Category Archives: Texas Energy Crunch

Texas Electricity Generation Plan Focuses On Fossil Fuels Instead of Diverse Infrastructure That Includes Renewables & Efficiency

By | Bio | Published: November 15, 2012

Last week, the Public Utilities Commission of Texas (PUC) voted to approve a staged increase of wholesale offer price caps in the Texas electric market for the Electric Reliability Commission of Texas (ERCOT) in order to prop up lackluster investment interest in new power plants. This change fits well with established theories of competitive markets, but it does little to resolve current issues beyond sending a signal to investors that the PUC intends to act further to incentivize investment in new generation.

That same day, the commissioners “swatted aside” a petition to revisit the state’s goal for non-wind renewable energy without allowing any public discussion.  Given our need for new drought-proof energy and the fact that solar costs have fallen 80 percent in the last three years, this seems like an issue the PUC would be eager to take up.  In fact, when PUC Chairman Donna Nelson was pressed during a state senate hearing this spring to identify state policies that had successfully added electric drought-proof resources, she focused on both the state’s Renewable Portfolio Standard (RPS) and energy efficiency goals.

The PUC has now voted twice to raise wholesale offer price caps for electric generation, even though it voted recently to make it more difficult for the state’s energy efficiency programs to succeed by lowering their price caps.  Last week, while voting to increase price caps again, Chairman Nelson noted that the work to ensure new electric generation did not end with that vote.   I hope that’s the case because I want to make sure we can keep the lights (and air conditioning!) on too.  Since the PUC denied the petition to create a rulemaking to expand the RPS, it seems that their work on expanding electric generation is limited to non-renewable, fossil fuel power plants and not much else.  This is unfortunate given the fact that renewable energy is expected to be the world’s second largest source of power by 2015, according to the recently released World Energy Outlook.

Over the last century, Texas has dominated the international energy scene. However, as the playing field changes, we need to make sure that Texas doesn’t fall behind as a state and an international energy leader.  Recent PUC decisions may increase that risk, but their final decisions on a new market structure will likely be the ultimate decider.

Texas and its citizens deserve a competitive and diverse energy infrastructure that allows for a wide variety of characteristics in energy resources such as storage, customer-side energy resources, renewable energy, and cleaner-burning modern natural gas-fired power plants. Anything less will risk not only our state’s near term electric grid reliability, but also our long-term economic viability as well.

Also posted in Energy Efficiency, Renewable Energy, Solar, Texas | Comments closed

Smart Technologies Allow For Improved Resiliency During Catastrophic Texas Weather

By | Published: November 8, 2012

As we continue to reflect on Superstorm Sandy and its devastating aftermath, it is encouraging to point out how smart technologies can aid in lessening the impacts. While a smart grid will not prevent massive natural disasters from wreaking havoc on communities causing power outages and destruction, it can help lessen the consequences and quicken recovery.

My colleague Miriam Horn wrote a piece earlier this week and said, “We’re already seeing proof these [smart grid] investments can reduce recovery time, keep crews and customers safer, and save lots of money. Thanks in part to federal stimulus grants, a number of utilities are embedding sensors, communications and controls across their networks. On the power lines that it has helped prevent cascading disasters like the one that knocked out power to 55 million people in 2003, when a single Ohio tree fell on a power line. Automated systems can detect a fault, cordon it off and reroute power flow around it.”

Furthermore she states that “digital smart meters, capable of two-way communications, have also proved their worth: providing utilities real-time, granular visibility into their networks, without resorting to (often failing) phones or trucks dispatched on wild goose chases.  Programmed to send a “last gasp” signal when they lose power, those meters have enabled rapid diagnostics – pinpointing exactly which homes or blocks were out, where the break had occurred – and expedited repairs.”

In the DC area, “when the storm struck Monday, Pepco, the utility serving the nation's capital and its Maryland suburbs, began getting wireless signals from smart meters on its network registering where individual customers had lost power, said Marcus Beal, senior project manager for Pepco's smart meter program. One of the first movers to install smart meters, Pepco has 725,000 in place and had activated 425,000 of them before the storm struck. Instead of relying solely on customers to call in outage information on specific neighborhoods, Pepco dispatchers can track damage based on smart meter signals that are automatically linked into the utility's outage map, guiding priorities for deploying repair crews, Beal said. As repairs proceed, the utility is also able to "ping" meters remotely to verify where and when power has been restored. ‘They certainly improve recovery time,’ Beal said, ‘without a doubt. They help to improve the efficiency of the restoration.’"

Here in Texas, we are prone to two main types of extreme weather conditions: hurricanes on the coast and tornados on the plains. Over the past few years we have witnessed the increased intensity of both in Texas and across the US. In 2008, When Hurricane Ike struck Houston as a Category 4, nearly 99 percent of residents lost power, which is about 2 million people.  After 13 days one-quarter of the residents of the fourth-largest U.S. city still did not have electricity.

In 2010, CenterPoint Energy, the utility in the area, began rolling out smart grid updates and said that future hurricane-related electric power outages should be shorter because of smart meters and other grid improvements. In comments filed by the City of Houston to the Public Utility Commission (PUC), a Task Force Report assembled after Ike identified the installation of intelligent grid technology as the ‘best return-on-investment to improve grid resilience and enable storm recovery system-wide’.  Therefore, the Task Force recommended the acceleration of CenterPoint's intelligent grid deployment in the Houston area. A more intelligent electric grid, combined with smart meter technology, improves reliability by enabling automated self-healing of the grid, which results in fewer outages and faster restoration times for customers. This is crucial for public safety along the Texas Gulf Coast, and in the Houston area, specifically.

For other non-coastal areas in “Tornado Alley” Texas, cyclones can be truly terrifying and unpredictable, like the tornadoes that swept through the Dallas area in April of this year.  While images of tractor trailers and school buses being lifted and thrown like toys are scary, Texans can at least be encouraged by the example of Alabama Power, “which was slammed in April 2011 by 30 tornadoes across 70 miles with winds up to 190 mph. The twisters left 400,000 without power and thousands of poles, wires and substations damaged or destroyed. But by using its 1.4m smart meters to locate the outages and prioritize repairs, the utility restored all of its customers within a week. It also drives 4 million fewer miles each year.”

Across the country, smart meters and grid technologies are being installed, providing more reliability and efficiency in the event of disasters and during normal operations. The Federal Energy Regulatory Commission estimates the percentage of meters in the United States using the new digital technologies increased from 6.5 percent in 2009 to between 13 and 18 percent last year. The IHS consulting firm projects that, by the end of this year, one-third of all meters in North America will be advanced smart versions with two-way communications capability.

Luckily, Texas has 1 million smart meters already installed and is well on its way to 7 million by 2013.

With novel ways of planning, new technologies and innovative infrastructure – from the potential of microgrids enabling community self-sustainability by disconnecting from damaged main grids, and distributed renewable generation letting consumers power back up, to electric vehicles allowing people to avoid the long gas lines and shortages – the future can allow us to be more resilient in the face of catastrophe.

Also posted in Climate, Smart Grid, Texas | Comments closed

Chasing Red Herring On The Wind

By | Bio | Published: September 13, 2012

The saying goes that hunters used smoked red herrings to train their dogs, trying to throw them off the scent of the hunt with something that has a much stronger and tempting smell but ultimately wasn’t the real target.  This is quite similar to recent discussions about resource adequacy – now that it’s become clear that the EPA isn’t the reason for power plants shutting down, some seem more focused on finding another scapegoat rather than addressing the real problems in the market.

There was a time, not too long ago, when the low marginal costs of technologies like wind and solar power were seen as a good thing.  In 2009 the Public Utility Commission (PUC) said “renewable generation has reduced wholesale and retail energy prices during some periods and has been instrumental in moderating price increases during periods in which the cost of natural gas was increasing.”  Back then, this was seen as a good thing because there was a need for a moderating influence on high natural gas prices at the time.

Times have changed though, and lately PUC commissioners have taken to blaming wind energy for their current troubles, even when their own paid experts tell them otherwise.  In a Senate Natural Resources hearing last week, PUC Chairman Nelson stated that “the market distortions caused by renewable energy incentives are one of the primary causes, I believe, of our current resource adequacy issues.”

The problem with this claim is that it isn’t supported by the facts, and most industry experts agree that the real problem (if you want to call low energy prices a problem) is a combination of a market structure in need of reform and consistently low natural gas prices.  In the Brattle Group’s report on resource adequacy issues in ERCOT they make a pretty strong case that gas, not wind, is responsible for setting the bulk of market prices.  Perhaps the best way to look at it is this chart showing how electric rates lined up with gas prices over the last decade. Read More »

Also posted in Renewable Energy, Texas, Wind | Comments closed

Shut Down The Texas Government (Power)!

By | Published: September 7, 2012

Source: Jon Rogers

These days it seems “shutting down” the government is a popular rallying cry in Texas. So, why not do it…er…or at least shut down the electricity when it’s not being used!?

As many of us enjoy the shortened work week due to the Labor Day holiday on Monday, I thought it would be a good time to look into what kind of demand response (DR) government buildings can participate in during holiday and seasonal closings.

We have discussed the benefits of both residential and commercial DR and governments can represent large or small entities depending on their size. The Texas Facilities Commission (TFC), responsible for “planning, providing and managing facilities for more than one hundred state agencies in over 290 cities throughout Texas,” has a current inventory totaling “24 million square feet of leased and state-owned properties.” Of that, offices make up about 6 million square feet across eight different cities.

These state agencies annually “consume over $200 million in electricity, which is procured and billed on thousands of separate accounts through various providers. In an effort to reduce these expenditures, the Office of Energy Management (OEM) is looking at ways to aggregate the State's electrical load into fewer accounts, perhaps into just one. This strategic initiative could take advantage of negotiation opportunities, economies of scale, consolidation of facility loads and load scheduling resulting in the TFC saving thousands of dollars a year on electricity alone.”

Furthermore, the “OEM is taking a more expansive look at its resources, including purchasing, producing and distributing, and actual consumption. For example, it recently proposed aggregating the States electrical load to benefit from economies of scale, wholesale rates, reduced peak demand charges, and to acquire a more sophisticated rate structure and is currently studying the possibility of incorporating combined heat and power in its production.”

The TFC is also working with the General Land Office (GLO) to aggregate smaller state agency accounts to provide volume discounts for these accounts. Currently, smaller state agencies procure gas supplies from the local gas companies or in amounts from the GLO that do not render the economies of scale capable with the aggregate consumption with the TFC. By aggregating these smaller amounts, the TFC gets a better deal for the buildings under the TFC's control and the other agencies. Read More »

Also posted in Demand Response, Texas | Comments closed

Demand Response Means Big Money for Big Users

By | Bio | Published: August 22, 2012

After a full week of triple digit temperatures in central Texas, the forecast this weekend for highs in the mid-90’s seems like a blessing both for our thermostat and for the unending topic of this blog series: our electric grid.  Officials from the Public Utility Commission (PUC) and the Electric Reliability Council of Texas (ERCOT) have been worried about the strain on our electric grid all summer long, but they aren’t just worried about this summer.  The energy crunch is an issue that we know will be with us until we deal with it; we can’t rely on dancing cats to ease the crunch. We need real solutions to avoid real problems in the future. 

It doesn’t have to be that way though, and it doesn’t need to cost as much as some worry it will, but that’s assuming that the PUC and ERCOT are able to move quickly and decisively to encourage demand response.  In our blog post last week we focused on the benefits of demand response for residential customers and small businesses, and that’s probably where the greatest overall potential lies.  But the quickest return – and the most financially savvy electric customers – might lie in the commercial and industrial markets today.  Fortunately two great examples in other parts of the country show how we could be doing more for those markets in demand response as well.

 “Making the Most of Your Energy” in NYC

Large commercial buildings typically face a number of hurdles when trying to upgrade their energy systems – particularly those with multiple tenants.  In New York City, the Rockefeller Group Development Corporation saw these hurdles as an opportunity for a new approach to energy management.  By selling their demand reductions to the grid, in the manner we’ve proposed for ERCOT, they managed to reduce energy usage by 60,000 kWh per month and reduced peak demand by 1.4 MW.  McGraw Hill now receives a net income (after payments for the financed upgrade) of $500,000 annually.

Rules in ERCOT might allow for this kind of savings already in some small ancillary services markets, so long as their metering system complies with ERCOT protocols.  Those ERCOT demand response markets are capped and already oversubscribed; leaving developers who want to build smart buildings or upgrade older ones are looking to other markets for their business.

Meanwhile, in the heartland….

We mean Warrick County, Indiana specifically. Alcoa, one of the world’s leading aluminum producers has worked with their grid operator Midwest ISO (MISO) to develop a completely new approach to industrial demand response that has blown the doors off of the possibilities for Texas’ industrial sector.  The market for aluminum is ruthless, and Before Alcoa anything that gives Alcoa a leg up helps them preserve critical jobs and tax income in their communities around the country. 

With this new market, Alcoa has managed to maintain international competitiveness for their Warrick County plant and is looking to expand demand response to their aluminum smelters in other parts of the country.  In Texas, where Alcoa's Rockdale smelters are were not able already struggling to maintain international competitiveness and have been idled as a result, , new markets like the pilot project announced by ERCOT on Monday could mean the difference for other industries between staying profitable and shutting down operations.

Whether it’s in the city or the country, a big user or a small mom and pop store, demand response markets offer a new benefit to customers if the market rules allow customers to compete with other resources.  As we discussed earlier this week, the potential for these resources in Texas would help us meet 15 percent of our peak demand needs according to ERCOT’s Brattle Report.  That potential stretches across all types of customers, and must be part of the solution to the energy crunch in Texas if we want to keep rates down and maintain reliability.

Also posted in Demand Response, General, Texas | Comments closed

13:15

By | Published: August 13, 2012

Source: “ERCOT Investment Incentives and Resource Adequacy.” Brattle Group. June 1, 2012.

In January, we discussed the benefits of demand response (DR) and how Texas is not taking full advantage of it. Not only is DR a low cost, zero water source for providing capacity through conservation, but it can also actually directly benefit consumers financially. Furthermore, since residential and small customers account for “more than 70 percent of peak load” it is paramount that we tap into this resource.

The 13 Percent Reserve Margin

Fast forward to this summer, where a few factors have encouraged the situation as Texas’ energy crunch comes to light. In May, the 13.75 percent reserve margin became the center of discussion about how to proceed. Set in 2010 by the Electric Reliability Council of Texas (ERCOT) board, the 13.75 percent target planning reserve margin is to ensure enough power is available for contingencies such as extreme weather and unplanned power plant outages. However, a newly revised Capacity, Demand and Reserves (CDR) report shows that in 2014 we may be only at 9.8 percent and by 2015 this could drop to 6.9 percent, numbers that are very far away from the original goal.  A failure to meet this reserve creates instability, not only for the ERCOT market as a whole, but that uncertainty ripples through the state for all businesses and households.

In June, the peak energy forecast for this summer was surpassed. ERCOT had predicted a 66,195 megawatt (MW) peak demand for the whole summer, but we surpassed that with 66,583 MW in June, well before the string of 100+ degree days we have seen recently. 

The 15 Percent Potential From Demand Response

In June the Brattle Report came out reiterating FERC’s studies, which demonstrated that the potential for achievable participation in DR is 15 percent of capacity in Texas.  This means that “dynamic pricing and load control technologies are deployed on an opt-out basis, with roughly 75 percent of customers participating.”

So if Texas met this DR goal of 15 percent it would be enough to cover our reserve margin of 13.75 percent and then some. Without new power plants. Without any new generation capacity at all. While in actuality we would rely on other demand side resources as well – such as distributed generation and storage – it is very important to point out the link between the 13/15 ratio, and how much potential demand response provides us.

Even better is that unlike other mechanisms that do not benefit consumers financially such as the price cap increase, DR and other demand side resources can provide large gains for consumers. Not only do they encourage reductions in energy consumption and thus energy bills, but because there is an added value in providing that “negawatt” capacity back into the system, customers are compensated. As we noted in an earlier blog, in the PJM market, $20 million of the payments went to residential customers!”

While there are still only a few of these initiatives around the country, the momentum is alive. Last year, FERC Rule 745 was established that “requires wholesale energy market operators to pay DR participants the market price for energy when those resources are able to balance supply and demand as an alternative to additional generation, and when DR dispatch is cost-effective.” This lays the foundation for how consumers will be compensated. FERC Chairman Jon Wellinghoff put it well, “[this] final rule is about bringing benefits to consumers. The approach to compensating demand response resources as we require here will help to provide more resource options for efficient and reliable system operation, encourage new entry and innovation in energy markets, and spur the deployment of new technologies. All of this contributes to just and reasonable rates.”

On June 26, ERCOT moved in the right direction by approving a DR pilot project that “will allow eligible participants a half hour to respond to ERCOT requests to reduce their electric use. The program is open to electric users — either as individual customers or as part of an aggregated group of consumers — who can reduce demand on the ERCOT grid by at least 100 kilowatts, which is the amount 20 homes use during peak demand.”

This follows a rule change adopted by the PUC in May that “authorizes ERCOT to conduct pilot projects to ‘evaluate resources, technologies, services, and processes that demonstrate the potential to advance the operational and market functions of the ERCOT system.’ This is the first pilot project approved under the new rule.” EDF commented on these rule changes and we are pleased to see ERCOT moving forward with these pilots. While many more deployments need to begin, we are headed down the right path and finally waking up the innovations needed in the energy market.

Also posted in Demand Response, Texas | Comments closed

PUC Resource Adequacy Workshop on Friday, July 27

By | Published: July 25, 2012

Source: Brattle Group. “ERCOT Investment Incentives and Resource Adequacy.” June 1, 2012

This Friday, the Public Utility Commission (PUC) will host a workshop to discuss the Brattle Group’s recommendations for Texas’ resource adequacy predicament and how to move towards sustained reliability. This workshop is timely, since the Texas energy crunch continues to be in the spotlight. Just last week, the New York Times reported that Texas ranks last in electrical reliability among all states in the U.S. Texas won’t stay open for business if that remains the case and year after year it seems our state energy policy is based on a hope and a prayer. 

Table 1 of the Brattle report outlines the five policy options to solve the long-term problems.

The report specifically states that "reliance on scarcity prices is unlikely to achieve current reliability objectives.” Therefore raising the price cap is, alone, not going to solve the problem. As mentioned at the Senate Business & Commerce committee earlier this month, this issue was plagued by accusations that the market was being manipulated because of violent price fluctuations on June 25 and 26. It turns out the market is not being manipulated, which is good, but that it is really just dysfunctional in design, which is not so good. Colin Meehan’s blog last week highlights this issue and makes the point that while the PUC is willing to potentially pass the costs of a price cap increase onto ratepayers, it should also consider demand-side resources suggested by Brattle which could positively affect ratepayers. For example, in the PJM market demand-side resources are allowed to participate in energy and capacity markets and over $20 million of the payments went to residential customers.

EDF submitted comments for this workshop and will be in attendance. Other public comments were made from a variety of stakeholder’s including demand response advocacy groups, cities, MOUs, and power companies.

EDF believes that “such reforms must include a substantially increased role for demand response (DR) and other demand-side resources in ERCOT's markets; the report provides ample supporting evidence for this need. EDF requests detail on the level of DR needed to maintain reliability in each scenario [in chart above], what would be required in each scenario to attain those levels, as well as the role of other demand-side resources in meeting future resource needs.”

Also posted in Demand Response, General, Texas | Comments closed

The Texas Electric Market Isn’t Being Manipulated, It’s Just Built That Way (…And That’s Not A Good Thing)

By | Bio | Published: July 19, 2012

Last week, the Independent Market Monitor for the Electric Reliability Council of Texas (ERCOT) released a report showing that the violent prices fluctuations of June 25 and 26 were not the result of market manipulation, as asserted by earlier reports.  Most have greeted this as welcome news, but the finding could spell rocky years ahead with wild swings in electric prices from day to day, which makes it difficult for investors, generators and most importantly customers to plan ahead.  To understand why, let’s back up a second and talk about what these findings mean.

Wild Mood Swings

If the market isn’t being manipulated, it is at least feeling a little bipolar: one hot summer day with high demand prices are up slightly but everything was working fine. The next day however, a 2 percent uptick in demand combined with an unexpected loss of 1.6 percent sent prices soaring.  The peak price on June 25 hit $438/ megawatt hour (MWh), but on June 26 prices maxed out at $3,000/MWh, meanwhile average prices skyrocketed to 640 percent above the average for the 25th. 

In a well functioning market these price swings wouldn’t be so dramatic and unpredictable, and those swings point to fundamental problems with the electric markets in Texas.  In extreme situations prices and profits may increase enough to support new investment but those extremes are so unpredictable that no power company can plan well for them, much less finance new investments.  As Brattle Group says in their report to ERCOT, “reliance on scarcity prices is unlikely to achieve ERCOT’s current reliability objectives.”  The solution?  Reduce our reliability standards or implement reforms that will lead to reliable electricity over the long term without the need for emergency regulatory intervention.

The reason for these swings is pretty simple, and outlined in the Brattle Report: the ERCOT supply curve does not efficiently reflect current or upcoming scarcity conditions in the market.  The supply curve is dominated by low price resources like wind, efficient natural gas power plants, along with nuclear power and some cheaper coal, all of which come in at or under about $30/MWh.  But as the chart shows, when you start getting near the 100 percent peak demand level there’s a sharp “hockey stick” curve upwards in price.  This means that when we’re in that high demand territory, a single power plant going offline or an unexpected spike in demand can send electric prices from $30/MWh to $3,000/MWh without warning, like we saw in late June.  Other regions have a more gradual supply curve of price increases during scarcity conditions, providing a kind of ‘warning’ to the market that the Brattle Report suggests as part of its suite of recommended market reforms.  That gradual curve is important because it allows demand-side resources to help stabilize prices and at the same time it provides potential investors with the kind of predictable certainty that allows them to consider investing in Texas.

Solving the Problem

As we said above scarcity pricing by itself, especially when it’s so dependent on weather extremes, is not enough to keep the lights on in Texas.  To do so, regulators and stakeholders will need to roll up their sleeves, put politics aside and find a solution that works for all Texans.  As a many have pointed out, the Public Utility Commission (PUC) made the decision to raise the offer cap without even a cursory analysis of the impact on ratepayers, an oversight that hopefully won’t happen again. 

If and when ratepayer impacts are taken into account, demand-side resources will be seen as playing a key role not only in maintaining reliability, but also in reducing the impact to ratepayers.  According to the Brattle Report we can reduce our peak demand needs 15 percent with such demand-side resources, with residential customers and small businesses making up 72 percent of the reduction during the hottest days of the year, but only if serious changes are made to the market.  In PJM (another grid operator) , where demand-side resources are allowed to participate in energy and capacity markets, participants have received over $174 million for over 10,000 MW of customer provided demand-side resources, over $20 million of the payments went to residential customers. In Texas, as we consider implementing new policies that improve reliability and provide stable predictable market signals it will be critical to include demand response, and to tap into growing residential and small business markets.

Also posted in Demand Response, General, Texas | Comments closed

ERCOT Protocols Debated In Business And Commerce Committee Hearing

By | Published: July 13, 2012

On Tuesday, the Business and Commerce Committee in the Texas Senate held an interim charge hearing on the Electric Reliability Council of Texas (ERCOT) protocols, including a look at the impact on system reliability, a topic that EDF is following closely.  The charge as given directs the Texas Senate Business and Commerce Committee to:

Review current and pending ERCOT protocols as they apply to all generation technology, and identify those protocols that may provide operational, administrative, or competitive advantages to any specific generation by fuel type. Consider the impact any revisions to the protocols may have on grid reliability and electricity rates. Make recommendations for revisions or statutory changes to limit distortions in the Texas electrical market."

Leaders from all parts of the Texas electric system discussed the process of creating protocols and concerns about the impact of protocols on system reliability: Public Utility Commission (PUC) Commissioner Ken Anderson gave an update on activities at PUC and ERCOT this year, many of which we’ve discussed previously.  Anderson was followed by a panel including ERCOT CEO Trip Doggett.

Mr. Doggett told lawmakers that the “electric supply will be tight this summer and warned that the agency will likely declare Energy Emergency Alerts asking consumers to cut back on use. ERCOT may also implement emergency procedures, including taking industrial users offline. But blackouts would happen only if there was an extraordinary drop in generation or the state experienced record high temperatures.”  Senator Leticia Van de Putte asked about the Brattle report’s suggestion of a capacity market that would allow demand response (DR) and whether the 13 percent reserve margin should be treated as a target or a minimum requirement. This was not fully addressed beyond saying the Brattle report will be discussed at a Commission workshop on July 27.

The Director of ERCOT’s Independent Market Monitor, Dan Jones, keeps an eye on the system to make sure the market is functioning efficiently and no one is exerting undue influence over the Texas market.  Concerns of market manipulation have been raised by outside observers and committee members were clearly concerned about those allegations, which Mr. Jones is in the process of studying.  Jones also discussed the Brattle report recommendations, including one to further increase price caps in ERCOT.  Senator Kirk Watson asked how the recent cap increase, approved by the PUC to encourage more generation, could affect volatility, another issue that will be addressed along at the upcoming PUC workshop.

John Fainter, representing the Association of Electric companies of Texas (AECT), an electric industry  group, stated that the industry “supports the flexibility in the process with the current protocols”  and that “we will continue to have emerging technologies and that demand management should be part of the solution.”

We agree that it is important for the protocol development process to remain flexible and stakeholder driven, but the problem lies in the inertia with which these new emerging technologies and demand resources are brought into the market. The current stakeholder process tends to favor the status quo and, if that process is not successful in implementing the desired solution, consider further action through other means.

According to Brattle, “competitive DR resources can reduce our peak demand needs by 15 percent, greatly improving system reliability and playing a critical role in addressing future resource adequacy concerns.”   Large commercial and industrial customers, who are already “quite engaged” in various DR programs, only represent 14 percent of the total DR potential in ERCOT.  In contrast, during the summer of 2011 residential and small commercial customers accounted for 72 percent of peak load and “currently provide little DR.”

While EDF did not testify at the hearing, we submitted written testimony. Despite the current flexibility, the mechanisms by which new demand side resources expand do not necessarily allow for all stakeholders to be evenly weighed and can stymie the flexibility needed.  Texas is currently among the lowest states in terms of load management, despite having the highest potential according to FERC and the Brattle Group.  As ERCOT works to address resource adequacy issues, and this committee considers whether some protocols provide operational or competitive advantages to any specific generation, we believe it is important to note that ERCOT protocols generally provide operational and competitive advantages to generation resources over most demand side resources.

Therefore, we advocate the following changes to ERCOT’s market structure, including protocol revisions as proposed by Brattle:

  1. Enabling DR to directly participate in energy markets so it can set prices directly;
  2. Enabling all emergency DR to set prices at their individual strike prices during reserve shortage conditions, as in PJM;
  3. The adoptions of  provisions by ERCOT that allow demand resources to submit other operational data in lieu of  telemetered data in order to substantially expand participation;  and
  4. If supply offers clear, they should be paid a market price, such as the economically efficient price as determined by ERCOT’s Demand Side Working Group.

As this committee, ERCOT, and the PUC consider resource adequacy and inequities within current protocols, EDF recommends paying special attention to expanding DR options for residential customers and small business.  The four-market structure changes recommended above are critical to those efforts, but more work is needed to ensure that as other changes begin to impact retail rates, customers have recourse through DR programs that compensate them based on a fair market price.

Also posted in Demand Response, Texas | Comments closed

Forecasting Calamity In Texas

By | Bio | Published: July 5, 2012

(Credit: www.newsinarlington.com)

We’ve already had a spring of record highs, and now a June that is breaking records for electric demand (in June and July), including a peak demand that has already surpassed the projected peak demand for this summer –which we usually don’t hit until August.  Also, in an important decision last week – albeit one that won’t really change much this summer except for wholesale electric prices – the Public Utility Commission (PUC) voted 2-0 to raise the cap on energy bids in the electric market.  Given all of this activity over the past few weeks, one of the most interesting things to see has been the shift of focus from this summer to the next few summers, specifically 2014 and 2015, without stopping to consider why that time frame was chosen as a focus.

It all comes down to one obscure forecast, one that has almost nothing to do with energy: the Moody’s non-farm employment forecast. The energy crunch on the horizon that has everyone worried is a direct result of projected growth in demand in 2014/2015, derived from Moody’s projection that employment will remain fairly level in the near term, followed by a drastic increase in Texas employment around 2014.  Economic forces, in particular low natural gas prices and the need to further reduce pollution, will force some older, inefficient power plants out of the market, but the overwhelming factor is the projected ramp-up in demand in two years.

An important question arises that hasn’t been fully explored: why 2014, could it be later, or even sooner?  Today’s report on Texas Economic Indicators from the Federal Reserve Bank of Dallas has good news: “Texas factory activity surged in June… posting its strongest reading in 15 months,” which is welcome news of continued economic expansion in Texas, but is our electric grid ready to handle this spike in demand?  Tomorrow, the Bureau of Labor and Statistics will release its monthly unemployment numbers, which will have additional relevance for Texas as we struggle to meet electric demand in the face of record temperatures and economically-driven population growth.

The truth is, as with most projections, ERCOT’s planning process involves a little bit of art combined with a lot of analysis, and with every new national and local report on employment indicators the near term risks to our electric grid may shift.  As such, it’s important to realize that the major decisions currently being made at ERCOT and the PUC are largely the result of a single forecast with a highly time-dependent factor.

We won’t know how accurate these forecasts are until after the fact, but the decisions being made in Texas right now will have substantial, long-lasting effects on electric rates and customers.  Those effects haven’t been fully examined by the PUC, as the Houston Chronicle pointed out last week.  Historically the PUC has hesitated to take on clean energy policies purportedly out of concern for their impact on consumer rates, so it’s unclear why that analysis hasn’t been undertaken for such major market changes. 

What is clear is that these changes don’t do much to address real long term issues like water shortages, rising costs associated with fossil fuels and the flexibility to adapt to future economic conditions.  The recent Brattle reports – one showing that demand response is needed to maintain future reliability and another showing that solar power will help reduce electric costs – point to key steps the PUC can take to help customers deal with rising costs the will result from other PUC decisions.

Also posted in Demand Response, Texas | Comments closed