Texas Retail Electric Providers Expected To Offer More Demand Response Products To Small Customers In Wake Of ERCOT Summer

Market Expected To Attract Resources With Low Capital Costs, Potentially High Operating Costs (Or High Curtailment Costs)

During a Public Utility Commission of Texas workshop last week discussing the ERCOT market's summer performance, PUC Chairman DeAnn Walker said that, "We may be moving to a market that's not to incent generation as much as to incent the response on the demand side."

Walker began a discussion on load response by again raising the issue of response to 4CP transmission costs.

"That week, on the 13th [of August] when the EEA 1 was issued, you saw immediate response, and I think a lot of that was demand response, but I also think a lot was 4CP, because it [the peak] was headed to go above the day before. Thursday, the 15th, which was clearly never going to be a 4CP day, you did not see that response at all," Walker said

Speaking for the Texas Industrial Energy Consumers, Katie Coleman said that she and her clients have seen a shift in the conditions to which large industrials respond, away from 4CP, because the market is now seeing high energy prices

Coleman cited a number of oil field loads that have, in the past, responded to 4CP but have histrionically not responded to energy prices. But this year, such oil fields responded to energy prices, Coleman said

At the industrial level, "they respond wherever the money is," Coleman said

Coleman suggested that the impact described by Walker reflected the impact of smaller customers, where their 4CP responsiveness is much more developed than their responsiveness to energy prices, because historically 4CP has been where the money has been in load response

"What I anticipate is, now that we've had these high price summer events ... you would think at some point that the REPs are going to see that there's money to be had there, and go out and develop products for those smaller customers," so such customers don't have to pro-actively manage their load themselves, Coleman said

"I think you're going to start seeing more price responsive demand," and therefore the 4CP versus price responsive demand differential will decrease, Coleman said

Walker noted that, "That's part of what this market is. When you have the $9,000, it's not only to incent them [generators] to be on, but to incent y'all [load] to come off."

"We may be moving to a market that's not to incent generation as much as to incent the response on the demand side," Walker said

Coleman agreed, stating, "When I talk about this market going where no market has gone before, having a market that actually balances the supply and demand side by itself, that's the end goal, right."

"I think what you are going to see going forward is that the types of resources that this market is incentivizing are going to be different than the resources that we've been looking for in the past. You're looking at a few hours of very high prices and pretty low prices the rest of the year, and most of that has to do with renewable penetration and low gas prices as well. But what that incentivizes is: low capital cost, potentially high operating cost -- or for load, high curtailment cost -- resources. So no matter how much more money you put into the market, what you're going to get is more of those resources," Coleman said

Michele Gregg, speaking for the Texas Competitive Power Advocates, stated, "we would recommend probably eliminating the price impact that 4CP has, similar to what you do with ERS."

TCPA considers 4CP response an "out of market action" as the behavior is undertaken to avoid transmission costs, and the correlation to either grid stability and/or price is "questionable" at best, Gregg said