1

Demand Response in Texas

Peak Load Management AllianceConference

Commissioner Barry T. SmithermanThe Public Utility Commission of Texas

November 8, 2006

2

North American Electric Reliability Council

3

Texas Electric Service Area Map

ERCOT - Electric Reliability Council of TexasSERC - Southeastern Electric Reliability CouncilSPP - Southwest Power PoolWECC - Western Electricity Coordinating Council

SPPSPS

ERCOTAEP TX -CentralAEP TX -North

CNPSharyland

TNMPTXU

(Plus municipalsand co-ops)

SPPSWEPCOCap Rock

SERCEGS

WECCEPEC

4

The ERCOT Market Structure

Generation T&D (“Wires”)

CompetitiveProduction

RegulatedOpen Access

End Users

REP

Competitive Sales

REP

Retailers

5

Successes of the ERCOT Retail Market

• CERA: ERCOT is most competitive market in the US, third in the world

• Peace Software-VaasaEmg Utility Customer Switching Research Project

“Texas at number one in the United States [for customer switching activity] and number four worldwide”

• PUC Report, January 2006 “A residential customer in the Houston area who switched to a

competitive Retail Electric Provider in January 2002 and switched annually thereafter to the lowest-cost provider would have saved about $1440, compared to the estimated regulated rate, over the four-year period retail competition has been in effect.”

• Electric Power Supply Association “Natural gas used in electricity production in Texas decreased by 50

Bcf from 1999 to 2003, while the electricity produced from this gas increased by 13,000 GWh.”

• “Residential rates are getting close to where they were before competition began despite a >200% increase in the price of natural gas over the same period of time”

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• Technological Innovation

– Advanced “Smart” Metering (TXU Electric Delivery rolling out throughout DFW)• Enables BPL; time-sensitive pricing; remote meter-reading; and automatic outage

detection– Rooftop Wind Turbines (Mag-Wind Co. rolling out in downtown Dallas)

• Can generate 900-2000 kW/h per month (Avg DFW household usage/month = 1272 kW/h)

– HVAC System Services and Appliance Repair Plans (Direct Energy rolling out)• Latest example of retail electric provider product differentiation

– Pre-Paid Plans with advanced billing and metering functions (REPower rolling out)

• Unprecedented generation improvements since 1998:

– 26 GW of new gas-fired generation capacity installed (versus only 3.6 GW in 1990-93)• Merchant generators on the financial hook; not ratepayers

– Aggressive retro-fit of older units with newer, more efficient technology– 22 GW new generation recently announced; more announcements anticipated– 3 GW under construction– 2 GW of wind generation installed and growing

• Environmental benefits, 1998-2003:– 8,700 MW of inefficient, high-heat-rate units mothballed– Texas SO2 and NOx emissions down (DFW and Houston-Galveston down more than rest

of state)

Successes of the ERCOT Retail Market (cont.)

7

Unprecedented Residential Switching Rates

31.43%

28.58%

7.35%

14.08%

19.92%

0.00%

10.00%

20.00%

30.00%

40.00%

2002 2003 2004 2005 June-06

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Provider Offer Cost Per Month Save First Year Min. Term (Mo.) Average Price per kWh (1000 kWh)

YOUR AFFILIATE REP IS: Reliant Energy Price to Beat $163 0 1 $0.163/kWh

Stream Energy Residential Service Three-Year Fixed Rate $138 15% 36 $0.1375/kWh

Stream Energy Residential Service Two-Year Fixed Rate $138 15% 24 $0.1375/kWh

Stream Energy Residential Service Month to Month $146 10% 1 $0.1455/kWh

Stream Energy Residential Service One-Year Fixed Rate $146 10% 12 $0.1455/kWh

TXU Energy PriceGuarantee 24sm $152 7% 24 $0.152/kWh

TXU Energy Freedom Plan $155 5% 1 $0.155/kWh

TXU Energy PriceGuarantee 12sm $154 6% 12 $0.154/kWh

TXU Energy SummerSavings 24 sm $150 8% 24 $0.15/kWh

Gexa Energy Gexa Guaranteed $150 8% 1 $0.15/kWh

Gexa Energy Power Plan $143 12% 1 $0.143/kWh

Gexa Energy Gexa Green - 100% Pollution Free $161 1% 12 $0.161/kWh

Texas Power Texas Power Plan $137 16% 0 $0.137/kWh

Texas Power Texas Power Hurricane Benefit Plan $140 14% 0 $0.14/kWh

Texas Power Texas Power Hurricane Relief Pre-Pay Plan $137 16% 0 $0.137/kWh

ECONnergy Energy Company, Inc. Tex Flex Plan $149 9% 0 $0.149/kWh

Reliant Energy 2007 Secure Wind Plan $162 1% 0 $0.162/kWh

Reliant Energy 2007 Secure Plan $154 6% 15 $0.154/kWh

Spark Energy, L.P. Spark Online Advantage 12 $132 19% 12 $0.132/kWh

Spark Energy, L.P. Spark Online Advantage 06 $120 26% 6 $0.12/kWh

Dynowatt Residential Service $138 15% 1 $0.138/kWh

Green Mountain Energy Company Pollution Free $157 4% 0 $0.1574/kWh

Amigo Energy Truly Fixed Price 6-mo Commitment Program $127 22% 6 $0.127/kWh

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2006

Provider Offer (CONTINUED) Cost Per Month Save First Year Min. Term (Mo.) Average Price per kWh (1000 kWh)

Amigo Energy Truly Fixed Price 12-mo Commitment Program $144 12% 12 $0.144/kWh

Amigo Energy Seasonal Fallback Savings Program $120 26% 4 $0.12/kWh

Commerce Energy Residential Variable Product $158 3% 1 $0.1582/kWh

Commerce Energy Residential Price Stopper $130 20% 12 $0.13/kWh

Green Mountain Energy Company Pollution Free - Reliable Rate $154 6% 12 $0.1542/kWh

Direct Energy, LP Price Protection Plan $146 10% 12 $0.146/kWh

First Choice Power, Inc. Simply Better Renewable $154 6% 12 $0.154/kWh

First Choice Power, Inc. Simply Better Plan $137 16% 12 $0.137/kWh

Reliant Energy Basic Flex Plan $157 4% 0 $0.157/kWh

StarTex Power Star Seasonal Savings 1 Year Plan $135 17% 12 $0.135/kWh

StarTex Power Star Seasonal Savings 2 Year Plan $138 15% 24 $0.138/kWh

StarTex Power Super 3 Star Savings 3 Month Plan $122 25% 3 $0.122/kWh

StarTex Power Super 6 Star Savings 6 Month Plan $121 26% 6 $0.121/kWh

StarTex Power Star Seasonal Savings Month to Month Plan $135 17% 1 $0.135/kWh

StarTex Power Star Seasonal Savings 3 Year Plan $141 13% 36 $0.141/kWh

StarTex Power StarSavings 1 Year Plan $150 8% 12 $0.15/kWh

StarTex Power StarSavings 2 Year Plan $147 10% 24 $0.147/kWh

StarTex Power StarSavings 3 Year Plan $144 12% 36 $0.144/kWh

StarTex Power StarSavings Month to Month Plan $124 24% 1 $0.124/kWh

National Power Company Fall Savings Plan $124 24% 0 $0.124/kWh

Cirro Energy Residential Electric Service $144 12% 12 $0.144/kWh

Ambit Energy, LP. Residential Electric Offer $146 10% 1 $0.1464/kWh

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• “It’s mind-boggling bills are so high”(Wall Street Journal)

• “It’s a great deal…having rate payers cover your managerial mistakes”

(New York Times)

• “Still, Texas and New England stand out as being most at risk for power grid failures if significant changes aren’t made...Both regions ‘have had numerous incidents in the past few years of having to call on customers to reduce demand.” (UPDATE: Texas, N England At Risk For Power Failures-NERC,

SmartMoney.com, 10/16/06; Report sees power problems ahead for Texas, Austin American Statesman.com, 10/17/06)

Recent Observations of the Texas Market

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ERCOT Peak Demand

34,726

36,58837,762

38,62840,341

41,84440,351

43,588

46,66847,683

50,150

53,68954,849

57,606

54,86256,248

60,09558,531

60,270

62,429

40,30139,608

43,766

30,000

32,000

34,000

36,000

38,000

40,000

42,000

44,000

46,000

48,000

50,000

52,000

54,000

56,000

58,000

60,000

62,000

64,000

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

MW

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ERCOT Peak Day August 17 2006Initial Settlement Data by Fuel Type

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ERCOT Settlement Data by Fuel Typefor August 17, 2006

Installed DispatchedWind 2,300 342Hydro 552 157DC Ties 855 459Gas/Coal/Nuclear

58,573 57,376

Private Network

6,419 6,397

LaaR 1,180 1,150

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April 17 Event: Root Causes

• 100+°F in April (DFW 26° above normal)• ERCOT’s load forecast (approx 49,000 MW)

badly short of actual demand (53,000+ MW)• Nearly 14,500 MW of generation

unavailable due to planned maintenance– Not unusual for April

• An additional 2440 MW of generation became unavailable throughout the day due to unplanned outages– 1683 MW lost within 30 minutes around 4:00 PM

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April 17 Event: Forecast vs Actual Load

16

17

18

19

0%

5%

10%

15%

20%

25%

30%

35%

40%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

12.5%

Reserve Margins 1999-2011

Percentage difference between peak load forecast and available generation/resources

12.5% is the target minimum reserve margin established by ERCOT stakeholders and Board

*1,100 MW of mothballed units have been returned to service

Over 26,000 MW of new generation added after passage of Senate Bill 7

Since 1999:• 2,800 MW retired • 8,700 MW mothballed*

Future generation is officially counted only if interconnection agreement completed

Announced generation without interconnection agreements (excludes wind)

2008 is a major concern

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PUCT Project No. 31972“Resource Adequacy” Rule

Price Cap Transition Timetable

• 10/06 $1,000»$300 shame cap

expires

• 3/07 $1,500

• 3/08 $2,250

• 3/09 $3,000

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Recent Generation Announcements• CPS (San Antonio): New 750 MW JK Spruce coal-fired Unit 2 announced

• LS Power: 800 MW Sandy Creek pulverized-coal plant announced

• NRG: 2 new nuclear facilities at STP announced June 2006 (2700 MW)

– Also announced new 800 MW coal plant, 500 MW expansion of existing coal and gas plants, and new wind projects in Texas

• Navasota Energy: 2 new gas plants under construction, totaling 1100 MW

– Both combined-cycle; one in Odessa, one SW of Houston

• TXU: 11 coal-fired plants announced in 2006, totaling 9000 MW

– 2 existing gas plants to be shuttered/converted to coal

• Governor Perry announces $10 B investment in wind generation

22

Demand Response

FERC defines as:

“Changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.”

(Assessment of Demand Response & Advanced Metering, FERC Staff Report at viii, Docket No. AD-06-2-000, Aug. 2006)

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Gap of 600MWon a probable4CP day

Transmission Level CustomersReduce Consumption on Probable4CP Days to Mitigate Next Annual

Load Ratio Share Allocation

Source-ERCOT

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Advanced MetersProposed P.U.C. Subst. R. 25.130, Project No. 31418

Texas defines as:

“A system, including advanced meters and the associated hardware, software, and communications devices, that collects time-differentiated energy usage and performs the functions and has the features specified in this section.”

Features include:• 2-way communications• automated, remote meter reading• remote disconnect & reconnect capability• dynamic pricing options • 15-minute interval data • industry standard, nonproprietary software

25

Current PUC Actions

• Emergency Interruptible Load Program – parallel rulemaking (Project No. 33457) to ERCOT stakeholder process

• TFR - Commission researching increased participation, ERCOT conducting study

• Project No. 32353, Evaluation of Demand Response Programs in the Competitive Electric Market, examining ways to eliminate barriers to Load participating in these AS markets– Replacement Reserve Service– Balancing Up Load

• 12/8 Workshop on BUL market and LaaR participation in RPRS