Wind Power and the CREZ Wind Power and the CREZ Case: Case: What’s Decided, What’s Not, What’s Decided, What’s Not,

What’s NextWhat’s Next

Patrick R. CowlishawPatrick R. CowlishawJackson Walker LLPJackson Walker LLP

SBOT Public Utility Law SectionSBOT Public Utility Law SectionAugust 15, 2008August 15, 2008

Background:Background:

The CREZ Mandate (The CREZ Mandate (SB 20, 79SB 20, 79thth Leg., Leg., 2005)2005)

• Rich Texas wind resources, but remote from population centers: Rich Texas wind resources, but remote from population centers: development limited without transmission, transmission development limited without transmission, transmission construction limited without wind development commitmentsconstruction limited without wind development commitments

• Legislature passed PURA 39.904(g); requires PUC to take 2 Legislature passed PURA 39.904(g); requires PUC to take 2 actions:actions:

– designate designate competitive renewable energy zonescompetitive renewable energy zones (CREZs) (CREZs) “throughout this state” in areas with sufficient energy “throughout this state” in areas with sufficient energy resources and suitable land areas to develop generating resources and suitable land areas to develop generating capacity from renewable energy technologies, and considering capacity from renewable energy technologies, and considering level of generator financial commitment for each zonelevel of generator financial commitment for each zone

– develop a plan to construct transmission capacitydevelop a plan to construct transmission capacity necessary to necessary to deliver to electric customers, in a manner that is most deliver to electric customers, in a manner that is most beneficial and cost-effective to the customers, the electric beneficial and cost-effective to the customers, the electric output from renewable energy technologies in the CREZsoutput from renewable energy technologies in the CREZs

Background:Background:

The CREZ RuleThe CREZ Rule

Designating CREZ zones:Designating CREZ zones:• Contested cases (first in 2007, Contested cases (first in 2007,

thereafter as PUC sees need)thereafter as PUC sees need)• Final order to contain, for Final order to contain, for

each CREZ:each CREZ:– geographic extent of CREZgeographic extent of CREZ– major transmission major transmission

improvements to deliver CREZ improvements to deliver CREZ output to customers (voltage output to customers (voltage level, general description of level, general description of interconnection to existing interconnection to existing grid)grid)

– estimated maximum estimated maximum generating capacity the TM generating capacity the TM improvements can improvements can accommodateaccommodate

– other requirements other requirements considered appropriate by considered appropriate by PUC under PURAPUC under PURA

Other provisions:Other provisions:• generator financial generator financial

commitmentcommitment• implementing transmission implementing transmission

planplan– selecting TSPsselecting TSPs– CCN proceedingsCCN proceedings– developer depositsdeveloper deposits– developer to operate within 1 developer to operate within 1

year after CREZ TM is readyyear after CREZ TM is ready

• PUC authority to limit PUC authority to limit interconnection to CREZ TM interconnection to CREZ TM system, establish dispatch system, establish dispatch priorities to protect against priorities to protect against excess developmentexcess development

PUC Subst. R. 25.174 (Project 31852)PUC Subst. R. 25.174 (Project 31852)

CREZ Proceeding: Docket CREZ Proceeding: Docket 3367233672Docket opened January 2007Docket opened January 2007• ERCOT 2006 studyERCOT 2006 study

– AWS: 25 top wind regionsAWS: 25 top wind regions– Transmission options to deliver Transmission options to deliver

CREZ output to ERCOT customersCREZ output to ERCOT customers• 65 parties, 20 CREZ nominations65 parties, 20 CREZ nominations• Financial commitment testimony Financial commitment testimony

filed to support over 20,000 MW filed to support over 20,000 MW CREZ projects across 16 zonesCREZ projects across 16 zones

• Nominated capacity exceeded Nominated capacity exceeded TM capacity in ERCOT studyTM capacity in ERCOT study

• Alternative transmission Alternative transmission proposals from partiesproposals from parties

• SPP proposal to serve PanhandleSPP proposal to serve Panhandle• Ancillary services study Ancillary services study

proceeding in parallelproceeding in parallel

What’s Decided:What’s Decided: Step 1 -- CREZ Zones Step 1 -- CREZ Zones DelineatedDelineatedInterim Order (Oct. 2007)Interim Order (Oct. 2007)• AWS study adequate to AWS study adequate to

identify zones with identify zones with sufficient resources/landsufficient resources/land

• 5 CREZs: based on 8 5 CREZs: based on 8 study zones with study zones with greatest financial greatest financial commitment, plus commitment, plus project adjustmentsproject adjustments

• Specific findings for Specific findings for each developer who each developer who provided significant provided significant financial commitment financial commitment for each selected zone for each selected zone

What’s Decided:What’s Decided: Other Interim Order Other Interim Order ConclusionsConclusions

Reliability region issuesReliability region issues

• TM to be built to interconnect TM to be built to interconnect all CREZs with ERCOT all CREZs with ERCOT

• Upper PH interconnections to Upper PH interconnections to ERCOT (zones 1, 4) require ERCOT (zones 1, 4) require FERC approval as in FERC approval as in Cottonwood Cottonwood (FERC (FERC ¶ 61,198)¶ 61,198)

• Simultaneous interconnection Simultaneous interconnection to ERCOT, SPP prohibited to ERCOT, SPP prohibited

• Dissent: would require upper Dissent: would require upper Panhandle CREZ areas (1,4) Panhandle CREZ areas (1,4) to deliver into SPPto deliver into SPP

Need additional ERCOT TM study • zones now known• optimize plans for four alternative capacity levels• i.d. components required independent of CREZ process • report 4/2/08, allow comment

What’s Decided:What’s Decided: Step 2 – Transmission Plan Step 2 – Transmission Plan ApprovedApproved

Open Meeting 7/17/08; Order Expected Open Meeting 7/17/08; Order Expected 8/14/088/14/08• Voted to select Scenario 2 (“middle case”)Voted to select Scenario 2 (“middle case”)• 18,456 MW CREZ transfer capacity (11,553 18,456 MW CREZ transfer capacity (11,553

new wind plus 6903 base)new wind plus 6903 base)• Estimated cost = $ 4.93B + collection Estimated cost = $ 4.93B + collection

system ($ 580 – 820 MM) system ($ 580 – 820 MM) • Provides for 64,031 GWh wind generation Provides for 64,031 GWh wind generation

at $38/MWh average fuel-cost savingsat $38/MWh average fuel-cost savings• 2,334 miles of new 345-kV construction, 2,334 miles of new 345-kV construction,

over 100 projects (CTP Facilities)over 100 projects (CTP Facilities)• Expandable design to Scenario 3 (24,859 Expandable design to Scenario 3 (24,859

MW)MW)

What’s Not and What’s Next:What’s Not and What’s Next:

Who Will Build, Operate The CREZ Who Will Build, Operate The CREZ Transmission?Transmission?

New Rule 25.216 (Project 34560)New Rule 25.216 (Project 34560)If CTP Facility is anIf CTP Facility is an• Existing facility upgrade: Existing facility upgrade:

owner will be selected as TSP owner will be selected as TSP unless requests otherwise or unless requests otherwise or good causegood cause

• New facility: PUC to select TSPNew facility: PUC to select TSP– capabilities to finance, license, capabilities to finance, license,

operate, maintain facility; cost operate, maintain facility; cost projections; proposed projections; proposed schedule; use of HUBs; track schedule; use of HUBs; track record; project understandingrecord; project understanding

– reduced filing requirements reduced filing requirements for unopposed CTP Proposalsfor unopposed CTP Proposals

CREZ TSP Selection Under CREZ TSP Selection Under Way in Docket 35665Way in Docket 35665

• Settlement conferences to Settlement conferences to expedite selectionexpedite selection

• Initial expressions of Initial expressions of interestinterest– competition for large competition for large

projectsprojects– 31 owner upgrades31 owner upgrades

• CTP Proposals due 9/12 CTP Proposals due 9/12 – selections due within 180 selections due within 180

days by rule (3/11/09)days by rule (3/11/09)

• Merits hearing 12/1-5Merits hearing 12/1-5

What’s Not and What’s Next:What’s Not and What’s Next:

CCN Proceedings for CREZ TransmissionCCN Proceedings for CREZ Transmission

• CREZ CCN applications due: CREZ CCN applications due: – 1 year after order designating CREZ, 25.174(c)(4), but1 year after order designating CREZ, 25.174(c)(4), but– PUC can set or amend schedule, 25.216(g)(1)PUC can set or amend schedule, 25.216(g)(1)

• CREZ CCN applications need not address adequacy of CREZ CCN applications need not address adequacy of existing service, need for additional service, PURA existing service, need for additional service, PURA 39.904(h), PUC Subst. R. 25.174(c)(5)39.904(h), PUC Subst. R. 25.174(c)(5)

• 180-day deadline for decision under PURA 39.203(e) apply, 180-day deadline for decision under PURA 39.203(e) apply, i.e., TM that PUC requires a utility to construct for purpose i.e., TM that PUC requires a utility to construct for purpose of meeting renewable energy capacity goal under of meeting renewable energy capacity goal under 39.904(a)?39.904(a)?

• TSP may propose modifications to reduce cost or increase TSP may propose modifications to reduce cost or increase capacity, PUC may direct ERCOT to reviewcapacity, PUC may direct ERCOT to review

• PUC to consider level of generator financial commitment, PUC to consider level of generator financial commitment, based on …?based on …?

What’s Not and What’s Next:What’s Not and What’s Next:

Developer “10%” Deposits in CCN Developer “10%” Deposits in CCN ProceedingsProceedings25.174(c)(6):25.174(c)(6):• 45 days after CCN app for CREZ 45 days after CCN app for CREZ

TM improvements, each TM improvements, each developer for that CREZ to post developer for that CREZ to post LC/collateralLC/collateral

• 10% of developer’s pro rata 10% of developer’s pro rata share of estimated capital cost share of estimated capital cost of TM improvements covered by of TM improvements covered by CREZ orderCREZ order

• Deposit shortfalls may result in Deposit shortfalls may result in reconsidering CREZ designation, reconsidering CREZ designation, CCN denial, replacing defaulting CCN denial, replacing defaulting developer, other “appropriate developer, other “appropriate action”action”

Potentially requires developers to Potentially requires developers to post in range of $ 500 MM post in range of $ 500 MM collateral to support S2 build-collateral to support S2 build-outout

Questions:Questions:

• Which improvements apply, Which improvements apply, e.g. “ASAP” lines relieving e.g. “ASAP” lines relieving current congestion (RPG v. current congestion (RPG v. CREZ)?CREZ)?

• Which improvements go with Which improvements go with which zones? Must every CREZ which zones? Must every CREZ developer post in every case?developer post in every case?

• Who can participate?Who can participate?• Project size to be updated?Project size to be updated?• 10% of what? Developer’s 10% of what? Developer’s

planned CREZ MW planned CREZ MW ÷ CREZ TM ÷ CREZ TM capacity? How to adjust for capacity? How to adjust for oversubscription?oversubscription?

• Where to address ?s without Where to address ?s without delay of CCN proceedings?delay of CCN proceedings?

What’s Not and What’s Next:What’s Not and What’s Next:

Dispatch Priority Dispatch Priority

CREZ development requires:CREZ development requires:• Financial commitment to Financial commitment to

obtain CREZ designationobtain CREZ designation• 10% deposit10% deposit• Investment to be ready to Investment to be ready to

take TM service 1 year after take TM service 1 year after CREZ TM completeCREZ TM complete

What rights associated with What rights associated with these commitments?these commitments?

Business case requires some Business case requires some reasonable assurance of reasonable assurance of access to CREZ TMaccess to CREZ TM

CREZ Rule 25.174(e):CREZ Rule 25.174(e):• PUC may initiate proceeding PUC may initiate proceeding

and limit IC or set dispatch and limit IC or set dispatch prioritiespriorities

• If aggregate renewable If aggregate renewable capacity requesting TM capacity requesting TM service for a CREZ exceeds service for a CREZ exceeds maximum stated in CREZ maximum stated in CREZ orderorder– proposed CREZ wind proposed CREZ wind

(20,000+ MW) v. S2 TM (20,000+ MW) v. S2 TM capacity (11,553) capacity (11,553)

• Factors may include financial Factors may include financial commitment filed to support commitment filed to support CREZ designation, depositCREZ designation, deposit

• Express, limited authorization Express, limited authorization to restrict open accessto restrict open access

What’s Not and What’s Next:What’s Not and What’s Next:

Dispatch Priority Dispatch Priority

Interim Order in CREZ Docket:Interim Order in CREZ Docket:• Consistent with open Consistent with open

access, wind project access, wind project located outside a CREZ is located outside a CREZ is not “automatically not “automatically ineligible to interconnect” ineligible to interconnect” with CREZ TM linewith CREZ TM line

• In any subsequent DP In any subsequent DP proceeding, developers proceeding, developers within a CREZ who within a CREZ who submitted financial submitted financial commitment evidence in commitment evidence in CREZ docket “will likely CREZ docket “will likely fare better” than othersfare better” than others

Issues (for Project 34577)Issues (for Project 34577)• Allocating limited export Allocating limited export

capacity among projects capacity among projects within a CREZwithin a CREZ

• CREZ project access to CREZ project access to CREZ TM v. wind, other CREZ TM v. wind, other generation outside CREZ, generation outside CREZ, e.g., “downstream” e.g., “downstream” interconnectorsinterconnectors

• Wind curtailment before Wind curtailment before nuclear, (?) clean coalnuclear, (?) clean coal

• DP mechanism must mesh DP mechanism must mesh with nodal marketwith nodal market

• Transferability, durationTransferability, duration

What’s Not and What’s Next:What’s Not and What’s Next:

Wind Integration and ReliabilityWind Integration and Reliability

• ““ERCOT can and will maintain system reliability under any ERCOT can and will maintain system reliability under any of the four CREZ scenarios.” (33672 Phase II Brief)of the four CREZ scenarios.” (33672 Phase II Brief)

• GE Ancillary Services Study – existing technology and GE Ancillary Services Study – existing technology and operations could manage 15000 MW wind in 2008 without operations could manage 15000 MW wind in 2008 without radical alterations, at small costs relative to fuel savings radical alterations, at small costs relative to fuel savings from wind; seen to support S2 levels for 2012from wind; seen to support S2 levels for 2012

• ERCOT rule changes addressing operational/reliability ERCOT rule changes addressing operational/reliability issues: recent (objective wind forecasts), under issues: recent (objective wind forecasts), under consideration in Wind Operations Task Force (IC standards, consideration in Wind Operations Task Force (IC standards, performance measures, ramp rate limits)performance measures, ramp rate limits)

• Possible venues for further action: PUC/ERCOT CREZ Possible venues for further action: PUC/ERCOT CREZ implementation docket, ERCOT Task Force recommendationimplementation docket, ERCOT Task Force recommendation

Conclusion: Making CREZ a SuccessConclusion: Making CREZ a Success

• CREZ decision – historic potential, huge effortCREZ decision – historic potential, huge effort• Texans: large-scale wind key to top problemTexans: large-scale wind key to top problem

– most important issue: energy prices (35%)most important issue: energy prices (35%)– fuel choice to meet future need: wind (55%)fuel choice to meet future need: wind (55%)– support $ 3-6 B transmission for wind (63%)support $ 3-6 B transmission for wind (63%)– paid by electric bill increase $ few/mo. (52%)paid by electric bill increase $ few/mo. (52%)

• For implementation to succeed:For implementation to succeed:Be “bold and cautious, visionary and practical.” Be “bold and cautious, visionary and practical.”

(Chairman Smitherman) (Chairman Smitherman)

AppendicesAppendices

• SB 20, 79SB 20, 79thth Leg., 1 Leg., 1stst Called Session (2005) Called Session (2005)

• CREZ Rule (PUC Subst. R. 25.174)CREZ Rule (PUC Subst. R. 25.174)

• CREZ TSP Selection Rule (PUC Subst. R. CREZ TSP Selection Rule (PUC Subst. R. 25.216)25.216)

A color copy of this presentation is available for A color copy of this presentation is available for download at download at www.jw.com/pcowlishawwww.jw.com/pcowlishaw. . For For more information, contact Pat Cowlishaw at more information, contact Pat Cowlishaw at 214.953.6049 or pcowlishaw@jw.com.214.953.6049 or pcowlishaw@jw.com.