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									Rediscover Energy - ERCOT

        August 13, 2009

       Andrew Elliot               Randy Lennan                Cindy Wishert
  Director, Supply - ERCOT     Sales Director – ERCOT    Marketing Manager –ERCOT
GDF SUEZ Energy Resources    GDF SUEZ Energy Resources   GDF SUEZ Energy Resources

            ERCOT Overview

                                                       • Electric Reliability
                                                         Council of Texas
                                                       • One of 8 NERC
                                                       • Covers large part of
                                                         TX with 40,000 miles
                                                         of transmission lines

“NERC” refers to North American Reliability Council.

ERCOT Overview

                 • Texas Legislature establishes laws related
                   to electricity industry

                 • Public Utility Commission of Texas (PUCT)
                   is the primary regulatory authority

                 • ERCOT follows Operating Standards
                   prescribed by NERC
                   • System Reliability
                   • Competitive Wholesale market
                   • Facilitate Retail registration / switching

           ERCOT Overview
           Deregulation Timeline


                1999                          2002        2003         2007       2008
   1996                        2001
                                            Full retail             Market 100% Nodal
ERCOT grid Senate Bill 7   Pilot Project:                 PUCT
             passed                         access on ordered       migrated to Protocols
  open to                  5% of market
              (SB7)                           1/1/02 ERCOT to       competitive Approved
 wholesale                    open to
competition                 competition                  develop     suppliers
                                                        the Nodal

ERCOT Overview
Market Participants

                   Transmission and Distribution Service Providers

                                        Retail Electric Providers
                                        • Competitive REPs
                                        • Affiliated REPs

                                                                    Aggregators, Brokers,
                                                                     and Consultants

Service Territory


Supply Section - Outline

•   Current Market Structure

•   Nodal Market Structure and Impacts

•   ERCOT Reserve Margins and Generation Mix

•   Energy Prices

              Current Zonal Market Structure

                     Zonal Congestion               Local Congestion
         • Congestion between zones (CSC)   • Congestion costs within a Zone
         • ERCOT manages through            • Cost are spread among load serving
         generator’s Portfolio Energy       entities on a load ratio share basis
         • Deployments by zone

Graphs prepared by ERCOT
          Transition to Nodal Market

In today’s Zonal Market, the grid is divided into   In the Nodal Market, the grid will consist of more
four Congestion Management Zones (CMZs),            than 4,000 nodes, representing load and
which are defined by the Commercially Significant   generation facilities. Load Zones will replace
Constraints (arrows). Several limitations have      CMZs and end users will continue to receive one
been identified with the current zonal model:       price dependant on the Load Zone where they
                                                    reside. The Texas Nodal design is expected to
•Insufficient price transparency                    deliver the following benefits:
•Resources grouped by portfolio
                                                    •Improved price signals
•Indirect assignment of local congestion
                                                    •Improved dispatch efficiencies – Security
                                                    Constrained Economic Dispatch Model (SCED)
                                                    •Direct assignment of local congestion



       Major Product Changes Under Nodal: RUC and
       Load Zone Congestion Risks
• Day Ahead Market (DAM) -The Nodal market introduces the Day Ahead Market (DAM), which
  provides an opportunity for parties to participate in a ERCOT sponsored centralized market to
  optimize bilateral contracts, provide price transparency and price certainty for the next day.
  Additionally, the DAM is intended to co-optimize Energy and Ancillary Services. The DAM is
  financially settled, while physical energy and ancillary services will continue as always in the
  Real-Time markets.

• Reliability Unit Commitment (RUC) Process- RUC is an ancillary service needed by ERCOT
  to ensure there is enough generation to maintain the reliability of the transmission grid. The
  Transmission Security Analysis model will evaluate the need and cost for RUC on a daily and
  hourly basis. Customers choosing a real time Index/MCPE product may be subject to higher
  RUC charges versus fixed price contracts.
     • RUC Charge Components:
           • RUC Capacity Shortfall Charge
           • RUC Make Whole Charge
           • RUC Clawback Payment
           • RUC Decommitment Charge

       Load Zone Congestion Costs

• Wholesale energy is available only at Trading Hubs while Load is settled at Load Zone price.
  The congestion costs between the Trading Hub settlement price and Load Zone settlement
  price will be passed through ( $60.00 – $58.00 = $2.00). Once a liquid market develops to
  hedge this congestion risk, REPs will likely offer to manage this risk on behalf of the customer.
     • Load Zone Price Settlement Price – load weighted average price of all load buses in the
       Load Zone
     • Trading Hub Settlement Price – simple average price of a subset of generation buses

                                    North Load Zone

                                   North Load     Congestion

                                                   Trading Hub:

                 Transition to Nodal Market
                 US Power Market Comparison

Graphs prepared by ERCOT       PJM              NE              NY           Mid-West            CA                ERCOT

     Congestion                                                                                                Zonal CSC/
                           Nodal LMP       Nodal LMP       Nodal LMP       Nodal LMP       Inter/Intra-zonal
     Management                                                                                                Local

                           Financial       Financial       Financial       Financial       Physical            Financial

     Markets               DA, RT, FTR     DA, RT, FTR     DA, RT, FTR     DA, RT, FTR     DA, HA, RT          RT, TCR

     Bilateral Trans-
                           Financial       Financial       Financial       Financial       N/A                 Financial
     action (Internal)

                           Node, zone,     Node, zone,     Node, zone,     Node, zone,
     Location Model                                                                        Zone (no loop)      Zonal (meshed)
                           hub             hub             hub             hub

                                                                                           Portfolio & Unit
     Resource Model        Unit Specific   Unit Specific   Unit Specific   Unit Specific                       Portfolio

                           Self + DA +     Self + DA +     Self + DA +     Self + DA +
     Unit Commitment                                                                       Self + RUC          Self + RPRS
                           RUC             RUC             RUC             RUC

               Generation Fuel Mix

• Electric utilities, ISO’s and generation companies use a diverse fuel mix to generate electricity
• Fuel mix varies by region

                            National Fuel Mix                                                         ERCOT Fuel Mix

Other includes generation by agricultural waste, batteries, chemicals, geothermal, hydrogen, landfill gas recovery, municipal solid waste, non-
wood waste, pitch, purchased steam, solar, sulfur, wind and wood
Source: NERC 2009 Reliability Assessment

                Typical Summer Day Load Shape with Generation

• Base-load supplies represent 20,000
  MW, primarily coal & nuclear

• Natural Gas units provide
  shaping/load following. They are the
  marginal unit – they set the price for
  the next MW of generation needed to
  meet demand.

Source: ERCOT

           ERCOT’s Own Reserve Margin Forecasts

  Percentage by which
  available resource
  capacity is expected
  to exceed forecasted
  peak demand
• ERCOT Reserve
  Margin Target is
• Summer 2009 New
  Peak Load Record =
• Watch out for
  economic rebound
  and 4-6% load growth
                               Source: ERCOT, May 09
  in 2010

     Source: ERCOT, May 2009

                NERC Reserve Margin Forecasts

                                           “Grey Area” – what is
                                           the true Reserve

Source: NERC 2008 Reliability Assessment

          ERCOT Prices

• Forward ERCOT power prices are derived from the forward view of market heat rates and natural
  gas prices.

• Heat rate is the measure of efficiency for a generation unit to convert an input fuel (natural gas) to
      •      The lower the heat rate  the more efficient the unit is  the lower the cost is to
             generate electricity.

      •     In the energy markets, we talk in terms of market or implied heat rates:

      Forward Power Price ($50.00) = Forward Gas Price ($5.00) x Forward Heat Rate (10.00)

                  Implied or Market Heat Rate (10.00) = Forward Power Price ($50.00)
                                                        Forward Gas Price ($5.00)

      •     Power prices are highly correlated to natural gas prices – as natural gas moves, so does
            power price.

                ERCOT Prices
                Heat Rate and Gas Price Volatility Comparison

• Heat Rates tend
  to be relatively

• NYMEX prices
  have ranged
  from $9.70 to

• Natural gas
  price volatility
  can be high

 “Cal 10” refers to the 2010 calendar year from January 1, 2010 – December 31, 2010

              ERCOT Prices
              Power Price and Gas Price Comparison

• ERCOT 2010
  forward power
  prices have
  ranged from
  $83.00 to

• NYMEX prices
  have ranged from
  $9.70 to

• Notice how power
  and gas prices
  move together,
  high correlation

 “Cal 10” refers to the 2010 calendar year from January 1, 2010 – December 31, 2010

           Wholesale Energy Outlook

Bullish Indicators (Rising Prices)                         Bearish Indicators (Falling prices)
•   Economic recovery anticipated for 2010.                • Economic recession may continue into 2010 which
                                                             could lower demand and keep energy prices down.
•   Crude and natural gas production lost due to
    reduced drilling activity. The number of operating     • Reserve Margins – Reports indicate that the
    natural gas rigs are down almost 50% versus last         reserve margins are more than adequate to meet
    year.                                                    demand.

•   Instability in the Middle East may threaten crude      • Current US natural gas storage level is at 3.08 Tcf
    availability and provide price volatility.               19% higher than the 5 year average. Analysts
                                                             expect a record storage level near 3.6 – 3.8 Tcf.
•   Mid term (Cal 12 – 14) ERCOT Reserve Margins
    expected to decrease.                                  • Canadian natural gas storage levels approaching
                                                             90% of capacity.
•   Nodal Market structure implementation – glitches.      • National Hurricane Center and other experts
                                                             predict normal to below normal hurricane season
•   Hurricane Season brings concerns about supply            with a forecast of 9-12 named tropical storms, 1-2
    disruptions due to storm related production shut-ins     which may make landfall as hurricanes.
    and energy infrastructure damage.
                                                           • LNG imports to the US from Europe and South

        What Cost Components are Included in my Energy
What is typically included in a product offering?
            •    Energy Component
            •    Energy Losses
            •    Market Based Ancillary Services
            •    ERCOT procured Ancillary Services and/or Fees (Load Ratio Share Costs)
What is typically passed through?
            •    Taxes and PUC Fees
            •    Transmission and Distribution (TDSP) Charges

Electricity Cost Components – ERCOT

               * Percentages are approximate
                                  Product Selection
                 Risk Tolerance & Energy Procurement Strategies


                  Index on 100% of Load                   Speculative Trading
                   - Completely subject to market         - Actively try to beat the market
                      price variations                    - Resource Intensive
Risk Tolerance

                   - Retain ability to lock fixed price
                      for portions of load

                  Fixed Price                             Defined Hedging Strategy
                   - Not exposed to market variations     - Define specific objectives
                   - Locked into price                    - Develop quantifiable plan
                   - Price will be 100% based on market   - Strictly adhere to plan
                     conditions at time of purchase

       Low                                                                                    High

        Product Selection
        Product Determination

• Once you have established your risk tolerance level, choose a product that matches your

           •    Fixed Price Full Requirements – Price Certainty
           •    Index (MCPE) – Floating Price
           •    Heat Rate – Floating price with the power price tied to the price of natural gas,
                ability to lock-in price
           •    Stipulated Quantity (a.k.a. Block & Index) – partial Fixed Price hedge with
                exposure to index pricing  hybrid product

Fixed Price Product

Index Price Product

Heat Rate Product

Monthly   Heat   Gas Price   Retail Adder   Electricity Price
          Rate   $/MMBtu       $/MWh            $/MWh
Month 1   10      $ 5.32       $ 9.50           $ 62.70
Month 2   10      $ 6.80       $ 9.50           $ 77.50

Stipulated Quantity (Block and Index)

                           Index price for energy above the block

                Fixed Price for block energy


Risk / Reward Spectrum

                                        Block and                        Index / MCPE
        Fixed Price

                      Heat Rate – option and ability to lock gas price

Customer Scenario 1 – Primex Plastics

Scenario 1: Primex Plastics – 2MW, 65% Load Factor – plastic packaging company

Key Business Drivers -

• Historically been on fixed price; no experience with flexible or floating product structures
• Budget-certainty preferred
    • Buyer provided management with 3-year outlook, but only held to a 12-month
    • Expected target of 10% of a specified ¢/kWh value based on historical consumption
    • Buyer has little appetite for any unnecessary risks that might directly contribute to
      missing budget
• Having a better understanding of risk premiums – particularly those associated with fixing
  less volatile components for which the prices are beyond the control of a supplier – Buyer
  would prefer to avoid some of the additional, potentially unneeded hedge premiums.

        Customer Scenario 1: Risk / Reward Spectrum

                         1 2       3 4

1. Product history
2. Budget mechanics
3. Customers revenues tied to costs?
4. Buyers objectives
Customer Scenario 2 – Maywood Office Center

Scenario 2: Maywood Office Center – 2 MW, 60% Load Factor – Office complex

Key Business Drivers -

•   Historically been on flexible / floating product structures
•   Budget-certainty is fairly important, but less critical than achieving a lower overall cost
    for the long-term
•   Buyer is an experienced energy manager and knowledgeable about energy markets
•   Buyer provides management with 3-year outlook, and personal goals are tied to long-
    term performance
•   Buyer has greater appetite for risk, and is willing to accept market volatility
•   Buyer is also very knowledgeable about risk premiums associated with various
    energy components and wishes to avoid as many of the premiums as possible, while
    still securing a fixed portion of the overall energy cost

        Customer Scenario 2: Risk / Reward Spectrum

                                       23   4 1

1. Product history
2. Budget mechanics
3. Customers revenues tied to costs?
4. Buyers objectives
         About GDF Suez

                                                              A member of the GDF SUEZ group
                                                                  •   Global leader in independent
                                                                      power production
                                                                  •   Over $122 billion in 2008 revenues
                                                                  •   Over 200,000,000 customers
                                                                  •   500,000 Commercial & Industrial
                                                                      customers globally
                                                                  •   GDF SUEZ ranked 17th in Forbes
                                                                      Global 2009*
                                                                  •   Highest credit rating of leading
                                                                      energy providers in the U.S.  A
•    GDF SUEZ Energy Resources serves over 55,000                     positive rating by S&P
     commercial, industrial, and institutional accounts           •   FORTUNE Magazine Ranked Top
•    3rd largest Retail Commercial & Industrial energy                10 Most Accountable Firms, Top 10
     provider*** in the United States                                 Most Admired Energy Companies
•    Load Served                                                      Globally, 2008 & 2009**
       Total Load 7,150 MW
                                                                      * April 2008 Forbes Global 2009 Report
       Texas Load 2,000 MW                                            ** FORTUNE Magazine, 2008 & 2009
•    7,750 MW of power generation in U.S. through affiliate           ** KEMA Consulting, March 2009

    (GDF SUEZ Energy Generation)
       o 3 power plants in Texas (2 CC, 1 CT)
Other Products

We assist customers with:

•   Energy Efficiency
•   Demand Response
•   Green Power

Contact Information

                          Randy Lennan
                            Sales Director
                  GDF SUEZ Energy Resources NA
               1990 Post Oak Boulevard, Suite 1900
               Houston – Texas – 77056 – United States
       Ph. 713.636.1356 | Fax 713.636.0874 | Mob. 816.678.8797



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