Transcript Straight talk about your business

Katie Coleman, Andrews Kurth LLP
Resource Adequacy
Public Utility Law Seminar
August 3, 2012
andrewskurth.com
What is “Resource Adequacy”?
• The discussion is typically focused on “more
generation.”
• Resource adequacy is really about meeting peak
demand and having some additional insurance,
or “reserves,” for contingencies.
• Resource adequacy can be pursued by increasing
generation or reducing peak demand.
1
Andrews Kurth
“High prices really turn me off.”
- Loads
2
Andrews Kurth
Existing Demand Response
• ERCOT has significant demand participation from
industrial customers compared to other markets.
• Medium/large commercial customers participate in
ERS, utility load management programs.
• Fewer residential and small commercial customers
provide demand response.
 Contract terms and pricing can create demand
inelasticity.
 Administrative and technical complexity.
3
Andrews Kurth
Types of Demand Response
Passive Demand Response
• Loads voluntarily curtail when prices are above their
individual value of lost load (VOLL). This can be done
in real-time or day-ahead.
• 4CP avoidance
Load Resources
• Loads provide certain ancillary services and are
reserved day-ahead by ERCOT, like generation.
• Up to 1,400 MW of Responsive Reserve Service (RRS),
formerly “LaaR.” Can provide Non-Spinning Reserve
(NSRS) as well.
4
Andrews Kurth
Types of Demand Response
ERS (formerly EILS)
• Loads receive a capacity payment to curtail during
Energy Emergency Alert (EEA) Level 2.
• PUC Rule recently added flexibility to contract terms
and renewals.
• Pilot for 30-minute service.
Utility Load Management Programs
• Part of energy efficiency mandate; operated by
regulated utilities.
• Not part of competitive market
• Appears to compete with ERS/EILS for participation.
5
Andrews Kurth
Brattle Report on Demand Response
• Brattle Report suggests that more demand response may be
needed to meet reliability objectives under energy-only market
design.
 Report estimates current penetration at 4%, believes up to
15% could be achieved.
• Reduce potential for involuntary load shed by maximizing
customers’ to voluntarily curtail usage when prices are high.
• As demand response becomes more predictable, it can play a
larger role in the reserve margin calculation.
• According to Brattle, one key is loads participating in the
market, including contributing to price formation.
6
Andrews Kurth
What Could We Change?
Allow demand response to set prices
• In concept, Loads in SCED will allow loads to actively set
prices and be paid similar to generation.
• Goal is to make load participation different from passive
demand response/avoiding a high price.
Minimize non-market/capacity-based programs (utility
load management, ERS)
• Brattle recommends against expanding these programs.
• Programs can simplify and encourage participation, but may
distort market signals.
7
Andrews Kurth
What Could We Change?
Increase efficiency of passive demand response
• Administrative demand curve may increase passive response and
improve efficiency from price formation standpoint.
• Prices would increase gradually based on reliability measures
taken by ERCOT, up to ultimate price cap .
• Brattle recommends price cap that approximates average ERCOT
VOLL. Would require study, but Brattle approximates
$9,000/MWh.
Increase demand response from smaller customers
• Advanced meters may help; makes pricing and usage more
transparent.
• Interest in demand response or avoiding high prices from
residential and commercial customers may encourage REPs to
develop new, innovative retail products.
8
Andrews Kurth
Alternatives?
Increased demand response central to Brattle Report
recommendation on energy-only design (“Option 1”).
• Relies on market dynamics to ensure reliability.
• Brattle identifies this as the most efficient design.
• Brattle characterizes the recommended changes as “Easy.”
• May take some time, market changes to increase DR.
Alternatives include backstop generation procurement (“Option
3”) or a forward capacity market (“Option 5”).
• These options rely more heavily on mandates than market forces.
• Regulators would set required reserve margin, implement centralized
capacity procurement to achieve margin.
• Changes would be complex, time-consuming.
• Moving away from pure market will sacrifice efficiency.
• Will need to figure out how to integrate demand response in these market
designs.
9
Andrews Kurth
Resource Adequacy
Katie Coleman
Andrews Kurth, LLP
[email protected]
512.320.9226
10
Andrews Kurth
AUSTIN
111 Congress Avenue
Suite 1700
Austin, Texas 78701
512.320.9200
HOUSTON
600 Travis Street
Suite 4200
Houston, Texas 77002
713.220.4200
RESEARCH TRIANGLE PARK
4819 Emperor Boulevard
Suite 400
Durham, NC 27703
919.313.4827
BEIJING
Room 2007, Capital Mansion
No. 6 Xin Yuan Nan Lu,
Chao Yang District
Beijing, China 100004
86.10.8486.2699
LONDON
Level 16, City Tower
40 Basinghall Street
London EC2V 5DE
England
44.20.7382.0550
THE WOODLANDS
Waterway Plaza Two
10001 Woodloch Forest Drive
Suite 200
The Woodlands, Texas 77380
713.220.4800
DALLAS
1717 Main Street
Suite 3700
Dallas, Texas 75201
214.659.4400
NEW YORK
450 Lexington Avenue
New York, New York 10017
212.850.2800
WASHINGTON DC
1350 I Street, NW
Suite 1100
Washington, DC 20005
202.662.2700
Copyright © 2012 by Andrews Kurth LLP. Andrews Kurth, the Andrews Kurth logo and Straight Talk Is Good Business are registered service marks of Andrews Kurth LLP. All Rights Reserved. This presentation has been prepared for informational purposes only
and does not constitute legal advice. This information is not intended to create (and receipt of it does not constitute) an attorney-client relationship. Readers should not act on this information without seeking professional counsel. Prior results do not
guarantee a similar outcome and depend on the facts of each matter.