I. Sterzing, USAEE Dynamic Energy Landscape 1

Electric Reliability Council of Texas (ERCOT)

A Success Story… In Progress

Ingmar SterzingUnited States Association of Energy Economics

(USAEE)Pittsburgh Conference

October 2015

October 27th, 2015

I. Sterzing, USAEE Dynamic Energy Landscape 2

US NERC and ISO Regions

NERC and ISO Regions and Transmission InterconnectsNot all “markets” are the Same… Some restructured, some regulated

The Electric Reliability Council of Texas (ERCOT) is an isolated (non-interconnected) NERC Region and

an Independent System Operator (ISO)

October 27th, 2015

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ERCOT Overview

Coal36%

Nuclear12%

Natural Gas - Combined

Cycle41%

Wind11%

Hydro, Other1%

2014 Energy (MWh)

• 24 million consumers • Competitive-choice customers: 75% of load • More than 43,000 circuit miles of high-voltage transmission • 550 generating units • More than 74,000 megawatts (MW) capacity for peak demand • Record peak demand: 69,830 MW on 8/10/15 @ 5:00 pm (102.8 °F)• Energy used in 2014: 340 billion kilowatt-hours • Market participants: More than 1,400 active entities that generate, move, buy, sell or use wholesale electricity

ERCOT serves the public by ensuring a reliable grid, efficient electricity markets, open access and retail choice.

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The Electric Power System in ERCOT

Wholesale Power Supply Transmission and Distribution Retail Demand

Megawatts (MWs) kilowatts (kWs)

$/MWh ¢/kWh

Commodity

Price

Un-Regulated or Restructured

Regulated Un-Regulated, Restructured,

Competitive and Non-opt In

October 27th, 2015

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Energy Price Cap Raised to $9,000/MWh in 2015

October 27th, 2015

$9,000

214 x

$42

Average 2014 Price (MWh) 2015 Market Cap (MWh)

• Texas Energy Only market design allows scarcity pricing of energy to escalate 200-300 times normal cost

• All generation is centrally dispatch on an economic basis by ERCOT

• Generation resources are paid their Locational Marginal Price (LMP) for the output of their facility

• No centralized capacity market

• No centralized planning for generation

• Energy pricing and ancillary services are primary incentive to maintain and develop supply

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ERCOT Generation Reserve Margin

October 27th, 2015

2016 2017 2018 2019 2020 2021 2022 2023 2024 202550,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

Summer Loads and Resources

Firm Load Forecast Total Capacity, MW Total Summer Peak Demand

MW

ERCOT continues to maintain reasonable reserve margins above the established target of 12.5%

17.0% 18.5% 21.4% 18.7% 17.1% 16.1% 14.6% 13.2% 11.8% 10.4%

Source: ERCOT CDR Report May 2015

ERCOT Wholesale Energy Pricing

Henry Hub Gas Pricing - $2.84/mmBtu

ERCOT Average Price –$27/MWh

ERCOT Average Pricing, September 9th, 2016Mid-Afternoon

June 2015• (0.97) Minimum • 23.75 Average • 125.64 Maximum

July 2015• (2.90) Minimum• 26.90 Average• 508.99 Maximum

August 2015• (0.93) Minimum• 33.06 Average• 1,089.24 Maximum

September 2015• 2.02 Minimum • 33.61 Average• 355.98 Maximum

Low natural gas pricing, continues to drive low power prices

Summer Power Pricing ($/MWh)

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ERCOT Transmission

October 27th, 2015

JAN - 2

010

JAN - 2

011

JAN - 2

012

JAN - 2

013

JAN - 2

014

JAN - 2

015

SEP - 2

0150.000.501.001.502.002.503.003.504.004.50

Transmission Cost of Service

$/kW

-Mo.

• Open access transmission

• Transmission Cost of Service 89% increase from 2010

• 1,000 MW - $4.1 M/Mo.

• ERCOT total $261 M/Mo.

• $3.1 B/year total

• Clean Renewable Energy Zone (CREZ) lines - 3,500 Miles, completed

• Over $7 Billion Cost

• Wind curtailment dropped significantly

• Less negative electricity pricing

89%

Increase

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ERCOT Renewable Energy

• More than 15,635 MW of installed wind capacity

• Wind energy 10.6% of total in 2014

• Solar, Hydro, and Biomass < 1.0% in 2014

• 198 MW of installed solar capacity, still less than 1% of capacity and energy

• More than 6,000 MW of solar is under study

• Another 385 MW of solar has agreements in place to connect to the ERCOT grid in the next couple of years

October 27th, 2015

Wind Generation Records 11,467 MW, September 13, 2015, 10:56 p.m. 40.58% Wind Penetration, March 29, 2015, 2:12 a.m.

Renewable energy could grow to 18% by 2020

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Residential Retail Energy Pricing

October 27th, 2015

Texa

s - Lo

west Competi

tive Pric

e

Wash

ington

Kentucky

Arkansas

West

Virginia

North Caro

lina

Wyo

ming

Montana

South Dak

ota

Mississ

ippiTe

xas

Nebras

ka

Colorado

Illinois

Missouri

Arizona

Ohio

Nevad

aIowa

Pennsyl

vania

Marylan

dMain

e

Californ

ia

Rhode Isla

nd

New Yo

rkAlas

ka

Hawaii

0.00

5.00

10.00

15.00

20.00

25.00

Sources: PowerToChoose.org and U.S. Energy Information Administration, July 2015

₵5.0-5.9/kWh lowest competitive residential retail rates

Texas Average - ₵11.86/kWh National Average - ₵12.98/kWh

Lowest Texas Price – ₵5.00/kWh

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ERCOT Clean Air Plan Impact• The EPA proposed the CPP in June 2014

– Interim CO2 emissions limit of 853 lb CO2/MWh on average during the period from 2020 to 2029

– Final limit of 791 lb CO2/MWh on average from 2030 onward.– 8,700 MW coal capacity retirement predicted

• Under the final rule, August, 2015– Texas will be required to meet a final CO2 emissions rate limit of 1,042

lb CO2/MWh on average from 2030 onwards– 4,200 MW coal capacity retirement through 2030 – 16% increase in energy costs for customers by 2030– Capacity picked up mainly by solar, wind, and combustion turbines– Potential transmission reliability issues due to the loss of generation

resources in and around major urban centers– Strain on ability to integrate additional renewable generation

resources

October 27th, 2015

Source: ERCOT Analysis of the Impacts of the Clean Power Plan Final Rule Update 2015

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Current Focus Areas for ERCOT

• Market Optimization

• Renewable Power Integration

• Distributed Energy Resources

• Resource Adequacy & Scarcity Pricing

• Potential Clean Air Plan Impacts

October 27th, 2015