Energy Exchange

PUC Resource Adequacy Workshop on Friday, July 27

By Marita Mirzatuny / 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 General, Texas / Comments are closed

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

By / 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 General, Texas / Read 2 Responses

ERCOT Protocols Debated In Business And Commerce Committee Hearing

By Marita Mirzatuny / 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 Texas / Comments are closed

Forecasting Calamity In Texas

By / 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 Texas / Comments are closed

The Heat Is On In Texas, But Will The Power Be?

By Marita Mirzatuny / Published: June 29, 2012

Source: Doggett, Trip. “Texas Renewable Energy Industries Association.” ERCOT. April 9, 2012.

As Texans celebrated the Summer solstice last week, the forecast for this week’s weather was simultaneously making people uneasy.  With practically all of Texas, from El Paso to the Panhandle and the Coast, hitting 100+ degrees the only solace is that we were spared triple digits for the majority of June. Despite this respite, it was by no means a cool spring. According to the National Climactic Data Center, “Texas had its warmest spring (March through May) on record and its third warmest January-through-May period“.  

This heat is not only uncomfortable for the people living in it, but it also puts a strain on our electric grid as demand increases.  According to the Electric Reliability Council of Texas (ERCOT), “peak-hour power consumption could exceed 66,000 megawatts (MW) Monday afternoon, surpassing the monthly records for June of last year and straining the state’s electric resources.”  ERCOT goes on to conclude that it “expects to have adequate generation and surplus available to serve the state without imposing emergency programs that could lead to curtailment of power to certain industrial customers or broader rolling outages,” however warning, “that rolling outages could occur this summer given the state’s limited amount of surplus generation.”

So what is ERCOT planning for?

ERCOT is projecting weather, and thus electricity usage, using a “normal weather” baseline that reflects more a 2007 outlier (an abnormally cool and lush summer) than it does the actual trajectory of increasing temperatures year after year from 2006 to 2011.  Their “normal weather” equates to a usage of 63,898 MW.

But we are breaking records yet again. In May, we already set a “monthly power demand record of 59,037 MW, surpassing the previous high set in May 2011 by 2.9 percent, and an all-time ERCOT’s peak of 68,379 MW was set last August.” And this week, as predicted, “Tuesday broke the new peak demand record it set Monday. Electric use during the 4-5 p.m. hour reached 66,583 MW, also exceeding the standing record for July”. Typically in the high 80’s this time of year, Galveston reached 100 degrees in June for the first time ever.  

Despite, breaking records this June, and hitting that all-time peak of 68,379 MW last August, ERCOT’s projection for peak summer demand in 2013 is around 67,168 MW. This is a risky projection, but the good news is that this peak amount includes reductions that come from demand response (DR) and energy efficiency mechanisms thus allowing for a firm forecast of 65,649 MW instead.  We argue that if restrictions were lifted for demand response (DR) and energy efficiency measures were not being gutted we would cut that amount even further, avoiding the need for ramping up polluting peaker plants and building new ones.

PUC Chairman Nelson also reflected uncertainty as to the reliability of our grid when she said, “You know, we want to get the message out of reduced usage during peak demand…At the same time, we want to get the message out ‘Texas is open for business. We want to get the message out, peak demand, turn your thermostat up a couple degrees, don’t do your laundry, those kinds of things. But we don’t want to say, ‘if you don’t we’ll have rolling outages’, OK? So, it’s a fine line to walk.”

However, as we reported a few weeks ago, parts of the PUC’s proposed rules would actually hurt energy efficiency programs and decrease the effectiveness of current programs by adding unnecessary red tape and discouraging efficiency. The same types of programs that help shore up ERCOT’s peak demand projections for next year. Right when efficiency needs to expand, the PUC instead is making it more difficult. Why this mixed message?

John Moura, the reliability assessment manager at NERC, the North American Electric Reliability Corp., said “the ‘million-dollar question’ is what will happen if Texas sees a repeat of Aug. 3, 2011, when a prolonged heat wave led to a state record for electricity demand. If power lines go down, the wind stops blowing or drought forces a power plant to stop sucking up water to cool its equipment, the state could be in trouble.”

Also posted in Energy Efficiency, Texas / Comments are closed

New ERCOT Report On The Texas Energy Crunch: PUC Tweaks Are A Move In The Right Direction, But Not Enough To Keep The Lights On

By / Published: June 5, 2012

Last week The Brattle Group released their Electric Reliability Council of Texas (ERCOT)-commissioned report on what Texas can do to make sure we keep the lights on this summer, the next and for many future summers after.  As Jim Marston discussed in the Houston Chronicle last Friday, the Brattle Group is no stranger to resource issues in Texas: in 2009 they reported on demand response opportunities in Texas and other states in a report commission by the Federal Energy Regulatory Commission. 

Using that work and more recent analyses, the report shows the role that demand response can play in meeting Texas’ future energy needs.  Demand response is any change a customer makes in normal electric usage patterns in response to market signals; Brattle recommends developing programs that pay customers a market-based price for their actions, rather than simply asking them to reduce energy during peak hours. 

So what makes such a nerdy idea so important?  The Public Utility Commission (PUC) is considering raising offer caps in the wholesale market to better reflect the true cost of peak energy usage in an effort to create a more efficient market.  According to Brattle, this move will help, and may even be needed, but “reliance on scarcity prices is unlikely to achieve ERCOT’s current reliability objectives,” largely due to extreme weather events which are expected to become more frequent as a result of global warming.

Raising the offer caps isn’t just a purely abstract concept; it means real rate increases for Texans.  At the same time, Brattle found that Texas could meet 15% of our peak energy needs through demand response alone, but only if ERCOT gets serious about allowing residents and small businesses to participate in demand response programs that have historically been aimed at big industrial customers.  Demand response programs mean more money in ratepayers pockets, all while helping to stabilize the grid. 

Improvements in small programs with a limited scope like the “ERS” program are certainly helpful, but as Brattle points out repeatedly, those improvements won’t be enough to keep the lights on in the next few years.  Hopefully the PUC will direct as much effort into programs like demand response, which puts money back in customer’s pockets, as they have on increasing wholesale offer caps. 

Demand response is a big piece of the picture but it’s not the whole painting: energy efficiency programs and an expansion of peaking renewable resources like solar and coastal wind power will also play a large role, particularly as we consider a hotter, drier future in Texas with less water to cool power plants.   The Brattle report lays out some excellent recommendations, demand response among them, and – as the summer continues – we’ll be looking into Brattle’s work as well as other initiatives that Texas can take to find its way out of this energy crunch.

Also posted in Energy Efficiency, Renewable Energy, Texas, Utility Business Models / Read 1 Response