[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.