Okay, so my title above is a little over dramatic, but the essence of the title remains. Previously, lacking high quality interval data on retail consumption, ERCOT has been allocating charges to retail energy suppliers based on load profiles – not exactly guesses, more like informed guesses. As distribution utilities in the competitive parts of the Texas retail power market begin to install smart meters, it becomes possible to measure actual customer use and therefor a retail supplier can be charged for how much its customers actually used in each 15-minute interval.
Here is the ERCOT announcement of its initial efforts to settle wholesale accounts with retail suppliers based on the suppliers’ customers’ actual consumption – note especially the last paragraph:
ERCOT Launches Financial Settlement Process for Smart Meters
The Electric Reliability Council of Texas (ERCOT) began a major step toward implementation of the “smart grid” this month by launching a new system of wholesale settlement for advanced metered customers based on their 15-minute electricity usage.
“Wholesale settlement using 15-minute interval data for retail customers is a major step in connecting the retail electric market with the wholesale market,” said Betty Day, ERCOT director of markets. “This is an important piece of the smart grid of the future. By creating a platform for the interaction of electricity supply and demand at the retail level, this helps to realize the full potential of advanced metering.”
ERCOT performed the first wholesale settlements using actual advanced metering data on Monday, Dec. 7. As of Wednesday’s settlements processes, more than 26,000 accounts had been successfully settled using advanced meter data. The total is expected to surpass 50,000 by next week.
ERCOT, grid operator for most of the state of Texas and administrator of the wholesale and retail power markets, was charged by the Public Utility Commission of Texas with developing a system of wholesale settlement for customers who are receiving new meters under the PUC-approved advanced metering infrastructure deployment.
Advanced metering deployments are underway in the service territories of Texas’s three largest investor-owned transmission and distribution utilities: Oncor, CenterPoint and American Electric Power. A fourth utility Texas-New Mexico Power is developing its deployment strategy now. By 2014, nearly 7 million retail customers in Texas will have advanced meters installed that will record their energy usage every 15 minutes around the clock.
“Making 15-minute data available to customers is a powerful tool for understanding how we use electricity,” said Day. “But actually settling the customer on that usage at the wholesale level is the catalyst for retailers to provide incentives and tools for those customers to use their energy more efficiently and lower their electric bills.”
Wholesale energy settlement is the process of matching financial debits for retailers’ purchases of wholesale power to credits for the generators who sell that power through the ERCOT energy market. Since the ERCOT market opened in 2002, all residential and small commercial customers have been settled on statistical estimates of their usage – called load profiles.
Over time as the meters are deployed, 15-minute settlement will replace the use of load profiles in the ERCOT retail market — effectively taking the estimation out of the equation. This will allow both customers and retailers to benefit financially from lowering energy usage during high-price periods. Retail products that take advantage of this new technology may include time-of-use, critical peak, or real-time price options, and load-control devices that allow customers to reduce energy consumption remotely or automatically based on price signals.
I see the ERCOT changes as allowing for the approach to demand response advocated by James Bushnell, Benjamin F. Hobbs and Frank A. Wolak in their recent Electricity Journal article, “When It Comes to Demand Response, Is FERC Its Own Worst Enemy?” If FERC is its own worst energy on demand response, it may turn out to be that ERCOT is FERC’s best friend on the topic.
(HT to Eric Schubert. Thanks!)