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Resource Adequacy Public Utility Law Seminar August 3, 2012 Katie Coleman, Andrews Kurth LLP andrewskurth.com.

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Presentation on theme: "Resource Adequacy Public Utility Law Seminar August 3, 2012 Katie Coleman, Andrews Kurth LLP andrewskurth.com."— Presentation transcript:

1 Resource Adequacy Public Utility Law Seminar August 3, 2012 Katie Coleman, Andrews Kurth LLP andrewskurth.com

2 Andrews Kurth1 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.

3 Andrews Kurth2 “High prices really turn me off.” - Loads

4 Andrews Kurth3 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.

5 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. 4Andrews Kurth

6 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. Andrews Kurth 5

7 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. Andrews Kurth6

8 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. Andrews Kurth7

9 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. Andrews Kurth8

10 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. Andrews Kurth9

11 Resource Adequacy Katie Coleman Andrews Kurth, LLP Andrews Kurth10

12 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. AUSTIN 111 Congress Avenue Suite 1700 Austin, Texas BEIJING Room 2007, Capital Mansion No. 6 Xin Yuan Nan Lu, Chao Yang District Beijing, China DALLAS 1717 Main Street Suite 3700 Dallas, Texas HOUSTON 600 Travis Street Suite 4200 Houston, Texas LONDON Level 16, City Tower 40 Basinghall Street London EC2V 5DE England NEW YORK 450 Lexington Avenue New York, New York RESEARCH TRIANGLE PARK 4819 Emperor Boulevard Suite 400 Durham, NC THE WOODLANDS Waterway Plaza Two Woodloch Forest Drive Suite 200 The Woodlands, Texas WASHINGTON DC 1350 I Street, NW Suite 1100 Washington, DC


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