News Release

March 18, 2009

ERCOT News: March 17 Board Meeting Highlights

TOPICS:

BOARD APPROVES REVISED NODAL FEE RECOMMENDATION

The Board of Directors for the Electric Reliability Council of Texas, grid operator for most of the state, revised its recommendation for the nodal market funding mechanism to maintain a minimum 40 percent equity, at Tuesday’s regular board meeting. 

The board authorized ERCOT staff to make a filing with the Public Utility Commission requesting a nodal surcharge between 32 cents and 38 cents per megawatt-hour (MWh) for 2010 through recovery of the nodal expenses.  The amount depends on the commission’s pending decision regarding the fee for the remainder of 2009.  The current nodal surcharge of 17 cents/MWh, which is assessed to generation, has been authorized by the commission on an interim basis through the end of this month.   

If the commission maintains the current nodal surcharge of 17 cents/MWh through 2009, the flat fee for 2010 through full recovery would be 38 cents/MWh.  If the commission increases the current surcharge to 22 cents (the amount approved in an ERCOT-market participant settlement agreement currently pending before the commission) for the rest of the year, the nodal surcharge for 2010 through full recovery is estimated to be 34 cents/MWh. 

The revision was prompted by the commission’s concerns regarding the declining level of revenue funding for the project.  The board’s recommendation last month for the nodal surcharge would have resulted in either a 34 or 37 percent revenue funding depending on the rate that was approved. (Additional information is online at this link.) 

The board also modified the financial corporate standard to include a minimum 40 percent revenue funding for project budgets. 

NEW LEADER FOR NODAL PROJECT ANNOUNCED

CEO Bob Kahn announced that Utilicast consultant Mike Cleary has been selected for the new position of senior vice president and chief technology officer with responsibility for overseeing the nodal project to completion.  Cleary will have a dual reporting relationship to the ERCOT CEO and to the ERCOT Board of Directors.   

Cleary has more than 28 years of industry experience in global electricity and traded-commodity markets, deregulation and exchanges, and has particular experience in delivering multi-million-dollar programs on time and on budget. 

He has 15 years of work experience at the Electricity Supply Board, the national electricity utility in Ireland, and also managed the information systems division at PJM Interconnection. While a consultant with Accenture at PJM, Cleary was the overall program advisor for the estimated $500 million PJM market expansion program.  

Utilicast was hired by the ERCOT board in October 2008 to provide an independent third-party review of the nodal program.  They presented a report to the board in December, and under the current contract, are scheduled to present a final report to the board in April. 

David Forfia, former director of information technology infrastructure, is filling in for chief information officer Ron Hinsley who resigned March 5.  In an announcement to employees, Kahn expressed his appreciation to Hinsley for stepping in to assist with the recent restructuring of the nodal project management team. 

BOARD BRIEFED ON NODAL PROGRESS, RISKS

Chief Operating Officer Trip Doggett presented an update on nodal progress and risks, noting that since the schedule was re-planned June 1, 2008, all tasks on the critical path are on schedule.  Of 2,913 total tasks to date, the program has completed 2,598 and is therefore adhering closely to the nodal delivery “road map.”   

Nodal program risks and mitigation strategies were discussed, including:

  • Integration testing
  • Zonal resource constraints
  • External web services issues
  • Data center space concerns (identified as an ERCOT-wide risk). 

The board also adopted a process to control release of discretionary reserve funds (contingency funding) for the nodal project after making revisions to account for unspent funds.   

PROTOCOL REVISIONS, WIND UPDATE, STAFF REPORTS

After a lengthy discussion, the board approved Protocol Revision Request (PRR) PRR 776 (Automatic Market Clearing Price Adjustment during Intervals of Non-Spinning Reserve Service Deployment).  PRR 791 (Shortage-Pricing Mechanism) failed to pass.  

The Technical Advisory Committee report included the Quarterly Renewables Report to the Public Utility Commission.  Topics covered in the renewables report included the current status of wind generation in ERCOT and issues related to increased wind integration. 

Staff reports included:

Financial Summary Report

  • ERCOT’s unrestricted net asset (equity) balance has returned to positive territory due to two primary factors: (1) the board’s consistent policy commitment to significant revenue funding of project expenditures and matching of debt repayment terms to the average useful life of the assets acquired, constructed, or developed with borrowed money; and (2) receipt of a $14.4 million refund of Texas sales and use tax payments from the period 2005-08.
  • ERCOT received an additional $3.2 million from The Reserve’s Primary Fund in February, leaving a remaining balance of $6.8 million. Approximately 96.5 percent of all funds ($189 million of $196 million) held at The Reserve have been recovered as of February 28, 2009.  Applying generally accepted accounting principles to action taken by The Reserve and other pertinent facts surrounding investments in the Primary Fund, ERCOT has concluded that approximately $4 million of its $6.8 million remaining investment in the Primary Fund is at risk of loss, and the potential loss has been recorded as a non-operating item as of December 31, 2008.

Market Operations Report

  • Market prices in January were at the lowest levels seen in years – about half of what they were in 2008
  • Total market volume was down slightly in January; natural gas prices were significantly lower than in 2008; down-balancing energy services continues at higher levels – likely due to wind
  • Switching activity continues to be greater in 2009 than 2008
  • All customer groups show higher migration away from the native (incumbent) utilities in 2009; migration as measured by load in the deregulated areas is 46 percent for residential, 77 percent for small non-residential, and 72 percent for large non-residential
  • Three new retail electric providers were added – Lahey & Partners, GIM Retail Energy and Champion Energy Industrial Services; One new energy scheduler was added – Optim Energy Marketing

Grid Operations and Planning Report - January

  • January peak demand of 45,442 MW on Jan. 29 was less than the forecast of 47,131 MW
  • Day-ahead load forecast error for January was 4.11 percent
  • Most zonal transmission congestion in January was West to North due to wind generation
  • 261 active generation interconnect requests totaling over 101,000 MW are under review; includes almost 50,000 MW of wind generation
  • Completed initial reliability-must-run determination on Luminant’s request for suspension of operations on 15 units and approved 12 units; conducting further study before making final determination on three other units; also, CPS Energy requested to suspend operations on three units, and ERCOT announced last week that they will not be needed for reliability-must-run agreements for 2009
  • 8,065 MW wind capacity was on line as of February 28, 2009
  • Regional Planning Group is reviewing proposed transmission improvements with a total estimated cost of $772 million
  • All transmission projects (in engineering, routing, licensing and construction) total $4.1 billion
  • Transmission projects approved in 2009 totaled $41 million
  • Transmission projects completed in 2008 totaled $453 million

Information Technology Report

Audit Compliance and Risk Management Update - March 2009

MEXICO GRID CONNECTIONS BEGIN COMMERCIAL OPERATIONS

The direct current (DC) ties with the Comisión Federal de Electricidad (CFE) are open to commercial transactions, effective March 12.  These ties include:

  • Eagle Pass (DC-S), 30 MW
  • Sharyland Railroad (DC-R), 150 MW
  • Laredo Variable Frequency Transformer (DC-L), 100 MW. 

The ERCOT grid is not synchronously connected with any other grids.   Connections to other grids are limited to direct current ties which allow the controlled transfer of power between the ERCOT system and another electrical system without the two systems being synchronized.   

The ERCOT grid also has DC ties with the Southwest Power Pool region at Oklaunion (220 MW) and at Monticello (600 MW), both in the north Texas area. 

The CFE ties have been used for mutual emergency assistance between ERCOT and CFE but were not previously available for commercial transactions. Mexico has assisted ERCOT through the ties and the Laredo connection during capacity-shortfall events, and ERCOT has also assisted CFE on emergency occasions.

The Electric Reliability Council of Texas (ERCOT) manages the flow of electric power to more than 26 million Texas customers -- representing about 90 percent of the state’s electric load. As the independent system operator for the region, ERCOT schedules power on an electric grid that connects more than 46,500 miles of transmission lines and 710+ generation units. It also performs financial settlement for the competitive wholesale bulk-power market and administers retail switching for nearly 8 million premises in competitive choice areas.

ERCOT is a membership-based 501(c)(4) nonprofit corporation, governed by a board of directors and subject to oversight by the Public Utility Commission of Texas and the Texas Legislature. Its members include consumers, cooperatives, generators, power marketers, retail electric providers, investor-owned electric utilities, transmission and distribution providers and municipally owned electric utilities.

Contact

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512-275-7432