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

Wind Power and the CREZ Case: What’s Decided, What’s Not, What’s Next. Patrick R. Cowlishaw Jackson Walker LLP SBOT Public Utility Law Section August 15, 2008. Background: The CREZ Mandate ( SB 20, 79 th Leg., 2005).

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

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  1. Wind Power and the CREZ Case: What’s Decided, What’s Not, What’s Next Patrick R. Cowlishaw Jackson Walker LLP SBOT Public Utility Law Section August 15, 2008

  2. Background:The CREZ Mandate (SB 20, 79th Leg., 2005) • Rich Texas wind resources, but remote from population centers: development limited without transmission, transmission construction limited without wind development commitments • Legislature passed PURA 39.904(g); requires PUC to take 2 actions: • designate competitive renewable energy zones(CREZs) “throughout this state” in areas with sufficient energy resources and suitable land areas to develop generating capacity from renewable energy technologies, and considering level of generator financial commitment for each zone • develop a plan to construct transmission capacity necessary to deliver to electric customers, in a manner that is most beneficial and cost-effective to the customers, the electric output from renewable energy technologies in the CREZs

  3. Designating CREZ zones: Contested cases (first in 2007, thereafter as PUC sees need) Final order to contain, for each CREZ: geographic extent of CREZ major transmission improvements to deliver CREZ output to customers (voltage level, general description of interconnection to existing grid) estimated maximum generating capacity the TM improvements can accommodate other requirements considered appropriate by PUC under PURA Other provisions: generator financial commitment implementing transmission plan selecting TSPs CCN proceedings developer deposits developer to operate within 1 year after CREZ TM is ready PUC authority to limit interconnection to CREZ TM system, establish dispatch priorities to protect against excess development PUC Subst. R. 25.174 (Project 31852) Background:The CREZ Rule

  4. CREZ Proceeding: Docket 33672 Docket opened January 2007 • ERCOT 2006 study • AWS: 25 top wind regions • Transmission options to deliver CREZ output to ERCOT customers • 65 parties, 20 CREZ nominations • Financial commitment testimony filed to support over 20,000 MW CREZ projects across 16 zones • Nominated capacity exceeded TM capacity in ERCOT study • Alternative transmission proposals from parties • SPP proposal to serve Panhandle • Ancillary services study proceeding in parallel

  5. What’s Decided:Step 1 -- CREZ Zones Delineated Interim Order (Oct. 2007) • AWS study adequate to identify zones with sufficient resources/land • 5 CREZs: based on 8 study zones with greatest financial commitment, plus project adjustments • Specific findings for each developer who provided significant financial commitment for each selected zone

  6. What’s Decided:Other Interim Order Conclusions Reliability region issues • TM to be built to interconnect all CREZs with ERCOT • Upper PH interconnections to ERCOT (zones 1, 4) require FERC approval as in Cottonwood (FERC ¶ 61,198) • Simultaneous interconnection to ERCOT, SPP prohibited • Dissent: would require upper Panhandle CREZ areas (1,4) to 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

  7. What’s Decided:Step 2 – Transmission Plan Approved Open Meeting 7/17/08; Order Expected 8/14/08 • Voted to select Scenario 2 (“middle case”) • 18,456 MW CREZ transfer capacity (11,553 new wind plus 6903 base) • Estimated cost = $ 4.93B + collection system ($ 580 – 820 MM) • Provides for 64,031 GWh wind generation at $38/MWh average fuel-cost savings • 2,334 miles of new 345-kV construction, over 100 projects (CTP Facilities) • Expandable design to Scenario 3 (24,859 MW)

  8. New Rule 25.216 (Project 34560) If CTP Facility is an Existing facility upgrade: owner will be selected as TSP unless requests otherwise or good cause New facility: PUC to select TSP capabilities to finance, license, operate, maintain facility; cost projections; proposed schedule; use of HUBs; track record; project understanding reduced filing requirements for unopposed CTP Proposals CREZ TSP Selection Under Way in Docket 35665 Settlement conferences to expedite selection Initial expressions of interest competition for large projects 31 owner upgrades CTP Proposals due 9/12 selections due within 180 days by rule (3/11/09) Merits hearing 12/1-5 What’s Not and What’s Next:Who Will Build, Operate The CREZ Transmission?

  9. What’s Not and What’s Next:CCN Proceedings for CREZ Transmission • CREZ CCN applications due: • 1 year after order designating CREZ, 25.174(c)(4), but • PUC can set or amend schedule, 25.216(g)(1) • CREZ CCN applications need not address adequacy of existing service, need for additional service, PURA 39.904(h), PUC Subst. R. 25.174(c)(5) • 180-day deadline for decision under PURA 39.203(e) apply, i.e., TM that PUC requires a utility to construct for purpose of meeting renewable energy capacity goal under 39.904(a)? • TSP may propose modifications to reduce cost or increase capacity, PUC may direct ERCOT to review • PUC to consider level of generator financial commitment, based on …?

  10. 25.174(c)(6): 45 days after CCN app for CREZ TM improvements, each developer for that CREZ to post LC/collateral 10% of developer’s pro rata share of estimated capital cost of TM improvements covered by CREZ order Deposit shortfalls may result in reconsidering CREZ designation, CCN denial, replacing defaulting developer, other “appropriate action” Potentially requires developers to post in range of $ 500 MM collateral to support S2 build-out Questions: Which improvements apply, e.g. “ASAP” lines relieving current congestion (RPG v. CREZ)? Which improvements go with which zones? Must every CREZ developer post in every case? Who can participate? Project size to be updated? 10% of what? Developer’s planned CREZ MW ÷ CREZ TM capacity? How to adjust for oversubscription? Where to address ?s without delay of CCN proceedings? What’s Not and What’s Next:Developer “10%” Deposits in CCN Proceedings

  11. CREZ development requires: Financial commitment to obtain CREZ designation 10% deposit Investment to be ready to take TM service 1 year after CREZ TM complete What rights associated with these commitments? Business case requires some reasonable assurance of access to CREZ TM CREZ Rule 25.174(e): PUC may initiate proceeding and limit IC or set dispatch priorities If aggregate renewable capacity requesting TM service for a CREZ exceeds maximum stated in CREZ order proposed CREZ wind (20,000+ MW) v. S2 TM capacity (11,553) Factors may include financial commitment filed to support CREZ designation, deposit Express, limited authorization to restrict open access What’s Not and What’s Next:Dispatch Priority

  12. Interim Order in CREZ Docket: Consistent with open access, wind project located outside a CREZ is not “automatically ineligible to interconnect” with CREZ TM line In any subsequent DP proceeding, developers within a CREZ who submitted financial commitment evidence in CREZ docket “will likely fare better” than others Issues (for Project 34577) Allocating limited export capacity among projects within a CREZ CREZ project access to CREZ TM v. wind, other generation outside CREZ, e.g., “downstream” interconnectors Wind curtailment before nuclear, (?) clean coal DP mechanism must mesh with nodal market Transferability, duration What’s Not and What’s Next:Dispatch Priority

  13. What’s Not and What’s Next:Wind Integration and Reliability • “ERCOT can and will maintain system reliability under any of the four CREZ scenarios.” (33672 Phase II Brief) • GE Ancillary Services Study – existing technology and operations could manage 15000 MW wind in 2008 without radical alterations, at small costs relative to fuel savings from wind; seen to support S2 levels for 2012 • ERCOT rule changes addressing operational/reliability issues: recent (objective wind forecasts), under consideration in Wind Operations Task Force (IC standards, performance measures, ramp rate limits) • Possible venues for further action: PUC/ERCOT CREZ implementation docket, ERCOT Task Force recommendation

  14. Conclusion: Making CREZ a Success • CREZ decision – historic potential, huge effort • Texans: large-scale wind key to top problem • most important issue: energy prices (35%) • fuel choice to meet future need: wind (55%) • support $ 3-6 B transmission for wind (63%) • paid by electric bill increase $ few/mo. (52%) • For implementation to succeed: Be “bold and cautious, visionary and practical.” (Chairman Smitherman)

  15. Appendices • SB 20, 79th Leg., 1st Called Session (2005) • CREZ Rule (PUC Subst. R. 25.174) • CREZ TSP Selection Rule (PUC Subst. R. 25.216) A color copy of this presentation is available for download at www.jw.com/pcowlishaw. For more information, contact Pat Cowlishaw at 214.953.6049 or pcowlishaw@jw.com.

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