ercot emergency interruptible load service customer & stakeholder workshops july 2007

ERCOTEmergency Interruptible Load Service

Customer & Stakeholder Workshops

July 2007

2EILS WorkshopJuly 2007 2

Agenda

1. PRESENTATION– Background:

• ERCOT

• Interruptible Loads

• Emergency Interruptible Load Service

– How the program works• Who’s eligible?

• How do you participate?

– RFP/Bidding process– What are the risks?– Timeline for the next procurement cycle

2. BREAK

3. DISCUSSION & Q&A


Workshop Rules

1. Please – ask questions any time!

2. Stop that acronym!

ERCOT (Electric Reliability Council of Texas)

Background


ERCOT connections to other grids are limited to direct current (DC) ties, which allow control over flow of electricity

North American Interconnected Grids

• The ERCOT grid:– Covers 75% of Texas

land– Serves 85% of Texas

load – 38,000 miles of

transmission lines– >550 generation units– Physical assets are

owned by transmission providers and generators, including municipal utilities and cooperatives

NORTH AMERICAN ELECTRIC RELIABILITY CORPORATION (NERC)

~625,000 MW

63,259 MW

~168,000 MW


Electric Grid Operations

• Grid operations– ERCOT is one of 10 North

American independent system operators (ISOs)

• ISOs serve 67% of U.S. population

• ERCOT directs traffic on the grid to maintain reliability – ‘Air traffic controller’ of the electric supply

• Coordinates scheduling of power by market participants• Analyzes grid conditions continuously in real-time • Dispatches generation to ensure power production matches load at all times

-- Electricity cannot be stored --• Secures extra generation capacity to meet reliability requirements• Coordinates planned outages of generators and transmission lines• Relieves transmission system congestion• Coordinates emergency actions & recovery• Operates markets to meet regional energy & capacity requirements not met thru

bilateral arrangements

Not pictured:

New Brunswick

System Operator


The Old World: Pre-2002

• Each utility was vertically integrated, from generation to customer service

Integrated electric utility

Customer

The Old World: Pre-2002


Generation T&D (“Wires”)

CompetitiveProduction

RegulatedOpen Access

End Users

REP

Competitive Sales

REP

Retailers

The New World: ERCOT Competitive Market

Vertically integrated municipally-owned utilities and electric cooperatives comprise about 24% of the customer load in the ERCOT Region. They may opt-in to retail competition.


The ERCOT Market

QualifiedScheduling

Entities“QSEs”

LoadServingEntities

ERCOT

Resources(Generators)

Sellers Buyers

Includes REPs, Municipals & Co-ops

Balancing EnergyReliabilityCongestion Management

QSEs schedule all power flowing thru ERCOT Region & are the financial entities for the markets

ERCOT-operated markets enable QSEs access to energy or capacity not

procured bilaterally

Private bilateralContracts

~95% ofMarket

ERCOT is the independent organization assigned to administer the wholesale and retail markets for this power region.ERCOT is a 501(c)(6) nonprofit corporation.


Projected Peak Demand (2007-2020)

Load Forecast is growing by almost 1400 MW per year

(~2 large power plants)


0%

5%

10%

15%

20%

25%

30%

35%

40%

2000

2001

2002

2003

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2012

12.5%

Reserve Margins 2000-2012

Percentage difference between projections for peak demand and available generation/resources

Target for reliability: 12.5%

Over 80,000 MW of new generation is in planning or under consideration, but not all will be built.


0.00

10000.00

20000.00

30000.00

40000.00

50000.00

60000.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

ERCOT’s Peak Day (8/17/06) by Fuel Type

Coal

Nuclear

Combined Cycle Gas Turbines

Single cycle gas turbines

Natural Gas Steam Units

Wind

DC Tie

Generation from private networks not included


Operating Reserves on 8/17/0664,731 MW

63,259 MW

57,376 MWOperating Reserves

Interruptible Loads


Interruptible Tariffs in the Regulated World

• Prior to 2001, 3200 MW of customer load (mostly industrials) provided an emergency interruptible safety net

• Customers’ year-round electric rates were discounted in exchange for this

• In May 2000, ERCOT deployed interruptible loads four times during emergency conditions – Unseasonably hot weather– Nearly 20% of generation fleet out for planned maintenance– New wave of gas-fired generation had not yet come online


Interruptible Load in the New (restructured) Market

• Loads Acting as a Resource: – Market-based replacement for interruptible tariffs

• 130 LaaRs now registered & qualified with 1,989 MW of load

• LaaRs can provide ERCOT Ancillary Services (operating reserves) & receive capacity payments regardless of whether they are actually deployed

– Responsive Reserves• LaaRs regularly provide 50% of ERCOT Responsive Reserves requirement

(1150 MW of 2300 total)• Market payment =~$13 per MW per hour

– Also eligible to provide:• Non-Spin Reserve (30 minutes notice)• Regulation Up and Down Service• Replacement Reserve Service

• Ancillary Services markets are run each day for the following day


LaaR Participation

Growth in LaaR registration in MW


LaaR Deployments

• LaaRs can be deployed in 4 ways:1. Automatic trip based on Under Frequency Relay settings2. Verbal dispatch by ERCOT during EECP event (deployed as

block)3. Verbal dispatch by ERCOT during frequency event reportable

to NERC (deployed as block)4. Verbal dispatch by ERCOT to solve a local congestion issue

(location-specific)

• LaaRs have been deployed four times in the past 16 months:– April 17, 2006 Emergency Electric Curtailment Plan (manual)– Oct. 3, 2006 frequency event (manual)– Dec. 22, 2006 frequency event (UFR & manual)– July 2, 2007 frequency event (manual)

Emergency Interruptible Load Service


A quick review of April 17, 2006

• 20% of generation fleet (14,000 MW) out of service on planned maintenance

• ERCOT load forecast missed daily peak by nearly 10%

– DFW temperatures exceeded weather forecast by 5 degrees F• 100 degrees vs. usual high in low 80s

• Five major unit trips during peak hours

• Emergency Electric Curtailment Plan (EECP) initiated

– All available generation, private network and maximum DC Tie supply deployed

– LaaRs deployed

– 1,000 MW of firm load shedding (rotating outages) ordered by ERCOT• Approx. 2% of load tripped at distribution level over 2 hour period

– Public appeal for conservation issued & remained in effect thru 4/18

• First time firm load shedding had been ordered since 1989


April 17, 2006, 4-5 p.m.

• Additional resources deployed shortly after 16:00 could have averted the need for firm load shedding

0

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16:00:00 16:05:00 16:10:00 16:15:00 16:20:00 16:25:00 16:30:00 16:35:00 16:40:00 16:45:00 16:50:00 16:55:00 17:00:00

59.76

59.78

59.80

59.82

59.84

59.86

59.88

59.90

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59.94

59.96

59.98

60.00

60.02

60.04

60.06

REGULATION RESPONSIVE NSRS DEPLOYED FREQUENCY

4 Unit Trips

Graph represents post-LaaR deployment

(instruction issued 15:34)

Firm Load Shed instruction

issued 16:13

60 Hz



Purpose of EILS:

• To provide ERCOT Operations with an additional emergency tool to lessen the likelihood of involuntary firm load shedding (a.k.a. rolling blackouts)

‘Another tool for the operator toolbox’


Brief history of emergency interruptibles

• 2005: ERCOT stakeholders evaluate emergency load program as substitute for ancillary service for alternative fuels– Alternate fuels program rejected by stakeholders

• 2005: PUC includes emergency load response program in its draft rule on resource adequacy– Later removed

• Sept. 2006: ERCOT proposes EILS program at PUC Demand Response Workshop– Commissioners proposed parallel rulemaking & protocol

development• April 2007: EILS program approved

– PUC approves Substantive Rule §25.507– ERCOT Board approves PRR 705



What EILS is:

• Service provided by loads (customers) willing to interrupt during an electric grid emergency in exchange for a payment

• Last resort prior to firm load shedding (rotating outages)• Deployed ONLY in the late stages of a grid emergency

“Controlled interruption of prepared customers vs. uncontrolled interruption of unprepared customers”



When EILS may be needed:

• Emergencies can occur at any time:– Cold weather months (due to natural gas curtailment & higher

forced outages)– Shoulder months (due to unforeseen weather events & large

amounts of scheduled maintenance)– Traditional summer peaks – Anytime, as may be caused by:

• generation outages (scheduled, forced or both)

• transmission outages beyond likely contingencies

• extreme weather events

• multiple simultaneous contingencies

• EILS may be more likely to be needed in off-peak or shoulder months than during traditional summer peaks


Deployment During Emergency Operations

Event/Action Trigger

ADVISORY Physical responsive below 3000 MW

ALERT: Start Reliability Must Run units, suspend unit testing, deploy Replacement & Non-spin Reserves

Physical responsive below 2500 MW

Emergency Electric Curtailment Plan

Step 1: Dispatch all generation, issue public media appeal, acquire maximum power thru DC Ties

Physical responsive below 2300 MW

Step 2: Deploy LaaRs Physical responsive below 1750 MW

Step 3: Deploy EILS Resources Maintain frequency at 60 Hz

Step 4: Instruct transmission owners to shed firm load

Frequency below 59.8 hz

ERCOT Operators have flexibility to skip Step 3 if frequency is decaying rapidly. In these cases EILS would be deployed immediately after Step 4 to enable faster recovery.


Dispatch

• ERCOT Operations orders an EILS deployment via a phone call to the all-QSE hotline

• 10-minute deployment period begins when QSEs have received the instruction in this call

– QSEs must then contact their committed EILS Resources (clock is ticking)

• EILS Resources must shed at least 95% of their committed load within 10 minutes of QSEs’ receipt of the instruction


Release (Recall)

• EILS Resources must keep their committed load off until released

• ERCOT Operations will release EILS Resources after LaaRs have been recalled and generation providing Responsive Reserves has been restored

• EILS Resources have 10 hours to return to service after release


Eligibility: Who can participate?

• INDIVIDUAL EILS Resources (Loads)

• Must have:– 15-minute interval metering– Capability of interrupting at least 1 MW of load on 10 minutes

notice at any time during the committed hours– Representation by a Qualified Scheduling Entity (QSE) with a

wide-area network agreement with ERCOT• Must have 24/7 operations that can receive the verbal dispatch

instruction

• QSE (not ERCOT) is responsible for notifying the customer


Eligibility: Who can participate?

• AGGREGATED EILS Resources (multiple load sites)

• Each member of the aggregation must have:– 15-minute interval metering– At least 500 kW of peak demand (~big box retail store)

• Aggregation as a whole must have:– Capability of interrupting at least 1 MW of load on 10 minutes

notice at any time during the committed hours– Representation by a Qualified Scheduling Entity (QSE) with a

wide-area network agreement with ERCOT• Must have 24/7 operations that can receive the verbal dispatch

instruction• QSE (not ERCOT) is responsible for notifying the customer


Financial Relationships

• ERCOT’s only financial relationship is with the QSE– QSE submits bid– If bid is accepted, QSE is paid by ERCOT

• Payment to the EILS Resource (customer) is a private contractual issue between the customer and the QSE


Contract Periods

• EILS is procured for 4-month block commitments

• Participants must have their interruptible load available during all hours of the committed time period over the contract period

• Time Periods:– BUSINESS HOURS: 8AM to 8PM Monday thru Friday

• Except ERCOT Holidays

– NON-BUSINESS HOURS: All other hours

• Participants may bid to provide the service for either or both time periods– For example, customers with small or limited overnight or

weekend operations may choose the Business Hours option


Procurement (and history)

• ERCOT must procure at least 500 MW of EILS– If 500 MW cannot be procured the program is not run

• April-May 2007 procurement cycle– 156 MW of bids received (no program)

• June-Sept. 2007 procurement cycle– 213 MW of bids received (no program)

• Oct. 2007 – Jan. 2008 procurement cycle– RFP will be issued August 13 (more to come…)


Payments

• EILS Resources are paid to be available -- QSEs will be paid by ERCOT even if EILS is not deployed– ‘Capacity payment’– If deployed, participants do not receive any additional payment

from ERCOT • PUC Rule sets a Cost Cap on the program of $17 million for the

period April 2007 thru Jan. 2008– ERCOT has flexibility on how to procure the service & stay under

the cost cap• Bids are submitted prior to the Contract Period & validated by

ERCOT– ERCOT may procure between 500 and 1000 MW of EILS

• Participants are paid as bid if ERCOT accepts their offer– Payments are made ≤70 days after the end of the contract period


Bidding

• Bids are submitted as:– $ per MW per Hour

• Bidders also must declare ‘Minimum Base Load’– We do not assume that all load at each EILS Resource is

interruptible– Minimum Base Load = load within the EILS Resource (behind

the meter) that will not be interrupted as part of the EILS deployment

• Critical load that you can’t turn off

– Used by ERCOT to validate bids & availability factors– May be zero, or may be a fraction of a MW


ERCOT Bid Validation

• ERCOT staff will review the bidder’s usage history over the preceding 12 months, considering:– Amount of load reduction being offered, and– Bidder’s declared minimum base load

• Review will assess whether the committed load has been available during the usage history period– If the review indicates insufficient availability, ERCOT will work

with the QSE to make appropriate modifications to the bid– (No penalty for over-estimating bid)

• Baseline methodology– ERCOT’s review of the bidder’s usage history also will include a

baseline methodology determination (default or alternate)– More to come on this subject


Payment Adjustments

Payments will be adjusted if the EILS Resource fails to perform in either of two ways:

1. Availability: Load is not online and available for interruption during the contracted hours

2. Performance: Load fails to meet its obligations if ERCOT dispatches EILS in an emergency


Availability Factor

• Committed load must be available for interruption at least 95% of the hours in the contract period, as validated by ERCOT– Availability Factor = percentage of total hours that committed

load was available– Calculation (per hour): actual load minus declared Minimum

Base Load must be ≥ MW bid quantity– Exempted:

• Any hours than any step of an EECP is in effect • Scheduled Periods of Unavailability

– Up to 2% of hours in a Contract Period, with a notice requirement of five Business Days in advance

• For aggregated EILS Resources, availability factor will be calculated at the aggregate level … individual loads summed over all participants and compared to the bid as above

• If availability factor drops below 0.95, payment will be reduced• If it’s 0.95 or greater, it will be reset to 1.0


Performance Factor

• If there is a deployment event, the EILS Resource must shed at least 95% of committed load within 10 minutes and keep it off until released

• Performance will be evaluated by ERCOT using 15-minute interval data via the following calculations:– Interval Performance Factor (number between 0 and 1) = ratio

of actual to committed load reduction during each 15-minute interval covered by the event

– Event Performance Factor = average of the interval performance factors for all intervals of the deployment

• If the event performance factor drops below 0.95, payment will be reduced

• If it’s 0.95 or greater, it will be reset to 1.0


Performance Factor: Measured thru Baselines

• ERCOT will establish a baseline for each EILS Resource using:– Industry-standard load modeling software– Historical interval meter data (12+ months) and interval data

collected during the contract period – Weather & calendar data

• The default baseline tells us what the load would have been doing under business-as-usual conditions – IE, in the absence of a deployment

• The load’s performance factor in an EILS deployment event is calculated by comparing actual load data to the baseline– Interval performance factors are calculated by comparing actual

load to the baseline for each 15-minute interval– Event Performance Factor is the average of all interval

performance factors


Default Baseline Example (3-6 PM customer load curve)

• Baseline is built using interval meter data from preceding 12+ months and whatever subsequent data is available

• Calendar & weather information also factored in• Indicates what the load would have been doing under ‘business as

usual conditions’ in the absence of an EILS deployment instruction

1500 1600 1700 1800

MW

60

50

40

30

20

10

0Minimum Base Load


Default Baseline Example with EILS Deployment

• Customer’s EILS commitment is 10 MW• EILS deployed at hour 1530• Committed load must be shed by 1540• EILS released at 1615

1500 1600 1700 1800

10-minute curtailment

period

Resources have 10 hours following release to return to availability

MW

60

50

40

30

20

10

0

ReleaseDeployment instruction

10 MW Load reduction

over 35 min.

Minimum Base Load


Alternate Baseline

• Some loads do not have enough predictability to allow ERCOT to create a baseline model

– For example, fluctuating loads or ‘batch process’ loads

– May also include flat industrial loads with very high load factors

• ERCOT will assign such loads to the Alternate Baseline

– Maximum bid amount = average hourly load minus declared Minimum Base Load

• ERCOT will validate MW bids from these loads if the committed MW are less than or equal to average load minus declared Minimum Base Load

• To meet availability requirements, EILS Resource’s average hourly load minus its MW bid commitment must exceed its declared Minimum Base Load in 95% of hours

• In an EILS deployment event, load must shed to its Minimum Base Load and must stay at or below that load level throughout the event

– Load is not penalized if not ‘on’ at moment of dispatch


Alternate Baseline (Sample)

• EILS Resource bid is validated at up to 20 MW

0 10 20 30 40 50 60 70 80 90 100

% of Hours in Contract PeriodLoad Duration Curve for the EILS Resource based on data analysis during bid validation process

MW

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50

40

30

20

10

0Declared Minimum Base Load: 4 MW

Peak Load: 58 MW

Avg. Hourly Load: 24 MW

• In a deployment event the EILS Resource must shed to declared Minimum Base Load of 4 MW or below

20 MW Maximum Bid


Aggregated EILS Resource Performance

• Baseline models will be established for each load participating in the aggregation

• All loads within an aggregation must be assigned to the same type of baseline (default or alternate)– If different baselines apply to loads within an aggregation,

ERCOT will work with the QSE to split the aggregation into two groups by assigned baseline

• Load reductions during an event are computed at the individual load level by comparing the actual load to the baseline

• Performance of an aggregation is determined at the aggregate level

• For aggregations assigned to the Alternate Baseline, the sum of actual loads will be compared to the sum of the Adjusted Minimum Base Loads for each interval of the event


Payment Formula

• Within 70 days after the end of a contract period, QSEs representing EILS Resources are paid as follows:

(Bid amount X MW X Hours)

X

(Availability Factor) Number between 0 and 1

X

(Performance Factor) Number between 0 and 1


Payment and Self-Provision

• Who pays for EILS?– Costs are allocated (uplifted) to QSEs based on their load ratio

share during the Contract Period

• QSEs may ‘self-provide’ EILS– Same as a competitive bid, only without the $– Relieves the QSE of some or all of its uplifted EILS obligation – Payment to participating load is subject to agreement between

the QSE and the load


What are the risks?

• Q: How often will EILS Resources be deployed?

• A: If ERCOT knew the answer, we might not need the service.


Deployment Risks

• Firm load shedding history– EILS is a tool providing the last layer of insurance before firm

load shedding (rotating outages)– Firm load shedding has been ordered by ERCOT twice in the

last 18 years:

• Dec. 22, 1989

– Extreme cold during morning peak

– Deployed 500 MW for 30 minutes

• April 17, 2006

– Extreme heat during afternoon peak

– Deployed 1,000 MW for almost 2 hours


Deployment Risks (cont.)

• Much has changed in Texas since 1989:– Since the market was restructured (1996-2001), new generating

units must be built by unregulated competitive companies• Regulators no longer have control over investment decisions

– Since 2002, reserve margins have steadily declined• Fewer available generating resources adds to risk

‘Past performance is no guarantee of future results’


Other Risks

• Failure to meet availability or performance obligations is a violation of ERCOT Protocols

– EILS Resource and/or its QSE may be subject to suspension from program (in addition to payment reduction)

– Subject to review by the Texas Regional Entity of the Electric Reliability Organization (NERC)

– Subject to potential administrative penalties by the Public Utility Commission of Texas


Some Mitigating Factors

• Loads are committed for 4 months (not forever)

• Maximum of 2 deployments (or 8 hours) per Contract Period (Note: If a deployment event is still in effect when the 8 th hour expires, EILS Resources must

remain offline until recalled by ERCOT Operations)

• Scheduled Periods of Unavailability

• Negative impacts of unexpected downtime can be limited if the QSE notifies ERCOT at any time

• Early-warning systems notify the market of pending shortfalls in supply– ERCOT warns QSEs of tight conditions well before EILS

deployments


Timeline

• October 2007 – January 2008 EILS Procurement Cycle– Aug. 13 RFP Issued– Aug. 30 Notification of Self-Provision Due– Aug. 31 Bids & Self-Arranged Offers Due– Sept. 11 Self-Provision adjustments made– Sept. 12 Awards Announced– Sept. 13 Contracts Issued– Sept. 27 Contracts Due at ERCOT– Oct. 1 Contract Period Activation


EILS Hours Analysis

• Oct. ’07 thru Jan. ‘08 Contract Period– 123 days

• 2,952 hours

– 84 Business Days • 84 x 12 = 1,008 Business Hours

– 39 Non-Business Days • (39 x 24) + (84 x 12) = 1,944 Non-Business Hours

• 5 ERCOT Holidays (2 Thanksgiving, 2 Christmas, 1 New Year)


References & Additional Information

• EILS page at ERCOT.com– http://www.ercot.com/services/programs/load/eils/index.html– Includes:

• Technical Requirements & Scope of Work

– Highly recommended

• RFP from previous Contract Period

• Bid Form from previous Contract Period

• Q&A (FAQs)

• Other supporting documents

• PUC Substantive Rule §25.507– http://www.puc.state.tx.us/rules/subrules/electric/25.507/25.507ei.cfm

• PRRs 705 (EILS) and 716 (Self-Provision)– http://www.ercot.com/mktrules/issues/prr/700-724/705/index.html


Contacts

• Questions may be submitted to:– [email protected]– Answers will be added to the Q&A section if appropriate– Submitters of questions will remain anonymous

• Demand Side Resources contacts at ERCOT:– Paul Wattles, [email protected]– Steve Krein, [email protected]

• Market Participants may also contact their Client Services account manager


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ercot emergency interruptible load service customer & stakeholder workshops july 2007

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