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The Need for Transparency in Electricity Markets

An Overview of the How Important Transparency is to Ensure that Electricity Markets Function Rationally

May 22, 2018

Kingsport, Tennessee

Mike Nasi mnasi@jw.com512-236-2000

mailto:mnasi@jw.com

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Outline1. Recent Case Studies Documenting how Some

Resources Impart Energy Resilience and SomeImpart a Resilience Penalty to the Grid.

2. Overview of Factors Preventing Transparencyto Customers in Electricity Markets.

3. How the Cautionary Tale of OrganizedMarkets Informs how FERC, NERC, and DOENeed to Work Toward Energy Transparency

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Part 1: Energy ResilienceRecent Weather Events and Summer Projections Make it Clear that Grid

Resilience is Enhanced by Coal & Impaired by Non-Dispatchables (Wind)

1. Data Shows Energy Resilience of Coal (andPenalty of Wind) across 6 RTOs Impacted bythe January 2018 Bomb Cyclone.

2. Biggest renewable market experiment (Texas)now facing extremely thin reserve marginsand risks of price escalation after a modestreduction in coal baseload capacity.

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1.1 Bomb Cyclone Case Study6 Regional Transmission Operators (RTOs) Impacted

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Energy Resilience Case Study #1 PJM Bomb Cycle

Distorted Markets Give Way to Needed Coal

Source: DOE/NETL 2018

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1.1 - DOE/NETL : Without available capacity from partially utilized coal units, PJM would have experienced

shortfalls leading to interconnect-wide blackouts

Fuel12/1-12/26

12/27-1/8

Positive Delta Total

Percentage Change

Share of Positive Increase

Coal 746 1,113 367 49% 73%Gas 607 619 12 2% 2%

Renewables 127 122 -5 -4% -Nuclear 846 851 5 1% 1%

Oil 6 117 112 1994% 22%Multiple fuels 2 10 8 383% 2%

Total 2,334 2,832 504 21.6% 100%

Average Daily GWh

How is America Going to do Without Coal?

PJM Bomb Cycle Case Study in Energy Resilience (continued)FACTS ARE STUBBORN THINGS

Source: DOE/NETL 2018

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1.1 - DOE/NETL: Intermittent generating sources experienced a significant decline nearly inverse to growth in demand. . . solar and wind resource []

essentially imparted a resilience penalty to the system.

Sources: ERCOT, Capacity, Demand and Reserves Reports, Winter Updates, 2007-2017; Seas. Assess. of Res. Adeq., May 2018.10

1.2 Texas Case Study:ERCOT Summer Projections for Reserves

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

2016 2017 2018

Full Capacity7.5% or 5,428 MW Reserve

Norm. Load/Norm. Outages: 1.5% or 1,079 MWNorm. Load/Ext. Outages: -2.0% or -1,487 MW

Norm. Load/Low Wind: -3.2 % or -2,318 MWExt. Load/ Norm. Outages: -2.9% or -2,123 MW

SARA PROJECTIONS

: Part 2: The Importance of

Transparency in Electricity MarketsMarkets depend on consumers knowing the true costs of what they are buying that is NOT happening in electricity markets.

2.1 - Subsidies hidden from consumers in our ST/FED tax bills. 2.2 - All fuels receive subsidies but massive disparity in ROI ($/MW). 2.3 Direct/Indirect Subsidies Distorting Markets (hiding costs):

Multi-billion dollar transmission projects socialized across entire markets. Growing costs for ancillary services (to balance wind & solar). Stranded costs of prematurely retired units (driven by market distortions).

2.1 Price of Renewables -Hidden in our Tax Bills(not shown on utility bills)

Sources: EIA Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2016 (Table 1) (April 2018); DOE Grid Study (Table 3-5)(2017).

EIA (2018):

DOE (2018):

PTC Phase-Out & Safe Harbor Creates Uncertainty

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3.14

0.82

0.64

0.64

0 10 20 30 40 50 60

Solar

Wind

Geotherm.

Nuclear

Hydro

Nat. Gas

Coal

56.29

12.85

775.64

Direct Subsidies in the Electric Generation Industry

($ Per Megawatt Hour)

Source: U.S. DOE, 2011; Institute for Energy Research, 2011 (an update of this information is critically needed).14

2.2 - All fuels receive subsidies but massive disparity in ROI ($/MW).

2.3 - Indirect Subsidies ExploredCurrent Regulatory Frameworks Hiding Costs:2.3.1: Multi-billion renewable-driven transmissionprojects socialized across entire markets.2.3.2: Growing costs for ancillary services (tobalance wind & solar) not factored into RE prices.2.3.3.: Stranded costs of prematurely retired units(driven by market distortions) born by customers inregulated markets & utilities in deregulated markets15

2002 to 201783% increase in regulated charges (T&D)

16% decrease in competitive charges (energy)

2.3.1 - Transmission Costs of Integrating RenewablesCase Study: ERCOT

Sources: ERCOT, Daily Wind Integration Reports; ERCOT Generation Interconnection Status Reports, August 2015, August 2016, and December 2017.

MW

Non-Wind GenerationWind Gen. at Peak Substituted Idle Wind Cap.

11,332 12,50810,716 11,848 13,259

12,064 15,570

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Aug. 10, 2015 Aug. 11, 2015 Aug. 10, 2016 Aug. 11, 2016 Oct. 5, 2016 Jan. 3, 2018 Jan. 17, 2018

69,783 69,625 70,566 71,110*

62,855

* ERCOT Peak Summer & Winter Days

65,731*59,904

2.3.2 The Price of Non-DispatchabilityCASE STUDY: ERCOT - Exposure to the Wind Swing

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2.3.2-Price Impacts of Scarcity

Source: ERCOT 2/13/18 Report

January 17, 2018 January 23, 2018

Day-Ahead Market (DAM) Real-Time Market (RTM)

191

2.3.2- JUST YESTERDAY!

Source: ERCOT 5/20/18.

Day-Ahead Market (DAM)

Real-Time Market (RTM)

And Where Was the Wind?

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2.3.2- JUST YESTERDAY!

Source: ERCOT 5/20/18.

Day-Ahead Market (DAM)

Real-Time Market (RTM)

And Where Was the Wind?

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2.3.3 Integration Cost of Renewables

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Source: University of Texas, Bureau of Economic Geology, Center for Energy Economics, Competitiveness of U.S. Renewable-Generation Resources: A Multifaceted Assessment, 2017.

PART 3:FERC, NERC, & DOE Must Return

Transparency to Electricity Markets

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Not all Capacity Additions Are Created Equal Resiliency Attributes & Resiliency Penalties Matter Customers Need to Know the Total Cost of Resources

Market Distortions Must be Mitigated to Preserve & Protect the Investments of Ratepayers & Utilities: Econ 101: The Car You Own vs. New Car Deal Investments of Consumers/Utilities Warrant Protection

BOTTOM LINE: Impose System-Wide Needs Assessment Requirement for Non-Dispatchable Capacity Additions

0.4% reduction in CO2 concentration

Sea level rise reduced by less than 2/100th of an inch

Global temperature reduced by 0.021 F

In 2025, this would be offset in just 6 weeks in China.

Remaining CO2 Concentration497.96 ppm

2050 GLOBAL CO2CONCENTRATION

Domestic Decarbonization Will Not Move the Needle: The World Needs our Technology, not our Ideology

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Sources: Climate Effects of EPAs Final Clean Power Plan, ACCCE, August 2015 (Intergovernmental Panel on Climate Change (IPCC) projected concentrations of CO2 in 2050 from 450 to 600 ppm); Statement of Karen Harbert, U.S. Chamber of Commerce, U.S. House of Representatives Comm. on Science, Space, & Technology, April 15, 2015; National Centers for Environmental Information, NOAA, Global Analysis Annual 2014; U.S. Chamber of Commerce, Institute for 21st Century Energy, Coal-fired Power Plants Planned and Under Construction; EPA CPP RIA.

Modeled CO2 Reduction: 2.06 ppm

OBAMA EPA-CALCULATED CLIMATE BENEFITS OF COMPLETE FOSSIL PLANT RETIREMENT:

Slide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 91.2 Texas Case Study:ERCOT Summer Projections for Reserves: Part 2: The Importance of Transparency in Electricity MarketsMarkets depend on consumers knowing the true costs of what they are buying that is NOT happening in electricity markets.Slide Number 12PTC Phase-Out & Safe Harbor Creates Uncertainty Direct Subsidies in the Electric Generation Industry($ Per Megawatt Hour)2.3 - Indirect Subsidies Explored 2.3.1 - Transmission Costs of Integrating RenewablesCase Study: ERCOTSlide Number 172.3.2-Price Impacts of ScarcitySlide Number 19Slide Number 20PART 3:FERC, NERC, & DOE Must Return Transparency to Electricity MarketsDomestic Decarbonization Will Not Move the Needle: The World Needs our Technology, not our Ideology