[00:00:04]
IF PEOPLE WANNA TAKE THEIR SEATS, WE'LL BEGIN THE MEETING.
[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.
UH, THIS IS RYAN KING WITH ERCOT.
UH, VERY PLEASED TO BE HOSTING, UH, TODAY'S SESSION ON THE PERFORMANCE CREDIT MECHANISM WORKSHOP.
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.
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.
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.
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.
OH, IT LOOKS LIKE, UM, WE HAVE A QUESTION FROM NARAJ.
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.
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.
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.
[00:10:23]
OKAY.THANK YOU FOR YOUR PATIENCE ON THAT.
[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.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.
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.
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.
[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.
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.
AND THEN THE DEFAULT, THE DEFAULT ASSUMPTION RIGHT NOW IS THAT STORAGE IS ELIGIBLE.
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.
SO WE'LL BE TALKING, I'LL BE QUIET A LOT MORE ABOUT THAT.
YES, ZACH? ZACH, ZACH, ONE QUESTION.
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.
I, I JUST WANNA NOTE THERE, THERE WERE A COUPLE COMMENTS IN THE QUEUE THAT I THINK ARE PROBABLY TIMELY TO THIS.
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.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.
[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.
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.
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.
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.
AND THAT WAS GONNA BE MY SECOND QUESTION.
WHAT ARE THE ASSUMPTIONS IN TERMS OF ACTUALLY RETIREMENTS? YES.
ARE YOU GONNA COVER THAT LATER? WE WILL, WE WILL COVER THAT.
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.
SO WE'LL, WE'LL START, GO AHEAD.
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.
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.
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.
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.
SO BUT THAT, THAT, THAT COULD BE SOMETHING THAT WOULD BE WORTH INCLUDING.
LAUREN, UH, MY QUESTION WAS JUST COVERED BY THE PERSON BEFORE ME, SO I'M GOOD.
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.
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.
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.
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.
I GUESS I'M JUST NOT USED TO SEEING IT WRITTEN THAT WAY.
YEAH, IT MIGHT BE A, IT MIGHT BE AN E THREE CONVENTION.
SO, UH, JENNIFER SMITH, THANK YOU.
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.SO I'M, I'M NOT SURE IF WHAT, IF THERE'S A, I HAVE AN ANSWER TO THAT, BUT
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.
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.
[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.
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.
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.
YEAH, JUST, I ACTUALLY HAVE TWO QUESTIONS.
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.
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.
WOULD THIS, UH, LOLP UM, DISTRIBUTION CAPTURE A URIC TYPE OF YEAR OR IS THAT SORT OF EXCLUDED CAPTURE? YURI? YEAH.
THE, UH, THE YURI WINTER CONDITIONS ARE INCLUDED HERE AND IN FACT, THAT'S WHY WE SEE THIS FEBRUARY RISK SO PRONOUNCED.
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.
OH, SORRY, WE DO HAVE ONE MORE QUESTION.
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.
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.
[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.
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.
[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.
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.
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.
AND THEN ON YOUR, YOUR FIRST POINT, UM, BACK IN JA JANUARY OF 23, THE PUC ISSUED AN ORDER SIGNED BY ALL FIVE COMMISSIONERS.
UM, THAT KIND OF SET THEIR OWN GUARDRAILS IN ADVANCE OF THE LEGISLATIVE SESSION.
ONE OF THOSE GUARDRAILS WAS, UH, THE RELIABILITY SERVICE SHALL NOT BE BASED ON FORWARD LOOKING LOAD FORECASTS MADE BY ERCOT.
CAN YOU TALK ABOUT HOW THE FORWARD NEEDS ASSESSMENT IS CONSISTENT WITH THAT GUARDRAIL? SO I WOULD NEED TO REFRESH ON THAT GUARDRAIL, AND I DON'T KNOW IF THAT IS SOMETHING THAT WAS INCLUDED IN THE FINAL ORDER OR IF THAT WAS, BUT YEAH, WE, WE CAN DEFINITELY GET BACK TO YOU ON THAT.
YEAH, I JUST HAD A QUESTION ON THE FORWARD PC MARKET BECAUSE ONE OF THE REQUIREMENTS I THINK THAT WE TALKED ABOUT BEFORE, UM, WAS TO HAVE SEASONAL, WOULD IT BE ANTICIPATED THAT THIS WOULD BE, IT WOULDN'T BE LIKE ONE DAY WHEN EVERYONE'S BIDDING.
IT WOULD BE, IT WOULD SORT OF BE AT DIFFERENT POINTS IN THE YEAR.
YEAH, AND WE WILL, WE WILL ACTUALLY GET INTO THIS.
THAT IS ONE OF THE ACTUALLY DECISIONS THAT NEEDS TO BE MADE.
BUT IT IS ANTICIPATED THAT, OR OUR DEFAULT APPROACH RIGHT NOW IS THAT THERE WOULD BE A FORWARD AUCTION FOR EACH SEASON.
AND THEY WOULD ALL TAKE PLACE BEFORE THE YEAR.
SO BEFORE THE YEAR ALL FOUR SEASONS WOULD CLEAR.
BUT, BUT AGAIN, THAT'S, THAT'S A PARAMETER THAT'S UP FOR, FOR DISCUSS.
WEATHER, WEATHER CAN CHANGE SIGNIFICANTLY
SO IF WE GO TO THE NEXT SLIDE.
SO YEAH, THIS IS LOOKING A LITTLE BIT MORE AGAIN, AT THE CONCEPT THAT I JUST DISCUSSED, WHICH IS THE, WHAT ARE THE TIGHT, TIGHTEST HOURS OF THE SYSTEM THAT ARE GOING TO SET THE FORWARD REQUIREMENT FOR PERFORMANCE CREDITS? SO AGAIN, WE ILLUSTRATED THAT FOR THIS SAMPLE DAY ON THE LEFT, THE TIGHTEST HOURS, AS YOU CAN SEE HERE, WHERE TOTAL RESOURCE AVAILABILITY IS CLOSEST TO LOAD IS IN THE EVENING, AND THOSE ARE NOT THE SAME AS THE PEAK LOAD HOURS.
SO IF WE LOOK ACROSS THE ENTIRE YEAR, AGAIN, GOING BACK TO OUR HEAT MAP CHARTS ON THE RIGHT, WE HAVE ALL 12 MONTHS OF THE YEAR ON BOTTOM, 24 HOURS OF THE DAY ON THE LEFT, THE HIGHEST LOAD HOURS, THE PEAK LOAD HOURS OCCUR IN THE SUMMER, IN THE MIDDLE OF THE AFTERNOON.
BUT THOSE HOURS ALSO COINCIDE VERY CLOSELY WITH STRONG SOLAR OUTPUT, RIGHT? BECAUSE IT'S HOT WHEN IT'S SUNNY, WHEN IT'S SUNNY, SOLAR'S SHINING.
SO EVEN THOUGH THESE ARE THE HIGHEST LOAD HOURS, WE ACTUALLY SEE, IF WE LOOK AT THE CHART ON THE FAR
[01:10:01]
RIGHT, THAT THOSE HOURS ARE CENTRALLY NOT TIGHT AT ALL ON THE SYSTEM.THE TIGHTEST HOURS ARE THE NON SOLAR HOURS, AND IN PARTICULAR IN THE SUMMER, IN THE EVENING WHEN IT'S STILL HOT OUTSIDE.
AND SO PEOPLE ARE STILL RUNNING THEIR AIR CONDITIONERS, BUT THE SUN HAS SET AND SUPPLY HAS NOW SHRUNK MUCH CLOSER TO LOAD, BUT LOAD IS STILL IN THESE EVENING HOURS LOWER THAN IT WAS IN THE MIDDLE OF THE AFTERNOON.
SO THIS IS, THIS IS HIGHLIGHTING THE HOURS OF THE YEAR IN THAT ARE GOING TO DETERMINE THE REQUIREMENT FOR PERFORMANCE CREDITS.
SO NOW THE NEXT QUESTION IS, WELL, WHAT IS THE REQUIREMENT OF FOR PERFORMANCE CREDITS? AND IF WE GO TO THE NEXT SLIDE, THAT'S WHAT THIS IS ILLUSTRATING.
SO WE'RE GOING BACK HERE TO OUR SHADED BAR CHARTS.
INSTEAD OF, THESE ARE NOT SHOWING DOLLARS ANYMORE, THESE ARE SHOWING GIGAWATTS.
AND WHAT THIS IS SHOWING IS ACROSS ALL OF THE DIFFERENT SIMULATED YEARS FOR THIS CHART ON THE LEFT, WHAT THE ANNUAL PEAK LOAD IS IN THAT YEAR.
SO THE LOAD FORECAST THAT WE'RE USING IN FOR 2026 HAS AN AVERAGE ANNUAL PEAK OF 86 GIGAWATTS.
BUT AGAIN, WE'RE ASSUMING A LOT OF DIFFERENT WEATHER YEARS AND A LOT OF VARIABILITY FOR HOW THOSE WEATHER YEARS MIGHT CHANGE IN THE FUTURE, INCLUDING FOR FACTORS LIKE CLIMATE CHANGE.
AND SO THE VARIABILITY OF PEAK LOADS THAT WE'RE MODELING CAN ACTUALLY RANGE FROM, YOU KNOW, 75 GIGAWATTS TO ACTUALLY OVER A HUNDRED GIGAWATTS.
AND AGAIN, THE AVERAGE IS 86, THE 10TH AND 90TH PERCENTILES ARE 82 AND 91 GIGAWATTS.
SO A WIDE, WIDE VARIATION OF ANNUAL PEAK LOADS.
AND IN A TRADITIONAL UTILITY PLANNING CONTEXT, LIKE A TRADITIONAL CAPACITY MARKET, THIS IS WHAT WOULD SET THE REQUIREMENT FOR DISPATCHABLE CAPACITY, RIGHT? THE NEED FOR CAPACITY IN THE TRADITIONAL FRAMEWORK WITHOUT RENEWABLES IS YOU'RE LOOKING AT WHAT ARE THE PEAK LOADS, AND YOU NEED TO MAKE SURE YOU BUILD ENOUGH CAPACITY TO MEET THOSE PEAK LOADS.
HOWEVER, IN THE PERFORMANCE CREDIT MECHANISM FRAMEWORK, AND INCREASINGLY ACTUALLY IN OTHER CAPACITY MARKET FRAMEWORKS THAT ARE ACTIVELY CHANGING THEIR PROTOCOLS AS WE SPEAK, THE PEAK LOADS ARE NOT NO LONGER THE MOST CHALLENGING TIMES, IT'S THE TIGHTEST HOURS.
AND SO THOSE TIGHT HOURS ARE WHAT SET THE REQUIREMENT, AND THAT'S WHAT THE CHART ON THE RIGHT IS SHOWING, AGAIN, ACROSS THAT SAME DISTRIBUTION OF YEARS, MILD YEARS, EXTREME YEARS.
WHAT ARE THE NEEDS OF THE SYSTEM DURING THE TIGHTEST HOURS? AND YOU CAN SEE THAT THE TIGHTEST HOURS ON AVERAGE LOAD IS 73 GIGAWATTS, BUT HAS A WIDE RANGE, INCLUDING ACTUALLY SOME YEARS WHERE LOADS CAN GET TO VERY HIGH LEVELS AND SOME YEARS WHERE LOADS CAN GET TO VERY LOW LEVELS.
BUT IT'S THE LOADS DURING THESE TIGHT HOURS THAT SET THE REQUIREMENT FOR PERFORMANCE CREDITS INSTEAD OF THE LOADS DURING THE, UH, PEAK HOURS.
AND SO THE PERFORMANCE CREDITS WOULD BE HOWEVER MUCH CAPACITY IS NEEDED DURING THESE HOURS TO MEET THE ONE IN 10 RELIABILITY STANDARD.
SO IT'S NOT NECESSARILY SAYING THAT THE SYSTEM NEEDS A HUNDRED GIGAWATTS OF DISPATCHABLE CAPACITY BECAUSE IN A SYSTEM WHERE YOU HAVE A ONE DAY AND 10 YEAR STANDARD, THERE ARE SOME EXTREME DAYS WHERE THERE'S GONNA BE A LOUD LOSS OF LOAD.
AND AS WELL, THERE ARE ALSO CONTRIBUTIONS THAT ARE OCCURRING DURING THESE HOURS FROM NON DISPATCHABLE RESOURCES.
SO THIS IS NOT NECESSARILY SAYING THAT THE SYSTEM NEEDS OVER A HUNDRED GIGAWATTS OF DISPATCHABLE GENERATION, BUT IT'S SAYING THAT LOAD DURING THESE HOURS IS WHAT SETS THE REQUIREMENT FOR HOW MUCH DISPATCHABLE CAPACITY IS NEEDED.
OKAY, SO IF WE GO TO THE NEXT SLIDE, KEEP WALKING THROUGH.
SO THOSE, THOSE FIRST TWO SLIDES THAT WE COVERED ARE WHAT HAPPENED BEFORE THE YEAR.
THE REQUIREMENT FOR PERFORMANCE CREDITS IS DETERMINED, AND THERE'S A VOLUNTARY FORWARD MARKET THAT'S MANDATORY FOR GENERATORS IF THEY WANT TO EARN PERFORMANCE CREDITS.
ONCE THAT'S HAPPENED, THEN THE YEAR PLAYS OUT THE, THE SEASONS PLAY OUT.
[01:15:01]
WE START TO MOVE INTO FIGURING OUT HOW MUCH PERFORMANCE CREDITS ARE WORTH, WHO'S EARNED PERFORMANCE CREDITS, HOW MUCH THEY'RE GONNA GET PAID, AND WHAT LOADS HAVE TO PAY FOR PERFORMANCE CREDITS.THE FIRST STEP IN THIS PROCESS IS LOOKING AT ONCE WE GET THROUGH THE YEAR, WHAT ACTUALLY HAPPENED IN THE ENERGY MARKET AND WHAT A POTENTIAL REVENUE GAP IN THAT YEAR WAS.
THE CONCEPT FOR LOOKING AT WHAT THE REVENUE GAP IS, A CONCEPT CALLED THE NET COST OF NEW ENTRY OR NET CONE.
SO GROSS CONE OR COST OF NEW ENTRY, THIS GRAY BAR ON THE LEFT, THIS IS THE TOTAL REVENUES THAT A COMBUSTION TURBINE NEEDS TO EARN TO RECOVER ITS COSTS.
AND IN A MARKET WHERE NEW ENTRIES NEEDED, THIS IS THE REVENUES THAT THE MARKET NEEDS TO DELIVER IN ORDER TO INCENTIVIZE NEW DISPATCHABLE RESOURCES TO ENTER THE MARKET.
SO A RESOURCE LIKE A COMBUSTION TURBINE WILL NEED TO EARN THIS AMOUNT OF MONEY IN SOME WAY, RIGHT? IT COULD BE BY EARNING MARGINS IN THE ENERGY MARKET OR THE ANCILLARY SERVICE MARKET, OR IT COULD BE THROUGH EARNING REVENUES IN THE PERFORMANCE CREDIT MECHANISM MARKET.
BUT ANY RESOURCE THAT'S PARTICIPATING IN THE ENERGY MARKET WILL MAKE SOME AMOUNT OF MONEY OR MARGINS IN THE ENERGY MARKET AND ANCILLARY SERVICE MARKET.
AND SO THAT'S WHAT THIS MIDDLE BAR IS REPRESENTING RIGHT HERE.
THIS, THIS BLUE, BRIGHTER BLUE BAR.
IT'S THE REVENUES THAT IN ONCE WE'VE MADE IT THROUGH THE YEAR, LOOKING BACK AT A COMBUSTION TURBINE, HOW MUCH REVENUES DID THAT COMBUSTION TURBINE MAKE IN THE MARKET? THAT'S A VALUE THAT'S ALREADY CALCULATED IN ERCOT TODAY.
AND IT'S JUST A LOOK BACK OF OF HOW MUCH REVENUES A, A PEAKER OR A COMBUSTION TURBINE EARNED.
AND THIS VALUE VARIES YEAR TO YEAR.
QUITE SIGNIFICANTLY IN SOME YEARS, PEAKERS CAN ACTUALLY MAKE ENOUGH MONEY TO COVER THEIR ENTIRE COST OF NEW ENTRY.
IN SOME YEARS THEY MAKE RELATIVELY LITTLE AMOUNTS OF MONEY.
FOR EXAMPLE, IF IT'S A MILD YEAR.
AND IN THIS YEAR EXAMPLE THAT WE'VE SHOWN HERE, PEAKERS ARE MAKING RELATIVELY LITTLE AMOUNTS OF MONEY, AND IN FACT IN A RELIABLE SYSTEM, WE WOULD ACTUALLY EXPECT THESE VALUES TO BE RELATIVELY LOW BECAUSE A RELIABLE SYSTEM HAS SUFFICIENT GENERATION SUCH THAT IT'S NOT GETTING TO SCARCITY VERY FREQUENTLY.
AND SO THERE ARE NOT VERY MANY HOURS OF THE YEAR WHERE ORDC IS BEING TRIGGERED TO HIGH LEVELS.
AND SO WE WOULD EXPECT THAT ON AVERAGE, AND WE'LL, WE HAVE DATA ON THIS, BUT THIS IS REPRESENTED RELATIVELY REPRESENTATIVE OF THE TYPES OF MARGINS THAT A COMBUSTION TURBINE OR PEAKER WOULD EXPECT TO EARN IN A RELIABLE SYSTEM.
AND WHAT YOU CAN SEE IS THAT THE DIFFERENCE BETWEEN HOW MUCH MONEY IT NEEDS TO MAKE AND WHAT IT'S MAKING IN THE ENERGY AND ANCILLARY SERVICE, THE DIFFERENCE BETWEEN THOSE IS THE REVENUE GAP OR THE NET COST OF NEW ENTRY.
AND THAT'S WHAT WOULD NEED TO BE EARNED IN FROM PERFORMANCE CREDITS.
AND SO THAT CONCEPT OF DEBT CONE FORMS THE BASIS FOR STRUCTURING HOW MUCH RESOURCES MAKE IN THE PERFORMANCE CREDIT MARKET.
AND THAT REPRESENTATION OF HOW MUCH RESOURCES GET PAID IS QUANTIFIED THROUGH THE DEMAND CURVE THAT WE'VE ILLUSTRATED HERE ON THE RIGHT.
THE DEMAND CURVE FUNDAMENTALLY FORMS THE BASIS FOR DECIDING WHAT THE FINAL PRICE OF PERFORMANCE CREDITS CLEARS AT.
AND THE DEMAND CURVE IS AN ADMINISTRATIVELY DETERMINED CURVE FROM ESTABLISHED BY ERCOT OR SOME OTHER APPROVED ENTITY.
THERE'S A LOT OF DECISIONS THAT AS TO EXACTLY HOW TO STRUCTURE THE DEMAND CURVE.
BUT THERE, YOU KNOW, WHAT DO YOU CAP PRICES AT? HOW STEEP OR FLAT DO YOU MAKE THE CURVE? AT WHAT POINT DOES THE CURVE HIT ZERO? BUT FUNDAMENTALLY, THE DEMAND CURVE IS GONNA BE STRUCTURED AROUND TWO PRIMARY QUANTITIES.
ONE IS THE FORWARD REQUIREMENT.
SO IF YOU LOOK AT THE DEMAND CURVE, THIS BOTTOM AXIS HERE HAS QUANTITY, AND THE QUANTITY IS QUANTITY OF PERFORMANCE CREDITS.
SO IF THE QUANTITY OF PERFORMANCE CREDITS INCREASES, THEN THE, YOU'VE MOVED FURTHER TO THE RIGHT AND TO A LOWER PRICE ON THE DEMAND CURVE, AS THE QUANTITY OF PERFORMANCE CREDITS DECREASES.
AND YOU MOVE TO THE LEFT, YOU MOVE UP THE DEMAND CURVE TO A HIGHER PRICE.
[01:20:01]
MIDDLE POINT THAT WE'VE ILLUSTRATED AS POINT B, THAT IS KIND OF A ANCHOR POINT OF THE DEMAND CURVE.THAT WOULD BE SOMETHING LIKE WHEN THE SYSTEM HAS EXACTLY THE AMOUNT OF PERFORMANCE CREDITS THAT'S EQUAL TO THE FORWARD REQUIREMENT, WHICH IS THE TARGET FOR A SYSTEM AT TARGET RELIABILITY, THEN THE PRICE OF PERFORMANCE CREDITS WILL CLEAR SOMEWHERE AROUND NET COST OF NEW ENTRY.
SO THAT'S, THAT'S KIND OF AN ANCHOR POINT FOR THINKING ABOUT THE DEMAND CURVE, WHICH IS WHEN THE SYSTEM HAS ENOUGH RESOURCES EXACTLY TO MEET TARGET RELIABILITY, THOSE RESOURCES ARE EARNING NET CONE, WHICH MEANS THEY'RE EARNING ENOUGH MONEY IN THE PERFORMANCE CREDIT MECHANISM, SUCH THAT WHEN YOU ADD THAT TO WHAT THEY'RE EARNING IN THE ENERGY MARKET, THAT SUMS UP TO THEIR TOTAL COST OF ENTERING THE MARKET AND TAKEN TOGETHER.
WHEN YOU ADD THOSE TOGETHER, THAT IS ENOUGH TO INCENTIVIZE NEW ENTRY OF RESOURCES INTO THE MARKET.
AND THEN OF COURSE, YOU KNOW, THE MARKET CAN HAVE MORE OR LESS RESOURCES THAN THAT.
IF THE MARKET HAS MORE RESOURCES THAN THAT, AGAIN, YOU MOVE TO THE RIGHT ON THE DEMAND CURVE, THE PRICE FALLS, THERE'S LESS INCENTIVE FOR ENTRY.
IF THE MARKET HAS FEWER RESOURCES, YOU MOVE TO THE LEFT, THEN THE PRICE RISES.
SO THIS IS, THIS IS CONSISTENT WITH THE NEED TO HAVE A DYNAMIC PRICE THAT PROVIDES FEEDBACK ON EFFICIENT SIGNALS FOR ENTRY AND EXIT TO ACHIEVE TARGET RELIABILITY.
AND AGAIN, THIS WE'LL BE, WE'LL BE TALKING THROUGH ALL OF THIS AGAIN IN MORE DETAIL.
THERE'S ALL OF THESE POINTS, A, B, C ARE DECISIONS THAT WILL HAVE TO BE MADE.
AND SO WE'LL, WE'LL BE TALKING ABOUT THOSE.
AND WE'VE ILLUSTRATED FOR SIMPLICITY ONE DEMAND CURVE HERE, WHICH WOULD REPRESENT WHAT WOULD, IF THIS WAS OCCURRING ON AN ANNUAL BASIS, BUT IN FACT ON A SEASONAL BASIS, YOU WILL NEED TO HAVE A DIFFERENT DEMAND CURVE FOR EACH SEASON THAT WILL SHOW WHAT THE PRICE OF PERFORMANCE CREDITS CLEARS AT.
SO BASED ON WHAT YOU JUST SAID, SO COMPARE IT TO LIKE THE FCM IN NEW ISA, NEW ENGLAND, THEY RESET THE ADMINISTRATIVE DEMAND CURVE ONCE A YEAR, IS THAT CORRECT? 'CAUSE OF THE FCM IS ANNUAL? CORRECT.
SO IN PJM THEN, IS IT ONCE EVERY THREE YEARS FOR THE B-R-A-P-J-M IS ALSO ONCE A YEAR, BUT THEY RUN THEIR MARKET THREE YEARS AHEAD, SO THEY'RE, SO THEY'RE GETTING STAGGERED ONCE A YEAR, EVERY THREE YEARS.
SO THE, THE REASON I ASK IS LIKE, DO YOU AT THIS POINT HAVE A VIEW ON WHETHER THE RESET TO EITHER THE SLOPE OR A SEPARATE PROCEEDING IS GOING TO BE SORT OF LIKE A CARRY ON SEASONAL RESET THAT WILL HAPPEN CONSISTENT WITH THE PCM MARKET SEASONALITY? RIGHT, SO, OKAY.
SO THERE ARE A COUPLE OF VALUES HERE THAT WILL KIND OF AUTOMATICALLY BE UPDATED EVERY YEAR.
ONE IS JUST WHAT THE TARGET REQUIREMENT OF PERFORMANCE CREDITS IS.
AND SO THAT COULD SHIFT THE DEMAND CURVE TO THE LEFT OR THE RIGHT THAT WILL JUST ADJUST AUTOMATICALLY BASED ON LOADS AND RESOURCES.
THE OTHER IS NET CONE AND NET CONE WILL CHANGE EVERY YEAR BASED ON WHAT ACTUALLY HAPPENED IN THE ENERGY MARKET.
AND THAT COULD ADJUST THE DEMAND CURVE UP AND DOWN.
HOWEVER, THERE ARE SOME OTHER PARAMETERS OF THE DEMAND CURVE THAT WOULD PROBABLY BE MORE SET IN STONE.
LIKE FOR EXAMPLE, WHAT YOU ALLOW THE PRICE CAP TO BE IS THAT 150% OF NET CONE, 200% OF NET CONE, THAT WOULD PROBABLY BE A PARAMETER THAT WOULD BE LOCKED IN PLACE UNLESS THERE WAS A SPECIFIC PROCEEDING THAT WOULD BE INITIATED TO CHANGE THAT PARAMETER.
AND WE, WE DO HAVE SLIDES AS WELL ON ALL OF THOSE.
SO ZACH, WE'VE GOT A, A FAIRLY LONG QUEUE HERE.
DO YOU WANT TO COMPLETE THIS SECTION AND THEN GO THROUGH THE QUESTIONS? OR WOULD YOU RATHER, UH, KIND OF ADDRESS SOME OF THESE THAT'LL KIND OF, UM, WE ACTUALLY ONLY HAVE ONE MORE SLIDE, SO WHY DON'T I GET THROUGH THAT AND THEN YEAH, WE CAN.
SO THE LAST SLIDE IN THIS SECTION IS JUST CLOSING OFF THE, THE PERFORMANCE CREDIT MECHANISM AND HOW IT WORKS.
SO ONCE WE DETERMINE THE DEMAND CURVE, WHICH IS THIS BLUE AND THIS, WE LOOK AT STEP FIVE HERE, UH, THE, THE BLUE DOWNWARD SLOPING LINE IS THE DEMAND CURVE, AND THAT'S WHAT WAS PREVIOUSLY DETERMINED IN THE PREVIOUS STEP.
THEN WE LOOK BACK AND SAY, WHAT WAS THE ACTUAL SUPPLY OF PERFORMANCE CREDITS THAT WERE GENERATED? AND THERE'S A
[01:25:01]
COUPLE OF DIFFERENT WAYS IN WHICH ONE COULD THINK ABOUT MEASURING SUPPLY, AND WE'LL BE TALKING ABOUT THAT IN MORE DETAIL LATER.BUT AT A HIGH LEVEL, THE SUPPLY OF PERFORMANCE CREDITS IS LOOKING BACK AT THE ACTUAL YEAR THAT HAPPENED, WHAT WERE THE TIGHTEST HOURS IN THAT YEAR AND WHAT WERE THE AVAILABILITY OF DISPATCHABLE RESOURCES? AND THAT IS A MEASURABLE QUANTITY.
AND SO THAT'S REPRESENTED HERE AS JUST A VERTICAL SUPPLY CURVE.
THERE'S NO BIDS ASSOCIATED WITH THAT.
IT'S JUST SOMETHING THAT ERCOT MEASURES.
IT SAYS IT LOOKS AT ALL OF THE ELIGIBLE DISPATCHABLE RESOURCES.
WHAT WAS THEIR AVAILABILITY DURING THE TIGHTEST HOURS OF THE YEAR.
IT INTERSECTS THAT SUPPLY CURVE OR THAT SUPPLY QUANTITY WITH THE DEMAND CURVE.
AND WHERE THOSE TWO CURVES INTERSECT, THAT SETS THE PRICE OF PERFORMANCE CREDITS, RIGHT? SO IF SUPPLY IS GREATER THAN THE TARGET, THE PRICE WOULD FALL.
IF SUPPLY IS LESS THAN THE TARGET OR TO MOVES TO THE LEFT, THE PRICE WILL RISE AND COULD POTENTIALLY RISE UP TO THE PRICE CAP HYPOTHETICALLY.
SO THAT IS WHAT THE INTERSECTION OF THOSE TWO CURVES IS WHAT SETS THE PRICE OF PERFORMANCE CREDITS.
AND THEN FROM THAT PRICE, THEN YOU CAN FIGURE OUT WHO'S ACTUALLY GONNA GET PAID FOR PERFORMANCE CREDITS.
AND THAT'S WHAT'S ILLUSTRATED IN THIS BOX ON THE LEFT OF TOTAL COMPENSATION TO GENERATORS.
SO IF YOU'LL RECALL, A GENERATOR CAN ACTUALLY ONLY EARN PERFORMANCE CREDITS IF IT PLACED A BID IN THE FORWARD MARKET.
AND SO SOME GENERATORS THAT EVEN DISPATCHABLE GENERATORS THAT WERE AVAILABLE DURING THE TIGHTEST HOURS, IF THEY DIDN'T PLACE A BID IN THE FORWARD MARKET, THEY WOULD NOT BE ELIGIBLE TO EARN COMPENSATION THROUGH PERFORMANCE CREDITS.
AND SO THERE'S AN ADDITIONAL KIND OF CUTTING OFF OF GENERATORS THAT ARE ELIGIBLE BASED ON THEIR FORWARD OFFER BEHAVIOR.
AND THEN IF YOU JUST TAKE THE QUANTITY OF THOSE GENERATORS MULTIPLIED BY THE PRICE OF PERFORMANCE CREDITS, THAT'S THE TOTAL POOL OF COMPENSATION THAT ACCRUES TO GENERATORS.
AND THE FINAL STEP IS THEN ALLOCATING THOSE COSTS TO LOAD.
AND THAT'S WHAT THIS LAST STEP IS ILLUSTRATING, IT'S THE LOAD SERVING ENTITY COST ALLOCATION STEP.
AND THE WAY THAT THIS WILL WORK, AND I, I KEEP USING THE TERM THE WAY THAT THIS WILL WORK, BUT AGAIN, THIS IS EVEN EVERYTHING HERE, THINGS COULD WORK SLIGHTLY DIFFERENTLY BASED ON SOME DECISIONS THAT HAVE YET TO BE MADE.
SO THIS IS STILL KIND OF A STRAW MAN EVEN DEFAULT DEFAULT PROPOSAL.
BUT THE WAY THAT THIS WOULD WORK TO ALLOCATE THOSE TOTAL COST TO LOAD IS BY LOOKING AT THE TIGHTEST SYSTEM HOURS, WHAT WERE LOADS CONSUMING DURING THOSE HOURS.
IT'S THE EXACT INVERSE OF WHAT WE'RE GENERATORS GENERATING DURING THE TIGHTEST SYSTEM HOURS.
IT WAS, LOOK, IT'S LOOKING AT THE TIGHTEST SYSTEM HOURS AND SAYING WHAT ARE LOADS CONSUMING OR WHAT IS THEIR LOAD? YOU STACK THOSE UP FOR ALL OF THE LOADS THAT SETS THE PRO RATA ALLOCATION FACTOR FOR HOW THE TOTAL COST OF PERFORMANCE CREDITS ARE ALLOCATED TO LOADS.
AND SO YOU CAN SEE HERE THAT IF THIS BAR ON THE LEFT IS JUST SHOWING TOTAL LOADS FROM THREE DIFFERENT LOAD SERVING ENTITIES, A, B, AND C, YOU KNOW, LOAD, LOAD SERVING ENTITY A IS WAS CONSUMING 20% OF SYSTEM ENERGY DURING THE TITUS SYSTEM HOURS.
SO THEY'RE RESPONSIBLE FOR 20% OF TOTAL PERFORMANCE CREDIT MECHANISM COSTS.
AND SO THAT JUST SCALES DOWN, MATCHES UP WITH PER, YOU KNOW, SETS THEIR BASIS FOR ALLOCATION FOR HOW MUCH THEY HAVE TO PAY.
AND SO IN THAT REGARD, IT'S JUST A ONE FOR ONE TRANSFER FROM LOADS TO GENERATORS LOADS PAY BASED ON HOW MUCH THEY WERE CONSUMING DURING THE TITUS SYSTEM HOURS GENERATORS GET COMPENSATED BASED ON HOW MUCH THEY WERE AVAILABLE DURING THE TITUS SYSTEM HOURS.
AND OF COURSE THIS IS ALL THE REAL TIME, OR NOT THE REAL TIME, BUT THE ACTUAL PERFORMANCE CREDIT PRICE TO THE EXTENT THAT LOADS ARE GENERATORS HEDGED IN THE FORWARD MARKET, THEN THEY WOULDN'T NECESSARILY BE EXPOSED TO THIS PRICE.
BUT THIS IS THE ACTUAL CLEARING PRICE.
AND JUST LIKE THE ENERGY MARKET TODAY, WE WOULD EXPECT THAT THE EXPECTATION OF THIS PRICE IS WHAT WOULD INFORM GENERATOR BIDS AND LOAD BIDS IN THE FORWARD MARKET.
SO, YOU KNOW, RISK MITIGATION ASIDE THE BIDS OF LOADS AND GENERATORS WOULD BE EXPECTED TO BE TAKING INTO ACCOUNT HOW THEY WOULD EXPECT THIS MARKET TO CLEAR, WHICH IS BASED ON THIS ENTIRE ADMINISTRATIVE DEMAND CURVE HERE.
[01:30:02]
THAT IS AT THE HIGHEST LEVEL ALL OF THE MECHANICS OF THE PERFORMANCE CREDIT MECHANISM.WE'RE GONNA BE GOING THROUGH EVERY SINGLE THING WE TALKED ABOUT AGAIN.
BUT YEAH, I THINK PROBABLY MAKES SENSE TO PAUSE HERE FOR QUESTIONS.
WE DO HAVE, UH, A BIT OF A QUEUE BUILDING, SO I WILL START WITH SHAM SADIKI.
YEAH, I GUESS, UH, GOING BACK TO THE FIRST STEP, SO YOU'RE SAYING THERE IS NO OFFER FLOOR OR OFFER CAP IN THE FORWARD MARKET.
SO WHAT WOULD PREVENT ANY GENERATOR FROM OFFERING REALLY HIGH SINCE THEY'RE GETTING, THEY'RE GONNA GET
THE ONLY, THERE'S NOT, THERE'S NOT CONSIDERED TO BE A HARD PRICE CAP ON WHAT THEY CAN BID.
IT WOULDN'T MAKE ANY SENSE TO BID HIGHER THAN THE PRICE CAP, BUT THESE BIDS POTENTIALLY WOULD BE MITIGATED BY THE MARKET MONITOR IF DEEMED APPROPRIATE FOR THE PURPOSES OF MARKET POWER MITIGATION.
SO THAT IS A STEP THAT HAS, YOU KNOW, HAS NOT BEEN DETERMINED EXACTLY HOW THAT WOULD WORK.
AND IF I CAN ADD SOMETHING, WE'LL TALK THROUGH THIS LATER, BUT THERE'S ALSO, WHEN WE TALK ABOUT PENALTIES, THERE ARE PENALTIES FOR BASICALLY BIDDING CLEARING AND NON-PERFORMING, WHICH I THINK EVERYONE IS AWARE OF.
BUT WE ALSO HAVE THE OPTION FOR BIDDING, NOT CL BIDDING, NOT CLEARING AND NOT PERFORMING, WHICH I THINK TOUCHES ON YOUR POINT OF WHAT IF I JUST PUT A SUPER HIGH BID, I DON'T CLEAR AND THEN I DON'T PERFORM, LIKE THERE'S ALSO A PENALTY FOR THAT.
AND THAT'S A WAY TO MITIGATE THAT ASPECT THAT YOU SAID OF LIKE ECONOMIC WITHHOLDING OF PCS.
IF WE DO INTRODUCE THAT, THEN THAT WOULD JUSTIFY VERY HIGH, LIKE FOR A BATTERY AND STUFF, YOU KNOW, THESE HOURS CAN HAPPEN ANYTIME.
SO, UM, I THINK THEY CAN EASILY JUSTIFY OFFERING AT THE CAP OR HIGHER BECAUSE IT'S SO RISKY YOU DON'T KNOW IF YOU'RE GONNA BE AVAILABLE.
AND THEN ON THE, THE PCS THEMSELVES, YOU KNOW, IF WE ARE JUST USING THIS KIND OF A, UH, DISTRIBUTION WITH, YOU KNOW, THE EXPECTED VALUE TO DETERMINE THE PCS, THEN FOR THE WINTER MONTHS, FOR THE WINTER SEASON, WE WILL WEIGH UNDER, UH, QUANTIFY THE PCS BECAUSE THE WINTER, IT ONLY HAPPENS ONCE IN 10 YEARS, YOU KNOW, SO ON AVERAGE YOUR EXPECTED PCS WILL BE MUCH LOWER THAN WHAT YOU NEED IN A REAL UV KIND OF EVENT.
SO HOW DO YOU, DO YOU HAVE ANY THOUGHTS ON HOW WE ADDRESS THAT? YEAH, I THINK THE, AGAIN, THE, THE SYSTEM IS THE PERFORMANCE CREDIT.
THE FORWARD-LOOKING PERFORMANCE CREDIT REQUIREMENT IS FOR A SYSTEM THAT'S AT TARGET RELIABILITY.
SO IN OTHER WORDS, THE SYSTEM WHEN WHEN THE SYSTEM'S AT TARGET RELIABILITY, IT'S LOOKING ACROSS ALL OF THE YEARS, THE WORST YEARS.
AND THEN IN THE MILD YEARS IT'S STILL SAYING DURING THE TIGHTEST SYSTEM HOURS THEY MIGHT NOT BE THAT TIGHT, BUT IT'S STILL SAYING WHAT'S THE TOTAL QUANTITY OF RESOURCES THAT ARE ON THE SYSTEM THAT SETS THE REQUIREMENT.
SO IT'S NOT BASED ON LOAD IN THOSE YEARS, IT'S BASED ON RESOURCES AVAILABILITY DURING THAT YEAR, WHICH IS INFORMED BY THE WORST YEARS.
SO I THINK THE, I THINK THE SORT OF, I GUESS THE SHORT ANSWER IS IT IS ROBUST TO THAT CONCERN.
SO YOU'RE SAYING THERE'S SOME SORT OF, UM, WAITING GIVEN, EVEN THOUGH THE PROBABILITY IS ONE 10TH, YOU COULD HAVE A DIFFERENT WAITING ON THAT KIND OF AN EXTREME EVENT.
IT'S NOT, IT'S NOT A WAITING SO MUCH AS IT IS THE SYSTEM IS BUILDING RESOURCES FOR THE WORST EVENT AND THEN IT'S REQUIRING THOSE RESOURCES TO ALSO BE AVAILABLE IN THE OTHER YEARS, WHICH MIGHT NOT BE VERY TIGHT, BUT IT'S NONETHELESS REQUIRING THEM TO BE AVAILABLE DURING THOSE WORST YEARS.
THE, THE, THE ENTIRE FORWARD REQUIREMENT IS BASED ON THE SYSTEM BEING FIRST CALIBRATED TO A LEVEL OF TARGET RELIABILITY BY ADDING OR SUBTRACTING DISPATCHABLE CAPACITY TO DETERMINE HOW MUCH IS REQUIRED TO MEET THE TARGET RELIABILITY.
OKAY, SO YOU THINK THAT THAT METHOD WOULD CAPTURE THAT FOR THE WINTER MONTHS IT WOULD BE A VERY HIGH, UM, IT WOULD, IT IN FACT IT WOULD BE PRETTY HIGH IN THE WINTER AND IN AND IN ALL OF THE WINTERS THAT ARE MILD, THE REQUIREMENT WOULD ACTUALLY BE MUCH HIGHER THAN THE, THE LOADS IN THOSE MILD YEARS.
AND IN FACT, EVEN IF LOADS ARE LOW, YOU KNOW, YOU HAVE THIS HIGH REQUIREMENT BECAUSE THAT'S WHAT'S NEEDED.
YOU STILL NEED TO HAVE THAT BECAUSE YOU DON'T KNOW IF LOADS ARE GONNA BE HIGH, RIGHT? AND IF YOU KNOW SUPPLY IS LOW,
[01:35:01]
YOU COULD STILL HAVE HIGH PERFORMANCE CREDIT PRICES BECAUSE YOU HAVE THIS HIGH REQUIREMENT MM-HMMSO YEAH, SORRY IF I CAN ADD SOMETHING, I THINK THERE'S THE INHERENT TRADE OFF OF THE EVERY YEAR VERSUS THE ONE IN 10.
SO I THINK LIKE THAT'S PART OF IT.
BUT YEAH, I THINK TO SACK'S POINT, WHEN WE DO THE ALLOCATION OF RISK ACROSS THE DIFFERENT SEASONS, THAT'S WHEN IT SHOWS UP.
AND BASICALLY THE SIMPLE WAY OF TRANSLATING THAT IS SAYING, OKAY, WHENEVER YOU HAVE THIS VERY HIGH RISK WIN WINTER EVENT, THAT'S GONNA BE PRETTY MUCH WHAT DRIVES PC PRICES THAT YEAR.
BUT FOR THE REST OF THE YEARS WHEN THAT DOESN'T HAPPEN, YOU NEED TO ENSURE THAT THERE'S SOME WAY OF STILL MEASURING PERFORMANCE AND THEN YOU LOOK AT THE TIGHTEST HOURS AND OTHER SEASONS, WHICH FOR DISPATCHABLE RESOURCES IS BASED PRETTY MUCH LIKE, ARE YOU AVAILABLE WHEN YOU'RE NEEDED TYPE OF THING.
SO I THINK THAT SHOULD COVER IT.
YEAH, I THINK, UM, YOU KNOW, THE WAY YOU DESCRIBED IT THAT HAPPENS WHERE WE, EVEN THOUGH IT WAS A MILD WINTER THAT WE'D STILL PAYING THE PC PRICES COULD STILL BE VERY HIGH IN THE WINTER BECAUSE OF THAT LLP UH, LOOK THAT WOULD HELP IN THAT, IN THAT SITUATION.
SO ON THE DEMAND CURVE, YOU KNOW, YOU SAY THAT YOU'RE TARGETING NET CONE, BUT IN CERTAIN YEARS IT'S GONNA FAR EXCEED NET CONE.
SO SHOULDN'T WE ON AVERAGE TARGET SOMETHING LOWER THAN NET CONE JUST TO AVERAGE IT OUT? WHEN YOU SAY IT'S GONNA FAR, WHAT, WHEN YOU SAY WHAT WILL FAR EXCEED NET CONE LIKE THE ENERGY, REVENUES, ENERGY AND AS REVENUES CAN FAR EXCEED NET C EVEN WITH RIGHT, SO THE DEMAND CURVE WILL BE STRUCTURED AROUND ENSURING THAT RESOURCES ON AVERAGE EARN NET CONE FROM PERFORMANCE CREDITS, WHICH IS THE MISSING MONEY NEEDED TO TRUE THEM UP TO MEET THEIR FULL COST OF NEW ENTRY REQUIREMENTS.
SO IN GENERAL, THE STRUCTURE OF THE DEMAND CURVE, AND WE'LL BE GETTING INTO THIS MORE, BUT IT IS TARGETED AROUND MAKING SURE THAT ON AVERAGE THERE'S ENOUGH MONEY INJECTED INTO THE MARKET.
IT IS HOWEVER DYNAMIC SUCH THAT IF ENERGY PRICES ARE REALLY HIGH IN ONE YEAR, THEN NET CONE IS LOW AND THE DEMAND CURVE, THE PERFORMANCE CREDIT PRICES WILL FALL AS WELL BECAUSE IT'S BASED ON NET C.
SO IF ENERGY PRICES ARE HIGH UNDER THE CURRENT DEFAULT DESIGN PERFORMANCE, CREDIT PRICES WILL BE LOW.
AND IN FACT, IF PEAKERS EARN ENOUGH MONEY IN THE ENERGY MARKET TO COVER THEIR COST OF NEW ENTRY, SO IF PEAKER NET MARGIN IS COST OF NEW ENTRY OR HIGHER, RIGHT? THE PRICE OF PERFORMANCE CREDITS WILL BE ZERO BECAUSE IN THAT YEAR THERE'S NO MISSING MONEY THAT'S NEEDED TO BE INJECTED INTO THE MARKET.
AND OF COURSE THAT'S A DECISION THAT IS UP FOR DECISION, BUT THAT'S AT LEAST, UH, I THINK WE THINK ONE OF THE RELATIVELY ATTRACTIVE FEATURES OF THE DEFAULT DESIGN THAT OKAY.
SO WE ARE NOT CLAWING BACK IN, IN YEARS WHERE IT FAR EXCEEDS GO, WE ARE NOT GONNA CLAW IT BACK, RIGHT.
THERE WON'T BE A CLAW BACK OF YEARS WHERE ENERGY EXCEEDS ENERGY, REVENUES EXCEED CONE, BUT THE DEMAND CURVE IS STRUCTURED AROUND INJECTING NET CONE ON AVERAGE.
SO IT'S ACCOUNTING FOR THOSE YEARS AS WELL.
SO THAT'S WHY I WAS THINKING IT SHOULD BE LESS THAN YES.
AND IN AND IN FACT YOU'LL, YOU WILL SEE THAT IN FACT IT IS, UM, YEAH, THE, THE ENTIRE DEMAND CURVE IS IT'S LESS, THERE ARE SOME DECISIONS THAT BE MADE, BUT IT'S ALSO SOMETHING THAT IS KIND OF A VARIABLE THAT WE HAVE TO ADJUST TO ENSURE IT'S AT TARGET RELIABILITY AND THAT RESOURCES ARE MAKING THE RIGHT AMOUNT OF MONEY.
SO IT CER TO A CERTAIN EXTENT, IT'S NOT SOMETHING THAT CAN BE DECIDED.
YOU CAN'T SAY LIKE 1.0 TIMES NET CONE IT, YOU KIND OF HAVE TO ADJUST IT TO MAKE SURE THAT OVERALL THE RIGHT AMOUNT OF MONEY IS BEING INJECTED TO ACHIEVE THE TARGET RELIABILITY STANDARD.
NEXT IN THE QUEUE WE HAVE ROY TRUE.
YEAH, THIS IS ROY, TRUE WITH ACE SAYS, I'M JUST A LITTLE CONFUSED WHY AS WE'RE DISCUSSING THIS, IT SEEMS LIKE YOU'RE TRYING TO AVOID THE USE OF THE PHRASE NET PEAK, UH, AS WE'RE GOING THROUGH THIS AND, AND, UH, SINCE THAT SEEMS TO BE A FUNDAMENTAL CONCERN IN THIS MARKET, I IT'S NOT CLEAR TO ME WHY YOU'RE NOT USING THAT PHRASE.
YEAH, THAT ACTUALLY IS A GREAT QUESTION.
AND I WOULD SAY WE ARE VERY CONSCIOUSLY USING THE TERM TIGHTEST SYSTEM HOURS AND GENERALLY WE WOULD EXPECT THE TIGHTEST SYSTEM HOURS TO BE WHAT ARE OFTEN COLLOQUIALLY CALLED NET PEAK HOURS.
HOWEVER, THERE ALSO CAN BE TIGHT SYSTEM HOURS THAT ARE NOT TRADITIONALLY THOUGHT OF AS QUOTE UNQUOTE NET PEAK BECAUSE NET PEAK AS IT'S COLLOQUIALLY USED IS LOAD MINUS
[01:40:01]
RENEWABLES.BUT IN FACT, TIGHT SYSTEM HOURS CAN OCCUR NOT JUST BECAUSE RENEWABLES ARE LOW, BUT BECAUSE OTHER RESOURCES LIKE DISPATCHABLE GENERATORS ARE LOW TOO DUE TO, YOU KNOW, UH, COINCIDENT FOREST OUTAGES OR SO FOR EXAMPLE, IN WINTER STORM, YURI, THAT'S EXACTLY WHAT HAPPENED.
GIGAWATTS AND GIGAWATTS OF THERMAL GENERATORS WERE FORCED OFFLINE, THE SYSTEM WAS TIGHT, IT WAS TIGHTER THAN TIGHT, RIGHT? SO THAT WOULD NOT BE PICKED UP IN THE TRADITIONAL SENSE OF NET LOAD, PEAK NET LOAD, BUT IS NONETHELESS A TIGHT HOUR.
AND SO I THINK WHAT, BY USING THE TERM TIGHTEST SYSTEM HOURS WE'RE ENCOMPASSING PEAK NET LOAD, BUT WE'RE ALSO ENCOMPASSING OTHER RISKS THAT THE SYSTEM COULD FACE BEYOND JUST THOSE PARTICULAR CONDITIONS OF RENEWABLES BEING LOW.
NEXT, NEXT IN THE QUEUE WE HAVE NA GO AHEAD.
SORRY, I MISSED SOMETHING, UH, ABOUT THE BOLL PART, UH, LAST TIME.
UH, SO ARE YOU ASSUMING 5,000 OR 25,000 UH, DOLLARS PER MEGAWATT HOUR IN THIS HISTORY FOR VOL? SO YES, WE'RE NOT, WE ARE, WE ARE ASSUMING THE CURRENT CONSTRUCT OF ORDC AND ALL OF THE PARAMETERS THAT FLOW INTO THAT.
SO THAT IS INCLUDED IN HOW WE CONSTRUCT ENERGY PRICES IN THE MODEL WHICH GO INTO ENERGY AND ANCILLARY SERVICE REVENUES.
AND WE ARE NOT BEYOND, BEYOND ORDC, WE'RE NOT INCLUDING VOL IN ANY OF OUR CALCULATIONS.
OKAY, NEXT UP IS JOHNNY CARLOCK.
UH, YES, JOHNNY CARLOCK WITH PIONEER.
UH, CAN YOU GO TO SLIDE 15? UH, MINE WAS IN REGARD TO THE PC DISTRIBUTION, OH, MAYBE IT'S ONE SLIDE, MAYBE IT'S 14.
GO BACK ONE MORE IT, YEAH, THAT'S IT.
SO THE TABLE ON THE RIGHT, IT SHOWS THE DISTRIBUTION.
I'M ASSUMING THAT'S FOR EQUILIBRIUM.
AND IF, SO THE QUESTION IS, IS THERE A SIGNIFICANT DIFFERENCE IN THAT DISTRIBUTION, UH, PRIOR TO REACHING IT EQUILIBRIUM AS WELL AS IF WE SLIP OUT OF EQUILIBRIUM LATER AS WE LOSE SOME GENERATION AND MOVE AWAY FROM THE TARGET? RIGHT.
SO THIS IS FOR A SYSTEM THAT'S AT TARGET RELIABILITY OF 0.1 DAYS PER YEAR, ONE DAY IN 10 YEARS OF LOSS OF LOAD.
SO THIS IS ACTUALLY MORE RELIABLE THAN THE ENERGY ONLY EQUILIBRIUM THAT WE WOULD EXPECT.
AND I WOULD SAY THAT THE DISTRIBUTION OF HOURS BETWEEN A SYSTEM AT EQUILIBRIUM AND A SYSTEM AT TARGET RELIABILITY IS VERY SIMILAR BECAUSE ALL WE'RE DOING IS ADDING AND SUBTRACTING PERFECT CAPACITY, WHICH DOESN'T SHIFT THE TIMING OF HOURS OF SYSTEM RISK.
THE ONLY THING THAT SHIFTS THE TIMING OF HOURS OF SYSTEM RISK IS ADDING IMPERFECT RESOURCES AND SO RESOURCES THAT ARE ONLY AVAILABLE IN CERTAIN HOURS OR HAVE OTHER LIMITATIONS.
AND SO IF WE WERE TO ADD, FOR EXAMPLE, A LOT MORE RENEWABLES THAT COULD SHIFT TIMING, BUT THIS, THIS WOULD HAVE THE SAME DISTRIBUTION OF TIMING.
OBVIOUSLY A SYSTEM THAT'S AT TARGET RELIABILITY IS GONNA HAVE FEWER HOURS OF LOST LOAD THAN A SYSTEM AT EQUILIBRIUM THAT HAS, YOU KNOW, THREE HOURS OF LOST LOAD PER YEAR INSTEAD OF ONE HOUR PER DECADE.
BUT THE TIMING IS VERY SIMILAR.
ZACH, THIS IS KEVIN CARD FROM ESFA.
JUST A QUICK UH, CLARIFICATION THERE AND THAT'S PRETTY TRUE, BUT I WILL SAY THAT THE KIND OF WEATHER RISK IS NOT SYMMETRIC AND SO YOU WILL SEE A, A DIFFERENT PROPORTION OF RISK BY SEASON.
UM, SO IF YOU GET FURTHER AWAY FROM THE ONE IN 10, YOU WILL SEE SOME SHIFT IN THE DISTRIBUTION OF THESE HOURS.
OKAY, BILL BARNES, ZACH, SLIDE 19 PLEASE.
I WAS WONDERING IF E THREE HAD A VIEW ON WHETHER THE NET CONE OR DEMAND CURVE CONSTRUCTION SHOULD BE USED FOR, UM, ALLOCATING THE COST CAP? I THINK THIS KIND OF TWO WAYS YOU COULD DO THAT.
ASSUMING IT'S A BILLION DOLLARS AND YOU'RE ALLOCATING SOME AMOUNT FOR WINTER AND SUMMER, YOU COULD EITHER PRORATE THE PAYMENT AT THE END OF THE PROCESS OR YOU COULD ADJUST DOWN THE DEMAND CURVE TO REFLECT THE TOTAL AMOUNT THAT IT'S GONNA BE WORTH.
I WAS JUST CURIOUS IF YOU HAD A VIEW ON WHAT'S A BETTER WAY TO DO THAT? SO I WILL SAY WE HAVE SEVERAL IDEAS THAT WE WILL TALK THROUGH LATER TODAY ABOUT HOW TO COMPLY WITH THE COST CAP WITHIN THIS FRAMEWORK.
[01:45:01]
THINK THAT IS SOMETHING THAT WE ARE ALSO VERY OPEN TO FEEDBACK AND IDEAS ON.SO I THINK THE DEFAULT ASSUMPTION RIGHT NOW IS THAT THIS DEMAND CURVE WILL DETERMINE THE PRICE OF PERFORMANCE CREDITS AND THEN IF IT'S DEEMED THAT THE PRICE, THE RESULTING PRICE FROM THAT EXCEEDS THE COST CAP, THEN THOSE PAYMENTS WOULD BE DERATED IN SOME WAY.
SO THAT'S, THAT'S I THINK THE STARTING OPTION, BUT BY NO MEANS IS THAT SET IN STONE IN ANY WAY.
YEAH, THIS IS JEFF BURMEISTER WITH PA CONSULTING.
JUST FOR TRANSPARENCY, WE'RE ENGAGED BY TSPA AND A PA ON THIS.
UM, I, I'M CURIOUS TO HEAR MORE ON THE LOGIC BEHIND THE PROPOSAL HERE TO SET A QUANTITY, YOU KNOW, THE PC TARGET QUANTITY ON AN X ANTE BASIS, YOU KNOW, BASED ON THE FORWARD NEEDS ASSESSMENT, BUT THEN SETTING THE HEIGHT OF THE DEMAND CURVE VIA NET CONE WITH A BACKWARDS LOOKING OR EX POST ASSESSMENT.
I GUESS I'M JUST STRUGGLING TO UNDERSTAND HOW THAT CREATES AN EFFICIENT PRICE SIGNAL THAT'S REFLECTIVE OF MARKET NEEDS.
THAT IS, THAT IS A GOOD QUESTION.
SO I, I GUESS IN THINKING ABOUT WHAT VALUES ARE DETERMINED BEFORE THE YEAR HAPPENS AND WHAT VALUES ARE DETERMINED AFTER THE YEAR HAPPENS, IT'S FROM A DETERMINING QUANTITY OF PERFORMANCE CREDITS, WE THINK THAT IT WOULD BE VERY DIFFICULT TO MAKE A DETERMINATION AFTER ANY GIVEN YEAR AS TO WHAT THE REQUIREMENTS WERE BECAUSE YOU KNOW WHAT LOADS WERE.
AND SO YOU KNOW WHAT YOU NEEDED TO ACHIEVE RELIABILITY IN THAT YEAR, BUT THAT DOESN'T NECESSARILY MEAN THAT YOUR SYSTEM WAS AT TARGET RELIABILITY OR NOT, RIGHT? YOU COULD HAVE A YEAR WHERE IN FACT IN AGGREGATE, THE SYSTEM IS SHORT OF WHAT'S NEEDED TO MEET A TARGET RELIABILITY STANDARD, BUT YOU JUST HAD REALLY MILD WEATHER.
AND SO YOU, YOU LOOK BACK AND YOU SAY, OH, I HAD ENOUGH.
BUT IN FACT, IF YOU'RE TRYING TO SAY, DID I HAVE ENOUGH RESOURCES TO MEET A ONE PER DECADE STANDARD, YOU ACTUALLY DIDN'T HAVE ENOUGH RESOURCES.
AND SO YOU WOULD SEND THIS SIGNAL OF, OH, I HAD ENOUGH, BUT IN FACT YOU DIDN'T ON THE FLIP SIDE, YOU COULD ACTUALLY HAVE A YEAR WHERE THERE WAS SOME LOSS OF LOAD AND YOU MIGHT SAY, OH, IF I LOOK BACK ON THIS YEAR, I DIDN'T HAVE ENOUGH.
BUT IN FACT, MAYBE THAT SYSTEM ACTUALLY IS MEETING THE ONE DAY AND 10 YEAR STANDARD BECAUSE THERE IS SOME ALLOWED LOSS OF LOAD EVERY DECADE.
SO IT'S VERY DIFFICULT TO LOOK BACK FROM A QUANTITY PERSPECTIVE AND SAY, DID I HAVE THE RIGHT AMOUNT? WE THINK THAT'S SOMETHING THAT REALLY CAN ONLY BE, OR THAT I EVEN SHOULDN'T ONLY BE, IT'S SOMETHING THAT'S BEST DETERMINED THROUGH STOCHASTIC SIMULATION ACROSS ALL THE DIFFERENT TYPES OF SYSTEM CONDITIONS THAT COULD OCCUR FROM A PRICING PERSPECTIVE.
IT ACTUALLY, YOU COULD GO EITHER WAY FROM SETTING THE PRICE, EITHER SETTING THE DEMAND CURVE PRICES BEFORE OR AFTER THE YEAR.
WHEN WE RELEASED THE INITIAL ANALYSIS OF PCM WITH THE REPORT YEAR PLUS AGO, WE ACTUALLY SET THE DEMAND CURVE PRICING BEFORE THE YEAR.
SO THE DEMAND CURVE WAS LOCKED IN STONE.
THAT FROM AN EFFICIENCY PERSPECTIVE, WE'LL ACTUALLY GET INTO THIS LATER ON, THAT CAN ACHIEVE, THAT, CAN ACHIEVE THE RIGHT SIGNALS AND SEND THE RIGHT SIGNALS, BUT THE RESULT IS MORE PRICE VOLATILITY.
IF YOU SET THE PRICE OF THE DEMAND CURVE AFTER THE YEAR, YOU CAN, YOU HAVE THE OPTION TO INVERSELY CORRELATE PERFORMANCE CREDIT PRICES WITH ENERGY PRICES.
SO IF ENERGY PRICES RISE, PERFORMANCE CREDIT PRICES FALL, THAT HAS A STABILIZING EFFECT ON TOTAL SYSTEM COSTS.
WHEREAS IF YOU SET THE DEMAND CURVE IN ADVANCE, YOU COULD HAVE SITUATIONS WHERE ENERGY PRICES ARE HIGH AND PERFORMANCE CREDIT PRICES ARE LOW, ENERGY PRICES ARE LOW, AND PERFORMANCE CREDIT PRICES ARE LOW, AND THAT OVERALL LEADS TO MORE TOTAL SYSTEM PRICE VOLATILITY.
SO THAT'S, YES, THAT'S THE LOGIC FOR WHY WE'VE STRUCTURED IT THIS WAY.
AGAIN, BOTH OF THOSE OPTIONS ARE HYPOTHETICALLY UP FOR DECISION AND SO NEITHER OF THOSE ARE LOCKED IN STONE.
KIND OF FOLLOWING UP ON THAT, UM, IT SEEMS LIKE THERE'S A, A DIFFERENCE HERE IN THE DESIGN BETWEEN TRYING TO MAKE SURE THAT WE
[01:50:01]
HAVE GENERATION THAT CAN MEET THE TIGHTEST HOURS VERSUS INCENTING GENERATION TO ENSURE THAT WE'VE MET A RELIABILITY STANDARD.UM, WHAT I HAVE, I HAVE A COUPLE QUESTIONS AND A COMMENT.
I GUESS MY FIRST QUESTION IS, WHAT MADE YOU CHOOSE IN YOUR PROPOSAL THE LATTER VERSUS THE FORMERS IT BASED ON SOME INTERPRETATION OF THE STATUTE OR SOME OTHER FACTOR? I WAS CURIOUS ABOUT THAT.
YES, SO I WOULD SAY IT'S A GOOD QUESTION.
I WOULD SAY ACTUALLY THE STATUTE REQUIRES BOTH.
THE STATUTE SPECIFICALLY SAYS THAT, YOU KNOW, GENERATORS WILL BE COMPENSATED BASED ON AVAILABILITY TO PERFORM IN REAL TIME DURING THE TIGHTEST INTERVALS OF LOW SUPPLY AND HIGH DEMAND.
IT ALSO REQUIRES THE ESTABLISHMENT OF A RELIABILITY STANDARD.
AND THIS IS SOMETHING THAT'S BEING DEBATED IN MANY ELECTRICITY MARKETS ACROSS THE COUNTRY, BUT IT'S HOW DO YOU GET TO THAT RELIABILITY STANDARD? AND FROM OUR PERSPECTIVE, THE MOST EFFICIENT WAY TO GET TO A RELIABILITY STANDARD IS BY SENDING ENTRY AND EXIT SIGNALS BASED ON THE HOURS THAT THE SYSTEM NEEDS CAPACITY AND DEFINITIONALLY, IF THE SYSTEM HAS ENOUGH CAPACITY DURING THE TIGHTEST HOURS, THEN IT ALSO HAS ENOUGH CAPACITY DURING THE NON-IT HOURS.
IF IT DIDN'T, THEN THOSE HOURS WOULD BE SHOWING UP AS WELL IN THE MODELING AS TIGHT HOURS.
SO IT'S A VERY EFFICIENT WAY, IT'S ECONOMICALLY THE MOST EFFICIENT WAY TO IN SEND SIGNALS FOR ENTRY AND EXIT TO ACHIEVE A RELIABILITY STANDARD BY FOCUSING ON AVAILABILITY DURING THE TIGHTEST HOURS.
BECAUSE AGAIN, IF YOU HAVE, IF YOU CAN HAVE RELIABILITY DURING THE TIGHTEST HOURS, THEN YOU ALSO HAVE RELIABILITY DURING THE NON-IT HOURS.
AND IF FOR SOME REASON OTHER HOURS ARE POPPING UP AS BEING CHALLENGING OR PROBLEMATIC, THEN THOSE WILL MANIFEST IN THE MODELING AS TIGHT HOURS AND THE SYSTEM WILL SEND SIGNALS TO MAKE SURE THERE'S ENOUGH DURING THOSE HOURS.
UM, I GUESS I HAVE A COMMENT HERE, JUST AN OVERALL COMMENT.
THIS IS BASED ON, I GUESS ONE OF YOUR EARLIER SLIDES, SLIDE 11 I BELIEVE.
UM, YOU SAID THE CONCEPT WAS TO MOVE AWAY FROM THE ENERGY ONLY MARKET.
UM, AND I THINK YOU'VE REFERRED TO THIS CONCEPT IN SOME OF YOUR REMARKS TODAY AS CAP A CAPACITY, A FORM OF A CAPACITY MARKET.
UM, I'M SURE YOU KNOW, THERE'S A VERY LARGE DEBATE IN TEXAS ABOUT OUR MARKET, BUT I DO WANT TO SAY, YOU KNOW, REPRESENTING GENERATORS WHO WILL NOT BE ABLE TO PARTICIPATE IN THE PCM AND WHO HAVE MADE INVESTMENTS BASED UPON AN ENERGY ONLY MARKET, WE WANNA ENSURE THAT THE PCM IS DESIGNED IN A WAY THAT'S NOT GOING TO HARM, UM, THOSE GENERATORS THAT PARTICIPATE IN THE ENERGY ONLY MARKET.
UM, HAVE YOU DONE ANY ANALYSIS AND, AND HARM THEM BY STRUCTURING THE PCM IN A WAY THAT ENABLES PERHAPS WINDFALL REVENUES FOR PAYMENTS, FOR AVAILABILITY IN TIMES THAT MAY NOT BE NECESSARY IN THE WAY THAT WE'VE DESIGNED IT THROUGH THE PARAMETERS.
SO, SO HAVE YOU, WILL THERE BE ANY KIND OF ANALYSIS OF KIND OF THE IMPACT ON THE ENERGY ONLY MARKET AND THE GENERATORS THAT DO PARTICIPATE IN THAT AND THEN THOSE INVESTMENT DECISIONS THAT ARE MADE? SHORT ANSWER IS YES.
WE ACTUALLY HAVE SEVERAL SLIDES THAT SHOW THE IMPACT OF PCM ON MANY DIFFERENT CLASSES OF GENERATORS, DISPATCHABLE GENERATORS, BATTERIES, RENEWABLES, ET CETERA.
AND WE SHOW THE IMPACT OF, OF THOSE, THEIR REVENUES.
YEAH, LATER ON UNDER SEVERAL DIFFERENT DESIGN FRAMEWORKS.
AND THEN FINALLY, JUST KIND OF FOLLOWING UP ON WHAT JEFF JUST SAID, UM, DECIDING WHAT WE'RE GOING TO NEED BASED ON MODELING AND THEN ACTUALLY PAYING FOR PERFORMANCE, UM, AFTER THE FACT.
THERE DOES SEEM TO BE A DISCONNECT AND THAT DOES SEEM TO BE AN OPPORTUNITY TO, UM, PERHAPS BE DESIGNING SOMETHING THAT WILL HAVE THE OPPORTUNITY TO INCLUDE THOSE WINDFALLS THAT MAYBE AREN'T NECESSARY.
SO JUST, UM, WOULD LIKE YOUR THOUGHTS, I KNOW YOU, YOU EXPLAINED TO JEFF WHY YOU, YOU CHOSE THAT PATH, BUT JUST KEEP IN MIND THAT WE DON'T HAVE A CAPACITY MARKET IN TEXAS.
WE HAVE AN ENERGY ONLY MARKET AND THE MARKET HAS TO WORK FOR ALL THE GENERATORS.
SO YEAH, I APPRECIATE THAT COMMENT.
AND THE ONE, ONE THING I'LL SAY IS WE'VE, EVERY, EVERY DECISION THAT WE'VE EVEN STARTED WITH IN THE DEFAULT PROPOSAL HAS BEEN GEARED AROUND
[01:55:01]
HOW CAN WE DESIGN THE PERFORMANCE CREDIT MECHANISM IN THE MOST EFFICIENT MANNER POSSIBLE, IN THE MOST FAIR MANNER POSSIBLE GIVEN THE GUARDRAILS THAT ARE IN PLACE.WE'VE BEEN VERY CAREFUL TO TRY TO THINK THROUGH THE CONSEQUENCES AND UNINTENDED CONSEQUENCES OF EVERY SINGLE DECISION.
AND THAT IS ALSO SOMETHING WE'D BE VERY OPEN TO STAKEHOLDER FEEDBACK ON IF AS WE GO THROUGH THE MORE DETAILED PARAMETERS LATER ON AT THE END, YOU KNOW, EVEN AFTER THE WORKSHOP THROUGH WRITTEN COMMENTS, IF OTHER PEOPLE SEE UNINTENDED CONSEQUENCES THAT WE SHOULD BE LOOKING INTO OF CERTAIN DECISIONS, THEN WE WOULD DEFINITELY WANT TO HEAR THOSE.
UH, JUST WANTED TO CONFIRM, UH, THE FORWARD MARKET IS, THAT'S LISTED AS ONE OF THE THINGS THAT DOES NOT IMPACT MODELING, UH, LATER IN THE DECK.
SO WANTED TO CONFIRM THAT WHILE IT'S AN IMPORTANT FEATURE THAT'S NOT, UH, YOU KNOW, THE IMPACTS OF THE FORWARD MARKET CLEARING IS NOT REFLECTED IN LIKE THE COST OF THE PCM AND AND THE REST OF THE ANALYSIS, IT'S BASICALLY THE EQUIVALENT OF A REALTIME MARKET, UH, ANALYSIS, RIGHT? THAT'S EXACTLY CORRECT.
OUR MODELING WILL FOCUS ON THE ACTUAL EXPECTED PRICES OF THE PERFORMANCE CREDIT MECHANISM AND WE EXPECT THE FORWARD MARKET TO A LARGE EXTENT IS GONNA BE BASED ON MARKET PARTICIPANT BEHAVIOR AND HOW THEY PERCEIVE RISKS AND PREFERENCES AND HEDGING AND ALL OF THAT.
SO IT'S KIND OF BEYOND WHAT A PHYSICAL MODEL IS CAPABLE OF UNDERSTANDING AND GETTING INTO.
YOU'D EXPECT CONVERGENCE, YOU KNOW, BROADLY OVER TIME WE WOULD, RIGHT, WE WOULD, FOR RATIONAL PARTICIPANTS, WE WOULD EXPECT BIDDING BEHAVIOR TO ALIGN AROUND EXPECTATIONS OF MARKET PRICE, BUT THERE MIGHT BE DIFFERENT RISK PREFERENCES OF PARTICIPANTS THAT MIGHT CAUSE THEM TO DEVIATE FROM THAT IN SOME WAY.
AND SO YEAH, WE WOULDN'T, WOULDN'T BE EVALUATING THAT.
THANKS FOR THE CLARIFICATION LAUREN KUNZ.
YEAH, I JUST HAVE A QUICK QUESTION ABOUT CONTROLLABLE LOADS.
I KNOW RIGHT NOW CONTROLLABLE LOADS CAN BID INTO THE ENERGY MARKET, BASICALLY BE PAID NOT TO CONSUME.
ARE THEY ABLE TO BID INTO THE PCM AS WELL OR IS IT REALLY ONLY THROUGH NOT BEING CHARGED PCM BY NOT CONSUMING AT THE TIGHT HOURS THAT THEY KIND OF ARE PARTAKING IN THE MARKET? SO WE HAVE AN ENTIRE SLIDE ON ELIGIBILITY OF RESOURCES AND THE DECISIONS AROUND WHAT RESOURCES ARE ELIGIBLE OR NOT.
SO I WILL PROBABLY DEFER THAT TOPIC UNTIL WE GET TO THERE, BUT AGAIN, EV YEAH, I THINK IT'S YET TO BE DETERMINED SORT OF WHAT IS ON THE TABLE IN TERMS OF WHAT, I MEAN WE'RE TRYING TO COMPLY WITH THE GUARDRAILS, BUT WE'RE ALSO RECOGNIZED THAT THERE ARE SOME DECISIONS THAT NEED TO BE MADE.
SO YEAH, I THINK THAT'S, THAT'S NOT REALLY SOMETHING THAT E THREE IS IN A POSITION TO HAVE A PERSPECTIVE ON OTHER THAN WE SAY, YOU KNOW, IF THESE RESOURCES ARE ELIGIBLE, THESE ARE THE OUTCOMES THAT THESE RESOURCES ARE ELIGIBLE, THESE ARE THE OUTCOMES.
BUT AS FAR AS DETERMINING WHAT IS OR IS NOT ELIGIBLE IS NOT, YEAH, NOT, NOT SOMETHING THAT E THREE HAS A PERSPECTIVE ON.
REMI, UM, I HAVE A QUESTION BACK ON SLIDE, UH, 12.
UH, THAT SLIDE HAS, UH, SIGNIFICANT, UH, IMPLICATIONS THAT THE JEWELRY MARKET DOESN'T WORK.
SO I JUST WANTED TO UNDERSTAND, UM, UH, HOW THE MARKET IS CLEARING RIGHT NOW AND WHAT IS THE MODELING? SO IN 2023 WE HAD NO LOAD SHED AND WE HAD LIKE PRICES, HIGH PRICES AND COST, UH, PICK A NET MARGIN I THINK, UH, WAY OVER 2 50, 2 60, SOMETHING LIKE THAT.
SO, UM, I ASSUME THESE ARE AVERAGE OVER MANY RUNS AND THAT'S WHY IT IS NOT COMING UP LIKE THAT.
OTHERWISE, IF IT IS 3.2 DAYS OF HIGH PRICES, THE P AND M WOULD BE VERY HIGH, RIGHT? UM, SO IF THE 3.2 AVERAGE OVER MULTIPLE RUNS IS NOT GIVING YOU THE CT MARGIN, THEN I'M THINKING IT IS BECAUSE THERE IS ONE EXTREME CASE WHERE THERE IS LIKE MANY, MANY, MANY HOURS OF OUTAGE THAT IS AVERAGING OUT AND CAUSING THE UH, LOLE TO BE HIGH, BUT THE P AND M TO BE LOW, RIGHT? SO THE ON THE LEFT HAND CHART, THE COMBUSTION TURBINES ARE EARNING PEAKER NET MAR THEIR PEAKER NET MARGIN IS EQUAL TO THE COST OF NEW ENTRY AND IT'S 'CAUSE THE MARGINS ARE $103 PER KILOWATT YEAR, WHICH IS THE COST OF NEW ENTRY FOR A PEAKER.
SO AGAIN, I THINK THE IMPORTANT THINGS TO KEEP IN MIND HERE ARE THAT THIS IS
[02:00:02]
AN, THESE VALUES ARE AVERAGES.SO THERE'S GONNA BE A WIDE RANGE OF THOSE VALUES ACROSS DIFFERENT YEARS.
IT'S VERY HARD TO LOOK AT ONE YEAR AND, AND MAKE, YOU KNOW, TAKEAWAYS ABOUT WHETHER THE SYSTEMS AT THE RIGHT LEVEL OF BALANCE OR PRICING AND WHATNOT, GIVEN THAT, YOU KNOW, ANY GIVEN YEAR COULD BE ANYWHERE IN THIS ENTIRE WIDE DISTRIBUTION.
THE OTHER IMPORTANT THING TO KEEP IN MIND IS THAT THIS IS LOOKING AT A SYSTEM IN 2026 WITH SIGNIFICANT QUANTITY OF NEW SOLAR AND STORAGE THAT HAS A OVERALL PRICE SUPPRESSING EFFECT WHEN THOSE RESOURCES ARE GENERATING.
AND SO THAT ALSO MAKES THIS A LITTLE BIT, UH, NOT NECESSARILY AN APPLES TO APPLES COMPARISON WITH HISTORICAL YEARS.
IF I JUST ASSUME THAT THE REST OF THE, IF, IF, IF THE AVERAGE IS A REPRESENTATION OF ANY YEAR, AND I ASSUME THAT REST OF THE HOURS, THE PEAK, UH, THE CT IS NOT MAKING ANY REVENUE AT ALL AND IS MAKING ONLY FOR THAT LOAD SHE HOURS, THEN ALSO IT WOULD MAKE LIKE SUBSTANTIALLY HIGHER THAN UH, 1 0 2.
SO BASED ON THAT, I THINK THERE IS A VERY EXTREME OUTAGE SCENARIO THAT IS CONSIDERED.
AND IF MAYBE AFTER THE, UH, PRESENTATION, IF THE INFORMATION DETAILS OF THAT THAT WE SHARED, THAT WOULD BE GOOD.
NO, THAT'S, THAT'S A, THAT'S A GREAT POINT.
SO MAYBE DAVID OR KEVIN CAN CHIME IN HERE TOO, BUT IT IS, IT IS, YOU'RE ABSOLUTELY CORRECT.
SO THERE IS A SIGNIFICANT AMOUNT OF WINTER RISK, WHICH CAN CONCENTRATE, YOU KNOW, RELIABILITY EVENTS INTO PARTICULAR YEARS.
AND ONCE, YOU KNOW, ONCE PEAKER NET MARGIN HITS IN THOSE YEARS, THEN THE PRICE FALLS AS WELL.
AND SO THAT, AND THAT EFFECT IS INCLUDED IN THE MODELING AS WELL.
SO IF YOU CAN SHARE WHAT IS THE EXTREME OUTAGE THAT IS CONSIDERED IN THE STUDY, THAT WOULD BE GOOD.
YEAH, I'LL WEIGH IN HERE KEVIN CARD WITH TROPIC CONSULTING.
AND ZACH, I AGREE WITH WHAT YOU SAID.
UM, THE 3.2 DAYS PER YEAR, IT IS MUCH HEAVIER WEIGHTED TOWARD THE WINTER WITH THESE RUNS KIND OF COMPARED TO HISTORICAL, COMPARED TO PRIOR RESERVE MARGIN ANALYSIS THAT WE'VE DONE BECAUSE IT IS CONCENTRATED IN, UH, IN THE WINTER BECAUSE EVENTS ARE CONCENTRATED IN A VERY SMALL WINDOW OF TIME.
YOU, YOU HAVE ESSENTIALLY THREE DAYS WHERE YOU SHED LOAD AND THEN THERE'S NO OTHER SCARCITY AROUND IT.
THERE'S REALLY COLD PERIODS WHERE JUST A VERY SHORT WINDOW, NOT LIKE THE SUMMER WHERE YOU HAVE 60 DAYS IN A ROW OF REALLY HOT TEMPERATURES AND YOU BUILD ALL THAT SCARCITY IN.
SO THIS FUTURE SCENARIO, LITTLE SCAR SEED IN THE SUMMER, LOTS CONCENTRATE IN THE WINTER, THOSE THREE DAYS, THAT IS AN AVERAGE.
SO YOU'RE, YOU STILL HAVE TO DO THAT CALCULATION RESUME THREE, UH, YOU ASSUME $5,000.
UM, FOR THE, THE ONLY DIFFERENCE IS, BUT IT'S LIKE THREE TIMES 5,000 TIMES FOUR, SO YOU GET ABOUT $60 A KILOWATT YEAR IN THOSE PARTICULAR DAYS.
SO THEN YOU GOTTA MAKE UP THE BALANCE OF THE $40 IN THE, IN THE REST OF THE YEAR.
SO IT'S, IT'S STILL THAT CONCENTRATION, UM, AND THE MATH STILL ADDS UP THERE.
IN THAT CASE THOUGH, ASSUMING YOU'RE BASICALLY EARNING $60 A KILOWATT IN THAT THREE DAY WINDOW, THREE TIMES 24 TIMES, UH, 5,000 ADDS UP TO 300 TIMES THE LLE WHEN IT SAYS 3.2 DAYS PER YEAR, IT'S A DAY WITH AT LEAST ONE HOUR OF LOSS OF LOAD.
SO IT'S REALLY 3.2 TIMES THE EVENT DURATION, WHICH IS PROBABLY THREE HOURS.
YEAH, IT'S NOT, IT'S NOT THREE TIMES 24 HOURS PER YEAR.
BECAUSE ANY DAY WITH ANY LOSS OF LOAD COUNTS AS A DAY, SO.
AND, UM, HOW IT ALSO DEPENDS ON HOW MUCH WEIGHTAGE IS ASSIGNED TO THAT EXTREME YEAR.
LIKE FOR EXAMPLE, URI, IF YOU CONSIDER IT TO BE EQUAL WEIGHTAGE LIKE ANY YEAR, THEN THE, UH, ANALYSIS CAN BE SKEWED.
SO IF THAT INFORMATION CAN BE SHARED AS WELL, THAT WOULD BE GOOD.
WE'VE GOT, UH, ONE MORE QUESTION AND THEN I, WE WILL HAVE TO KIND OF MOVE ON TO THE NEXT SECTION.
WE'RE ABOUT 30 MINUTES OR SO BEHIND THE PACE, BUT I DID JUST WANT TO CHECK, ZACH, DID YOU WANNA TAKE FIVE MINUTES BEFORE WE GO INTO THE NEXT SECTION OR? I THINK THAT'D BE SMART, YEAH.
SO WE WILL HAVE, UH, SEAN'S QUESTION AND THEN WE'LL TAKE A, A FIVE MINUTE BREAK.
SO ON THIS ONE, UH, I BELIEVE THE ENERGY ONLY MEM THAT TAKES SOME ACCOUNT SIGNIFICANT, UH, RETIREMENTS AS WELL BECAUSE OF THE PRICES GOING DOWN WITH THE RIGHT IT'S NOT.
SO WE WILL ACTUALLY GET INTO HOW WE CONSTRUCTED THIS PORTFOLIO.
SO MAYBE I'LL SAY THAT ACTUALLY THAT'S PERFECT QUESTION FOR THE NEXT SECTION.
AND IF THE LLE UM, TURNS OUT TO BE 0.1 OR GREATER, WHAT HAPPENS? DO WE NOT HAVE THIS, UH, ECM MECHANISM FOR THAT YEAR? IF YOU'RE LOOKING FORWARD NEXT YEAR AND WE SEE THE L BELOW THAT 0.1 OR WHATEVER THE RELIABILITY STANDARD IS, WHAT HAPPENS TO THE WHOLE MARKET?
[02:05:01]
SO IF THE MARKET HAS MORE RESOURCES THAN THE TARGET RELIABILITY MM-HMM,SO THERE'S A NATURAL FEEDBACK WHERE IF YOU KNOW, HYPOTHETICALLY THE ENERGY ONLY MARKET IS DELIVERING TONS OF CAPACITY AND MORE THAN IS NEEDED TO ACHIEVE THE RELIABILITY STANDARD, THEN THE PRICE OF PERFORMANCE CREDITS COULD FALL.
AND IF, IF THERE'S ENOUGH EXCESS CAPACITY, THE PRICE OF PERFORMANCE CREDITS COULD BE ZERO.
WE'LL STILL KEEP RUNNING THE MARKET BASICALLY, YES.
AND UM, IF I'M LONG, IF I'M IN LSC AND I OVER PROCURED PCM, I'M ASSUMING I'LL GET PAID THE REAL TIME CLEARING PRICE, RIGHT? FOR THE EXCESS THAT IS THE PLAN RIGHT NOW? YES.
OR THAT'S THE DEFAULT ASSUMPTION, BUT IS A DECISION THAT WOULD NEED TO BE MADE.
WITH THAT WE'VE COMPLETED THE FIRST SECTION.
UM, WE'RE GONNA TAKE A VERY TIGHT FIVE MINUTE BREAK HERE.
SO BY MY RECKONING IT'S 1137, SO WE WILL, UH, RECONVENE AT QUARTER TWO.
WE DID RECEIVE ONE QUESTION BEFORE WE GET INTO THE NEXT PART OF THE AGENDA ABOUT WHERE THE MATERIALS AND THE RECORDING FOR THIS WILL BE POSTED.
I THINK DAVE MAGGIO IF YOU'RE ONLINE AND WANTED TO SPEAK TO THAT.
YEAH, RYAN, I CAN DO THAT VERY QUICKLY.
IF FOLKS GO TO THE MEETING PAGE, UH, FOR TODAY'S WORKSHOP AND SCROLL DOWN TO THE BOTTOM, YOU'LL SEE A, IN FACT, I'M NOT SURE IF YOU CAN PULL THIS UP ON THE SCREEN, UH, IN THE ROOM HERE.
UM, BUT IF YOU SCROLL AWAY TO THE BOTTOM, THERE'S A, A SORT OF A GRAY BOX THAT TALKS ABOUT VIEWING LIVE AND ARCHIVE MEETING WEBCAST, AND THERE'S A WATCH NOW BUTTON.
IF YOU HIT THAT BUTTON, IT WILL TAKE YOU TO A LOCATION ON THE WEBSITE THAT HAS BOTH, UH, LIVE MEETINGS AND ARCHIVE MEETINGS.
AND, AND THAT WILL BE THE WAY TO FIND, UH, THE RECORDING AFTER THE FACT TODAY.
BUT IF FOLKS DO, UH, DO HAVE FURTHER QUESTIONS AND WANNA PUT SOMETHING IN THE CHAT, I CAN TRY AND HELP THERE.
[3. Part 2: PCM Strawman Design Modeling & Study Approach]
ON PART TWO OF THE AGENDA, WHICH I THINK DAVID IS GOING TO BE WALKING US THROUGH.WE'LL, WE'RE, YEAH, WE'RE ABOUT 50 MINUTES, UH, BEHIND SCHEDULE AT THIS POINT.
SO WHAT I MIGHT SUGGEST IS THAT, UNLESS IT'S A SUPER URGENT QUESTION, MAYBE WE CAN WAIT FOR DAVID TO COMPLETE HIS SECTION OR AS MUCH AS WE CAN BEFORE WE BREAK FOR LUNCH, MAYBE A SLIGHTLY SHORTENED LUNCH TO HELP US GET BACK ON TRACK.
BUT, UH, OTHER THAN THAT, I WILL TURN THINGS OVER TO YOU, DAVID.
THANKS RYAN CAN EVER HEAR ME? COOL.
SO I THINK THIS IS THE SECTION WE'VE ALL BEEN WAITING FOR, TALKING ABOUT THE INPUTS AND ASSUMPTIONS OF THE MODELING.
SO HOPEFULLY THIS ANSWERS A LOT OF YOUR QUESTIONS, AND IF NOT, WE'LL DEFINITELY TAKE TIME AT THE END TO ANSWER SOME OF THEM.
UM, AND THEN KEVIN, AS MENTIONED, WE'LL BE ON THE LINE, UH, WHO'S PROBABLY A LOT MORE TECHNICAL ON SOME OF THESE STUFF.
SO, UM, ALSO KEVIN, FEEL FREE TO CHIME IN ON ANY POINT.
SO IF WE GO INTO THE NEXT SLIDE, I THINK WE USED THIS SAME SLIDE FOR THE PC WORK WE DID, UM, A COUPLE YEARS AGO, PRIMARILY BECAUSE WE'RE DOING PRETTY MUCH THE SAME TYPE OF MODELING WITH THE SAME SOFTWARE.
SO WE'RE, WE'RE WORKING WITH RAE WHO HAS THIS SER UH, MODEL CALLED C, THE STRATEGIC ENERGY RISK VALUATION MODEL, WHICH BASICALLY IS A MONTE CARLO SIMULATION THAT TRIES TO FORECAST HOW IS ERCOT GONNA LOOK LIKE IN A SPECIFIC YEAR BASED ON DIFFERENT DRAWS OF INPUTS.
SO WE HAVE THE KEY INPUTS HERE ON THE LEFT, BUT BASICALLY LOAD PROFILES, LOOKING AT DIFFERENT LOAD PROFILES ACROSS HISTORICAL PERIODS, AS WELL AS KIND OF ADJUSTING THOSE TO ACCOMMODATE FOR THINGS OF FUTURE LOOKING NATURE.
HOW IS THE ANCILLARY SERVICE REQUIREMENTS HAPPENING? WHAT IS BASICALLY THE AVAILABILITY OF RESOURCES? SO, YOU KNOW, WE MODEL EVERYTHING FROM YEARS WITH A LOT OF SOLAR AND WIND TO YEARS THAT DON'T HAVE A LOT OF SOLAR WIND BASED ON HISTORICAL WEATHER PATTERNS, AND THEN ALSO GENERATOR UNAVAILABILITY, SO BOTH MAINTENANCE OUTAGES AND FOREST OUTAGES.
AND SO WHEN YOU THINK ABOUT THESE THINGS, UM, YOU KNOW, THE REASON WHY THIS MODEL ENDS UP BEING LIKE THOUSANDS OF YEARS OF SIMULATION IS BECAUSE YOU'RE BASICALLY JUST TAKING DIFFERENT DRAWS OF THESE DIFFERENT COMBINATORIALS, UM, OF THESE DIFFERENT INPUTS.
AND THEN IN TERMS OF OUTPUTS, I MEAN IT'S PROBABLY WHAT WE'VE BEEN SHARING, UH, AND YOU'VE SEEN, BUT IT'S UM, YOU KNOW, RELIABILITY METRICS, ENERGY COSTS, AND THE VARIABILITY.
[02:10:01]
PRICES AND THEN, UM, BASICALLY THE, WHAT WE'RE GONNA CALL PC EFFECTIVENESS, WHICH IS BASICALLY HOW MUCH, UH, EACH OF THESE RESOURCES ARE MAKING, UH, PER NAMEPLATE KILOWATT HOUR OF, OF THEIR CAPACITY.ONE THING TO CALL OUT I THINK IS IMPORTANT THAT SERVI DOES NOT EXPLICITLY MODEL TRANSMISSION DELIVERABILITY.
UH, HOWEVER, C HAS BASICALLY IS BASED ON CALIBRATED HISTORICAL PRICES.
SO IT DOES CALIBRATE TO HISTORICAL SONO PRICING IN THE MODEL, AND THEREFORE IN SOME WAY, SHAPE OR ANOTHER DOES INCORPORATE SOME OF THE ENERGY AND CONGESTION ASPECTS.
I WOULD SAY THAT TAKING A STEP BACK FROM ALL OF THIS, AS MENTIONED, WHAT WE'RE USING BOTH IN THE INPUTS AS WELL AS THE MODEL IS CONSISTENT WITH, YOU KNOW, THE WORK WE DID WITH THE P-U-C-T-A COUPLE YEARS AGO, OBVIOUSLY UPDATED FOR ANY CHANGES TO ERCOT MARKET AS WELL AS, YOU KNOW, THE WORK ASTRO HAS BEEN DOING WITH ERCOT HISTORICALLY, AS WELL AS GOING FORWARD ON THE RELIABILITY, UM, UH, THE, SORRY, THE M RM, THE, UM, RESOURCE MARGIN, UH, MARKET EQUILIBRIUM RESOURCE MARGIN STUDIES THAT THEY PERFORM, AND ALSO THE ONGOING RELIABILITY STANDARDS PROCEEDING.
AND WE JUST WANNA ENSURE CONSISTENCY ACROSS ALL THESE PROCESSES TO MAKE SURE THAT WHEN YOU LOOK AT ONE OR THE OTHER REPORT, WE'RE USING KIND OF THE SAME SET OF MODELS AND INPUTS.
SO WE DO HAVE ONE, UH, QUESTION FROM TAYLOR KILROY ON THIS SLIDE.
I'M, AND I'M NOT TRYING TO BEAT CYRUS, SO THIS WILL BE QUICK.
A COUPLE WEEKS AGO WE GOT A FILING IN THE RELIABILITY STANDARD DOCKET THAT ERCOT HAD IDENTIFIED A BUG IN HUM RELATING TO HOW BATTERIES ARE SETTLED.
AND THE BUG WAS APPARENTLY SEVERE ENOUGH THAT THEY WANTED TO RERUN ALL THE SIMULATIONS JUST TO MAKE SURE, DO YOU KNOW IF THAT BUG WAS IN THE PCM RUNS AS WELL, AND IS THAT SOMETHING THAT NEEDS TO BE FIXED ON, ON YOUR END AS WELL? YEAH, KEVIN, I DON'T KNOW IF YOU WANNA SPEAK TO THAT ONE.
YES, THAT WAS CORRECTED IN THERE.
AND FOR CONTEXT, IT WAS AN ISSUE WITH SCHEDULING BATTERIES ON DAYS WHERE THE NET LOAD WAS NEGATIVE.
UH, WE WEREN'T SCHEDULING ENOUGH BATTERY AND THAT AFFECTED MARKET PRICES ON THOSE PARTICULAR DAYS, BUT THAT WAS RESOLVED.
YEAH, AND THE, THE ONLY OTHER THING I'LL ADD IS AGAIN, ALL OF THE QUOTE UNQUOTE RESULTS THAT WE'RE SHOWING TODAY ARE FOR EDUCATIONAL PURPOSES, SO NOTHING'S IN ANY WAY BINDING ON PRICING OR FINAL DESIGN OR ANYTHING LIKE THAT.
AND I GUESS ANOTHER GOOD POINT TO MENTION ON THAT IS THAT AT THE END OF THE DAY, THIS STUDY, A LOT OF IT IS, YOU KNOW, THERE'S IMPORTANCE IN, IN THE CERTAINTY OF IT, BUT MOST OF IT, AT LEAST THE CONCLUSIONS WE'RE GONNA TAKE, ARE GONNA BE RELATIVE, LIKE BASICALLY, YOU KNOW, ONE DESIGN VERSUS THE OTHER TWO VERSUS FOUR.
SO OBVIOUSLY WE WANNA MAKE SURE THE MODEL IS AS UPDATED AS IT CAN, BUT IF THERE'S THING THAT WOULD AFFECT EVERY SINGLE DESIGN IN ONE WAY OR NOT, OR ANOTHER, IT, IT KIND OF, UM, YOU KNOW, IT'S NOT FINAL TO S'S POINT.
SO IF WE GO INTO THE NEXT SLIDE, UH, WE BASICALLY, AS DISCUSSED OUR MODELING A 2026 SYSTEM.
I THINK WE'RE GONNA TOUCH A LITTLE BIT, UH, IN A BIT OF, YOU KNOW, WHAT THAT MEANS.
BUT IN GENERAL, WE DO THIS ONCE AGAIN TO BE CONSISTENT WITH THE DIFFERENT STUDIES BEING DONE, BOTH THE ONE THAT WE DID WITH THE COMMISSION, AS WELL AS, UM, THE STUDIES THAT ARE HAPPENING RIGHT NOW WITH THE RELIABILITY STANDARD.
HERE WE SHOW A LOT OF VALUES THAT JUST SHOW LIKE BASICALLY ONE THING, BUT AS MENTIONED, THESE ARE BASICALLY, UM, A LOT OF DIFFERENT SIMULATIONS AND DRAWS OF, UH, DIFFERENT POTENTIAL OPTIONS.
SO LOOKING AT THE LOAD LEVELS, THE MODEL IS CURRENTLY SET ON USING THE 2023 FORECAST OF ERCOT LOAD.
I KNOW THERE'S, YOU KNOW, A NEW, MORE RECENT ERCOT LOAD THAT HAS BEEN PUBLISHED.
THAT IS SOMETHING THAT CAN BE IMPLEMENTED IN THE MODEL.
AND TO SACK'S POINT, IT'S NOT FINAL, BUT WHAT IS SHOWING IS THAT THE MEDIAN PEAK LOAD IS AROUND 86 GIGAWATTS, WHICH IS WHAT HAS SHOWN EARLIER.
AND THEN AN ANNUAL TOTAL LO AROUND, UH, 480 TERAWATT HOURS PER YEAR.
I'LL SKIP THE RESOURCE PORTFOLIO FOR NOW 'CAUSE I THINK THAT'S PROBABLY THE ONE THAT WE WANT TO TOUCH IN IN MORE DETAIL.
NATURAL GAS PRICES, ONCE AGAIN, FOR CONSISTENCY, WE'RE USING, UM, THE E I'S ANNUAL ENERGY OUTLOOK FROM THE 2022, WHICH HAS AROUND THREE POINT $33 PER M-M-E-T-U.
WE ONCE AGAIN KNOW THERE'S A MORE RECENT ONE THAT ACTUALLY IS AROUND THE THREE 40.
SO IT DOESN'T CHANGE RESULTS TOO MUCH IN TERMS OF WHAT THE NATURAL GAS PRICE IS, BUT ONCE AGAIN, TO ENSURE CONSISTENCY, WE DECIDED TO KEEP WITH THIS, UM, VALUE.
AND THEN OTHER CONSIDERATIONS IS BASICALLY LOOKING AT OTHER PRODUCTS THAT ERCOT HAS IMPLEMENTED.
SO IN THIS 2026, UM, PHASE YEAR THAT WE'RE MODELING, WE ARE INCLUDING CONSERVATIVE OPERATIONS.
WE ARE INCLUDING ECRS, WHICH IS ALREADY ONLINE, AND WE ARE INCLUDING THE PROPOSED REAL-TIME OPTIMIZATIONS PLUS BATTERIES.
THE ONLY THING THAT IS NOT INCLUDED SO FAR IS D-R-S-S-D-R-R-S, SORRY.
AND THAT IS PRIMARILY BECAUSE TALKING TO ERCOT, ANNA CHOPPER, THERE JUST WASN'T ENOUGH DETAILS ON HOW THIS PRODUCT WAS GONNA WORK TO BE ABLE TO ACTUALLY MODEL IT IN A SYSTEM.
SO THAT'S ONE OF THE THINGS THAT HASN'T BEEN INCLUDED
[02:15:01]
GOING INTO THE RESOURCE PORTFOLIO.I THINK THIS IS ONE THAT I THINK MANY PEOPLE WERE INTERESTED IN.
SO I'LL TRY TO TAKE IT, UH, STEP BY STEP.
SO LOOKING AT THE CHARTS THAT WE HAVE ON THE RIGHT OF THE SLIDE, YOU CAN BASICALLY SEE THE 2023 BAR AND THEN THE 2026 BAR.
SO THESE REPRESENTS NAMEPLATE CAPACITY ACROSS DIFFERENT RESOURCE CLASSES.
THE 2023 BAR IS BASED ON THE MARCH 20, 23 CDR REPORT RELEASED BY ERCOT AND BASICALLY SHOWS BASICALLY THE CAPACITY IS OPERATING AND ONLINE THROUGH MAY, UH, BY, UH, MAY OR MARCH, SORRY, 2023.
AND THEN WE BASICALLY TRY TO SAY, OKAY, HOW IS THE 2026 YEAR GONNA LOOK LIKE? SO WHAT WE'RE GONNA DO IS WE'RE BASICALLY GONNA ADD EVERYTHING THAT IS IN THE QUEUE, OR THAT IS IN THE CDR TO BE OPERATIONAL BY 2026.
AND AS YOU CAN SEE HERE, THAT'S, YOU KNOW, AROUND EIGHT GIGS OF NEW STORAGE CAPACITY, ALMOST 30 GIGS OF NEW SOLAR CAPACITY, AND THEN FOUR MORE GIGS OF WIND CAPACITY RELATIVE TO 2023.
WHAT HAPPENS WHEN YOU MODEL THIS SYSTEM WITH A LOT MORE RENEWABLES, YOU KNOW, HIGHER LOAD, BUT NOT NECESSARILY COMPENSATING FOR THIS MUCH AMOUNT OF, UM, NEW RENEWABLE CAPACITY, IS THAT YOU JUST HAVE LOWER PRICES AND LOWER SCARCITY IN THE MARKET.
SO IN ORDER TO BE ABLE TO MODEL, YOU KNOW, THE RATIONAL BEHAVIOR OF WHAT MARKET PARTICIPANTS WOULD DO IS THAT IF YOU HAVE A MARKET WITH A LOT LESS SCARCITY DRIVEN BY THESE ADDITION IN RENEWABLES, YOU WOULD JUST EXPECT LESS FOSSIL RESOURCES, COAL, NATURAL GAS TO ENTER THE MARKET OR BASICALLY POTENTIALLY JUST BE ADJUSTED DOWN.
SO BASICALLY THERE'S NOT ENOUGH MONEY FOR THIS COAL AND GAS TO BE PROFITABLE, AND THEREFORE, AS RATIONAL PARTICIPANTS IN THIS KIND OF EQUILIBRIUM VIEW THAT WE'RE TRYING TO PUT FORWARD, UH, WE WOULD EXPECT BASICALLY AN ADJUSTMENT OF 14 GIGAWATTS OF CAPACITY LESS THAN IN 2023 FOR, FOR THERMAL.
THIS 2026 IS LOOKING AT THE EQUILIBRIUM IN THE ENERGY ONLY CASE.
SO IF YOU'LL REMEMBER, YOU KNOW, WHEN WE TALK ABOUT PCM AND INCENTING ADDITIONAL ENTRY, THAT BASICALLY AS WE DISCUSSED, BRINGS AROUND ADDITIONAL 13 GIGS OF THERMAL CAPACITY.
SO THAT BRINGS ACTUALLY TO LIKE A SIMILAR LEVEL OF THERMAL CAPACITY THAT'LL BE IN THE SYSTEM TODAY.
BUT ONCE AGAIN, THESE ADJUSTMENTS ARE JUST PRIMARILY BASED ON THE FACT THAT IF THE, YOU KNOW, ALL THESE RENEWABLES WERE TO COME INTO A SYSTEM, THERE JUST WOULDN'T BE ENOUGH MONEY TO MAINTAIN DISPATCHABLE RESOURCES IN.
AND SO I THINK ONE THING TO CALL OUT HERE, AND IT'S SOMETHING WE KIND OF, UM, STRUGGLE WITH BOTH LAST TIME AND THIS TIME, IS THAT WE'RE TRYING TO FIND KIND OF A LONG-TERM FUTURE TO SEE WHAT THE EFFECTIVE PCM WOULD BE THAT WE THINK IS GONNA BE AN EQUILIBRIUM OR IS ABLE TO REACH EQUILIBRIUM, BUT ALSO WANNA MAKE SURE THAT WE HAVE LIKE THE RIGHT ASSUMPTIONS.
SO IF WE LOOK INTO THE VERY SHORT TERM, THEN IT'S KIND OF LIKE LESS REALISTIC TO THINK THAT A PORTFOLIO WOULD REACH MARKET EQUILIBRIUM BECAUSE YOU HAVE LESS TIME TO ADJUST RIGHT FROM NOW.
2023 TO 20 20 26 EXPECTING FOR TEAM GIGS OF RETIREMENT IS NOT REALLY FEASIBLE ON ON THE THERMO SIDE.
HOWEVER, IF YOU LOOK INTO THE LONGER TERM, AND LET'S SAY WE'RE GONNA MODEL A 2035 YEAR, WHICH YOU KNOW, WE PROBABLY WILL AT SOME POINT, UM, AS PART OF THIS STUDY, YOU WOULD JUST GET LESS ACCURATE ASSUMPTIONS ON WHAT LOAD IS GONNA BE IN THAT TIME AND WHAT RESOURCES ADDITIONS ARE GONNA BE IN THAT TIME.
SO IT'S BASICALLY UNCERTAINTY ON BOTH SIDES OF THE, OF THE BASIC EQUATION.
SO WE ENDED UP TRYING TO STICK WITH THIS 2020 C 26 PORTFOLIO TO BE CONSISTENT WITH OTHER STUDIES AS MENTIONED.
BUT ONCE AGAIN, THIS IS NOT US TRYING TO SAY THAT WE THINK, YOU KNOW, BY 20 26, 14 GIGS ARE GONNA RETIRE AND AN ENERGY ONLY PORTFOLIO, THIS IS JUST SAYING BASED ON RATIONAL AND KIND OF MARKET SIGNALS DRIVEN BY THE INCREMENTAL RENEWABLES AND HOW THAT WOULD DEPRESS PRICES, THAT WOULD BE BASICALLY THE AMOUNT OF RESOURCES THAT WOULD NEED TO LEAVE TO MAKE SURE THAT THERE'S ENOUGH, UM, INCENT FOR NEW THERMAL CAPACITY TO ENTER AND BASICALLY THAT CTS MAKE THEIR CONE.
SO IF WE GO INTO THE FOLLOWING SLIDE, THIS ONE IS LOOKING AT BASICALLY THE KIND OF RANGE OF POSSIBLE LOADS THAT WE'RE MODELING.
SO, YOU KNOW, WE'RE JUST SHOWING HERE IS LIGHT FOR LOAD, BUT ACTUALLY THIS WHAT WE SHOW HERE.
WE HAVE FOR, YOU KNOW, SOLAR, UH, GENERATION AND DIFFERENT WEATHER YEARS AND AMOUNT OF SOLAR GENERATION WIND, UH, THERMAL OUTAGES, ET CETERA.
FOCUSING SPECIFICALLY ON LOAD, WE ARE BASICALLY MODELING HISTORICAL LOAD PROFILES FROM THE EIGHTIES TILL 2021, WHICH BASICALLY INCLUDES THE UV EVENT.
THE WAY WE'RE DOING THIS IS WE'RE BASICALLY GETTING THE HISTORICAL WEATHER YEARS AND THE HISTORICAL LOAD, AND THEN WE'RE ADJUSTING THAT TO HOW THAT WOULD LOOK LIKE IN A 2026 SYSTEM GIVEN THE INCREMENTAL AMOUNT OF LOAD, BUT KEEPING THE SAME PROFILE.
AND THEN THE ADDITIONAL THING THAT WE DO TO NOT ONLY MODEL, YOU KNOW, THE 60 YEARS THAT WE HAVE HERE IS THAT WE
[02:20:01]
ACTUALLY ALSO FREE EACH LOAD PROFILE AND EACH HISTORICAL LOAD YEAR, WE BASICALLY MODEL FIVE DIFFERENT, UM, LOAD PROFILES.ONE IS BASICALLY WITH, YOU KNOW, THE SAME, THE, THE SAME LOAD PROFILE AND THEN ONE IS, YOU KNOW, 2% ABOVE FOR ALL HOURS, 2% BELOW FOUR HOURS, AND THEN 4% ABOVE FOR ALL HOURS, 4% BELOW FOUR HOURS.
SO AS YOU CAN SEE, WHAT WE'RE TRYING TO SHOW HERE IS THAT THERE'S A WIDE RANGE OF LOAD, UM, SCENARIOS THAT WE'RE MODELING.
AND YOU CAN SEE THIS ALSO IN THE TABLE ON THE BOTTOM RIGHT WHERE, YOU KNOW, THE MEDIAN LOAD THAT WE'RE MODELING IS YES, THIS 86 GIGS THAT WE MENTIONED FROM THE 2023 UH, AIR CO LOAD FORECAST.
BUT YOU KNOW, WE MODEL UP TO A MAXIMUM OF 105, UM, GIGS IF LIKE THE HIGHEST ACROSS AND BASICALLY GROSS PEAK ACROSS ALL WEATHER YEARS JUST BASED ON, ONCE AGAIN THE HISTORICAL WEATHER YEARS PLUS THAT EXTRA 4% BUFFER WE PUT ON EITHER SIDE.
SO I GUESS THIS IS JUST TO SHOW THAT YES, WE DO KIND OF SHOW A LOT OF RESULTS ON THE AVERAGE LEVEL AND BASIS, BUT WE ACTUALLY DO EXPLORE THE REALM OF POSSIBILITY.
UM, AND THEN FROM THERE KIND OF SHOW LIKE WHAT WOULD BE THE AVERAGE ACROSS THAT KIND OF TAIL OF EXTREME EVENTS ON EITHER SIDE.
IF WE GO INTO THE FOLLOWING SLIDES, WE DISCUSS A LITTLE BIT OF THE AS PRODUCTS AND PROCUREMENTS THAT WE'VE USED.
SO I THINK, UM, BASICALLY WHAT WE HAVE HERE IS PRIMARILY FOCUSING ON THE BOTTOM LEFT IS THE AVERAGE AMOUNT OF ANSWER SERVICE PROCUREMENT ACROSS THE DIFFERENT PRODUCTS.
SO THIS TABLE SHOULD LOOK FAIRLY SIMILAR TO WHAT, YOU KNOW, IF PEOPLE HAVE REVIEWED A REPORT WITH A PUC, WHAT WE HAD PREVIOUSLY.
SO YOU HAVE AROUND 500, UM, MEGAWATTS FOR REG UP, YOU HAVE RRS AROUND 2,900, YOU HAVE ECRS 2200, AND THEN YOU HAVE NON SPIND FOR 2100, WHICH ADDS UP TO A TOTAL OF AROUND, UM, 7,700 MEGAWATTS OF PROCUREMENT ACROSS AS PRODUCTS.
THEN ON THE, YOU KNOW, BOTTOM RIGHT, WE DO HAVE BASICALLY THE ECRS PROCUREMENT KIND OF SCHEDULE ACROSS DIFFERENT MONTHS AND TIMES OF DAY JUST FOR PEOPLE TO HAVE AN IDEA AT THE END OF THE DAY.
I THINK THE CONCLUSION FROM OUR PERSPECTIVE FOR THIS IS, YOU KNOW, THESE HAVE BEEN DEVELOPED WITH US DROPPING IN CONJUNCTION WITH ERCOT.
THESE ARE KIND OF LIKE TRUED UP TO WHAT HAVE, WHAT WE HAVE SEEN HISTORICALLY.
AND YOU KNOW, THE LAST THING IS, AS WE DISCUSSED THIS IS NOT NECESSARILY MODELING DRRS AS OF RIGHT NOW.
IF WE MOVE INTO THE FOLLOWING SLIDE HERE, WE'RE GONNA, YOU KNOW, MOVE AWAY FROM JUST NUMBERS AND INPUTS AND TALK MORE ABOUT THE STUDY APPROACH THAT WE'RE HOPING TO DO AS PART OF, UH, BASICALLY THIS STRAUMANN PCM DESIGN.
SO THE FIRST THING THAT, YOU KNOW, YOU'VE ALL BEEN HEARING A LOT IS LIKE THESE DEFAULT PARAMETERS.
SO WHAT DOES THAT EVEN MEAN? SO IN THE FIRST STEP OF THIS STUDY, WE JUST BASICALLY NEED TO SET UP LIKE A BASELINE OF WHAT IS, YOU KNOW, A BASELINE PCM DESIGN FOR WHICH WE CAN TWEAK ONE VARIABLE AND SEE WHAT THE IMPACT AND THAT WOULD BE ON RESULTS.
SO WE BASICALLY WHAT YOU JUST DO IS WE LOOKED AT ACROSS ALL THE DIFFERENT DESIGN PARAMETERS THAT AFFECT MODELING AND WE JUST PUT A, A DEFAULT VALUE SAYING, YOU KNOW, THIS IS SOMEWHERE IN THE MID RANGE.
THIS IS SOMETHING WE THINK IS REASONABLE, BUT ONCE AGAIN, NOT INTENDED TO, YOU KNOW, BE PRESCRIPTIVE NOR BE THE FINAL PROPOSAL IS MORE A STARTING POINT.
AND WE'LL LET THE NUMBERS DO THE TALKING ONCE WE DO THE ANALYSIS.
SO WE BASICALLY START WITH THIS DEFAULT DESIGN, WE RUN IT, WE LOOK HOW IT WORKS, WE THEN GO INTO STEPS TWO AND THREE, WHICH WILL BASICALLY REPEAT A LOT FOR THE DIFFERENT DEFAULT PARAMETERS.
SO STEP TWO IS LOOKING AT WHAT WE CALL PARAMETER SENSITIVITIES.
SO ONCE AGAIN, WE START WITH THE DEFAULT DESIGN AND THEN WE SAY, YOU KNOW, THE DEFAULT DESIGN HAS FOUR SEASONS.
WHAT HAPPENS TO LIKE THE FINAL OUTCOMES OF, YOU KNOW, AND THE RESULTS OF THE MODELING AND THE DESIGN IF WE ACTUALLY HAVE TWO SEASONS INSTEAD OF FOUR.
SO THEN WHAT WE DO IN THE SECOND STEP IS WE RERUN THE, THE MODEL USING TWO SEASONS INSTEAD OF FOUR.
OBVIOUSLY WHAT HAPPENS, UM, YOU KNOW, WHEN YOU JUST CHANGE THAT PARAMETER AND NOTHING ELSE IS THAT THAT DESIGN MIGHT NOT NECESSARILY BE AN EQUILIBRIUM OR SET A BETTER WAY.
IT MIGHT NOT ACTUALLY MEET THE RELIABILITY TARGET.
AND SINCE THE RELIABILITY TARGET'S SOMETHING THAT IS MANDATED THAT NEEDS TO BE MET, WE BASICALLY NEED TO CALIBRATE THE MODEL AND BASICALLY CALIBRATE ANOTHER DESIGN PARAMETER WHICH WE'LL DISCUSS LATER, WHICH IS ASAC HAD KIND OF ALLUDED TO THE HEIGHT OF THE DEMAND CURVE TO BASICALLY SAY, OKAY, LET'S MAKE SURE THAT THIS NEW DESIGN, THIS NEW SENSITIVITY IS MEETING THE RELIABILITY STANDARD.
SO THAT'S KINDA LIKE YOU WHERE YOU GET TO THIS EQUILIBRIUM, UM, PERSPECTIVE AND YOU BASICALLY AT THIS POINT HAVE, YOU KNOW, WHAT IS THE RESULT IN THE DEFAULT CASE FOUR SEASONS, WHAT IS THE RESULT IN TWO SEASONS CASE? AND THEN YOU BASICALLY DO STEP THREE, WHICH IS JUST COMPARING BOTH OF THEM AND YOU BASICALLY SAY, WHAT IS THE IMPACT OF
[02:25:01]
CHANGING SEASONS HERE? DOES IT CHANGE, YOU KNOW, ANY OF OUR EVALUATION METRICS, WHICH THIS, WHICH WE'LL DISCUSS LATER, BUT ARE, YOU KNOW, PRIMARILY COST, RELIABILITY, MARGINS, ET CETERA.SO THAT'S WHAT WE'RE GONNA DO.
WE ALSO DON'T WANT TO GIVE THE FALSE IN IMPRESSION AND WE'RE GONNA TOUCH ON THIS LATER ON THAT WE'RE JUST GONNA LOOK AT DESIGN IN MARKET EQUILIBRIUM BECAUSE I THINK EVERYONE IS KIND OF AWARE THAT, YOU KNOW, WITH HOW EVERYTHING CHANGES SO RAPIDLY IN TERMS OF MARKET SCIENCE RESEARCH, ADDITIONS, LOADS, ET CETERA, THE MARKET IS, YOU KNOW, VERY FEW TIMES ACTUALLY IN MARKET EQUILIBRIUM IS GENERALLY JUST TRANSITIONING FROM, YOU KNOW, OUT OF EQUILIBRIUM TO ANOTHER OUT OF EQUILIBRIUM.
SO WE ALSO GONNA EXPLORE HOW THESE MARKETS WILL WORK IN OUTSIDE OF EQUILIBRIUM.
SO, YOU KNOW, WHEN WE DO THE IMPACT IN COMPARISON, IT'S BOTH LOOKING AT THEM IN EQUILIBRIUM AS WELL AS OUT OF EQUILIBRIUM, HOW THOSE INCENTIVES WORK WHEN IT'S NOT IN EQUILIBRIUM.
AND YOU KNOW, WE'LL TOUCH ON IT LATER, BUT THE GOAL IS THAT WHEN YOU'RE OUT OF EQUILIBRIUM, THE MARKET SHOULD INCENT THE SYSTEM TO GO BACK TO EQUILIBRIUM.
SO LOOKING AT THE NEXT SLIDE, WE'LL JUST SHOW THE DIFFERENT, UM, EVALUATION METRICS.
AND ONCE AGAIN, THIS IS NOT EXHAUSTIVE AND WE'RE, YOU KNOW, LOOKING AT DIFFERENT ONES AND IF ANYONE HAS ANY THOUGHTS ON OTHER THINGS WE SHOULD LOOK AT, I THINK WE'RE MORE THAN WELCOME TO DO THAT.
WE KIND OF LIKE DIVIDED THIS INTO QUANTITATIVE CRITERIA, WHICH IS BASICALLY WHAT THE MODEL IS GONNA TELL US.
AND WE CAN ACTUALLY COMPARE NUMBER TO NUMBER AND THEN QUALITATIVE CRITERIA OF LIKE HOW IT AFFECT, YOU KNOW, STAKEHOLDER ENGAGEMENT, MARKET PARTICIPANTS, ET CETERA.
ON THE QUANTITATIVE FRONT, WE'RE FOCUSING ON RELIABILITY.
OBVIOUSLY IT NEEDS TO MEET THE STANDARD SYSTEM COSTS.
I THINK, YOU KNOW, DEFINITELY LOOKING AT THE EFFICIENCY OF THE MARKET, IE WHAT IS A TOTAL SYSTEM COST? IS ONE MORE EXPENSIVE THAN THE OTHER THAN THE CHEAPER ONE? YOU KNOW, ALL IS EQUAL WOULD BE BENEFICIAL, BUT ALSO THE VARIABILITY, RIGHT? IF PCM IS DESIGNED TO SOMEHOW, YOU KNOW, PROVIDE MORE, UH, RESOURCE, UM, KIND OF REVENUE EXPECTATION STABILITY, THEN WE SHOULD DO SOMETHING ABOUT COMPARING HOW THE VARIABILITY OF RE SYSTEM COSTS LOOK LIKE.
AND THEN THE SAME THING FOR RESOURCE MARGINS.
WE'RE ALSO LOOKING AT WHAT IS THE ANNUAL AVERAGE, BUT THEN ALSO THE YEAR OF OVER YEAR VARIABILITY.
AND THEN FINALLY WE'RE ALSO GONNA LOOK AT HOW THE PC GENERATION, BASICALLY HOW MANY PCS ARE ACTUALLY GENERATED PER YEAR, UH, CHANGING AND HOW THAT BASICALLY VARIES ACROSS, UM, THE DIFFERENT YEARS ON THE QUALITATIVE CRITERIA, I THINK, YOU KNOW, THIS, THIS IS PRETTY STRONG, BUT WE WANNA MAKE SURE IT'S IN LIKE IN SENSE MARKET COMPETITION IS EFFICIENT, THAT THE DISTRIBUTION OF HOURS MAKES SENSE THAT WE'RE LOOKING AT THE ACTUALLY HIGH RISK HOURS AS KIND OF LIKE WE'VE BEEN DISCUSSING.
IT'S NOT TOO COMPLEX ADMINISTRATIVELY, YOU KNOW, THE CREDIT AND COLLATERAL MAKES SENSE IS NOT EITHER TOO BURDENSOME FOR ERCOT OR FOR THE MARKET PARTICIPANTS AND THEN MARKET POWER RISK.
SO I THINK WE HAVE TWO MORE SLIDES ON THIS SECTION.
IF WE GO INTO THE FOLLOWING ONE, WE'RE BASICALLY GOING TO DISCUSS WHEN I SAID, OH YEAH, WE'RE GONNA MAKE SURE THAT, YOU KNOW, WHEN WE DO A SENSITIVITY INSTEAD TO, WE ACTUALLY MAKE THAT MARKET BE AN EQUILIBRIUM, IE MEET THE RELIABILITY STANDARD.
THIS IS PRETTY MUCH WHAT IS GONNA HAPPEN.
SO BASICALLY WE HAVE THIS ONE FREE VARIABLE THAT WE'VE DECIDED, AND ONCE AGAIN COULD BE DIFFERENT THINGS, BUT WE DECIDED THAT, YOU KNOW, WHAT MAKES THE MOST SENSE AND IT'S MOST TRANSPARENT, IS USING THE HEIGHT OF THE DEMAND CURVE TO BASICALLY VARY, UM, TO BASICALLY VARY TO MAKE SURE THAT LIKE AS THE FREE FLOATING VARIABLE TO MEET THE RELIABILITY STANDARD.
SO WHAT'S GONNA HAPPEN HERE IS THAT YOU'RE GONNA START WITH A DEFAULT DESIGN, RIGHT? AS WE MENTIONED.
AND LET'S SAY THAT THIS DEFAULT DESIGN HAS THIS DEMAND CURVE, WHICH HAS A HEIGHT OF, YOU KNOW, 1.4 NET C OR 140% OF NET CONE.
SO THAT IS THE MAXIMUM, YOU KNOW, ANNUAL O PC PRICE.
THEN, YOU KNOW, LET'S SAY WE DO ONE OF THESE SENSITIVITIES, WE CHANGE, YOU KNOW, FROM FOUR SEASONS TO TWO SEASONS AND THEN WE GO INTO STEP TWO.
SO IF WE JUST DO THAT, YOU KNOW, THIS IS COMPLETELY ILLUSTRATIVE, BUT LET'S SAY THAT HEY ACTUALLY WE REALIZE THAT THE MARKET IS NO LONGER IN EQUILIBRIUM AND SINCE CTS ARE ONLY MAKING $80 PER KILOWATT YEAR, WE WOULD NOT EXPECT BASICALLY THOSE RESOURCES TO ENTER THE MARKET AND THUS THEY WOULD NOT BE REACHING THE RELIABILITY STANDARD.
SO WHAT WE NEED TO DO IS BASICALLY UPDATE THE DEMAND CURVE TO MAKE SURE THAT THERE'S ENOUGH INCENTIVE FOR RESOURCES TO ENTER TO MEET THE RELIABILITY STANDARD.
SO AS YOU CAN SEE, PRETTY MUCH WHAT WE DO IN STEP THREE IS JUST INCREASE THE DEMAND CURVE UP TO MAKE SURE THAT BASICALLY CTS ARE EARNING, UM, THEIR CONE AND THAT, UM, RESOURCES ARE BASICALLY HAVE INCENTIVE TO ENTER THE MARKET AND REACH THE 0.1, IN THIS CASE DAYS PER YEAR LOSS OF LOAD EXPECTATION.
I THINK SOME PEOPLE CAN LOOK AT THIS AND BE LIKE, YOU KNOW, THERE'S A HIGHER DEMAND CURVE,
[02:30:01]
LIKE THAT'S GONNA BE BAD 'CAUSE IT'S GONNA BE MORE EXPENSIVE.AND THAT'S NOT NECESSARILY THE CASE.
I THINK THAT'S ONE OF THE INTERESTING THINGS ABOUT THIS IS THAT THERE'S SO MANY MOVING PIECES ON WHAT DETERMINES PRICE IS NOT, YOU KNOW, JUST THE HEIGHT OF THE DEMAND CURVE.
BUT CHANGING THE SEASONS WILL ALSO CHANGE THE XAXIS, THE DEMAND CURVE AND WHERE IT FITS.
SO I DON'T WANT PEOPLE TO TAKE IT AS LIKE, OH, THIS MEANS THAT THE THIRD ONE HAS A HIGHER DEMAND CURVE AND THUS IS MORE EXPENSIVE.
IT'S PURELY JUST THE MECHANISM TO BASICALLY GET IT BACK TO EQUILIBRIUM AND THEN WE'LL LET THE RESULT TO THE WORK WITH THIS NEW DEMAND AND YOU'LL SEE IT ACTUALLY DOESN'T CHANGE, UH, TOO MUCH OR, OR BASICALLY IS NOT, NOT ONE FOR ONE BASED ON THE HEIGHT OF THE DEMAND CURVE.
AND THEN THE LAST SLIDE IS A LITTLE BIT OF, I GUESS A DEEP DIVE INTO WHAT WE MEAN WHEN WE SAY WE'RE GONNA EXPLORE THINGS OUT OF EQUILIBRIUM AND THE IMPORTANCE OF THAT.
SO WHEN WE LOOK AT THE SIGNS, YOU BASICALLY LOOK AT IF A SYSTEM HAS ENOUGH CAPACITY TO BE IN ONE IN 10 AND YOU BASICALLY COMPARE THAT TO ANOTHER PCM DESIGN THAT ALSO IS, HAS ENOUGH CAPACITY TO BE IN ONE IN 10, THAT'S GREAT, YOU CAN COMPARE WHICH ONE'S CHEAPER, MORE EXPENSIVE, WHICH ONE'S MORE VARIABLE, LESS VARIABLE.
HOWEVER, WE THINK THERE'S ALSO VALUE IN EXPLORING WHAT HAPPENS IN COMPARING BOTH THE DESIGNS IF BOTH OF THEM ARE OUT, ARE OUT OF EQUILIBRIUM.
SO WHAT THAT MEANS IS, LET'S SAY YOU'RE IN A DESIGN OR YOU KNOW, YOU'RE IN A MARKET THAT HAS A SPECIFIC DESIGN THAT IS UNDER EQUILIBRIUM AND THEN AN ADDITIONAL FOUR GIGAWATTS OF DISPATCHABLE CAPACITY ENTERS THE MARKET, THEN YOU TECHNICALLY OBVIOUSLY DON'T WANT TO BE, YOU KNOW, PAYING THAT MUCH BECAUSE THE INCENTIVE OF THE PCM MARKET SHOULD BE TO BASICALLY SAY, HEY, WE DON'T NEED THIS MANY RESOURCES, WE'RE GONNA PAY YOU LESS THAN YOU KNOW WHAT YOU SHOULD BE MAKING.
SO WE INCENT LESS ENTRY OR WE INCENT EXIT THE SAME THING BASICALLY ON THE OTHER HAND, RIGHT? IF YOU HAVE FOUR GIGS THAT LEAVE THE MARKET, WHAT SHOULD BE THE INCENTIVE? SO WE DO WANNA MAKE SURE THAT THOSE, UM, BASICALLY THOSE DYNAMICS ARE BEING CONSIDERED AND CAPTURED.
AND SO WHAT THIS MEANS IS IMAGINE WE HAVE TWO DESIGNS THAT WORK EXACTLY THE SAME IN EQUILIBRIUM.
THEY GIVE VERY SIMILAR RESULTS, VERY SIMILAR TOTAL COST, RESULTS, VARIABILITY, ALL RESOURCES GET PAID SIMILAR AMOUNTS.
THEN YOU KNOW WHAT IS GONNA BE THE DECISION BREAKER FOR THEM.
I THINK LOOKING AT HOW IT LOOKS OUT OF EQUILIBRIUM COULD HELP, RIGHT? BECAUSE AT THE END OF THE DAY WHAT YOU'RE TRYING TO DO IS, AS WE MENTIONED, NOT ALWAYS BE AN EQUILIBRIUM.
SO YOU WANNA SEE HOW THE SYSTEM WOULD REACT.
SO IF YOU HAVE ADDITIONAL CAPACITY, HOW WOULD ONE DESIGN LOOK OVER THE OTHER VERSUS, YOU KNOW, WHAT IF YOU HAVE LESS DESIGN, LESS CAPACITY, HOW WOULD ONE DESIGN LOOK OVER THE OTHER? SO FOR EXAMPLE, IF YOU HAVE TWO SYSTEMS THAT YOU KNOW HAVE VERY SIMILAR COSTS IN EQUILIBRIUM, BUT OUT OF EQU EQUILIBRIUM, ONE IS INCREDIBLY MORE EXPENSIVE THAN THE OTHER ONE, THEN YOU KNOW, THAT'S A CONSIDERATION TO KEEP IN MIND OF, YOU KNOW, THIS DESIGN IS MAYBE GOOD AT EQUILIBRIUM BUT NOT PROVIDE LIKE A VERY STABLE EQUILIBRIUM OR STABLE SIGNAL OUTSIDE OF EQUILIBRIUM THAT IS MAYBE TOO STRONG AND WOULD LEAD TO OVERCOMPENSATION.
OR MAYBE THAT'S A SIGNAL THAT, YOU KNOW, BY DESIGN YOU WANT TO PROVIDE MORE STRONG SIGNALS AND THEREFORE WANT TO PROVIDE MORE, UM, COMPENSATION DURING THOSE YEARS.
SO IT'S BASICALLY THAT'S KINDA LIKE WE'RE TRYING TO EXPLORE.
UM, AND I THINK WE WERE HOPING THAT, THAT I THINK IS A GOOD ADDITION TO THE STUDY WE DID WITH A PUC THAT FOCUSED MAINLY ON EQUILIBRIUM CONDITIONS AND YOU KNOW, ALSO LOOKING OUTSIDE OF THIS KIND OF RUSHED THROUGH THAT.
SO I'M SURE THERE'S A BIG CUE, BUT THAT'S IT.
OKAY, FIRST IN THE QUEUE WE'VE GOT JEFF BURMEISTER.
UM, SO I ACTUALLY HAVE A COUPLE QUESTIONS, BUT THE FIRST IS ON COLLATERAL REQUIREMENTS AND THE APPROPRIATE APPROACH FOR MODELING THOSE OR OR ASSESSING THOSE RIGHT NOW IT, IT LOOKS LIKE THOSE WERE ONLY GOING TO BE ASSESSED QUALITATIVELY, BUT IF WE THINK ABOUT THERE BEING A CARRYING COST ASSOCIATED WITH COLLATERAL THAT YOU KNOW, COULD BE CONSIDERED WITHIN THE LEGISLATIVELY MANDATED COST CAP, UH, WOULD DIFFERENT COLLATERAL REQUIREMENTS AND THEIR ASSOCIATED CARRYING COSTS ULTIMATELY NEED TO? YEAH, I, I THINK THAT'S A GOOD QUESTION AND I THINK THAT'S SOMETHING THAT WE CAN, WE CAN LOOK INTO AND THINK ABOUT.
SO I GUESS IT'S PROBABLY, I DON'T KNOW IF WE HAVE ANOTHER ANSWER TO THAT AT THE MOMENT THERE COST OF COST OF COLLATERAL AND NOT INCLUDED IN THE ANALYSIS TODAY, BUT IT'S SOMETHING THAT WE COULD CONSIDER.
UM, AND THEN IF WE GO BACK TO SLIDE 23, UM, SO YOU KNOW, AND, AND UNDERSTANDING THAT THAT THESE RESULTS ARE, ARE SORT OF INDICATIVE AT THIS POINT, BUT
[02:35:01]
I GUESS ONE THING THAT WOULDN'T NECESSARILY BE ACCOUNTED FOR WITHIN THE CDR VINTAGE THAT'S BEING USED HERE IS THE IMPACT OF THE TEXAS ENERGY FUND AND THE LIKELIHOOD THAT THAT'S GOING TO INCENTIVIZE QUITE A BIT OF ADDITIONAL NEW GAS FIRE GENERATION PROBABLY COMING ONLINE IN THE LATER 2020 TIMEFRAME.UM, AND THEN I GUESS, UH, NOT SO MUCH SIMILAR QUESTION, BUT A FOLLOW UP QUESTION ON THIS IS JUST GETTING A LITTLE BIT MORE DETAIL INTO THIS.
UM, I THINK IT'S AROUND A 14 GIGAWATT DOWNWARD CAPACITY ADJUSTMENT IN THE COAL AND GAS FIRED CAPACITY.
BASICALLY JUST TRYING TO UNDERSTAND A LITTLE MORE TRANSPARENTLY THE ASSUMPTIONS THAT WENT INTO, IF I'M UNDERSTANDING CORRECTLY, THOSE DECISIONS THAT THOSE RESOURCES WOULD ECONOMICALLY RETIRE.
SO ONE IS ON THE TEXAS ENERGY FUND, I THINK THE APPROPRIATE WAY TO REFLECT THAT WOULD BE THROUGH THE COST OF NEW ENTRY.
AND I BELIEVE THAT WE DO HAVE SOME CONSIDERATION OF THAT IN THE CURRENT ASSUMPTION FOR THAT, WHICH IS $103 PER KILOWATT YEAR.
THAT IS AN ASSUMPTION, AGAIN, THAT COULD BE MODIFIED AND WE COULD TEST DIFFERENT SENSITIVITIES FOR THAT.
SO THAT'S SOMETHING WE'D WANT TO INCLUDE.
THE, OF COURSE THAT ONLY APPLIES TO NEW RESOURCES AND TO A CERTAIN EXTENT RESOURCES ARE SUBSTITUTABLE WITH EACH OTHER AND SO TO THE EXTENT THAT YOU HAVE MORE NEW ENTRY THAT COULD PUT EVEN MORE PRESSURE ON EXISTING RESOURCES.
BUT THE THING THAT WE DO WANNA HIGHLIGHT HERE, AGAIN, AS DAVID SAID, IS THIS IS NOT REALLY SAYING, THIS IS NOT REALLY PREDICTING ECONOMIC RETIREMENTS AS MUCH AS IT IS SAYING THIS IS A REFLECTION OF THE TOTAL QUANTITY OF RESOURCES THAT THE MARKET IS ACTUALLY SUPPORTING.
BECAUSE THIS, AGAIN, AS WE SAID, WE'RE DESIGNING A MARKET THAT'S GONNA BE IN PLACE FOR A LOT LONGER THAN PAST 2026.
WE'RE DESIGNING A MARKET THAT'S GONNA NEED TO SEND RATIONAL SIGNALS FOR ENTRY FOR DECADES, AND WE NEED TO BE LOOKING AT WHAT CAN THE MARKET ACTUALLY SUPPORT AND LOOKING AT A MARKET THAT HAS EXCESS CAPACITY IS NOT REALLY A, THE APPROPRIATE FRAMEWORK FOR DESIGNING A LONG-TERM MARKET.
AND SO AGAIN, WE'RE, WE'RE PUTTING THE SYSTEM WHAT WE'RE CALLING INTO EQUILIBRIUM BY LOOKING AT WHAT CAN IT ACTUALLY SUPPORT UNDER ITS CURRENT DESIGN, NOT NECESSARILY SAYING THAT WE'RE GOING TO SEE GIGAWATTS OF RETIREMENTS IN THE NEXT THREE YEARS.
UM, WHAT, YEAH, AND MAYBE THIS IS THE THEN THE DISCUSSION WHEN WE GET TO THE COST CAP, BUT I GUESS WHEN WE'RE CONSIDERING CALCULATIONS AND AND DETERMINATION OF WHETHER THE COST CAP HAS BEEN MET OR EXCEEDED AND YOU'RE SORT OF ESTABLISHING THE COUNTERFACTUAL TOTAL SYSTEM COST, IT DOES SEEM LIKE THOSE, UH, I GUESS AND, AND I UNDERSTAND THE DIFFERENTIATION BETWEEN, YOU KNOW, ACTUAL RETIREMENT DECISIONS VERSUS WHAT ECONOMICALLY CAN BE DEEMED TO BE SUPPORTED.
BUT IT DOES SEEM LIKE THAT WOULD HAVE AN INFLUENCE THEN ON THE, ON THE TOTAL SYSTEM COST CALCULATION UNDER THOSE COUNTERFACTUAL SCENARIOS THAT ARE RUN WHEN DETERMINING, UH, WHETHER THE COST CAP IS MET OR NOT.
THAT'S A, THAT'S A GREAT POINT, AND YOU'RE ABSOLUTELY CORRECT IN YOUR OBSERVATION THAT THAT WILL HAVE LARGE IMPLICATIONS ON THE COST CAP.
I WILL SAY FIRST THAT THERE ARE STILL MANY MOVING PIECES AND DECISIONS THAT NEED TO BE MADE ON HOW TO MEASURE COMPLIANCE WITH THE COST CAP OR NOT AND EXACTLY HOW THAT WILL WORK.
BUT THE OTHER THING IS THAT, AGAIN, WE'RE DESIGNING A MARKET FOR THE LONG TERM HERE AND YOU KNOW, IT MIGHT BE, WE MIGHT BE ABLE TO SAY IN TWO YEARS, YOU KNOW WHAT, LIKE IT MIGHT MAKE SENSE TO COMPARE A PRE PCM WORLD TO A POST PCM WORLD AND LOOK AT ACTUALS, BUT AS THE DECADES WEAR ON THOSE DISCREPANCIES BECOME LARGER AND LARGER AND YOU CAN REALLY ONLY COMPARE TO A EQUILIBRIUM MODELED HYPOTHETICAL THAT'S VERY DISASSOCIATED FROM ACTUALS.
AND SO THAT, THAT IS WHAT'S BEING REPRESENTED HERE.
THAT'S, THAT'S THE BASE CASE APPROACH TO THINKING ABOUT HOW THE COST CAP WILL BE MEASURED.
NEXT STEP IS SHAMS ON THE LOAD VARIABILITY.
UM, SO GIVEN CLIMATE CHANGE AND ALL THAT YOU USE 42 YEARS, HAVE YOU LOOKED AT WHAT WOULD LOOK LIKE WITH 15 YEARS
[02:40:01]
YOU JUST TOOK 15 YEARS? WE HAVE NOT.I THINK IT'S DEFINITELY SOMETHING THAT COULD BE EASILY DONE JUST TAKING THOSE SUBSET OF YEARS, BUT I GUESS WHAT WE'RE TRYING TO DO WITH THIS MODEL IS CAST THE NET AS WIDE AS YOU CAN GET IT, UM, YOU KNOW, GETTING THE HISTORICAL YEARS AND THEN ON TOP OF THAT, PUTTING THE BUFFER UP AND DOWN.
UM, BUT YOU CAN LOOK AT SPECIFIC YEARS IN THE MODEL AND, AND DEFINITELY.
UM, AND THEN I DID YOU, UH, DOES THE LOAD FORECAST TAKE INTO ACCOUNT LIKE, UH, THE LARGE FLEXIBLE LOADS THAT ARE COMING IN AND EV LOAD AND ALL THAT? IS THAT SORT OF ACCOUNTED FOR IN THAT? YEAH, SO IT TAKES INTO ACCOUNT, UM, ON THE LOAD SIDE BASICALLY WHAT AIR COST FORECAST FOR ELECTRIFICATION THAT I THINK THEY ADDED A COUPLE YEARS AGO.
AND THEN ON, ON THE RESOURCE SIDE, MORE ON THE CDR R FRONT IS, YOU KNOW, WHICH ONES ARE FLEXIBLE SLASH WHICH ONES YOU KNOW, COULD POTENTIALLY ASK US LIKE LOAD LOAD SITE RESOURCES.
YEAH, BECAUSE RECENTLY WE'VE HAD A LOT OF ADDITION OF THE LARGE FLEXIBLE, I THINK THIS ANALYSIS WAS DONE, UH, QUITE SOME TIME BACK.
AND I THINK IT GOES BACK LIKE ONCE AGAIN TO THE MODEL TAKES A LOT TO RUN, BUT LIKE CHANGING ONE OF THESE INPUTS IS, IS NOT REALLY TOO HARD OR TIME CONSUMING.
UM, SO IT COULD DEFINITELY BE DONE IN THE FUTURE, BUT YOU KNOW, BASED ON BEING CONSISTENT WITH OUR REPORTS AND WHAT WAS, YOU KNOW, AVAILABLE AT THE TIME WHEN WE STARTED THIS PROCESS, THIS IS WHAT IT IS.
BUT TO YOUR POINT, YEAH, EXPLORING THAT WOULD BE HELPFUL AND AS YOU GO FURTHER INTO ACTUALLY SETTING UP THIS MARKET, YOU KNOW, YOU'LL ALWAYS BE USING THE LATEST INFORMATION, SO THAT SHOULD BE ACCOUNTED FOR.
UM, JUST IF YOU COULD BACK UP ONE SLIDE TO SLIDE 22 PLEASE.
UM, AT THE BOTTOM OF THE SLIDE I UNDERSTAND IT SAYS SERVE IM DOES NOT MODEL ERCOT TRANSMISSION DELIVERABILITY, BUT IF YOU GO BACK TO SLIDE 23, I GUESS MY CONCERN IS THAT I RECOGNIZE THAT THAT'S NOT TAKEN INTO ACCOUNT, BUT IN THE RESOURCE PORTFOLIO HERE WE TALK ABOUT NAMEPLATE CAPACITY AND I'M CONCERNED, YOU KNOW, DID THE ASSESSMENT LOOK AT THE CAPACITY AVAILABLE BASED ON ELCC OR SOME OF THE METHODOLOGY BECAUSE JUST TAKING THE STRAIGHT NAME PLATE CAPACITY IS NOT ADEQUATE.
SO I GUESS THERE'S TWO POTENTIAL ANSWERS TO THAT QUESTION.
THE FIRST ONE IS TO SAY THAT, YOU KNOW, ALL THE NUMBERS HERE BASED ON THE CDR, WHETHER THEY'RE, YOU KNOW, ECONOMICALLY OR SLASH YOU KNOW, ACTUALLY INCENTED TO COME IN.
WHAT WE'RE DOING, AND THIS IS BASED ON, YOU KNOW, ERCOT AND, AND ASRA SUGGESTION, WE'RE JUST TAKING ALL, EVERYTHING THAT IS IN THE CDR AND ASSUMING THAT COMES ONLINE, WILL THAT, YOU KNOW, TO YOUR POINT, ALL OF THEM BE IN THE SAME NOTE AND THUS DON'T HAVE THE INCENTIVE TO ENTRY OR NOT THAT THAT'S A DIFFERENT QUESTION, UH, BUT THAT'S KINDA LIKE THE BASE ASSUMPTION FOR THIS.
AND THEN IN TERMS OF KIND OF THE ELCC, THIS IS JUST LOOKING AT, YOU KNOW, THE TOTAL, YOU KNOW, GIGAWATT GENERATION STACK IN THE MODEL, BUT THEN FOR EACH OF THESE RESOURCES, THERE ARE VERY SPECIFIC HOURLY GENERATION PROFILES THAT ARE BASED ON DIFFERENT REGIONS.
WE HAVE WIND FROM PANHANDLE, FROM COASTAL OTHERS.
SO THE, THE GENERATION DIFFERENCES ACROSS THOSE RESOURCES ARE TAKING, COULD TAKE INTO ACCOUNT IN THE MODEL.
SO, SO YOU'RE SAYING THAT'S SIMILAR TO THE CDR MODEL, THAT YOU ARE TAKING A PERCENTAGE OF THOSE AND NOT A HUNDRED PERCENT OF THE NAME PLATE CAPACITY THEN? SO WE'RE TAKING A HUNDRED PERCENT OF IT AND ADDING IT TO THE GENERATION STACK, BUT FOR EACH OF THESE MEGAWATTS THAT WE'RE ADDING, THEY'RE NOT GONNA BE FULLY AVAILABLE AT ALL TIMES.
AND THEY'RE BASICALLY WILL HAVE A CAP HOURLY CAPACITY FACTOR OF HOW MUCH THEY'RE ACTUALLY GONNA ABLE TO GENERATE.
AND THAT'S WHAT THE MODEL SEES.
IT DOESN'T SEE THE FULL STACK, SO IT'S SAYING STEEL ON THE GROUND, THERE ARE 42 GIGS OF WIND, BUT YOU KNOW, FOR WHATEVER REASON IN MARCH AT 7:00 AM YOU KNOW, THE CAPACITY FACTOR AVERAGE ACROSS ALL OF THEM IS 20%.
SO YOU'RE ACTUALLY GONNA SEE ONLY 20% OF THOSE AND YOU'RE ONLY GONNA SEE 10, UH, GIGAWATTS OF GENERATION.
YEAH, JUST TO ADD A LITTLE BIT OF CONTEXT THERE, ELCC IS ESSENTIALLY AN OUTPUT OF THIS ANALYSIS.
I MEAN THERE, SO THERE'S AN IMPLIED OCC, THE RELIABILITY CONTRIBUTION OF THESE RESOURCES IS BASED ON THOSE PROFILES THAT DAVID'S TALKING ABOUT.
UM, AND WE HAVE THE ALLEY PROFILES THAT DAVID'S TALKING ABOUT.
WE'VE GOT 42 YEARS THAT ERCOT WORKS WITH A VENDOR TO PRODUCE.
AND SO YOU HAVE THOSE, UH, WIND LAWS WHERE YOU GET NO WIND OUTPUT FOR DAYS IN A ROW.
IT'S SOLAR, IT'S CLOUDY, AND SO ALL THOSE EVENTS ARE EMBEDDED IN THERE.
SO IT'S NOT THAT YOU'RE INPUTTING AN ELCC OR CDR VALUE, YOU PUT THE NAMEPLATE IN, LET THE PROFILES, UM, MATERIALIZE AS THEY WILL, AND THEN THE OUTPUT WILL BE THEY HAVE A SPECIFIC RELIABILITY
[02:45:01]
CONTRIBUTION.THAT'S MUCH BETTER SAID THAN THE WAY I PUT IT AND I UNDERSTAND YOUR POINT.
UM, I WAS JUST CONCERNED THAT, YOU KNOW, WE WEREN'T TAKING INTO ACCOUNT, YOU KNOW, THE, THE LESSER AMOUNT THAT SHOULD BE UTILIZED.
NEXT UP IS NED, OR PARDON ME? IT'S UH, BILL BARNES.
I'M JUST CIRCLING BACK TO A QUESTION LORI RAISED, BOTTOM LEFT.
UM, HA HAVE YOU CONSIDERED INCLUDING IN SENS OR SENSITIVITY, UH, CASE WHERE YOU INCLUDE DRS? I MEAN THAT'S A, GONNA BE A PART OF OUR MARKET DESIGN.
IT'S GONNA BE IMPLEMENTED IN SOME FORM.
I BELIEVE PART OF THE INTENTION IS TO, UM, CONTRIBUTE MORE REVENUES TO THE ENERGY AND ANCILLARY SERVICE SIDE, WHICH SHOULD LOWER THE NEEDED CONTRIBUTIONS FROM PCM.
IT JUST SEEMS LIKE THAT'S SOMETHING THAT WE'LL PROBABLY NEED TO SEE AT SOME POINT.
I AGREE, AND I, AND I WOULD SAY THAT EVERYTHING THAT IS PRETTY MUCH SET IN STONE GONNA HAPPEN AT SOME POINT OR ANOTHER WILL BE PART OF OUR ANALYSIS.
UM, IT'S JUST AT THIS POINT THERE WASN'T ENOUGH GUIDANCE ON THE HOURLY METHODOLOGICAL IMPLEMENTATION IN THE MODEL TO BE ABLE TO MODEL IT.
BUT I THINK THAT'S SOMETHING THAT, YOU KNOW, WE'RE WORKING WITH RAE AND ERCOT TO BE ABLE TO, AT SOME POINT, ONCE THE RULE FINAL RULEMAKING IS OUT, UM, MODEL INTO A SYSTEM AND SEE HOW THAT WOULD AFFECT.
IF YOU DON'T MIND IF I CAN I RESPOND TO BILL REAL QUICK AS WELL.
HEY, JUST REAL QUICK, BUT I WANT MAYBE ONE OTHER POINT I I'D WANNA MAKE ON THAT IS, AT LEAST FOR PURPOSES IN THINKING ABOUT THE DIFFERENT DESIGNS, AT LEAST THAT I THINK IT'S IMPORTANT TO AT LEAST NOTE THAT ALL OF THE ANALYSIS WILL BE, YOU KNOW, RELATIVE TO ONE ANOTHER.
SO YES, DRS IS NOT NECESSARILY INCLUDED TODAY AND HOW WE'RE LOOKING TO MODEL IT, BUT IT WILL BE EXCLUDED KIND OF FROM ALL OF THE DIFFERENT SENSITIVITIES THAT WE LOOK AT.
SO I THINK THERE'LL, AT LEAST THERE'LL BE A, A RELATIVE COMPARISON.
I GUESS IN ADDITION TO THAT, IT'S PROBABLY WORTH NOTING THAT, YOU KNOW, AS WE LEARN MORE LATER IN THE YEAR, AS WE THINK ABOUT, YOU KNOW, THE NEXT STEP OF THINKING ABOUT A COST BENEFIT ANALYSIS AND THINGS OF THAT NATURE, WE WILL HAVE TO MAKE SOME ADJUSTMENTS.
YOU KNOW, PERHAPS BY THEN WE'LL KNOW MORE ABOUT WHAT DRS LOOKS LIKE.
WE'LL KNOW MORE ABOUT THE RELIABILITY STANDARD THAT THE, THAT THE COMMISSION WOULD LIKE TO MOVE FORWARD WITH.
SO, YOU KNOW, WE, WE'LL HAVE TO INCORPORATE THOSE THINGS DOWN THE LINE IN SOME FORM OR FASHION.
ONE MORE QUICK COMMENT ON THAT IF I CAN.
SO THINKING ABOUT DRS, IF IT IS AN EFFICIENT PRODUCT FOR, UM, ADDING RELIABLE SUPPLY TO THE MARKET, IT SHOULD BE CONSISTENT WITH THE ANALYSIS WE'RE DOING HERE.
ESSENTIALLY YOU'RE JUST CARVING OUT A PORTION OF THOSE REVENUES THAT'S GONNA COME FROM D-D-R-R-S VERSUS WHAT IS GONNA COME FROM THIS PCM PRODUCT.
SO I STILL THINK THINKING ABOUT IT IN THE CONTEXT OF HOW E THREE HAS LAID THIS OUT, THE TOTAL REVENUES NEEDED, KIND OF HOW THAT SHIFTS WITH VARIOUS SCENARIOS AND SO FORTH IS STILL RELEVANT.
UM, BUT AGAIN, WE, WE DIDN'T HAVE CLEAR DETAILS ON THE DRRS COMPONENT, BUT I, I STILL THINK THAT HOLDS FOR WHAT WE'RE LOOKING AT HERE.
JUST PICKING UP ON THAT THREAD OF CONVERSATION, UM, GOOD TO HEAR THAT YOU WILL ADJUST THE MODEL IN THE FUTURE TO INCORPORATE THESE VARIOUS REVENUE STREAMS THAT WE'RE CREATING TO INCENT DISPATCHABLE GENERATION.
I DON'T THINK IT'S JUST LIMITED TO DRRS.
I DO THINK THERE ARE OTHER POTENTIAL PRODUCTS OUT THERE THAT WILL, UM, INJECT ADDITIONAL REVENUES, UH, TO INCENT DISPATCHABLE GENERATION.
SO GLAD TO HEAR THAT THAT WILL BE INCLUDED.
BUT MY QUESTION IS, ON THAT PARTICULAR TOPIC, YOU KNOW, WE, WE ARE TRYING TO MAKE SOME DESIGN DECISIONS WITH THE INFORMATION THAT WE HAVE, BUT IT'S INCOMPLETE AND ESPECIALLY AS IT COMES TO THAT COST ANALYSIS AND IT'S A LITTLE CONCERNING TO ME TO TO HEAR THAT.
WELL, WE MIGHT NOT HAVE THAT UNTIL THE RULEMAKING WHEN WE HAVE A COST REPORT THAT'S DUE IN DECEMBER.
SO MY FIRST QUESTION IS JUST HOW ARE YOU GOING TO HANDLE THAT ISSUE OF THE, THESE ADDITIONAL REVENUE STREAMS AND THE COST ANALYSIS? THAT WOULD BE MY FIRST QUESTION.
YEAH, I MEAN, I WOULD TRY TO ECHO WHAT DAVE WAS SAYING, WHICH I GUESS REPHRASE THIS, WHAT WE'RE SHOWING RIGHT NOW IS NOT FINAL, WHAT WE'RE SHOWING RIGHT NOW, YOU KNOW, DON'T LOOK TOO HARD AT LIKE WHAT IS THE SPECIFIC COST AND ARE WE GONNA EXPECT THAT IN 2026.
IT'S MORE ABOUT, YOU KNOW, THE RELATIVE RESULTS ACROSS THE DIFFERENT MARKET PRODUCTS.
OBVIOUSLY THE ASSUMPTION THERE IS THAT, YOU KNOW, THE IMPLEMENTATION OF THE RRS WOULD HAVE, YOU KNOW, SIMILAR IMPACT ACROSS THE DIFFERENT MARKET RES RESULTS SUCH THAT, YOU KNOW, YOU CAN LOOK AT THEM RELATIVELY AND
[02:50:01]
SAY, OH, NOTHING'S GONNA CHANGE.AND WE FEEL LIKE THAT'S PROBABLY WHAT'S GONNA HAPPEN BASED ON HAVING AN EFFICIENT MARKET PRODUCT.
THAT BEING SAID, AND I'LL DEFER IT TO ERCOT IF THEY WANT TO SAY ANYTHING, BUT I WOULD ASSUME THAT, YOU KNOW, THE MARKET IS CONSTANTLY CHANGING.
THERE'S GONNA BE LIKE A LINE HAVE TO BE DRAWN IN THE SAND, BUT TO THE EXTENT THAT THESE THINGS ARE VERY IMPORTANT AND WE THINK WOULD REALLY CHANGE, I THINK THAT'S, THOSE ARE COMMENTS THAT SHOULD BE SAID THAT WOULD STIPULATE, I DON'T THINK IT MAKES SENSE TO PUT A RULE MAKING, YOU KNOW, BEFORE WE ACTUALLY HAVE AN IMPLEMENTATION OF HOW THIS WOULD WORK.
UM, SO I GUESS I'M SAYING THAT RELATIVELY, I THINK IT'S STILL IMPORTANT TO LOOK AT THE RESULTS AND I WOULDN'T LIKE DISCREDIT ANYTHING WE'RE SHOWING HERE, BUT AT THE SAME TIME I THINK IT, YOU KNOW, IT'S RELEVANT IF, IF PEOPLE BELIEVE IT THAT WAY TO MAKE SURE THAT ALL THE RIGHT INFORMATION IS DONE.
BUT YOU KNOW, ONCE AGAIN, THE MARKET IS CONSTANTLY CHANGING, SO AT SOME POINT THE, THE LINE HAS TO BE DRAWN.
UM, MY SECOND QUESTION IS, YOU KNOW, OBVIOUSLY THERE'S WEATHER ASSUMPTIONS BUILT INTO THE RELIABILITY STANDARD MODELING AND THE COMMISSION HASN'T YET, UM, MADE A FINAL DE UH, DETERMINATION ON THAT.
BUT ERCOT HAS RECOMMENDED, UM, USING SHORTER AMOUNT OF, UH, WEATHER YEARS JUST TO NO LONGER AMOUNT OF WEATHER YEARS, EXCUSE ME, TO MITIGATE AGAINST THE IMPACTS THAT WINTER STORM URI HAD.
UM, SO I GUESS MY SECOND QUESTION IS WHATEVER WEATHER ASSUMPTIONS ARE GONNA BE USED IN THE RELIABILITY STANDARD, WILL THOSE ALSO BE USED? OKAY, YOU'RE GONNA BE CONSISTENT THEN.
YEAH, OUR GOAL, UM, AND THEN I'M HAVING, I HAD A QUESTION ABOUT THE MODELING DESIGN.
I UNDERSTAND, UM, THAT THERE WERE SO MANY PARAMETERS THAT THE MODELING WAS JUST VERY UNWIELDY IF YOU TRIED TO MODEL EVERY PARAMETER, NOT IN ISOLATION, BUT TOGETHER.
BUT ON THE OTHER HAND, AS WE'RE MAKING THESE DECISIONS, DESIGN DECISIONS, IT'S VERY HARD TO FULLY UNDERSTAND WHAT THE IMPACT OF THAT IS WHEN WE'RE HOLDING ALL OF THE OTHER DESIGN, UM, PARAMETERS, YOU KNOW, IN THEIR DEFAULT POSITION.
AND I DON'T KNOW IF YOU CAN COMMENT ON THAT OR NOT, BUT IT IS, IT IS A CONCERN BECAUSE I DON'T THINK WE CAN FULLY ANALYZE.
AND THEN JUST FINALLY, I'LL JUST LET YOU ANSWER THIS ONE.
THE IMM HAS UH, MADE PRESENTATIONS TO THE ERCOT BOARD, UM, LAST YEAR THAT THE REVENUES IN ERCOT ARE EXCEEDING CONE BY MULTIPLES.
UM, AND I'M, AND THEY HAVE FOR THE LAST FIVE YEARS.
UM, BUT YOUR ANALYSIS IS SHOWING SOMETHING VERY DIFFERENT FROM THAT.
AND UM, I'M JUST CURIOUS IF YOU COULD EXPLAIN THOSE SORT OF CONTRASTING VIEWS.
SO MAYBE, UM, MAYBE ON THE FIRST QUESTION ABOUT STRUCTURING THE DEFAULT AND EVALUATING SENSITIVITIES, WE'VE, WE'VE ACTUALLY CONSTRUCTED OUR APPROACH PRECISELY TO MAKE IT EASIER TO UNDERSTAND THE IMPACT OF EACH PARAMETER.
SO WE HAVE A, A DEFAULT SET OF ASSUMPTIONS AND THEN WE'RE GONNA LOOK AT IF YOU CHANGE THIS ASSUMPTION, HOW DOES THAT CHANGE THE RESULTS? OR IF YOU CHANGE THIS ASSUMPTION, HOW DOES THAT CHANGE THE RESULTS? IT MAKES IT MUCH EASIER TO UNDERSTAND HOW EACH ASSUMPTION IMPACTS THE PERFORMANCE OF THE DESIGN.
WHEREAS IF WE WERE TO HAVE 20 DIFFERENT ASSUMPTIONS, 'CAUSE THE MODEL'S ALWAYS LOOKING AT ALL OF THE ASSUMPTIONS, WE HAVE 20 ASSUMPTIONS AND THEN WE CHANGE ALL 20 OF THEM AND WE GET A COMPLETELY DIFFERENT ANSWER.
WE HAVE NO IDEA WHAT'S, WHICH OF THE PARAMETERS LED TO THAT DIFFERENT ANSWER.
SO THE STEP-BY-STEP APPROACH THAT WE'VE LAID OUT IS ACTUALLY DESIGNED, WE THINK, TO BEST UNDERSTAND WHERE WE WANNA ULTIMATELY END UP AND, AND HOW EACH PARAMETER CAN HELP END UP IN A MORE EFFICIENT ULTIMATE DESIGN.
BUT TO THAT POINT, YOU KNOW, TO THAT POINT AND, AND EVEN TO YOUR FIRST POINT ABOUT INCLUDING DRS, HOW TO INCLUDE DRS, I MEAN, AGAIN, I THINK WHAT WE'RE, WE ARE, WE'RE ALSO VERY OPEN TO FEEDBACK ON HOW THIS SHOULD BE CONDUCTED.
OBVIOUSLY WE HAVE A LIMITED AMOUNT OF TIME AND A LIMITED AMOUNT OF RUNS THAT CAN BE COMPLETED.
SO WE CAN, WE WANT TO HEAR FROM STAKEHOLDERS ABOUT MAKE SURE TO LOOK AT THIS OR TRY TO RUN THIS THIS WAY AND TO THE BEST THAT WE CAN FIT THAT INTO A PRIORITIZATION OF RUNS, THEN I THINK WE WANT TO DO THAT.
BUT I THINK WE'RE, WE'RE OPEN TO OTHER WAYS TO EVALUATE HOW TO GET TO THE FINAL FRAMEWORK.
WE JUST THOUGHT IT MADE SENSE TO LOOK AT EACH ONE BY ONE.
YEAH, SO I GUESS I'LL ADD TO THAT ONE AND THEN ANSWER YOUR SECOND QUESTION.
THE THING I'LL ADD TO THAT ONE IS I WOULD ALSO LIKE REITERATE THAT THE DEFAULT PARAMETERS ARE NOT SET IN STONE.
SO TO THE EXTENT WE'RE RUNNING ONE SENSITIVITY AND OH, LIKE ONE IS A LOT, YOU KNOW, BETTER THAN WHAT WE HAD A DEFAULT PARAMETER,
[02:55:01]
THEN WE CAN SWITCH AND CONTINUE DOING, YOU KNOW, THE ANALYSIS THAT WAY.UM, SO FAR BASED ON THE ANALYSIS, WE JUST HAVEN'T SEEN TOO MUCH DIFFERENCES AND IT'S MORE BASED ON, YOU KNOW, WHAT ARE THE DIFFERENT PRIORITIES THAT ERCOT MIGHT HAVE.
SO IT'S MORE PUTTING THE RESULTS OUT THERE, BUT TO YOUR POINT, LIKE THAT'S ALSO AN OPTION.
AND THEN TO YOUR SECOND POINT, I THINK THIS GOES BACK A LITTLE BIT AND I KNOW IT'S HARD TO GRASP ON, YOU KNOW, A 2026 SYSTEM THAT IS SO DIFFERENT AND THAT'S JUST BASED ON THE FACT THAT WE NEED TO MODEL 2026 'CAUSE THIS IS WHEN IT'S GONNA BE IMPLEMENTED AND FOR CONSISTENCY.
BUT REALLY IF WE ARE ACTUALLY TRYING TO MODEL IN A WAY THAT MAYBE IS MORE UNDERSTANDABLE, YOU WOULD JUST LOOK AT A YEAR THAT IS FURTHER OUT IN, YOU KNOW, 2035.
BUT ONCE AGAIN, WHAT IS LOAD IN 2035? WHAT ARE THE RESOURCES? WE DON'T EVEN KNOW WHICH TYPE OF RESOURCES WILL EXIST AT THAT POINT.
SO THAT'S KIND OF LIKE THE BALANCE.
SO I WOULD SAY LIKE YESTERDAY IT'S A, YOU KNOW, SYSTEM WITH, YOU KNOW, HIGH MARGINS AND, AND EVERYTHING, WHAT IS GONNA HAPPEN IN THE FUTURE WHEN YOU ADD, YOU KNOW, 40 GIGS OF RENEWABLES, IT'S JUST LIKE A COMPLETELY DIFFERENT MARKET, UM, THAT IS LIKE REALLY HARD TO GRASP.
AND ONCE AGAIN, I THINK USING THE 2026 THING CAN CONFUSE PEOPLE 'CAUSE IT SEEMS LIKE SHORT, SO SHORT NOTICE.
BUT THAT'S WHAT THE CDR SAYS AND THE Q SAYS.
SO I THINK LIKE DISSOCIATING, LIKE WHEN WE TALK ABOUT LIKE THE EQUILIBRIUM PORTFOLIO WITH TODAY'S, UM, JUST BASED ON LIKE HOW THE PORTFOLIO IS EXPECTED TO CHANGE IS KINDA LIKE THE EASIER WAY TO GO ABOUT IT.
NEXT IN THE QUEUE WE'VE GOT NED.
I'LL TRY TO BE, UH, QUICK, I'VE GOT A, A COMMENT AND A COUPLE QUESTIONS.
UH, THE FIRST COMMENT I THINK IS, IS I JUST WANTED TO SAY SINCE WE WERE TALKING ABOUT THE MODELING AND, AND WHAT IT KICKS OUT, UM, I APPRECIATE THE, THE FRAMEWORK THAT Y'ALL HAVE HERE BECAUSE, YOU KNOW, EVERY, EVERY MODEL IS WRONG.
THE QUESTION'S WHETHER OR NOT IT'S USEFUL AND, AND THIS FRAMEWORK IS, IS PARTICULARLY USEFUL FOR DOING WHAT WE'RE SUPPOSED TO BE DOING RIGHT NOW.
AND THAT'S EVALUATING, YOU KNOW, KIND OF THE AB TESTS OF WHAT SOME OF THE PARAMETERS CAN LOOK LIKE AND WE'LL SEE WHAT THE, THE, THE FULL SPECTRUM LOOKS LIKE WHEN IT GETS, COMES TIMES TO THE, THE COST BENEFIT ANALYSIS.
SO, UM, YOU KNOW, I, I KNOW IT'S, IT'S, THERE'S A, A NATURAL DESIRE TO WANT TO HAVE FULL, FULL CLARITY AND UH, YOU KNOW, I WANT THAT TOO.
BUT WE, I THINK THIS IS A GOOD STEP FORWARD.
UM, SO AT LEAST ONE TO, TO VOICE THAT.
UM, I ALSO WANTED TO COMMENT ON THE, UH, THE DISCUSSION ABOUT THE CONE, UH, ASSUMPTIONS AND WHERE THE TEXAS ENERGY FUND SHOULD PLAY IN.
AND THAT SEEMS INAPPROPRIATE TO PUT THAT IN THERE, GIVEN THAT THIS IS SUPPOSED TO BE A LONG-TERM SELF-SUSTAINING MARKET DESIGN.
UM, WHEREAS, YOU KNOW, TEXAS ENERGY FUND IS A BRIDGE THAT, YOU KNOW, IS THERE TO HELP INCENTIVIZE SOME DISPATCHABLE GENERATION INVESTMENT AS WE MOVE INTO A MORE SUSTAINABLE, UH, FRAMEWORK.
SO, YOU KNOW, TO THE EXTENT THAT THE CONE IS, IS EFFECTIVELY THE PRICE TO BEAT IN THE PCM FRAMEWORK.
YOU WANT TO SET THAT AT THE, YOU KNOW, THE REASONABLY, REASONABLY HIGH BAR KNOWING THAT IN IN REALITY YOU'RE GONNA HAVE LOWER COST RESOURCES FOR, YOU KNOW, BE IT BECAUSE THEY HAVE SUBSIDIZED FUNDING, UH, FINANCING OR OTHER, UH, YOU KNOW, OTHER BENEFITS, UM, THAT'S, THAT'S GONNA COME IN AND MEET THAT RELIABILITY STANDARD AT A LOWER COST.
UM, SO THAT'S, THAT'S THE END OF THE COMMENTARY.
UH, QUESTIONS, UH, THE FIRST ONE WAS ON THE, THE PRIOR, WELL ACTUALLY LET ME DO THE, THE EASY ONE FIRST.
AND THAT'S ON THE ANCILLARY SERVICES, UH, SLIDE.
UM, CAN YOU HELP ME RECONCILE THE 10,000 MEGAWATTS IN THE, IN THE HEADER WITH THE 7,700 MEGAWATTS IN THE, IN THE BOTTOM LEFT TABLE? YEAH, I WAS JUST HOPING NOBODY WOULD REALIZE, BUT YOU CAUGHT IT.
SO YEAH, IT SHOULD BE THE, THE 77, I THINK THE 10,000.
UH, ALL RIGHT, SO THEN THE OTHER ONE WAS, UH, BACK ON SLIDE 22 WHEN, UM, AND, AND IT'S ON THE BLURB ABOUT THE, THE TRANSMISSION DELIVERABILITY, UH, NOT BEING MODELED ON THAT ITEM.
I WAS HOPING YOU COULD HELP US WALK THROUGH HOW THE HUB AVERAGE LMPS ARE A SUBSTITUTE FOR THAT AND WHERE THAT'S GOING TO SHOW UP.
IT, IT SEEMS LIKE THAT WOULD PRIMARILY BE IN THE ENERGY, UH, THE ENERGY PRICE OUTCOMES.
IT'S NOT GONNA IMPACT THE PC UH, OUTCOMES.
IS THAT THE RIGHT WAY TO THINK ABOUT THAT? YEAH, EXACTLY.
I GUESS BASED ON, OR DEPENDING ON HOW WE DO THE DESIGN, THE ENERGY NAS MIGHT AFFECT PC PRICES.
BUT YEAH, OVERALL THIS IS, YOU KNOW, WHEN WE RUN THE MODEL WE LOOK AT A MODEL BASICALLY WITHOUT, YOU KNOW, SAYING PC PRICES JUST A ONE IN 10, UH, RESOURCE PORTFOLIO.
AND THEN WE FIGURE OUT WHAT IS THE BEST WAY, UH, TO LIKE, UM, BASICALLY ADD THE MISSING MONEY TO IT.
SO YEAH, TO YOUR POINT, LIKE THE MODELING AND, AND THAT PART OF IT, THAT'S WHERE THE HUB PRICES COME IN AND THAT, THAT BENCHMARKING ASPECT.
OKAY, REMI, UM, CAN YOU TELL ME THAT 14 GIGAWATTS OF, UH, RESOURCES REMOVED? WAS IT INPUT
[03:00:01]
OR OUTPUT AND IF OUTPUT, WHAT WHAT IS IT BASED ON? YEAH, SO IT IS AN OUTPUT, UM, WHICH IS BASED ON THE AMOUNT OF RESOURCES THAT WOULD NEED TO EXIT THE MARKET FOR THEM TO BE BASICALLY SUSTAINED OR BE PROFITABLE OR I GUESS CODE BASED ON ITS REVENUE.SO IT'S PRETTY MUCH THE, THE, THE, THE REAL INPUTS TO THAT ARE WHAT IS THE ENERGY AND AS MARGINS THEY'RE MAKING AND WHAT IS THE, THE, THE CONE.
AND WITH THOSE YOU JUST MAKE SURE THEY MEET.
AND UM, WHEN YOU GIVE ADDITIONAL INFORMATION ON THE DATA, UH, CAN YOU ALSO GIVE UM, WHAT'S THE LEVEL OF LARGE FLEXIBLE LOADS YOU ARE CONSIDERING OR FLEXIBLE LOADS THAT YOU ARE CONSIDERING IN THE ANALYSIS? YEAH, FOR SURE.
IT'S PART OF THE OTHER BUCKET HERE, BUT YEAH, WE CAN PROVIDE THE DETAILS OF WHAT THAT THAT INCORPORATES.
SO IN YOUR LOLE DESCRIPTION, IT WAS MOSTLY THE WINTER STORM, LONG DURATION WINTER STORM THAT WAS UM, ADDING THE MOST TO THE LOLE NUMBER.
BUT IN THIS PROPOSAL, YOU KNOW, IT SEEMS LIKE SINCE THAT EVENT ONLY HAPPENS ONCE, LET'S SAY EVERY 10, 15 YEARS, UM, THE WAY THIS IS STRUCTURED, I DON'T SEE ANY INCENTIVE FOR LONG DURATION RESOURCES RELATIVE TO SHORTER DURATION BECAUSE 14 OF THOSE 15 YEARS, THE SHORTER DURATION STUFF WILL GET ALL THE MONEY, YOU KNOW, AND THE PCS AND EVERYTHING.
IT'S ONLY IN THAT ONE YEAR THAT LONGER, I DON'T SEE HOW THAT INCENTIVIZES LONGER DURATION ASSETS INSTEAD OF JUST SHORT DURATION MEETING ALL OF IT.
YEAH, I WOULD SAY THAT THAT'S SOMETHING THAT WE'RE DEFINITELY LOOKING INTO AND I THINK WHEN SAC GOES THROUGH SOME OF THE RESULTS, YOU'LL SEE UM, BASICALLY THIS METRIC THAT I DON'T WANT TO GET TOO MUCH INTO IT 'CAUSE I'M PROBABLY NOT, UH, EXPLAINING IT TOO WELL CALLED PC EFFECTIVENESS, WHICH BASICALLY IS LIKE THE EQUIVALENT OF A MARGINAL EOCC IN THIS FRAMEWORK, WHICH PRETTY MUCH MEANS FOR EACH, YOU KNOW, MEGAWATT OF NAMEPLATE, HOW MUCH MEGAWATTS OF PCS YOU'RE GETTING.
AND I THINK THAT IS LIKE WHEN WE GET TO THAT POINT, YOU KNOW, THAT'S AN ISSUE THAT, YOU KNOW, AS PART OF, OF THIS DESIGN AND LOOKING AT THE RESULT, I THINK IT'S PROBABLY GONNA, YOU KNOW, HELP SEE WHAT THE INCENTIVES ARE AND SEE IF THOSE ARE THE RIGHT ONES.
SO I GUESS NOT A HELPFUL ANSWER, BUT SAYING THAT WE AGREE WITH THAT, WE'VE SEEN THAT AND I THINK IT'S PROBABLY A GOOD DISCUSSION POINT, RIGHT, BECAUSE YOU'VE PROBABLY DONE SOME ANALYSIS OF WHAT RESOURCES ARE ADDED TO THE SYSTEM ONCE WE DO THIS PC DESIGN AND PROBABLY THAT SHOWS MORE OF THE SHORTER DURATION STUFF BEING ADDED.
SO WHEN WE ADD RESOURCES, WE FOCUS MOSTLY ON ADDING THIS RN LIKE CT, LIKE PERFECT CT STORAGE AND EVERYTHING ELSE IS JUST ASSUMED FROM THE QUEUE.
BUT WE DO SEE THE RESULTS OF HOW MUCH CREDIT IS A ONE HOUR DURATION STORAGE GETTING VERSUS A FOUR HOUR AND SEEING, TO YOUR POINT, IF, YOU KNOW, ONE HOUR STORAGE IS MAKING A FAIR AMOUNT OF MONEY, BUT ACTUALLY THE REAL TRUE RISKS ARE 10 HOUR EVENTS.
LIKE IS THAT ACTUALLY CONSISTENT OR NOT? AND THAT COULD LEAD TO ECONOMIC EFFICIENCY.
YEAH, WE, WE, WE WILL GET INTO THE PARAMETERS ON THIS, BUT IT IS, YOU CAN STRUCTURE THE WAY IN WHICH PERFORMANCE CREDITS ARE HANDED OUT IN A WAY THAT ESSENTIALLY REQUIRES RESOURCES TO HAVE LONGER DURATIONS.
EVEN IF YOU DON'T HAVE A LOT OF ACTUAL LONG DURATION SCARCITY EVENTS IN A PARTICULAR YEAR.
ANOTHER OPTION IS JUST ELIGIBILITY REQUIREMENTS AND SETTING CERTAIN THRESHOLDS FOR THINGS.
SO THERE ARE DIFFERENT OPTIONS AT AT DISPOSAL THERE, BUT THAT'S A, IT'S A VERY IMPORTANT CONSIDERATION IN TERMS OF THINKING ABOUT THE, UM, IN EFFICIENCY OF THE DESIGN.
YEAH, I JUST FEEL LIKE IT SORT OF GOES AWAY FROM THE FACT THAT EVERYTHING'S DONE EXPOSED BASED ON PERFORMANCE.
SO IT'S SORT OF AN ACCREDITATION ISSUE THAT OTHER MARKETS HAVE.
YEAH, IF YOU COULD GO BACK TO THE SLIDE THAT SHOWS THE RESOURCES I THINK IT WAS, YEAH, THAT ONE.
UM, I'M JUST TRYING TO UNDERSTAND THE, THE COAL AND GAS ENERGY ONLY MARKET EQU EQUILIBRIUM.
UM, SO WOULD YOU GUYS STILL THEN, WHEN YOU RUN THE MODEL, YOU WOULD STILL RUN THOSE INDIVIDUAL RESOURCES BUT YOU WOULD JUST LOWER IT TO 57.
HOW WOULD YOU DECIDE WHICH, WHICH RESOURCES TO, TO RUN IF YOUR MODEL IS FINDING THAT ONLY 57 VERSUS 70 WHATEVER.
COULD THAT, THAT'S MY QUESTION.
UM, THERE ARE SOME GAS UNITS PRETTY MUCH, UM, YOU KNOW, SINGLE TURBINE UNITS THAT ARE IN THE QUEUE TO BE CONSTRUCTED THIS YEAR AND EARLY IN 2025.
ARE YOU NOT ADDING THOSE? YEAH, THOSE ARE ADDED.
[03:05:01]
THOSE ARE ADDED.YEAH, I GUESS TO ANSWER THAT QUESTION, IF YOU LOOK AT THE BOX, IT SAYS WE HAVE 72 TODAY, THERE'S A NET RETIREMENTS OF UH OH NET.
SO YOU ARE ADDING THOSE OTHER ONES WE'RE ADDING AND THEN REMOVING WHAT IS ANNOUNCED TO BE RETIRED.
UM, AND THEN TO ANSWER YOUR FIRST QUESTION, HOW IT WORKS, AND I DON'T WANNA GET INTO THE DETAILS, BUT YOU BASICALLY, YOU KNOW, RUN THE MODEL ASSUMING EVERYTHING STAYS ONLINE AND THEN YOU LOOK AT WHICH RESOURCES ARE THE LEAST PROFITABLE OF THAT AND THEN YOU BASICALLY START RETIRING THOSE UNTIL YOU GET TO A POINT WHERE YOU KNOW, YOU ARE IN THIS EQUILIBRIUM STATE.
SO THE BEST WAY TO THINK ABOUT IT IS THAT YOU'RE JUST RETIRING THE MOST INEFFICIENT GAS AND COAL UNITS, UM, WHICH IS WHAT YOU WOULD EXPECT TO PLAY OUT IF THIS WERE TO HAPPEN IN THE REAL WORLD, RIGHT? THE ONES THAT ARE LEAST PROFITABLE WOULD EXIT FIRST AND THE ONES, OKAY.
AND AGAIN, TO GET TO NED'S POINT, WE'RE NOT ACTUALLY SAYING THESE ARE GONNA RETIRE.
WE'RE USING THIS TO, TO LOOK AT DIFFERENT PARAMETERS AND BE ABLE TO COMPARE APPLES TO APPLES.
BECAUSE AT THE END OF THE DAY, IF WE, YOU KNOW, IT'S IMPORTANT TO MODEL OUTSIDE OF EQU ROOM AND WE SAID THAT, BUT YOU NEED TO HAVE A STARTING POINT TO, TO YOUR POINT SAY IT'S APPLES TO APPLES BECAUSE IF WE JUST MODELED 2026 WITH CURRENT RESOURCES, HOW WOULD THAT LOOK LIKE WITH AND WITHOUT PCM? WE REALLY DON'T KNOW HOW'S THAT GONNA LOOK LIKE IN 30, 20, 35 WHERE WE DON'T EVEN KNOW WHAT'S GONNA BE ONLINE AT THAT POINT.
SO IT'S JUST KIND OF TO YOUR POINT, JUST APPLES TO APPLES.
BUT IT'S NOT SAYING, YOU KNOW, 14 ARE GONNA RETIRE.
WE'RE MORE SAYING, UH, 14 OF THEM WOULD NOT BE KIND OF LIKE, LIKE COMPENSATED ENOUGH TO STAY IN THE MARKET.
AND WHETHER YOU LOOK AT IT AS I MENTIONED, A 20, 20 60 YEAR OR JUST LOOK AT IT LIKE, YOU KNOW, AN A, YOU KNOW, THIS HYPOTHETICAL BASE YEAR BASED ON THIS RESOURCE PORTFOLIO AND THIS INPUTS.
OKAY, NEXT UP WE HAVE JENNIFER SCHMIDT.
HI, YEAH, ON THE L-O-L-E-I HAD A QUESTION ON WHETHER WE'VE CONSIDERED LOLP INSTEAD OR SOME HOUR CONCEPT AS OPPOSED TO DAYS OF EVENTS.
BECAUSE I THINK IT CAN BE ONE MISINTERPRETED BUT TWO DOESN'T IDENTIFY WHETHER THERE IS ACTUALLY RISK FOR THE ENTIRE DAY OR FOR A PARTICULAR PART OF THE DAY.
AND SINCE WE ARE MOVING INTO A POSITION WHERE LACK OF SOLAR PERFORMANCE POST THE SUN GOING DOWN REALLY IS THAT RISK AREA, I DO THINK OURS GRANULARITY IS MORE APPROPRIATE.
YEAH, SO I THINK IF WE GO TO SLIDE 22, UM, THE FIRST BULLET ON THE OUTPUTS FRONT SHOWS THE DIFFERENT MEASURES.
SO WE DO HAVE L-O-L-E-L-O-L-P AND EUE AS THE OUTPUTS OF THE MODEL IN TERMS OF WHAT RELIABILITY METRIC TO USE.
THAT'S MORE UP TO THE DISCRETION OF LIKE ERCO THE PC AND ESRA IN THEIR MODELING IN GENERAL, I THINK TO SACK'S POINT WE'RE DOING 0.1 LOEE BECAUSE THAT'S GENERALLY THE STANDARD BEEN DONE ACROSS THE US THE, THE MOST TYPICAL STANDARD WE CAN.
AND YOU KNOW, WE COULD SHARE AND IT'S VERY EASY, IT'S AN OUTPUT WHAT, YOU KNOW, THE LOLH AND LEUE WOULD BE FOR THOSE SAME SCENARIOS.
SO THAT COULD BE DONE, BUT ALSO, YOU KNOW, IT'S UP TO ERCOT IF THEY WANNA DECIDE ON A DIFFERENT METRIC AND A DIFFERENT STANDARD.
I THINK, ESPECIALLY SINCE WE'RE FINALIZING THE RELIABILITY STANDARD, HAVING THOSE OUTPUTS WOULD BE IMPORTANT.
CONTEXT YEAH, WE CAN ADD THOSE.
JUST COMING BACK TO, I, I GUESS A DISCUSSION TOPIC, UH, OR QUESTION I'D RAISED PREVIOUSLY AND THEN, UM, TWO QUESTIONS AGO.
IS THERE GOING TO BE, I GUESS, TRANSPARENCY INTO, YOU KNOW, IN THE DETERMINATION IN THE MODELING WHEN RESOURCES ARE DEEMED TO BE UNPROFITABLE AND NOT SUPPORTED BY THE MARKET, IS THERE GONNA BE TRANSPARENCY INTO WHAT THOSE, UH, YOU KNOW, FIXED COST THRESHOLDS ARE AND PROFITABILITY THRESHOLDS ARE THAT ULTIMATELY LEAD TO THOSE RETIREMENT DECISIONS? BECAUSE AGAIN, YOU KNOW, I THINK IT JUST, IT COMES DOWN TO, UH, AN ESTIMATE OR, OR WE'RE TRYING TO GET TO AS REALISTIC AN ESTIMATE OF AS POSSIBLE OF WHAT SYSTEM COSTS WOULD ACTUALLY BE UNDER A VARIETY OF SCENARIOS, INCLUDING JUST THE EXISTING MARKET DESIGN.
AND I THINK STAKEHOLDERS NEED A CHANCE TO OPINE ON THE APPROPRIATENESS OF THOSE, YOU KNOW, FOR LACK OF BETTER TERM RETIREMENT THRESHOLDS.
SO I, WE ARE, WE ARE GONNA TR WE ARE GOING TO TRY TO HAVE TRANSPARENCY ON THAT EXACT ISSUE.
THE WAY THAT WE'RE PLANNING TO ADDRESS THAT IS BY SETTING COMBUSTION TURBINE REVENUES EQUAL TO WHAT A NEW COMBUSTION TURBINE WOULD NEED TO EARN AT ITS COST OF NEW ENTRY.
AND THE REASON THAT WE'RE FOCUSING ON THAT PARTICULAR RESOURCE AT THAT PARTICULAR LEVEL IS BECAUSE WE KNOW THAT LOADS ARE GROWING.
WE KNOW THAT THERE'S LOTS OF PRESSURES ON EXISTING RESOURCES, NOT ONLY ECONOMIC BUT REGULATORY PRESSURES, ET CETERA, THAT
[03:10:01]
COULD CAUSE RETIREMENTS.AND THE COMBINATION OF THOSE TWO FACTORS AT SOME POINT IS GOING TO REQUIRE NEW ENTRY AND THE MARKET IS GOING IN ORDER TO ACHIEVE THE NEW ENTRY THAT'S NEEDED TO ACHIEVE A CERTAIN RELIABILITY STANDARD IS GOING TO NEED TO HAVE REVENUES THAT ARE SUFFICIENT TO COMPENSATE THOSE NEW RESOURCES AT THEIR FULL COST OF NEW ENTRY.
TARGET, TRANSPARENT TARGET THAT WE'RE EVALUATING.
YOU KNOW, WE ARE POTENTIALLY OPEN TO OTHER WAYS OF THINKING ABOUT HOW TO SET CONE WELL.
WELL THAT'S, YEAH, THAT'S THE TARGET FOR, FOR NEW RESOURCES, I GUESS I'M TALKING ABOUT WHEN WE'RE ASSESSING MARKET CONDITIONS UNDER THE ENERGY ONLY MARKET AT EQUILIBRIUM AND WITHIN THAT EQUILIBRIUM CALCULATION, THERE'S AN ASSUMPTION, AND I KNOW IT'S NOT AN ASSUMPTION THAT THESE, NOT A FORECAST THAT THESE UNITS WILL ACTUALLY RETIRE, BUT WHAT'S GOING INTO THE ASSESSMENT OF ASSISTING OF SYSTEM COSTS UNDER THE CURRENT MARKET STRUCTURE IS AN ASSUMPTION AROUND HOW MUCH ENERGY AND ANCILLARY SERVICE MARKET REVENUE AND MARGIN THAT EXISTING COAL AND EXISTING GAS NEEDS TO REMAIN ECONOMIC.
AND RIGHT NOW, YOU KNOW, THERE'S 14 GIGAWATTS THAT'S SHOWN TO BE UNECONOMIC COMING OUT OF THAT.
AND I THINK THAT THAT'S HAVING A VERY LARGE IMPACT ON THE ASSESSMENT OF SYSTEM COST AND RELIABILITY THAT WOULD BE EXPECTED UNDER THE CURRENT MARKET DESIGN.
AND I THINK THAT THOSE ASSUMPTIONS AROUND, YOU KNOW, BY RESOURCE CLASS, WHAT DO THEY ACTUALLY NEED TO REMAIN ECONOMICALLY VIABLE IS CRITICALLY IMPORTANT FOR ASSESSING WHAT RELIABILITY WOULD LOOK LIKE AND WHAT TOTAL SYSTEM COSTS WOULD LOOK LIKE, YOU KNOW, UNDER THE CURRENT MARKET STRUCTURE.
BUT THEN, YOU KNOW, UNDER VARYING DESIGNS OF PCM, SO I, I WILL SAY WHEN WE PREVIOUSLY EVALUATED PERFORMANCE CREDIT MECHANISM, WE DID LOOK AT A SENSITIVITY THAT WAS MORE OF A SHORT TERM EQUILIBRIUM APPROACH WHERE WE LOOKED AT WHAT TYPES OF REVENUES WOULD AN EXISTING RESOURCE NEED TO NOT RETIRE, WHICH GIVEN THAT EXISTING RESOURCES HAVE CAPITAL COSTS THAT ARE SUNK, THEN YOU WOULD EXPECT THAT THEY MIGHT NOT NEED AS MANY REVENUES AS A NEW RESOURCE THAT DOESN'T YET EXIST THAT NEEDS TO ATTRACT INVESTMENT.
AND I THINK THAT WE WOULD BE OPEN TO LOOKING AT THAT TYPE OF APPROACH AS WELL.
I DON'T THINK THAT THAT TYPE OF APPROACH IS AS USEFUL FOR DESIGNING A MARKET FOR THE LONG TERM BECAUSE WE KNOW THAT RESOURCES, REGARDLESS OF THE ECONOMICS ARE GOING TO RETIRE AND LOADS ARE GOING TO GROW, RESOURCES ARE GOING TO RETIRE BECAUSE THEY JUST REACHED THE END OF THEIR PHYSICAL LIFE OR THEY'RE NO LONGER COMPLIANT WITH FEDERAL ENVIRONMENTAL STANDARDS AND THEY'RE FORCED OFFLINE.
SO RESOURCES ARE GONNA RETIRE REGARDLESS OF ECONOMIC LOADS ARE GONNA GROW AND NEW ENTRY IS GONNA BE NEEDED AND THEREFORE THE SHORT RUN EFFECTS OF HOW MUCH AN EXISTING RESOURCES EARNING BECOMES LESS AND LESS RELEVANT FOR THE PURPOSES OF CREATING SIGNALS FOR NEW ENTRY AND DETERMINATION OF TOTAL SYSTEM COSTS THAT ARE SET ON THE MARGIN IN THE LONG RUN, WHICH IS PRECISELY WHAT WE'RE LOOKING AT.
SO, OKAY, I CAN'T UNDERSTAND YOU, BUT JUST TO, JUST TO FINISH.
SO I THINK WHAT I'M SAYING IS I DON'T NECESSARILY AGREE WITH THE PREMISE OF YOUR, WITH YOUR PREMISE, UM, BUT I THINK TO THE EXTENT THAT THERE IS A SPECIFIC RECOMMENDATION OR SUGGESTION THAT YOU HAVE ABOUT AN ADDITIONAL CASE THAT WE COULD RUN, I THINK WE WOULD DEFINITELY BE OPEN TO THAT.
OKAY, LAST IN THE QUEUE IS ANDREW REERS, AND I THINK AFTER ANDREW'S QUESTION WE WILL PAUSE.
UH, ANDREW IMERS, IMM MY QUESTION IS SHORT AND SHOULD BE EASY TO ANSWER.
I'M CURIOUS HOW YOU TREAT QUALIFIED FACILITIES AND COGENT AND THINGS LIKE THAT IN YOUR RETIREMENT METHODOLOGY? YEAH, WE CAN GET INTO THE SPECIFICS OF IT, BUT IN GENERAL, UM, CO-GENERATION FACILITIES THAT ARE TIED TO AN INDUSTRIAL FACILITY OR WHATEVER THAT IS NOT EXPECTED TO RETIRE ARE BASICALLY KIND OF EXCLUDED WHEN ON RETIREMENTS RELATIVE TO, UH, OTHER LIKE PURELY UTILITY SCALE PLANTS.
AND I GUESS JUST AS A FINAL THING I WOULD SAY, LIKE I KNOW EVERYONE'S LIKE A LITTLE BIT, YOU KNOW, TRIP DUMP ON THESE LIKE QUOTE UNQUOTE RETIREMENTS IF WE WANNA CALL THEM.
I WOULD ALSO LIKE FLAG, THIS IS NOT LIKE SOMETHING NEW THAT WE'RE DOING FOR THIS MODEL.
LIKE THIS IS WHAT A STR IT DOES EVERY SINGLE TIME WHEN DOING THE RESERVE
[03:15:01]
MARGIN STUDIES.SO THERE IS LIKE A PRESET METHODOLOGY THAT, YOU KNOW, ERCOT AND RAE AND YOU KNOW, NOW THAT WE'RE INVOLVED HAVE AGREED ON LIKE HOW TO MAKE THOSE RETIREMENTS AND WHAT THAT WOULD MEAN.
AND OBVIOUSLY WE'RE, WE'RE HAPPY TO PROVIDE MORE DETAILS LATER ON AND TO SACK'S POINT, UM, ALSO JUST, YOU KNOW, TEST DIFFERENT SENSITIVITIES TO THE EXTENT PEOPLE ARE INTERESTED IN THOSE.
ALL RIGHT, WELL THAT PUTS US TO 1255.
SO WE'RE ABOUT 55 MINUTES OFF THE PACE.
I THINK WHAT I'M GOING TO SUGGEST IS THAT WE RECONVENE AT 1 45, SO THAT'S A, A LITTLE BIT SHORTER LUNCH, BUT ALLOW US, UH, FOLKS SOME TIME TO HOPEFULLY GRAB SOMETHING AND, UH, ENSURE THAT WE HAVE SUFFICIENT TIME IN THE AFTERNOON TO GET TO THE, THE NEXT PART.
SO WE ARE ADJOURNED AND WE'LL RECONVENE AT 1 45.
[4. Part 3: Key Decision Points in PCM Design]
OKAY, IF PEOPLE WANT TO TAKE THEIR SEATS IN THE ROOM, WE WILL BEGIN PART THREE OF THE AGENDA TODAY FOR THE PCM WORKSHOP.UM, SO BEFORE I TURN THINGS OVER TO ZACH TO WALK US THROUGH THIS, MAYBE JUST A REMINDER FOR THOSE WHO MAY HAVE, UH, JOINED AFTER THE BEGINNING, IF YOU ARE, UH, LISTENING IN VIA WEBEX, CAN YOU MAKE SURE THAT YOU ARE MUTED? AND THAT'S PARTICULARLY TRUE IF YOU ARE IN THE ROOM, PLEASE MAKE SURE YOU'RE LISTENING WITH YOUR SPEAKERS DISABLED AND YOUR PHONE'S ON MUTE.
UM, I'D LIKE TO SEE JUST GIVEN HOW, UH, WHERE WE ARE IN THE PROCESS THAT TO THE GREATEST EXTENT POSSIBLE, WE'D LIKE TO HAVE, UH, E THREE GO THROUGH THE CONTENT OF THE SECTION FIRST AND THEN DEAL WITH QUESTIONS AT THE END.
NOW IF THERE'S A A VERY URGENT QUESTION, UM, YOU KNOW, WE'LL MAKE EXCEPTIONS TO THAT, BUT WE'D LIKE TO KEEP IT TO THAT.
AND THE OTHER THING I WOULD ASK, JUST BECAUSE WE WANNA MAKE SURE THAT WE CAN ANSWER AS MANY AS QUESTIONS AS POSSIBLE, IF YOU CAN KEEP YOUR PREAMBLE OR OR PREMISES GOING INTO THE QUESTION AS BRIEF AS POSSIBLE, JUST MAKE SURE THAT WE CAN COVER AS MUCH CONTENT, UH, AS WE CAN FOR THE SESSION TODAY.
SO WITH THAT, I WILL TURN THINGS OVER TO ZACH.
OKAY, THANK YOU RYAN, AND WELCOME BACK EVERYBODY.
WE HAVE MADE IT THROUGH ABOUT A THIRD OF THE PRESENTATION, BUT WE HAVE THE LIVELIEST SECTION HERE POST-LUNCH, SO HOPEFULLY YOU CAN KEEP EVERYONE AWAKE.
WE'RE GONNA DIVE INTO ALL OF THE DIFFERENT PARAMETERS AND DECISIONS THAT ULTIMATELY WILL NEED TO BE MADE TO IMPLEMENT THE PERFORMANCE CREDIT MECHANISM.
SO IF WE GO TO THE NEXT SLIDE OR TWO SLIDES AHEAD, WE HAVE A LIST HERE OF ALL OF THE DIFFERENT CATEGORIES OF DECISION AREAS THAT WILL NEED TO BE ADDRESSED.
I THINK IF WE GO ONE MORE SLIDE, HERE WE GO.
SO WE HAVE ALL OF THE DIFFERENT CATEGORIES.
WE'RE GONNA GO THROUGH THESE IN SEVERAL SLIDES ON EACH DIFFERENT CATEGORY.
SO I WON'T READ ALL THE DECISION POINTS THAT NEED TO BE MADE, BUT BROAD BROADLY, THE DIFFERENT CATEGORIES THAT ARE GONNA HAVE TO BE DECIDED ARE WHAT'S THE DEFINITION OF A SEASON? WHAT'S THE DEFINITION OF HOW YOU DEFINE THE HOURS WHICH SET PERFORMANCE CREDIT REQUIREMENTS, LIKE HOW MANY HOURS WHEN THOSE HOURS OCCUR, HOW YOU SET, HOW RESOURCES CAN EARN PERFORMANCE CREDITS, HOW YOU SET ELIGIBILITY FOR RESOURCES THAT CAN EARN PERFORMANCE CREDITS.
ONE OF THE TRICKIEST AND HAIRIEST IS THE DEMAND CURVE.
SO HOW YOU STRUCTURE THE DEMAND CURVE, WHICH IS FUNCTIONALLY HOW YOU INJECT MONEY INTO THE MARKET TO SOLVE THE FUNDAMENTAL ISSUE THAT WE'RE TRYING TO SOLVE, WHICH IS THAT A RELIABLE SYSTEM DOES NOT INJECT SUFFICIENT MONEY THROUGH THE ENERGY ONLY FRAMEWORK ON ITS OWN.
SO STRUCTURING THE DEMAND CURVE APPROPRIATELY IS A VERY IMPORTANT SET OF DECISIONS.
WE HAVE A FEW CATEGORIES THAT WE DO WANT TO COVER BECAUSE THEY WILL ULTIMATELY NEED TO BE DECIDED IN THE IMPLEMENTATION OF ANY PERFORMANCE CREDIT MECHANISM, BUT ANY AREA THAT'S NOT HIGHLIGHTED HERE IN RED IS SOMETHING THAT WE'RE NOT MODELING.
AND SO WE'RE NOT GONNA BE GETTING INTO AS MUCH DETAIL TODAY.
WE'RE GONNA FOCUS ON THINGS THAT WILL BE QUANTITATIVELY IMPACTED THROUGH THE RESULTS.
UH, SO ONE, ONE ISSUE THAT WOULDN'T BE QUANTITATIVELY IMPACTED IS JUST DO YOU HAVE PERFORMANCE REQUIREMENTS IN TERMS OF TESTING REQUIREMENTS FOR RESOURCES? RIGHT NOW, WE'RE ESSENTIALLY ASSUMING THAT RESOURCES THAT PASS THE TESTING REQUIREMENT ARE DISPATCHABLE AND CAN TURN ON WHEN NEEDED.
SO THERE'S, THERE'S SOME QUALITATIVE ISSUES THAT NEED TO BE ADDRESSED THERE, BUT THEN WE HAVE EVERYONE'S FAVORITE CATEGORY, THE ANNUAL NET COST CAP, AND WE'RE GONNA BE SPENDING A BIT OF TIME ON THAT.
AND THEN WE HAVE SOME ADDITIONAL SECTIONS THAT, AGAIN, ARE NON-QUANTITATIVE, BUT ISSUES AROUND THE TIMING OF THE FORWARD PERFORMANCE CREDIT MARKET,
[03:20:02]
THE FRAMEWORK FOR HOW THAT WORKS, AND THEN SOME TOPICS ON MARKET POWER MITIGATION.SO WE'RE GONNA BE GOING THROUGH EACH OF EACH OF THESE TOPICS IN DETAIL TO COVER EXACTLY WHAT WE, UH, YOU KNOW, GOING IN DEPTH ON THE DIFFERENT DECISIONS THAT NEED TO BE MADE.
SO IF WE GO TO THE NEXT SLIDE, YOU KNOW, THE FIRST KEY QUESTION IS HOW TO DEFINE THE SEASONS OF THE PERFORMANCE CREDIT MECHANISM.
SO I THINK IF WE JUST JUMP AHEAD ONE SLIDE HERE.
SO THE TWO KEY COMPONENTS OF THE DEFINING THE SEASONS ARE HOW MANY SEASONS DO YOU HAVE AND WHICH MONTHS ARE INCLUDED IN EACH SEASON? SO ON A LOW BOOKEND, WE COULD HAVE TWO SEASONS, YOU COULD HAVE A SUMMER SEASON AND A WINTER SEASON.
MAYBE EACH OF THOSE SEASONS IS SIX MONTHS LONG, OR YOU COULD SAY YOU HAVE THE THREE MONTH SUMMER AND THEN NOTHING IN THE SHOULDER MONTHS, AND THEN THREE MONTHS IN THE WINTER.
ANOTHER OPTION, WHICH WE'RE ASSUMING IS OUR DEFAULT OPTION IS FOUR DIFFERENT SEASONS, WINTER, SUMMER, FALL, AND SPRING.
AND THEN ON A POTENTIALLY HIGH BOOKEND EVERY MONTH COULD POTENTIALLY BE ITS OWN SEASON.
SO RIGHT NOW, GOING IN AS A DEFAULT ASSUMPTION, WE'RE ASSUMING THERE ARE FOUR SEASONS, THE TYPICAL DEFINITION OF SEASONS.
WE HAVE A WINTER SEASON DEFINED FROM DECEMBER THROUGH FEBRUARY, A SPRING SEASON DEFINED FROM MARCH THROUGH MAY, A SUMMER SEASON DEFINED FROM JUNE THROUGH SEPTEMBER, AND A FALL SEASON DEFINED AS OCTOBER AND NOVEMBER.
AND THE KEY CONSIDERATIONS HERE ARE WE WANT TO ALIGN THE RISK HOURS THAT ARE COMPENSATED IN EACH SEASON WITH THE ACTUAL RISK HOURS THAT THE SYSTEM SEES.
I THINK ONE, ONE BIG DIFFERENCE BETWEEN THIS NEW DEFAULT DESIGN THAT WE'RE GONNA BE TALKING A LOT ABOUT TODAY AND THE PREVIOUS ANALYSIS WHEN WE PRODUCED THE REPORT FOR THE COMMISSION, IS THAT THE PREVIOUS ANALYSIS ASSUMED ONE ANNUAL CONSTRUCT.
WHAT WE'RE GONNA BE LOOKING AT AS A DEFAULT HERE AS THIS SHOWS IS FOUR DIFFERENT SEASONS THAT ACTUALLY DOES HAVE A VERY STABILIZING EFFECT ON PC PERFORMANCE CREDIT PRICES.
AND THE REASON IS BECAUSE WHEN YOU LOOK AT AN ANNUAL CONSTRUCT, YOUR ANNUAL PERFORMANCE REQUIREMENT IS BASED ON THE RISKIEST HOURS IN ALL OF THE DIFFERENT SEASONS.
BUT WHEN YOU ACTUALLY HAVE RISK HOURS IN A GIVEN YEAR, THEY'RE GOING TO OCCUR IN A PARTICULAR SEASON.
AND IF THAT SEASON HAS LOWER OR HIGHER REQUIREMENTS THAN THE ANNUAL AVERAGE, THEN YOU, YOU GET THIS POTENTIAL FOR A LOT OF VOLATILITY THAT'S DRIVEN ONLY BY THE FACT THAT YOU'RE COMPARING SOMETHING THAT HAPPENED IN A PARTICULAR SEASON TO AN ANNUAL VALUE THAT INCLUDES AN AVERAGE OF ALL OF THE SEASONS.
SO BY DIFFERENTIATING SEASONS INTO WHAT, WHAT ARE THE RISKS IN THE SUMMER, WHAT ARE THE RISKS IN THE WINTER, YOU HAVE THIS MITIGATING EFFECT ON VOLATILITY THAT WE WILL TALK THROUGH A LITTLE BIT MORE.
SO IF WE GO TO THE NEXT SLIDE, WANT TO ILLUSTRATE SOME OF WHAT THIS LOOKS LIKE WHEN WE START TO BREAK DOWN THE YEAR INTO DIFFERENT SEASONS.
SO IF WE JUST ASSUME THERE'S ONE SEASON, OR YOU MIGHT CALL IT NO SEASONS, THAT'S WHAT THERE ARE, THIS HEAT MAP ON THE FAR LEFT IS LOOKING AT.
SO AGAIN, THIS IS OUR STANDARD HEAT MAP WHERE WE HAVE MONTHS OF THE YEAR ON BOTTOM HOURS OF THE DAY ALONG THE SIDE AXIS.
AND THIS IS SHOWING ACROSS ALL YEARS WHAT ARE THE HOURS THAT MOST FREQUENTLY POP UP AS BEING THE TIGHTEST SYSTEM HOURS.
AND AGAIN, THEY OCCUR IN THE SUMMER, IN THE EVENING.
SO THIS IS LOOKING AT AN AVERAGE ACROSS ALL YEARS.
WHAT ARE THE, THE TIGHTEST SYSTEM HOURS? NOW, IF YOU'LL RECALL, THIS IS A BIT DIFFERENT THAN THE ACTUAL ONCE PER DECADE RELIABILITY RISK THAT THE SYSTEM FACES, WHICH IS IN THE WINTER AND PARTICULARLY IN THE MORNING AND THE EVENINGS.
SO ONE WAY TO POTENTIALLY ADDRESS THAT IS TO LOOK AT BREAKING THE YEAR INTO MULTIPLE SEASONS.
SO WE HAVE A SECOND HEAT MAP HERE IN THE MIDDLE THAT'S BREAKING THE YEAR DOWN INTO TWO SEASONS.
AND THEN WE HAVE A A MAP HEAT MAP ON THE RIGHT THAT'S BREAKING THE YEAR DOWN INTO FOUR SEASONS.
AND SO WHAT THIS IS SHOWING, AGAIN, IN EACH, UM, IN EACH YEAR OR IN EACH SEASON, THIS IS SHOWING THE, UH, PERCENTAGE OF PERFORMANCE CREDIT HOURS THAT OCCUR WITHIN EACH SEASON.
SO AS WE MOVE TO A FOUR SEASON CONSTRUCT ON THE FAR RIGHT, YOU CAN SEE THAT BY SEGMENTING THE YEAR INTO
[03:25:01]
DIFFERENT SEASONS, WE HAVE NEW HOURS THAT ARE POPPING UP.SO IN THE WINTER WE CAN SEE ON THIS FAR RIGHT, ALL OF A SUDDEN WE ARE NOW LOOKING AT HOURS IN THE MORNING AND IN THE EVENING IN THE WINTER SEASON THAT WE'D BE MISSING IF WE WERE JUST LOOKING AT A SINGLE ANNUAL CONSTRUCT.
SO THIS IS A, THIS IS A, AN ILLUSTRATION OF HOW PERFORMANCE CREDIT HOURS BREAK DOWN ACROSS THE YEAR DEPENDING ON YOUR SEASONAL CONSTRUCT.
I WILL SAY THAT THIS IS NOT NECESSARILY THE CASE THAT THE VALUE IS ALLOCATED THIS WAY.
THIS IS JUST AN ILLUSTRATION OF HOW THE HOURS BREAK DOWN BETWEEN THE DIFFERENT SEASONS.
BUT YOU COULD HYPOTHETICALLY ALLOCATE VALUE TO DIFFERENT SEASONS TO GET DIFFERENT OUTCOMES.
SO FOR EXAMPLE, IF YOU USE THE FOUR SEASON CONSTRUCT ON THE RIGHT AND YOU PUT ALL OF THE VALUE INTO THE SUMMER, THEN THE VALUE LOOKS A LOT SIMILAR, VERY SIMILAR TO JUST THE ANNUAL HEAT MAP ON THE LEFT, OR HYPOTHETICALLY, IF YOU WERE TO TAKE THIS FOUR SEASON CONSTRUCT ON THE RIGHT AND PUT ALL OF THE VALUE INTO THE WINTER HOURS, YOU WOULD HAVE SOMETHING THAT LOOKS A LOT CLOSER TO THE TRUE RISK HOURS, THE PER DECADE WINTER RISK HOURS THAT OCCUR IN THE MORNING AND THE EVENING.
SO THAT IS, YEAH, THAT'S AN, THAT'S AN OVERVIEW OF THE ALLOCATION OF RISK HOURS.
IF WE GO TO THE NEXT SLIDE, WE, THE, THE, THE NEXT QUESTION IS HOW MANY HOURS PER SEASON SHOULD BE SET AS PERFORMANCE CREDIT HOURS? SO COUPLE OF DIFFERENT OPTIONS HERE.
YOU KNOW, ON A VERY LOW BOOKEND, YOU COULD SAY VERY FEW NUMBER OF HOURS PER SEASON WOULD COUNT AS PERFORMANCE CREDIT HOURS, SOMETHING LIKE FIVE HOURS PER SEASON.
ON A VERY HIGH END YOU COULD SAY SOMETHING LIKE MAYBE A HUNDRED HOURS PER SEASON.
WHAT WE'RE USING AS A DEFAULT VALUE IS 15 HOURS PER SEASON, UNLESS THERE ARE MORE ENERGY EMERGENCY ALERT OR EEA HOURS WITHIN A GIVEN SEASON.
IN THAT CASE, ALL OF THOSE HOURS WOULD COUNT AS PERFORMANCE CREDIT HOURS, BUT A MINIMUM OF 15 HOURS PER SEASON.
AND THERE'S A COUPLE OF CONSIDERATIONS IN THINKING ABOUT THE NUMBER OF HOURS.
YOU WANT TO HAVE ENOUGH HOURS WHERE YOU DON'T HAVE YOU, YOU GET RID OF NOISE AND RANDOMNESS.
IF YOU WERE TO USE A SINGLE HOUR, YOU WOULD HAVE A LOT OF NOISE IN TERMS OF RESOURCES AVAILABLE OR NOT AVAILABLE, BUT YOU DON'T WANNA HAVE TOO MANY HOURS BECAUSE THE MORE HOURS YOU HAVE, THE LESS ALIGNED OR THE, THE MORE LIKELY THOSE HOURS ARE TO BE NONS SCARCE HOURS, RIGHT? IF YOU WERE TO INCLUDE ALL OF THE HOURS OF A SEASON, ALL OF A SUDDEN YOU'RE LOOKING AT A LOT MORE THAN JUST THE MOST TIGHT HOURS.
AND SO THERE'S THIS BALANCE OF TRYING TO INCLUDE JUST THE TIGHTEST HOURS WHILE NOT HAVING NOISE.
SO YEAH, WE'RE ASSUMING A DEFAULT VALUE OF 15 HOURS PER SEASON.
AND THE METRIC THAT WE'RE PLANNING TO USE TO DEFINE WHAT COUNTS AS A PERFORMANCE CREDIT HOUR IS LOOKING AT ALL OF THE HOURS WITHIN A SEASON AND CALCULATING WHAT ARE THE HOURS THAT HAVE THE LOWEST SURPLUS OF TOTAL AVAILABLE GENERATING CAPACITY AVAILABLE RELATIVE TO LOAD.
SO THIS IS ALSO CONSISTENT WITH WHAT WE TALKED ABOUT IN TERMS OF DEFINING THE FORWARD REQUIREMENT.
IT'S THE TOTAL AVAILABILITY OF SUPPLY RELATIVE TO LOAD.
THIS IS A LITTLE BIT DIFFERENT THAN, FOR EXAMPLE, WHAT COUNTS FOR OPERATING RESERVE DEMAND CURVE RESERVE CONTRIBUTIONS, THAT IS LOOKING AT RESOURCES THAT ARE ONLINE.
WHAT WE'RE LOOKING AT HERE IS RESOURCES THAT ARE ESSENTIALLY NOT ON FORESTED OUTAGE.
SO IT'S RESOURCES THAT ARE AVAILABLE, BUT COULD BE OFFLINE AS LONG AS THEY COULD COME ONLINE TO SERVE LOAD.
THE REASON THAT WE ARE NOT LOOKING AT ON, OR THE REASON THAT WE THINK IT MAKES SENSE AS A DEFAULT VALUE TO LOOK AT RE NOT REQUIRE RESOURCES TO BE ONLINE IS BECAUSE IT'S VERY OFTEN THE CASE THAT THE, THERE ARE GOING TO BE PERFORMANCE CREDIT HOURS THAT ARE THE TIGHTEST HOURS, BUT THEY'RE NOT THAT TIGHT IN THE SCHEME OF THINGS.
THERE MIGHT BE A LOT OF BUFFER, BUT YET WHEN YOU LOOK ACROSS THE ENTIRE SEASON, THOSE ARE THE TIGHTEST HOURS.
AND IF THE SYSTEM'S NOT ACTUALLY TIGHT, THEN WE WOULDN'T
[03:30:01]
WANT TO UN ECONOMICALLY REQUIRE RESOURCES TO COME ONLINE IF WE KNOW THAT THOSE RESOURCES ARE NOT GONNA BE NEEDED.THAT WOULD BE ESSENTIALLY A, YOU KNOW, UNECONOMIC AND DISTORTIONARY AND WASTEFUL.
SO WE DON'T WANNA REQUIRE RESOURCES TO COME ONLINE IF THEY'RE NOT NEEDED.
AND SO THAT'S WHY LOOKING AT TOTAL AVAILABLE GENERATION, WE THINK PROVIDES A BETTER SIGNAL THAN, FOR EXAMPLE, ORDC RESERVES.
BUT ULTIMATELY THERE WILL NEED TO BE SOME METRIC TO DEFINE WHAT ARE THE TIGHTEST HOURS IN EACH SEASON AND WHAT ARE THE AVAILABILITY OF RESOURCES DURING THOSE HOURS.
SO THE DEFINITION FOR HOW WE'RE DEFINING WHAT THOSE HOURS ARE IS THE LOWEST SURPLUS OF TOTAL AVAILABLE GENERATION CAPACITY RELATIVE TO LOAD.
SO IF WE GO TO THE NEXT SLIDE, THIS, THIS ILLUSTRATES A LITTLE BIT WHAT IT LOOKS LIKE AS WE EXPAND THE NUMBER OF HOURS WITHIN A SEASON.
SO IF WE LOOK, THIS IS FOR ONE SAMPLE YEAR, A SUMMER SEASON, SO WE'RE LOOKING JUNE THROUGH OCTOBER.
AND WHAT WE SEE IS THAT THERE'S A PARTICULAR, ON THIS PARTICULAR YEAR, THERE IS SOME LOSS OF LOAD.
AND THIS SHOWS AS WE INCREASE THE PERFORMANCE CREDIT HOURS FROM JUST LOSS OF LOAD HOURS TO FIVE HOURS PER SEASON TO 15 HOURS PER SEASON TO A HUNDRED HOURS PER SEASON.
HOW DO THOSE HOURS POP UP IN THE SEASON? SO WE, WE ALREADY SHOWED THE HEAT MAP THAT SHOWED THESE HOURS ARE LIKELY GOING TO OCCUR IN THE SUMMER AFTERNOON OR IN THE SUMMER EVENINGS AFTER THE SUN IS SETTING.
BUT THERE'S ALSO THIS QUESTION OF HOW CONCENTRATED ARE THOSE HOURS WITHIN PARTICULAR DAYS OR STRETCHES OF DAYS? AND WHAT YOU CAN SEE IS THAT AS WE ADD MORE AND MORE HOURS HERE, IT REALLY IS A LOT OF DAYS THAT START TO POP UP.
SO THE TIGHTEST HOURS BECOME THE EVENING HOURS ON NOT JUST ONE DAY, BUT ON THREE DAYS, ON FIVE DAYS, ON 20 DAYS.
AND SO THAT'S, THAT'S THE DYNAMIC THAT YOU SEE AS YOU ADD HOURS, IT LOOKS AT MORE DAYS, BUT IN THE SAME TIME OF DAY, WHICH IS THE EVENING OF THOSE HOURS.
AND SO THE, THEN THERE'S THIS QUESTION OF, WELL, WHAT'S THE RIGHT VALUE? WHAT'S THE RIGHT NUMBER OF HOURS TO LOOK AT? I THINK WHEN WE PREVIOUSLY LOOKED AT THE PERFORMANCE CREDIT MECHANISM IN THE FIRST REPORT, WHEN THAT WAS A MORE TECHNOLOGY NEUTRAL FRAMEWORK WHERE IN FACT RENEWABLES WERE ELIGIBLE, THERE WAS A PRETTY IMPORTANT DISTINCTION IN LOOKING AT HOW MANY HOURS OF EACH SEASON BECAUSE YOU COULD HAVE CERTAIN STRETCHES WHERE RENEWABLES WERE VERY LOW AND CREATING TIGHT SUPPLY, AND AS YOU ADDED MORE AND MORE HOURS, YOU WOULD START TO PICK UP HIGHER RENEWABLE GENERATION HOURS.
BUT IF YOU GO TO THE NEXT SLIDE, I THINK ONE OF THE INTERESTING FINDINGS THAT WE'RE SEEING AS WE LOOK AT DIFFERENT SEASON DEFINITIONS AND DIFFERENT HOUR DEFINITIONS IS THAT THIS IS PROBABLY NOT AS IMPACTFUL OF A LEVER AS ONE MIGHT INITIALLY THINK.
IN OTHER WORDS, THERE'S REALLY JUST NOT THAT BIG OF DIFFERENCES DEPENDING ON HOW YOU DEFINE SEASONS AND HOW YOU DEFINE THE NUMBER OF HOURS PER SEASON, AS LONG AS YOU'RE LOOKING AT A REASONABLE NUMBER OF HOURS AND YOU'RE NOT GETTING TOO LARGE TO LOOK AT SORT OF COMPLETELY NON-IT HOURS.
WHAT THIS CHART IS LOOKING AT HERE IS ESSENTIALLY SEVERAL DIFFERENT CLASSES OF RESOURCES.
SO WE HAVE, THESE ARE ALL DISPATCHABLE RESOURCES, BUT SOME OF THEM ARE COMBUSTION TURBINES COMBINED CYCLES.
WE EVEN HAVE A LITTLE BIT OF BATTERY STORAGE IN THERE.
WHAT THIS IS LOOKING AT IS A METRIC CALLED P, WHAT WE CALL PC EFFECTIVENESS OR PERFORMANCE CREDIT EFFECTIVENESS.
AND THIS IS JUST ESSENTIALLY A MEASURE OF FOR EACH MEGAWATT OF INSTALLED NAMEPLATE CAPACITY, HOW MANY PERFORMANCE CREDITS WOULD WE EXPECT THAT RESOURCE TO EARN UNDER DIFFERENT MARKET DESIGNS.
SO THIS IS VERY ANALOGOUS TO, IN A CAPACITY MARKET, WHAT'S THE CAPACITY ACCREDITATION THAT'S ASSIGNED TO EACH RESOURCE.
BUT AGAIN, THIS IS NOT SOMETHING THAT'S ASSIGNED TO RESOURCES.
THIS IS SOMETHING THAT RESOURCES EARN IN THE, IN THE PCM FRAMEWORK.
AND WHAT YOU CAN SEE IS THAT, YOU KNOW, NO RESOURCE IS PERFECT, RIGHT? ALL RESOURCES ARE GOING TO, YOU KNOW, BE SUBJECT TO FORCED OUTAGES, PLANNED OUTAGES, ET CETERA.
BUT DIFFERENT RESOURCE CLASSES HAVE RELATIVELY STABLE PC EFFECTIVENESS UNDER DIFFERENT DEFINITIONS OF SEASONS AND NUMBER OF HOURS WITHIN EACH SEASON.
SO FOR COMBUSTION TURBINE, YOU CAN SEE THEY'RE ALL PRETTY MUCH THE SAME.
COMBINED CYCLES HAVE SLIGHTLY HIGHER FORCED OUTAGE RATES IN GENERAL DURING THE TIGHTEST HOURS, BUT AGAIN, IN THE LOW EIGHTIES, THEY'RE ALL RELATIVELY THE SAME BATTERY STORAGE.
[03:35:02]
ONE THING TO TALK ABOUT WITH BATTERY STORAGE IS THIS IS THE, WE'LL, WE'LL TALK IN A BIT ABOUT WHY BATTERY STORAGE IS MUCH LOWER, BUT ONE OF THE BIG REASONS IS BECAUSE OF ITS LACK OF DURATION.SO THE, IF YOU LOOK AT THE ERCOT 2026 FORECAST, THE AVERAGE DURATION OF THE ENTIRE BATTERY FLEET IS 1.6 HOURS.
AND SO THAT DURATION LIMITATION SIGNIFICANTLY HAMPERS THE ABILITY OF BATTERIES TO EARN PERFORMANCE CREDITS BASED ON HOW WE'VE DEFINED THAT.
SO, AND RYAN, DO YOU, ARE THERE QUESTIONS ON THE QUEUE OR? YEAH, I WAS GONNA SUGGEST BEFORE WE LEAVE THIS TRANCHE, MAYBE WE COULD DO WHAT THE QUESTIONS RELATING TO THIS.
SO, UH, FIRST UP IS BILL BARNES QUESTION BACK ON SLIDE 34 AND ZACH, SORRY, WE WERE SHOWED UP A LITTLE LATE AS YOU WERE ON THE SLIDE.
WHAT, UM, THE PERCENTAGES ARE THE A HUNDRED TIGHTEST HOURS OR JUST TIGHTEST HOURS OF ALL HOURS WITHIN EACH SEASON? WHAT, WHAT DATA IS REPRESENTED HERE? YEAH, THIS IS ASSUMING 30 HOURS PER SEASON.
THE, THIS IS ONE ASPECT THAT, UM, I THINK YOU MIGHT GET DIFFERING FEEDBACK ON, PRIMARILY BECAUSE OF THE IMPACT OF, OF PLANNED RESOURCE OUTAGES DURING THE SHOULDER SEASONS, WHICH WE WANT TO ENCOURAGE AND NOT DISINCENTIVIZE.
AND THE PCM IS A RESOURCE ADEQUACY TOOL, UH, WHICH TYPICALLY OUR RESOURCE ADEQUACY NEEDS WILL BE IN THE SUMMER AND THE WINTER SEASON.
SO JUST SOME PRELIMINARY FEEDBACK ON THE SEASONAL DESIGN ELEMENT.
I THINK THERE'S, UH, A THOUGHT, AT LEAST IN OUR SHOP THAT THEY SHOULD PROBABLY BE FOCUSED ON WINTER AND SUMMER ONLY SO THAT WE DON'T PENALIZE FOLKS FOR TAKING PLANNED OUTAGES.
YEAH, WHAT I WOULD SAY TO THAT, AND I THINK IT'S STATED THERE ON THE SLIDE AND WE WILL TOUCH ON IT A LITTLE BIT LATER, BUT YOU KNOW, THESE CHARTS ARE JUST SHOWING THE ALLOCATION OF PC HOURS ACROSS THE SEASONS.
THE VALUE OF THOSE PCS ARE DIFFERENT ACROSS THE SEASONS.
AND TO YOUR POINT, WE ONLY WANNA SHOW VALUE OF PCS IN THE SPRING AND THE FALL IF WE ACTUALLY THINK THERE'S A RISK IN THAT SEASON.
SO THAT SEASONAL ALLOCATION OF VALUE ACROSS SEASONS SHOULD HOPEFULLY KIND OF MITIGATE THAT.
OH, IF ACTUALLY THERE'S NO RISK IN THAT SEASON AT ALL, THEN YOU KNOW, THAT VALUE SHOULD BE ZERO VERSUS IF WE ACTUALLY THINK THERE IS RISK BASED ON ACTUAL HISTORICAL PERFORMANCE, THEN UM, THAT WOULD SHOW SOME VALUE ON IT.
AND THE ALLOCATION OF RISK OR ASSIGNING VALUE TO SEASONS COULD BE DONE THROUGH ALLOCATION OF COST CAP DOLLARS.
HOW WE DESIGN THE DEMAND CURVES FOR EACH SEASON SEEMS LIKE THERE'S DIFFERENT, OKAY.
WE'RE THINKING ABOUT THE DEMAND CURVE.
OKAY, NEXT UP IS JEFF BURMEISTER, IS THERE CONSIDERATION ON, UM, I GUESS WHAT, YOU KNOW, WHETHER IT'S THE KIND OF MINIMUM HOURS PER SEASON, IS THERE CONSIDERATION FOR THAT TWO VARY BY SEASON? SO THAT I, I GUESS AS I'M THINKING OF AN EXAMPLE LIKE SHOULDER SEASON, SPRING AND FALL, THAT THERE WOULD BE A LOWER MINIMUM NUMBER OF HOURS SO THAT WAY YOU'RE NOT RECOGNIZING PERFORMANCE IN THOSE SHOULDER SEASONS JUST FOR SOME ADMINISTRATIVE MINIMUM OF HOURS WHERE PERFORMANCE ISN'T ACTUALLY ALL THAT IMPORTANT FOR SYSTEM RELIABILITY? YEAH, I MEAN WE, I THINK THAT'S, THAT'S AN OPTION.
SO I THINK WHAT WE'RE, WHAT WE'RE SEEING RIGHT NOW IS THAT THAT DOES, DOESN'T NECESSARILY MOVE THE NEEDLE VERY MUCH, BUT IT IS, IT IS CERTAINLY AN OPTION.
UM, IS THAT, AND IT DOESN'T MOVE THE NEEDLE BECAUSE OF THE SEASONAL RISK ALLOCATION THAT THEN THAT'S ULTIMATELY GOING TO IMPACT.
I GUESS I, YEAH, I I'M CONFUSED BECAUSE IT SEEMS LIKE IF YOU WERE TO HAVE A LOT OF HOURS THAT ARE DEFINED AS PC HOURS IN THE, YOU KNOW, SHOULDER SEASONS, THEN IF A GENERATOR PERFORMS VERY WELL IN THOSE HOURS, BUT DOESN'T PERFORM VERY WELL IN HOURS WHERE THE SYSTEM IS ACTUALLY MUCH TIGHTER IN DIFFERENT, EVEN WITHIN, IN DIFFERENT SEASONS, I GUESS THAT'S WHERE I'M GETTING HUNG UP, IS IT SEEMS LIKE THERE'S THE POTENTIAL HERE TO BE COMPENSATING GENERATORS FOR AVAILABILITY PERIODS THAT
[03:40:01]
DON'T ACTUALLY MATTER.YEAH, AND THAT'S, AND THAT'S THE CONCERN OF GETTING TOO MANY HOURS.
SO THAT'S WHY I THINK EVERYTHING WE'RE, WE'RE LOOKING AT HERE, WE KIND OF CAP A HIGH END OF A HUNDRED HOURS PER SEASON, AND THAT'S PROBABLY EVEN MORE THAN WE WOULD WANT, BUT IT'S OBVIOUSLY MANY FEWER HOURS THAN EXIST WITHIN A SEASON.
AND SO AS YOU START TO GET ABOVE THAT, YOU START TO REALLY MOVE AWAY FROM THE HOURS THAT ACTUALLY MATTER.
YEAH, AND I GUESS TO ADD ON TO THAT, I WOULD REMIND EVERYONE THAT WHEN WE THINK ABOUT THESE MARKETS, IT'S KIND OF HARD TO SHOW, RIGHT? THE SEASONAL MARKETS, BUT EVERYTHING IS ACTUALLY GONNA BE DONE AT THE SEASON.
THERE IS GONNA HAVE ITS OWN DEMAND CURVE, ITS OWN SUPPLY CURVE, ITS OWN PRICE.
AND OUR GOAL IS THAT THE PRICES AND THE DEMAND CURVES WILL REPRESENT THE ACTUAL RISK ACROSS EACH OF THE SEASONS.
AND THEREFORE THERE'S NOT GONNA BE LIKE, YOU KNOW, ONCE AGAIN, THERE'S GONNA BE 15 HOURS ON EVERY SEASON, BUT NOT ALL 15 HOURS ARE GONNA BE THE SAME VALUE.
AND I DID WANNA COME BACK A LITTLE BIT TO THE SHOULDER SEASON ISSUE BECAUSE I KNOW THIS IS, THIS IS A TOPIC THAT PEOPLE ARE TALKING ABOUT, BUT AT THE SAME TIME AS WE WANT TO NOT PENALIZE RESOURCES FOR TAKING PLANNED OUTAGES, WE ALSO WANT TO REWARD RESOURCES THAT JUST HAVE FEWER OUTAGES, RIGHT? IF YOU HAVE TWO RESOURCES THAT ARE OTHERWISE IDENTICAL, BUT ONE RESOURCE HAS TO TAKE MORE FREQUENT PLANNED OUTAGES OR LONGER PLANNED OUTAGES, THAT CREATES MORE RISK TO THE SYSTEM IN GENERAL, OR IN OTHER WORDS, LESS RELIABILITY CONTRIBUTION TO THE SYSTEM.
AND SO THERE SHOULD BE SOME WAY TO DIFFERENTIATE THOSE TWO RESOURCES.
AND SO POTENTIALLY HAVING COMPENSATION DURING SHOULDER SEASONS IS ONE WAY TO DO THAT.
SO THAT'S, THAT'S THE LOGIC OF INCLUDING SHOULDER SEASONS.
AND THEN THE QUESTION IS JUST, YEAH, HOW MUCH VALUE DO YOU ASSIGN TO THOSE SHOULDER SEASONS RELATIVE TO THE SUMMER AND WINTER SEASONS NEXT IN THE QUEUE? WE HAVE DAVID KEY.
UM, I THINK I DID HAVE THE QUESTION ON THE OUTAGES, BUT I THINK YOU GUYS ANSWERED IT.
IT IS INTERESTING TO THINK THROUGH THE, UH, THE, I GUESS THE BIGGER IMPACTS OF OLDER UNITS MAYBE GETTING PENALIZED, YOU KNOW, VIA, YOU KNOW, HAVING MORE OUTAGES.
SO, UM, THAT'LL BE SOMETHING I GUESS I THINK ON 'EM FOR RESOURCE ADEQUACY, BECAUSE THIS IS SUPPOSED TO INCENT THAT.
I'M NOT SURE HOW, WHERE I'M LANDING ON IT.
UH, MY QUESTION WAS ON SLIDE, UH, 37 AND UH, I MAY HAVE MISSED IT.
SO HELP ME UNDERSTAND, UM, THESE ARE OUR PC EFFECTIVENESS VALUES.
IS THIS AN ASSUMPTION OR IS THIS AN EXPECTATION OF WHAT WE'RE GONNA BE SEEING? IS THIS GOING INTO THE MODEL OR SOMETHING THAT COMES OUT OF IT? THIS IS, THIS IS AN OUTPUT CALCULATION BY US LOOKING AT DIFFERENT SEASONS, DIFFERENT SEASON DEFINITIONS, ONE SEASON PER YEAR, TWO SEASONS OR FOUR SEASONS PER YEAR, AND DIFFERENT NUMBER OF HOURS DEFINITIONS WITHIN THOSE SEASONAL CONSTRUCTS.
AND WE LOOK AT, OKAY, 'CAUSE THOSE, THOSE DEFINITIONS, THE NUMBER OF SEASONS AND THE HOURS WITHIN EACH SEASON DETERMINE WHICH HOURS ARE PERFORMANCE CREDIT HOURS, AND THEN WE CAN LOOK AT THE AVAILABILITY OF RESOURCES DURING THOSE HOURS.
AND SO THIS IS JUST SHOWING, YOU KNOW, WHAT PERCENTAGE FOR NUCLEAR, FOR EXAMPLE, WHAT PERCENTAGE OF HOURS THAT QUALIFY AS PERFORMANCE CREDIT HOURS, WHAT PERCENTAGE OF NUCLEAR IS AVAILABLE DURING THOSE HOURS.
AND SO THIS IS, THIS IS JUST SHOWING ESSENTIALLY HOW MANY PERFORMANCE CREDITS THEY WOULD EARN.
YEAH, I THOUGHT, UH, PCS WERE EARNED, UH, WHETHER YOU OFFER ANSWERING SERVICE OR ENERGY.
SO IN THAT CASE, I DON'T UNDERSTAND WHY BATTERIES ARE SO LOW.
I MEAN, BATTERY AVAILABILITY IS CLOSE TO A HUNDRED PERCENT.
YEAH, WE ACTUALLY GET INTO THAT ON THE NEXT SLIDE.
SO, UH, THAT IS VERY MUCH A DESIGN PARAMETER THAT DERATES THOSE.
OH, SO IT'S SOME DEFINITION OTHER THAN JUST BEING AVAILABLE FOR ENERGY OR SERVICE.
AND YOU GUYS MADE THAT AS A, AS, AS AN ASSUMPTION IN THIS, THAT'S A PARAMETER THAT WE NEED TO DECIDE.
IT'S A DEFAULT DESIGN DECISION YES.
TO DERATE BATTERIES IN USING A PARTICULAR METHODOLOGY.
WELL, WAIT, WAIT, WAIT, THAT'S, THAT'S LITERALLY THE NEXT SLIDE.
SO JUST STAY, STAY TIGHT REAL QUICK.
UM, AND APOLOGIES IF YOU COVERED THIS.
UH, I KNOW IT WAS LATE COMING IN FROM LUNCH, BUT, UM, DID HAVE Y'ALL LOOKED AT, UM, DOING A THREE SEASON, UH, REVIEW WHERE YOU JUST KINDA LUMPED THE TWO SHOULDER THE OUTAGE SEASONS INTO A SINGLE ONE AND OR, UM, A DIFFERENT HOURLY ALLOCATION THAN AN EVEN SPLIT ACROSS THE SEASON.
[03:45:01]
SO YOU, YOU KNOW, SAY PUT FIVE HOURS IN THE SHOULDER SEASONS AND MORE IN THE SUMMER, MORE IN THE WINTER TO, UM, KIND OF WEIGHT THE RELIABILITY RISK A LITTLE BIT MORE TOWARDS THE PEAK SEASONS.SO MAYBE IF WE JUMP TO, YEAH, BACK TO SLIDE 34.
SO WE HAVE THOUGHT ABOUT A THREE SEASON CONSTRUCT, AND MY GUESS IS THAT WOULDN'T REALLY LOOK TOO DIFFERENT THAN A FOUR SEASON CONSTRUCT, ALTHOUGH IT'S CERTAINLY SOMETHING WE COULD LOOK INTO ON THE POINT ABOUT HOW MANY HOURS GO INTO EACH SEASON.
AGAIN, I, I WANNA MAKE CLEAR THAT THE NUMBER OF HOURS IS NOT NECESSARILY TIED TO THE VALUE THAT ACCRUES TO EACH SEASON.
SO FOR EXAMPLE, JUST YOU COULD PUT, IF WE'RE DOING TWO SEASONS, YOU COULD PUT TWICE AS MANY HOURS IN THE SUMMER THAN IN THE WINTER, BUT YOU COULD STILL SPLIT THE VALUE EQUALLY BETWEEN THOSE TWO SEASONS.
SO ALL THE NUMBER OF HOURS LOOKS AT IS YOU, YOU TAKE ANY, ANY SINGLE PLANT, RIGHT? AND YOU SAY ACROSS ALL OF THE PC HOURS IN THAT SEASON, WHAT WAS YOUR AVERAGE AVAILABILITY? AND FOR A MEGAWATT OF GENERATION, IF IT WAS 90% AVAILABLE, IT EARNS 0.9 PERFORMANCE CREDITS ACROSS ALL OF THE HOURS, WHETHER IT'S A SMALL NUMBER OF HOURS OR A LARGE NUMBER OF HOURS.
AND SO, YEAH, THE NUMBER OF HOURS IS NOT NECESS WITHIN EACH SEASON IS NOT NECESSARILY TIED TO HOW VALUE IS SPLIT BETWEEN THE SEASONS, BUT YEAH.
UM, AND THEN THE OTHER THOUGHT, UM, ON, ON ADDRESSING THE OUTAGE SEASON INCENTIVES IS, YOU KNOW, IF THE PCMS INTENT IS TO MEET THE, THE RELIABILITY STANDARD, UM, YOU KNOW, THE ENERGY MARKET COULD STILL PROVIDE A POWERFUL INCENTIVE YES.
FOR RESOURCES TO, UH, MANAGE AND REARRANGE OUTAGES IF THEY CAN, UH, YOU KNOW, UNDERSTANDING THAT NOT EVERY RESOURCE CAN, UM, BUT YOU KNOW, THEY GO THROUGH THE PROCESS TO GET THOSE APPROVED WITH ERCOT AND, UH, NEED TO TAKE THOSE IN ORDER TO BE AVAILABLE FOR THE THE PEAK SEASONS.
UM, NOT SURE YOU NEED TO PUT ALL THE, ALL OF THAT INCENTIVE IN THE, IN THE PCM BUCKET.
YEAH, THAT'S A, THAT'S A GOOD POINT.
ALRIGHT, SO LET'S ACTUALLY JUMP TO PERFECT SLIDE 38.
SO THIS, THIS IS REALLY THE ANSWER TO WHY WAS STORAGE ONLY GETTING 37% PERFORMANCE CREDIT EFFECTIVENESS ON THE PRIOR SLIDE.
AND SO THE, THE FIRST PARAMETER HERE THAT WE'RE LOOKING AT IS WHAT METRIC DOES ERCOT USE TO ASSIGN PERFORMANCE ASSIGN OR AWARD PERFORMANCE CREDITS TO DIFFERENT RESOURCES? AND REALLY IT'S FOR DURING THE PERFORMANCE CREDIT HOURS, OUR DEFAULT ASSUMPTION IS IT'S WHAT WAS THE AVAILABILITY OF RESOURCES AND AVAILABILITY OF RESOURCES.
HERE WE'RE SAYING ESSENTIALLY MEANS NOT UNFORCED OUTAGE, IT DOESN'T MEAN A RESOURCE THAT'S ONLINE AND AVAILABLE BECAUSE AGAIN, THE, THE CONCERN IS THAT WE DON'T WANT TO UN ECONOMICALLY FORCE RESOURCES ONLINE, WHICH COULD BE WASTEFUL IF THE SYSTEM DOESN'T ACTUALLY NEED THEM FOR ENERGY.
IF THEY ARE NEEDED FOR ENERGY, THE SIGNALS TO COME ONLINE WOULD COME THROUGH THE ENERGY MARKET.
SO WHAT OUR DEFAULT DESIGN HERE IS TO JUST LOOK AT RESOURCES THAT ARE AVAILABLE, IE NOT ON FORCED OUTAGE.
OF COURSE, AGAIN, THAT'S SOMETHING THAT WE, WE WOULD WELCOME FEEDBACK ON, BUT WE'RE TRYING A, A REALLY KEY GUIDEPOST HERE IS TRYING TO MINIMIZE DISTORTIONS AND MINIMIZE THE SIGNAL TO DO UNECONOMIC ACTIONS LIKE COMING ONLINE IF IN FACT THAT'S NOT NEEDED.
SO WE'RE, AS A BASE CASE, WE ARE ASSIGNING PERFORMANCE CREDITS BASED ON THE AVAILABILITY OF RESOURCES DURING PERFORMANCE CREDIT HOURS.
THE ONE EXCEPTION THAT WE ARE ALSO INCLUDING IS FOR DURATION LIMITED RESOURCES.
AND THE WAY THAT WE ARE PROPOSING TO METHODOLOGICALLY FACTOR IN DURATION LIMITATIONS IS BY ONLY ALLOWING DURATION LIMITED RESOURCES LIKE BATTERIES TO EARN PERFORMANCE CREDITS WITHIN A PARTICULAR STRETCH OF PERFORMANCE CREDIT HOURS AT A MAX OF THEIR DURATION.
SO TO ILLUSTRATE THIS, LET'S ASSUME THAT WE HAVE, WE HAVE THIS LITTLE ROW OF BOXES HERE.
YOU CAN ASSUME EACH OF THOSE BOXES IS AN HOUR AND SOME OF THOSE HOURS ARE PERFORMANCE CREDIT HOURS.
SO THE HOURS THAT WE'VE FILLED IN IN RED ARE PERFORMANCE CREDIT HOURS, AND THOSE ARE HOURS WHERE THE SYSTEM IS TIGHTEST.
[03:50:01]
SO FOR EVERY DISPATCHABLE RESOURCE, YOU JUST LOOK AT WHAT IS THE AVAILABILITY OF RESOURCES IN THOSE HOURS.IF YOU'RE AVAILABLE, YOU GET A PERFORMANCE CREDIT.
IF YOU DON'T, YOU, IF YOU'RE OFF OR IF YOU'RE ON FORCED OUTAGE, THEN YOU DON'T GET A PERFORMANCE CREDIT FOR BATTERIES.
WE ARE ALSO PROPOSING TO DE-RATE, UH, THEIR ABILITY TO EARN PERFORMANCE CREDITS BASED ON THEIR DURATION.
AND IN OTHER WORDS, IF YOU HAVE EIGHT CONSECUTIVE PERFORMANCE CREDIT HOURS, BUT YOU'RE ONLY A FOUR HOUR RESOURCE, YOU SHOULD ONLY BE ABLE TO EARN PERFORMANCE CREDITS FOR THE FIRST FOUR HOURS OF THAT EIGHT HOUR STRETCH.
YOU SHOULDN'T BE ALLOWED TO EARN EIGHT STRAIGHT HOURS OF PERFORMANCE CREDITS BECAUSE IF THE SYSTEM WAS IN ACTUAL SCARCITY, THEN THE BATTERY WOULD BE BIDDING INTO THE MARKET AND IT WOULD BE BEING DISPATCHED AND IT WOULD BE BEING DISCHARGED AND AFTER FOUR HOURS IT WOULD BE OUT OF CHARGE.
AND SO WHAT WE'RE TRYING TO DO IS MIMIC WHAT WOULD ACTUALLY HAPPEN TO A BATTERY IN TRUE SCARCITY, EVEN THOUGH THESE EVENTS MIGHT NOT ACTUALLY BE TRUE.
SCARCITY, THEY COULD BE, BUT THEY LIKELY WILL NOT BE.
AND THE REASON THEY LIKELY WILL NOT BE IS BECAUSE IN A SYSTEM THAT'S RELIABLE, WE ONLY HAVE TRUE SCARCITY VERY INFREQUENTLY CLOSE TO ONCE PER DECADE.
AND HERE WE'RE INCLUDING TENS OF HOURS PER SEASON.
SO ORDERS AND ORDERS OF MAGNITUDE MORE HOURS THAN THE TRUE NUMBER OF SCARCITY HOURS WE WOULD SEE ON A SEASON.
SO IN OTHER WORDS, IF WE LOOK AT THIS RIGHT HAND STRETCH OF HOURS, WE CAN SEE THAT A FOUR HOUR BATTERY WOULD EARN PERFORMANCE CREDITS FOR THE FIRST FOUR HOURS OF THIS PERIOD, BUT THEN ONCE IT HAS REACHED ITS DURATION CAP WOULD NO LONGER EARN PERFORMANCE CREDITS IN THE FOLLOWING HOURS.
ALSO, THERE'S ANOTHER EDGE CASE IF YOU LOOK AT THIS LEFT HAND, UH, THE, THE SECOND AND THIRD SET OF RED HOURS HERE.
SO WE CAN SEE THAT, YOU KNOW, GOING INTO THE SECOND SET OF FOUR HOURS A BATTERY, FOUR GREEN CHECK MARKS CAN EARN PERFORMANCE CREDITS IN THOSE HOURS, THEN IT HAS TWO HOURS OF NO PERFORMANCE CREDIT, THEN IT GOES INTO, UM, YOU KNOW, ANOTHER SET OF FOUR HOURS.
HERE WE'RE ONLY SAYING IT COULD EARN TWO OF THOSE HOURS BECAUSE THEORETICALLY IN THAT FIRST SET OF FOUR HOURS, IT COMPLETELY DISCHARGED ITSELF.
IT ONLY WAS ABLE TO RECHARGE FOR TWO HOURS.
AND SO GOING INTO THAT SECOND EVENT, IT ONLY HAS TWO HOURS OF DURATION IN IT AND SO IT CAN ONLY EARN TWO HOURS AND THEN AFTER THOSE TWO HOURS IT'S DISCHARGED AGAIN IF THIS WAS ACTUAL SCARCITY.
AND SO THAT IS THE LOGIC FOR HOW DURATION LIMITED RESOURCES WILL BE TREATED, UH, WHICH WE THINK IS CONSISTENT WITH THE TYPES OF VALUES THAT YOU WOULD SEE IN HOW THESE RESOURCES ACTUALLY CONTRIBUTE TO THE RELIABILITY NEEDS OF THE SYSTEM.
I THINK MAYBE WE'LL TAKE A COUPLE QUESTIONS HERE.
WE'VE GOT A BIT OF A QUEUE BUILDING HERE, SO JUST JUST A REMINDER TO TRY AND KEEP THE QUESTIONS BRIEF SO WE CAN GET THROUGH AS MANY OF THEM AS POSSIBLE.
UM, SO YOU SAID THE AVAILABILITY IS ANY RESOURCE THAT IS, UM, NOT ON FULL OUTAGE, BUT SO AS, UH, HOW DO WE DIFFERENTIATE BETWEEN RESOURCES THAT CAN COME ON LIKE IN TWO HOURS VERSUS FOUR HOURS VERSUS LIKE 24 HOURS? AND IS THERE A DIFFERENCE IN, UM, DURING AN EEA WHETHER THE RESOURCES ARE AVAILABLE OR NOT? I, I, I AGREE THAT IT IS BETTER TO NOT SUPPRESS THE ENERGY PRICES, SO HAVING IT OFFLINE AND PAYING IS BETTER.
BUT MAYBE DURING EEA WE NEED TO MAYBE LOOK AT ALL YOUR ONLINE RESOURCES OR SOMETHING TO GIVE THAT ADDITIONAL INCENTIVE.
RIGHT? SO IT'S A GOOD QUESTION AND IT'S SOMETHING THAT WE DEBATED AND WENT BACK AND FORTH ON A FEW DIFFERENT DEFINITIONS, BUT RIGHT NOW THERE IS NO DIFFERENCE BETWEEN QUICK START RESOURCES AND LONG START RESOURCES IN TERMS OF BEING ABLE TO EARN PERFORMANCE CREDITS.
THE LOGIC THERE IS THAT RESOURCES WILL STILL HAVE SIGNALS FROM THE ENERGY MARKET TO BE ABLE TO COME ONLINE.
AND IF A LONG START RESOURCE CAN'T COME ONLINE, THEN IT WON'T EARN ENERGY VALUES.
AND YOU KNOW, AND THAT'S AL ALSO ALIGNED WITH KIND OF WHAT IS THE PERFORMANCE CREDIT MECHANISM DESIGNED TO ACHIEVE.
IT'S LESS ABOUT ECONOMICALLY DISPATCHING THE SYSTEM AS IT IS ABOUT PROVIDING LONG-TERM PRICE SIGNALS FOR INVESTMENT.
SO YEAH, THERE, THERE IS NO DIFFERENTIATION BETWEEN LONG START RESOURCES AND, AND QUICK START RESOURCES.
SO, AND, AND THAT'S THE, THAT'S THE DEFAULT DESIGN.
I THINK WE'RE, YOU KNOW, AS WELL OPEN TO, UM, YOU KNOW, TO IDEAS THERE.
[03:55:01]
ANOTHER THING TOO, RIGHT, IS THAT FOR A LONG START RESOURCE THAT COULD COME ONLINE, RIGHT? IF IF IN FACT THE SYSTEM ISN'T THAT TIGHT, WE DON'T WANNA UN ECONOMICALLY FORCE THAT RESOURCE TO COME ONLINE.SO IT'S ALL, IT'S ALL KIND OF CONNECTED IN THAT REGARD.
WAS JUST SAYING MAYBE YOU MIGHT WANNA LOOK DIFFERENTLY.
UM, I'M JUST TRYING TO UNDERSTAND THE NECESSITY FOR LIMITING THE BATTERY ELIGIBILITY.
IF WE ARE, IF THIS IS A LOOK BACK TO SEE WHEN RESOURCES WERE AVAILABLE DURING THE TIGHTEST HOURS, I'M HAVING TROUBLE FOLLOWING YOUR LOGIC ABOUT WHY WE NEED TO HAVE A PARAMETER THAT LIMITS THAT IN ADVANCE.
UM, BATTERY OPERATOR OWNERS ARE ABLE TO, UH, MANAGE THEIR ASSETS THE WAY THEY SEE FIT AND BE AVAILABLE IN THE HOURS THAT THEY WANT TO BE OR NOT WANT TO BE.
I DON'T UNDERSTAND, I'M HAVING TROUBLE FOLLOWING YOUR LOGIC OF WHY WE NEED TO UNNECESSARILY LIMIT THEIR PARTICIPATION UPFRONT.
SO THE, THE REALLY THE ANSWER IS WE, IT COMES DOWN TO SIGNALS FOR ENTRY AND EXIT OF THE MARKET.
IF YOU WERE TO HAVE A, A SITUATION, A SYSTEM, A DESIGN WHERE BATTERIES CAN EARN UNLIMITED PERFORMANCE CREDITS, THEN YOU COULD HAVE A SITUATION WHERE A BATTERY JUST OFFERS IN AT EXTREMELY HIGH PRICES, NEVER DISCHARGES, BUT GETS CREDIT FOR BEING 100% AVAILABLE IN ALL PERFORMANCE CREDIT HOURS, THEN THAT WOULD SEND A SIGNAL FOR, YOU KNOW, BATTERIES ARE GETTING 100% CREDIT.
IT WOULD SEND A BIG SIGNAL FOR ENTRY OF MORE BATTERIES INTO THE MARKET.
BUT IF IN FACT THOSE BATTERIES AT A DURATION OF 1.6 HOURS ON AVERAGE ARE NOT PROVIDING THE SAME RELIABILITY CONTRIBUTION OF EQUIVALENT DIS FULLY DISPATCHABLE RESOURCES, THEN THERE'S ESSENTIALLY A MISMATCH BETWEEN THE INCREMENTAL VALUE THAT THOSE RESOURCES ARE PROVIDING AND WHAT THEY'RE BEING PAID.
AND IF YOU LOOK AT OTHER CAPACITY MARKETS, FOR EXAMPLE, THAT ASSIGN CAPACITY ACCREDITATION TO RESOURCES, THEY ARE, THEY ASSIGN A VALUE TO THERMAL RESOURCES, RENEWABLE RESOURCES, BATTERY RESOURCES, BATTERY RESOURCES ARE DE-RATED IN THIS EXACT SAME WAY.
AND THE REASON IS BECAUSE THOSE RESOURCES, THOSE MARKETS ARE LOOKING, THEY, THEY DO MODELING UPFRONT ACCREDITATION, THEY'RE LOOKING AT ACTUAL SCARCITY AND IN ACTUAL SCARCITY BATTERY RESOURCES DISCHARGE AND THEY DRAIN AND THEY'RE NOT AVAILABLE FOR THE FULL SCARCITY PERIOD.
SO IT'S, IT'S REALLY, UH, AN ANSWER OF ECONOMIC EFFICIENCY AND NOT WANTING TO SEND DISTORTIONARY SIGNALS TO INCENTIVIZE BATTERIES TO ENTER THE MARKET IF THAT, IF THAT'S, IF THEY'RE NOT PROVIDING EQUIVALENT RELIABILITY TO OTHER RESOURCES.
I'M NOT SURE I AGREE WITH IT, BUT I UNDERSTAND IT.
UM, I GUESS MY FOLLOW UP QUESTION WOULD BE, DOESN'T THE RELIABILITY STANDARD ALREADY IN EFFECT THE MODELING THAT WAS DONE FOR THAT ALREADY TAKE SOME OF THOSE CONSIDERATIONS INTO ACCOUNT AND SO IS THIS NOT LIKE DOUBLE COUNTING THAT IMPACT? YEAH, SO THE, WHAT THE RELIABILITY STANDARD DOES IS IT SAYS, GIVEN THE RULES THAT ARE IN PLACE, HOW MANY RESOURCES DO WE NEED TO MEET THAT RELIABILITY STANDARD? AND IF IN FACT YOU WERE TO COUNT BATTERIES AT 100% RIGHT, WHAT THE MODELING WOULD SHOW IS IT WOULD INCENTIVIZE A LOT MORE ENTRY OF BATTERIES AND THE TOTAL REQ REQUIREMENT WOULD INCREASE AND THE TOTAL COSTS WOULD INCREASE.
SO, YOU KNOW, ACHIEVING THE RELIABILITY STANDARD IS, IT'S, IT'S KIND OF A NON-NEGOTIABLE ASPECT OF THE DESIGN.
LIKE WE'RE GOING TO ACHIEVE THE RELIABILITY STANDARD.
IT'S JUST A QUESTION OF WHAT'S THE ULTIMATE COST OF ACHIEVING THAT RELIABILITY STANDARD.
AND IF YOU INCENTIVIZE RESOURCES TO ENTER THE MARKET IN A WAY THAT'S MISALIGNED WITH THEIR ACTUAL RELIABILITY CONTRIBUTION, YOU'RE GOING TO GET HIGHER TOTAL SYSTEM COST BECAUSE THE TOTAL REQUIREMENT'S GONNA GO UP.
AND IF I CAN ADD SOMETHING TO THAT, I THINK WE WILL TOUCH ON IT LATER AND PROBABLY, UM, ADDRESSES SOME OF THE CONCERNS.
BUT LIKE TOTAL RESOURCE MARGINS, EVEN WITH THIS COMP PUT ON FOR STORAGE IS VERY SIMILAR TO THE ENERGY ONLY MARKET.
SO IF ANYTHING TO SAKS POINT, LIKE ADDING
[04:00:01]
THAT INCREMENTAL LEVEL OF, YOU KNOW, POTENTIAL WITHHOLDING AND ALWAYS BEING AVAILABLE AND NOT BEING IN THE AS MARKET AND HAVING A HIGHER PC EFFECTIVENESS COULD LEAD TO LIKE INCREMENTAL REVENUES EVEN TO TODAY'S STANDARDS THAT WOULD LEAD TO ECONOMIC INEFFICIENCIES, WHICH ULTIMATELY MEANS THAT THE, YOU KNOW, TEXAS ELECTRICITY CUSTOMERS ARE JUST PAYING MORE 'CAUSE THEY'RE PAYING FOR VALUE THAT IS NOT PROVIDED THERE.SO DON'T, I, I WOULDN'T BE TOO CONCERNED OF SEEING THIS AND SAYING THIS IS TOO LOW, WHERE LIKE THE REVENUES ARE DECREASING BYLAW, LIKE WE'LL COVER THAT LATER ON.
OKAY, NED, SO I STILL WANNA MARINATE ON, ON THE EXCHANGE I'LL JUST HAD A LITTLE BIT, BUT, UM, WHAT I WAS WONDERING IS IF THIS IS, YOU KNOW, A, AN AN APPROACH THAT MIGHT BE CONVENIENT FOR MODELING BUT NOT NECESSARY FOR THE DESIGN PARAMETERS, GIVEN THAT THE, THE REQUIREMENT AND STATUTE IS THAT A BATTERY CAN ONLY, OR ANY GENERATOR CAN ONLY EARN WHAT THEY OFFER INTO THE FORWARD MARKET.
AND SO A, A BATTERY OWNER SHOULD BE, YOU KNOW, MAKING A RISK, UH, A RISK ASSESSMENT ABOUT THEIR ABILITY TO ACTUALLY BE AVAILABLE.
I, I ASSUME THAT THERE WOULD BE A STATE OF CHARGE BASIS FOR BEING DETERMINED TO BE AVAILABLE.
WE'RE TALKING ABOUT THE HIGHEST RISK HOURS.
SO, YOU KNOW, YOU WOULD NEED TO HAVE, UH, YOU KNOW, AT LEAST AN HOUR STATE OF CHARGE IN ORDER TO QUALIFY WITHIN THE HOUR.
UM, BUT THEN THAT WOULD, I, I THINK THAT THAT WOULD KIND OF SELF, IT, IT MIGHT SOLVE THE, THE FOR THE SAME ISSUE THAT YOU'RE TRYING TO ADDRESS HERE, BUT I CAN SEE HOW THIS MIGHT BE SOMETHING THAT IS NECESSARY FROM A MO FROM A MODELING STANDPOINT JUST TO HAVE SOMETHING TO REVIEW AND, AND, AND SEE HOW IT PLAYS OUT.
BUT, BUT WHAT I THINK WE, I I STILL THINK THERE'S A, I STILL THINK THIS NEEDS TO BE INCORPORATED BECAUSE WHAT, WHAT YOU DON'T WANNA HAVE HAPPEN IS FOR A BATTERY TO KNOW THAT IT CAN BEHAVE IN A WAY THAT FUNCTIONALLY WITHHOLDS ITS CHARGE AND KNOWS THAT IT'S GOING TO EARN 100% ACCREDITATION EVEN AS A ONE HOUR RESOURCE AND THEN THEREFORE BIDS 100% INTO THE FORWARD MARKET AND RIGHT.
WE'LL, WE'LL WE'LL KEEP GOING THROUGH THE QUEUE HERE THEN.
UH, SHAMS. YEAH, SO BATTERIES, UM, YOU KNOW, CAN PROVIDE ESSENTIAL ANSARY SERVICES LIKE FFR, WHICH ONLY REQUIRES LIKE A 15 MINUTE, UM, YOU KNOW, DURATION.
AND SO BASICALLY THEY'RE NOT GETTING ANY CREDIT FOR, SO THEY COULD BE PROVIDING ANSARY SERVICE THROUGHOUT THIS PERIOD, EIGHT HOURS OR 10 HOURS, UM, AND EVEN INTRA HOUR, THERE COULD BE INSTANCES WHERE THEY'LL HAVE AN OPPORTUNITY TO CHARGE AND PROVIDE THE SERVICE, UM, IN THE FOLLOWING 15 MINUTES.
SO I'M WONDERING, YOU KNOW, THIS IS SORT OF, UH, MAKING IT VERY DIFFICULT FOR BATTERIES TO, BECAUSE YOU DON'T KNOW WHETHER THESE HOURS ARE GONNA BE CONSECUTIVE OR NOT.
UM, THE NEXT YEAR WHEN YOU'RE OFFERING INTO THE FORWARD MARKET, YOU HAVE NO CLUE.
SO I'M WONDERING IF THIS IS, UM, BEING TOO ONEROUS ON BATTERIE AS TO HOW THEY PLAY IN THAT MARKET.
SO I GUESS, YEAH, SO AGAIN, FIRST THE EXTENT TO WHICH BATTERIES ARE PARTICIPATING IN THE ANCILLARY SERVICE MARKET, THEY WILL CONTINUE TO EARN REVENUES FROM THAT.
AND THIS IN NO WAY INHIBITS THEIR ABILITY TO EARN H STRAIGHT HOURS ANCILLARY SERVICE REVENUES.
THIS IS JUST SAYING, YOU KNOW, THIS IS REALLY LOOKING AT WHAT IS THE INCREMENTAL CONTR RELIABILITY CONTRIBUTION OF A RESOURCE.
AND IF THIS WERE ACTUAL SCARCITY, YOU KNOW, THE INCREMENTAL RESOURCE IS NOT GONNA BE ABLE TO PROVIDE EIGHT STRAIGHT HOURS OF SERVICE TO THE SYSTEM.
RIGHT? IT MAY, LIKE, MAYBE THERE'S ONE RESOURCE THAT IS PROVIDING THOSE ANCILLARY SERVICES, BUT THE NEXT RESOURCE IS BEING DISCHARGED FOR ENERGY AND IS RUNNING OUT OF CHARGE.
SO YEAH, WE, WE THINK THIS IS, WE, WE DO THINK THIS IS CONSISTENT WITH THE ANCILLARY SERVICE ISSUE AS, AND YOU KNOW, YOU, YOU, AGAIN, I I HESITATE TO DRAW COMPARISONS TO OTHER MARKETS AND THE WAY THEY ACCREDIT CAPACITY, BUT THIS IS HOW ECCS WORK IN OTHER MARKETS AND IT'S, IT'S, IT DOESN'T ACCOUNT FOR LIKE THE ABILITY OF SOME RESOURCES TO PROVIDE ANSWER SERVICES LOOKING AT THE INCREMENTAL CONTRIBUTION TO RELIABILITY FOR DIFFERENT RESOURCES.
BUT IN OTHER MARKETS, YOU KNOW, IT'S A FIXED AMOUNT THAT THEY GET.
AND THEN IN REAL TIME THEY'RE NOT HIT WITH A PENALTY IF THE HOURS JUST HAPPEN TO BE, YOU KNOW, ALL IN, IF ALL 30 HOURS HAPPEN ALL TOGETHER, LET'S SAY IT'S A WINTER STORM, YOU KNOW, YOU HAVE 30 HOURS OF CONTINUOUS, UM, YOU KNOW, LOAD SHED AND STUFF, YOU ONLY GET CREDIT FOR THE FIRST TWO HOURS IF YOU'RE A TWO HOUR BATTERY, RIGHT.
[04:05:01]
AND YOU'RE TOTALLY EXPOSED, WHEREAS ANOTHER YEAR, YOU KNOW, IT'S JUST A NORMAL YEAR AND YOU JUST HAVE ONE OR TWO HOURS HERE AND THERE AND YOU GET A HUNDRED PERCENT OF IT.SO, UM, IT JUST SEEMS VERY UNCERTAIN AS TO HOW A BATTERY WOULD OFFER INTO THE FORWARD MARKET, KNOWING THIS LEVEL OF UNCERTAINTY, NOT KNOWING HOW CONSECUTIVE THESE HOURS ARE GONNA BE.
YEAH, I WOULD ADD THAT I THINK THOSE ARE IMPORTANT CONSIDERATIONS AND LIKE CONCERNS TO BRING UP IN THE COMMENTS BECAUSE I THINK AS DISCUSSED, LIKE MOST OF THIS MODELING WE'RE DOING IS LIKE ON THE ACTUAL PC MARKET AND YOU KNOW, BASED ON WHAT WE CAN MODEL, BUT THAT BEHAVIOR OF THE FORWARD MARKET IS SOMETHING THAT WILL TOUCH ON QUALITATIVELY.
BUT DEFINITELY I THINK, YOU KNOW, AS MARKET PARTICIPANTS AND KNOW HOW THE BEHAVIORS WORK AND WHAT SPECIFIC CONSIDERATIONS YOU ALL ARE FACING, I THINK IT'S IMPORTANT TO BRING UP.
OKAY, NEXT IN THE QUEUE IS DAVID KEY.
THANKS, UM, HAVING TROUBLE RECONCILING THE INFORMATION HERE IN THE ONE PREVIOUSLY.
SO STAYING HERE FOR A SECOND, IT LOOKS LIKE, UH, STORAGE WILL GET ACCREDITED BASED ON THE NEED.
AND SO YOU'RE SAYING IT GETS ACCREDITED, THEY'RE ON THE LEFT HAND SIDE BECAUSE IT'S AVAILABLE ON THE RIGHT HAND SIDE, IT GETS A D RATE BECAUSE, UM, THE DURATION OF THE NEED IS LONGER THAN THE DURATION OF THE, THE RESOURCE.
UM, BUT IF YOU GO BACK A SLIDE, IT, IT LOOKS LIKE THE DURATION ACROSS, YOU KNOW, THE TWO AND THE FOUR SEASONS ARE THE SAME.
UH, IT, IT FEELS IN, AT LEAST MY INSTINCT IS TELLING ME THAT MAYBE, YOU KNOW, THE, THE TWO SEASONS, THE NEED'S DIFFERENT, BUT IF YOU, AS YOU GET MORE GRANULAR, THE NEED WILL CHANGE.
AND SO MAYBE THE D RATE'S A LITTLE BIT DIFFERENT.
CAN YOU HELP ME UNDERSTAND HOW TO THINK THROUGH THOSE TWO? YEAH, I, I THINK WHAT THIS IS SHOWING IS THAT THE DURATION OF INDIVIDUAL STRETCHES OF PERFORMANCE CREDIT HOURS ARE SIMILAR REGARDLESS OF SEASON DEFINITIONS AND HOUR DEFINITIONS.
SO FOR EXAMPLE, WITHIN A FOUR SEASON CONSTRUCT, WHICH ARE THE TWO RIGHT HAND SIDES HERE, THAT IF YOU HAVE A 15 HOURS PER SEASON OR 30 HOURS PER SEASON, IT DOESN'T MEAN YOU, YOU HAVE A 15 HOUR EVENT AND THEN THAT EXTENDS TO 30 HOURS.
YOU COULD HAVE MULTIPLE KIND OF EIGHT HOUR EVENTS JUST BUT ON MORE DAYS.
AND SO THE D THE D RATE TO BATTERIES WOULD BE THE SAME.
AND I MEAN, I GUESS IT IS SURPRISING, RIGHT, THAT THESE ARE SO SIMILAR.
I THINK WE WERE SURPRISED BY THAT TOO, BUT YEAH, THAT'S A, THAT'S AN OUTPUT FINE.
I THINK WHAT I WAS EXPECTING IS IF YOU HAVE A SUMMARY, YOU HAVE MAYBE THREE OR FOUR HOURS OF NEED AND SO YOU COULD GET A HUNDRED PERCENT ACCREDITATION.
MAYBE THE WINTER YOU HAVE A LONGER EVENT, YOU'D HAVE LESS, YOU GET MORE OF A, A REDUCTION THERE.
BUT THIS DOESN'T SEEM TO REFLECT THAT.
AND THAT'S, THAT'S WHERE I WAS AT.
AND I WOULD SAY THESE, AND THIS ONCE AGAIN, LIKE THE STRUGGLES OF LIKE TRYING TO SHOW ANALYZE RESULTS FOR SEASONAL THINGS, THESE ARE BASICALLY WEIGHTED AVERAGE BASED ON THE RISK, WHICH IS THIS MEASURE THAT WE'VE DISCUSSED BUT NOT REALLY DESCRIBED SO FAR.
UM, BUT WE HAVE A SLIGHT LATER ON THAT ACTUALLY TALKS ABOUT LIKE PC EFFECTIVENESS BY THE SEASON FOR THE SAME TYPE.
AND THAT'S WHERE YOU SEE, LIKE TO YOUR POINT, LIKE I THINK SUMMER PC EFFECTIVENESS IS TWICE THAT OF WINTER BECAUSE WINTER YOU HAVE VERY LONG STRETCH OF EVENTS VERSUS SUMMER IS GENERALLY SHORTER.
SO BASICALLY WE ARE SEEING WHAT YOU'RE SAYING, BUT OVERALL AFTER WE APPLY THE SEASONAL ALLOCATION OF RISK, UM, IT KIND OF LIKE EVENS OUT TO BE SOMETHING, UM, SIMILAR ACROSS THE SCIENCE.
KAITLYN SMITH? HI, CAN YOU HEAR ME? YES.
ALRIGHT, UM, I THINK I HAVE, I'M, I'M BACK ON SLIDE 38 AND I HAVE SOME, SOME CLARIFYING QUESTIONS.
UM, BUT I, I THINK WE'VE GONE OVER IN DISCUSSION, BUT MAYBE NOT SUPER CLEARLY.
SO THIS IS NOT A QUALIFICATION REQUIREMENT FOR A CERTAIN SET NUMBER OF HOUR DURATIONS? CORRECT.
SO I MEAN, OTHER THAN AN HOUR, I GUESS IF, IF YOU HAVE AN HOUR LONG BATTERY, YOU CAN EARN A PC, YOU CAN ONLY JUST EARN ONE IN A ROW AND IF YOU HAVE A TWO HOUR BATTERY, YOU CAN EARN PCS, YOU CAN JUST ONLY EARN TWO IN A ROW.
THAT IS, THAT'S ABSOLUTELY CORRECT.
AND THAT'S A GREAT POINT BECAUSE, YOU KNOW, ONE THING WE DID CONSIDER WAS JUST SETTING A THRESHOLD CUTOFF AND SAYING IF YOU WANT TO EARN EARN PCS, YOU HAVE TO HAVE A MINIMUM OF FOUR HOURS OF DURATION OR, YOU KNOW, FILL IN THE BLANK FOR HOWEVER MANY HOURS.
WE ULTIMATELY DID NOT GO DOWN THAT PATH, UH, FOR A DEFAULT ASSUMPTION.
SO AGAIN, THAT, THAT WOULD, WOULD BE AN OPTION AS WELL.
SO THEN IN, IN THE KIND OF SECOND EXAMPLE IN THE MIDDLE HERE WHERE YOU HAVE FOUR HOURS ON AND THEN TWO HOURS OFF, AND THEN YOU CAN ONLY, UM, EARN TWO, TWO CREDITS OUT OF THE NEXT FOUR.
SO WOULD THAT BE KIND OF A SET BASED ON YOUR DURATION OR WOULD YOU BE LOOKING AT AN OPERATIONAL STATE OF CHARGE? HAVE YOU, HAVE YOU CONTEMPLATED HOW YOU WOULD VERIFY THAT OR NOT? YEAH, THAT WOULD BE PURELY BASED ON DURATION, RIGHT? SO, OKAY.
I MEAN THERE'S REALLY, THERE'S REALLY TWO CONSTRAINTS HERE, RIGHT? THE FIRST CONSTRAINT IS THAT YOU HAVE
[04:10:01]
TO BE AVAILABLE AND HAVE STATE OF CHARGE.BUT THE SECOND CONSTRAINT MM-HMM
SO IF YOU'RE OUT OF CHARGE AND NOT OFFERING, THEN YOU AREN'T EARNING PERFORMANCE CREDITS REGARDLESS OF DURATION.
AND I THINK THIS GOES A LITTLE BIT TO THE CONVERSATIONS YOU HAD WITH WITH RES SIAN WITH SHAMS, BUT SIMILARLY, IF YOU WERE A SLOWER START RESOURCE AND, AND YOU WERE OFFERING IN HIGHER BECAUSE OF THAT SLOWER START, WOULD THERE BE A WAY TO ENSURE, YOU KNOW, IF YOU HAD IN THIS MIDDLE EXAMPLE, IF YOU HAD A LONGER THAN TWO HOUR STARTUP TIME, YOU, YOU WOULD NOT BE ABLE TO GET SIMILARLY, THAT RESOURCE WOULDN'T BE ELIGIBLE FOR THAT NEXT SET OF FOUR HOURS? I WOULD ASSUME THAT THAT'S WHAT WOULD BE EQUITABLE THERE.
RIGHT? SO I I WOULD SAY THAT, AGAIN, THAT'S NOT OUR DEFAULT PROPOSAL, BUT WE, WE OKAY, WE WELCOME TH THOSE PER PERSPECTIVES LIKE THAT IN COMMENTS, SO, OKAY.
IT SEEMS TO ME IF A SLOWER START RESOURCE WOULD BE ABLE TO MANAGE THAT THROUGH PRICING IN ORDER TO ACCOUNT FOR THEIR RISK THAT, THAT YOU WOULD WANT THAT TO BE EQUITABLE ACROSS TECHNOLOGIES.
AND THEN MY LAST POINT, I I, I HOPEFULLY DIDN'T MISS IT, BUT I, I KNOW YOU SAID YOU WERE GONNA GET TO CLRS, SO I, I WOULD JUST CONSIDER EQUITY THERE IF WE WERE TALKING ABOUT AN SOC REQUIREMENT OR SOMETHING SIMILAR, A DURATION REQUIREMENT ON JUST THE GENEROUS RIGOR SIDE OF STORAGE, BUT WE ARE POSSIBLY LOOKING AT PURE CONTROLLABLE LOADS.
I WOULD WANNA KIND OF CONSIDER HOW WE WOULD TREAT STORAGE, ESPECIALLY GOING INTO SINGLE MODEL.
YEAH, AND THAT'S ACTUALLY A GREAT SEGUE INTO THE NEXT SLIDE AS SOON AS WE FINISH UP QUESTIONS ON THIS SLIDE.
YEAH, WE HAVE, LOOKS LIKE WE HAVE FOUR MORE QUESTIONS, SO MAYBE JUST ONE MORE REMINDER TO KEEP THEM AS BRIEF AS POSSIBLE.
YES, THANK YOU AND THANKS ZACH.
UM, I JUST WANTED TO BUILD ON KIND OF THE CONVERSATIONS HAPPENING EARLIER AND I UNDERSTAND THE COMPLICATIONS OF THE MODELING VERSUS LIKE ACTUALLY EARNING CREDITS IN REAL TIME.
BUT ON THE POINT ON LIMITED DURATION RESOURCES, YOU'RE GOING TO HAVE THE ABILITY BECAUSE YOU'RE LOOKING BACK TO MEASURE ITS ACTUAL STATE OF CHARGE YES.
SO, YOU KNOW, I CAN UNDERSTAND USING THIS METHODOLOGY, WHICH, YOU KNOW, GIVES THEM A HUNDRED PERCENT THEORETICAL STATE OF CHARGE WHEN MEASURING, BUT WHY WOULD YOU NOT IN REAL TIME WHEN GIVING THEM CREDITS? LOOK AT THEIR ACTUAL STATE OF CHARGE.
THE PRIMARY REASON IS TO AVOID UNECONOMIC BEHAVIOR AND ESSENTIALLY WITHHOLDING.
SO YOU COULD HAVE A BATTERY THAT MANIPULATES ITS DISCHARGE, NOT EVEN MANIPULATES, IT JUST DOESN'T CLEAR THE MARKET AND WOULD BE GETTING 100% CREDIT.
AND THAT'S NOT ALIGNED WITH ITS ACTUAL INCREMENTAL RELIABILITY VALUE TO THE SYSTEM.
AND BECAUSE, YOU KNOW, AND ACTUALLY PROBABLY THAT WOULD BE MANIPULATIVE IN SOME WAY BECAUSE, YOU KNOW, A BATTERY IS EARNS MONEY BY CHARGING AND DISCHARGING.
SO WE ACTUALLY WANT BATTERIES TO DISCHARGE AND HELP MITIGATE PRICES.
BUT IF A BATTERY IS INCENTIVIZED TO NOT DO THAT AND WITHHOLD ITSELF SO THAT IT CAN MAINTAIN FULL AVAILABILITY OVER THE ENTIRE TIME HORIZON, THAT WOULD ULTIMATELY INCREASE COST IN TWO WAYS.
IT WOULD INCREASE ENERGY MARKET COSTS AND IT WOULD INCREASE PERFORMANCE CREDIT COSTS.
YEAH, AND AGAIN, AGAIN, I'LL CAVEAT EVERYTHING I'M SAYING WITH THIS IS OUR DEFAULT PERSPECTIVE AND WE WELCOME FEEDBACK ON ANY AND ALL OF WHAT WE'RE SAYING.
SO NEXT UP WE HAVE KEVIN CARDIN.
HEY ZACH, JUST WANTED TO ASK A QUESTION HERE.
UM, WHEN I THINK ABOUT RUNNING ELCC STUDIES FOR SYSTEMS THAT ARE AT MUCH POOR RELIABILITY, THIS SEEMS TO BE A COROLLARY HERE.
LIKE YOU CALCULATE ELCC FOR BATTERY WITH A SYSTEM AT 30 LOLH, KIND OF WHAT WE'RE DOING HERE.
THE ECCS ARE GONNA BE TERRIBLE.
A LOT OF YOUR HOURS COULD BE SEQUENTIAL, BUT WE'RE ACTUALLY TRYING TO DESIGN A SYSTEM AT 0.1 AND 0.14 HOUR BATTERIES SUPPLY MUCH HIGHER RELIABILITY CONTRIBUTIONS ON THE MARGIN.
SO LIKE WE'RE, WE'RE KIND OF DOING THIS TEST AT A 30 LOLH SYSTEM, BUT IN REALITY WE'RE TRYING TO DESIGN THE 0.1 LOLE, WHICH MAY BE 0.3 LOLH.
SO HOW DO WE RECONCILE THAT DISCREPANCY? YOU'RE RIGHT.
AND THAT IS, THAT IS IN AN ISSUE
[04:15:01]
OR I WOULD SAY THAT'S SOMETHING THAT NEEDS, WE NEED TO BE VERY AWARE OF.SO I THINK ONE, ONE WAY TO BE AWARE OF THAT IS JUST TO KIND OF BENCHMARK WHAT WE'RE CALCULATING.
IF YOU GO BACK TO THE PREVIOUS SLIDE, YOU KNOW, WHAT WE'RE CALCULATING FOR PC EFFECTIVENESS FOR A 1.6 HOUR BATTERY AND HOW THAT WOULD COMPARE TO, FOR EXAMPLE, THE MARGINAL ELCC OF THE SAME DURATION BATTERY.
I THINK THIS IS ACTUALLY ROUGHLY IN LINE WITH WHAT WE WOULD EXPECT A BATTERY OF THIS DURATION TO HAVE FROM MARGINAL ELCC.
SO I, I THINK IT'S SOMETHING, IT'S DEFINITELY SOMETHING TO BE AWARE OF.
AND I ALSO DON'T KNOW THAT THE PC HOURS AS WE ARE DEFINING THEM, ARE THE SAME HOURS AS IF YOU HAVE LIKE A 30 LOLH SYSTEM.
THEY MIGHT, THOSE, THOSE MIGHT LOOK A LITTLE DIFFERENT, WHICH MIGHT LEAD TO DISCREPANCIES BETWEEN THOSE TWO AS WELL.
I HAVEN'T DONE THE MATH ON IT.
JUST TRYING TO CALIBRATE HERE.
UM, JUST TRYING TO UNDERSTAND, MAKE SURE I FULLY UNDERSTAND.
SO IF I'M A BATTERY OWNER AND I'VE BEEN PARTICIPATING IN THE, LET'S JUST SAY ANCILLARY SERVICES MARKET IN THE HOUR, PROCEEDING ONE OF THE TIGHTEST HOURS, BUT I'M AVAILABLE AND I'VE OFFERED IN AT TO, UM, FOR THAT, AND LET'S JUST SAY IT'S FOR ONE HOUR AND I'M ON ONE HOUR BATTERY, WILL I, IF I'M AVAILABLE DURING THAT TITUS HOUR, WILL I BE, AVA, WILL I BE ELIGIBLE FOR THE FULL PC? UM, YOU KNOW, OR WILL I ONLY BE ELIGIBLE FOR A DISCOUNTED PC? I GUESS THAT'S MY FIRST QUESTION, RIGHT? SO IF YOU GO TO THE NEXT SLIDE HERE, IF THERE'S A ONE, IF THERE'S ONE PC HOUR THAT OCCURS IN ISOLATION AND THE BATTERY IS AVAILABLE, IT RECEIVES FULL CREDIT.
IT DOESN'T MATTER WHAT IT WAS DOING IN THE PRIOR HOUR.
IF IT'S AVAILABLE IN THAT HOUR, IT RECEIVES FULL CREDIT FOR THAT.
AND I GUESS MY SECOND QUESTION IS, UM, THERE SEEMS TO BE SORT OF ALMOST AN ASSUMPTION OF BAD BEHAVIOR BY BATTERY OWNERS OF POTENTIAL WITHHOLDING, UM, I DON'T THINK THAT'S, UM, APPROPRIATE, BUT, UM, WOULDN'T THIS GET RESOLVED EITHER THROUGH SOME POSSIBLE MITIGATION MEASURES OR JUST THE FACT THAT THERE IS A PRETTY ROBUST PENALTY, UM, FOR NON-PERFORMANCE? SO WHY DOESN'T THAT ADDRESS THE CONCERN? WELL, SO I DEFINITELY DO NOT WANNA IMPLY THAT THERE'S BAD BEHAVIOR.
ONE OF THE FUNDAMENTAL TENETS OF THIS ENTIRE ANALYSIS IS THAT MARKET PARTICIPANTS BEHAVE RATIONALLY, RIGHT? THAT'S WHAT DRIVES ENTRY AND EXIT IN RESPONSE TO PRICE SIGNALS.
AND SO IF WE CREATE A SYSTEM THAT INCENTIVIZES BATTERIES TO DO SOMETHING, WE, I DON'T THINK IT'S BAD BEHAVIOR TO ASSUME THAT THOSE MARKET PARTICIPANTS WOULD BEHAVE RATIONALLY TO MAXIMIZE THEIR REVENUES.
AND I THINK IF WE DON'T DO WHAT'S BEING DONE HERE, THERE WOULD BE AN INCENTIVE TO EFFECTIVELY NOT PARTICIPATE IN ENERGY MARKET IN THE SAME WAY AND TO MAINTAIN A STATE OF CHARGE TO MAXIMIZE PC REVENUES.
AND SO THAT'S, THAT'S ONE ANSWER.
AND THEN THE SECOND ANSWER IS THAT, UM, IT'S NOT NECESSARILY BAD BEHAVIOR IN THE SENSE THAT, YOU KNOW, THIS IS LIKE, THESE HOURS HERE MIGHT NOT BE TRUE SCARCITY HOURS, BUT WE'RE TRYING TO CO WE'RE TRYING TO INCENT RESOURCES INTO THE MARKET THAT CAN BE AVAILABLE DURING TRUE SCARCITY HOURS.
SO IF WE'RE NINE TIMES OUTTA 10 ACCREDITING BATTERIES AT A HUNDRED PERCENT, BUT IN THE ONE OUTTA 10 YEARS, THE SYSTEM ACTUALLY HAS SCARCITY, IT'S ONLY PROVIDING 30% TO THE SYSTEM.
WE, WE DON'T WANNA HAVE THAT NINE OUTTA 10 MISMATCH THAT IS NOT LINING THOSE TWO UP.
UM, JUST TWO, TWO THINGS THAT CAME TO MIND AS I'M, AS I'M THINKING ABOUT THIS.
ONE IS JUST THE IMPRACTICALITY OF A BATTERY OWNER BEING ABLE TO, UH, YOU KNOW, LIKELY PREDICT ALL OF THE HOURS AHEAD OF TIME SINCE IT'S NOT KNOWN UNTIL AFTER THE FACT.
THAT SEEMS LIKE THAT'S A PRETTY BIG HURDLE.
UH, AND THEN TWO IS SINCE WE'RE ASSUMING THIS IS IN THE REAL-TIME, CO-OP OPTIMIZATION PLUS BATTERIES WORLD, YOU KNOW, ANYTIME PRICES GO ABOVE $2,000, THAT BATTERY STATE OF CHARGE IS GONNA BE DRAINED BECAUSE THE, YOU KNOW, THE OFFER CAP IS AT 2000.
SO ANYTIME PRICE GOES ABOVE THAT, IT'S GONNA GET PULLED INTO THE MARKET THERE.
I DON'T THINK THERE'S ANY ABILITY FOR THEM TO HOLD ONTO THAT.
[04:20:04]
YEAH.AND SO I, YOU KNOW, I GUESS THAT IS, YOU KNOW, THE ABILITY TO PREDICT THESE HOURS I THINK IS, IS AN IMPORTANT CONSIDERATION TO THINK ABOUT.
I THINK THERE'S, THERE IS A LOT OF EXAMPLES IN TEXAS AND OTHER MARKETS LIKE ALBERTA THAT HAVE PREDICTION MARKETS FOR HOURS THAT ARE GONNA MATTER THAT YOU DON'T EXACTLY KNOW, LIKE THE FOUR CP AND ALBERTA HAS A 12 CP VERY SIMILAR CONSTRUCT AND YOU KNOW, THERE ARE MANY SERVICES THAT ARE VERY GOOD AT PREDICTING WHAT THINGS LOOK LIKE AND THERE ARE WAYS IN WHICH PEOPLE CAN HEDGE THOSE RISKS.
SO I, I THINK IT'S A CONSIDERATION.
WE'RE VERY OPEN, IT'S, WE'RE VERY EAGER TO HEAR STAKEHOLDER FEEDBACK ON THAT.
IT'S NOT SOMETHING THAT WE HAVEN'T THOUGHT ABOUT.
BUT AGAIN, THE QUESTION IS LIKE, WHAT'S THE ALTERNATIVE, RIGHT? I DON'T, I DON'T KNOW THAT WE'RE SAYING THIS IS FLAWLESS, BUT I I THINK EVERY, EVERYTHING HAS TO BE COMPARED TO WHAT, WHAT AN ALTERNATIVE IS.
AND I FORGOT YOUR SECOND QUESTION, BUT IT HAD TO DO WITH THE OFFER CAP IN REALTIME ATION.
AND WELL, THE OTHER THING TO THINK ABOUT, REMEMBER TOO IS RIGHT FOR A SYSTEM THAT IS VERY RELIABLE, THAT'S AT A ONE IN 10 RELIABILITY STANDARD.
LIKE HOW OFTEN ARE PRICES GONNA BE GETTING VERY HIGH, NOT AS OFTEN AS A SYSTEM THAT'S NOT RELIABLE.
SO I, I GUESS THAT'S, THAT'S JUST ANOTHER, ANOTHER CONSIDERATION TO THINK ABOUT.
HEY, I, I'LL KEEP IT REAL QUICK AND, AND NED, PERHAPS YOU AND I CAN TALK ABOUT IT OFFLINE.
I, I JUST WANTED TO BE CLEAR THOUGH, I THINK THERE'S BEEN SOME MISUNDERSTANDING ABOUT THIS GENERALLY THAT JUST BECAUSE ENERGY PRICES ARE ABOVE 2000 DOES NOT NECESSARILY MEAN THAT A RESOURCE WITH AN OFFER OF 2000 IS GOING TO BE DISPATCHED FOR ENERGY.
IT'S ALSO GONNA BE RELATIVE TO THEIR OFFERS FOR OTHER ANTI SERVICES AND THE PRICES OF THOSE OTHER COMMODITIES THAT WILL BE CLEARING UNDER RTC.
SO, UH, ANYWAY, I JUST DON'T WANT PEOPLE COME IN WAY THAT THAT'S ACTUALLY ALWAYS GOING TO TO HAPPEN.
BUT, BUT AGAIN, THEN PERHAPS YOU AND I CAN TALK ABOUT THAT OFF THE LINE.
ALRIGHT, SO LET'S GO TO SLIDE 39.
SO, ALRIGHT, THIS ONE SHOULD BE PRETTY EASY.
THIS IS JUST SAYING WHAT RESOURCES ARE OF IT ARE ELIGIBLE TO EARN PERFORMANCE CREDITS.
WE HAVE THEM BROKEN DOWN HERE INTO BROAD CLASSES OF CATEGORIES.
SO WE HAVE RENEWABLE RESOURCES, UH, RUN OF RIVER HYDRO RESOURCES, DURATION LIMITED RESOURCES, AND DISPATCHABLE, DER RESOURCES.
SO THIS ONE'S PRETTY STRAIGHTFORWARD.
RENEWABLE RESOURCES BY LAW ARE NOT ELIGIBLE TO EARN PERFORMANCE CREDITS.
UH, RUN OF RIVER HYDRO RESOURCES BEING A RENEWABLE RESOURCE THAT'S PRIMARILY OUTSIDE OF THE FORCES OF HUMAN CONTROL ARE ALSO NOT ELIGIBLE.
DURATION LIMITED RESOURCES WE ARE SAYING ARE DISPATCHABLE AND ARE ELIGIBLE.
UH, WE'RE NOT ASSUMING ANY, WE'RE NOT PROPOSING ANY DURATION REQUIRE MINIMUM DURATION REQUIREMENT OTHER THAN WHAT WE PREVIOUSLY DISCUSSED METHODOLOGICALLY THAT WOULD DERATE RESOURCES BASED ON THEIR DURATION.
AND THEN DISPATCHABLE, DER RESOURCES WOULD DISPATCHABLE DER RESOURCES WOULD BE AVAILABLE.
AND THEN OF COURSE ANY OTHER DISPATCHABLE RESOURCE, THERMAL, ET CETERA WOULD ALSO BE ELIGIBLE.
SO HOPEFULLY THIS ONE IS A LITTLE BIT MORE STRAIGHTFORWARD, BUT HAPPY TO TAKE QUESTIONS ON THIS.
SO YOU, UNDER ITEM SEVEN, YOU UH, CONTEMPLATE THE SCENARIO OF A CO-LOCATED RENEWABLE AND BATTERY STORAGE FACILITY.
WHAT ABOUT A CO-LOCATED, UH, BATTERY WITH SAY LIKE A CRYPTO MINING LOAD? YEAH, I THINK WE WOULD TREAT THAT AS ESSENTIALLY A STANDALONE BATTERY AND YEAH.
SO THE NEXT TOPIC IS ON SETTING THE PERFORMANCE CREDIT TARGET.
SO WE'VE ACTUALLY GONE OVER THIS SLIDE A COUPLE TIMES NOW, BUT AGAIN, THIS IS JUST LOOKING AT FOR A SYSTEM THAT'S AT TARGET RELIABILITY.
SO IN OTHER WORDS, MEETING THE ONE IN 10 STANDARD, IT'S IDENTIFYING THE TIGHTEST HOURS IN EACH SEASON AND CALCULATING THE TOTAL AVAILABILITY OF ELIGIBLE RESOURCES DURING THOSE HOURS.
SO IN THIS CASE, WE CAN SEE THE TIGHTEST HOURS RESOURCE SUPPLY RELATIVE TO LOAD HOURS 18, 19, 20, AND 21.
WE CAN LOOK AT THE AVERAGE AVAILABILITY OF ALL OF THE RESOURCES THAT ARE ONLINE.
YOU CAN SEE THAT THAT'S THE BAR THAT'S SHOWN TO THE RIGHT OF THE GRAPH.
[04:25:01]
WE HAVE PRIMARILY THERMAL RESOURCES THAT'S IN GRAY, BUT ALSO STORAGE RESOURCES IN PURPLE AND WIND RESOURCES IN BLUE WIND RESOURCES AS A RENEWABLE RESOURCE ARE NOT ELIGIBLE TO EARN PERFORMANCE CREDITS.AND SO THE TOTAL PERFORMANCE CREDIT TARGET IN THIS HYPOTHETICAL DAY IS JUST THE SUM OF THERMAL PLUS BATTERY STORAGE.
AND THIS VA THIS EXERCISE IS DONE FOR EACH MARKET OR FOR EACH SEASON, UH, TO DETERMINE THE PERFORMANCE CREDIT REQUIREMENT.
AND AGAIN, THIS IS DONE, UM, FOR A SYSTEM THAT'S AT TARGET RELIABILITY.
SO YOU COULD SEE FOR EXAMPLE, RIGHT, THE SYSTEM KNOWS THAT IT HAS A LOSS OF LOAD EVENT IN A PARTICULAR YEAR.
IT NEEDS TO BUILD A LOT OF THERMAL RESOURCES TO SOLVE THAT LOSS OF LOAD EVENT.
AND SO THEN WHEN YOU LOOK IN ALL OF THE OTHER YEARS AT THE TIGHTEST HOURS, YOU SEE THAT THERE'S A LOT OF THERMAL AVAILABLE.
THAT'S, THAT HIGHER AMOUNT OF THERMAL THAT'S AVAILABLE IS WHAT'S SETTING THE PERFORMANCE CREDIT REQUIREMENT BECAUSE THAT'S HOW MUCH THERMALS NEEDED IN THOSE TIGHT HOURS TO MEET THE OVERALL LOSS OF LOAD TARGET.
SO KIND OF ADDRESSES ONE OF THE ISSUES THAT WAS RAISED EARLIER.
ANY QUESTIONS ON THIS TOPIC? SHAMS? SO, UM, IN THIS ANALYSIS, HOW ARE YOU MODELING THE BATTERIES? LIKE IS IT ONLY MODELED AS A DISCHARGE UNIT OR IS IT MODELED PROVIDING ANSWERS OR WHAT IS THAT PURPLE BAR SIGNIFYING RIGHT? YEAH, WE ARE MODELING, THAT'S A GOOD QUESTION.
YEAH, WE WOULD BE, WE WOULD BE MODELING THE BATTERIES TO BEHAVE ECONOMICALLY AND SO THEY WOULD BE CHARGING AND DISCHARGING BASED ON THE SIGNALS IN THE ENERGY MARKET TO DO SO.
AND TO THE EXTENT THAT, YEAH, TO THE EXTENT THAT BATTERIES NEED TO BE DERATED IN THIS EXERCISE CONSISTENT WITH HOW WE JUST TALKED ABOUT THEN, THEN THAT WE WOULD DO THAT AS WELL.
YEAH, I GUESS THE CONCLUSION IS WHATEVER METRIC WE USE TO DETERMINE WHAT PC HOURS ARE AND THE PC CREDIT YOU GET IS THE WAY WE'RE DOING IT IN THE FORWARD MARKET AS WELL.
SO IN THIS CASE IT'S AVAILABILITY, WHICH IS CAPACITY MINUS OUTAGES, MINUS STATE OF CHARGE FOR BATTERIES OR WHATEVER YOU CANNOT OUTPERFORM.
SO THAT'S THE SAME METRIC WE'RE USING TO, TO DO THIS.
SO IF THE MAJORITY OF BATTERIES, LET'S SAY ARE ONE HOUR BATTERIES, SO IN THIS CASE YOU WOULD JUST SOMEHOW OPTIMALLY DISPATCH THAT ONE HOUR BATTERY OVER THESE FOUR HOURS IN THIS EXAMPLE.
SO WE LOOK AT, SORRY, WE LOOK AT THEIR AVAILABILITY DURING THESE HOURS.
SO WE'RE, WE'RE NOT NECESSARILY DISPATCHING IT PER SE, WE JUST SAY HOW MUCH WAS AVAILABLE DURING THOSE HOURS AND THEN MAYBE IT WAS A THOUSAND FOR EACH HOUR, BUT THEN WE REALIZED THEY'RE ACTUALLY ONE HOUR BATTERY, SO WE ONLY COUNT IT FOR THE FIRST ONE, LET'S SAY.
AND THEN ON AVERAGE IT'S BASICALLY AS IF YOU DID 25% OF YOUR, UM, CAPACITY EACH HOUR OR YOUR DURATION EACH HOUR.
OKAY, SO NOW WE'RE GETTING INTO SETTING THE DEMAND CURVE.
SO WE'VE TALKED ABOUT THIS SEVERAL TIMES, BUT LET'S GO INTO SOME OF THE DETAILS FOR HOW THIS WOULD ACTUALLY WORK.
SO THIS FIRST LINE HERE, NUMBER 11, IS TALKING ABOUT HOW THE TOTAL PERFORMANCE CREDIT REQUIREMENT IS SET.
JUST WHAT IS THE MEGAWATT QUANTITY OF PERFORMANCE CREDITS THAT ARE NEEDED.
AND THAT'S EXACTLY WHAT WE JUST TALKED ABOUT ON THE PRIOR SLIDE.
THAT'S, THAT'S WHAT THAT'S LOOKING AT.
AND THE QUESTION IS, WHEN IS THAT DETERMINED? IS IT DETERMINED BEFORE THE YEAR? IS IT DETERMINED AFTER THE YEAR FOR REASONS WE TALKED ABOUT IN THE MORNING? OUR DEFAULT PROPOSAL IS THAT IT WILL BE DETERMINED BEFORE THE YEAR.
AND THE REASON IS BECAUSE WE DON'T REALLY THINK THAT GOING THROUGH A YEAR PROVIDES VERY MUCH INFORMATION, NEW INFORMATION ABOUT HOW MUCH CAPACITY WAS ACTUALLY NEEDED TO ACHIEVE A RELIABILITY STANDARD THAT IS INHERENTLY LOOKING AT MANY DIFFERENT OUTCOMES THAT DEFINITIONALLY WON'T INCUR OCCUR IN ANY GIVEN YEAR.
SO OUR DEFAULT PROPOSAL HERE IS WHAT WE'RE CALLING X ANTE, WHICH JUST SIMPLY MEANS THAT THE PERFORMANCE CREDIT REQUIREMENT IS DETERMINED BEFORE THE START OF THE YEAR FOR EACH SEASON.
THE NEXT LINE IS NUMBER 12, IT'S THE DETERMINATION OF NET CONE.
AND AGAIN, NET CONE REALLY IS THIS IMPORTANT VALUE THAT IS WHAT THE PCM IS TRYING TO INJECT INTO THE MARKET, RIGHT? IT'S THE AMOUNT OF MISSING MONEY THAT IS NOT IN THE MARKET, IN
[04:30:01]
NOT COMING INTO THE MARKET FROM THE ENERGY ONLY MARKET.THERE'S A QUESTION OF IS THIS NET CONE VALUE DETERMINED BEFORE THE YEAR OR AFTER THE YEAR? WHEN WE ORIGINALLY DID THE PCM ANALYSIS FOR THE PCT, WE ASSUMED THAT NET CONE WAS DETERMINED BEFORE THE YEAR.
AND SO THERE'S JUST ESSENTIALLY A STATIC NET CONE VALUE THAT'S ASSUMED FOR EVERY YEAR.
WHAT THAT CREATES IS A SITUATION WHERE IF YOU HAVE A VERY LOW SUPPLY YEAR OF RESOURCES, LIKE THE BAD RENEW RENEWABLES AREN'T ELIGIBLE, BUT A BUNCH OF FORCED OUTAGES OR SOMETHING, IT CREATES THIS POTENTIAL WHERE YOU'RE PROBABLY GONNA HAVE HIGH ENERGY PRICES BECAUSE THERE'S LOW SUPPLY AND YOU'RE ALSO GONNA HAVE HIGH PERFORMANCE CREDIT PRICES BECAUSE THERE'S LOW SUPPLY.
SO IT'S KIND OF A DOUBLE WHAMMY ON LOADS.
AND CONVERSELY, IF YOU HAVE A VERY HIGH SUPPLY YEAR FOR WHATEVER REASON, YOU'LL HAVE LOW ENERGY PRICES AND LOW PERFORMANCE CREDIT PRICES.
SO ON AVERAGE AN EX ANTI APPROACH COULD WORK, BUT IT'S JUST VERY VOLATILE.
WHAT WE'RE PROPOSING HERE IS AN EX POST CONSTRUCT WHERE YOU GO THROUGH THE YEAR, LOOK AT WHAT ACTUAL MARGINS WERE IN THAT YEAR, IN OTHER WORDS, WHAT IS PEAKER NET MARGIN AND THEREFORE WHAT IS NET CONE? AND YOU USE THAT ACTUAL REALIZED NET CONE TO SET PERFORMANCE CREDIT PRICES.
AND WHAT THAT ALLOWS YOU TO DO IS ACTUALLY INVERSELY CORRELATE THOSE TWO.
SO IF ENERGY PRICES ARE HIGH, THAT MEANS NET CONE IS LOW AND PERFORMANCE CREDIT PRICES WILL BE LOW AND VICE VERSA.
IF ENERGY PRICES ARE LOW, NET CONE WILL BE HIGH PERFORMANCE CREDIT PRICES WILL BE HIGH.
SO IT PROVIDES AN INHERENT STABILIZATION FEATURE THAT IS AGAIN, PART OF OUR, OUR DEFAULT PROPOSAL.
THE NEXT THREE BULLETS, UH, ARE REALLY HOW DO YOU STRUCTURE THE DEMAND CURVE? SO NUMBER 13, WE'RE LOOKING AT HERE WHAT IS THE MAX POSSIBLE PRICE THAT PERFORMANCE CREDITS CAN CLEAR AT? THIS IS ACTUALLY SOMETHING THAT WE HAVE DECIDED NEEDS TO BE A FLOATING VARIABLE, AS DAVID PREVIOUSLY DESCRIBED, TO HELP ENSURE THE MARKET IS GOING TO ACHIEVE TARGET RELIABILITY.
SO WHERE THIS IS COMING OUT RIGHT NOW, ROUGHLY IS SOMEWHERE IN THE NEIGHBORHOOD OF ABOUT 1.4 TO 1.7, UH, TIMES NET CONE.
BUT THAT IS, YEAH, SOMETHING THAT WE THINK, UH, IS, IS KIND OF A FREE VARIABLE THAT WE CAN MOVE UP AND DOWN AS THE LEVER TO HELP ENSURE THE SYSTEM IS ACHIEVING TARGET RELIABILITY.
THE NEXT QUESTION IS AROUND, ONCE YOU'VE DETERMINED NET CONE, WHICH IS AT THE END OF THE YEAR, RIGHT? THAT'S THE AMOUNT OF MONEY THAT NEEDS TO BE INJECTED INTO THE MARKET TO MAKE RESOURCES WHOLE, AT LEAST ASSUMING THAT YOU'RE AT A LEVEL OF TARGET RELIABILITY.
BUT ASSUMING YOU'RE AT TARGET RELIABILITY, IF YOU GO THROUGH THE YEAR AND YOU SAY, OKAY, THIS IS MY NET CONE, THIS IS HOW MUCH MONEY I NEED TO INJECT INTO THE MARKET FROM PCM, THE QUESTION THEN IS HOW DO YOU ALLOCATE THAT VALUE ACROSS THE DIFFERENT SEASONS? AND THERE ARE A COUPLE OF APPROACHES THAT COULD BE USED HERE.
ONE IS TO KIND OF ALREADY HAVE THAT ALLOCATION PREDETERMINED, LIKE YOU CAN SAY, OKAY, I KNOW THAT ACROSS ALL THE YEARS 80% OF THE RISK IS GONNA OCCUR IN THE WINTER AND I'M GONNA INJECT 80% OF NET CONE INTO THE WINTER EVERY YEAR.
ANOTHER WAY TO DO IT WOULD BE TO ACTUALLY LOOK BACK AT ALL OF THE SEASONS AND SAY, WHAT WERE THE TIGHTEST SEASONS THIS YEAR? AND THEN INJECT MONEY INTO THOSE SEASONS.
SO THAT IS WHAT WE ARE CALLING AN EX POST APPROACH, AND THAT IS OUR PROPOSED DEFAULT TO ACTUALLY LOOK BACK AT ALL THE SEASONS AND SAY, WHAT WERE THE TIGHTEST SEASONS? AND THEN PROPORTIONAL TO WHAT THOSE TIGHTEST SEASONS WERE THEN INJECTING MONEY INTO EACH SEASON PROPORTIONALLY TO THAT.
AND THEN THE NEXT ONE, NUMBER 15, THIS IS LITTLE MORE QUALITATIVE, KIND OF ALMOST HARD TO DESCRIBE, BUT WHAT IS THE SHAPE OF THE DEMAND CURVE? IS IT A VERY STEEP SLOPE? IS IT A MEDIUM SLOPE? IS IT A VERY SHALLOW SLOPE? OBVIOUSLY THERE'S NUMBERS THAT HAVE TO GO BEHIND THAT, BUT YOU CAN LOOK AT THE, YOU KNOW, SLOPE THAT WE'RE SAYING AND WE'RE, WE'RE DEFINING AT LEAST AS A RELATIVELY MEDIAN SLOPE.
AND THEN THE FINAL BULLET HERE IS AROUND THE ALLOCATION OF SYSTEM PERFORMANCE REQUIREMENTS OR THE ALLOCATION OF PC COSTS TO LOAD SERVING ENTITIES.
AND THERE COULD BE A COUPLE OF OPTIONS HERE, BUT WHAT WE'RE PROPOSING IS BASED ON EACH LSCS LOAD DURING PC HOURS, SO WHAT IS THEIR SHARE OF SYSTEM-WIDE LOAD DURING PERFORMANCE CREDIT HOURS? SO
[04:35:02]
I, UH, MAYBE JUST KIND OF, ACTUALLY WE HAVE SEVERAL SLIDES THAT WALK THROUGH AND ILLUSTRATE SOME OF THESE, SO I THINK PROBABLY WILL BE USEFUL TO GO TO THAT IF WE, SO IF WE GO TO THE NEXT SLIDE, THIS IS TALKING ABOUT KIND OF THIS, DO YOU DETERMINE NET CONE BEFORE THE YEAR OR AFTER THE YEAR? AS FAR AS SETTING THE DEMAND CURVE, IF WE LOOK AT THIS BAR ON THE LEFT, THIS IS SHOWING A DISTRIBUTION OF OUTCOMES FOR WHAT NET CONE COULD END UP AT.AND AGAIN, THE REASON THERE'S A DISTRIBUTION HERE IS BECAUSE NAT, FOR A SYSTEM EVEN THAT'S AT TARGET RELIABILITY, THERE'S GONNA BE A WIDE VARIATION OF WHAT COULD HAPPEN WITHIN EACH YEARS.
YOU'RE GOING TO HAVE EXTREME YEARS WHERE ENERGY PRICES ARE VERY HIGH WHEN ENERGY PRICES ARE VERY HIGH.
THAT MEANS CTS ARE EARNING A LOT OF MONEY IN THE ENERGY MARKET AND THEY HAVE A LOW NET CONE.
SO YOU HAVE SOME YEARS WHERE NET CONE IS VERY LOW WHEN YOU HAVE A VERY MILD YEAR.
COMBUSTION TURBINES EARN RELATIVELY LITTLE IN THE ENERGY MARKET AND THEREFORE THEIR NET CONE IS VERY HIGH BECAUSE YOU KNOW, THEY HAVE CONE, THEY, YOU'RE NOT SUBTRACTING OFF VERY MUCH FOR WHAT THEY'RE EARNING IN THE ENERGY MARKET.
SO THEY'RE LEFT WITH A LARGE NET CONE.
I THINK ONE OF THE THINGS THAT YOU SEE HERE, IF YOU LOOK AT THIS DISTRIBUTION OF THIS RANGE OF VALUES IS THAT, YOU KNOW, IF THE, THE NET CONES HERE THAT WE'RE SHOWING ARE ALL RELATIVELY HIGH, WHAT THAT MEANS IS THAT THE ENERGY MARGINS THAT COMBUSTION TURBINES ARE EARNING ARE ALWAYS RELATIVELY LOW.
WHY ARE THEY LOW? IS BECAUSE WE'RE HERE, WE'RE MODELING A RELIABLE SYSTEM, A RELIABLE SYSTEM AT 0.1 LOLE JUST REALLY DOESN'T HAVE VERY MUCH SCARCITY.
AND SO WHEN YOU DON'T HAVE VERY MUCH SCARCITY, YOU DON'T HAVE VERY MUCH SCARCITY PRICING, YOU DON'T HAVE VERY MUCH MARGINS THAT ARE ACCRUING TO CAPACITY RESOURCES.
SO BY AND LARGE, MOST OF THE NET CONES THAT WE'RE SHOWING HERE ARE RELATIVELY HIGH.
IF YOU LOOK AT AN AVERAGE OF ALL OF THESE VALUES, YOU CAN SEE THAT WE'VE HIGHLIGHTED THAT HERE IN RED.
SO IT'S ABOUT $80 PER KILOWATT YEAR IS AVERAGE NET CONE FOR A COMBUSTION TURBINE FOR A SYSTEM THAT'S OVERALL ACHIEVING A ONE DAY AND 10 YEAR RELIABILITY STANDARD.
SO ONE OPTION IS YOU COULD SAY I'M GOING TO USE THAT SAME NET CONE IN EVERY YEAR, MULTIPLY IT BY SOME VALUE THAT, AND IN THIS CASE YOU CAN SEE WE'RE MULTIPLYING IT BY 1.71 X, SO 170% AND THAT VALUE IS THE PRICE CAP THAT'S USED IN EVERY SINGLE YEAR TO SET THE DEMAND CURVE.
AND THAT WHERE DOES THAT 1.71 COME FROM? THAT'S A CALCULATED VALUE TO ENSURE THAT ACROSS ALL OF THE DIFFERENT OUTCOMES THAT COULD OCCUR ON AVERAGE RESOURCES ARE EARNING NET CONE, RIGHT? BECAUSE THAT, THAT'S THE PRICE CAP.
BUT OFTENTIMES YOU'RE GONNA BE NOT CLEARING AT THE PRICE CAP, YOU'RE GONNA BE CLEARING AT A LOWER THAN THE PRICE CAP VALUE SOMEWHERE IN THE SLOPED PART OF THE DEMAND CURVE.
SO THAT'S THE VALUE THAT'S NEEDED TO ENSURE RESOURCES ON AVERAGE EARN NET CONE.
SO THAT WOULD BE SORT OF THE X ANTI APPROACH.
THE X POST APPROACH WOULD BE YOU DON'T USE THAT VALUE IN EACH YEAR, YOU USE WHAT THE ACTUAL NET CONE IS IN EACH YEAR.
SO EVERY YEAR YOU HAVE AN ENTIRELY DIFFERENT DEMAND CURVE.
IF NET CONE IS HIGH IN A PARTICULAR YEAR BECAUSE ENERGY MARGINS WERE LOW, YOUR PRICE CAP GOES UP.
IF ENERGY MARGINS WERE VERY HIGH IN A YEAR, THEN YOUR NET CONE IS LOW AND YOU COULD HAVE A VERY LOW PRICE CAP.
AND IN FACT, IN THIS EX POST APPROACH, IF YOU HAVE A YEAR WHERE ENERGY MARGINS, IN OTHER WORDS WHERE PEAKER NET MARGIN EXCEEDS CONE, THEN YOUR NET CONE DEFINITIONALLY IS ZERO AND PERFORMANCE CREDITS WILL CLEAR AT A PRICE OF ZERO.
SO I THINK THIS PROVIDES A VERY NICE KIND OF GUARDRAIL FOR PEOPLE THAT ARE CONCERNED ABOUT THE ENERGY MARKET CONTINUING TO DELIVER LOTS OF REVENUES AND THEN THE PERFORMANCE CREDIT BEING THIS ADDITIONAL BOOST.
ON TOP OF THAT, IF THE ENERGY MARKET IS DELIVERING SUFFICIENT REVENUES FOR RESOURCES TO RECOVER THEIR COSTS, THEN THE PERFORMANCE CREDIT MARKET WILL UNDER THIS DESIGN, INHERENTLY NOT DELIVER ANY INCREMENTAL REVENUES BECAUSE RESOURCES ARE ALREADY EARNING ENOUGH IN THE ENERGY MARKET ALONE.
IF WE GO TO THE NEXT SLIDE, UH, I WANT TO KIND OF TALK ABOUT THE IMPLICATIONS FOR HOW ALL OF THIS, YOU KNOW, IF YOU DO THE THIS X ANTI VERSUS X POST APPROACH, WHAT THE IMPACT ON PERFORMANCE PRICES IS AND WHAT THE IMPACT ON SYSTEM COST IS.
SO IF WE LOOK AT THESE LEFT TWO BARS, THIS IS LOOKING AT A SYSTEM WHERE WE USE THE SAME DEMAND CURVE IN EVERY YEAR BECAUSE
[04:40:01]
NET CONE IS PREDETERMINED ON AN X ANTI BASIS, THE PRICE CAP IS PREDETERMINED.SO WE'RE USING THE SAME EXACT DEMAND CURVE IN EVERY YEAR.
IN THIS CASE, WE ACTUALLY HAVE LOWER PERFORMANCE CREDIT PRICE VOLATILITY, RIGHT? BECAUSE YOU DON'T HAVE THE PRICE CAP THAT'S BOUNCING UP AND DOWN, IT'S KIND OF THE SAME PRICE CAP ALL THE TIME.
SO YOU HAVE LOWER PERFORMANCE CREDIT PRICE VOLATILITY, BUT YOU HAVE HIGHER SYSTEM COST VOLATILITY, WHICH IS THE SECOND SET OF BARS.
SO WHAT THIS SECOND SET OF BARS IS LOOKING AT IS AGAIN, A DISTRIBUTION OF TOTAL SYSTEM COSTS ACROSS ALL OF THE TYPES OF YEARS THAT COULD HAPPEN.
THESE ARE IN UNITS OF BILLIONS OF DOLLARS, RIGHT? SO ANYWHERE RANGING FROM 15 TO $30 BILLION.
AND AGAIN, THE REASON WHY ARE WE SEEING HIGHER SYSTEM COST VOLATILITY IS BECAUSE YOU HAVE SITUATIONS WHEN YOU DETERMINE THE DEMAND CURVE BEFOREHAND, WHERE YOU COULD HAVE VERY HIGH ENERGY PRICES AND HIGH PERFORMANCE CREDIT PRICES.
THERE'S NO NEGATIVE INVERSE CORRELATION, THAT'S A, A FEATURE OF THE DESIGN.
SO EVEN THOUGH YOU HAVE MORE STABLE PERFORMANCE CREDIT PRICES, YOU HAVE THE POTENTIAL TO PAIR HIGH ENERGY PRICE YEARS WITH HIGH PERFORMANCE CREDIT PRICE YEARS AND VICE VERSA, LOW ENERGY PRICE YEARS WITH LOW PERFORMANCE CREDIT PRICE YEARS.
AND SO YOU HAVE A LOT OF VOLATILITY IN ANNUAL SYSTEM COSTS.
HOW DOES THAT CHANGE IF YOU MOVE TO AN EX POST NET CONE APPROACH? THAT'S WHAT'S SHOWN ON THE RIGHT.
SO WE HAVE PC PRICES IN THIS THIRD BAR.
YOU CAN SEE THESE ARE SLIGHTLY MORE VOLATILE THAN THIS FAR LEFT BAR.
YOU KNOW, PC PRICES RANGE FROM 10 TO $140 PER KILOWATT YEAR.
AND AGAIN, THAT'S DRIVEN BY THE FACT THAT THE PRICE CAP IS BOUNCING UP AND DOWN PRETTY, PRETTY SUBSTANTIALLY.
THE REASON IT'S BOUNCING UP AND DOWN IS BECAUSE IT'S COUNTERACTING THE ENERGY MARKET.
YOU KNOW, IN YEARS WHERE ENERGY PRICES ARE VERY LOW, PC PRICES ARE HIGH AND VICE VERSA.
AND BECAUSE THESE ARE INVERSELY CORRELATED WITH EACH OTHER WHEN YOU ADD THEM TOGETHER TO CREATE A TOTAL SYSTEM COST, THAT'S WHAT THE FAR RIGHT SET OF BARS IS SHOWING AND IT'S SHOWING VERY LOW, RELATIVELY LOW VOLATILITY OF TOTAL SYSTEM COSTS.
AND YOU KNOW, WE HAVE A COUPLE SLIDES TOO ON WHAT THIS MEANS FOR MARGINS FOR INDIVIDUAL RESOURCES, BUT IT'S ALSO MUCH MORE STABLE MARGINS FOR INDIVIDUAL RESOURCES, WHICH CREATES A LOT MORE ESSENTIALLY CERTAINTY FOR INVESTMENT AND ATTRACTIVENESS OF INVESTING INTO THE MARKET.
AND THEN MAYBE ONE, ONE MORE SLIDE BEFORE WE PAUSE FOR QUESTIONS.
IF WE GO TO THE NEXT SLIDE, THERE'S ALSO THIS QUESTION OF EXACTLY HOW DO YOU ALLOCATE NET CONE TO THE DIFFERENT SEASONS? SO AGAIN, WE HAVE THIS ILLUSTRATIVE BAR ON THE LEFT, YOU KNOW, THE TOTAL HEIGHT OF THAT IS THE IS CONE, RIGHT? WHICH IS HOW MUCH A COMBUSTION TURBINE NEEDS TO EARN.
LET'S ASSUME THEY EARN $22.90 PER KILOWATT YEAR AND THE ENERGY MARKETS, THAT MEANS THEIR LEFT WITH A DEFICIT OF $80, WHICH IS THEIR NET CONE.
THAT'S WHAT THEY NEED TO EARN IN THE RELIABILITY MARKET OR THE PCM MARKET.
SO THE QUESTION IS HOW DO YOU ALLOCATE THAT TO THE DIFFERENT SEASONS? AND WHAT WE PROPOSED HERE IS AN EX POST ALLOCATION WHERE YOU ACTUALLY LOOK BACK AT THE YEAR AND SAY, OF WHAT HOURS IN THE YEAR DID THE TIGHTEST ACTUAL HOURS OCCUR? AND THEN I'M GONNA ALLOCATE VALUE BASED ON THAT PROPORTION.
AND SO WHAT YOU GET IS ESSENTIALLY, YOU KNOW, SAYING SUMMER GETS SOME PERCENTAGE OF NET CONE, WINTER GETS SOME PERCENTAGE OF NET CONE AND THEN THOSE MULTIPLIERS CREATE THE PRICE CAP FOR EACH OF THE DIFFERENT SEASONS.
AND THE, SO YOU HAVE FOUR DIFFERENT DEMAND CURVES THAT ARE SHOWN ON THE RIGHT, RIGHT? THE SUM OF THOSE ALTOGETHER EQUAL NET CONE, BUT THE VALUE IS DISTRIBUTED DIFFERENTLY ACROSS THE DIFFERENT SEASONS.
SO I REALIZE THAT WAS A LOT, BUT WE'LL PAUSE HERE FOR SOME REACTIONS.
MY QUESTION'S BACK ON, UH, SLIDE 41, UM, I THINK IT WAS TO DESIGN PRIMARY NUMBER 11.
SO I, I THINK I UNDERSTOOD THE ARGUMENT ON X AND ANTE.
UM, I THINK YOU SAID IT WAS SOMETHING YOU CAN DETERMINE RELATIVELY EAS OR THE WAY YOU DETERMINE IT DOESN'T REALLY MATTER IF YOU DO BEFORE OR AFTER IS CAN BE RELATIVELY THE SAME ANSWER.
I I THINK THAT'S WHAT I HEARD.
UM, YOU CONFIRM THAT I GUESS IS MY FIRST QUESTION.
I THINK RIGHT, BECAUSE IT'S, I THINK THE, THE QUESTION IS LIKE ONCE YOU GO THROUGH AN ACTUAL YEAR, LIKE WHAT DOES THAT TELL YOU ABOUT MUCH? IT DOESN'T REALLY TELL YOU MUCH BECAUSE IT'S JUST ONE YEAR, RIGHT? AND SO, RIGHT.
SO I GUESS THE FOLLOW UP IS WHAT WOULD HAVE TO CHANGE, WHAT WOULD HAVE TO HAPPEN IN THAT YEAR FOR IT TO BE SOMETHING THAT YOU HAVE TO RE UH, REEVALUATE OR ANYTHING LIKE THAT? LIKE A CHANGE IN POLICY, LIKE IF THE RELIABILITY
[04:45:01]
STANDARD CHANGE OR SOMETHING LIKE TO THAT LEVEL OR IS THERE SOMETHING ELSE THAT WOULD HAPPEN? RIGHT.I THINK THE, CERTAINLY A CHANGE IN THE RELIABILITY STANDARD WOULD ABSOLUTELY IMPACT TOTAL NEED OVER TIME.
YOU KNOW, THE, JUST THE GROWTH IN LOADS IS GONNA IMPACT RELIABILITY, NEED THE PORTFOLIO IS GONNA IMPACT THE NEED BECAUSE THAT IMPACTS THE HOURS THAT ARE DETERMINING THE NEED.
BUT THAT KIND OF ALL HAPPENS NATURALLY AND SO, YEAH.
AND, AND THEN I GUESS A BIGGER QUESTION IS IN, IN THE, THE POSITION OF XNT VERSUS X POST, I THINK IT FEELS LIKE MOST OF THESE ARE EX POSTS AND THEY ALWAYS MAKE A LOT OF SENSE.
UM, CAN YOU SPEAK TO THE IMPACT OF X AND T VERSUS X POST TO THE FORWARD MARKET? I KNOW THAT THERE'S GONNA BE PROBABLY A LOT OF, UH, POSITIONS THAT ARE TAKEN IN THE FORWARD MARKET THAT ARE EASIER TO DECIDE IF YOU DECIDE EVERYTHING UPFRONT VERSUS GO THROUGH THE YEAR.
UM, SO CAN YOU HELP ME UNDERSTAND THAT, SPEAK TO THAT A LITTLE BIT? SO, YEAH, I MEAN IT'S A GOOD QUESTION IF, IF WE GO BACK TO SLIDE 43.
SO CERTAINLY THIS IS SOMETHING THAT I THINK THOSE THAT ARE PARTICIPATING IN THE FORWARD MARKET ARE GONNA NEED TO WRAP THEIR HEAD AROUND THIS, RIGHT? THE, YOU KNOW, I, I DON'T THINK IT'S TOO, YOU KNOW, UNCERTAINTY ABOUT WHAT WILL HAPPEN IN THE REAL TIME MARKET ALREADY EXISTS TODAY, RIGHT? PEOPLE MAKE ENERGY HEDGES NOT KNOWING IF ENERGY'S GONNA CLEAR AT 10 OR A THOUSAND DOLLARS.
SO, YOU KNOW, THE MARKET, THE MARKET IS CAPABLE OF DEALING WITH UNCERTAINTY.
I THINK WHAT WE'RE SHOWING HERE IS THAT IF YOU, IT KIND OF LIKE ROBBING PETER TO PAY PAUL IF YOU, YOU KNOW, SET EVERYTHING IN ADVANCE, LIKE MAYBE YOU CAN GET CERTAINTY IN THE PC PRICE AND MAKE THAT EASIER TO HEDGE, BUT OVERALL YOU'RE GONNA HAVE A HIGHER SYSTEM COST VOLATILITY.
SO MORE VOLATILITY IN PC COULD ACTUALLY MITIGATE SYSTEM VOLATILITY.
AND SO IF YOU'RE DOING A COMBINED HEDGE OF BOTH, LIKE YOU ACTUALLY HAVE MORE CERTAINTY WITH THE EXPOST APPROACH AS LONG AS YOU'RE HEDGING BOTH TOGETHER AND SO BUNDLED PRODUCTS THAT KIND OF LOOK AT THOSE TOGETHER, YOU KNOW, PROBABLY WILL BECOME MORE ATTRACTIVE.
IF YOU GO BACK TO THE PREVIOUS LINE, NO, THE ONE BEFORE THE WHERE YOU LIST ALL THE
SO I THINK 11 OF COURSE EX ANTI MAKES THE MOST SENSE AS YOU WERE DESCRIBING, BUT 14 IT SEEMS TO DO EXACTLY THE OPPOSITE.
YOU'RE DOING X POST, WHICH DOESN'T MAKE ANY SENSE.
I MEAN TO ME, IF YOU'RE DOING THAT 11 X ANTI, THIS SHOULD ALSO BE X ANTI YEAH.
'CAUSE THAT'S WHAT REFLECTS THE RISK.
AND THAT IS ONE THAT, YOU KNOW, WE PROBABLY 51% LANDED ON THAT RELATIVE TO THE OTHER ONE.
SO I THINK THAT MIGHT BE SOMETHING WE WANNA LOOK AT.
THE OTHER IS, YOU KNOW, THE NET NET CONE DETERMINATION, I DON'T THINK IT NEEDS TO BE BINARY EXI OR EXPOST.
I THINK WHAT WE CAN DO IS, YOU KNOW, EXI MAYBE TRY TO RECOVER SOME AMOUNT AND THEN TRUE IT UP AT THE END OF THE YEAR EXPOST, BECAUSE EXPOST HAS THE BENEFIT OF STABILIZING REVENUES AND THE BENEFIT OF EX ANDANTE IS YOUR CREDIT PROVISIONS AND HOW YOU CHARGE AND STUFF.
YOU KNOW, IT REALLY HELPS WITH THAT.
IF YOU CAN COVER, LET'S SAY WE TARGET, WE'LL COVER 50% OR 80% OF WHAT'S GONNA BE EXPOSED, OUR ESTIMATION OF THAT, UM, THAT WOULD REALLY HELP WITH, I THINK THIS, WE TALK ABOUT BILLIONS OF DOLLARS.
I MEAN WE, I'M ASSUMING IT'S NOT GOING, UH, CHARGED TO LSCS AT THE END OF THE YEAR OF $10 BILLION, YOU KNOW, COMING ALL AT ONCE.
IT'S GONNA BE HAVE TO BE SPREAD OVER TIME.
UH, SAME THING WITH THE GENERATION REVENUE.
SO, UM, YEAH, SO I, I DON'T THINK WE NEED TO BE, UH, WE CAN LOOK AT A COMBINATION IN NOT JUST X ANTI AND X POST, BUT SOMETHING WHERE WE DO AN EXPO TRUER, YOU KNOW, UH, DO SOME X ANTI CHARGE AND MAYBE AS WE GO THROUGH THE YEAR WE, WE SEE WE'VE REACHED OUR LIMIT, WE STOP CHARGING ANYMORE OR PAYING OUT THOSE PIECES.
SO SOMETHING WHERE WE ARE MORE CREATIVE THAN RATHER A BINARY CHOICE.
YEAH, I MEAN THAT'S AN VERY, THAT'S AN INTERESTING IDEA.
AND ALSO ON THE DEMAND CURVE, YOU KNOW, SO IF WE'RE DOING IT EX POST, UM, YOU KNOW, THE CONE NET CONE AND STUFF, IF THE LLE IS BELOW OUR, OUR REQUIRED AMOUNT, IF WE'RE DOING THE EXPOSE, WE CAN JUST SET IT AT NET CONE RIGHT? FOR THAT YEAR.
WE REALLY DON'T NEED TO LOOK UP THE, THE DEMAND CURVE AT THAT POINT AS TO HOW MANY, NO MATTER WHAT THE PCS ARE, THE PCS WOULD BE ALLOCATED THE NET CONE VALUE WE DO THAT WAY.
DO WE NEED A CURVE FOR THAT? YEAH, I MEAN I THINK,
[04:50:03]
I THINK ONE OF THE THINGS THAT WE THINK ABOUT IS MAKING SURE THAT, YOU KNOW, NOT KNOWING IF WE'RE IN AND OUT OF OUR CU ROOM, THIS NEEDS TO WORK THROUGHOUT ALL.SO LIKE THE DEMAND CURVE IS NEEDED FOR THAT REASON.
BUT I THINK TO YOUR POINT, IF YOU'RE IN A SYSTEM THAT IS SHORT, THEN BY DEFINITION YOU'RE GONNA BE TO THE LEFT OF THE, THE MAN CURVE, WHICH PRETTY MUCH MEANS YOU'RE GONNA BE AT THE COP.
SO YOU'RE PRETTY MUCH GONNA BE CLEARING AT THE CAP.
AND TO YOUR POINT, THE ONLY DIFFERENCE THAT WOULD MAKE IF YOU'RE DOING EXPOSED IS OKAY, HOW MUCH MONEY THEY MAKE IN THE ENERGY AND AS MARKETS, IS THAT ENOUGH OR SHOULD WE INCENT ADDITIONAL MONEY TO INCENT ENTRY AND MAKE SURE WE GET BACK TO A TARGET? RIGHT? BUT YEAH, THAT CAN JUST BE CONONE.
NEXT IN THE QUEUE WE'VE GOT JEFF BURMEISTER.
UM, JUST CURIOUS TO HEAR A LITTLE MORE DETAIL ON WHAT IS, I GUESS WHAT FACTORS ARE GOING TO GO INTO EVALUATING SLOPE.
UM, SO RIGHT NOW I THINK THE INDICATIVE VALUES YOU HAVE HERE, LIKE THE 98%, UH, OF THE REQUIREMENT KINK DOWN FROM THE MAXIMUM PRICE AND THEN THE 108% ZERO POINT.
UM, I GUESS I'M JUST CURIOUS TO HEAR MORE YOUR, YOUR PLANNED APPROACH FOR EVALUATING THE, THE TRADE OFFS ASSOCIATED WITH THAT SLOPE.
YEAH, SO I THINK ONE THING THAT IS GONNA BE PARTICULARLY INFORMATIVE FOR LOOKING AT SLOPE IS HOW THE DESIGNS PERFORM OUT OF EQUILIBRIUM.
SO A MORE STEEP SLOPE WILL HAVE MORE VOLATILITY WHEN YOU'RE SLIGHTLY OUT OF EQUILIBRIUM OR POTENTIALLY EVEN FOR A SYSTEM IN EQUILIBRIUM, KNOWING THAT SUPPLY IS NOT CONSTANT EVERY YEAR, JUST MORE VOLATILITY OF PRICE ANYWAY.
SO VOLATILITY WOULD BE THE BIG, BIG FACTOR THERE.
AND THAT'S WHY, THAT'S WHY FROM A QUANTITATIVE METRICS PERSPECTIVE, WE'RE WE'RE NOT ONLY LOOKING AT ANNUAL AVERAGE PRICE, BUT ALSO VOLATILITY.
SO I THINK THAT'S, YEAH, THAT'S THE BIG, BIG CHANGE THERE.
UH, AND I GUESS I'M JUST CURIOUS AND APOLOGIZE, I'M A BROKEN RECORD HERE, BUT GOING BACK TO, IF YOU GO TO THE SEASONAL ALLOCATION OF I GUESS WHAT I'LL CALL NET CONE, UM, I'M TRYING TO FIND A SLIDE NUMBER ON THAT.
IT WAS A FEW SLIDES UP 44 WHERE BASICALLY YOU HAD NET CONE THAT'S ALLOCATED BY YEAH.
SO HERE THE IDEA IS YOU ALLOCATE NET CONE BASED ON TIGHTEST MARGIN HOURS, THAT'S 30 HOURS IN A YEAR.
BUT THEN HOW DOES THAT RECONCILE WITH WHAT SOUNDED LIKE IT WAS GOING TO BE ALMOST AN ADMINISTRATIVE MINIMUM NUMBER OF DEFINED PC HOURS WITHIN EACH SEASON? RIGHT? SO BASICALLY WHAT THIS IS SAYING IS THE PERFORMANCE CREDIT THAT A RESOURCE EARNS IN EACH SEASON IS BASED ON THE NUMBER OF PREDETERMINED HOURS FOR THAT SEASON.
SO IT COULD BE A HUNDRED HOURS IN EACH SEASON, RIGHT? AND IT'S LIKE THE AVERAGE AVAILABILITY OF EACH RESOURCE DURING THOSE TOP A HUNDRED HOURS DETERMINES THEIR ACCREDITATION.
BUT THIS IS THEN SAYING, IF YOU LOOK NOW, LET'S FORGET ABOUT THOSE A HUNDRED HOURS AND WE SAY HOW MUCH VALUE IS ASSIGNED TO EACH SEASON.
IF WE LOOK BACK THROUGH THE YEAR AND SAY, WHAT WERE THE TIGHTEST HOURS? OH, 14 OF THE TOP 30 HOURS WERE IN THE SUMMER, SO HALF OF THE ANNUAL VALUE IS GONNA BE SHOVED INTO THE SUMMER.
AND THEN THEN THE THEN FOR, BUT THEN FOR SUPPLY, WE'RE LOOKING AT WHAT WAS THE AVAILABILITY OF THOSE A HUNDRED HOURS IN THE SUMMER.
BUT IT'S JUST FOR ALLOCATING THE VALUE AS THE THOSE HOURS, WHY WOULDN'T THE HOURS THAT ARE RECOGNIZED AS PC HOURS IN EACH SEASON JUST BE BASED ON THE SAME DEFINITION AS THE DISTRIBUTION OF THE TIGHTEST 30 HOURS IN A GIVEN YEAR RATHER THAN SETTING THAN SAY, YOU KNOW, IF YOU HAVE A MINIMUM OF 30 HOURS IN EACH SEASON, YOU'RE KIND OF, YOU'RE, YOU'RE THEN COMPENSATING GENERATORS FOR SEASONAL PERFORMANCE IN A SPRING HOUR THAT FRANKLY DOESN'T MATTER RELATIVE TO, YOU KNOW, AND THEN, AND THEN UNDER I, WHAT I WOULD ARGUE IS UNDER COMPENSATING GENERATORS FOR PERFORMANCE DURING A SUMMER HOUR.
YEAH, I MEAN IF YOU'RE TAKING, SORRY.
SO WHEN YOU SAY WHY WOULDN'T YOU, I MEAN, I GUESS YOU COULD DO THAT, THAT'S NOT THE DEFAULT PROPOSAL, BUT YOU COULD, YOU KNOW, AT, AT SOME POINT THOUGH, IF YOU DO EVERYTHING BASED ON THE WHOLE YEAR, YOU'RE KIND OF BACK AT AN ANNUAL APPROACH.
AND SO I, BUT I WOULDN'T SAY THERE'S A NECESSARILY
[04:55:01]
A REASON THAT YOU COULDN'T DO WHAT YOU'RE DESCRIBING.I DON'T THINK IT WOULD MAKE THAT BIG OF A DIFFERENCE.
I MEAN, I THINK THAT'S ONE OF THE TAKEAWAYS THAT THE DEFINITION OF SEASONS AND THE NUMBER OF HOURS IN EACH SEASON ARE ONE OF THE LESS IMPACTFUL PARAMETERS THAT WE'RE SEEING IN OUR INITIAL ANALYSIS.
SO I THINK YOU COULD DO THAT, BUT YEAH.
NEXT IN THE QUEUE WE'VE GOT JOHNNY CARLOCK.
SO MY QUESTION IS DIRECTED TO SLIDE 43 AND BASICALLY WHAT, WHAT I, IF YOU COULD JUST SORT OF CLARIFY A LITTLE BIT, UH, IN EX POST, UH, WHERE YOU TALK ABOUT RELATIVELY HIGHER PC PRICE VARIABILITY, IS THAT BOTH SEASONAL AND JUST THE PRICE BASED ON THE LOOK BACK, AS OPPOSED TO HAVING A, A MORE STABLE WITH THE X ENTITY? UH, I WANNA MAKE SURE I UNDERSTAND WHAT THAT VARIABILITY IS IN THE PRICE, RIGHT? THAT IS THE, THAT'S THE ANNUAL NET CONE THAT'S INJECTED BACK INTO THE MARKET AND THAT IS THEN ALLOCATED, THAT'S THEN BROKEN UP INTO DIFFERENT SEASONS.
BUT IF YOU ADD ALL THOSE SEASONS TOGETHER, THAT'S THE TOTAL AMOUNT OF NET CONE MONEY THAT'S INJECTED BACK PER KILOWATT YEAR.
SO, AND THE REASON IT'S HIGHER VOLATILITY IS BECAUSE THE PRICE CAP IS BOUNCING UP AND DOWN AS OPPOSED TO BEING STABLE AT A SET PRESET VALUE.
BUT, BUT IF THAT'S EXACTLY WHAT OCCURRING IS OCCURRING, WHY WOULD WE WANT TO SHALL AWAY FROM THAT? OR, OR WHAT IS THE NEGATIVE? WHAT IS THE WHAT? SORRY.
I I'M SAYING IF IT'S TRULY VARIABLE BECAUSE OF WHAT'S HAPPENING, WHY WOULD THAT BE CONSIDERED A NEGATIVE? I I, I'M TRYING TO UNDERSTAND WHY I, I DON'T SEE THE, THE NEGATIVITY IN THAT HIGHER VARIABILITY IN THE PC.
YEAH, IF YOU'RE KEEPING THE OVERALL COST, I, I DON'T THINK WE'RE SAYING THAT IS NEGATIVE, I THINK OKAY.
WE'RE WE'RE SAYING THAT IN FACT THAT VOLATILITY IS WHAT ACTUALLY ALLOWS MORE COUNTERBALANCE WITH ENERGY PRICES AND, AND CONTRIBUTES TO LOWER SYSTEM PRICE VOLATILITY.
YEAH, THERE HAS BEEN SOME COMMENTS ABOUT, YOU KNOW, THE MORE VARIABILITY THAT A PRO SINGLE PRODUCT HAS, THE HARDER IT IS IS TO HEDGE THAT SINGLE PRODUCT.
SO I THINK THAT IS FACTUALLY TRUE, BUT I I, I WOULDN'T SAY THAT WE WOULD HAVE A POSITION ON WHETHER THAT'S POSITIVE OR NEGATIVE.
NEXT IS REMI, UM, THE, THE DIFFERENT SEASONALITY WHEN YOU SPLIT IT, UM, YOU ARE ALLOCATING THE, UM, UH, DEMAND CURVE BASED ON THE PROBABILITY IF IT ACTUALLY HAPPENED, THEN IT WOULD EVENTUALLY BE EQUAL AND TO ANNUAL, RIGHT? SO SHOULDN'T IT BE DONE BASED ON YOUR STUDY TO SAY WHICH SEES AND HAS THE ISSUES? I THINK THAT, YEAH, THAT'S, IT'S, THAT IS LIKELY SOMETHING THAT WE'D WANT TO INVESTIGATE.
I DON'T KNOW THAT WE'RE IN A POSITION YET TO SAY WHAT SHOULD BE DONE, BUT I THINK IT'S, I THINK THAT IS A YEAH.
PARAMETER THAT WE'LL WANT TO INVESTIGATE.
IF YOU DO IT AFTER THE FACT, IT'LL END UP BEING EQUAL AND TO AN ANNUAL.
AND I THINK IT MAKES SENSE TO HAVE THE FOUR SEASONS WITH THE PROBABILITY ABILITY TO CHANGE ALLOCATE YES.
DIFFERENTLY BECAUSE YES, THINGS COULD CHANGE.
YES, I WILL, I WILL SAY I DON'T THINK IT'S QUITE EQUIVALENT TO AN ANNUAL CONSTRUCT JUST BECAUSE, YOU KNOW, BOTH OF THE, YOU STILL HAVE THE SEASONAL DIFFERENCES THAT MITIGATE THE VOLATILITY WITHIN EACH SEASON.
AND I GUESS JUST A GENERAL COMMENT ON THE QUALITY OF THE SLIDES.
THANK YOU FOR, CLEARLY YOU PUT A LOT OF WORK IN IT.
IT'S, IT'S DENSE, BUT IT DOES A PRETTY GOOD JOB OF, UH, EXPLAINING THE CONCEPTS HERE.
I THINK WE WOULD, GOING BACK TO THE POINT WE WERE TRYING TO MAKE ABOUT MAKING SURE THAT MOST OF THE VALUE IN THE SUMMER, IN THE WINTER, LIKE THE DIALS HERE, WE COULD KIND OF TURN DOWN THE ALLOCATION OF THE FALL AND THE SPRING IN TERMS OF HOW THE NET CONE IS ALLOCATED.
SO I THINK THAT'S SOMETHING WE WOULD PROBABLY, UM, ADVOCATE FOR.
UH, MY QUESTION IS IN THE GRAY BOX.
SO WHEN YOU'RE ACTUALLY CALCULATING FOR NET CONE THE ENERGY AND ANCILLARY SERVICE REVENUE, THAT IS FOR THE, A THEORETICAL CT OF THE REFERENCE TECHNOLOGY THAT'S USED TO CALCULATE CONE CORRECT.
OR YOU ACTUALLY MEASURING ACTUAL REVENUES FOR SOME THAT WOULD RESOURCE, THAT WOULD
[05:00:01]
BE ACTUALLY ONCE YOU GO THROUGH THE WHOLE YEAR PEAKER NET MARGIN THAT, SO, SO THAT IS A MEASURABLE VALUE.SO WITH THAT CHANGES YEAR TO YEAR YEAH.
PEAKER PEAKER NET MARGIN USE A 10 HEAT RATE CALCULATES ENERGY MARGIN.
THERE IS NO ANCILLARY SERVICE REVENUE CONTRIBUTION.
HOW WOULD YOU ASSUME, UH, A REFERENCE PEAKER IS EARNING ENERGY PLUS THE ANCILLARIES? SO, OKAY, I MIGHT MODIFY IT IF, IF THERE'S, IF PEAKER NET MARGIN'S NOT THE, IF EXACT APPROPRIATE METRIC TO USE, THEN SOMETHING SIMILAR, OKAY.
THAT'S ACTUALLY MEASURED AND VERIFIABLE THAT HAS A SPECIFIC DECISION ABOUT A HEAT RATE OR PARTICIPATION IN AS ET CETERA.
SO WHEN I GET THROUGH A COUPLE MORE SECTIONS HERE, AND THEN WE'LL PROBABLY TAKE A BREAK, BUT IF WE JUST GO TO THE NEXT SECTION.
SO THIS ONE SHOULD BE PRETTY QUICK.
UH, THIS IS ACTUALLY NOT A SET OF PARAMETERS THAT ARE IMPACTED BY THE MODELING, SO NOT SOMETHING THAT'S INCLUDED, BUT I THINK THE, YOU KNOW, WE WE'RE VERY COGNIZANT OF THIS FACT THAT WE ARE NOT REQUIRING RESOURCES TO BE ONLINE TO EARN PERFORMANCE CREDITS.
AND SO WE DON'T, AND, AND IN OUR EFFORT TO MAKE SURE THAT WE'RE SENDING THE RIGHT SIGNALS, WE DON'T, WE WANNA MAKE SURE THAT WE'RE NOT GIVING PERFORMANCE CREDIT VALUES TO SORT OF INOPERABLE OR PHANTOM CAPACITY RESOURCES.
AND SO ONE WAY IN WHICH WE'RE ATTEMPTING TO AMELIORATE THAT ISSUE IS THROUGH TESTING REQUIREMENTS.
SO A RESOURCE IS, HAS TO ONE, DEMONSTRATE THAT IT CAN PASS A HIGH SUSTAINED LIMIT PERFORMANCE TEST, AND TWO CAN PASS IMPROMPTU STARTUP REQUIREMENTS THAT ERCOT CAN SURPRISE CALL ON THE RESOURCE, WHICH IN OTHER WORDS, IF A RESOURCE IS, SAYS IT'S AVAILABLE, ERCOT CAN CALL IT UP AND SAY, OKAY, TURN ON, YOU HAVE HOWEVER MUCH TIME IT TAKES YOU TO TURN ON AND, AND THAT'S WHAT YOU NEED TO DO.
AND IF IT CAN'T PASS THAT TEST, THEN YOU KNOW, TBD ON EXACTLY WHAT THE PENALTY IS, BUT IT LIKELY WOULD NOT BE ABLE TO EARN PERFORMANCE CREDITS IN THAT YEAR.
SO I THINK THAT'S SOMETHING, SOMETHING TO HELP KEEP THIS TECHNOLOGY NEUTRAL AND MAKING SURE THAT RESOURCES, THE PERFORMANCE CREDITS THAT THEY EARN ARE CONSISTENT WITH THE ACTUAL RELIABILITY VALUE THAT THEY CAN PROVIDE TO THE SYSTEM.
OKAY, THE SLIDE, EVERYONE'S BEEN WAITING FOR NET COST CAP.
SO GONNA WALK THROUGH THE DECISIONS THAT NEED TO BE MADE AROUND A NET COST CAP.
SO THE FIRST, AS WE LAID OUT IN THE WHITE PAPER, AND AGAIN, A LOT OF THE RESULTS THAT WE'VE BEEN SEEING TODAY ARE BASED ON A DEFAULT DESIGN DECISION OF INTERPRETING THE NET COST CAP TO BE AN AVERAGE ANNUAL NET COST CAP.
AND THE REASON FOR THAT IS BECAUSE WE HAVE BEEN WORKING ON THIS FOR LONGER THAN THE COMMISSION, UH, WEIGHED IN ON THIS TOPIC A FEW WEEKS AGO AND THEY RULED THAT THE COST CAP WILL BE INTERPRETED AS AN ABSOLUTE ANNUAL COST CAP.
SO I WANT TO KIND OF, WE WE'RE, WE WILL TALK A LITTLE BIT ABOUT WHAT, WHAT DOES THAT EVEN MEAN, AN AVERAGE ANNUAL VERSUS, UH, ABSOLUTE ANNUAL.
BUT NEEDLESS TO SAY, WE ARE LISTING HERE AN ABSOLUTE ANNUAL AS BEING REQUIRED BASED ON GUIDANCE FROM THE COMMISSION ON THAT TOPIC.
SO THERE'S SORT OF ONE, ONE DESIGN DECISION IN TERMS OF, YEAH, HOW, HOW IS THE COST CAP INTERPRETED? IS IT AN AVERAGE ANNUAL OR AN ABSOLUTE ANNUAL? THE SECOND IS, HOW DO YOU EVEN ENSURE COMPLIANCE WITH THE NET COST CAP? IN OTHER WORDS, WHAT FRAMEWORK DO YOU USE AND HOW DO YOU MODEL, YOU KNOW, WHAT THE ACTUAL NET COST ACTUALLY IS REALIZED TO BE.
AND THEN NUMBER 21 HERE, THIS FINAL ONE IS, YEAH, HOW DO YOU DISTRIBUTE IF YOU'RE GONNA HAVE TO REDUCE PERFORMANCE CREDIT PAYMENTS TO RESOURCES BECAUSE THERE'S A LIMIT ON HOW MUCH CAN BE INJECTED FROM THROUGH PERFORMANCE CREDITS BECAUSE THE NET COST CAP, HOW IS THAT DONE TO THE DIFFERENT SEASONS? AND THIS ONE'S ACTUALLY RELATIVELY SIMPLE, WE'RE JUST SAYING THAT THE D RATE IS PROPORTIONAL IN EACH SEASON.
SO IT'S NOT LIKE ONE SEASON GETS DINGED MORE THAN ANOTHER SEASON, HOWEVER, YOU WERE PREVIOUSLY ALLOCATING VALUE TO THE SEASONS, YOU'RE JUST PROPORTIONATELY DE-RATING VALUE THAT GOES TO EACH SEASON.
SO IF WE GO TO THE NEXT SLIDE, KIND OF WANT TO TALK A LITTLE BIT ABOUT, YOU KNOW, HOW TO THINK ABOUT WHAT THIS NET COST CAP EVEN IS AND, AND, AND HOW IT CAN BE MEASURED.
[05:05:01]
COST CAP, RIGHT? WHAT IT'S COMPARING A BASELINE TO IS A WORLD WITHOUT PCM WORLD, WITHOUT THE PERFORMANCE CREDIT MECHANISM.AND IF YOU DON'T HAVE A PERFORMANCE CREDIT MECHANISM, YOU HAVE AN ENERGY ONLY MARKET.
AND IN THE LONG RUN YOU EXPECT THAT MARKET TO BE AN EQUILIBRIUM.
AND THE COSTS OF THAT SYSTEM ARE WHAT'S SHOWN IN THE FAR LEFT BAR, RIGHT? THE DISTRIBUTION OF COSTS ACROSS AN ENERGY ONLY MARKET WITH NO PCM THAT'S IN EQUILIBRIUM.
SO RESOURCES ARE EARNING THEIR COSTS.
YOU CAN SEE HERE THAT YOU KNOW, THIS RED BAR IN THE MIDDLE REPRESENTS AVERAGE ANNUAL COSTS ABOUT $21 BILLION PER YEAR.
BUT THERE'S A LOT OF YEAR TO YEAR SYSTEM COST VOLATILITY RANGING FROM, YOU KNOW, BELOW 15 BILLION TO 50 BILLION PER YEAR.
IF YOU ADD, IF YOU ADD A BUNCH OF CAPACITY THROUGH SOME MECHANISM LIKE PCM, YOU'VE REDUCED SCARCITY, YOU LOWER ENERGY COSTS.
SO WHAT THIS SECOND SET OF BARS IS SHOWING IS FOR A SYSTEM THAT'S AT A RELIABILITY STANDARD OF 0.1, WHAT IS THE VARIABILITY OF ANNUAL SYSTEM COST? UNSURPRISINGLY, FIRST COSTS HAVE COME DOWN BECAUSE YOU'VE TAKEN YOUR ENERGY ONLY SYSTEM, YOU'VE ADDED A BUNCH OF CAPACITY TO IT.
THAT'S THE ONLY THING THAT'S CHANGED.
IF YOU ADD CAPACITY TO ANY SYSTEM, YOU REDUCE SCARCITY LOWER COSTS.
SO UNSURPRISINGLY, COSTS HAVE COME DOWN, BUT ALSO VOLATILITY HAS COME DOWN AS WELL.
AND THAT'S BECAUSE PRIMARILY YOU'VE REDUCED THE HIGHEST SCARCITY YEARS IN THE YEARS WHERE A BUNCH OF SCARCITY WAS OCCURRING, YOU HAVE LOWERED COSTS.
SO IF YOU COMPARE THESE TWO TO EACH OTHER, YOU SEE THAT, UH, WE'VE REDUCED BY THIS INCREASED CAPACITY HAS REDUCED COSTS A LOT IN SOME YEARS, POTENTIALLY REDUCING COSTS BY $30 BILLION, RIGHT? ON THE HIGH END, ON AVERAGE IT'S REDUCING COSTS BY ABOUT $5 BILLION PER YEAR.
BUT A RANGE, IT'S COST REDUCTIONS IN ANY GIVEN YEAR RANGE FROM LIKE $0, CLOSE TO $0 TO UP TO $30 BILLION PER YEAR.
SO THE FIRST MOST IMPORTANT POINT ABOUT THINKING ABOUT A NET COST CAP IS THAT IT'S RECOGNIZING THAT THIS, ALL THIS INCREMENTAL PCM CAPACITY HAS TO GET TO THE RELIABILITY STANDARD, HAS REDUCED ENERGY SYSTEM COSTS SUBSTANTIALLY.
AND SO IF YOU'RE INJECTING MONEY BACK INTO THE MARKET, YOU CAN ACTUALLY INJECT ALL OF THAT MONEY THAT HAS BEEN REDUCED PLUS A BILLION DOLLARS.
THAT'S WHAT THE NET COST CAP MEANS.
IT DOESN'T MEAN THAT PCM CAN PAY ONLY $1 BILLION GROSS PER YEAR.
IT MEANS THAT PCM CAN PAY HOWEVER MUCH ENERGY COSTS HAVE BEEN REDUCED PLUS A BILLION DOLLARS.
SO IF WE LOOK AT, UM, OUR DEFAULT SET OF ASSUMPTIONS FOR, UM, WHAT, HOW MUCH PCM IS CHANGING COSTS, AGAIN, OUR DEFAULT SET OF ASSUMPTIONS, WHICH WAS DEVELOPED BEFORE COMMISSION GUIDANCE ON THIS SUBJECT ASSUMES THIS NET COST CAP IS IMPLEMENTED ON AN AVERAGE ANNUAL BASIS.
THAT MEANS ON AVERAGE COSTS CANNOT BE A BILLION DOLLARS HIGHER THAN THEY WOULD'VE BEEN, BUT IT MEANS IN SOME YEARS YOU CAN HAVE COSTS THAT ARE HIGHER THAN A BILLION DOLLARS IN SOME YEARS YEARS, YOU CAN HAVE COSTS THAT ARE MUCH LOWER THAN A BILLION DOLLARS.
SO WHAT THIS SECOND TO LAST SET OF BARS IS SHOWING IS ONCE YOU ADD IN PCM COSTS, WHAT IS THE TOTAL VARIABILITY OF SYSTEM COSTS? THAT MEANS ENERGY COSTS PLUS PCM COSTS.
AND SO FUNDAMENTALLY COMPARING THE NET COST OF PCM, THE TWO BARS THAT ARE RELEVANT TO COMPARE HERE ARE THE TOTAL PCM COST BAR, WHICH IS THE SECOND FROM THE LAST, WHICH IS THE TOTAL SYSTEM COST WITH P EXCUSE ME, WITH PCM COMPARED TO THE VERY FIRST BAR, WHICH IS THE ENERGY ONLY MARKET.
AND WHAT YOU CAN SEE IF YOU COMPARE THOSE BARS IS THAT IN MANY YEARS COSTS ARE SIGNIFICANTLY LOWER, RIGHT? WE NO LONGER HAVE ANY $50 BILLION YEARS IN PCM WORLD, BUT WE ALSO NO LONGER HAVE ANY VERY LOW COST YEARS IN PCM WORLD.
WHY? BECAUSE IN YEARS WHERE IN THE ENERGY ONLY MARKET, YOU HAVE SOME YEARS THAT ARE VERY MILD AND COSTS ARE VERY LOW.
AND AS WE'VE ALREADY ESTABLISHED, THE PCM IS DESIGNED SUCH THAT WHEN ENERGY PRICES ARE LOW, PCM PRICES ARE HIGH AND VICE VERSA.
SO WHAT YOU GET WHEN YOU COMPARE THESE TWO SYSTEMS TO EACH OTHER,
[05:10:01]
YOU CAN CALCULATE IN EACH YEAR WHAT THE DIFFERENCE IS.AND THE NET COST IS WHAT'S SHOWN IN THE FAR RIGHT SET OF BARS.
SO THIS IS A DISTRIBUTION OF NET COSTS, WHICH IN OTHER WORDS IS COMPARING THE SECOND FROM LAST SET OF BARS WITH THE VERY FIRST SET OF BARS, WHICH IS ENERGY ONLY.
AND WHEN YOU COMPARE EACH YEAR TO EACH OTHER, YOU CAN SEE WHAT THE DIFFERENCE IN COST IS WITHIN A GIVEN YEAR.
THE MOST IMPORTANT BAR IN THIS IS THE RED BAR, WHICH IS RIGHT IN THE MIDDLE.
AND IN FACT IT'S ABOUT $0.2 BILLION, WHICH MEANS ON AVERAGE PCM INCREASES SYSTEM COSTS BY $0.2 BILLION.
BUT THAT'S OBVIOUSLY NOT THE WHOLE STORY.
THERE'S ANNUAL PCM COSTS VERY SIGNIFICANTLY AROUND THAT AVERAGE.
SO YOU CAN SEE THAT IN SOME YEARS ON THE HIGH END, PCM COSTS CAN HAVE A NET COST OF CLOSE TO $5 BILLION AND SOME IN SOME YEARS PCM ACTUALLY CAN BE REDUCING SYSTEM COSTS BY CLOSE TO $30 BILLION.
SO HOW DOES, YEAH, HOW CAN PCM REDUCE COST BY $30 BILLION? WELL, WHAT THAT IS REPRESENTING IS THAT'S REPRESENTING A YEAR THAT WITHOUT ALL THE ADDITIONAL CAPACITY WOULD'VE HAD TONS OF SCARCITY PRICING.
BUT BECAUSE THERE'S ADDITIONAL CAPACITY, THERE'S NOT THE SCARCITY PRICING.
AND PCM IS ONLY INJECTING, YOU KNOW, $5 BILLION.
SO IT'S NOT COMPLETELY COUNTERACTING THE $30 BILLION WORTH OF SCARCITY PRICING REDUCTIONS.
SO OVERALL, IF YOU AVERAGE ALL OF THESE TOGETHER, YOU CAN SEE THAT THERE'S A WIDE ARRAY OF ANNUAL NET CROSS ACROSS THE DIFFERENT YEARS.
SO IF WE GO TO THE NEXT SLIDE, I DO WANNA TALK A LITTLE BIT ABOUT THE PRACTICAL REALITIES OF MEASURING EVERYTHING THAT WE JUST LOOKED AT, WHICH ARE NET COSTS.
IT'S ONE THING TO RIGHT, RUN A MODEL LIKE WE'RE DOING AND HAVE THESE NICE SHADED BARS AND SAY THESE ARE THE RESULTS.
IT'S QUITE ANOTHER THING TO ACTUALLY GO INTO THE MARKET, UH, YEAR AFTER YEAR AND ACTUALLY SAY, WHAT WAS THE NET COST OF PCM IN THIS PARTICULAR YEAR? THE REASON FOR THAT IS BECAUSE WHAT WE CAN DEFINITIVELY MEASURE IN ANY GIVEN YEAR IS WHAT ACTUALLY HAPPENED.
WE CAN MEASURE WHAT WERE THE RESOURCES THAT WERE ON THE SYSTEM, WHAT WERE ENERGY PRICES, WHAT WERE PCM PRICES.
IF YOU WANT TO TRULY CALCULATE THE NET COST OF THAT WORLD, YOU HAVE TO COMPARE IT TO AN ENERGY ONLY WORLD THAT DEFINITIONALLY DOESN'T EXIST.
YOU HAVE TO SAY, YOU HAVE TO MAKE AN ASSUMPTION ABOUT HOW MUCH CAPACITY WOULDN'T HAVE EXISTED.
BUT FOR THE PCM, AND AS TIME GOES ON, THE UNCERTAINTY OF THAT ASSUMPTION GROWS LARGER AND LARGER AND LARGER.
AND IN FACT, THAT ASSUMPTION ABOUT HOW MUCH CAPACITY IS ON THE SYSTEM BECAUSE OF PCM THAT IS DEFINITIVELY ATTRIBUTABLE TO PCM IS, IS, IS AN ENORMOUS ASSUMPTION, IS WOULD INEVITABLY BE THE RESULT OF A VERY COMPLEX MODELING EXERCISE.
AND IT WOULD ALMOST CERTAINLY BE A HIGHLY CONTENTIOUS TOPIC BECAUSE THAT WOULD BE THE PRIMARY DETERMINANT OF WHETHER OR NOT PCM PRICES NEED TO BE REDUCED.
AND IN FACT, E THREE IS NOT AWARE OF ANY ELECTRICITY MARKET PRODUCT IN, IN ANY MARKET THAT IS PRICED BASED ON A COUNTERFACTUAL WORLD THAT DEFINITIONALLY DOES NOT EXIST.
SO AGAIN, I THINK WHAT WHAT WE'RE, WHAT REALLY WHAT WE WANNA GET ACROSS TODAY ARE MAKING SURE THAT THE IMPLICATIONS AND RAMIFICATIONS FOR IMPLEMENTING A NET COST CAP IN PARTICULAR WAYS ARE, ARE FULLY UNDERSTOOD.
AND IT, IT JUST NEEDS, NEEDS TO BE VERY CLEARLY SAID THAT IN A WORLD WHERE YOU ARE MEASURING A NET COST CAP IN EACH YEAR, YOU ARE GOING TO HAVE TO BE COMPARING REAL WORLD ACTUALS TO A COUNTERFACTUAL WORLD THAT DOESN'T EXIST.
[05:15:01]
DETERMINATION OF WHICH WILL BE HIGHLY ASSUMPTION DRIVEN COMPLEX FROM A MODELING PERSPECTIVE AND HIGHLY CONTENTIOUS.AND THIS ALSO NEEDS TO BE CONSIDERED, YOU KNOW, FOR A MARKET THAT IS TRYING TO PRICE A PRODUCT BASED ON ACTUAL DEMONSTRATED PERFORMANCE AS OPPOSED TO MODELING EXERCISES, RIGHT? WHICH IS ONE OF THE REASONS TO AVOID UPFRONT ACCREDITATION OR COMPENSATION BASED ON MODELING RESULTS IN THE FIRST PLACE.
IT IS VERY IMPORTANT TO THINK ABOUT THE RAMIFICATIONS OF PRICING A MARKET THAT IS VERY DRIVEN BY MODELING AND ASSUMPTIONS IN COMPARING TO A WORLD THAT DOESN'T EXIST.
SO WITH THAT SAID, IF WE GO TO THE NEXT SLIDE, UM, YOU KNOW, YOU CAN THINK ABOUT, OKAY, HOW, ASSUMING YOU KNOW, WE COULD MEASURE THESE RESULTS, ASSUMING THERE'S STAKEHOLDER ACCEPTANCE OF THE PROCESS AROUND HOW WOULD WE MEASURE THESE RESULTS.
YOU CAN SAY, OKAY, WELL LET'S JUST IMPLEMENT PCM AND THEN LET'S CALCULATE THE ACTUAL NET COST IN ANY GIVEN YEAR.
AND IF THAT NET COST IS GREATER THAN A BILLION DOLLARS, THEN LET'S JUST REDUCE PAYMENTS SO THAT WE'RE NOT PAYING OUT MORE THAN A BILLION DOLLARS.
AND SO WHAT WE'RE SHOWING HERE IS THE SAME EXACT SET OF BARS THAT WE LOOKED AT PREVIOUSLY EXCEPT ON THE RIGHT.
WHAT WE'VE DONE IS WE'VE JUST LOPPED OFF PAYMENTS IF THEY'RE GREATER THAN A BILLION DOLLARS.
AND SO WHAT IT, WHAT HAPPENS WHEN YOU DO THIS? WELL, WHAT HAPPENS WHEN YOU DO THIS IS THAT NOW ALL OF A SUDDEN THERE'S NOT ENOUGH MONEY BEING INJECTED INTO THE MARKET.
AND THERE'S, BECAUSE WHAT YOU'VE DONE IS YOU HAVE ALL OF THESE YEARS THAT ARE BELOW ZERO, MEANING THE EXTRA CAPACITY THAT'S IN THE MARKET BECAUSE THE PCM IS REDUCING ENERGY PRICES, BUT YOU'RE NOT COUNTERBALANCING THAT WITH HIGHER PAYMENTS DURING OTHER YEARS.
AND SO NET NET THERE'S ACTUALLY LESS MONEY IN THE MARKET THAN IS NEEDED TO SUPPORT ENOUGH RESOURCES TO MAINTAIN A RELIABILITY STANDARD OF ONE DAY IN 10 YEARS.
AND IN FACT, IF YOU'LL RECALL, OUR ENERGY ONLY EQUILIBRIUM HAS A ACHIEVED RELIABILITY OF 3.2 DAYS PER YEAR.
THAT MEANS, ON AVERAGE THREE DAYS PER YEAR HAVE SOME AMOUNT OF LOSS OF LOAD UNDER THE CURRENT ENERGY ONLY MARKET DESIGN.
AND WE'RE TRYING TO TARGET 0.1 DAYS PER YEAR, RIGHT? SO WE'RE, WE'RE SIGNIFICANTLY OUT OF, UH, OUT OF ALIGNMENT IF WE IMPLE IF WE JUST IMPLEMENT EVERYTHING HERE, BUT, BUT CAP PAYMENTS AT A BILLION DOLLARS, THAT BARELY MOVES THE NEEDLE IN TERMS OF RELIABILITY.
THE ACHIEVED RELIABILITY, IF WE JUST TAKE THIS DESIGN HERE AND CAP IT AT A BILLION DOLLARS ONLY IMPROVES RELIABILITY FROM 3.2 TO SOMEWHERE BETWEEN 2.4 AND 2.9.
SO AGAIN, WE'RE TRYING TO GO FROM 3.2 TO 0.1, BUT THIS IS ONLY IMPROVING RELIABILITY FROM 3.2 TO SOMEWHERE BETWEEN 2.4 AND 2.9.
SO WHAT THIS IS SHOWING IS THAT JUST TAKING THE DEFAULT CM AS WE'VE, WE'VE CONSTRUCTED IT, WHICH ADHERES TO AN AVERAGE ANNUAL NET COST CAP BECAUSE IT'S ON AVERAGE ONLY $0.2 BILLION MORE EXPENSIVE, BUT HAS SOME YEARS WHERE IT'S GREATER THAN 1 BILLION.
IF YOU JUST TAKE THAT DESIGN AND LOP ALL YEARS GREATER THAN A BILLION DOLLARS, YOU'RE NOT GONNA BE ABLE TO ACHIEVE THE RELIABILITY STANDARD.
SO THEN THE QUESTION IS, IS ALL HOPE LOST? WELL, NO, THERE ARE SOME WORKAROUNDS TO THIS SOLUTION.
SO IF WE GO TO THE NEXT SLIDE, THIS IS SHOWING WHAT A POTENTIAL SOLUTION MIGHT BE TO BE ABLE TO ACHIEVE TARGET RELIABILITY WHILE COMPLYING WITH AN ABSOLUTE ANNUAL COST CAP.
AND OF COURSE, ALL OF THIS IS HEAVILY CAVEATED FROM THE PERSPECTIVE THAT IMPLEMENTING AN ANNUAL ABSOLUTE ANNUAL COST CAP OF ANY KIND STILL HAS ALL THE CAVEATS ABOUT ASSUMPTIONS AND COUNTERFACTUALS AND MODELING, ET CETERA.
BUT A POTENTIAL SOLUTION TO THIS IS THAT YOU ACTUALLY HAVE TO JUST INCREASE THE HEIGHT OR CAP OF THE DEMAND CURVE SIGNIFICANTLY, SUCH THAT IN YEARS WHERE PCM IS REDUCING ENERGY PRICES A LOT, YOU'RE ADDING A LOT OF PCM PAYMENTS BACK IN THOSE YEARS.
AND WHAT THAT DOES IS IT ALLOWS YOU TO, BECAUSE YOU'RE ADDING IN A LOT OF PCM PAYMENTS IN SOME YEARS, IT ALLOWS YOU TO REDUCE THROUGH THE CAP PAYMENTS THAT ARE PAID OUT IN OTHER YEARS.
[05:20:01]
SO IN OTHER WORDS, THE WAY THAT THIS WOULD WORK IS INSTEAD OF HAVING A PRICE CAP OF 1.5 TIMES NET CONE, YOU WOULD HAVE SOMETHING LIKE 2.5 TIMES NET CONE.AND SO IN MANY YEARS, PC PRICES WOULD BE VERY HIGH, AND IN FACT, YOU MIGHT ALLOW PRICES TO BE THAT HIGH IF IT'S A YEAR WHERE ENERGY PRICES HAVE BEEN REDUCED A LOT.
BUT IF IT'S A, A YEAR WHERE ENERGY PRICES HAVE NOT BEEN REDUCED A LOT, THEN YOU WOULD AGAIN REDUCE THAT TO MEET THE $1 BILLION CAP.
AND THIS 2.4 WOULD BE NON-BINDING, YOU KNOW, YOU'RE DOWN TO LIKE 0.2 OR 0.3 OR WHATEVER IT IS THAT'S COMPLIANT WITH THE NET COST CAP.
SO WHAT ARE THE IMPLICATIONS OF THIS? AND I KNOW I'M SAYING A LOT HERE, SO WE'LL TAKE A BREATHER IN A SECOND, BUT IF WE GO TO THE NEXT SLIDE, THIS IS SHOWING THE IMPLICATIONS OF WHAT THAT LOOKS LIKE.
SO AGAIN, SAME GENERAL CONSTRUCT AS WE'VE TALKED TO PREVIOUSLY, THIS SET OF BARS ON THE LEFT IS OUR ENERGY ONLY MARKET EQUILIBRIUM.
THE NEXT BAR IS WHAT ENERGY PRICES LOOK LIKE WITH A RELIABLE SYSTEM, BUT WE DON'T HAVE PCM, SO WE HAVE A LOT OF REDUCTIONS.
IF WE IMPLEMENT THIS DEMAND CURVE THAT HAS A 2.45 TIMES NET CONE PRICE CAP, BUT THEN ALLOW OURSELVES TO LOP OFF PAYMENTS, IF WE DETERMINE THAT NET COSTS EXCEED THE BILLION DOLLARS, THEN WE CAN SEE THIS SECOND TO LAST BAR WHAT THE ANNUAL SYSTEM COST IS.
AND THIS IS A DISTRIBUTION OF SYSTEM COSTS.
AND YOU KNOW, THE, YOU CAN, YOU CAN SEE WHAT THE RANGE HERE LOOKS LIKE.
SO WHAT'S IMPORTANT I THINK, IS TO COMPARE WHAT DOES THE SYSTEM COST TOTAL PCM SYSTEM COST, WHICH IS THE SECOND TO LAST SET OF BARS, WHAT DOES THIS LOOK LIKE COMPARED TO THE DEFAULT DESIGN THAT WE HAVE BEEN TALKING ABOUT ALL DAY, WHICH IS THE DESIGN THAT'S CONSISTENT WITH AN ANNUAL NET COST CAP ON AN AVERAGE BASIS.
IF WE GO TO THE NEXT SLIDE, THAT'S EXACTLY WHAT THIS IS SHOWING.
SO WHAT WE CAN SEE HERE IS ANNUAL PCM COSTS IN THIS IS GROSS PCM COSTS IN BILLIONS OF DOLLARS.
THE LEFT BAR HERE IS THE DISTRIBUTION OF GROSS ANNUAL PCM COSTS UNDER A FRAMEWORK THAT ACHIEVES IS COMPLIANT WITH AN ANNUAL AVERAGE NET COST CAP.
SO WE CAN SEE IN A SYSTEM THAT'S COMPLIANT WITH AN ANNUAL AVERAGE NET COST CAP, WE'RE INJECTING ON AVERAGE $6 BILLION OF PCM PAYMENTS INTO THE MARKET.
BUT THAT CAN RANGE BETWEEN SOMEWHERE BETWEEN ONE AND $10 BILLION.
AND AGAIN, THE REASON WHY THIS IS CONSISTENT WITH A $1 BILLION NET COST CAP IS BECAUSE THIS IS ALSO REDUCING ENERGY PRICES BY AN AVERAGE OF $6 BILLION ROUGHLY.
IF WE MOVE TO A WORLD WHERE WE IMPLEMENT THE ABSOLUTE ANNUAL NET COST GAP THAT I JUST DESCRIBED, THAT HAS A MUCH HIGHER PRICE CAP AT 2.5 TIMES NET CONE, WHAT THAT DOES IS IT INCREASES THE VOLATILITY OF PCM PRICES BECAUSE THERE ARE MANY YEARS WHERE NOW ALL OF A SUDDEN YOU'RE CLEARING AT 2.4 TIMES NET CONE INSTEAD OF 1.5 TIMES NET CONE.
SO YOU CAN SEE THE VOLATILITY OF GROSS PERFORMANCE CREDIT COSTS IN THE RIGHT HAND CHART, THE AVERAGE IS THE SAME, RIGHT? THE RED BAR IN EACH IS THE SAME, BUT THE VOLATILITY IS MUCH HIGHER.
AND IN FACT, YOU HAVE SOME YEARS WHERE YOU'RE INJECTING INSTEAD OF $10 BILLION OF GROSS COSTS, $12 BILLION OF GROSS COSTS.
SO IN EFFECT, THE ABSOLUTE ANNUAL NET COST CAP, IF IT'S GOING TO ACHIEVE TARGET RELIABILITY, IS GONNA NECESSARILY HAVE TO HAVE HIGHER VOLATILITY OF PERFORMANCE CREDIT PAYMENTS.
AND IT'S NOT SURPRISING, RIGHT? BECAUSE IT'S, YOU KNOW, WHEN YOU'RE COMPARING NET COST TO THE ENERGY ONLY MARKET, THE ENERGY ONLY MARKET IS VERY VOLATILE.
SO YOU'RE ESSENTIALLY MAKING IT LOOK A LITTLE BIT MORE LIKE THE ENERGY ONLY MARKET AND ADDING IN A LOT OF PAYMENTS DURING WHAT WOULD'VE BEEN SCARCITY THAT ACTUALLY WEREN'T SCARCITY AT ALL.
YOU'RE KIND OF REPLICATING THE VOLATILITY OF SCARCITY.
AND IF WE GO TO THE NEXT SLIDE, THIS IS LOOKING AT TOTAL SYSTEM COSTS.
SO NOT JUST THE COST OF PERFORMANCE CREDITS, BUT WHEN YOU LOOK AT THE COST OF PERFORMANCE CREDITS PLUS ENERGY COSTS, THIS LEFT HAND CHART AGAIN IS SHOWING THE VARIABILITY OF ANNUAL
[05:25:01]
SYSTEM COSTS FOR A SYSTEM FOR A CONSTRUCT THAT'S CONSISTENT WITH AN ANNUAL AVERAGE NET COST, $1 BILLION NET COST CAP.YOU CAN SEE THE VOLATILITY, YOU KNOW, IS AVERAGE COST IS LIKE 2120 $2 BILLION PER YEAR, AND THE VOLATILITY RANGES FROM 15 TO $25 BILLION PER YEAR.
IF YOU LOOK ON THE RIGHT, THIS IS A, THIS IS THE SYSTEM THAT IS CONSISTENT WITH THE ABSOLUTE ANNUAL NET COST CAP.
AND YOU CAN SEE HERE THE VOLATILITY IS MUCH HIGHER.
YOU HAVE ANNUAL COSTS THAT ON AVERAGE ARE THE SAME, BUT RANGE FROM 15 TO $30 BILLION, SO ARE ARE MUCH HIGHER IN VOLATILITY.
SO, AND, AND I DO, AND I, YOU KNOW, ONE ONE POINT I WANTED TO MAKE TOO, THE COMMISSION HAS MADE THEIR POSITION CLEAR THAT THEY ARE INTERPRETING THE LEGISLATIVE STATUTE OF A $1 BILLION COST CAP TO BE AN ABSOLUTE ANNUAL COST CAP.
HOWEVER, THERE ARE ANNUAL STANDARDS IN THE ELECTRICITY SECTOR THAT ARE NOT INTERPRETED TO BE ABSOLUTE ANNUAL VALUES.
THE MOST NOTABLE THAT WE'VE TALKED ABOUT MANY TIMES TODAY IS THE LOSS OF LOAD EXPECTATION STANDARD OF 0.1 DAYS PER YEAR.
THAT'S THE MOST COMMON RELIABILITY STANDARD IN EXISTENCE IN NORTH AMERICA.
THAT IS AN ANNUAL AVERAGE VALUE.
IT DOESN'T LITERALLY MEAN THAT EACH SYSTEM IS ALLOWED 0.1 DAYS OF LOST LOAD PER YEAR.
IT MEANS ON AVERAGE ACROSS MANY YEARS, ACROSS MANY DECADES, ACROSS HUNDREDS OF SIMULATIONS THAT THE ALLOWABLE LEVEL OF LOSS OF LOAD IS EQUAL TO 0.1.
AND SO AN INTERPRET, SO I JUST THINK IT, IT, IT, IT NEEDS TO BE SAID THAT, UH, IT IS AN INTERPRETATION OF STATUTE TO, TO INTERPRET IT AS AN ABSOLUTE ANNUAL COST CAP AS OPPOSED TO AN AVERAGE ANNUAL COST CAP.
AND THE FINAL THING THAT I'LL SUMMARIZE HERE, BECAUSE AGAIN, REALLY IN KEEPING WITH THE THEME OF TODAY, I WAS TRYING TO PROVIDE A LEVEL SETTING AND EDUCATIONAL BACKGROUND.
I THINK WHAT WE'RE TRYING, WHAT WE'RE REALLY TRYING TO GET ACROSS ARE THE IMPLICATIONS OF HOW THE COST CAP CAN BE IMPLEMENTED.
SO WHAT WE'RE SAYING IS THAT IF YOU, IF THE IT'S, THIS IS IMPLEMENTED AS AN ABSOLUTE ANNUAL COST CAP SYSTEM COST VOLATILITY AND PERFORMANCE CREDIT COST VOLATILITY IS GOING TO BE HIGHER THAN UNDER AN AVERAGE ANNUAL COST CAP FRAMEWORK.
AND MEASURING NET COST ON A YEAR TO YEAR BASIS IS GOING TO BE AN INCREDIBLY CHALLENGING EXERCISE, INCREDIBLY CONTENTIOUS EXERCISE.
AND AS I SAID, ONE THAT E THREE IS NOT AWARE OF ANY OTHER PRODUCT THAT'S PRICED TO A COUNTERFACTUAL WORLD THAT DEFINITIONALLY DOESN'T EXIST.
SO I KNOW THAT WAS A LOT, BUT I WILL PAUSE THERE AND SEE IF THERE ARE ANY QUESTIONS OR REACTIONS TO THAT.
FIRST IN THE QUEUE, WE'VE GOT JEFF BURMEISTER.
SO, AND, AND I KNOW YOU HIT ON THIS POINT THAT, YOU KNOW, OBVIOUSLY THERE'S GOING TO BE A LOT OF DEBATE AND DISCUSSION AROUND ASSUMPTIONS THAT GO INTO CREATING THE COUNTERFACTUAL, BUT I GUESS I LIKE TRYING TO DEFINE THE BOUND OF AN OUTCOME IN A PARTICULAR YEAR.
SO I GUESS IT'S POSSIBLE THAT THE COUNTERFACTUAL ENERGY ONLY SYSTEM MODELING COULD SHOW VERY HIGH SYSTEM COSTS IN AN ENERGY ONLY STRUCTURE.
THAT'S DEBATABLE WHETHER THAT WOULD ACTUALLY HAVE BEEN REALIZED IN THE REAL WORLD.
AND THEN WITH A FLOATING COST CAP ON THE DEMAND CURVE, THAT COULD YIELD A CLEARING PRICE FOR PCS.
THAT IS, I MEAN, WELL IN EXCESS OF CONE YES.
IF YOU'RE, IF YOU'RE TALKING ABOUT A, YOU KNOW, TWO AND A HALF TIMES MULTIPLE OF NA COUNT.
UH, UH, IF, IF THAT WAS A QUESTION YES, THE ANSWER IS YES.
AND IN FACT, WE'VE CONSTRUCTED EVEN ONE PLAUSIBLE EXAMPLE OF THIS.
YOU COULD, YOU COULD CONSTRUCT ONES THAT ARE EVEN MORE VOLATILE, BUT YES.
NEXT, IN THE QUEUE, WE'VE GOT NED.
I THINK I JUMPED IN, UH, A WHILE BACK, SO I NEED TO GO BACK AND
SO FIRST ONE WAS JUST KIND OF GOING BACK TO, UM, THE FIRST FIRST LINE IN THIS SERIES.
AND THE FIRST QUESTION I ASKED
[05:30:01]
YOU AT THE BEGINNING, I JUST WANNA LEVEL SET, UM, IN THESE, WHEN WE'RE LOOKING AT SYSTEM COSTS, IT'S ENERGY ANCILLARY SERVICES AND PCM, BUT NOT VALUE OF LOSS LOAD.NONE OF NONE OF THESE RESULTS INCLUDE VALUE OF LOSS LOAD? THAT'S CORRECT.
AND SINCE YOU KNOW, WE TALKED EARLIER TODAY, THIS DOES NOT INCLUDE THE DRRS UH, IMPLEMENTATION.
SO ALL ELSE EQUAL, YOU WOULD EXPECT, UH, DRS TO, UH, YOU KNOW, ADD TO ENERGY AND ANCILLARY SERVICES COSTS, UM, BUT SUBTRACT FROM TOTAL PCM COSTS, ASSUMING THAT THERE'S, THERE IS VALUE IN DRS THAT WOULD BE PART OF THE NET CONE, UH, ADJUSTMENT.
AND SO THAT WOULD, THAT WOULD SHRINK THAT RANGE.
I, I, I WOULD SI I'M NOT PREPARED TO SPECULATE ON, I MEAN, I WILL SAY THAT DRS IS NOT INCLUDED, BUT AS FAR AS IMPACTS, I DON'T KNOW IF I WANNA SPECULATE ON THAT.
UM, WELL, GENERALLY THE, I I, I THINK THE FRAMEWORK THAT YOU'VE LAID OUT HERE IS, IS, UH, A CREATIVE APPROACH TO, YOU KNOW, ENSURING THAT YOU CAN STILL HIT THE NET COST CAP AND, AND GET TO THE, UH, THE RELIABILITY STANDARD.
UM, SO APPRECIATE THAT THINKING.
UM, I DID WANT TO ASK THOUGH, IS, IS THE ADJUSTMENT TO THE NET CONE CAP, IS THAT, IS THAT MODELED IN, IS THAT ACTUALLY MODELED IN THE OUTCOMES HERE? OR WERE THESE TEST CASES WHERE YOU, YOU KIND OF, SINCE WE'RE, SINCE WE'RE LOOKING AT ONE YEAR, AND IT SEEMS LIKE IT'S A, THAT WOULD NECESSARILY REQUIRE A SEQUENTIAL, UH, NUMBER OF YEARS TO, SORRY.
IT COULD BE JUST THAT IT, IT
WHAT THIS IS THE FLEXIBILITY OF NET CONE IS INCLUDED IN SO FAR AS THE PRICE CAP IS SET TO 2.4 X NET CONE, BUT NET CONE IS DYNAMIC IN EACH YEAR.
SOMETHING THAT'S VERY EASILY CALCULABLE WITH PEAKER NET MARGIN, LOOKING AT ACTUAL REAL WORLD DATA.
SO THE ACTUAL PRICE CAP WILL ALSO BE VOLATILE.
IT WOULD JUST BE 2.4 TIMES WHATEVER THAT VALUE IS.
IF NET CONE IS HIGH, 'CAUSE IN MANY YEARS IT WILL BE HIGH, THEN THE PRICE CAP COULD BE, YOU KNOW, 2.4 X CLOSE TO GROSS CONE.
RIGHT? SO WHATEVER THAT'S $250 PER KILOWATT YEAR OR SOMETHING LIKE THAT.
AND SO YOU WOULD DO THAT AND, AND THEN YOU WOULD LOOK AT, YOU WOULD RUN THE WHOLE COUNTERFACTUAL EXERCISE AND SAY, HOW MUCH ARE THESE COSTS COMPARED TO OUR COUNTERFACTUAL CASE? AND IF YOU NEED TO HAIRCUT THAT, YOU CAN, BUT IF YOU DON'T NEED TO HAIRCUT IT, THE HIGH CLEARING INITIAL PRICES, AND IS YOU, YOU WOULD WANT THAT THEN IN THOSE CASES.
OKAY, NEXT IN THE QUEUE IS JENNIFER SCHMIDT.
UM, DOES THIS ASSUME X POST SINCE THAT'S WHAT WE DISCUSSED ABOVE RATHER THAN X ANTE AS FAR AS THE NET CONE DETERMINATION? YES, YES.
AND THEN I GUESS KIND OF BACK TO FULL CIRCLE FROM THE BEGINNING.
UH, USING A NET APPROACH FOR THE NET CAP.
SO I GUESS LOOKING MORE AT SLIDE 49, UM, THE ASSUMPTION ON THE ENERGY ONLY MARKET, I'M STILL VERY CONFUSED BY, BECAUSE IT DOESN'T ASSUME THAT THERE IS A FORWARD MARKET AND THE IMPACT FOR PCM DOESN'T ASSUME THAT THERE IS A FORWARD MARKET LIKE BUYING PCM EQUIVALENTS, WHICH OSTENSIBLY SHOULD LIMIT THE VOLATILITY.
SO WE'RE TAKING A VIEW OF THE MAXIMUM AMOUNT OF VOLATILITY, ASSUMING REAL TIME, AND THEN GETTING A NET NUMBER.
AND SO TO YOUR POINT ABOUT THE COUNTERFACTUAL BEING DIFFICULT, I UNDERSTAND THAT, I'M WORRIED IF IT'S EVEN SENSIBLE TO DO THIS COMPARISON AS A, WITHOUT SOME CONCEPT OF THE FORWARD MARKET CONTEMPLATED IN EITHER CASE.
SO I, I WILL ALSO SAY THAT RIGHT, ERCOT HAS VISIBILITY INTO ACTUAL ENERGY PRICES.
[05:35:01]
YOU KNOW, GRANTED IT DOESN'T EXIST, BUT IF IT DID EXIST, THAT WOULD BE MEASURABLE BECAUSE YOU CAN LOOK AT ENERGY PRICES.ERCOT DOESN'T HAVE VISIBILITY INTO FORWARD HEDGING PRACTICES OR NOT.
THOSE, THOSE, SINCE THOSE OCCUR OUTSIDE OF THE MARKET.
SO I THINK IT WOULD ACTUALLY BE MORE COMPLEX TO, TO INCLUDE THAT.
I UNDERSTAND IT WOULD BE MORE COMPLEX, BUT I WORRY THAT WE'RE BUILDING IN NET COST THAT IS NOT RELEVANT.
AND BECAUSE WE START AT A PLACE THAT SAYS, I I'M GONNA USE LAST SUMMER AS AN EXAMPLE, BECAUSE WE HAVE HAD A LOT OF CONVERSATIONS ABOUT HOW $12.5 BILLION IS NOT A REAL NUMBER, RIGHT? 'CAUSE THAT WAS WHAT IT WAS IN REAL TIME.
IF WE'RE SAYING THAT THEN STARTING AT A PLACE WHERE WE'RE FORECASTING $50 BILLION WOULD ALSO OSTENSIBLY BE AN OVERESTIMATE.
AM I, I THINK THAT IS CORRECT.
I I THINK THAT TWO THINGS CAN BE TRUE.
SO, BUT THEN IF WE GO FOR A NET NUMBER RATHER THAN A TRUE UNDERSTANDING OF, WITH PCM WITHOUT PCM AND WE DO A NET AND WE STARTED A NUMBER THAT IS INFLATED, THEN WE GIVE MORE MONEY TO PCM IN ADDITION TO THE FACT THAT WE'RE SAYING WE NEED A 2.45 CONE TO BE ABLE TO DO A CONSISTENT $1 BILLION.
AND SO I'M, I AS A PERSON WHO WANTS TO SEE PCM POTENTIALLY SUCCEED, AM CONCERNED WITH THIS APPROACH BECAUSE OF THE BASELINE WE'RE SETTING AGAINST AND THE COUNTERFACTUAL FOR THE ENERGY ONLY MARKET THAT DOESN'T FEEL REPRESENTATIVE.
IS THERE A WAY TO MODEL PCM? YES.
UM, RATHER THAN LIKE
THE APPROACH, I MEAN, I, I THINK THAT THE, THESE VALUES RIGHT HERE, THE DISTRIBUTION AND THE PROBABILITY AND THE AVERAGES AND ALL OF THE CHARACTERISTICS OF THIS DISTRIBUTION ARE WHAT INFORM THE FORWARD MARKET AND HOW PEOPLE HEDGE AND HOW THEY PERCEIVE RISK, ET CETERA.
SO I, I THINK THAT FROM THE, FOR THE PURPOSES OF DESIGNING A MARKET, THESE ARE THE APPROPRIATE VALUES TO USE.
AND JUST AS ENERGY IS HEDGED, PERFORMANCE CREDITS COULD ALSO BE HEDGED.
SO EVEN IF IN THE SAME WAY, RIGHT, AS YOU COULD SAY, OH, PERFORMANCE CREDITS IN A CERTAIN YEAR CLEAR AT 30 BILLION OR $15 BILLION, WHATEVER IT IS, UM, UM, THAT COULD ALSO BE HEDGED IN THE SAME WAY THAT ENERGY PRICES ARE HEDGED.
SO I DON'T, I DON'T TH YEAH, I MEAN, I HEAR, I GUESS IT, I, I'LL SAY I'LL COMMIT TO THINKING ABOUT IT AND OUR WHOLE TEAM WILL THINK ABOUT IT, BUT I, MY GUT, MY GUT REACTION IS THAT I DON'T THINK THAT INCLUDING HEDGING WOULD BE APPROPRIATE FROM A MARKET DESIGN PERSPECTIVE.
I THINK MY, JUST AS YOU THINK ABOUT IT, TO LEAVE OFF ON THIS ONE, IT'S MORE THAT THE AMOUNT OF PCM CONTEMPLATED AS VALUE.
IF YOU MAKE IT A PURE OFFSET TO THIS REAL TIME ENERGY, AND YOU'RE SAYING WE'RE GONNA GET TO THE FULL VALUE THAT IT WOULD'VE BEEN IF REAL TIME HADN'T LIKE, SETTLED AT PEAK, I'M WORRIED YOU'RE BUILDING IN A LOT OF VALUE INTO THE PCM FORWARD MARKET BECAUSE THEY COULD GET TO 2.54 CONE IN REAL TIME PCM UNDER THIS EXPLANATION.
AND I DON'T WANNA SEE ALL THE VALUE GET GUTTED FROM THE ENERGY ONLY MARKET IN FAVOR OF PCM HYPOTHETICALS.
AND I, YEAH, WE, WE, WE FULLY APPRECIATE THAT CONCERN AND, AND, AND VISIBILITY INTO POTENTIAL PRICES IN, IN THAT WORLD THAT'S UTILIZES AN INTERPRETATION OF AN ABSOLUTE ANNUAL CAP, I THINK IS, IS A BIG CONSIDERATION.
OKAY, NEXT IN THE QUEUE IS SHAMS. SO THIS IS A, A CONSULTANT'S DREAM COME TRUE.
I GUESS
SO FIRST OF ALL, YOU KNOW, UH, YEAH, AS A CONSULTANT, I SHOULDN'T COMPLAIN, BUT, UH, IS THERE ANY INDICATION THAT THE LEGISLATURE THOUGHT OF THIS KIND OF RECONSTRUCT, UH, WHEN THEY SAID NET COST OF A BILLION? I JUST CAN'T IMAGINE.
WELL, THE LEG, THE LEGIS, THE STATUTE SAYS
[05:40:01]
$1 BILLION PER YEAR.THAT'S NOT INTERPRETED ON AN ABSOLUTE ANNUAL BASIS.
SO I DON'T KNOW THAT THE LEGISLATIVE OF INTENT MAKES ANY INDICATION AS TO THE APPROPRIATE INTERPRETATION OF A $1 MILLION ANNUAL NET COST CAP THAT CLEARLY LIES WITHIN THE JURISDICTION OF THE COMMISSION.
AND THEY HAVE SAID THAT THEY ARE INTERPRETING THIS AS AN ABSOLUTE ANNUAL CAP, BUT THEY UNDERSTAND BY NET COST IT'S THIS COUNTERFACTUAL, WHICH IS IMPOSSIBLE TO DO VERSUS WHAT HAPPENED.
WELL, I DON'T WANNA SPEAK FOR THE COMMISSION, SO THAT WOULD BE, I'M JUST RELAYING THE DECISIONS, THEIR STATEMENTS.
I JUST THINK THIS COMPONENT, EITHER WE NEED TO GO BACK TO THE LEGISLATION AND SAY, GIVE US A SOLID NUMBER OF 20 MILLION, OR, I THOUGHT THE LEGISLATE, I MEAN, MEAN THE LEGISLATURE WAS PRETTY, YOU KNOW, NOT ENAMORED WITH PCM AND I THOUGHT THE 1 BILLION CAP WAS SORT OF TO MAKE IT GO AWAY, YOU KNOW,
UH, BUT THIS SEEMS TO SAY THAT NO, IT'S ACTUALLY 20 TO $30 BILLION.
SO THAT'S WHY I'M A LITTLE CONFUSED WITH, UH, WITH, WE, WE ARE HEADED WITH THIS.
WELL, SO TO BE CLEAR, THIS, WHAT DO YOU MEAN THE 20 TO 30, YOU KNOW, IN THE TOTAL YOU'LL BE PAYING IN PCM, THAT'S THE TOTAL SYSTEM COST, WHICH IS PCM PLUS ENERGY AND ANCILLARY SERVICES.
THE GROSS PCM COST IS, IF WE JUST LOOK AT SLIDE 52, YOU KNOW, UNDER, DEPENDING ON AN ANNUAL AVERAGE FRAMEWORK, THE TOTAL, WHICH IS THE TOTAL BILLIONS THAT ARE BEING PAID OUT AS PCM PAYMENTS UNDER AN AVERAGE ANNUAL FRAMEWORK, RANGES FROM LIKE ONE TO 10 BILLION UNDER AN ABSOLUTE ANNUAL NET COST CAP FRAMEWORK RANGES FROM LIKE TWO TO 12 BILLION.
SO, UM, THESE ARE BOTH COMPLIANT WITH THE $1 BILLION COST CAP ON AN AVERAGE ANNUAL BASIS ON AN, ON AN ABSOLUTE ANNUAL BASIS.
ASSUMING THAT, ASSUMING THAT BY NET COST, THEY MEAN YOU TAKE CREDIT FOR YES.
THE, AND THE LEGISLATION DOES EXPLICITLY SAY NET COST, WHICH IS CONSISTENT WITH THE LANGUAGE THAT WE USED IN OUR ORIGINAL REPORT, WHICH WAS DEFINED AS INCLUDING NETTING OFF OF ENERGY COSTS.
SO I DO THINK THE INTENT WAS CLEAR IN THAT REGARD THAT WE WOULD DO IT AGAINST THIS COUNTERFACTUAL CORRECT.
AND YOU THINK THAT WAS THE INTENT OF THE LEGISLATURE? I DO, YES.
I'D HAVE TO THINK ABOUT THAT ONE.
UH, SO MAYBE I WANNA CLARIFY THE, AGAIN, THE SAME THING.
SO IT'S, IT'S LIKE IN THIS CASE, 12 EACH YEAR COULD BE 12 BILL COULD BE UP TO $12 BILLION? YES.
UH, UM, IN THE ANALYSIS THAT WE LOOKED AT, UH, WHERE YOU LOOKED AT, UM, THE GENERATION THAT NEEDS TO BE TAKEN OUT, RIGHT? UH, TO GET TO AN EQUILIBRIUM, UM, WHY DO WE NEED TO LOOK BACK AND SAY, ASSIGN A SET OF GENERATION TO COMING FROM PCM? LIKE FOR EXAMPLE, RIGHT NOW WE SAY THERE ARE EXISTING GENERATORS, AND THE NEXT YEAR THEY, OR THE FORWARDS, THEY LOOK AT THEIR REVENUE STREAM AND SAY THEY RETIRE IF THERE IS NO REVENUE STREAM.
SO IF THE, TO ME, THE LEGISLATIVE INTENT OF ANNUAL, WHY CAN'T WE LOOK AT NEXT YEAR IF THERE IS NO PCM, WHAT TYPE OF GENERATION WILL RETIRE AND DO A PROBABILISTIC ANALYSIS BASED ON DIFFERENT WEATHER PATTERNS FOR NEXT YEAR, YEAR AND DETERMINE AN ENERGY ONLY FOR NEXT YEAR, AND THEN DETERMINE THE PCM FROM THAT? THAT IS MUCH MORE LOGICAL, BUT THAT, THAT IS MUCH MORE, YEAH.
UH, LESS CONTROVERSIAL BECAUSE IT IS MORE, UH, PREDICTABLE THAN ASSUMING THE LEVEL OF GENERATION THAT YOU HAVE TO ASSIGN TO THE PCI THINK THAT THAT SOUNDS LOGICAL IN THE NEAR TERM AND MORE STRAIGHTFORWARD IN THE NEAR TERM, BUT COMPOUND THAT 5, 10, 20, 30 YEARS FROM NOW, AND WE'RE LOOKING BACK OVER 30 YEARS OF CHANGES THAT HAVE OCCURRED AND TRYING TO SUSS OUT WHAT WHAT IS CAUSED BY WHAT, RIGHT? YOU DON'T NEED TO ASSIGN WHICH, WHAT IS CAUSED BY WHAT, RIGHT? YOU WHAT EACH OF THESE
[05:45:01]
COMPONENTS ARE KIND OF, UH, PART OF THE REVENUE STREAM THAT'S CREATES THE INCENTIVE FOR RESOURCES AND LEGISLATIVE INTENT IS TO GET TO A TARGET RELIABILITY STANDARD BY ALL OF THESE, UH, REVENUE STREAMS, RIGHT? SO YOU CAN SAY THIS YEAR YOU HAVE, UH, THIS SET OF GENERATION RESOURCES NEXT YEAR, IF YOU ONLY HAVE THE ENERGY, REVENUE, ENERGY AND ANCILLARY SERVICE REVENUE, THIS SET OF RESOURCES WILL NOT HAVE, UH, ENOUGH REVENUE, SO THEY MIGHT RETIRE.SO YOU NEED TO HAVE ADDITIONAL REVENUE FROM THE PCM, AND THEN YOU PUT THAT REVENUE, YOU CAN CONTINUE LIKE THAT.
SO I, I, I WILL SAY, YOU KNOW, WE, WE VERY MUCH WELCOME MORE IDEAS.
YOU KNOW WHAT I THINK WHAT WE, WHAT WE'VE DESIGNED HERE RIGHT? IS OUR BEST ATTEMPT TO CONSTRUCT A PCM FRAMEWORK THAT MEETS ALL OF THE DIFFERENT CRITERIA.
IT MEASURES THE NEST CO NET COST CAP, IT COMPLIES WITH IT, IT INJECTS ENOUGH MONEY TO ACHIEVE TARGET RELIABILITY IF THERE ARE OTHER, AND YOU KNOW, WE, WE'VE, WE'VE DESIGNED SOMETHING WHERE THAT HAS A VERY HIGH PRICE CAP, RIGHT? IF THERE ARE OTHER IDEAS ALONG ANY OF THOSE DIMENSIONS, WE ARE ALL EARS.
AND WE WOULD WELCOME THOSE COMMENTS AND IDEAS.
I WOULD, YOU KNOW, IT HA IT HAS TO BE LIKE WHAT WE'VE PUT FORWARD HERE, RIGHT? IS A, IS A VERY CLEAR AS TO WHAT HAPPENS.
YES, IT'S CONTROVERSIAL AND, BUT IT'S, IT'S, WE'RE, WE'RE CLEAR IS WHAT WE'RE DESCRIBING.
SO IF THERE IS A PROPOSAL, IT ALSO HAS TO BE EQUALLY CLEAR AND IMPLEMENTABLE FOR US TO BE ABLE TO MODEL THAT.
BUT IF, BUT IF YOU HAVE THAT, WE WOULD WELCOME THAT.
AND, AND AGAIN, LIKE IT HAS TO BE MORE THAN JUST NEXT YEAR.
IT HAS, LIKE, I WOULD BE THINKING ABOUT THIS 20 PLUS YEARS FROM NOW AND, AND HOW WOULD WE DO THAT? IT WOULD BE EVERY YEAR DOING THE SAME THING.
AND YOU CAN APPLY IT OVERALL, RIGHT? AND IT WOULDN'T BE, IT IS EASIER TO APPLY THE 1 BILLION, UH, CAP ON THAT PCM BECAUSE YOU ARE PUTTING IT THE ADDITIONAL REVENUE IN THAT, RIGHT? AND THEN, UM, YOU ARE LOOKING AT THE EXISTING GENERATION MIX AND THE STUDIES WILL SHOW WHAT IS VIABLE AND WHAT IS NOT VIABLE THE NEXT YEAR.
SO, UH, YEAH, WE CAN DISCUSS MORE IF OKAY.
I JUST WANNA SAY, I KINDA ECHO SOME OF THE CONCERNS THAT JENNIFER EXPRESSED EARLIER, JUST ABOUT THE AMOUNT OF REVENUE THAT'S BEING TAKEN OUT OF THE ENERGY ONLY MARKET, UM, UNDER THIS PROPOSAL.
UM, BUT I DID HAVE A QUESTION, WHICH IS KIND OF GOING TO WHAT NED WAS ASKING YOU ABOUT THE VOL.
SO, AND I KNOW WE HAVE THINGS THAT ARE JUST HAVEN'T BEEN ANSWERED YET BY THE PUC, BUT THE VOL IS GOING TO BE AN INPUT TO THE PUC IN DETERMINING THE RELIABILITY STANDARD.
SO THAT SORT OF COST VALUE ASSOCIATED WITH THAT IS ALREADY BEING CONTEMPLATED BY THE PUC WHEN DEVELOPING THE RELIABILITY STANDARD IN DETERMINING WHAT THE MAGNITUDE, FREQUENCY, AND DURATION IS.
AND I KNOW KOTS ALREADY PUT OUT SOME RECOMMENDATIONS ABOUT THAT.
SO MY QUESTION IS, AND I'M JUST TRYING TO UNDERSTAND HOW THESE TWO THINGS INTERPLAY MM-HMM,
SORRY, CAN YOU CLARIFY WHAT YOU MEAN BY WHY WE WOULD WANT TO CONSIDER THAT? AGAIN, I GUESS GOING TO NED'S POINT, HE WANTED TO INCLUDE THE VALUE OF THAT ON THE RIGHT HAND SIDE OF THAT, UM, FIGURE THAT HE WAS POINTING OUT, INCLUDE THE VALUE OF LOST LOAD.
I MEAN, I'LL LET NED SPEAK TO THAT, BUT THAT WAS MY ASSUMPTION THAT HE WAS MAKING THE QUESTION WAS JUST TO BE CLEAR WHAT WE'RE LOOKING AT, BECAUSE, YOU KNOW, LOST LOAD COSTS ARE THE SYSTEM COST, YOU KNOW, DEPENDS ON WHICH ANALYSIS YOU'RE LOOKING AT, WHETHER OR NOT THEY INCLUDE 'EM.
SO I JUST WANTED TO BE CLEAR THAT THAT WAS OR WAS NOT INCLUDED IN HERE.
YEAH, I MEAN, WE, WE COULD ADD THAT IN, RIGHT? THAT WOULD BE QUITE SIMPLE TO DO.
SO WE, WE HAVE NOT DONE THAT HERE, BUT WE COULD COULD DO THAT AND YEAH.
AND WE ALSO COULD DO THIS ANALYSIS UNDER DIFFERENT RELIABILITY STANDARDS THAN A 0.1.
SO, BUT IF YOU'RE INCLUDING IT AGAIN IN THE SYSTEM COST AND YOU'RE MAKING THAT COMPARISON, THAT IS GOING TO IMPACT THE PCM ITSELF.
AND SO I GUESS THAT'S MY QUESTION.
[05:50:02]
INCREASE REVENUES BEYOND WHAT THE PEC FELT COMFORTABLE WITH ORIGINALLY WHEN DEVELOPING THE RELIABILITY STANDARD? I SEE WHAT YOU'RE SAYING, I GUESS IS MY QUESTION.YEAH, IT'S CERTAINLY POSSIBLE.
I MEAN, THAT WOULD BE, AGAIN, A MEASURE OF INTERPRETATION.
SO WE WOULD WELCOME COMMENT ON THAT.
NEXT IN THE QUEUE IS BILL BARNES, I GOT A ADMINISTRATIVE QUESTION.
ARE WE GONNA, DO WE HAVE A HARD STOP AT FIVE? WHAT'S THE PLAN MODERATOR? YEAH, THAT'S A GOOD QUESTION.
I THINK, UM, I CAN KEEP GOING FOR A LITTLE BIT LONGER, MORE THAN THAT, BUT IT'S UP TO, UP TO OUR LEADERS.
I DO THINK THE, OF ALL THE DESIGN DECISIONS WE HAVE TO MAKE, THIS IS THE HARDEST ONE.
RIGHT? TRYING TO FIGURE OUT HOW THE, WHAT AN ANNUAL ABSOLUTE NET COST CAP MEANS.
UM, ASIDE FROM YOUR ATTEMPT TO IMPLY AND IMPOSE A COST CAP, BUT STILL TRY TO ACHIEVE A, A LEVEL OF RELIABILITY OUT OF THE PCM, WHICH I, I GET WHAT YOU'RE ATTEMPTING HERE, UM, I DO THINK IT'S PROBABLY SUSCEPTIBLE TO CHALLENGE ON WHAT AN ANNUAL COST CAP MEANS, BUT BESIDE THAT, THE QUESTION WE'VE HAD SINCE WE SAW NET INCLUDED IN THE STATUTE WAS HOW YOU ASSIGN ENERGY AND ANCILLARY SERVICE COST REDUCING BENEFITS TO JUST THE PCM MM-HMM.
HOW DO YOU DISTINGUISH BETWEEN WHAT WAS ADDED TO THE MARKET OR DIDN'T RETIRE AS A RESULT OF THE PC M VERSUS THESE OTHER MECHANISMS? RIGHT.
AND DRS TOO, THAT'S ANOTHER ONE.
WELL, I MEAN, YOU KNOW, I THINK IT KIND OF ALREADY ADDRESSED THAT ON SLIDE 48, BUT THAT, THAT EXACTLY GETS TO THE CONTROVERSY AND COMPLEXITY OF TRYING TO CALCULATE THIS VALUE.
I MEAN, HYPOTHETICALLY, RIGHT, THESE OTHER ACTIONS OR THESE OTHER POLICIES LIKE TEXAS ENERGY FUND MIGHT WITHIN THE ENERGY ONLY CONSTRUCT IN DEUCE ENTRY, WHICH WOULD OVERALL IMPROVE RELIABILITY AND LOWER THESE COSTS, WHICH MEANS THE DIFFERENCE BETWEEN A PCM OR THE DIFFERENCE BETWEEN A RELIABLE SYSTEM AND THAT ENERGY ONLY EQUILIBRIUM WOULD BE LOWER, AND SO PCM PAYMENTS WOULD BE LOWER.
SO THEORETICALLY THAT'S WHERE THAT WOULD BE REFLECTED.
BUT THAT IS AGAIN, YES, IT'S VERY COMPLEX TO, TO DO THAT.
NEXT IN THE QUEUE WE HAVE TOM DART.
TOM, IF YOU'RE SPEAKING, WE CAN'T HEAR YOU.
WELL IF YOU, YOU END UP, UH, BEING ABLE TO SPEAK, JUST, JUST LET US KNOW IN THE CHAT.
HAS THIS GONE, UH, I DON'T KNOW IF THIS HAS GONE OVER, BUT MAYBE A HISTORICAL LOOK AT 2023 IN THE ENERGY MARKET, UH, REVENUES THAT WOULD'VE GOT SHIFTED TO THE PCM MARKET? IS THAT YOU FEASIBLE? I, SORRY, I DON'T THINK WE CAN HEAR YOU VERY CLEARLY.
SO 2023, IS THERE A LOOK BACK THAT'S POSSIBLE TO SEE ENERGY REVENUES THAT WOULD'VE SHIFTED TO PCM MARKET? THAT'S, YEAH, I MEAN, THAT'S HARD, HARD, HARD TO ANSWER AT THE MOMENT.
WE DON'T HAVE ANY INFORMATION ON THAT RIGHT NOW.
UH, REMI, UM, CAN YOU EXPLAIN A LITTLE BIT MORE ON HOW, UM, IT IS A 1 BILLION CAP WHEN IT CAN GO TO 12 BILLION? IS IT A AVERAGE OVER THE STUDY THAT IT IS 1 BILLION GAP? OR IS IT THAT, UH, THE ENERGY REVENUE CAN VARY YEAR OVER YEAR? SO IT IS THE, IT IS 12 BILLION BECAUSE THE ENERGY REVENUE HAS GONE
[05:55:01]
DOWN IS RIGHT.SO I GUESS THE EASIEST WAY TO ANSWER THAT IS JUST BY LOOKING AT THESE FIRST TWO BARS HERE.
THIS FIRST BAR IS A DISTRIBUTION OF ANNUAL SYSTEM COSTS UNDER AN ENERGY ONLY MARKET IN EQUILIBRIUM.
IN SOME YEARS, THE COSTS GET AS HIGH AS $50 BILLION FOR A RELIABLE SYSTEM, WHICH IS THE SECOND SET OF BARS.
UH, THE, THE MOST EXPENSIVE IS, YOU KNOW, $23 BILLION.
THAT MEANS THERE IS A YEAR OUT THERE IN WHICH THE INCREMENTAL CAPACITY THAT WOULD BE INCENTED INTO THE MARKET FROM PCM HAS REDUCED COSTS FROM 50 TO 23 BILLION.
SO COSTS HAVE COME DOWN BY 27 BILLION.
WHAT THE PCM NET COST IMPLIES IS THAT YOU CAN'T CHARGE CUSTOMERS MORE THAN WHAT THEY WOULD'VE BEEN CHARGED OTHERWISE, PLUS A BILLION DOLLARS.
SO IN THIS, IN A HYPOTHETICAL YEAR WHERE YOUR ENERGY COSTS HAVE COME DOWN FROM 50 TO 23 BILLION, YOU CAN PAY PCM 27 PLUS $1 BILLION AND BE COMPLIANT WITH THE NET COST CAP, BECAUSE NOW ALL OF A SUDDEN YOU'RE CHARGING CUSTOMERS $51 BILLION INSTEAD OF $50 BILLION, BUT YOU'RE DOING THAT WITH $28 BILLION OF PCM PAYMENTS.
SO THAT IS LIKE AT THE MOST RIDICULOUS YEAR POSSIBLE EXAMPLE.
THAT'S, THAT'S LIKE WHY YOU CAN PAY SO MUCH AND BE COMPLIANT WITH A NET COST CAP.
SO TYPICALLY WHEN YOU, WHEN OR THE 0.1 STUDY THAT YOU SAID IT'S A AVERAGE VALUE, TYPICALLY IT IS BASED ON SOME AVERAGE VALUE OVER ALL THE STUDIES, AND YOU SAY AVERAGE ENERGY IS THIS AND AVERAGE PCM IS THIS, AND THAT'S CORRECT.
AND THAT, THAT WAS THE ORIGINAL INTERPRETATION OF, YOU KNOW, ON SLIDE 47 OR YEAH, SLIDE 47 FOR HOW E THREE ASSUMED THE DEFAULT DESIGN OF, OF PCM WOULD WORK.
SO, SO HAVING THIS 2.45 X WILL GET IN THAT EXTREME YEAR ENERGY PLUS PCM TO BE THAT 51, IT WON'T QUITE GO THAT FAR BECAUSE THAT WOULD BE THE MOST POSSIBLE EXTREME.
BUT IT, BUT IN A YEAR WHERE YOU'RE REDUCING PRICES FROM 50 TO 23, RIGHT? A THE NORMAL DEMAND CURVE MIGHT INJECT 5 BILLION, BUT A 2.45 MIGHT INJECT LIKE 8 BILLION, RIGHT? SO YOU'RE NOT, YOU'RE NOT INJECTING 27 BILLION, BUT YOU'RE INJECTING A LOT MORE, UH, BECAUSE YOU CAN, BECAUSE YOU HAVE THAT HEADROOM AND IT, AND THEN THAT ADDITIONAL INJECTIONS IN THOSE YEARS ALLOW YOU TO HAIRCUT IT IN OTHER YEARS WHERE YOU NEED TO LIMIT PAYMENTS TO 1 BILLION NET.
AND MAYBE IN THE MOST EXTREME YEAR YOU SAY PRICES WERE GONNA BE LOW NO MATTER WHAT.
SO PCM DIDN'T REDUCE PRICES AT ALL, SO I CAN ONLY PAY $1 BILLION TOTAL OF PCM PAYMENTS.
SO THIS, THIS 2.45 NUMBER IS BASED ON THEN, UH, HISTORIC STUDY OR, OR NOT HISTORIC, LIKE SOME WEATHER PATTERN AND SOME, SOME STUDY SET STUDY TO GET THAT NUMBER.
2.45 IS BASED IS A NUMBER THAT WE CALCULATED TO SAY, IF YOU SET THE PRICE CAP THIS HIGH AND YOU LIMIT NET COSTS TO ABSOLUTE 1 BILLION IN EACH YEAR, THAT'S THE LEVEL OF PRICE CAP YOU NEED TO SET IT AT TO INJECT ENOUGH MONEY INTO THE MARKET TO ACHIEVE TARGET RELIABILITY.
THE ONLY THING IS THAT YOU CANNOT SAY EACH YEAR IN THAT SCENARIO, RIGHT? BECAUSE ONE IS, BECAUSE IT IS A STUDY, SO IT'S AN AVERAGE OVERALL, THE SCENARIOS, HOW DO YOU SAY EACH OF THEM? WELL, YES, IT'S AN AVERAGE IN THAT IT'S, IT'S AN AVERAGE IN THAT RESOURCES WILL EARN NET CONE ON AVERAGE, BUT IT'S NOT, THE VOLATILITY OF ACTUAL PAYMENTS INTO THE MARKET ARE, ARE VERY HIGH.
SO I GUESS MAYBE IF YOU'RE GETTING TRIPPED UP ON THIS, EACH OF THE DIFFERENT BARS WE'RE SHOWING YEAH, ON BOTH THE LIKE ENERGY ONLY AND THE PCM ONE.
LIKE THERE'S BASICALLY A ONE-TO-ONE, LIKE MAPPING OF THE SAME CONDITIONS IN ONE AND THE OTHER.
SO ON THE AVERAGE ONE, YOU'RE JUST TAKING THE AVERAGE OF EVERYTHING
[06:00:01]
ON THE ANNUAL ONE.YOU'RE JUST TAKING LIKE THE SAME SET OF LOAD RESOURCE AND AVAILABILITY, WEATHER PATTERNS, ET CETERA, AND COMPARING TO WHAT WOULD THAT BE WITH THE DIFFERENT PORTFOLIO, BUT WITH THOSE SAME CONDITIONS AND THEN THAT'S THE DELTA.
OKAY, TOM, SOUNDS LIKE YOU'RE BACK ONLINE.
UH, FIRST QUESTION IS, UH, IF I WANNA SEND COMMENTS ABOUT WHAT I'VE HEARD TODAY, DO I HAVE TO SEND THOSE THROUGH THE PUC IN A FILING PROCESS OR, OR IS THERE SOME OTHER, UM, SIMPLER WAY TO DO IT? UH, THIS IS HAIKA FROM PUC.
IF IT'S REALLY VERY SPECIFIC QUESTIONS FOR THE MODEL AND YOU WANT AN ANSWER, YOU CAN SEND IT TO E THREE AND ERCOT.
BUT IF IT'S, WE ARE GONNA HAVE A PUBLIC OFFICIAL QUESTIONS FOR YOU TO COMMENT ON SPECIFICALLY IN MID-MAY.
WELL, I HAVE A, I HAVE ANOTHER QUESTION THAT'S MORE BASIC, AND THAT IS THAT, UM, THAT, UH, UM, E THREE HAS IDENTIFIED 5,000 PLUS, UM, DISPATCHABLE GENERATION.
AND AN EARLIER SLIDE, UM, INDICATED, UH, 13 GIGAWATTS WAS NEEDED TO ACHIEVE THE 0.1, UH, RELIABILITY STANDARD.
UM, SO MY QUESTION IS HOW MUCH DISPATCHABLE GENERATION IS NEEDED, UH, IN THE NEAR TERM AND IN THE FAR TERM.
AND I REALIZED THAT THERE'S A, THE RELIABILITY STANDARD STUDY IS STILL, UM, STILL PENDING, BUT, UH, CAN YOU SHED SOME LIGHT ON THIS? YES.
SO THAT, THAT IS A CHANGE FROM THE PRIOR STUDY DUE TO, UH, JUST CHANGE IN INPUTS AND LOAD FORECASTS AND OTHER ITEMS. SO YEAH, THAT IS, THAT IS AN UPDATE FROM OUR PRIOR STUDY.
AND THEN THE, THEN THE SECOND QUESTION, WHAT WOULD THE OUTPUT OF THE RELIABILITY STANDARD STUDY LOOK LIKE? FOR EXAMPLE, WOULD IT SAY HOW MANY MEGAWATTS, UH, NEEDS TO BE DISPATCHABLE, UH, MEGAWATTS NEED TO BE INSTALLED? OR WOULD IT BE EXPRESSED AS A PERCENTAGE OF, UH, PEAK LOAD OR JUST HOW, WHAT WOULD THAT LOOK LIKE? S SORRY, CAN YOU, CAN YOU REPEAT THAT? THE OUTPUT OF THE RELIABILITY STANDARD, UH, IS THAT GONNA TELL US HOW MANY MEGAWATTS OF GENERATION IS NEEDED? I MEAN, EXCUSE ME, DISPATCHABLE GENERATION IS NEEDED, UH, AND HOW WILL THAT BE EXPRESSED IN MEGAWATTS OR PERCENTAGE OF PEAK? YEAH, I WOULD SAY WE WOULD DEFER TO ERCOT AND ARAE THAT ARE DOING THAT, UM, MODELING AND ANALYSIS IN PARALLEL.
IN GENERAL THOUGH, HOW THAT WOULD FIT INTO OUR MODELING IS WE WOULD NOT NECESSARILY GET LIKE, YOU KNOW, PERCENTAGE OR A NUMBER OF MEGAWATTS.
WE WOULD JUST GET A STANDARD THAT THEY ALIGN ON IS AN APPROPRIATE RELIABILITY STANDARD, LIKE ONE IN 10 LOLE OR SOME SORT OF EUE EXPECTATION.
AND THEN WE WOULD USE THAT AS AN INPUT INTO A MODEL TO FIND THE, THE BASICALLY AMOUNT OF, YOU KNOW, DISPATCHABLE CAPACITY ADDITIONAL YOU MIGHT NEED FROM, FROM MEM.
IT IS THE SAME MODEL THOUGH, SO, YOU KNOW, PROBABLY THEIR MODEL WOULD HAVE THOSE THINGS AS OUTPUTS.
BUT I GUESS HOW IT FITS INTO OUR SPECIFIC MODELING IS, IS MORE THE STANDARD.
THIS IS HAIKA FROM PUC, JUST TO MAKE A PUBLIC ANNOUNCEMENT.
WE ARE GONNA HAVE A WORKSHOP ON THE RELIABILITY STANDARD RESULTS MAY 2ND AFTER THE OPEN MEETING, SO YOU WILL HAVE LOTS OF OPPORTUNITY TO PARTICIPATE IN THAT.
UM, I JUST WANT SAY THAT, UM, I'VE BEEN FOLLOWING THIS FOR EVER SINCE STORM URI.
I SUPPORT THE PCM PRO, UH, PROCESS, UH, BECAUSE IT ESTABLISHES A STANDARD, ELIMINATES THE SCAR, EXCESSIVE SCARCITY PRICING AND FUNDS NEW PLANTS.
UH, I, I, I HOPE THAT EVERYONE CAN GET BEHIND THE, THE PCM AND THEN I, I WOULDN'T WORRY ABOUT THE, WOULDN'T WORRY ABOUT THAT CAP.
I THINK THAT ERCOT, UH, NEEDS TO PRESENT WHAT IT NEEDS TO PRESENT FOR RELIABILITY PURPOSES TO THE PUC, UH, BECAUSE ULTIMATELY ERCOT IS GOING TO TAKE, UH, IS, IS GONNA BE RESPONSIBLE FOR THIS OR HELD RESPONSIBLE.
[06:05:01]
MY, UH, OPINION IS TO GO AHEAD WITH THIS PROCESS, TRY TO GET EVERYBODY BEHIND IT, AND THEN, AND ONCE EVERYBODY'S IN AGREEMENT AND YOU AND YOU PRESENT THAT TO THE PUC AND TO THE LEGISLATURE, I THINK IT SHOULD ALL GO THROUGH FINE.THANK YOU VERY MUCH FOR LETTING ME SPEAK.
UH, WE'RE AT 4 41 AT THIS POINT.
UM, WHAT I'M GOING TO SUGGEST IS I THINK THAT THE NEXT SET OF SLIDES AS, UH, ZACH, YOU HAD MENTIONED, THEY'RE, THEY'RE PROBABLY OKAY TO GO THROUGH FAIRLY, PROBABLY.
AND THEN IF WE CAN TRY TO GET THROUGH MAYBE THE FIRST BIT OF THE MODELING SECTION, MAYBE TO SOMETHING LIKE SLIDE 69 SO PEOPLE AT LEAST HAVE A, AN UNDERSTANDING OF, UH, THINGS AT A HIGH LEVEL.
DOES THAT SOUND LIKE A REASONABLE TARGET TO HIT? AND THEN WE WILL TRY AND GO KEEP AS CLOSE TO 5:00 PM AS POSSIBLE SO THAT, THAT WORKS FOR ME.
BUT I ALSO JUST GOT A TEXT THAT MY FLIGHT'S DELAYED, SO I CAN JUST STAY IF, WELL, IF WE WANT TO
BUT, BUT I THINK SOME PEOPLE, BUT IF EVERYBODY WANTS TO REPRIEVE, THAT WORKS TOO.
OH, IT LOOKS LIKE THERE IS A ONE COMMENT BETWEEN THE QUEUE FROM DAVE.
I GUESS I JUST WANTED TO QUICKLY MENTION, I THINK, UH, JUST FOR, FOR THE GROUP, I, I, I APPRECIATE, I KNOW IT'S BEEN A LONG DAY.
I THINK THE IDEA OF TRYING TO GET, UH, THROUGH SLIDE 60 THROUGH 69 IS THAT THEY PROVIDE SOME CONTEXT FOR, I THINK, HOW WE'LL BE LOOKING AT SOME OF THESE DIFFERENT SCENARIOS.
FOR THE REMAINDER OF THE SLIDES, IT'S A LOT MORE ABOUT, OKAY, AS WE LOOK AT SYSTEMS OUT OF EQUILIBRIUM OR WE TWEAK SOME OF THE PARAMETERS, HOW CAN WE START TO COMPARE TWO DIFFERENT SCENARIOS? SO I DO THINK IT'D BE VERY VALUABLE IF PEOPLE ARE ABLE TO STICK AROUND TO UNDERSTAND AT LEAST THAT 60 THROUGH 69 SLIDES AND UNDERSTAND, UM, YOU KNOW, SOME OF THE OUTPUTS THAT ARE GONNA BE COMING OUT OF THESE DIFFERENT MODEL RUNS.
SO, SO THANK YOU ALL FOR, FOR STICKING AROUND AND, UH, CONTINUING TO WORK THROUGH US WITH WITH US.
SO LET'S WRAP UP THIS SECTION THAT'S WALKING THROUGH ALL OF THE PARAMETERS.
SO HERE ON SLIDE 54, AND AGAIN, EVERYTHING ELSE THAT WE'RE ABOUT TO TALK THROUGH IS NOT IMPACTED IN THE MODELING.
SO IT'S JUST A QUALITATIVE ASSESSMENT, BUT THEY'RE NONETHELESS PARAMETERS THAT WILL NEED TO BE DECIDED IN THE IMPLEMENTATION OF PCM.
SO ONE IS HOW OFTEN DOES THE FORWARD MARKET OCCUR? DOES IT OCCUR AT THE BEGINNING OF EACH YEAR FOR ALL OF THE FUTURE SEASONS FOR THAT YEAR, OR DOES IT OCCUR AT THE BEGINNING OF EACH SEASON FOR EACH SEASON? NUMBER 23, HOW SOON BEFORE EACH SEASON OR YEAR DOES THE FORWARD MARKET TAKE PLACE? OUR DEFAULT ASSUMPTION IS ABOUT ONE MONTH BEFORE EACH SEASON OR YEAR, WHICH IS CONSISTENT, ROUGHLY CONSISTENT WITH WHAT'S CONSIDERED TO BE A PROMPT MARKET.
NUMBER 24, HOW ARE, WHAT ARE FORWARD PARTICIPATION REQUIREMENTS FOR EARNING PERFORMANCE CREDITS? SO AGAIN, AS REQUIRED BY STATUTE, UH, RESOURCES CAN ONLY EARN PERFORMANCE CREDITS EQUAL TO WHAT THEY BID IN THE FORWARD MARKET.
THEY CAN'T EARN ANY MORE PERFORMANCE CREDITS THAN THAT.
NUMBER 25, IF YOU CLEAR THE FORWARD MARKET AND THEN YOU DON'T PERFORM, WHAT IS THE PENALTY OR DEFAULT VALUE PROPOSING HERE IS THAT 50% OF THE FINAL CLEARING PRICE IS THE PENALTY.
SO IF YOU CLEAR IN THE FORWARD MARKET AND THEN YOU DON'T PERFORM, THERE ARE TWO THINGS THAT HAPPENS.
ONE IS THAT YOU ACTUALLY HAVE TO BUY YOURSELF OUT OF THE OBLIGATION.
WE'RE NOT CONSIDERING THAT TO BE A PENALTY.
THAT'S JUST A BUYOUT, RIGHT? IT'S LIKE IF YOU SELL IN THE DAY AHEAD AND YOU DON'T PERFORM, YOU BUY ENERGY, YOU BUY REAL TIME ENERGY.
SO THAT'S NOT A PENALTY, IT'S JUST A BUYOUT.
AND THEN ADDITIONAL TO THAT, AS REQUIRED BY STATUTE, THERE WOULD BE A 50% OF THE FINAL CLEARING PRICE PENALTY THAT WOULD BE APPLIED.
SO AGAIN, VERY OPEN TO STAKEHOLDER FEEDBACK AND COMMENT ON THIS.
THIS IS NOT SOMETHING THAT'S CURRENTLY IMPACTING THE MODELING.
WE IMPORTANT NONETHELESS, IF WE GO TO THE NEXT SLIDE VERY CLOSELY RELATED TO THIS, IS WHAT'S THE PENALTY IF YOU OFFER IN THE FORWARD MARKET AND THEN DON'T PERFORM? AND THIS IS KIND OF A STRANGE ONE BECAUSE YOU MIGHT SAY, WHY IS THERE A PENALTY FOR OFFERING IF YOU DON'T CLEAR? WELL, THE REASON IS BECAUSE RESOURCES CAN ONLY EARN PERFORMANCE CREDITS UP TO WHAT THEY OFFER.
SO IF THERE'S NOT A PENALTY FOR OFFERING UNLIMITED PERFORMANCE CREDITS, THEN EVERY RESOURCE WOULD OFFER UNLIMITED PERFORMANCE CREDITS AT A VERY HIGH
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PRICE THAT WOULDN'T CLEAR, THAT WOULD ENSURE ANYTHING AND EVERYTHING THEY ACTUALLY GENERATE IN REAL TIME WOULD RECEIVE PERFORMANCE CREDITS.SO THAT'S THE RATIONALE FOR WHY SUCH A PENALTY IS NECESSARY.
AND OUR DEFAULT PROPOSAL IS THAT THAT PENALTY WOULD BE EXACTLY EQUIVALENT TO RESOURCES THAT DO CLEAR, WHICH IS THAT YOU HAVE TO PAY 50% OF THE FINAL CLEARING PRICE.
NOW OF COURSE, IF YOU DON'T CLEAR, YOU DON'T HAVE TO BUY YOURSELF OUT.
SO THE THE, THE DIFFERENCE IS THAT, BUT IT'S STILL THE SAME PENALTY.
SO YOU CAN, IF YOU INCLUDE THE BUYOUT AS A PENALTY, THEN CLEARING, YOU PAY 150% NON-CLEAR, YOU PAY 50%.
THE NUMBER 27 IS HOW ARE THESE PENALTIES APPLIED? YOU KNOW, IS IT APPLIED ON A PLANT BASIS OR A PORTFOLIO BASIS? WE'RE DEFAULT PROPOSING THESE WOULD BE APPLIED ON A PLANT LEVEL BASIS.
THE RATIONALE HERE IS TO NOT CREATE DISCREPANCIES BETWEEN GENERATOR PORT GENERATORS THAT HAVE LARGE PORTFOLIOS OR SMALLER PORTFOLIOS OR SINGLE PLANTS VERSUS LARGE PLANTS.
NUMBER 28 IS, IS THERE A FORWARD MARKET PARTICIPATION REQUIREMENT FOR LOAD SERVING ENTITIES? DEFAULT ASSUMPTION IS NO.
NUMBER 29 ARE VIRTUAL PARTIES ELIGIBLE TO PARTICIPATE? THIS IS KIND OF A STRANGE ONE.
OUR DEFAULT ASSUMPTION IS YES, BUT AT THE SAME TIME, AND WE WOULD APPRECIATE STAKEHOLDER FEEDBACK ON THIS, BUT HOW CAN VIRTUAL PARTIES PARTICIPATE IF THERE ARE PENALTIES FOR NON-PERFORMANCE? A VIRTUAL PARTY BY DEFINITION IS GONNA BE NON-PERFORMING, AND SO WOULD UNDER THIS CONSTRUCT AUTOMATICALLY INCUR A PENALTY OF 50%.
AND SO ESSENTIALLY YOU COULD STILL, I GUESS, THEORETICALLY ARBITRAGE AS LONG AS THE PRE AND POST DIFFERENCE IS MORE THAN THAT AMOUNT.
BUT NONETHELESS, SOMETHING TO CONSIDER.
AND THEN THE FINAL ONE HERE IS THE FRAMING FRAMEWORK AND TIMING FOR FORWARD MARKET SETTLEMENTS.
SO THIS IS, THIS IS CLOSELY RELATED TO COLLATERAL, BUT IT JUST ESSENTIALLY SAYS THAT PAYMENTS NEED TO OCCUR AS SOON AS POSSIBLE AND, UH, COMPENSATION OCCURS AT THE END OF THE YEAR, UH, BASICALLY TO LIMIT EXPOSURE OF THE SYSTEM AND ERCOT AND BY EXTENSION OTHER MARKET PARTICIPANTS TO DEFAULT OF CERTAIN MARKET PARTICIPANTS.
SO IF WE GO TO THE NEXT SLIDE, THIS IS WRAPPING UP A LITTLE BIT ON THE, AGAIN, YEAH, COLLATERAL AND TIMING.
SO WHEN IS THE PERFORMANCE CREDIT MARKET SETTLED? SO THIS IS AN INTERESTING ONE, AND OUR DEFAULT PROPOSAL IS THAT THE, ALL OF THE SEASONS ARE CLEARED AT THE END OF THE YEAR.
SO YOU GO THROUGH WINTER, SPRING, SUMMER, FALL, AND THEN YOU CLEAR ALL OF THE MARKETS AFTER THE FACT.
THE REASON IS BECAUSE YOU HAVE TO GET THROUGH THE WHOLE YEAR IN ORDER TO CALCULATE NET CONE AND THEN THAT NET CONE CAN BE ALLOCATED RETROACTIVELY TO ALL OF THE DIFFERENT SEASONS.
AND SO IT'S NOT LIKE, UH, PERFORMANCE CREDITS CLEAR AFTER EACH SEASON AND GENERATORS GET PAID AFTER EACH SEASON.
YOU HAVE TO GO THROUGH THE WHOLE YEAR BEFORE YOU CAN CLEAR EACH SEASON.
NUMBER 32 IS TALKING ABOUT COLLATERAL FOR LOAD SERVING ENTITIES.
THE LOGIC HERE IS THAT TO THE EXTENT THAT LOAD SERVING ENTITIES OR REALLY ANY MARKET PARTICIPANT IS CREATING A RISK OF DEFAULT, THEN YOU HAVE TO ANTI UP.
SO LOADS BY VIRTUE OF PARTICIPATING IN THE SYSTEM ARE INCURRING POTENTIAL TO HAVE TO PAY FOR PERFORMANCE CREDITS.
AND SO COLLATERAL FOR THOSE NEEDS TO BE COLLECTED UPFRONT.
IF YOU WANNA BE A LOAD SERVING ENTITY, YOU CAN'T, YOU KNOW, WAIT FOR THE WHOLE YEAR, CONSUME LOAD AND THEN DEFAULT AND THEN NOT, NOT PAY ANY OF THAT.
THE TIMELINE IS THAT THESE COLLATERAL FROM LOADS WOULD BE COLLECTED PRIOR TO THE START OF THE SEASON OR YEAR, AND AS WELL AS IS CONSISTENT WITH OTHER ERCOT PRACTICES, COLLATERAL WOULD BE PAID INTEREST AS WELL, OR AT LEAST THAT'S A DEFAULT PROPOSAL.
SO JUST AS LOADS HAVE TO PAY COLLATERAL, IT'S ALSO POSSIBLE THAT GENERATORS WOULD HAVE TO PAY COLLATERAL.
THE REASON THAT GENERATORS WOULD HAVE TO PAY COLLATERAL IS BECAUSE AS A PARTICIPANT, AS A GENERATOR THAT'S PARTICIPATING IN THIS MARKET, THERE'S A POTENTIAL THAT GENERATORS WOULD ACTUALLY OWE PENALTIES FOR NON-PERFORMANCE.
AND SO IF A GENERATOR IS PARTICIPATING AND INCURS A POTENTIAL PENALTY OBLIGATION, THEN THAT NEEDS TO BE UPFRONT COVERED THROUGH COLLATERAL TO MAKE SURE THAT OTHER MARKET PARTICIPANTS ARE NOT IMPACTED.
THAT AS JUST LIKE WITH LOADS WOULD BE COLLECTED AT THE BEGINNING OF THE YEAR, RIGHT
[06:15:01]
AFTER THE FORWARD MARKET CLEARS SO THAT IT'S CLEAR WHAT THE ACTUAL OBLIGATION IS.AND IT'S ALSO POSSIBLE THAT SOME OF THIS COLLATERAL COULD BE REFUNDED THROUGHOUT THE YEAR ON A WHAT WE'RE PROPOSING TO BE A MONTHLY BASIS.
WHAT THIS MEANS IS THAT AT THE BEGINNING OF THE YEAR, THERE'S A LOT OF RISK BECAUSE YOU DON'T KNOW WHAT PRICES ARE GONNA BE.
THEY COULD BE HIGH, THEY COULD BE LOW.
AS YOU GO THROUGH THE YEAR, YOU HAVE MORE CERTAINTY ABOUT THE FINAL CLEARING PRICE OF PERFORMANCE CREDITS, RIGHT? THE MOST OBVIOUS EXAMPLE IS THAT IF ENERGY PRICES ARE VERY HIGH AND, AND IT PASSES CONE, YOU KNOW THAT PERFORMANCE CREDITS ARE GONNA CLEAR AT ZERO, RIGHT? SO ONCE YOU HIT PEAKER NET MARGIN AT CONE, YOU KNOW, PERFORMANCE CREDITS ARE GONNA CLEAR AT ZERO.
SO AT THAT POINT, ALL COLLATERAL CAN JUST BE REFUNDED BECAUSE THERE'S GONNA BE NO TRANSACTIONS AT, AT A PRICE.
AND SO THAT IS PROPOSED TO BE REFUNDED OR POTENTIALLY UPDATED ON A MONTHLY BASIS.
AND THE FINAL SLIDE IF WE GO TO NEXT SLIDE HERE IS AROUND MARKET POWER MITIGATION.
JUST LIKE WITH ANY PRODUCT IN ANY MARKET, IT IS IMPORTANT THAT PERFORMANCE CREDITS ARE NOT MANIPULATED.
AND SO THAT WOULD FALL SQUARELY UNDER THE PURVIEW OF THE INDEPENDENT MARKET MONITOR AND WE'RE, YOU KNOW, WORKING ON AND THINKING ABOUT OPTIONS FOR HOW THAT WOULD BE IMPLEMENTED.
BUT THE IMM HAS ALREADY FILED SOME PRELIMINARY COMMENTS ON THIS TOPIC, SO WE WILL DEFINITELY WORK CLOSELY WITH COMMISSIONERS, PCT STAFF AND THE IMM TO DEVELOP STRATEGIES ON THIS TOPIC.
ALRIGHT, ANY QUESTIONS OR WE CAN JUMP INTO THE SAMPLE RESULTS? I THINK WE HAVE, UH, TWO QUICK QUESTIONS.
SO STARTING WITH JENNIFER SCHMIDT, UH, I THINK OUR HOPE WAS THAT THERE WOULD BE A MORE ROBUST FORWARD MARKET.
SO I JUST WANNA MAKE SURE I UNDERSTAND.
THE PROPOSAL IS THAT THERE WOULD ONLY BE AN ACTION OR AN AUCTION IN ADVANCE OF THE IMMINENT SEASON FOR LIKE, I GUESS HOW WE HAD CONCEPTUALIZED PCM WAS THAT THERE WOULD POTENTIALLY BE LIKE ANNUAL AUCTIONS, LIKE WE COULD BID YEARS INTO THE FUTURE, LIKE RRS.
UM, WHAT IS THE PERCEIVED FORWARD MARKET HERE? SO THE PERCEIVED OR THE PROPOSED FORWARD MARKET, AGAIN, JUST A DEFAULT PROPOSAL, NOT LOCKED IN STONE IN ANY SENSE IS AN ANNUAL PROMPT MARKET.
SO VERY CONSISTENT WITH JUST OTHER ANNUAL PROMPT MARKETS AND NOT, THAT'S NOT TO SAY THAT OTHER OUT OF MARKET, BILATERAL FORWARD HEDGING STRATEGIES WOULD BE NOT, NOT ALLOWED, THEY WOULD BE ALLOWED, BUT THE, THE CENTRALLY CLEARED WOULD BE A PROMPT ANNUAL MARKET.
I THINK WE WOULD NEED A FORWARD MARKET TO BE CENTRALLY CLEARED IN ORDER FURTHER TO BE LIQUID PARTICIPATION IN IT.
SO I DON'T FORESEE BILATERALS BEING A PATH FORWARD, UM, JUST LIKE THEY'RE NOT USEFUL FOR ANCILLARY SERVICES LARGELY.
SO I WOULD ACTUALLY ASK THAT WE KIND OF CONSIDER THAT AND I'LL PUT IT IN MY COMMENTS.
I'M SORRY, JUST REAL QUICK ON THAT, I'M SORRY TO INTERRUPT, BUT I GUESS JUST TO BE CLEAR THOUGH, WHAT, WHAT ZACH WAS TALKING ABOUT WOULD BE A CENTRALLY CLEARED AUCTION.
I THINK THERE'S DISTINCTION, JENNIFER, FROM WHAT YOU'RE TALKING ABOUT OF WHETHER OR NOT WE HAVE KIND OF MULTIPLE BITES AT THE APPLE, UH, IN TERMS OF KIND OF WHAT WE DO WITH IS WHERE WE WOULD EFFECTIVELY OPT IT OFF THE SAME PERIOD MULTIPLE TIMES.
UM, BUT AGAIN, THE OPTIONS BEING TALKED ABOUT ARE, ARE CENTRALLY CLEARED OPTIONS FOR, FOR WHAT IT'S WORTH.
HEY RYAN, COULD I ASK A QUESTION RIGHT HERE? I DON'T KNOW HOW TO GET IN THE QUEUE, BUT
GO AHEAD SHA YEAH, SO THE CURRENT, YOU KNOW, UM, COLLATERAL POSTING, LET'S SAY ON AVERAGE IS LIKE FIVE, $6 BILLION FOR THIS MARKET ITSELF.
YOU'D BE ASKING FOR $12 BILLION THAT LOADS WOULD'VE TO POST BECAUSE THAT'S POTENTIALLY WHAT THE PCS ARE WORTH AND THEY'D HAVE TO HOLD IT TILL THE END OF THE YEAR.
IS THAT HOW I'M ENVISIONING IT OR THAT'S THE, THAT'S THE PROPOSAL AT THE MOMENT.
SO WE'RE OPEN, WE'RE, WE'RE OPEN TO FEEDBACK ON THAT.
YEAH, I THINK THAT WOULD CRIPPLE THE MARKET.
UM, THE OTHER ASPECT IS, YOU KNOW, IN YOUR CALCULATIONS WHERE YOU SHOW, YOU KNOW, UM, THE DEMAND CURVE AND STUFF, I GUESS WITH A CAP, I CAN UNDERSTAND WHY YOU WANT MORE THAN CONE, YOU KNOW, LIKE A NET CONE YOU'RE DOING LIKE 1.5
[06:20:01]
OR WHATEVER.BUT IF YOU DIDN'T HAVE THAT CAP AND YOU COULD EXACTLY, UH, YOU KNOW, COMPENSATE FOR NET CONE, WOULDN'T YOU JUST SET IT AT NET CONE THAT THEY WOULD BE MAKING? BECAUSE SOME YEARS IT'S GONNA EXCEED, UH, THEIR CONE, YOU KNOW, THE, UH, EARNINGS.
YEAH, I THINK IF I UNDERSTAND YOUR QUESTION CORRECTLY, YOU'RE JUST WONDERING WHY NOT JUST KIND OF FLAT HAVE A FLAT DEMAND CURVE.
AND THE MAIN REASON FOR THAT IS THAT THAT WOULD WORK PERFECTLY IF, YOU KNOW, THE SYSTEM WOULD BE AN EQUILIBRIUM IN EVERY SINGLE YEAR.
BUT IF YOU'RE NOT AN EQUILIBRIUM, YOU BASICALLY WANT TO HAVE THAT INCENTIVE OF PAYING MORE OR LESS.
SO LIKE IF THE SYSTEM IS IN EQUILIBRIUM THAT TECHNICALLY YOU COULD JUST PAY NET HOME EVERY YEAR, BASICALLY GET WHATEVER THEY MAKE FROM THE ENERGY MARGINS AND THEN SUBTRACT THAT AND THEN PUT THE REST IN PCM.
BUT THEN IF YOU ACTUALLY ARE OUT OF EQU ROOM, YOU WANNA MAKE SURE THERE'S AN INCENTIVE TO PAY LESS PCM WHEN YOU HAVE MORE CAPACITY THAN YOU NEED OR PAY MORE PCM WHEN YOU HAVE MORE CAPACITY THAN YOU NEED.
SO IT'S BASICALLY JUST BEING FLEXIBLE FOR NOT BEING AN EQUILIBRIUM.
BECAUSE I'M THINKING OF FOR MANY YEARS WE MIGHT BE SHORT PCMS, RIGHT? SO IF PEOPLE ARE GETTING PAID THEIR NET CONE, THEY KNOW THEY, THEY INVEST IN IT, THEY'LL AT LEAST MAKE WHATEVER MONEY THEY PUT INTO IT.
SO I THINK THAT WOULD BE SUFFICIENT.
WHY DO WE NEED TO, YOU KNOW, PAY 50% MORE THAN THAT? UH, YEAH.
WELL THE, THE REASON IS BECAUSE IF WE HAVE A DEFICIENCY OF RESOURCES, YOU NEED MORE TO INCENT ENTRY.
AND YOU ALSO, IN ORDER TO AVERAGE COMPENSATE RESOURCES NET CONE ON IN THE YEARS WHERE EVEN PER SYSTEM IN EQUILIBRIUM, YOU'RE GONNA HAVE VARIABILITY OF SUPPLY.
AND SO HIGH SUPPLY YEARS WILL YIELD LOWER THAN NET CONE COSTS AND YOU NEED HIGHER THAN NET CONE COMPENSATION IN THE LOW SUPPLY YEARS TO BALANCE OUT SUCH THAT ON AVERAGE RESOURCES EARNED NET CONE.
NEXT IN THE QUEUE IS JEFF SLAUGHTER.
YEAH, I JUST WANTED TO GET CONFIRMATION REGARDING COLLATERAL POSTINGS.
UH, THAT COLLATERAL POSTINGS, THAT'S GONNA BE DUE TO ALL LSCS AND POTENTIALLY SOME GENERATORS.
THAT'S IF THEY PARTICIPATE IN THE FORWARD AUCTION GENERATORS.
IT'S, IF YOU PARTICIPATE IN THE FORWARD AUCTION IS WHAT INCURS A COLLATERAL OBLIGATION BECAUSE YOU'RE THEN SUBJECT TO PENALTIES JUST BY VIRTUE OF PARTICIPATION.
LOADS DON'T HAVE TO PARTICIPATE IN ORDER TO INCUR AN OBLIGATION.
LOADS HAVE AN OBLIGATION BY VIRTUE OF BEING A LOAD BECAUSE THEY'RE ULTIMATELY BE REQUIRED TO PURCHASE PERFORMANCE CREDITS.
BUT IT, IN REGARDS TO THE, THE FORD MARKET THAT YOU GUYS ARE LAYING OUT, IS ERCO GOING TO COME TO ME AND SAY, GIVE ME ALL YOUR COLLATERAL BECAUSE THIS IS OUR EXPECTATION FOR YOUR PC OBLIGATION, OR ARE THEY GONNA DO THAT? IF I GO IN AND I PARTICIPATE AND PROCURE, UH, IN THE, UH, THE FORD MARKET THAT YOU GUYS HAVE LAID OUT? YEAH, I GUESS FOR OR IF I CHOOSE NOT TO GO AND BUY ANYTHING YEAH.
IN THE FORD MARKET, NOT, NOT PARTICIPATE, AM I STILL GONNA BE OBLIGATED BY ERCOT BASED ON AN ASSESSMENT THAT THEY HAVE THAT IT'S GONNA BE MY, YOU KNOW, THIS IS MY PC OBLIGATION OR THEIR EXPECTATION.
AM I GONNA BE REQUIRED TO POST COLLATERAL FOR THAT REGARDLESS OF MY PARTICIPATION? EXACTLY.
EVEN I THINK IT'S ACTUALLY THE OPPOSITE.
I THINK OF WHAT YOU'RE THINKING AND SES WILL HAVE AN OBLIGATION AT THE END OF THE YEAR HOW THEY DETERMINE OR FORECAST WHAT THEY THINK THEY'RE GONNA HAVE FOR THAT IS PROBABLY GONNA BE BASED ON HISTORICALS PLUS SOME ADJUSTMENTS.
IF YOU ACTUALLY PARTICIPATE IN THE FORWARD MARKET, THEN YOU ARE PROCURING THOSE IN ADVANCE.
SO TO THE EXTENT THAT, YOU KNOW, ERCOT SAYS YOU'RE PROBABLY GONNA NEED A HUNDRED MEGAWATTS AND YOU BUY IN THE FORWARD MARKET A HUNDRED MEGAWATTS, YOU ACTUALLY WON'T HAVE ANY COLLATERAL REQUIREMENTS BECAUSE YOU'RE PROCURING EVERYTHING IN THE FORWARD MARKET.
ON THE OTHER HAND, IF YOU HAVE THAT A HUNDRED REQUIREMENT BUT YOU DON'T PROCURE IN THE FORWARD MARKET, THEN YOU'VE ACTUALLY HAVEN'T BASICALLY POSTED FINANCIAL STANDING FOR THOSE A HUNDRED MEGAWATTS THAT YOU'RE GONNA NEED.
AND THAT'S WHAT ERCOT IS GONNA COME TO YOU AND ASK FOR THAT COLLATERAL.
SO IT'S ACTUALLY THE OPPOSITE.
IF YOU DON'T PARTICIPATE, OR BASICALLY YOUR COLLATERAL WOULD BE NETTED BASED ON HOW MUCH YOU PARTICIPATE IN THE FORWARD MARKET.
SO THERE'S, THERE'S NO COLLATERAL OBLIGATION IF I DO PARTICIPATE IN THE FORD, UH, THE FORD MARKET.
SO IF I GO OUT AND I BUY A HUNDRED PCS, RIGHT? AND ER CO'S NOT GONNA COME TO ME AND SAY, PLEASE POST COLLATERAL ASSOCIATED THIS RIGHT NOW THAT YOU JUST GOT CLEARED ON OUR EXCHANGE IN THE FORD MARKET.
OR IF YOU, IF YOUR REQUIREMENT IS A HUNDRED, YES, WELL, BUT IF YOU CLEAR THE FORWARD MARKET, YOU'RE THEN PAYING UPFRONT FOR
[06:25:01]
THOSE.SO YOU DON'T HAVE TO PAY COLLATERAL, BUT YOU HAVE TO PAY UPFRONT.
IF YOU DON'T PARTICIPATE IN THE FORWARD MARKET, YOU DON'T HAVE TO PAY UP FRONT, BUT YOU HAVE TO PAY COLLATERAL.
'CAUSE AT THE END OF THE DAY, YOU'RE GONNA HAVE LOADS ARE GONNA HAVE AN OBLIGATION.
UH, SO I, I HAVE SOME THOUGHTS ON A NUMBER OF THESE ISSUES, UM, BUT I KIND OF GET STUCK ON THINKING, YOU KNOW, WHAT'S THE POINT BECAUSE I'M STUCK ON THE BILLION DOLLAR ASSESSMENT AND WHICH IS, I MEAN, A PECULIAR RESULT FROM SOMETHING THAT'S CALLED A GUARDRAIL.
I THINK, UM, IF I GET OFFERED A GUARDRAIL, I THINK I MAY DECLINE, UH,
UH, KIND OF DEFEATING, I THINK SOME OF THE OBJECTIVES.
BUT SETTING THAT ASIDE, UH, WITH, YOU KNOW, THE ADJUSTMENTS YOU MADE, THE PART THAT I ALSO NOT UNDERSTANDING IS THIS KIND OF PERPETUAL COUNTERFACTUAL, YOU KNOW, IDEA AND, AND WHY YOU THINK THAT THAT'S AN ABSOLUTE REQUIREMENT.
BECAUSE IT STILL INVOLVES A MODELING, YOU KNOW, I MEAN, IT'S AN IMPOSSIBILITY.
AND I THINK TO THE EXTENT YOU'RE INTERPRETING, INTERPRETING STATUTES, IT SEEMS THAT THE LEGISLA, THERE'S SOME SORT OF CONSTRUCTION RULE PROBABLY THAT SAYS THEY DON'T LEGISLATE IMPOSSIBILITIES OR SOMETHING TO THAT EFFECT.
AND I THINK THIS IS LITERALLY AN IMPOSSIBILITY, UH, AND IT'S MODELED.
ALL YOU CAN DO IS SAY, OH, 10 YEARS AGO IF WE HADN'T HAVE CHANGED EVERYTHING, THIS IS HOW IT WOULD'VE EVOLVED.
AND WE KNOW THAT THAT'S RIDICULOUS.
SO, UH, I GUESS HOW FIRM DO YOU THINK THAT PARTICULAR, UH, KIND OF PROOF EXERCISE IS? OR CAN YOU JUST EMBED IT IN THE MODELING AND SAY, LOOK, WE DESIGNED IT THIS WAY AND THAT'S WHAT IT IS.
SO I WOULD SAY THAT IS EXACTLY HOW WE'RE THINKING ABOUT IT.
YOU KNOW, I THINK THAT WE VIEW A DESIGN THAT WOULD BE CONSISTENT WITH THE COST CAP BY ESSENTIALLY JUST DESIGNING THE PARAMETERS SUCH THAT YOU CAN SAY, YES, THIS IS WILL BASED ON ANALYSIS, NOT ADD MORE THAN A BILLION DOLLARS.
UM, YOU KNOW, I I THINK IT'S A, IT'S AN INTERPRETATION TO, TO INTERPRET IT DIFFERENTLY AND SAY WE'RE GONNA MEASURE SOMETHING IN EACH YEAR AND COUNTERFACTUAL.
BUT, UH, AS YOU JUST VERY WELL PUT, AND I THINK THE, THE DIFFICULTIES SLASH IMPOSSIBILITIES ASSOCIATED WITH THAT NEED TO BE CONSIDERED EYES WITH EYES WIDE OPEN.
AND I THINK THAT JUST DESIGNING A MARKET THAT COMPLIES WITH A COST CAP BASE ON ANALYSIS, UM, IS ALSO SOMETHING THAT COULD BE CONSISTENT WITH STATUTE.
UM, REPRESENTING, UH, KIND OF VIEW OF CUSTOMERS FROM A REP PERSPECTIVE, I, I DEFINITELY SUPPORT JEN, UH, SCHMIDT'S COMMENTS ABOUT THE DESIRE TO HAVE A FORWARD, UH, CLEARING MARKET THAT LOOKS MORE LIKE THE RRS, MEANING ALMOST LIKE THREE YEARS AHEAD.
UH, THE ABILITY TO, TO PRICE DISCOVER AND, AND HEDGE THAT YEARS OUT.
BUT FURTHER, I GUESS A BIG CONCERN I HAVE IS I'M FEEL LIKE I'VE HEARD THAT PCM COSTS TWO REPS IN ANY GIVEN YEAR MIGHT BE, UH, $200 MILLION, OR THEY MIGHT BE 12 BILLION OR $20 BILLION.
UM, BUT UNDERSTANDING THAT THE LEGISLATION, YOU KNOW, SET A BILLION, WHERE IS THAT GO WHEN AND WHERE, I GUESS IS THAT GOING TO BE DECIDED? WHAT TRULY IS THE CAP AND HOW IS THAT CAP APPLIED? WELL, I WILL SAY THAT THIS IS THE PROCESS WHERE THAT WILL BE DECIDED.
SO THE GOAL OF THIS PROCESS IS TO DECIDE ALL OF THE PARAMETERS OF PCM THROUGH A STAKEHOLDER PROCESS UNDER THE JURISDICTION OF THE COMMISSION FACILITATED BY ERCOT.
SO YEAH, I MEAN, I I WILL ALSO JUST ADD RIGHT, THAT THE UNCERTAINTY OF, THERE'S ALSO A LOT OF UNCERTAINTY IN THE ENERGY ONLY MARKET TOO, IN TERMS OF WHAT PRICES COULD BE.
SO, BUT ALL RIGHT, BUT THERE, THERE, THERE ARE LIQUID MECHANISMS FOR US TO, TO HEDGE THOSE AND, UH, MAYBE THERE WILL BE LIQUID MECHANISMS FOR THIS, THAT IT'S, THAT'S RIGHT TO BE SEEN.
[06:30:01]
I THINK IF YOU LOOK AT OTHER PRODUCTS SUCH AS ANCILLARY SERVICES, THERE ARE NO, THERE, THERE ARE VERY FEW, IF ANY, LIQUID MECHANISMS TO HEDGE THOSE, UM, YOU KNOW, MULTIPLE YEARS IN ADVANCE, BUT THEY'RE NOT AS LARGE OF A COST COMPONENT AS ENERGY.SO, UM, IT, IT'S DEFINITELY A BIG CONCERN IN TERMS OF THE VARIABILITY OF THIS COST AND THE, UM, THE ABILITY TO HEDGE IT.
AND IF THE ONLY SORT OF LIQUID HEDGE MECHANISM IS A, IS A ONE MONTH AHEAD OR ONE SEASON AHEAD MECHANISM AND CUSTOMERS WANT, YOU KNOW, THREE YEAR FIXED PRICE AND WE'RE NOT ABLE TO PASS THIS THROUGH OR, OR, OR WHATNOT, IT'S, IT'S DEFINITELY GONNA BE A SIGNIFICANT CHALLENGE TO THE RETAIL MARKET.
AND WE APPRECIATE THAT FEEDBACK.
LAST IN THE QUEUE IS IAN HALEY.
THANK YOU, IAN HALEY, MORGAN STANLEY.
I APOLOGIZE, THIS IS ACTUALLY NOT A QUESTION FOR YOU GUYS, BUT, UM, MORE FOR ERCOT, UH, HEARING ABOUT THESE COLLATERAL REQUIREMENTS THAT WILL BE IN THIS, IT MAY BE VERY HELPFUL TO HAVE A DISCUSSION AT, I FORGET WHAT THE CREDIT WORK GROUPS, UH, ACRONYM CURRENTLY IS, BUT SO THAT MARKET PARTICIPANTS COULD UNDERSTAND WHAT THE COST WOULD ACTUALLY BE TO THEM.
UM, THIS MAY BE, UM, IF WITH, IF YOU HAVE TO POST BILLIONS OF DOLLARS OF THE MARKET COLLECTIVELY HAS TO POST BILLIONS OF DOLLARS OF COLLATERAL TO ERCOT FOR A YEAR AT A TIME, UM, THE COST OF THIS MAY BE SOMETHING THAT, UH, THOSE MARKET PARTICIPANTS MAY NEED TO UNDERSTAND VERY QUICKLY TO FORMULATE THEIR COMMENTS.
OKAY, I'VE MADE A NOTE OF THAT AND WE'LL, WE'LL GET BACK ON THE, THE FRAMEWORK TO SUPPORT THAT.
AND SHAS, DO YOU THINK WE SHOULD ADD THE COST OF COLLATERAL TO THAT $1 BILLION CAP? 'CAUSE THAT COULD, THAT'S A LOT OF COST TO THE MARKET.
ARE WE GOOD TO DO SOME SAMPLE RESULTS? OKAY.
SO AGAIN, THIS IS AN ILLUSTRATION OF SOME OF THE RESULTS THAT WE WILL BE PRODUCING AS WE GO THROUGH THIS PROCESS.
WE'VE LOOKED HERE AT OUR DEFAULT DESIGN AND WE HAVE A COUPLE SAMPLE PARAMETERS THAT WE'VE CHANGED.
AGAIN, OUR ENTIRE PROCESS IS GONNA LOOK AT ALL OF THE PARAMETERS, THE PRIORITIZATION OF WHAT WE LOOK AT, WE'LL COME FROM STAKEHOLDER FEEDBACK, SO WE DEFINITELY WELCOME THAT.
BUT IF WE JUST GO TO THE NEXT SLIDE, JUST A QUICK REFRESH ON WHAT THE DEFAULT DESIGN IS.
SO IT'S A FOUR SEASON DESIGN WITH 15 PERFORMANCE CREDIT HOURS PER SEASON.
NET CONE IS DETERMINED AT THE END OF EACH YEAR IN AN EX POST FASHION ONLY
AND THE PRICE CAP, AS WE'VE CALCULATED FOR WHAT'S NEEDED NECESSARY TO ACHIEVE TARGET RELIABILITY IS 1.5 X NET CONE.
SO IF WE GO TO THE NEXT SLIDE, WE CAN LOOK AT WHEN WE WOULD EXPECT THE PERFORMANCE CREDIT HOURS WITHIN EACH SEASON TO OCCUR.
AND SO THOSE 15 HOURS WITHIN EACH SEASON, YOU CAN SEE A BREAKDOWN OF WHEN THEY OCCUR IN THIS CHART ON THE LEFT AGAIN, WINTER, SPRING, SUMMER, FALL, AND THEN EACH HOUR OF THE DAY.
GENERALLY THEY'RE OUTSIDE OF SOLAR HOURS, MOSTLY IN THE EVENING, BUT TO A LESSER EXTENT IN THE MORNING, LET'S IGNORE THE GRAPH ON THE RIGHT, PROBABLY NOT AS RELEVANT.
SO THOSE ARE THE HOURS IN WHICH THEY'RE OCCURRING.
IF WE GO TO THE NEXT SLIDE, THIS LOOKS AT SOME OF THE KEY TAKEAWAYS FOR THIS DEFAULT DESIGN WITH THE KEY TAKEAWAYS BEING WHAT IS THE AVERAGE ANNUAL SYSTEM COST AND THE VARIABILITY OF SYSTEM COSTS AS WELL AS THE AVERAGE ANNUAL PERFORMANCE CREDIT COST, AND THE VARIABILITY OF PERFORMANCE CREDIT COST.
SO THIS FAR LEFT SET OF BARS HERE IS SHOWING THAT FOR OUR DEFAULT DESIGN, TOTAL ANNUAL SYSTEM COST AVERAGES $20.9 BILLION PER YEAR WITH VARIABILITY RANGING FROM, YOU KNOW, ROUGHLY 15 TO $25 BILLION PER YEAR.
AND THE, THOSE TWO BARS ABOVE AND BELOW THE 10TH AND 90TH PERCENTILE IS, IS EVEN NARROWER THAN THAT.
UH, THAT'S THE TOTAL SYSTEM COST, WHICH IS A SUM, UH, OF, YEAH, THAT'S TOTAL SYSTEM COSTS, WHICH IS A SUM OF ENERGY AND PERFORMANCE CREDIT COSTS.
SO ENERGY COSTS ARE IN THE MIDDLE THERE, 14.8 BILLION AND PCM COSTS ARE 6.1 BILLION ON AVERAGE.
SO THIS DESIGN THAT INJECTS ON AVERAGE
[06:35:01]
$6 BILLION OF PCM COSTS PER YEAR WITH A RANGE OF PRETTY CLOSE TO ZERO, UP TO POTENTIALLY $10 BILLION, THIS IS THE TOTAL GROSS PCM COST.AND THE NET COST OF THIS, AGAIN, IS $0.2 BILLION PER YEAR ON AVERAGE WITH A LOT OF VARIABILITY AROUND THAT.
BUT THAT'S THE GROSS COST OF PCM IF YOU, THAT'S TOTAL SYSTEM COST.
IF YOU LOOK AT COMBUSTION TURBINE MARGIN VARIABILITY, THAT'S THE CHART ON THE RIGHT.
SO YOU CAN SEE THE TOTAL PERFORMANCE CREDIT OR THE TOTAL CT MARGINS IN THE LEFT, THAT'S THE SUM OF WHAT CTS ARE EARNING IN THE ENERGY AND PERFORMANCE CREDIT MARKET.
ON AVERAGE, THEY'RE EARNING CONE, WHICH IS $103 PER KILOWATT YEAR.
IT'S NOT AN ACCIDENT THAT THAT VALUES, THAT, THAT IS, WE'VE CALIBRATED IT TO INJECT THAT MUCH MONEY INTO THE MARKET.
THAT'S A WHAT'S NECESSARY TO INCENT A NECESSARY AMOUNT OF GENERATION TO ACHIEVE TARGET RELIABILITY.
SO AVERAGE IS $103 PER KILOWATT YEAR, AND THEN THE VARIABILITY CAN RANGE FROM 40 TO 140.
AND YOU CAN SEE HOW THAT BREAKS DOWN BETWEEN ENERGY AND PERFORMANCE CREDITS, WHICH AGAIN, THE TOTAL IS JUST A SUM OF ENERGY AND PERFORMANCE CREDITS FOR A COMBUSTION TURBINE.
MOST OF THE COMPENSATION IS COMING THROUGH PERFORMANCE CREDITS.
AND THE REASON FOR THAT IS BECAUSE FOR A RELIABLE SYSTEM, THERE'S NOT VERY MUCH SCARCITY IN THE ENERGY MARKET.
AND SO PE COMBUSTION TURBINES JUST AREN'T GONNA REALLY EARN A LOT OF MARGINS THROUGH SCARCITY PRICING IN THE ENERGY MARKET.
MOST OF THE COMPENSATION IS GONNA COME FROM THE PERFORMANCE CREDIT MARKET, AT LEAST FOR A COMBUSTION TURBINE THAT LOOKS PRETTY DIFFERENT DEPENDING ON THE TECHNOLOGY THAT YOU'RE LOOKING AT.
IF WE GO TO THE NEXT SLIDE, THIS IS AN ILLUSTRATION OF HOW COMPENSATION BREAKS DOWN ACROSS EACH OF THE FOUR SEASONS.
SO IF WE DO A RISK ALLOCATION THAT'S DONE ON WHAT WE DESCRIBED AS AN EX POST BASIS, WHERE YOU GO THROUGH THE WHOLE YEAR AND YOU LOOK AT WHAT WERE THE ACTUAL TIGHTEST HOURS OF THE YEAR ACROSS ALL OF THE SEASONS, AND THEN YOU ALLOCATE BASED ON HOW THOSE TIGHT HOURS FELL ACROSS ALL OF THE SEASONS, YOU CAN SEE HOW THE, THE BREAKDOWN LOOKS BETWEEN THE DIFFERENT SEASONS.
SO, BECAUSE IN MOST YEARS, SUMMER'S THE TIGHTEST SEASON, MOST OF THE COMPENSATION, IF YOU USE AN EXPOST APPROACH, IS GONNA GO INTO SUMMER.
IN FACT, ON AVERAGE, 69% OF TOTAL COMPENSATION WILL ACCRUE IN THE SUMMER.
SO THIS IS JUST A PERCENTAGE ALLOCATION OF, UH, YEAH, OF UH, ESSENTIALLY VALUE TO THE, TO THE DIFFERENT SEASONS.
THIS CHART ON THE RIGHT IS SHOWING THE EXPECTED PC PRICE IN EACH SEASON, AND IT FOLLOWS A VERY SIMILAR PATTERN IN THAT MOST OF THE VALUES IN THE SUMMER, BECAUSE ON THE LEFT, MOST OF THE VALUES ALLOCATED TO THE SUMMER.
BUT THERE'S A SLIGHT DIFFERENCE IN THAT THERE'S A RELATIONSHIP HERE BETWEEN WHEN THE VALUE HAPPENS IN CERTAIN SEASONS THAT MIGHT BE CORRELATED WITH HIGHER OR LOWER ENERGY PRICES.
SO FOR EXAMPLE, WHEN IN FACT THE RISK DOES HAPPEN IN THE WINTER, CHANCES ARE IT'S AN ACTUAL SCARCITY EVENT WHERE ENERGY PRICES ARE GONNA GET VERY HIGH.
SO WHEN ENERGY PRICES GET HIGH, THAT MEANS PRICES FALL.
SO THERE'S KIND OF THIS INVERSE CORRELATION WHERE IN, YOU KNOW, YOU COULD, THAT'S WHY YOU, IF YOU LOOK AT THIS LEFT HAND CHART FOR WINTER, YOU SEE SOME VERY HIGH ALLOCATIONS, BUT YOU DON'T SEE THOSE POPPING UP ON THE RIGHT.
IT'S BECAUSE THOSE YEARS HAVE VERY HIGH ENERGY PRICES.
AND SO THE PC PRICES ACTUALLY CLEAR AT VERY LOW LEVELS WHEN IN FACT THOSE DO OCCUR.
SO AGAIN, THIS IS MORE JUST KIND OF US, UH, WALKING THROUGH SOME OF THE OUTPUTS OF THE MODELING.
THE NEXT SLIDE, AND WE'RE, WE'RE GOING RAPID FIRE HERE, SO I APOLOGIZE, BUT THIS CHART ON THE LEFT IS SHOWING THE RELATIONSHIP BETWEEN NET CONE AND ANNUAL PERFORMANCE CREDIT PRICES.
SO AS RECALL, WE'VE EXPLICITLY DESIGNED THE DEFAULT, UH, THE DEFAULT DESIGN TO SET PERFORMANCE CREDIT PRICES BASED ON ACTUAL NET CONE.
SO IN OTHER WORDS, IF NET CONE IS VERY LOW, THEN ANNUAL PC PRICES, UM, WOULD BE VERY LOW, RIGHT? BECAUSE THAT MEANS RESOURCES HAVE EARNED A LOT OF REVENUES IN THE ENERGY MARKET.
IT'S ONLY WHEN RESOURCES DON'T EARN A LOT OF REVENUES IN THE ENERGY MARKET, WHICH IS WHEN NET CONE IS HIGH, THAT PERFORMANCE
[06:40:01]
CREDIT PRICES ARE ALSO ALLOWED TO RISE.SO YOU SEE KIND OF THIS RELATIONSHIP HERE THAT'S DEFINITIONAL TO THE DESIGN.
IN FACT, THERE'S A CAP THAT THE PERFORMANCE CREDIT PRICE CANNOT EXCEED 1.5 X NET CONE.
SO YOU'LL SEE, YEAH, THAT'S THE RELATIONSHIP THERE, BUT 1.5 X THE, THE PERFORMANCE CREDIT PRICE CANNOT EXCEED THAT.
YOU DO SEE SOMETIMES THESE DOTS FALL BELOW THIS KIND OF DIAGONAL LINE, RIGHT? WHAT THAT'S INDICATING IS THAT EVEN THOUGH NET CONE WAS LOW, SUPPLY WAS VERY HIGH AND YOU'RE KIND OF SHIFTED AWAY FROM THE PRICE CAP PORTION OF THE DEMAND CURVE AND YOU'RE FALLING DOWN THE DEMAND CURVE.
SO THAT'S, THAT'S WHAT THAT'S ILLUSTRATING.
THAT'S IF YOU LOOK AT EVERYTHING AGGREGATED ACROSS THE ENTIRE YEAR.
BUT OF COURSE, IN REALITY, THE SEASONAL MARKET, THESE ANNUAL VALUES ARE GONNA BE DISAGGREGATED ACROSS ALL OF THE SEASONS.
AND SO THIS CHART ON THE RIGHT IS JUST SIMPLY SHOWING THAT DISAGGREGATION BETWEEN ALL THE DIFFERENT SEASONS.
THE YELLOW DOTS ARE SUMMER, AND SO MOST OF THE VALUE FALLS IN SUMMER.
THE BLUE IS WINTER, BUT THEN YOU HAVE SPRING AND FALL.
SPRING IS GREEN, FALL IS ORANGE.
SO YOU CAN KIND OF SEE HOW THOSE VALUES BREAK OUT.
BUT THE MORAL HERE IS THAT MOST OF THE VALUE ACCRUES IN THE SUMMER, AT LEAST AS WE'VE DEFINED THE DEFAULT.
SO COUPLE OTHER SLIDES HERE, IF WE GO TO THE NEXT SLIDE, THIS IS SHOWING YET ANOTHER RELATIONSHIP BETWEEN ACTUAL PERFORMANCE CREDIT SUPPLY, LIKE HOW MANY PERFORMANCE CREDITS WERE GENERATED IN A GIVEN YEAR AND WHAT THE PERFORMANCE CREDIT PRICE IS BY SEASON.
AND SO GENERALLY WHAT YOU SEE HERE ARE RESOURCES FOLLOWING SOMETHING THAT LOOKS LIKE A DEMAND CURVE, RIGHT? WHEN SUPPLY INCREASES, THEN THAT DECREASES THE SUPPLY OF PERFORMANCE CREDIT.
SO THESE, THESE ROUGHLY FOLLOW THE DEMAND CURVE.
UM, OF COURSE YOU CAN HAVE SITUATIONS AS WELL WHERE EVEN AT LOW SUPPLY, IF LOW SUPPLY OFTEN IS CORRELATED WITH HIGH ENERGY PRICES AND HIGH ENERGY PRICES BASED ON OUR DESIGN WILL DEPRESS PERFORMANCE CREDIT PRICES.
SO YOU COULD, THAT'S WHY THIS IS NOT A PERFECTLY LINEAR DEMAND CURVE HERE.
YOU CAN HAVE LOW PC SUPPLY AND LOW PRICES BE IF YOU ALSO HAVE HIGH ENERGY PRICES.
SO THAT'S KIND OF WHY YOU SEE THIS SCATTER HERE.
AND THEN THE NEXT SLIDE, LET ME DO TWO MORE SLIDES BEFORE I PAUSE, THREE MORE SLIDES BEFORE I PAUSE FOR QUESTIONS.
SO SLIDE 67 IS GOING BACK TO THIS METRIC THAT WE'VE TALKED ABOUT A COUPLE TIMES CALLED PC EFFECTIVENESS, WHICH IS ESSENTIALLY FOR EACH RESOURCE TYPE, HOW MANY PERFORMANCE CREDITS WOULD WE EXPECT THAT RESOURCE TO EARN RELATIVE TO THEIR NAMEPLATE? SO IT'S KIND OF LIKE THE CAPACITY, VALUE OF A RESOURCE.
BUT YOU KNOW, WE ARE SAYING HERE, IF WE JUST LOOK IN AT NUCLEAR FOR EXAMPLE, WE CAN SEE HERE WE HAVE FOUR DIFFERENT COLORED BARS.
THESE ARE FOUR DIFFERENT SEASONS.
SO SPRING, SUMMER, FALL, AND WINTER.
IF WE LOOK AT WINTER FOR EXAMPLE, WE CAN SAY THAT IN WINTER, ONE MEGAWATT OF NUCLEAR WILL EARN PROBABLY 0.98 PERFORMANCE CREDITS, RIGHT? UNLESS THERE'S A FORCED OUTAGE.
NUCLEAR IS VERY AVAILABLE IN WINTER, IN SPRING NUCLEAR'S DOWN IN THE THIRTIES BECAUSE CHANCES ARE IT'S GONNA NEED TO DO SOME REFUELING.
AND SO A, A MEGAWATT OF NUCLEAR WOULD EARN 0.35 PERFORMANCE CREDITS IN THE SPRING ON AVERAGE.
AND SO YOU CAN, WHAT YOU CAN, YOU KNOW, THE MORAL OF THE STORY HERE IS THAT IN GENERAL, THESE ARE ALL DISPATCHABLE RESOURCES THAT WE'VE INCLUDED HERE IN GENERAL, SUMMER AND WINTER ARE THE HIGHEST BECAUSE THESE RESOURCES ARE DOING PLANNED MAINTENANCE IN THE SPRING AND THE FALL.
AND SO THEY'RE DERATED A LITTLE BIT IN THE SPRING.
AND THE FALL IN GENERAL WINTER AND SUMMER HAVE HIGHER AVAILABILITIES AND IN FACT WINTER, EVEN HIGHER THAN SUMMER DUE TO JUST AMBIENT AVAILABILITY.
AND THEN YOU CAN SEE SOME OF THE DIFFERENCES AS WELL IN BATTERIES ON THE FAR RIGHT.
AND THIS DOES SHOW, UH, SOME OF THE, WE WERE TALKING ABOUT THAT SUMMER HAS SLIGHTLY HIGHER ACCREDITATION THAN WINTER, AGAIN, BECAUSE WINTER TENDS TO HAVE LONGER EVENTS THAT D RATES LIMITED DURATION RESOURCES MORE THAN SUMMER EVENTS.
THE NEXT SLIDE IS LOOKING LOT OF INFO HERE, BUT THIS IS LOOKING AT THE IMPACT TO TOTAL REVENUES BY RESOURCE TYPE IN A WORLD, IN A SORT OF ENERGY ONLY WORLD VERSUS A PCM WORLD.
SO FOR ALL OF THE DIFFERENT RESOURCE CLASSES HERE, WE HAVE THE REVENUES THAT THOSE RESOURCES WOULD EXPECT TO MAKE IN AN ENERGY ONLY FRAMEWORK.
AND IN A PCM FRAMEWORK, AND THE COUPLE OF KEY OBSERVATIONS HERE ARE THAT THE YELLOW BARS ALWAYS GO DOWN IN A PCM WORLD BECAUSE THERE'S MORE, MORE CAPACITY ON THE SYSTEM AND THEREFORE THERE'S LESS
[06:45:01]
SCARCITY PRICING.AND SO THE MARGINS THAT RESOURCES EARN IN THE ENERGY MARKET DECREASES FOR DISPATCHABLE RESOURCES, PERFORMANCE CREDITS VERY CLOSELY MAKE UP THOSE LOST REVENUES.
AND IN FACT, THE, WHAT WE'RE CALIBRATING EVERYTHING TO IS RIGHT IN THE MIDDLE, THAT COMBUSTION TURBINE THERE, YOU CAN SEE THAT COMBUSTION TURBINES ARE EXACTLY NEUTRAL BETWEEN THESE TWO DESIGNS.
THEY MAKE THE EXACT SAME AMOUNT OF MONEY, UH, YOU KNOW, THEY MAKE UP FOR THE LOST REVENUES AND ENERGY THROUGH THE PERFORMANCE CREDIT PAYMENTS.
THERE ARE, WE HAVE SOME RENEWABLE RESOURCES ON THE LEFT HERE.
IN GENERAL, JUST LIKE ALL THE OTHER RESOURCES, WHEN ENERGY PRICES FALL, THE REVENUES THAT RENEWABLES EARN ALSO FALLS.
BUT BECAUSE RENEWABLES ARE NOT ELIGIBLE FOR PERFORMANCE CREDIT PAYMENTS, THERE'S NOT A BOOST THAT SORT OF TRUES THEM BACKUP TO THE ORIGINAL VALUE.
SO WE WOULD EXPECT IN THE LONG RUN THIS WOULD HAVE AN IMPACT ON THE ULTIMATE AMOUNT OF RENEWABLES THAT ENTER THE MARKET AND THAT IS SOMETHING THAT WE WILL LIKELY BE LOOKING AT.
SO I THINK THE TAKEAWAY FROM THIS SLIDE IS THAT FOR ANY GIVEN RESOURCE TYPE, THE REVENUES TO EACH RESOURCE ARE ROUGHLY SIMILAR IN BOTH AN ENERGY ONLY AND A PCM DESIGN, EXCEPT FOR RENEWABLES, FOR OBVIOUS REASONS, BECAUSE THEY'RE NOT ELIGIBLE.
AND SO THEY DO SEE SLIGHT REDUCTIONS IN REVENUES.
AND YOU CAN SEE ACTUALLY BATTERIES HERE, THE 1.6 HOUR DURATION BATTERIES IN FACT COME OUT SLIGHTLY AHEAD.
I WOULD, I WOULD ROUND THAT INTO THE NOISE.
I WOULD CALL IT EVEN I THINK BATTERIES COME OUT ROUGHLY, ROUGHLY THE SAME.
AND THE FINAL SLIDE HERE IS LOOKING AT, IF WE GO TO THE NEXT SLIDE, ANNUAL COSTS OF PCM.
WE'VE ACTUALLY ALREADY SEEN THIS SLIDE, SO I WON'T, I WON'T COVER THIS SLIDE, BUT IT'S, UH, YEAH, TALKING ABOUT HOW THE DEFAULT DESIGN, THE NET COSTS OF IT ARE $0.2 BILLION ON AVERAGE, MORE EXPENSIVE, BUT THERE ARE MANY YEARS IN WHICH THE ABSOLUTE COST CAP IS EXCEEDED.
SO WE'VE, WE'VE DISCUSSED THAT ATD NAUM, BUT I WILL PAUSE THERE FOR QUESTIONS.
OKAY, SO WE DO HAVE, UH, A FEW QUESTIONS HERE.
I THINK WHAT I'M GONNA PROPOSE IS THAT WE'LL ADDRESS THESE QUESTIONS.
I THINK MAYBE DAVE HAD ONE POINT, DAVE MAGIO WANTED TO MAKE ONE COMMENT, AND THEN I THINK WE'LL PROBABLY WRAP UP FROM THERE IF THAT WORKS WITH EVERYBODY.
YEAH, I THINK, UH, SLIDE 64, THAT REALLY SHOWS WHY WE NEED TO DO THIS X BECAUSE IF YOU, IF YOU PLOT THE LOLE, IT'S MOSTLY IN THE WINTER AND ALL THE MONEY'S GOING IN THE SUMMER, SO THAT'S ONE POINT.
THE OTHER IS WISE COMBINED CYCLE GOING DOWN UNDER PCM, THE REVENUES ARE SLIDE 69 OR 68, SORRY, YEAH.
OH, SO I WOULD, I WOULD SAY THAT THAT'S, I WOULD LOOK AT THIS GRAPH THROUGH A LITTLE BIT OF A SQUINT.
I I THINK THOSE ARE, THAT'S ROUGHLY SAYING THAT THESE RESOURCES COME OUT EQUIVALENT.
I MEAN, WE CAN, WE CAN LOOK INTO THAT, BUT I, I DON'T VIEW THAT AS A MATERIAL REDUCTION IN REVENUES.
JENNIFER SCHMIDT, I DUNNO IF THE COMBINED SINGLE PLANTS WOULD AGREE THAT 5% IS NOTHING, BUT, UM, I ALSO WOULD LIKE TO SAY THAT I THINK THAT THIS GRAPH SHOWS THAT WE WOULD INSTANT SORT STORAGE TO PAIR WITH RENEWABLES, WHICH I THINK PARTICULARLY FOR HYDRO IS AN APPROPRIATE MARKET SIGNAL.
I MORE WANTED TO TALK ABOUT HOW MUCH GREEN IS ON THIS GRAPH AND TO EMPHASIZE THAT THAT IS MY CONCERNING GUTTING THE ENERGY MARKET BECAUSE I CAN'T HEDGE THE CURRENT PROPOSAL AS JAY SAID, AND I DON'T KNOW HOW I FUNCTION AS A RETAILER IN THIS WORLD.
I MEAN, I, I APPRECIATE THE COMMENT AND THE CONCERN.
I GUESS MY REQUEST WOULD BE GIVEN ALL OF THE CONSTRAINTS THAT WE HAVE, RIGHT? WE HAVE SP THREE SAYING YOU WILL IMPLEMENT A RELIABILITY STANDARD, IT WILL BE A COMPETITIVE PRODUCT.
WE HAVE GUARDRAILS, WE HAVE ALL OF THESE THINGS, YOU KNOW, IF THERE IS A DIFFERENT APPROACH THAT SATISFIES ALL THOSE THINGS, THEN WE, WE WE'RE ALL EARS.
OKAY, NEXT IN THE QUEUE IS REMI, I JUST WANTED TO CLARIFY.
SO THE DEFAULT, IN THE DEFAULT, YOU ARE ASSUMING THAT, UM, THAT 1 BILLION CAP IN THE STUDY IS THAT THE DEFAULT SCENARIO? WE ARE, WE'RE THE,
[06:50:01]
THE DEFAULT IS COSTS $0.2 BILLION ON AVERAGE MORE EXPENSIVE.SO THIS, THIS ANALYSIS WAS DONE BEFORE GUIDANCE FROM THE COMMISSION STATING AN ABSOLUTE ANNUAL CAP.
AND SO THIS IS DONE UNDER THE INTERPRETATION OF AN AVERAGE ANNUAL CAP.
THIS IS DEFAULT IS AVERAGE ANNUAL, CORRECT? YES.
STEVE RE HI, I AM, I'M, UH, KIND OF FOCUSED ON THE WIND NUMBERS.
UM, THE, UH, IS THAT $137 PER, UH, NAMEPLATE, UH, OR SOLD? I MEAN IT, THE, THE, DOES IT INCLUDE TAX CREDITS? I, I'M JUST BAFFLED IS HOW THE, THE WIND VALUES GOT THAT HIGH IN THIS CHART.
THAT IS THE, YEAH, THAT IS DOLLARS PER KILOWATT YEAR NAMEPLATE WIND REVENUES.
AND THAT'S FOR A SYSTEM THAT'S IN EQUILIBRIUM, RIGHT? SO IT'S HAD A SIGNIFICANT QUANTITY OF DISPATCHABLE RESOURCES REMOVED.
THAT CREATES SIGNIFICANT AMOUNT OF SCARCITY.
I MEAN THE, YOU KNOW, IT'S IMPORTANT THAT THE, THE SCARCITY THAT HAPPENS IN THAT TYPE OF A SYSTEM IS GENERALLY HAPPENING IN THE EVENING, WHICH IS MORE ALIGNED WITH WIND THAN SOLAR, FOR EXAMPLE.
AND, AND, AND, AND I SEE WHERE THAT WOULD DIFFER FROM TODAY.
I WILL JUST SAY THAT THE, UM, THE REASON THAT I'M, I'M, UM, YOU KNOW, THE REASON I'M CURIOUS IS BECAUSE LAST YEAR, OBVIOUSLY WITH THE DIFFERENT FLEET, BUT LAST YEAR WIND, THE AVERAGE SELLING PRICE FOR WIND.
SO THEN YOU'D HAVE TO MULTIPLY THIS BY A CAPACITY FACTOR, WHEREAS THE AVERAGE SELLING PRICE FOR ENERGY LAST YEAR WAS $57.
THE AVERAGE SELLING PRICE FOR WIND WAS $24.
UM, SO IT LOOKS LIKE IT GOES FROM SIGNIFICANTLY BELOW AVERAGE TO ABOVE AVERAGE IN VALUE.
I THINK THIS MIGHT POINT INTO FLAWS OF USING A NO CONGESTION, UH, A NO CONGESTION MODEL.
AND THE LAST QUESTION IN THE QUEUE AT THIS POINT IS LORI BLOCK.
I JUST WANNA MAKE SURE I UNDERSTAND THIS SLIDE.
SO YOU SAID THIS SHOWS THE REVENUES EXPECTED, UM, TO BE MADE BY VARIOUS RESOURCES IN BOTH THE ENERGY MARKET AND THE PCM MARKET.
SO I WANNA MAKE SURE I'M READING THIS CORRECTLY.
SO IF YOU LOOK ON THE LEFT HAND SIDE OF THIS CHART WHERE THE RENEWABLE RESOURCES ARE, I DID JUST SOME QUICK MATH IN MY HEAD, BUT THAT LOOKED ABOUT $110 BILLION DIFFERENCE BETWEEN THOSE TWO FOR JUST THE RENEWABLE SIDE.
AM I MISSING SOMETHING? IS THAT WRONG? CAN YOU EXPLAIN THAT TO ME? SORRY.
THESE, THESE ARE IN UNITS OF DOLLAR PER KILOWATT YEAR.
WHAT'S THE, UM, WHAT'S THE TOTAL AMOUNT THEN IN REVENUES FOR, SO YOU WOULD ESSENTIALLY NEED TO MULTIPLY THESE VALUES BY THE INSTALLED CAPACITY OF EACH RESOURCE TYPE, WHICH IS YEAH, IN OUR ASSUMPTION SECTION ON, UH, SLIDE 23.
SO YEAH, YOU WOULD MULTIPLY THESE DOLLAR PER KILOWATT YEAR BY THE TOTAL KILOWATTS OF EACH RESOURCE CLASS AND YOU'D GET DOLLAR PER YEAR.
BUT DO YOU JUST HAVE A ROUGH BACK OF THE ENVELOPE ABOUT WHAT THAT NUMBER IS? WHAT THE TOTAL REVENUES THAT GO TO RENEWABLES ARE? NO, THAT, THAT, THAT THE DELTA BETWEEN THE DELTA, THE REVENUES THAT THEY'RE MAKING AND THE ENERGY ONLY MARKET VERSUS WHAT THEY, UM, I MEAN, IT'S WHAT THEY WILL MAKE ONCE THE PCM IS IMPLEMENTED.
IF IT IS, LIKE, I WOULD, I COULD DO SOME MATH ON MY CALCULATOR, BUT LESS THAN A BILLION DOLLARS.
UM, BEFORE WE WRAP THINGS UP, UH, DAVE MAGGIO, DID YOU HAVE SOME COMMENTS YOU WANTED TO NOTE? YEAH, AND, AND RYAN, HOPEFULLY IT'S TIMELY.
I, I KIND OF WANNA TALK ABOUT NEXT STEPS.
SO I THINK THIS IS RELATED TO A QUESTION THAT, UM, THAT, UH, TOM DART ACTUALLY ASKED EARLIER, SORT OF, KIND OF NEXT STEPS, HOW SHOULD PEOPLE PROVIDE COMMENTS? UH, I GUESS ONE OF THE THING I, I'LL ASK FOLKS AND, AND WE CAN ACTUALLY UPDATE OUR PRESENTATION TO INCLUDE
[06:55:01]
SOME ADDITIONAL CONTACT INFORMATION.UM, BUT THE IDEA WOULD BE TO THE DEGREE FOLKS HAVE QUESTIONS ON THE MATERIAL QUESTIONS ABOUT SOME OF THE DESIGN IN GENERAL, UM, THOSE TYPES OF THINGS, UM, MYSELF AND, AND RYAN, I GUESS BEEN VOLUNTEERED MORE THAN ANYTHING, UH, PROBABLY TO DO THAT.
BUT, UH, WE'LL IF, IF YOU ALL CAN REACH OUT TO US, WE WILL DO THAT, UH, COORDINATION WORK WITH E THREE IN THE COMING WEEKS AND, AND DO OUR BEST TO, TO TRY AND ANSWER ANY QUESTIONS YOU ALL MAY HAVE.
I GUESS THAT, AND THAT WILL BE DISTINCT FROM, UH, YOU KNOW, AS A DEGREE, FOLKS ARE MORE THINKING ABOUT WANTING TO PROVIDE COMMENTS, WANTING TO SHARE SORT OF VIEWS ON WHAT THESE PARAMETERS OUGHT TO BE, UH, THROUGH WHAT I THINK IKA WAS ANSWERING EARLIER, THE EXPECTATION THAT, THAT YOU ALL WOULD BE ABLE TO, TO FILE THOSE FORMULAS TO COMMISSION.
THAT'LL BE REALLY THE WAY TO FORMALLY SHARE YOUR COMMENTS AND, AND VIEWS ON THE PARAMETERS.
BUT AGAIN, IF IT, IF IT'S MORE ABOUT KIND OF QUESTIONS OR, UH, QUESTIONS ON MATERIAL, THINGS OF THAT NATURE, YOU KNOW, YOU CAN SEND THOSE OUR WAY.
AND AGAIN, WE'LL, WE'LL UPDATE THE POST-IT ERCOT PRESENTATION TO INCLUDE SOME, UH, CONTACT INFORMATION FOR RYAN AND MYSELF SO THAT YOU CAN DO THAT.
LET'S FOLKS UP QUESTIONS FOR ME.
MAYBE WE'LL JUST SEE IF THERE ARE ANY FINAL QUESTIONS.
HEARING NONE, I, I DO WANNA THANK, UM, EVERYBODY FOR YOUR TIME TODAY.
IT WAS A, A FULL DAY, SO I APPRECIATE YOUR PATIENCE AND QUESTIONS AND THANK YOU TO E THREE AS WELL.
SO WE ARE ADJOURNED AND WE WILL BE FILING, UH, I THINK THE NEXT, THE IMMEDIATE NEXT STEP IS, AS DAVE NOTED, IS IF THERE ARE QUESTIONS OR COMMENTS RELATED TO THIS, PLEASE SEND US AND WE'LL BE FILING A REPORT AT THE COMMISSION FOR MAY 1ST.