2020 $6.

SO ESSENTIALLY ADJUSTING FOR INFLATION TO SHOW THE DOLLARS IN THE DOLLAR YEAR 2026.

AND THESE ARE IN BILLIONS OF DOLLARS.

SO TOTAL, TOTAL SYSTEM COSTS.

OKAY.

I GUESS I'M JUST NOT USED TO SEEING IT WRITTEN THAT WAY.

THANK YOU.

YEAH, IT MIGHT BE A, IT MIGHT BE AN E THREE CONVENTION.

SO, UH, JENNIFER SMITH, THANK YOU.

UH, JENNIFER SCHMIDT RHYTHM.

I HAVE A QUESTION ABOUT THE WAY THE ENERGY ONLY IS PRESENTED.

UH, THIS WOULD BE, I'M ASSUMING SPP, UM, PLUS ANCILLARY SERVICES.

I QUESTION WHETHER THIS IS REPRESENTATIVE BECAUSE WE HAVE A REAL RETAIL MARKET THAT BUYS FROM THE WHOLESALE MARKET.

AND SO BOTH THE FORWARD BUYING OF POWER EXISTS IN ERCOT TODAY.

SO THE IDEA THAT THESE DOLLARS ARE REAL, I THINK IS PERHAPS KIND OF BACK TO THAT $12 BILLION QUESTION WE HAVE GOING ON FOR LAST SUMMER.

UM, AND SO I, I DO WONDER IF THIS IS A REAL COMPARISON OF

[00:45:01]

THE TEXAS MARKET AS IT EXISTS TODAY.

OKAY.

SO I'M, I'M NOT SURE IF WHAT, IF THERE'S A, I HAVE AN ANSWER TO THAT, BUT WELL, I THINK IT'S IMPORTANT BECAUSE IF WE HAVE FORWARD HEDGING HAPPENING, THEN THE, BOTH THE IMPACT OF PCM AND HOW PCM FUNCTIONS BECOMES VERY IMPORTANT IN THE CONTEXT OF THE CURRENT WHOLESALE MARKET.

AND SO JUST ASSUMING REAL TIME BILLIONS ARE BEING DELIVERED TO GENERATORS IS NOT REPRESENTATIVE AND THE SORT OF PRICE CERTAINTY FOR CUSTOMERS IS ALSO DIFFERENT THAN IS WHAT BEING PRESENTED.

SO, YES, SO THANKS, THANKS FOR THAT COMMENT.

AND RIGHT, THIS IS, THIS IS BASED ON REAL TIME PRICES AND THOSE, THOSE ARE THE PRICES THAT ESSENTIALLY INFORM THE HEDGING DECISIONS THAT GENERATORS AND LOADS CAN PARTICIPATE IN.

SO THAT, THAT, THAT IS A GOOD, GOOD POINT, BUT, BUT IS FUNDAMENTALLY THESE SIGNALS THAT DRIVE THOSE DECISION HEDGING DECISIONS.

SO, YOU KNOW, THE, AGAIN, SO TO WRAP UP THIS SLIDE, THE KEY, THE KEY POINT IS THAT A SYSTEM THAT ACHIEVES RELIABILITY, ONE ON THE RIGHT CENTRALLY DOES NOT HAVE ENOUGH REVENUES TO INCENTIVIZE THE ENTRY OF SUFFICIENT RESOURCES TO ACHIEVE THAT LEVEL OF RELIABILITY.

AND SO IF WE GO TO THE NEXT SLIDE, THERE ARE SEVERAL WAYS IN WHICH MARKETS HAVE ADDRESSED THIS ISSUE.

SORRY, ZACH, THERE'S ONE MORE QUESTION IN THE QUEUE AND THEN WE'LL MOVE ON TO THE NEXT SLIDE.

YES, REMI.

UM, SO WHAT IS THE WALL VALUE THAT IS USED? IS IT 25,000 OR 5,000? SO THERE, THE, SO THERE'S NOT A VALUE OF LOST.

WE ARE NOT ASSIGNING A COST FOR THE VALUE OF LOST LOAD, BUT WE ARE ASSUMING ORDC PRICING IN HERE.

AND IT'S JUST THE CURRENT RULES.

ALL OF THE PARAMETERS OF THE CURRENT ORDC ARE IN HERE.

OKAY? UH, AND THE CONE IS ONE 19.

SO, UH, THE, UH, ENERGY MARKET IS NOT REACHING THAT, THAT'S WHY THERE IS 3.2.

BUT THEN THE PCM IS COVERING THAT MUCH TO GET TO THAT RESERVE, UM, RESOURCE MARGIN CT MARGIN, RIGHT? SO NOTHING, NOTHING ON THIS SLIDE HAS, WE'VE HAS PCM YET.

SO THIS IS RIGHT, BUT IN, IN YOUR THE 0.1 LOLE TO GET THERE, YOU NEED TO HAVE THAT REVENUE AND THAT WILL BE IN THE PCM IS WHAT YOU'RE SAYING, RIGHT? THE CORRECT.

I'M SAYING THAT IN ORDER TO ACHIEVE A 0.1 RELIABILITY STANDARD, THERE HAS TO BE SUFFICIENT REVENUES IN THE MARKET TO INCENTIVIZE ENTRY OF RESOURCES.

AND UNDER THE CURRENT ENERGY ONLY DESIGN, THERE'S NOT SUFFICIENT REVENUES.

CTS ARE ONLY EARNING $24 PER KILOWATT YEAR FOR A SYSTEM THAT IS AT THE TARGET LEVEL OF RELIABILITY.

AND SO THERE'S ESSENTIALLY A REVENUE GAP THAT IS GONNA HAVE TO BE FILLED IN SOME WAY.

AND THAT'S, AND SO IF WE, AND WE'LL, WE'LL, WE'LL KEEP, WE'LL KEEP, UM, HOPEFULLY THIS WILL BECOME CLEAR AS WE KEEP GOING.

BUT IF WE GO TO THE NEXT SLIDE, THERE ARE SEVERAL MECHANISMS AND WAYS THAT DIFFERENT MARKETS HAVE ADDRESSED THIS REVENUE GAP ISSUE, RIGHT? THE MOST COMMON MECHANISM THAT PEOPLE ARE FAMILIAR WITH ARE CAPACITY MARKETS OR RESOURCE ADEQUACY FRAMEWORKS.

THAT'S WHAT ALL OF THE DIFFERENT MARKETS THAT ARE SHOWN ON THE LEFT DO.

THE UNIFYING CHARACTERISTIC OF THESE CAPACITY MARKETS IS THE FACT THAT THEY PERFORM UPFRONT ACCREDITATION AND COMPENSATION.

SO THEY ASSIGN A CERTAIN CAPACITY VALUE TO ALL RESOURCES.

YOU KNOW, SOME RESOURCES LIKE DISPATCHABLE GENERATORS MIGHT RECEIVE A RELATIVELY HIGH VALUE, LIKE 90%, SOME LESS DISPATCHABLE RESOURCES LIKE WIND OR SOLAR MIGHT RECEIVE A MUCH LOWER VALUE, 10, 20% IN SOME CASES.

BUT IN ALL CASES, THESE VALUES ARE DETERMINED UPFRONT AND RESOURCES ARE COMPENSATED FOR THESE VALUES UPFRONT.

WHAT THE PERFORMANCE CREDIT MECHANISM DOES, IT, IT ATTEMPTS TO RECTIFY

[00:50:01]

THE SAME ISSUE OF MISSING MONEY THAT WE SAW IN THE PREVIOUS SLIDE, RIGHT? THERE'S NOT ENOUGH REVENUES IN THE MARKET TO INCENTIVIZE ENOUGH ENTRY, BUT IT FILLS THAT MISSING MONEY GAP IN A VERY DIFFERENT WAY.

IT LOOKS BACK AT ACTUAL DEMONSTRATED PERFORMANCE INSTEAD OF UPFRONT ACCREDITATION.

SO THAT IS THE UNIQUE FEATURE OF THE PERFORMANCE CREDIT MECHANISM AND WHAT DIFFERENTIATES IT FROM THE MORE TRADITIONAL CAPACITY MARKETS THAT EXIST THROUGHOUT THE REST OF THE UNITED STATES.

IF WE GO TO THE NEXT SLIDE, THIS, THIS UNIQUE ATTRIBUTE OF COMPENSATING RESOURCES BASED ON ACTUAL DEMONSTRATED PERFORMANCE.

IT, IT DOES HAVE SEVERAL IMPLICATIONS THAT I THINK STAKEHOLDERS SHOULD BE AWARE OF.

ONE IS THAT, YOU KNOW, THERE IS REALLY AN INCENTIVE TO PERFORM, WHICH IS WHAT THE SYSTEM WANTS IN THE SYSTEM NEEDS.

AND SO THAT CREATES A VERY POSITIVE INCENTIVE TO, FOR RESOURCES TO MAKE SURE THAT THEY'RE ACTUALLY AVAILABLE WHEN THE SYSTEM NEEDS THEM AND THEY'RE NOT BEING COMPENSATED UNDULY FOR RELIABILITY THAT THEY'RE NOT ACTUALLY PROVIDING TO THE SYSTEM.

BUT A FLIP SIDE OF ACTUALLY COMPENSATING RESOURCES BASED ON DEMONSTRATED PERFORMANCE IS A POTENTIAL MISALIGNMENT OF HOW RESOURCES ARE COMPENSATED RELATIVE TO THEIR AVAILABILITY DURING THE TRUE MOST SCARCE RELIABILITY HOURS THAT THE SYSTEM SEES.

IF WE LOOK AT THIS CHART ON THE LEFT, AND THIS IS ANOTHER COMMON TYPE OF CHART THAT WE'LL BE SEEING THROUGHOUT THE PRESENTATION, SO I JUST WANNA KIND OF WALK THROUGH THIS REAL QUICK.

WE CALL THESE HEAT MAPS, BUT THIS IS ESSENTIALLY A SUMMARY OF THE ENTIRE YEAR.

SO WHAT WE HAVE IS ALONG THE BOTTOM, WE HAVE 12 MONTHS OF THE YEAR, JANUARY THROUGH DECEMBER, AND THEN AT THE TOP OR ON THE LEFT HAND SIDE, WE HAVE HOURS OF THE DAY.

SO IF YOU CAN THINK OF THE LEFT HAND COLUMN HERE AS AN AVERAGE JANUARY DAY, THE SECOND COLUMN AS A AVERAGE FEBRUARY DAY, ET CETERA, ET CETERA.

AND WHAT THIS IS SHOWING IS WHEN THROUGHOUT THE YEAR, THE ACTUAL BIGGEST RELIABILITY EVENTS RISKS, UH, THAT THE SYSTEM FACE WHEN THOSE ARE EXPECTED TO OCCUR.

AND UNDER THE CURRENT SYSTEM, THE BIGGEST RISK IS IN THE WINTER, PARTICULARLY AT NIGHT.

THAT'S, AND THIS IS FOR A SYSTEM THAT IS AT A TARGET LEVEL OF RELIABILITY, MEANING WE WOULD EXPECT TO SEE THESE TYPES OF EVENTS VARY INFREQUENTLY, IN FACT, EXACTLY ONCE PER DECADE.

'CAUSE THAT'S THE TARGET LEVEL OF RELIABILITY.

SO WE WOULD EXPECT TO SEE, WE KNOW THAT IT GETS REALLY COLD ABOUT ONCE A DECADE.

AND SO THAT'S THE EVENT THAT THE MODEL IS PICKING UP HERE.

IT'S SEEING THAT WE HAVE THE BIGGEST RISK THAT OCCURS ONCE PER DECADE IS A WINTER COLD SNAP.

AND PARTICULARLY IN THE MIDDLE OF THE NIGHT WHEN SOLAR IS NOT AVAILABLE, ARE THE MOST CHALLENGING HOURS OF THE YEAR.

AND WE'RE SEEING PARTICULARLY DECEMBER AND FEBRUARY BASED ON THE HISTORICAL WEATHER RECORD, THAT'S, THAT'S WHEN THE MODEL IS SEEING THE LARGEST RISKS.

SO IN TRYING TO DESIGN A RELIABILITY COMPENSATION FRAMEWORK, IT'S REALLY IMPORTANT TO COMPENSATE RESOURCES TO BE AVAILABLE DURING THESE HOURS.

HOWEVER, IF WE LOOK ON THE RIGHT, THIS IS SHOWING A WHEN IN AN AVERAGE YEAR, THE TIGHTEST HOURS ARE, AND AGAIN, THE PERFORMANCE CREDIT MECHANISM IS A MECHANISM THAT COMPENSATES RESOURCES EACH AND EVERY YEAR BASED ON WHAT WERE THE TIGHTEST HOURS AND WHAT WAS THE AVAILABILITY OF RESOURCES DURING THOSE HOURS.

AND BECAUSE WINTER COLD SNAPS ONLY HAPPEN ABOUT ONCE A DECADE, NINE OUT OF THE OTHER 10 YEARS, THE MOST CHALLENGING TIME OF THE YEAR IS THE SUMMER.

AND SO IN A SYSTEM WHERE YOU'RE COMPENSATING RESOURCES EACH AND EVERY YEAR BASED ON NEED AND PERFORMANCE, MOST OF THE COMPENSATION IS ACTUALLY GOING TO ACCRUE TO THE SUMMER, AND PARTICULARLY THE SUMMER EVENINGS, WHICH ARE GONNA BE DURING HOT DAYS AFTER THE SUN HAS SET, WHEN THE SYSTEM IS TIGHTEST.

AND SO WE REALLY INTRODUCE THIS SLIDE MORE AS SOMETHING WE NEED TO KEEP IN MIND IN DESIGNING THE PERFORMANCE CREDIT MECHANISM.

WHAT WE'RE TRYING TO DO IS DESIGN A SYSTEM WHERE WE MAKE SURE THAT RESOURCES ARE BEING INCENTIVIZED TO SHOW UP WHEN THE SYSTEM MOST NEEDS THEM, WHICH IS THE GRAPH ON THE LEFT.

EVEN THOUGH WITHIN

[00:55:01]

ANY 90% OF THE TIME, THE TIGHTEST HOURS ARE GOING TO BE WHAT WE SEE ON THE RIGHT, AND WE'LL TALK ABOUT SEASONS.

A LOT OF THIS CAN BE SOLVED WITH SEASONALITY AND LOOKING AT THE TIGHTEST HOURS WITHIN EACH SEASON AND NOT JUST ALLOWING ALL THE COMPENSATION TO FLOW TO THE SUMMER.

SO THERE ARE DEFINITELY MECHANISMS TO ADDRESS THIS, BUT IT IS A BIG CONSIDERATION THAT ONE NEEDS TO BE AWARE OF IN THINKING ABOUT A FRAMEWORK THAT COMPENSATES RESOURCES EACH AND EVERY YEAR, DESPITE THE ACTUAL BIGGEST RELIABILITY RISKS ON THE SYSTEM OCCURRING MUCH MORE INFREQUENTLY THAN THAT.

UM, VERY QUICK, SORRY, I'M, I'M THE GUY WHO ASKED QUESTIONS, CLARIFYING QUESTION.

UM, JUST SO I UNDERSTAND.

SO ON THE RIGHT HAND SIDE, UH, IN AUGUST AT 8:00 PM 10% OF WHAT, I DON'T UNDERSTAND WHAT THE PERCENTAGE IS OF, SO 10% OF THE HOURS? YEAH, SO THE, IF YOU TAKE ALL THE PERCENTAGES IN EACH OF THESE, THEY SUM TO A HUNDRED PERCENT.

SO OKAY.

SAYING, I UNDERSTAND OF THE TIGHTEST HOURS, 10% OF THOSE TIGHT HOURS OCCUR IN AUGUST AT 8:00 PM SO YES.

UM, JUST JUST A HOUSEKEEPING NOTE, IF YOU DO HAVE A QUESTION IN THE ROOM, IF YOU COULD PLEASE LET, UH, MYSELF KNOW, WE'LL ADD YOU TO THE QUEUE SO WE MAKE SURE THAT WE'RE, WE'RE KIND OF FOLLOWING THE, THE QUEUE AS APPROPRIATE.

WE DO HAVE A COUPLE OF QUESTIONS IN THE QUEUE HERE THAT I WANNA MAKE SURE WE ADDRESS BEFORE GOING TO THE NEXT SLIDE.

SO LAUREN KUNTZ.

YEAH, JUST, I ACTUALLY HAVE TWO QUESTIONS.

ONE IS A QUICK CLARIFICATION.

THESE NUMBERS THAT YOU'VE CALCULATED, THIS IS ALL OFF OF MODELED SIMULATION DATA NOT OBSERVED, CORRECT? CORRECT.

THIS IS OFF OF MODELED SIMULATION DATA NOT OBSERVED.

AND, AND, AND WE THINK THAT'S NECESSARY BECAUSE THIS IS ALSO LOOKING AT A 2026 SYSTEM THAT HAS NOT HISTORICALLY EXISTED.

THERE'S GOING TO BE A LOT OF NEW ENTRY OF, IN PARTICULAR SOLAR, BUT ALSO A LOT OF STORAGE AND CONTINUED AMOUNTS OF WIND.

AND SO THAT REALLY SHIFTS THE TIGHTEST HOURS ON THE SYSTEM, PARTICULARLY OUT OF THE MIDDLE OF THE DAY WHEN THERE'S NOW AN ABUNDANCE OF SOLAR ENERGY.

AND THAT'S WHY WE SEE IN BOTH OF THESE GRAPHS DURING THE MIDDLE OF THE DAY, ACROSS ALL MONTHS, THERE'S RELATIVELY LITTLE RISK.

OKAY.

AND THEN THAT ACTUALLY LEADS TO THE SECOND QUESTION, WHICH IS AROUND, YOU'D MENTIONED USING HISTORICAL WEATHER YEARS FOR THIS, HOW ARE YOU GUYS, IF AT ALL, ACCOUNTING FOR THE FACT THAT GIVEN CLIMATE CHANGE WE'RE LIKE WEATHER PATTERNS ARE JUST SHIFTING UNDERNEATH OUR FEET? SO HISTORICAL YEARS A ONE IN 10 PROBABILITY IS NOT REALLY A GOOD INDICATIVE ONE IN 10 PROBABILITY MOVING FORWARD? YEAH, THIS IS DAVID WITH E THREE.

WE HAVE A SLIDE ON THIS LATER ON.

UM, BUT BASICALLY FOR THE HISTORICAL WEATHER YEARS THAT WE MODEL, WHICH ARE THROUGH THE EIGHTIES, UP UNTIL, UM, YEAH, 2021, WE ALSO THEN BASICALLY ADD TWO AND 4% ABOVE AND BELOW THAT FOR THAT YEAR.

SO IT'S BASICALLY MORE AND MORE SIMULATIONS FOR IT.

AND THAT SHOULD CAPTURE, UM, BASICALLY BOTH THE HISTORICAL PROFILES AS WELL AS HOW IT CAN CHANGE IN THE FUTURE WITH THAT EXTRA 4%, UH, PLUS OR MINUS.

OKAY.

UH, SHAM, SIDIKI.

DKI, YEAH.

WOULD THIS, UH, LOLP UM, DISTRIBUTION CAPTURE A URIC TYPE OF YEAR OR IS THAT SORT OF EXCLUDED CAPTURE? YURI? YEAH.

YES, YES IT DOES.

YES.

THE, UH, THE YURI WINTER CONDITIONS ARE INCLUDED HERE AND IN FACT, THAT'S WHY WE SEE THIS FEBRUARY RISK SO PRONOUNCED.

OKAY.

SO BASICALLY IT SEEMS LIKE WE SHOULD BE FOCUSING BECAUSE JUST BASED ON THE TIGHTEST, LIKE NET MAR NET LOAD, YOU'D GET THE RIGHT HAND SIDE ESSENTIALLY DISTRIBUTION OF PCS, BUT IF WE WANT TO FOCUS IT ON THE WINTER, WE'D HAVE TO DO THE SEASONAL EXACTLY.

TO FOCUS ON EXACTLY, YES.

YEAH, THANKS.

OKAY.

OH, SORRY, WE DO HAVE ONE MORE QUESTION.

GO AHEAD.

AND I KNOW YOU SAID THIS IS ALREADY BLOCK, AGAIN, I KNOW YOU SAID THAT WE WOULD GET TO THE ASSUMPTIONS LATER, BUT DOES THIS ANALYSIS INCLUDE, UM, DRRS? IT DOES NOT INCLUDE DRRS, NO.

YES, JUST BECAUSE THAT IS, HAS YET TO BE DEFINED AND SO, OKAY.

THE QUEUE IS CLEAR.

WE CAN, OKAY.

ALRIGHT.

SO IF WE GO TO THE NEXT SLIDE, WE ARE NOW GONNA WALK THROUGH FOR THE FIRST TIME AN OVERVIEW OF PCM.

WE'LL WALK THROUGH THIS ONCE, EVERYTHING THAT WE GET TO AGAIN, WE, WE WILL BE COVERING IN MORE DETAIL.

BUT THIS IS A GRAPHIC HERE

[01:00:01]

THAT WAS RELEASED IN THE STRAW MAN WHITE PAPER THAT WE PUBLISHED.

SO IF WE GO TO THE NEXT SLIDE, KIND OF JUST WALK THROUGH THE FIRST, FIRST COUPLE STEPS HERE.

SO IN THE PERFORMANCE CREDIT MECHANISM FRAMEWORK, THE FIRST STEP, IF WE GO TO THE NEXT SLIDE HERE.

YEAH.

SO THE FIRST STEP IS TO DETERMINE HOW MANY PERFORMANCE CREDIT ME, HOW MANY PERFORMANCE CREDITS THE MARKET NEEDS.

AND THAT IS DONE THROUGH WHAT WE'RE CALLING A FORWARD NEEDS ASSESSMENT.

AND WHAT THIS STEP WOULD DO WOULD BE, IT WOULD BE ESSENTIALLY A MODELING EXERCISE CONDUCTED BY ERCOT OR SOME AUTHORIZED ENTITY THAT THE COMM COMMISSION AUTHORIZES.

AND IT WOULD LOOK AT THE YEAR IN QUESTION, INCLUDING ALL OF THE FORECAST OF LOADS AND ALL OF THE VARIABILITY OF WHAT THOSE LOADS COULD BE, AS WELL AS ALL OF THE RESOURCES THAT ARE EXPECTED TO BE ON THE SYSTEM, INCLUDING RENEWABLES AND STORAGE.

AND IT WOULD CALIBRATE THAT SYSTEM TO THE TARGET RELIABILITY STANDARD.

AND THIS IS DONE GENERALLY THROUGH ADDING AND SUBTRACTING PERFECT CAPACITY OR DISPATCHABLE CAPACITY.

AND ONCE THE SYSTEM IS CALIBRATED TO A LEVEL OF TARGET RELIABILITY, THE MODEL WILL OR THE MODELERS WILL LOOK AT WITHIN THAT SYSTEM WHAT ARE THE TIGHTEST HOURS AND WHAT ARE THE NEEDS OF THE SYSTEM DURING THOSE TIGHT HOURS.

AND WHATEVER THAT QUANTITY IS, THAT IS THE QUANTITY OF PERFORMANCE CREDITS THAT THE SYSTEM WILL REQUIRE.

AND SO YOU CAN SEE HERE WE HAVE ONE IN THIS LEFT HAND CHART HERE, WE HAVE ONE REPRESENTATIVE DAY.

AGAIN, THE MODEL THAT IS DOING THIS CALCULATION WILL BE LOOKING AT DAYS ACROSS HUNDREDS OR THOUSANDS OF YEARS, BUT WE HAVE ONE, ONE REPRESENTATIVE DAY HERE AND WE CAN SEE HOW TOTAL SUPPLY STACKS UP AGAINST TOTAL LOAD AND WE CAN SEE WHAT THE TIGHTEST HOURS ARE.

AND IT'S THOSE FOUR HOURS IN THE EVENING.

AND SO THE NEEDS OF THE SYSTEM DURING THOSE HOURS ARE WHAT SETS THE REQUIREMENT FOR PERFORMANCE CREDITS.

AND YOU CAN SEE MOST NOTABLY, WE'LL WE'LL COVER THIS THEME OVER AND OVER, BUT THESE HOURS ARE INCREASINGLY NOT DURING PEAK HOURS.

AND THAT'S BECAUSE PEAK HOURS IN TEXAS ARE VERY CORRELATED WITH LOTS OF SUPPLY OF SOLAR.

AND SO THE PEAK HOURS ARE ESSENTIALLY JUST NOT A REALLY TIGHT OR SCARCE PERIOD.

AFTER THE ENTRY OF SIGNIFICANT QUANTITIES OF SOLAR, IT'S AFTER THE SUN HAS SET IS WHEN THE SYSTEM STARTS TO GET TIGHT.

AND SO IT'S THESE HOURS THAT OCCUR IN THE EVENING HERE.

AND THEN, SO THE SYS THE, THE MODEL'S LOOKING AT THE TIGHTEST HOURS AND THEN IT'S LOOKING AT WHAT IS THE AVAILABILITY OF RESOURCES THAT ARE ELIGIBLE FOR PERFORMANCE CREDITS.

THAT'S WHAT SETS THE PERFORMANCE CREDIT TARGETS.

SO YOU CAN SEE THIS BAR OFF TO THE RIGHT HERE WHERE WE HAVE JUST THE, THE GRAY AND THE PURPLE, THAT'S THERMAL RESOURCES AND STORAGE RESOURCES.

THOSE ARE PERFORMANCE CREDIT ELIGIBLE RESOURCES.

AND THE AVAILABILITY, THE SUM OF THE AVAILABILITY OF THOSE RESOURCES IS WHAT SETS THE PERFORMANCE CREDIT TARGET.

SO WE WILL ACTUALLY BE WALKING THROUGH THIS CONCEPT MULTIPLE TIMES.

AGAIN, WE'RE KIND OF GONNA HIT EVERYTHING AS I'VE SAID MULTIPLE TIMES, BUT WANTED TO INTRODUCE JUST THIS CONCEPT OF A FORWARD NEEDS ASSESSMENT.

AND THIS WOULD BE DONE FOR EACH AND EVERY YEAR.

IT ACTUALLY BE ALSO DONE FOR EACH SEASON.

SO LOOKING AT THE TIGHTEST HOURS WITHIN EACH SEASON, THE NEXT STEP IS, AND THIS IS ALL THESE FIRST TWO STEPS, ARE WHAT TAKES PLACE BEFORE THE ACTUAL YEAR.

SO THE SYSTEM DETERMINES A FORWARD NEED TO SET THE REQUIREMENT, AND THEN THERE'S A FORWARD MARKET.

AND THE FORWARD MARKET IS BASED ON BIDS THAT GENERATORS AND LOADS CAN PLACE.

SO THE SUPPLY AND DEMAND CURVES THAT YOU SEE HERE ARE ENTIRELY DETERMINED BY INDIVIDUAL MARKET PARTICIPANTS BIDS.

THERE'S NO ADMINISTRATIVE ELEMENT TO DETERMINING EITHER OF THESE SUPPLY AND DEMAND CURVES FOR LOADS.

PARTICIPATION IN THE FORWARD MARKET IS ENTIRELY VOLUNTARY.

SO LOADS ARE WHAT BID THE DEMAND CURVE.

SO THAT'S THE BLUE DOWNWARD

[01:05:01]

SLOPING LINE RIGHT HERE.

IF LOADS CHOOSE TO PARTICIPATE IN THIS MARKET, THEY CAN CREATE A BID.

ERCOT WILL AGGREGATE ALL OF THOSE BIDS INTO A DEMAND CURVE.

AND THEN THAT WILL BE CLEARED WITH THE SUPPLY CURVE, WHICH IS THE UPWARD SLOPING ORANGE LINE RIGHT HERE.

AND THIS IS CREATED BY GENERATOR BIDS GENERATORS.

IT'S ALSO VOLUNTARY FOR GENERATORS TO PARTICIPATE IN THIS MARKET, BUT IF THEY WANT TO EARN PERFORMANCE CREDITS IN THE ACTUAL MARKET THAT HAVE TO PLACE A BID IN THE FORWARD MARKET, SO THAT IS ONE OF THE REQUIREMENTS OF THE PERFORMANCE CREDIT MECHANISM.

SO GENERATORS HAVE TO PLACE A BID IN THE FORWARD MARKET AND THEY CAN PLACE THAT BID AT ANY QUANTITY AND PRICE SUBJECT TO MARKET POWER MITIGATION.

AND THEN THE INTERSECTION OF THESE SUPPLY AND DEMAND CURVES WOULD DETERMINE ESSENTIALLY THE FORWARD PRICE, WHICH IS A MECHANISM FOR GENERATORS AND LOADS TO HEDGE AND PARTICIPATE AND LOCK UP PERFORMANCE CREDITS BEFORE THE ACTUAL MARKET.

YES.

QUESTION.

WE'LL, WE'LL ADD YOU TO THE QUEUE, BUT I THINK WE'VE GOT, UH, TAYLOR FIRST.

GO AHEAD TAYLOR ON THAT ACTUALLY PARTICULARLY.

THANK YOU.

BACK ON SLIDE NINE, YOU INDICATED THAT THERE WAS GONNA BE A, A SINGLE CLEARING PRICE FOR THE MARKET.

IS THAT SINGLE CLEARING PRICE FOR THE FORWARD MARKET FOR JUST THE FINAL SETTLEMENT MARKET, IS IT THE SAME PRICE FOR EVERYTHING? HOW DOES THAT WORK? RIGHT, SO THERE WILL BE, THERE WILL BE, THE SINGLE PRICE WAS REFERRING TO NO LOCATIONAL DIFFERENTIATION.

THERE WILL BE A SINGLE CLEARING PRICE ON THE FORWARD MARKET THAT WILL ALMOST CERTAINLY BE DIFFERENT THAN THE SINGLE CLEARING PRICE IN THE ACTUAL MARKET.

SO THOSE WILL, THOSE WILL BE ALLOWED TO BE DIFFERENT.

YES.

AND THEN ON YOUR, YOUR FIRST POINT, UM, BACK IN JA JANUARY OF 23, THE PUC