# Executive Summary

As a part of the Beginning State, Grid West Transmission Customers will
submit balanced energy schedules. Due to resistance on transmission
lines, energy will be lost as power flows from source to sink.
Transmission Customers are responsible for these losses. They must make
arrangements for them during the Day-Ahead scheduling process.

Highlights of the proposed methodology include:

-   Pre-existing transmission service rights are honored

-   Grid West's loss methodology will apply only to Injection Withdrawal
    Right (IWR) schedules;

-   Ex-ante loss factors will be used;

-   Transmission customers provide concurrent losses in day-ahead
    scheduling process; and

-   A simplified loss methodology will be used for Grid West startup.

# Background

Currently, many pre-existing transmission rights include loss
provisions. As a part of the Beginning State, these loss provisions will
be honored. However, not all customers have pre-existing rights. In
addition, customers with pre-existing rights may wish to translate them
into IWRs in order to participate in Grid West the Grid West
Reconfiguration Service (RCS). For these customers, a new loss
methodology is required.

The challenges in developing a new loss methodology are:

-   Transmission losses are not linear.

-   They are a result of the combined activities on transmission lines.

As a result, it is difficult to attribute losses to specific
transactions. Thus, losses are often treated as an allocation issue.
Losses are allocated to Transmission Customers based on a specific usage
measure. Marginal loss factor are commonly used. However, the use of
marginal loss factors results in an over collection of system losses.
Therefore, a scaling factor is applied to the marginal loss factors to
prevent over-collection.

The proposed loss methodology is based on the use of scaled marginal
loss factors.

# [Purpose](#__RefHeading___Toc92506324)

This white paper discusses the proposed Grid West loss methodology. It
attempts to satisfy the objectives established by the Regional
Representative's Group (RRG):

-   Minimize cost shifts,

-   Maintain loss provisions of pre-existing transmission service rights
    and obligations,

    -   Create a good match between loss collection mechanisms and
        actual loss effects on the transmission system to improve
        economic efficiency

    -   Use ex ante loss factors to provide certainty to transmission
        customers in advance.

    -   Eliminate loss related pancaking (i.e. payment of multiple rates
        for one transaction) for transactions within the GWT system.

    -   Be easy to implement and consistent with the scheduling model.

In practice, not all objectives can be achieved simultaneously because
of inherent conflicts. This paper proposes a simplified approach as a
starting point. Future improvement can be considered and phased in.

# Losses for Pre-existing Rights

Based on the Regional Proposal, the loss requirements for transmission
customers with pre-existing transmission service rights agreement will
not change. However, a new loss methodology will be used for customers
with IWRs. In order to reconcile this difference in methodologies,
existing transmission owners (TO) will make up the difference in their
loss provisions.

This practice is no different from what the existing transmission owners
perform today. There are no new risks imposed to the existing
transmission owners.

# Day-Ahead Scheduling

Losses are provided in the day-ahead scheduling process. There are three
steps in the proposed loss process as depicted in Figure 5.0.

1.  Transmission customers with pre-existing rights submit their
    schedules and loss schedules to their TO. The loss provision is
    governed by their pre-existing contracts.

2.  Transmission owners submit combined transmission and loss schedules
    to Grid West. At the mean time, transmission customers with IWR
    rights submit their schedules and loss schedules to Grid West.

3.  Grid West calculates and creates the interchange schedules between
    TOs to rebalance the losses collected from IWR and TO customers.

> Fig. 5.0 Grid West's Loss Process
>
> ![](media/image1.wmf){width="4.728472222222222in"
> height="3.1590277777777778in"}

IWR transmission customer's loss obligations can be in one of two ways:

-   ***Direct:*** Transmission customers submit a separate loss schedule
    for the losses attributed to their aggregate schedules

-   ***Indirect:*** Third-party loss providers submit loss schedules on
    behalf of the Transmission Customer for the losses attributed to
    their aggregated schedules.

Currently, some customers have the ability to return losses in kind up
to 168 hours after the scheduling period. Since, Grid West does not own
resources to supply or accept the mismatch of actual losses and losses
obligations, Transmission customers will not have the ability to return
losses in kind to Grid West after the fact. If the transmission
customers and their existing transmission owners can reach a bilateral
agreement, however, the return option between them can be maintained or
implemented. Transmission customers or their existing transmission
owners can schedule the transactions of loss returns as a bilateral
transaction.

Transmission losses will not apply to the Reconfiguration Service (RCS)
process.

# Loss Methodology Description

The loss methodology describes the following:

-   Ex-ante loss factor computation

-   Loss obligation determination

-   Allocation of losses to Control Areas

The attributes of the proposed methodology are further discussed in
Appendix A.

## Calculation of Ex Ante Transmission Loss Factors

Grid West will use ex-ante loss factors to calculate loss obligations.
Ex-ante loss factors will provide Transmission Customers with certainty
in the economics of energy transactions.

In order to calculate these loss factors, Grid West will use a power
flow model based on various operating scenarios (e.g. Peak , Off-Peak,
seasons, etc.),

> For each operating scenario, Grid West will calculate marginal loss
> sensitivity for every point of injection and withdrawal using the
> relevant power flow model. The marginal loss sensitivity is the
> incremental change in the total transmission losses that results from
> an incremental change in the withdrawal (or negative injection) at the
> location (buses).
>
> The loss factor calculation steps are as follows:

1.  Calculate GWT losses using the relevant power flow model.

2.  Calculate the loss sensitivities for all IP or WP. [^1]

3.  Calculate the scaling factor of the loss sensitivities. [^2]

4.  Calculate the loss factor for all scheduling points:

> Loss factor = 1 + scaled loss sensitivity[^3]

In order to simplify the application of the loss methodology, we propose
that Grid West start operations with some simplified loss scheduling and
recovery approaches:

-   Coarse granularities in time period. Grid West can start with
    seasonal (peak/off-peak) loss factors;

-   Coarse granularities in locations. Grid West can start with areas
    loss factors where the area to be determined by Grid West and
    Transmission Owners;

## Loss Obligations

> Based on submitted schedules, transmission losses are allocated to
> both load and resources consistent with the loss causation principle.
> Grid West will calculate a loss obligation for each transaction. Grid
> West will use the scaled marginal loss factor at both IP and WP for
> calculating the loss obligation. The loss obligation of a transaction
> equals:
>
> MW at WP \* (Loss Factor at WP --1)
>
> -MW at IP \* (Loss Factor at IP -- 1)

The loss obligations for a transmission customer are accumulated for the
scheduled transactions. A transmission customer or its loss provider
should submit a separate loss schedule to Grid West as part of the
day-ahead scheduling submission process.

Further simplifications of loss procedure can be made for scheduling the
loss obligations:

-   Large tolerance can be used for validating concurrent loss
    schedules; however, loss settlement will be accurate and account for
    any under- or over-supply of losses.

-   Financial settlement option can also be used in addition to the use
    of the large tolerance. However, the prices must be such to provide
    incentive of proper loss scheduling[^4].

## Loss Reallocation to Control Areas

> Grid West manages transmission losses on a regional level in the
> Day-Ahead. Transmission Customers are not required to provide losses
> at a specific bus, or within a specific control area. As such, control
> areas that must account for this loss surplus or loss shortfall. In
> order to avoid cost shifting between control areas in Real-Time, Grid
> West must re-allocate the collected transmission losses in the
> day-ahead to Grid West control areas. This reallocation is
> accomplished through the use of Interchange Schedules.
>
> After receiving the loss schedules from transmission customers, Grid
> West will create interchange schedules to rebalance losses from one
> control area to other within GWT. The end results of loss reallocation
> schedules are that all control areas with the GWT will receive their
> share of expected losses as computed by the power flow model. This
> step is necessary to avoid cost shifts between the control areas
> within the GWT.
>
> An example is given in Appendix B to illustrate how this loss
> reallocation schedule is to be achieved.

# Roles and Responsibilities

## Grid West's Responsibilities

Grid west will:

-   Calculate and publish a applicable loss factor with sufficient lead
    time before delivery day;

-   Evaluate loss obligations for all submitted day-ahead schedules;

-   Ensure the proper amounts of losses are scheduled on the day-ahead;

-   Create interchange loss schedules; and

-   Settle the loss for transmission customers who submit schedules
    directly to Grid West.

## Transmission Customers Responsibilities

> Transmission customers will:

-   Meet their loss obligation by submitting loss schedules either
    directly or by third party loss provider.

## Loss Providers' Responsibilities

> Loss providers will:

-   Schedule the loss obligations for the transmission customers that
    they represent, and

-   Represent multiple transmission customers if they choose.

## Existing Transmission Owners' Responsibilities

> Existing transmission owners will:

-   Act as the default loss providers for transmission customers that
    have pre-existing transmission service rights agreement.

# Market Benchmarks

One fundamental difference exists between Grid West and other RTOs; the
day-ahead regional services and real-time markets take place with
different geographical boundaries. As a result, concurrent loss
scheduling is required and additional steps are taken to avoid the costs
shifts between transmission customers. Except for this difference, many
similarities can be observed from all existing business practices by the
existing RTOs and ISOs in North America. A comparison of the proposed
loss methodology with other RTO/ISO loss model is given in Table 8.0
below.

Table 8.0: A Comparison of Loss Methodology with Other RTOs

+-------------+-------------+-------------+-------------+-------------+
| **Loss      | **CAISO     | **ERCOT**   | **LMP       | **GW        |
| Me          | Current**   |             | market**    | proposal**  |
| thodology** |             |             |             |             |
|             |             |             | **(N        |             |
| **A         |             |             | YISO/MISO** |             |
| ttributes** |             |             |             |             |
|             |             |             | **CAISO     |             |
|             |             |             | future      |             |
|             |             |             | **[^5]**)** |             |
+-------------+-------------+-------------+-------------+-------------+
| Ex ante vs. | Ex ante and | Ex ante     | Ex post for | Ex ante     |
| ex post     | ex post     |             | financial   |             |
|             | (           |             | settlement. |             |
|             | hour-ahead) |             | The         |             |
|             | true up     |             | quantity    |             |
|             |             |             | may be ex   |             |
|             |             |             | ante.       |             |
+-------------+-------------+-------------+-------------+-------------+
| P           | Each        |             | In MISO,    | Each        |
| re-existing |             |             | T           |             |
| t           | TO will be  |             | ransmission | TO will be  |
| ransmission | responsible |             | customers   | responsible |
| service     | for         |             | settles     | for         |
| rights      | recovering  |             | directly    | recovering  |
| agreement   | any         |             | with MISO   | any losses  |
|             |             |             | and         | mismatch    |
|             | losses      |             | Marginal    |             |
|             | mismatch    |             | Losses      |             |
|             |             |             | rebates to  |             |
|             |             |             | existing    |             |
|             |             |             | contract    |             |
+-------------+-------------+-------------+-------------+-------------+
| Who pays?   | Supply      | Demand      | Both        | Both        |
|             |             |             |             |             |
| Supply or   |             |             |             |             |
| demand      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Return      | N           | N           | Some        | N           |
| option      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Locational  | Partial     | Partial     | Yes         | Yes         |
| signal      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Loss factor | Scaled      | Scaled      | Marginal    | Scaled      |
| calculation | marginal    | marginal    |             | marginal    |
+-------------+-------------+-------------+-------------+-------------+
| **Loss      | Hourly      | Seasonal    | Hourly      | Seasonal    |
| factor      |             | peak and    |             | peak and    |
| gr          |             | off-peak as |             | off-peak    |
| anularity** |             | base and    |             |             |
|             |             | ex          |             |             |
|             |             | trapolation |             |             |
|             |             | to 15       |             |             |
|             |             | minutes     |             |             |
|             |             | interval.   |             |             |
+-------------+-------------+-------------+-------------+-------------+
| **Over      | N           | N           | Y           | N           |
| c           |             |             |             |             |
| ollection** |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

# Technology Solutions

The implementation of loss methodology is an integral part of Grid West
operations. There are no specific technology components for the loss
implementation since the loss methodology is embedded in the scheduling
and settlement systems. The major elements of the impact to the overall
technology solution are:

-   Power system modeling software

-   Scheduling system

-   Settlement system

-   OASIS posting

# Organization Requirements 

Table 10.0 presents the resource requirements for the operation and
support of the loss methodology and associated business processes.

Table 10.0: Staff Requirements

+-----------------+---------------+--------+--------------------------+
| **Division**    | *             | **     | **Responsibility**       |
|                 | *Department** | Role** |                          |
+-----------------+---------------+--------+--------------------------+
| Market          | Forward       | M      | -   Manage the           |
| Operations      | Markets       | anager |     development of loss  |
|                 |               |        |     factors              |
+-----------------+---------------+--------+--------------------------+
| Market          | Forward       | A      | -   Basecase development |
| Operations      | Markets       | nalyst |                          |
|                 |               |        | -   Develop loss factors |
|                 |               |        |                          |
|                 |               |        | -   Oasis interfaces     |
|                 |               |        |                          |
|                 |               |        | -   Loss provider        |
|                 |               |        |     registration         |
|                 |               |        |                          |
|                 |               |        | -   Loss obligation      |
|                 |               |        |     calculation and      |
|                 |               |        |     validations          |
|                 |               |        |                          |
|                 |               |        | -   Loss reallocation    |
|                 |               |        |     scheduling           |
+-----------------+---------------+--------+--------------------------+
| Information     |               | A      | -   Application Support  |
| Technology      |               | nalyst |                          |
+-----------------+---------------+--------+--------------------------+

# Cost Drivers 

The primary cost drivers for loss methodology implementation relates to
the complexity of the solution. For example, the costs will be reduced
if Grid West:

-   Use the simplified methods with coarse time and locational loss
    factors.

On the other hand, the costs will increase if Grid West:

-   Develops power models and compute loss factors for all the delivery
    periods;

-   Includes losses in RDS and RCS process;

-   Includes a loss true-up process;

-   Assumes the responsibility of the mismatch of pre-existing
    contractual losses and loss obligations defined in this proposal.

# Design Issues for Further Discussion 

-   *Unintended consequence of "Cherry-picking" by pre-existing
    transmission service rights holders.* An existing transmission
    contract holder can easily assess the benefits of holding the
    contract or releasing the contracts to standard IWR rights. If the
    option is available for the contract holders, all other terms being
    equal, the contract holder will selectively switch the contracts to
    standard IWR rights, leaving a possible shortfall in the
    transmission provider's loss balance account.

-   *"No charge" transmission reservation.* In the current practice of
    many Northwestern utilities, transactions for loss return enjoy the
    benefit of not needing reserve transmission rights and not being
    charged. It is not clear whether such a benefit should be maintained
    for the loss provision by the transmission customers, or by the loss
    providers.

-   *Treatment of curtailments*. If there are infeasibilities in the
    day-ahead scheduling process, Grid West may have to curtail proposed
    transactions. The curtailments may impact the loss obligations of
    the transmission customers. At this time, it is unclear whether such
    an iterative process should be developed.

-   *The boundary mismatch of CCA and Grid West.* The existence of this
    mismatch will likely require different sets of loss factors for
    different purposes. Grid West will need to explore if additional
    simplifications can be made using the same set of loss factor.

-   *Use of area loss factors.* Caution must be exercised in defining
    areas since the use of very large area will lead to significant cost
    shifting. The proposed methodology assess loss obligation of
    transactions based on the loss factor at both IP and WP. When the IP
    and WP of a transaction are within the same area, there will no loss
    obligations for the transaction.

-   *Distribution losses.*

#  Appendix A: Properties of the Proposed Loss Methodology 

The following sections describe some of the attributes of the proposed
loss methodology. A summary of two alternate methodologies is also
presented for comparison.

## Additive Property  {#additive-property .unnumbered}

> The additive property of a loss methodology (also having been called
> transitiveness) measures if two equal and opposite transactions will
> cancel out one another's flows and the associated loss obligations.
> The proposed loss factor in the previous section is additive since it
> has same treatment of supplies and demand in computing the loss
> obligations at a location.
>
> Selecting an additive methodology is preferable since it conforms to
> the objective to reflect the actual costs of transactions. For
> example, if there are two transactions with same quantities from A to
> B and from B to C, a loss methodology with additive property will
> result in the same amount of loss obligations as a transaction from A
> to C while a non additive loss methodology will generally not.
>
> The additive property is generally preserved for the Locational
> Marginal Pricing (LMP) type loss methodology that has been adopted in
> several RTO/ISOs.

## No Pancaked Loss Charges {#no-pancaked-loss-charges .unnumbered}

> Pancaked rates in transmission and losses have been generally regarded
> as detrimental to the economical efficiency. Rate pancaking refers to
> the payment of multiple transmission rates for one transaction (e.g. a
> transaction scheduled across multiple transmission systems with a cost
> to use each one). Some contend that distance of a transaction is often
> assumed to be a direct measure of the associated losses, thus a
> transaction across different areas increases transmission losses. This
> is incorrect in many cases. For example, a long distance transaction
> in a lightly loaded transmission area will cause fewer losses than a
> short distance transaction in a heavily loaded area. Losses do not
> necessarily increase with the distance and number of transactions that
> cross the control area boundaries. As another example, assuming that
> there are two identical and connected transmission systems, each with
> balanced supplies and demand. The flows at their tie lines will be
> zero. The transmission losses of the two systems remain the same,
> whether one assumes that there no transactions are taking place
> between the two systems, or one assumes that all demands in one system
> will transact with supplies of other system.
>
> The proposed loss methodology fulfills the objective of eliminating
> loss pancaking for transactions within the GWT (CCA). For transactions
> involving external control areas, transmission customers are
> responsible for their external losses. The seams issues related to
> losses, as described in Appendix A, remain to be resolved.

## Locational Loss Signals {#locational-loss-signals .unnumbered}

> Although the proposed loss methodology is not distance sensitive, it
> is location dependent. The loss obligations of a transaction depend on
> the loss factors at its IP and WP, thus leading to locational effect
> of loss obligations.

## Attributes Summary of the Proposed Loss Methodology {#attributes-summary-of-the-proposed-loss-methodology .unnumbered}

> The following table shows how the proposed loss methodology addresses
> the objectives

Table A1: Attributes of the Proposed Loss Methodology

+---------------------+------------------+-----------------------------+
| **Objectives**      | **Proposed       | **Comments**                |
|                     | methodology**    |                             |
+---------------------+------------------+-----------------------------+
| Pre-existing rights | Yes. But the     | Otherwise, costs shifts are |
| honored             | pre-existing     | unavoidable.                |
|                     | rights are       |                             |
|                     | honored by the   |                             |
|                     | TOs.             |                             |
+---------------------+------------------+-----------------------------+
| Actual losses       | Strong cost      | It is difficult to have a   |
| reflected (minimize | causation to     | qualitative measure for     |
| cost shifts)        | transactions.    | this objective, but the     |
|                     |                  | additive property and       |
|                     |                  | strong locational and       |
|                     |                  | timing signals in the       |
|                     |                  | proposed methodology will   |
|                     |                  | result in more accurate     |
|                     |                  | loss recovery.              |
|                     |                  |                             |
|                     |                  | A mechanism is in place to  |
|                     |                  | avoid cost shifting between |
|                     |                  | Control Areas and their     |
|                     |                  | customers, as well as the   |
|                     |                  | cost shifts in real-time    |
|                     |                  | operations (see example     |
|                     |                  | section).                   |
+---------------------+------------------+-----------------------------+
| Pancaking           | Yes              | Within GWT.                 |
| eliminated          |                  |                             |
+---------------------+------------------+-----------------------------+
| Losses certainty    | Yes              | No true-up is proposed.     |
+---------------------+------------------+-----------------------------+
| Additive            | Yes              | Reflect actual costs more   |
| (Transitive)        |                  | accurately                  |
| property            |                  |                             |
+---------------------+------------------+-----------------------------+
| Easy implementation | Yes              | See implementation details  |
|                     |                  | that are presented as part  |
|                     |                  | of the proposed             |
|                     |                  | methodology.                |
+---------------------+------------------+-----------------------------+
| Consistency with    | Yes              | See implementation details  |
| market operations   |                  | that are presented as part  |
|                     |                  | of the proposed             |
|                     |                  | methodology.                |
+---------------------+------------------+-----------------------------+

#  Appendix B: Examples of Loss Reallocation for Day-Ahead Scheduling

> Assuming that transmission customers in the day-ahead scheduling
> process have delivered the loss obligations to Grid West, we
> illustrate the loss reallocation scheduling method to balance the loss
> obligations among different control areas in the GWT.
>
> In this example, we further assume there are only three control areas
> (A, CCA and B) whose configuration is given in Figure B1.
>
> Figure B1: Example Configuration of Control Areas

As shown in Table B1, the losses computed by the power flow model are
300, 200 and 100 MWhs for control areas CCA, B and C, respectively.
These calculated losses are the target values for each control area to
receive.

In the day-ahead scheduling process, however, the three control areas
receive different amount of losses as delivered by the transmission
customers. For this example, CCA received 305 MWhs. Since its target
loss is only 300 MWhs, 5 MWhs will be reallocated to other control
areas.

Table B1: Example of Loss Reallocation Data

  --------------------- ----------------------- -------------------------
  **Control Area**      **Losses computed by    **Scheduled loss delivery
                        Power Flow**            within each control
                                                area**

  CCA                   300                     305

  B                     200                     175

  C                     100                     120
  --------------------- ----------------------- -------------------------

Table B2 shows one possibility of the reallocated loss schedule
arrangement. Namely, Control Area C delivers the excess 20 MWhs losses
to CCA, who in turn delivers 25 MWhs to Control Area B. The loss
delivered for each control area will then reach to the target value
after loss Reallocation Schedules are accounted for. The new balance
condition for control areas are listed in Table B3.

Table B2: Example of Loss Reallocation Schedules

  --------------------------- -------------------- ---------- ------------
  **Interchange schedule**    **Losses             **POD**    **POR**
                              Reallocation                    
                              Schedule**                      

  CCA to B                    30                   CCA        B

  C to CCA                    20                   C          CCA
  --------------------------- -------------------- ---------- ------------

Table B3: Example of Loss Balance after Loss Reallocation Schedule

  -------------- -------------- -------------- ---------------- -------------
  **Control      **Losses       **Scheduled    **Net Loss       **Final
  Area**         computed by    loss delivery  Reallocation**   Delivered
                 Power Flow**   within each                     Losses**
                                control area**                  

  CCA            300            305            -5               300

  B              200            175            25               200

  C              100            120            -20              100
  -------------- -------------- -------------- ---------------- -------------

> Each control area will include the reallocated loss schedules in the
> Net Interchange Scheduling calculation. The end result is that each
> control area will reach the loss target (assuming power flow models
> are accurate and no other deviations in the system are present),
> avoiding any cost shifting between Control Areas and their customers.
> This will also further minimize the cost shifts in real-time
> operations.

[^1]: In computing the loss sensitivities, the power flow program needs
    to use a reference bus or a set of distributed buses as reference.
    It is strongly suggested that the distributed buses are used for
    this purpose.

[^2]: This scaling factor is the ratio of the total GWT (CCA) losses to
    the total marginal losses. The total marginal losses are the
    summation of net injection at buses (scheduling points) multiplied
    by its loss sensitivities. In addition to the scaling, some RTOs
    have also shifted the loss sensitivities to avoid negative values in
    recovering for losses.

[^3]: As will be seen, loss obligations can be calculated directly using
    the scaled loss sensitivities without defining loss factors.
    However, the term of loss factor is defined to be consistent with
    the loss factor terminology that is widely used.

[^4]: One example is a two-step process: 1) determining a reference
    price, and 2) using 90% or 110% of the reference price to settle
    over- or under-provision of losses.

[^5]: CAISO will implement LMP based loss methodology soon.