Item 11: Briefing re Energy Market Ops, Regulatory Framework, PSA, Load Shed — original pdf

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Energy Market Economics & Texas Regulatory Framework Item 11 Erika Bierschbach Vice President, Energy Market Operations & Resource Planning April 19, 2021 © 2018 Austin Energy The Public Utility Commission of Texas • PURA 39 – established a fully competitive electric power industry • Authority to oversee electric market structure • Adopts rules addressing market • Appellate authority over ERCOT protocols adopted by ERCOT board • Complete authority over ERCOT finances, budget and operations with oversight by Texas Legislature • Approves ERCOT Bylaws • 16-member ERCOT Board composition is established by law • Currently under review by the Texas State Legislature 2 ERCOT Corporate Governance (Electric Reliability Council of Texas) • Founded in 1970 • TX Legislature enacted laws governing all ERCOT activities • See PURA Section 39.151 • Tx non-profit corporation with members from seven market segments: • Consumers (Commercial, industrial, residential) • Cooperatives • Independent Generators • Independent Retail Electric Providers • Investor-Owned Utilities • Municipals 3 ERCOT Responsibilities ERCOT’s Primary Responsibility is Reliability • Match generation with demand • Settlements • Retail switching • Transmission access Executes competitive markets for reliability services 4 ERCOT Mechanics Electric Wholesale Market Austin Energy’s Owned and Contracted Assets Austin Energy delivers generation to ERCOT’s Wholesale Market • • • • • • 430 MW Nuclear 600 MW Coal 1,161 MW Natural Gas 108 MW Biomass 1,795 MW Wind 1,216 MW Solar * * includes signed contracts not yet online 5 How Does Austin Energy (AE) Participate? • AE does not self supply its generation to its customers • AE’s participation in the ERCOT market is not optional • AE’s generation competes in ERCOT’s deregulated wholesale market • AE is a Municipal Market Participant / Non-Opt-In Entity • AE is a Load Serving Entity – purchases customer’s power from grid at city’s load zone • ERCOT charges AE for all power we pull from grid / market at AE’s load zone price • AE is a Generator – sells electric resources to grid at locations throughout the state • ERCOT pays AE for all power we offer grid / market at prices at each resource How was Austin Energy’s portfolio prepared for 2021’s February Winter Event? 6 Supply (Capacity) by Fuel Source vs Austin Energy Load during February 2021 Winter Event 3500 3000 2500 2000 1500 1000 500 0 20210211 20210212 20210213 20210214 20210215 20210216 20210217 20210218 20210219 Nuclear Coal Natural Gas Wind Solar DAM Load Purchase AE Net Load Potential Load 7 Austin Energy’s been hedging since 2003 • AE has an internal Risk Oversight Committee which has been in place for 18 years. • Meets monthly • Daily and monthly reports • AE has a robust competitive RFP process selecting strategic assets for customer’s portfolio. • Internal expertise originating projects, not outsourced • Comprehensive stochastic and fundamental modeling combined with extensive analytics • Comprehensive approval process within utility and city • AE diversifies the portfolio • Renewable and conventional generation • Renewable projects in many parts of the state (different generation profiles, minimize congestion risk) • Projects steadily layered in overtime in small chunks allows for dollar cost averaging • AE actively manages its portfolio, hedging program in place for 18 years • Sophisticated risk management tools and long-standing policies employed in forward, day ahead and real time markets to mitigate price risk • Power Supply Adjustment metrics reviewed monthly by Oversight Committee measures portfolio performance Public power hedging has strict rules around risk management – no speculation 8 Austin Energy is diversified 9 Power Supply Adjustment (PSA) Drivers PSA is a Pass Thru Major Elements Impacting PSA Load Zone Costs Owned Assets Contracted Assets Austin Demand Austin Supply Austin Supply Customer Growth Weather Generator Availability Market Price Intermittency Location Over / Under Balance PSA Rate to Market Price Spread s r e v i r D t s o C Natural Gas Price Transmission Congestion Forward Price Curve Weather Market Price Contract Price 10 Questions? 11 Briefing on Energy Markets and Customer Bills Adam McInroy Finance Director for Risk and Settlements April 19, 2021 © 2018 Austin Energy Energy Markets and the Power Supply Adjustment Energy market costs and revenues are passed to customers on a dollar-for- dollar basis, through the power supply adjustment (PSA) charge on customer bills. PSA cash flows encompass: • Purchases for customer usage • Sales from generation • Purchases for fuel and renewable energy • Risk management of power costs • GreenChoice collections • Value of Solar payments to customers Power for Load Power from Gen Fuel for Gen PSA Charge 13 Daily Power Markets, Annual PSA Rates Energy markets are extremely dynamic • Hourly price movement, daily settlement • Multiple market environments • Many commodities and locations • Dependence on uncertain weather Austin Energy mitigates this for customers • Diversified physical resources Risk management activities • Liquidity and financial management • • Analysis and planning Dynamic Power Markets Austin Energy Activities Stable, Annual Rate 14 PSA Billing PSA costs are collected from customers as a pass-through charge on customer bills. • Recovers energy market costs • Across the system • Over twelve month rate year • Dollar-for-dollar pass through • No general fund transfer on PSA • Roughly 31% of residential customer bills1 1:1 PSA Charge annually set rate (1) City of Austin Residential Non-CAP Customer using 860 KWh (2019 Typical Monthly Consumption) 15 PSA Rate Adjustment Process The PSA rate for customer bills is generally adjusted once per year, during the annual budget cycle. • Daily energy market revenue changes do not directly impact customer bills • Rate returns any PSA balance built up from daily activity • Off-cycle adjustment if needed, for new twelve-month rate 16 PSA Funds and Liquidity Austin Energy’s cash and liquidity balances help customers experience measured changes in their power supply costs. Across the Texas utility industry, these balances came to be of concern for bondholders and ratings agencies after the winter event. Austin Energy’s liquidity and finances remained healthy throughout the winter event. Daily Energy Cash Flows Austin Energy PSA Funds Stable Rate, Monthly Billing 17 Bond Market Communication To meet its obligations to make bondholders aware of significant events and risks, Austin Energy and City of Austin Treasury made a financial disclosure to the bond market on March 8th. In the disclosure, Austin Energy and Treasury communicated that, during the event: • Cash liquidity remained strong • Austin Energy supplied generation in excess of load to ERCOT • Event energy revenue may fully offset costs • Settlements are not yet complete • Many uncertainties remain 18 PSA Discussion Summary Austin Energy manages dynamic daily energy markets to provide stable, affordable, annually set PSA rates to customers. PSA charges are passed through to customers with no GFT. By using its own liquidity on customers’ behalf, the utility must occasionally give guidance to bond markets on its financial health. Austin Energy is financially healthy after the winter event, and looks forward to continuing to offer stable PSA rates for our customers going forward. 19 Questions? 20 Tom Pierpoint Vice President Electric System Engineering & Technical Services Load Shed April 19, 2021 © 2018 Austin Energy Load Shed • Load Shed is typically accomplished through Rotating Outages • Automated program used on those feeders available for load shed events • Feeder may not be available due to critical loads and frequency protection • Feeder originates at substation and serves thousands of customers • Each feeder can be up to several miles in length and serve many communities • Extreme ERCOT-mandated reductions can consume AE Load Shed capabilities and prevent rotation • After Actions: • Looking into potential to power critical loads while others are cycled -- could include segmenting, sectionalizing, and/or reconfiguring feeders, where feasible. • Automated Metering solutions will be explored but technical risks and limitations exist • Leverage resources from EPRI (Electrical Power Research Institute) • Other types of Load Shed also exist • Mostly comprised of larger Commercial and Industrial (C&I) customers that cannot be cycled • Load Shed is not automated; Close coordination is required to ensure safety • After Actions: • Work with ERCOT and C&I customers to develop a more automated program 22 Questions? 23 Thank you! ©2018 Austin Energy. All rights reserved. Austin Energy and the Austin Energy logo and combinations thereof are trademarks of Austin Energy, the electric department of the City of Austin, Texas. Other names are for informational purposes only and may be trademarks of their respective owners.