Energy Procurement Best Practices - tema-testing.s3 ...€¦ · TEMA Conference 2019 May 1, 2019 5....

Energy Procurement Best Practices

Bob Wooten, C.P.M., CEP, is Director of National Accounts for Tradition Energy. Bob has over 25 years’ experience managing government procurement programs for a wide variety of clients including cities, schools, colleges, universities, housing authorities, and municipal districts. Bob holds professional certifications from the Association of Energy Engineers and the Institute for Supply Management, as well as a B.A. from Texas A&M University, and a Masters in Public Administration from the University of Houston.

Energy Procurement Best Practices

Energy Procurement Best Practices

Energy Procurement Best Practices

1 – Get Organized

Energy Procurement Best Practices

1 – Get Organized

Energy Procurement Best Practices

1 – Get Organized

Energy Procurement Best Practices

1 – Get Organized

Energy Procurement Best Practices

2 – Understand the Wholesale Market

Energy Procurement Best Practices

2 – Understand the Wholesale Market

Energy Procurement Best Practices

2 – Understand the Wholesale Market

Energy Procurement Best Practices

2 – Understand the Wholesale Market

Energy Procurement Best Practices

2 – Understand the Wholesale Market

Energy Procurement Best Practices

3 – Analyze When You Use Energy

Energy Procurement Best Practices

3 – Analyze When You Use Energy

Energy Procurement Best Practices

3 – Analyze When You Use Energy

Energy Procurement Best Practices

3 – Analyze When You Use Energy

Energy Procurement Best Practices

3 – Analyze When You Use Energy

Energy Procurement Best Practices

3 – Analyze When You Use Energy

Energy Procurement Best Practices

4 – Develop a Strategy That Meets Your Needs

Energy Procurement Best Practices

4 – Develop a Strategy That Meets Your Needs

Energy Procurement Best Practices

4 – Develop a Strategy That Meets Your Needs

Energy Procurement Best Practices

4 – Develop a Strategy That Meets Your Needs

Energy Procurement Best Practices

4 – Develop a Strategy That Meets Your Needs

Energy Procurement Best Practices

4 – Develop a Strategy That Meets Your Needs

Energy Procurement Best Practices

5 – Prequalify Energy Suppliers

Energy Procurement Best Practices

5 – Prequalify Energy Suppliers

Energy Procurement Best Practices

5 – Prequalify Energy Suppliers

Energy Procurement Best Practices

6 – Conduct a Thorough Pricing Process

Energy Procurement Best Practices

6 – Conduct a Thorough Pricing Process

Energy Procurement Best Practices

6 – Conduct a Thorough Pricing Process

Energy Procurement Best Practices

6 – Conduct a Thorough Pricing Process

Energy Procurement Best Practices

6 – Conduct a Thorough Pricing Process

Energy Procurement Best Practices

7 – Negotiate Terms, Then Reprice

Energy Procurement Best Practices

7 – Negotiate Terms, Then Reprice

Energy Procurement Best Practices

8 – Verify Enrollment, Invoices

Energy Procurement Best Practices

8 – Verify Enrollment, Invoices

Energy Procurement Best Practices

8 – Verify Enrollment, Invoices

Energy Procurement Best Practices

8 – Verify Enrollment, Invoices

Energy Procurement Best Practices

9 – Never Stop Monitoring, Reporting, Adjusting

Energy Procurement Best Practices

9 – Never Stop Monitoring, Reporting, Adjusting

Energy Procurement Best Practices

9 – Never Stop Monitoring, Reporting, Adjusting

Energy Procurement Best Practices

Summary

Debunking The RFP MythPresented by:

OVERVIEW

✓Market Opportunities

✓Long Term Advantage

✓Procurement Options

www.menti.com Code 26 78 04

What is the fastest growing city

in the United States?

A) Atlanta

B) Austin

C) Los Angeles

D) Midland

E) Manhattan

Around the Clock Real Time Power Prices

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Long period of stable prices are now on the rise…what happened???

Historical Power Prices

What Happened?

Lions, tigers, bears and retirements…oh my!!!

Summer 2018

CHANGING SUPPLY STACK – RETIREMENT OF COAL AND INEFFICIENT GASPlant Retirements

Summer Reserve Margins

Concerns over Summer Demand – Minimum Target 13.7%

2019: 8.1%

2020: 10.7%

2021: 12.2%

2022: 9.8%

2023: 7.5%

Target 13.7%

Current Power Pricing Trend

➢ Power Plant Retirements

➢ Substantial Population Growth in TX

➢ Shrinking Reserve Margins

➢ Natural Gas impact

NG STORAGENatural Gas Storage

Storage remains below last year and 5 year average

NYMEX NG EXPORTSNatural Gas Exports

Exports continue to increase

WHY BUY NOW?

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$35.00

$38.00 Houston Hub ATC

Cal'20 Cal'21 Cal'22 Cal'23 Cal'24 Cal'25

Forward Prices

Lower Prices in Future Years

WHY BUY NOW?

Power Plant Retirements

Substantial Population Growth in TX

Increased Liquified Natural Gas Exports

Shrinking Reserve Margins

Higher Pricing Is On the Horizon

TEST YOUR KNOWLEDGE

Why are power prices increasing?

A. Increasing Population

B. Power Plant Shutdowns

C. Increased LNG Exports

D. Adam Quinn’s Blow Dryer Usage

E. All Of the Above

What words come to mind when you hear RFP?

Bill Shoemaker

Born: 08/19/1931Died: 10/12/2003Earnings: $123,375,524 as a jockey; $3.7 million as a trainer

8,882 WINS

https://www.youtube.com/watch?v=80p88TDhEr4

YOUR PROCUREMENT OPTIONS

Education Code Ch. 44

Sec. 44.031. PURCHASING CONTRACTS.

(a)Except as provided by this subchapter, all school district contracts

for the purchase of goods and services, except contracts for the

purchase of produce or vehicle fuel, valued at $50,000 or more in the

aggregate for each 12-month period shall be made by the method, of the

following methods, that provides the best value for the district:

(1) competitive bidding for services other than construction services;

(2) competitive sealed proposals for services other than construction

services;

(3) a request for proposals, for services other than construction

services;

(4) an interlocal contract;

(5) a method provided by Chapter 2269, Government Code, for construction

services;

(6) the reverse auction procedure as defined by Section 2155.062(d),

Government Code; or

(7) the formation of a political subdivision corporation under Section

304.001, Local Government Code.

YOUR PROCUREMENT OPTIONS

Interlocal

➢ “Getting three prices gets me the best value and

price!”

➢ “RFPs help buy my price down like they do with

everything else we purchase!”

➢ Time doesn’t affect price

➢ Commodity purchases should be “bid out”

➢ Electricity is completely different than professional

services

What are the MYTHs

Interlocal

➢ Negotiate your contract BEFORE asking for

pricing

➢ Electricity is a TIME game, not a PRICE game

➢ Procurement / legalities should not force you into

a position of asking suppliers to hold their price

➢ Work with a top tier supplier

Food for Thought

TEST YOUR KNOWLEDGE - Fact or Fiction

➢ RFP is perceived as “safe”

➢ POLR is an abbreviation for the North Pole

➢ Getting prices on same day ensures lowest price

➢ Contract term lengths do not matter

➢ Contracts are all “apples to apples”

➢ Tuesday is the best day to run an RFP

➢ Lowest price is the best price

➢ Long term is not less expensive

➢ Supplier pays the Broker / Consultant

TEST YOUR KNOWLEDGE – Fact or Fiction

LONG TERM ADVANTAGE

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$35.00

$38.00 Houston Hub ATC

Cal'20 Cal'21 Cal'22 Cal'23 Cal'24 Cal'25

Forward Prices

KEY TAKEAWAYS

Key Takeaways

WRAP UP

➢ Power plant retirements combined with load

growth have put pressure on the grid

➢ More upside potential with power prices – BUY

NOW

➢ RFPs not always best option if price there is price

volatility

➢ Longer term power contracts currently a great

value and cheaper than shorter term contracts

➢ Regardless of purchasing strategy should look

longer term

Debunking The RFP MythPresented by:

Shell Energy 1

ERCOT DEMAND RESPONSE UPDATE

Prepared for:

Shell Energy

ERS CHANGES

May 1, 2019 2TEMA Conference 2019

1. ERCOT’s Risk Assessment (impacts pricing):

• ERCOT assigns a risk value to each time period

throughout the year. This value drives the

budget allocation for those time periods.

• The risk values were 1 -10; now are 1-100

allowing for more concentration of funds.

• Went into effect Oct ‘18; we now have two

periods of actual data of impacts:

Shell Energy

ERS CHANGES - continued

May 1, 2019 3TEMA Conference 2019

2. Change in time periods:

• Both load and generation are dynamic and ERS

is changing due to changes seen in load.

• Nearly set a summer peak on a Saturday last

summer.

• The following changes to time periods are

starting AFTER this summer:

Shell Energy

ANCILLARY MARKET CHANGES

1. Protocol language has been passed, with full implementation expected in 2020, to create a new subset of

Responsive Reserve Service (RRS) called Fast Frequency Response (FFR):

• This new service will require extremely fast responses to small frequency changes on the grid.

• Energy storage with batteries is expected to be the front-runner technology.

• There is no increase of RRS to accommodate the approximate 400-450 MWs of potential new FFR.

• Likely will cause addition proration of Load Resources, lowering their value, but not having much overall

impact to consumer costs.

May 1, 2019 4TEMA Conference 2019

Shell Energy

ANCILLARY MARKET CHANGES - continued

2. Protocol language has been passed, with full implementation expected in 2022, to create a new ancillary

service called ERCOT Contingency Reserve Service (ECRS):

• This new service will be similar to Load Resources in that:

• Hourly, day ahead ancillary service market

• Required two-second telemetry

• 10 minute dispatch

• ECRS will NOT have an under-frequency relay (UFR) and therefore are not required to be immediately

responsive to frequency change.

• Non-Spinning Reserve Service (NSRS) procurement will likely go down, but too early to say what the

economic opportunity / cost is for this service.

May 1, 2019 5TEMA Conference 2019

Shell Energy

4CP

• For schools, the best bet for managing 4CP appears to be a standard usage

reduction during the summer week starting at 3:45 pm. This would historically

have captured 98% of the 4CP intervals from 2006 forward.

• The value of 4CP reductions continue to rise.

May 1, 2019 6TEMA Conference 2019

Shell Energy

SUMMER OUTLOOK - definitions

1. CDR – Capacity, Demand and Reserves Report. Comes out twice a year and uses 10 year forecast of demand

and generation.

2. SARA – Seasonal Assessment of Resource Adequacy. Similar to CDR; comes out seasonally and includes near-

term weather forecasts, generator trends, and updates to the generation fleet.

3. Seasonal Mothball – Power plant that has suspended service but will run for summer peak load season.

4. Mothball – Power plant that has suspended service for an unknown amount of time but not decommissioned and

therefore could return to service.

5. Retired – Power plant that has been decommissioned and will not return to service.

6. Capacity – Maximum amount of generation that could be generated from a generation resource or curtailment

from a demand response resource.

7. Reserve Margin – The percentage of excess capacity needed to meet load forecast.

May 1, 2019 7TEMA Conference 2019

Shell Energy

RETIRING AND MOTHBALLED RESOURCES

Seasonal Mothballed Resources

SPENCER STG U4 SPNCER_SPNCE_4 DENTON GAS NORTH 1966 57.0

SPENCER STG U5 SPNCER_SPNCE_5 DENTON GAS NORTH 1973 61.0

Total Seasonal Mothballed Capacity 118.0

Mothballed Resources

J T DEELY U1 (AS OF 12/31/2018) CALAVERS_JTD1_M BEXAR COAL SOUTH 1977 420.0

J T DEELY U2 (AS OF 12/31/2018) CALAVERS_JTD2_M BEXAR COAL SOUTH 1978 420.0

GIBBONS CREEK U1 (AS OF 10/1/2018) GIBCRK_GIB_CRG1 GRIMES COAL NORTH 1983 470.0

Total Mothballed Capacity 1,310.0

Retiring Resources Unavailable to ERCOT (since last CDR/SARA)

S R BERTRON U1 (AS OF 1/23/2019) SRB_SRB_G1 HARRIS GAS HOUSTON 1958 112.0

S R BERTRON U2 (AS OF 1/23/2019) SRB_SRB_G2 HARRIS GAS HOUSTON 1956 168.0

Total Retiring Capacity 280.0

Cumulative Retiring &

Mothballed 1,708.0

May 1, 2019 8TEMA Conference 2019

◼ 1,700 MWs of capacity going offline over the last year (more than1,300 MWs being coal)

Shell Energy

NEW GENERATION

Coming Online over the LAST year (Volumes reflect Operational “Nameplate” Capacity):

- 960 MW of Non-Coastal Wind

- 201 MW of Coastal Wind

- 740 MW of Solar

- 674 MW of Gas

Expected to Come Online over the NEXT year (Volumes reflect Operational “Nameplate” Capacity):

- 1,018 MW of Non-Coastal Wind

- 389 MW of Coastal Wind

- 37 MW of Solar

- 201 MW of Gas

May 1, 2019 9TEMA Conference 2019

ERCOT plans for a fraction of renewable

resources to be available when needed:

◼ Non-Coastal 15%

◼ Coastal 58%

◼ Solar 74%

Shell Energy

CDR REPORT - December 2018

May 1, 2019 10TEMA Conference 2019

◼ ERCOT’s most recent CDR Report

from December 2018, estimating

reserve margin just over 8% for

Summer 2019

◼ Historically, this is the lowest Reserve

Margin reported in a December CDR

for the upcoming Summer, since

Nodal market began in 2011

Shell Energy

HISTORICAL CDR RESERVE MARGINS

May 1, 2019 11TEMA Conference 2019

15.9%

12.1%

14.3%13.8%

15.7%

16.5%16.9%

9.3%

8.1%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

Summer 2011 Summer 2012 Summer 2013 Summer 2014 Summer 2015 Summer 2016 Summer 2017 Summer 2018 Summer 2019

Historical December CDR Reserve Margins for the Upcoming Summer

The ERCOT minimum target reserve margin

is 13.75%

2011 is the only time ERS was dispatched in the summer – due to

extreme heat

Shell Energy

SARA REPORT - March 2019

May 1, 2019 12TEMA Conference 2019

◼ More recently released

SARA Report showing

Reserve Margins now just

over 7.3%

◼ Fewer resources and

higher expected demand

◼ Sets the stage for

potentially higher volatility,

increased scarcity pricing,

and more frequent

Emergency Response

Shell Energy

SARA REPORT - March 2019 - continued

May 1, 2019 13TEMA Conference 2019

Finally, the report details several ”worst-case” scenarios above. If just one of these scenarios occurs, the ERCOT system could be

in jeopardy of having less supply available than needed demand. Again, creating the potential for scarcity pricing, volatility and

demand response events.

Shell Energy

GENERATION DIVERSITY

May 1, 2019 14TEMA Conference 2019

◼ Capacity contribution of wind resources is

estimated at 15% for Non-Coastal and 58% for

Coastal resources

◼ As for Renewables, tax incentives have created a

very interesting situation, where prices are driven

lower as the marginal cost of production declines

◼ With more Base Load Coal resources retiring, as

the ERCOT market becomes more reliant on

renewable generation, this could spell uncertain

production declines with Wind or Solar misses,

causing sharp volatility spikes in Real Time

Shell Energy

WEATHER TALKING POINTS

HEAT:

- June, July, August all expected to be hotter than normal

- 8.4% hotter than 30 year normal

- 9th Highest Number of Cooling Degree Days since 1950

RAIN:

- 65% chance weak El Nino conditions will continue through Summer 2019

- Creating wetter than normal conditions in the South (including Texas), drier than normal out West

STORMS:

- Below Normal Season expected for number of Hurricanes/Tropical Storms

May 1, 2019 15TEMA Conference 2019

Shell Energy

WEATHER TALKING POINTS - continued

May 1, 2019 16TEMA Conference 2019

WSI Trader. https://www.wsitrader.com/LongRange/Seasonal/SeasonalECMWFGraphics 4/23/19

Shell Energy

NATURAL GAS

May 1, 2019 17TEMA Conference 2019

Shell Energy

ANCILLARY SERVICES

May 1, 2019 18TEMA Conference 2019

0

10

20

30

40

50

60

70

1/1/2012 4/1/2013 7/1/2014 10/1/2015 1/1/2017 4/1/2018

ERCOT - Historical Clearing Price - RRS [$/MWH]

-

10

20

30

40

50

60

70

05/01/19 09/01/20 01/01/22 05/01/23 09/01/24

RRS Forward Curve

DateHistorical Cleared -

RRS [$/MWH]Cal-15 $11.2Cal-16 $11.1Cal-17 $9.8Cal-18 $18.5

◼ Forward RRS curve demonstrates how the market is valuing future

Summers very close to Summer 2018

DateRRS Forward

Curve [$/MWH]Bal Year $27.8 Cal-20 $20.5 Cal-21 $20.5 Cal-22 $20.5

Shell Energy

HISTORICAL ERCOT POWER PRICES COMPARED TO FORWARD CURVE –by calendar year

May 1, 2019 19TEMA Conference 2019

$42.44

$25.17

$30.50

$36.44

$23.78

$21.10

$23.26

$29.96

$18.00

$23.00

$28.00

$33.00

$38.00

$43.00

2011 2012 2013 2014 2015 2016 2017 2018

ERCOT - Settlement - RT ATC - NORTH [USD/MWH]

$37.47

$31.16

$28.38 $26.39

$24.73 $23.21 $22.56 $22.82 $22.38 $22.27 $22.35

$18.00

$23.00

$28.00

$33.00

$38.00

$43.00

Bal-2019 2021 2023 2025 2027 2029

North - ATC - Forward Curve [USD/MWH]

◼ Similar to NG, market expectations have the back of the forward curve fairly low relative to the more volatile front

Shell Energy

WEST TEXAS GROWTH

May 1, 2019 20TEMA Conference 2019

◼ Primarily driven by Oil and Gas Development

◼ Rig count in Permian Basis at 463 (360 in Texas)

◼ Annual Load Growth in West Texas at 8% (for

perspective, system-wide load growth in all of

ERCOT is 2%)

Shell Energy

WEST TEXAS GROWTH - continued

May 1, 2019 21TEMA Conference 2019

◼ ERCOT determined a Reliability Need to improve

transmission due to load growth

◼ Began implementing improvement projects, some

of which are beginning to come online now

Shell Energy

SUMMER OUTLOOK – wrap up

May 1, 2019 22TEMA Conference 2019

Be prepared for sustained high energy prices and volatile spikes in energy prices. This could impact forward

markets for some time.

If you are participating in an emergency demand response program, be conservative with your commitments and

be prepared to respond when needed.

THANK YOU!Tim Carter

832-510-1061

tim.carter@mp2energy.com