APX is pleased to provide you with the latest ERCOT information to keep you informed of on-going market activities.

• Legislative and Regulatory Issues of Interest
  
  
  • Legislative Activities: The 81st Session Completed with Minimal Impacts on Power Industry
    
    
  • Commission Rules Against AEP's Appeal of ERCOT Board Decision on Rezoning Oklaunion Plant (Docket No. 36416)
    
  • PUCT Investigation Cases
    
    
• ERCOT Nodal Update: TPTF Is Replaced with the Nodal Implementation Team and ERCOT Is Expected to Finalize Its Contract Renegotiations with Vendors Soon
  
  
• Recent ERCOT Reports
  
  
• Participation in June-September Auction for the Emergency Interruptible Load Service (EILS) Shows Some Comeback
  
  
• See APX Experts in Upcoming Power and Environmental Market Events

Some of the most important actions taken by the Texas Legislature and/or the Public Utility Commission of Texas (PUCT) during the last few weeks are:

In March 2008, APX released an early version of the APX MarketSuite to ERCOT clients to facilitate client participation in Texas Nodal testing and market simulation. APX will expand and enhance the APX MarketSuite to support the ERCOT Texas Nodal Market Trials later this year with an anticipated go-live date scheduled for late 2010. There will also continue to be enhancements to the APX MarketSuite in both the CAISO and ERCOT markets, based on APX experience and client input. More on ERCOT Nodal is provided in other sections of this issue.

• Legislative Activities: The Legislative Session began with a hope to have significant improvement in advancement of clean coal technology, higher energy efficiency goals, and increasing goals for renewable resources with particular attention to solar power production. However, the Session completed its work on June 1st without passing many electric power related bills. Some of the few electric power related bills that passed both Texas Houses are summarized below:

  Clean Technology:

  • HB 469 (Representative King, et al. and Senator Seliger) passed both Houses with some modification and sent to the Governor. Its main purpose is to encourage the development of clean coal technology. In particular, the bill requires the Texas Comptroller of Public Accounts to adopt rules for issuing to an entity implementing a clean energy project, which is implemented in connection with the construction of a new facility, in this state a franchise tax credit. Several conditions should be met for a project to be eligible for this franchise tax credit and the total amount is capped at the lesser of a) 10% of the total capital cost of completing the project (excluding financing charges) or b) $100 million.
    
    
  • HB 1796 (Representative Chisum and Senator Watson) passed both Houses with some modification and sent to the Governor. Its main purpose is for the commissioner of the Texas General Land Office to adopt standards for the location, construction, maintenance, monitoring, and operation of a carbon dioxide repository. The commission shall ensure that the construction, maintenance, monitoring, and operation of the carbon dioxide repository comply with the requirements that may be set by the U.S. Environmental Protection Agency regarding carbon dioxide sequestration. This section also requires annual report regarding the carbon dioxide repository.
    
    This bill also expands the definition of "Advanced clean energy project" qualified to receive grants or other incentives to include those projects that capture not less than 50 percent of the carbon dioxide in the portion of the emissions stream from the facility that is associated with the project and sequesters that captured carbon dioxide by geologic storage or other means.
    
    
  • HB 1783 (Representative Solomons, et al. and Senator Fraser) passed both Houses with some modification and sent to the Governor. Its main purpose is to require both the Public Utility Commission of Texas (PUCT) and Electric Reliability Council of Texas (ERCOT) make publicly accessible without charge live Internet video of all public hearings and meetings they hold for viewing from their Internet websites. The commission may recover the costs of administering this section by imposing an assessment against non-consumer market participants.
    
    
  • HB 3309 (Representative Gattis and Senator Ogden) passed both Houses with some modification and sent to the Governor. The main purpose of this bill is to allow the Commission to consider an application filed by a person not currently certificated as an electric utility for a certificate of convenience and necessity to construct transmission capacity that serves the ERCOT power region. The applicant should meet certain conditions before being granted a certificate under this section. This section also allows the Commission to consolidate proceedings on applications to obtain or amend several certificates of convenience and necessity for the construction of transmission lines that share a common point of interconnection.

  Retail Customers:
  A few bills passed both Houses to assist retail customers to make an informed decision regarding their retail choices, including the followings:

  • HB 1799 (Representative Bohac, et al. and Senator Eltife): This bill requires the following statement be added to the monthly bills: "For more information about residential electric service please visit www.powertochoose.com."
    
    
  • HB 1822 (Representative Solomons, et al. and Senator Fraser): This bill requires that the applicable terms be labeled uniformly on each retail bill sent to a customer by a certificated telecommunications utility, retail electric provider, or electric utility to facilitate consumer understanding of relevant billing elements. In addition, Retail Electric Providers are required to provide residential customers who have fixed rate products with at least one written notice of the date the fixed rate product will expire. The notice must be sent to the customer's billing address by mail or e-mail address at least 30, but not more than 60, days preceding the date the contract will expire.

  Competition for Non-ERCOT Areas within Texas: The following two bills were passed both Houses to delay retail electricity competition in areas served by Southwestern Electric Power (SWEPCO) and Entergy:

  • SB 547 (Senator Eltife): The bill concluded that SWEPCO is unable at this time to offer fair competition and reliable service to all retail customer classes in its Texas service territory and mandated delay until certain conditions are met. The Commission is required to evaluate necessary steps taken by SWEPCO to open its service territory to retail competition.
    
    
  • SB 1492 (Senator Williams): Entergy is ordered to cease all activities relating to the transition to competition within Texas. It is also required to propose a competitive generation tariff to allow eligible customers the ability to contract for competitive generation. The commission shall approve, reject, or modify the proposed tariff not later than September 1, 2010.

  Other ERCOT-Related Bills: Two important ERCOT related proposed bills did not pass by this session. The first one was HB 1959 (requiring the Sunset Advisory Commission to conduct a special-purpose review of the Electric Reliability Council of Texas as part of the commission's review of the Public Utility Commission of Texas for the 82nd Legislature) that was passed by both Houses but failed to be finalized. The second one was HB 2421 (to refine the governance of ERCOT by requiring nine Independent Board Members) that was passed by the House of Representatives but could not be finalized by the end of this Session. Given the intent of the Texas Legislation, we may see some attempts by the Commission to address the issues reflected by these proposed bills.

• Docket No. 36416, AEP Energy Partners' Appeal of the Decision of the ERCOT Board Assigning Oklaunion Generating Station to the West Zone and Request for Expedited Consideration and Emergency Remand with Instructions. In a decision on October 21, 2008, the ERCOT Board followed a recommendation by the Technical Advisory Committee and finalized zones for implementation in 2009. The decision resulted in American Electric Power's Oklaunion power plant to be included in the West Zone rather than in the North Zone. In making this decision, the Board relied on ERCOT staff recommendation to choose Scenario 3i rather than Scenario 3h that was originally recommended to the Technical Advisory Committee by the Wholesale Market Subcommittee and would cluster Oklaunion power plant in the North Zone. AEP appealed the decision to the Public utility Commission of Texas stating that if "ERCOT staff and the Board followed the procedures and analysis that have been established and followed in applying and interpreting Section 7.2 of the ERCOT Protocols in previous cases, Scenario 3h would and should have been approved." In addition, AEP claimed that there were several shortcomings in ERCOT's implementation of the procedure and violation of Protocols and requested the Commission to remand this case back for further consideration.
  
  This case attracted various stakeholders with clear majority defending the action by the Board and recommending the Commission to deny AEP's appeal. These parties acknowledged some shortcomings in the implementation of procedures to determine zones, however, they concluded that the overall decision was based on solid evidence and analysis and resulted in appropriate determination of zones for 2009. In a two to one decision, the Commission agreed with these parties and decided to deny AEP's appeal in its May 21, 2009 Open Meeting. Furthermore, the Commission clearly expressed its dissatisfaction with the way ERCOT implemented its procedures and ordered ERCOT to take necessary steps in a timely manner to clarify the Protocols to prevent such shortcomings to influence future decisions. ERCOT and its stakeholders are working to develop refinements to the Protocols for the Board consideration in its July 21, 2009 meeting.
  
  
• PUCT Investigation Cases and Compliance
  
  
  • Docket No. 34738, Notice Of Violation Of International Power America, Inc., Hays Energy Limited Partnership, Midlothian Energy Limited Partnership, And ANP Funding I, LLC Of PURA §39.151(J) And PUC Subst. R. 25.503 (f) And (g), Relating To Failure To Adhere To ERCOT Protocols §5.8.1.1 And 6.5.1.1(1)(E) Concerning Governor In Service Requirements And Frequency Bias Requirements And Of PUC Subst. R. 25.503(F)(10), Relating To Failure To Comply With Requests For Information By ERCOT Within The Time Specified By ERCOT Instructions. On May 15, 2009, the Staff of the Public Utility Commission of Texas and International Power America (IPA and its affiliates) filed a Joint Motion for Commission Approval of Settlement Agreement to conclude Staff's investigation of issues regarding Frequency Response in this Docket. In addition to agreeing responsibilities for some of the alleged violations, IPA agreed to pay $2.5 million in Administrative Penalty, conduct final testing, and provide data and documents to Staff and Texas Regional Entity certifying full compliance. Staff also agreed not to consider this violation as "prior violation" in calculating penalties in future enforcement cases against the Company. The original proposed administrative penalty was about $6.5 million. The Judges assigned to this case granted the Motion on May 29 and returned the case to the Commission for final decision. It is highly possible for the Commission to approve this settlement in its upcoming July 2, 2009 Open Meeting and bring this case, which has been before the Commission since September 2007, to a closure. If approved, this will be the second highest penalty regarding ERCOT wholesale market violations.
    
    
  • Docket No. 36909, Agreed Notice Of Violation By Luminant Energy Company, LLC Of PURA § 39.151(J) And P.U.C. Subst. R. 25.503(F)(2), Concerning Failure To Adhere To ERCOT Protocols §§ 6.5.1.1(4) And 6.5.4(2) Concerning Load Acting As Resource Service Requirements. This Staff investigation was initiated to address non-compliance on July 2, 2007 by certain Load acting as Resources (LaaRs) offered by Luminant Qualified Scheduling Entity and awarded by ERCOT to provide Responsive Reserve Service. Staff recommended an administrative penalty of $17,500 and Luminant agreed to pay that amount. The Commission approved the agreed settlement in its June 2, 2009 Open Meeting.
    
    
  • Docket No. 36993, Agreed Notice Of Violation And Settlement Agreement Relating To Tenaska Power Services Co.'s Violation Of PURA § 39.151(J) And P.U.C. Subst. R. 25.503(F)(2), Relating To Failure To Adhere To ERCOT Protocol § 6.5.4(2) Concerning Load Acting As Resource Service Requirements. This Staff investigation was initiated to address non-compliance on July 2, 2007 by certain Load acting as Resources (LaaRs) offered by Tenaska Qualified Scheduling Entity and awarded by ERCOT to provide Responsive Reserve Service. As indicated by Staff, Tenaska's failure to timely deploy its scheduled third-party LaaR during the July 2, 2007 frequency event was the third such violation by Tenaska, which usually means higher penalty factors in Staff's calculation. Staff recommended an administrative penalty of $325,000 and Tenaska agreed to pay that amount. Given the fact that Tenaska has not had similar violation in the last 18 months, Staff has agreed to consider the next such violation as the first violation for purposes of calculating penalties to assess against Tenaska. The Commission approved the agreed settlement in its June 18, 2009 Open Meeting.
    
    
    
  • Project No. 37052, Project To Develop Critical Performance Metrics And Criteria For The ERCOT Nodal Market: On May 28, 2009, the Commission Staff opened a new project to develop a list of performance measures to be in place when ERCOT Nodal operation begins in December 2010. As indicated in the Notice for a Commission sponsored workshop that was conducted on June 12, 2009, the Commission Staff, Texas Regional Entity (TRE), the Independent Market Monitor (IMM), and ERCOT agreed that it is critical to have performance metrics and pass/fail criteria for the functions on this list of performance measures in place at nodal go-live. TRE and the Commission Staff have identified 55 issues affecting reliability of the ERCOT grid where 24 are deemed to be critical for Nodal go-live regulatory oversight. The work developed in this project will supplement ongoing efforts by stakeholders to finalize their effort under Nodal Operating Guides Revision Request 025 (NOPRR025, Monitoring Programs for QSEs, TSPs, and ERCOT). The project provides an opportunity for ERCOT stakeholder to interact with the Commission Staff and other entities involved in enforcement activities to refine the list of proposed performance measures and pass/fail criteria.

    For further information on any case before the Commission, please visit the PUC of Texas Interchange site.

Mike Clearly, Senior Vice President and Chief Technology Officer, regularly attends various ERCOT meetings, particularly monthly meetings of the Technical Advisory Committee and Board of Directors, to update various members on progress in the Nodal Project. He describes the timeline, status of various components of Nodal Project, and how defects and delays are handled by ERCOT to ensure the Nodal Implementation Project is to be completed within the budget and schedule approved by the Board. The main nodal-related points from the recent meetings are provided below:

• In the June 4th TAC meeting, Mike introduced a new phrase, ERCOT Enhanced Reliability & Markets (EERM), to be used by ERCOT internally to cover both current Zonal operation as well as Nodal implementation. In his view, reliability includes Network Model Management System (NMMS), Energy Management System (EMS), and Operation System (OS) Projects while Markets include Market Management System (MMS), Congestion Revenue Right (CRR), and Commercial System (COMS) Projects. Then, he provided the recent Nodal Team staff additions to enhance program success. He emphasized on the importance of participants' readiness and informed TAC members that Vikki Gates has joined Nodal Team to lead ERCOT & Market Readiness activities, including the issue of "Parking Lot" that includes additional proposed revisions to the Nodal protocols that will be implemented after Go-Live date. Vikki is expected to have more detailed plan by July 19, including the name of ERCOT staff responsible for various tasks.
  
  Mike also added that Betty Day (who has been with ERCOT for nine years) will lead Program Control & Review to ensure proper traceability of what will be implemented. This will be in fact an internal auditing job to ensure success in Nodal implementation. To enhance her work, several new staff are added, including the addition of Bob Spangler (formerly with Luminant) and Floyd Trefny (formerly with Reliant), who both were very active in ERCOT Nodal development in the last several years and will be the Subject Matter Experts to assist ERCOT to ensure that what is proposed in the Nodal Protocols will be actually implemented to minimize any potential deviations.
  
  
  
• In June 16 Board meeting, Mike acknowledged that only six out of thirteen tracking milestones scheduled for May were completed, however, he did not believe the resulting delays would have any impact on Nodal timeline and budget. However, he acknowledged that these delays will have some impacts on the budget. Currently, ERCOT plans to fully implement nodal design by December 1, 2010 at an estimated cost not to exceed $660 million. The latest estimated cost is $644 million and is expected to be further refined for July Board meeting after ERCOT completes its renegotiations with vendors by the end of June. Mike further reminded Board members of the overall risks facing Nodal project. The main points were:
  
  
  • Complete Integration System (Expected on 2-12-10): Resource availability remains a big risk factor.
    
    
  • The main risk facing Market Trials (Expected to begin on 2-12-10) remains to be reconciling Protocols, Systems and Market Expectations. Nodal Team is acting proactively to ensure that the final system is consistent with stakeholders' approved Nodal Protocols.
    
    
  • The main risk facing Go-Live (Expected on December 1, 2010) is the possibility of not having adequate Data Center capacity and integrity of Single Entry Model (SEM) data provided by Market Participants. Nodal Team is aware of this potential and is taking steps to eliminate this risk.
    
    
• Nodal Implementation Team (NIT): In its June 4th meeting, TAC finalized its decision to establish a good replacement for Transition Plan Task Force (TPTF). TAC considered a proposal that included nine members representing seven segments (with Customers have three representatives with 0.5 vote each) and required monthly meetings with the public participation. NIT will also have frequent meetings within 24 hours whenever ERCOT requests for Market Participants' inputs. All decisions by NIT will be based on simple majority vote. Among NIT's core responsibilities are 1) assuring that Market Participant's interface software and ERCOT systems operate within the intent of the Nodal Protocols in a production environment and 2) evaluating Market Participant readiness metrics and scorecards. NIT is a Subcommittee under the Technical Advisory Committee and reports to TAC on monthly basis. The main concern was to further clarify ways to address any potential gap that may be found between the intended Nodal protocols and the latest software version. A decision was made to approve the creation of this new TAC Subcommittee with the first meeting set for June 22, 2009 when the representatives of various segments will elect a Chair and Vice Chair.

Finally, ERCOT has indicated August 31, 2009 as its Single Entry Model (SEM) Go-Live date. To facilitate expected work by Market Participants, ERCOT continues its regularly scheduled Thursday afternoon weekly meetings with stakeholders to share more details before SEM Go-Live date. As envisioned by the current Procedure, ERCOT will seek approvals from NIT/TAC/BOD prior to SEM Go-Live. Meanwhile Market Participants should continue to support required activities including telemetry, network model, and other activities needed for ERCOT to enhance its nodal implementation. In particular, ERCOT has already scheduled the following Focused Input Testing (FIT) for the next few weeks:

The Electric Reliability Council of Texas issued several reports in the last few weeks. Summaries of main points in three reports are provided below:

• ERCOT Carbon Study: In response to a request by the Chairman of the Public Utility Commission of Texas, ERCOT filed a report with the Commission on May 12, 2009 titled "An Analysis of Potential Impacts of CO2 Emission Limits on Electric Power Costs in the ERCOT Region". ERCOT performed several scenarios under various assumptions on key variables such as natural gas prices, various levels of energy efficiency achievements, and various levels of renewable generation resources. In addition, different carbon allowance costs ($/ton) were assumed to calculate the impacts on total annual wholesale power cost and wholesale power prices. The main findings are summarized below:

  • In the reference case, with $7/MMBtu natural gas prices, expected load levels and the existing and committed level of wind and other generation, the carbon allowance costs must rise to between $40 and $60 per ton in order to reduce carbon emissions from electric generation in ERCOT to 2005 levels by 2013. This level of allowance costs would result in an annual increase in wholesale power costs of approximately $10 billion and would increase a typical consumer's monthly bill (for 1,000 KWh) by $27. Higher natural gas prices at $10/MMBtu would result in an increase in wholesale power costs of approximately $20 billion. At such level, a much higher carbon allowance costs, well above $60 per ton, is required to achieve desired emission reductions.
    
    
    
  • Total CO2 emissions are reduced below 2005 levels at a carbon allowance price between $25 and $40 per ton at $7/MMBtu natural gas price if total energy use was reduced by 10%. This level of allowance costs would result in an annual increase in wholesale power costs of approximately $7 billion. At this allowance cost, a typical consumer's monthly bill would increase by $17.
    
    
  • The additional CREZ wind generation allows the targeted emissions reductions to be met at a lower allowance cost. At $7/MMBtu gas, the 2005 carbon emissions levels are met at an increase in annual wholesale power costs of approximately $7 billion. At this allowance cost, the increase in a typical consumer's monthly bill would be $22.
    
    
    
  • The combination of additional CREZ wind and lower energy usage results in smaller increases due to CO2 emissions limits in both wholesale power costs and the typical consumer's monthly bill at a $7/MMBtu gas price, as compared to the reference case.

  The full report is available at the the Commission website.

• ERCOT 2008 Annual Report on the Texas Renewable Energy Credit Trading Program: The Public Utility Commission of Texas requires ERCOT to file its Annual REC Report by May 15. ERCOT filed its REC Report on May 13, 2009 under the Commission Project No. 27706. The Report indicated significant increase in renewable generation capacity in the REC Program during 2008 with 93 REC generation accounts and an installed capacity of about 8,600 MW which includes a total of six Offset generator accounts with a total capacity of about 298 MW. In addition, these resources accounted for over 17 million MWh of energy generated in 2008, an increase of about 70% over 2007 renewable generation. Wind resources accounted for about 95% of total renewable generation in 2008. The total adjusted REC requirement for all Retail Entities for 2008 as required by the Commission was 6,747,162 RECs. The difference between generated REC and its mandatory requirements could be banked for future use or offered into the voluntary market. Based on recently declassified data for 2007, Reliant, TXU Energy, and Constellation Energy were ranked the top three Retail Entities regarding REC requirements. The Report also listed the total amount or REC retired in 2007 for Mandatory and Voluntary markets as 3.4 million and 1.6 million, respectively. Full Report could be found under Project No. 27706 at PUC of Texas Interchange site.

• May 2009 Report On The Capacity, Demand, And Reserves In The ERCOT Region: ERCOT prepares an annual resource adequacy assessment in May with an updated in December of each year. The latest Report was published on May 29, 2009 indicating adequate capacity within ERCOT Region above the minimum 12.5% target reserve margin throughout the forecast period, 2009 through 2014. The report also indicated other resources, including significant amount of mothball capacity, that could be relied upon if need arises. Full Report is available on the ERCOT website.

On May 19, 2009, ERCOT released the latest results of its procurement of EILS covering the Contract Period of June 1 through September 30, 2009. In contrast to the low amount of EILS offers in previous Contract Period (February-May), ERCOT received more offers in this period and prices are noticeably lower by a few dollars in average. ERCOT reported the following results:

As reported by ERCOT, the total projected year-to-date cost of EILS programs is $10.87 million. EILS resources are paid as bid if selected and are dispatched through Verbal Dispatch Instruction to Qualified Scheduling Entities where participants must have their interruptible load available during at least 95% of the hours in their committed time periods. The Commission rule allows up to $50 million in annual (February through January) EILS program costs, however, it is completely up to ERCOT to reject offers that may not look reasonable or economical. For more information on EILS program and other related documents see the ERCOT EILS web page.

APX Experts are actively covering different power and environmental markets issues in several conferences and workshops. The followings may be of interest to you:

• June 23, 2009
  32nd International Association for Energy Economics (IAEE) International Conference, "Energy, Economy, Environment: The Global View."
  San Francisco, CA - Grand Hyatt Hotel
  Session Chair - Dr. Parviz Adib, Director, presiding a session entitled: Alternative Paths to Achieving Environmental Goals
  http://www.usaee.org/USAEE2009/
  
  
• June 24, 2009
  32nd International Association for Energy Economics (IAEE) International Conference, "Energy, Economy, Environment: The Global View."
  San Francisco, CA - Grand Hyatt Hotel
  Speakers - Dr. Reiner Musier, Chief Marketing Officer and Dr. Parviz Adib, Director, presenting a paper on The Role of Technology in Markets for Environmental Tradable Permits
  http://www.usaee.org/USAEE2009/
  
  

If interested, you can find about this and other events by going through APX website.