1.  **Grid West Market & Operational Design -- An Overview**

    1.  ***[Introduction]{.underline}***

        a.  The TSLG's assignment is to develop a market and operational
            design framework for Grid West's Basic Features. The
            complete design work is divided into four layers, each with
            an increasing level of complexity.

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        a.  The first two layers are to develop a conceptual framework
            prior to Decision Point #2:

            i.  Layer 1 -- Major functions were defined in 2004.

            ii. Layer 2 --Methodology, responsibilities, and costs are
                to be identified in 2005.

                -   The conceptual framework will be described in a
                    series of white papers that address major design
                    features.

                -   

                -   

                -   

                -   Additional resources are being provided to aid
                    readers of the white papers are this overview paper,
                    a set of reference papers and a Grid West Glossary
                    of Terms

                -   Figure 1.1 shows the titles of the each of these
                    papers and the TSLG work modules associated with
                    each of the white papers.

        b.  Increased design details will be added for later decisions
            points:

            i.  Layer 3 -- Will develop protocols for market rules,
                business rules, transactions, etc.

            ii. Layer 4 -- Will prepare tariffs, functional
                specifications, interface designs, detailed technology
                requirements, etc.

    2.  ***[The Overview Paper]{.underline}***

        a.  Provides the philosophical grounding that guides the TSLG's
            work.

        b.  Provides a systematic approach to the design elements.

        c.  Introduces white papers and puts them in perspective.

Figure 1.1, Chart of papers which cover the conceptual

i.  framework of market and operational design.

> ![](media/image1.wmf){width="6.495833333333334in"
> height="4.432638888888889in"}

3.  ***[Reference Papers]{.underline}***

    a.  As a further aid to readers of the white papers, a set of
        reference papers has been prepared that treat subjects common to
        two or more of the detailed technical material found in the
        white papers.

    b.  These reference papers are:

        i.  *[Transmission Modeling Reference Paper]{.underline}* --
            Describes the methodologies to be used by Grid West for
            study and analysis of Grid West Managed Transmission System
            for regional planning, capacity expansion, reconfiguration
            service, scheduling, dispatch and real-time monitoring.

        ii. *[Auction Pricing Reference Paper]{.underline}* -- Describes
            the pros and cons of two auction pricing methods -- market
            clearing price and as-offered-price -- and the rationale for
            selection of the market clearing price for use in Grid West
            markets.

        iii. *[Congestion Management Reference Paper]{.underline}* --
             Describes the Grid West approach to congestion management,
             which differs fro that used in other RTOs. By using a
             flow-based method for issuance of new physical transmission
             right, Grid West addresses congestion before it occurs
             through , planning, capacity expansion, and
             reconfiguration. Other tools include scheduling, schedule
             adjustment and curtailments, and the operation of the
             reserves market, the balancing market and real-time
             operations.

        iv. *[Registration and Commercial Model Reference
            Paper]{.underline} --* Describes the proposed process for
            registering and modeling the assets of market participants
            including, defining locations, load accounting, scheduling
            coordinators (or agents) and describes the use of load zones
            and trading hubs in scheduling and in acquisition of IWRs.

        v.  *[Seams Coordination White Paper]{.underline}* -- Describes
            the seams issues that will impact Grid West operations,
            including timeline coordination, intertie scheduling
            curtailments, loop flow management, etc.

4.  ***[Market Monitoring]{.underline}***

    a.  The organizational form, authority and scope of activities for
        market monitoring are beyond the scope of TSLG's assignment.

    b.  However, in each of the white papers, potential market power
        issues are discussed and mitigation strategies are identified.

    c.  The organization of formal markets for transmission rights,
        reserves and balancing energy will assist market monitoring
        activities.

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2.  **A Commercial Usage Model to Match Physical Reality**

    1.  ***[Getting Started]{.underline}***

        a.  The function of the transmission system is energy delivery
            from generation to load, including the ability to reliably
            serve load when contingencies occur either because of loss
            of generators or loss of lines within the transmission
            network.

            i.  The value of the transmission system's delivery capacity
                is based on the value of the resources it can deliver.
                This is a reflected value rather than a direct value, so
                generation doesn't compete with transmission, rather,
                remote generation uses transmission to compete with
                local generation.

            ii. The value of transmission in forward periods (i.e. from
                day ahead to years ahead) is based on the market
                participants individual perceptions of the locational
                value of energy at the time of delivery in the future.

        b.  The interconnection of utilities provides both reliability
            and economy.

            i.  Transmission systems began with simple arrangements -- a
                line was built from a generator to a load. In the West
                much of that transmission initially was from remote
                hydro resources to either cities or mining centers.[^1]

            ii. There was an early recognition of opportunities for
                improvements in reliability and for obtaining economic
                savings if systems were interconnected.

            iii. When ever an interconnections of AC systems occurred, a
                 new joint system is created:

                 -   The result of interconnection is a multi-owner
                     regional system that is by nature a single-system.

                     -   All generators in an AC network are
                         synchronized, i.e., they all operate at the
                         same frequency, and because of governor action,
                         they respond jointly to maintain standard
                         frequency when there are changes in load or
                         loss of generation.

                     -   Flows distribution in the network is governed
                         by system physics, i.e., the line impedances,
                         the topology of the lines and to location of
                         generation and load. The ability to alter flows
                         without changing the pattern of generation
                         injections is very limited.

                 -   A single system with multiple owners has what has
                     been called the "problem of the commons":

                     -   Although interconnection creates a shared
                         system the multiple owners have different
                         levels of investments.

                     -   Question: How is the use of jointly created
                         system capacity to be shared? Answer: Through a
                         set of usage rules.

    2.  ***The Challenges of the Existing Usage Model***

        a.  During the summer of 2003, the RRG developed a list of
            problems and opportunities[^2].

            i.  The rules associated with the contract path model of
                system usage result in underutilized transmission
                capacity.

            ii. The opportunity associated with this problem is to
                develop better usage rules to allow existing capacity to
                be fully utilized while maintaining system reliability.

        b.  The contract path model is a simple "transportation" model.

            i.  For commercial purposes, power is assumed to travel
                (flow) on specific lines as if MWs were cars on a
                highway network.

            ii. This simplifying approximation was acceptable when the
                pattern of interconnections was fairly simple and there
                was surplus capacity in the transmission system.

            iii. However, this simple model has been retained past its
                 useful life because:

                 -   Its apparent simplicity is attractive.

                 -   Mapping existing obligations from one model to
                     another raises uncertainties.

        c.  The mismatch between the simple contract path and physical
            reality grew with the rapid growth of the system after World
            War II.

            i.  In the 30 years after World War II there was a burst of
                transmission construction.

                -   Canada and the Pacific Northwest were tied to
                    California by the lines that make up the elements of
                    the Pacific Interties.

                -   Transmission was strengthened within the greater
                    northwest as interior hydro and coal-fired resources
                    were developed.

                -   Ties were closed at Glen Canyon and in the Four
                    Corners area that connected Arizona and New Mexico
                    to Colorado and Utah (and from them to the greater
                    Northwest).

                -   Transmission was built to import coal fired
                    resources into California located from Arizona and
                    New Mexico.

            ii. When "closure of the loop" around 1970 gave the Western
                Interconnection its current system topology, disputes
                quickly arose based on then inherent mismatch between
                actual system flows and the contract path model. The
                substance of these disputes among the interconnected
                companies was (and remains) *loop flow*.

    3.  ***What is loop flow?***

        a.  Under the contract path usage model, power is assumed to
            flow on an identified path as shown in Figure 2.1a.

            i.  This example shows an injection made in system T with a
                withdrawal in system R and scheduled through system S.

            ii. The contract path is defined by the ownership of the
                contracting systems.

            iii. Because transmission service is provided by R, S and T,
                 power flow is assumed to flow only on the facilities
                 owned by those companies.

        b.  The actual power flows on all the parallel paths based on
            system physics as shown in Figure 2.1b.

            i.  The incremental effect of the injection in system T with
                a withdrawal in system R affects every line in the
                system.

            ii. Lines with the lowest impedance see larger changes in
                flow.[^3]

            iii. The difference between actual and schedule is deemed to
                 be "loop flow".

            iv. Each party is usually convinced that the other parties
                are using more than their share of the joint system.

Figure 2.1a, Assumed Contract Path Power Flow

> ![](media/image2.wmf){width="4.69375in" height="3.545138888888889in"}
>
> Figure 2.1b, Actual Power Flow

![](media/image3.wmf){width="4.773611111111111in"
height="3.5868055555555554in"}

c.  Loop flow is the difference between the scheduled flow (i.e., the
    assumed contract path flow) and the actual flow.

    i.  If the injection and withdrawal shown in Figure 2.1a is 100 MW,
        the contract flow through System S is 100 MW.

    ii. If 60% of the injection in T moves through system S, then the
        actual flow through S is 60 MW. (The 60% ratio is called a Path
        Utilization Factor or PUF.)

    iii. The loop flow in system S is then -40 MW, i.e., the actual flow
         of 60 MW minus the contract path flow of 100 MW.

    iv. The 40 MW not flowing through system S, will be measured as
        actual flow moving through Systems P, V and U, although these
        latter three systems will have no matching schedule for those
        flows, so the 40 MW will be identified as loop flow or
        unscheduled flow.[^4]

    v.  With injections and withdrawals occurring simultaneously across
        the entire interconnection, the net loop flow measured at the
        interconnection boundary of the control areas is a result of the
        combined effect of all uses.

    vi. Years were spent in a hunt for the loop flow culprits, when the
        real culprit is a commercial use model that doesn't square with
        reality.

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4.  ***Adjustments to the Contract Path Model***

    a.  Because simple contract path usage rules among owners impose
        unexpected costs,[^5] adjustments to the model have been made
        over time to mitigate the effects of loop flow.

    b.  When transmission systems were expanding rapidly prior to the
        1980's, there was a tendency to build capacity ahead of need,
        which tended to mask the impact of the model mismatch.

        i.  Building ahead of need occurred in part because transmission
            line investments are lumpy, i.e., you get the whole capacity
            of a transmission line when it is energized, not some
            portion that grows over time.

        ii. Because the system was growing quickly, the extra capacity
            from a project would be needed in one or two years to move
            additional generation, so the economic burden of extra
            capacity was small.

        iii. These conditions no longer apply. System load is growing
             slowly, new generation tends to gas fired and located close
             to load and until recently, little new transmission
             investment has been built in the past 15 years. In addition
             public resistance to transmission line siting is much more
             vigorous than it was 20-30 years ago.

    c.  Even with surplus brought into the system by the construction
        effects, there were still many hours when the presence of loop
        flow created operational problems, so there was early
        recognition of the need to recognize (at least in part) the
        effect of the actual flows on the major parallel paths in the
        Western Interconnection. That need led to simultaneous ratings
        of parallel paths.

        i.  Simultaneous path ratings provide an approximate flow-based
            division of system capacity between parallel paths.

        ii. While the simultaneous ratings nomograms provide bounds for
            operations, but they have no way of determining what
            operating point is "best" between the parties owners.

        iii. In order to protect independent use by each path owner, the
             scheduled use of a path had to be limited to the path
             rating even if actual flow was below the rating. At the
             same time, when the actual flow reached the path limit, no
             added use could be schedule, even if the schedule was below
             the path rating.

             -   The requirement to abide by this dual constraint, can
                 cause capacity to go unused.

             -   The full system may be capable of moving more energy,
                 but there is no way to enable it if each owner is to be
                 able to independently exercise its "share" of the
                 simultaneous rating.

             -   Reliability problems created by loop flow are only
                 discovered in real time, and adjustments to correct
                 them are made by non-economic adjustments, i.e., the
                 curtailment of schedules. This is not always very
                 effective, but it is the only tool available to
                 operators.

        iv. While the simultaneous rating process reduced disputes among
            the owners, it has not resolved the underlying problem.

    d.  Another mitigation measure, taken over the past 20 years, is the
        installation and coordinated operation of phase shifting
        transformers,[^6] to partially regulate loop flow.

        i.  Because the range of such devices is limited they can only
            reduce the loop flow burden not eliminate it.

        ii. Their operation is not without cost; altering system flows
            by increasing phase shift angle also raises system losses.

        iii. As with path rating, the consequences of the mismatch
             problem are mitigated but not resolved.

    e.  The difficulty of reconciling the contact path mismatch with the
        realities of system physics will continue to increase:

        -   There has been limited transmission construction in past
            decade, yet network usage continues to grow. The combined
            effect reduces the slack in the system that previously made
            tolerable the mismatch between schedule and actual flows.

        -   New construction will only make network topology more
            complex and increase the number of places where the actual
            to schedule mismatch creates operational problems.

        -   Passage of the Energy Policy Act of 1992, opened wholesale
            market access to the transmission system and increased the
            number of transactions the network needs to accommodate.

        -   The addition of new generation has become difficult,
            especially for remote resources like wind generation.

            -   Available transmission capacity is in short supply, when
                measured using the contract path usage model;

            -   However, studies of rated paths show that actual flows
                approach rated capacity in a relatively few number of
                hours of the year.

        -   Clearly, the old contract path model has simply run out of
            "wiggle room".

    f.  In order to address these problems, a flow-based methodology is
        needed. This need for a flow-based approach to system usage is
        the major driver behind the development of the Grid West
        proposal.

5.  ***[Selecting a Flow-Based Usage Model]{.underline}***

    a.  The base assumption of the contract path model is that separate
        owners can act independently. Once interconnections began, this
        was never really true.

        i.  To make contract path work better, the modifications
            described above were made at the edges of the problem. These
            modifications trimmed owner independence to a degree, but
            there is still no systematic, simultaneous examination of
            network usage.

        ii. The establishment of PNSC was a first step to looking at the
            combined effects in real-time; however, the commercial model
            used for scheduling remains unchanged.

    b.  A structural change is needed to reconcile the usage model with
        system physics. A flow-based methodology recognizes that the
        actions of each user affects all others to a greater or lesser
        degree based on system physics.

        i.  The commercial usage model must align usage with physical
            realities and must be practical to implement.

            -   The region's first attempt using flowgate rightts in RTO
                West Phase 1 was too complex for practical
                implementation[^7].

            -   The proposed Injection and withdrawal model is much
                simpler and far more practical.

                -   It is consistent with POD/POR designations in
                    pre-existing transmission rights.

                -   It does not require the user to be a network expert.

                -   It is adaptable as the network changes.

        ii. To implement a single system injection-withdrawal usage
            model, a single manager of transmission system capacity is
            needed -- a single "gatekeeper" for system capacity use.

            -   The capacity manager makes evaluations of existing
                commitments and future-use based on a grid-wide,
                flow-based examination of the whole system as an
                integrated regional network.

            -   While the governance of the entity charged with the
                capacity management function must be responsive to
                regional needs, the capacity manager must at the same
                time be independent of the market participants and not
                have a stake in market outcomes.

            -   Grid West is designed to meet this need for a capacity
                manager for the region's transmission system capacity.
                Grid West's function is analogous to the function an air
                traffic control managing usage of shared air space.

6.  ***[Pre-conditions for adoption a new]{.underline}*** ***[flow-based
    model]{.underline}***

    a.  New services should be made available to make better use of the
        system.

    b.  The pre-existing transmission rights are preserved and can be
        used as they were in the past.

    c.  The implementation of the new model should avoid known or
        foreseeable market power problems or not create gaming
        opportunities.

    d.  There needs to be a reasonable and reliable transition path from
        today's practice to putting the new model into operation that
        also does not preclude the ability to make adaptations as system
        needs change in the future.

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3.  **The Flow-based Injection/Withdrawal Model**

    1.  ***[Overall Features.]{.underline}***

        a.  Pre-existing obligations and agreements are unchanged in
            order to preserve pre-existing transmission rights. Only
            voluntary choices made by the right holders will alter their
            current rights.[^8]

        b.  A flow-based methodology of injection and withdrawal rights
            is adopted using a central administrator (Grid West) to
            manage the use of transmission capacity and to recognize the
            "one-system" (i.e. flow-based) reality of the regional
            system.

        c.  One-stop shopping for transmission services across the
            network is implemented through Grid West which will include
            transmission planning and capacity expansion and a single
            queue for long-term transmission service requests (one year
            or longer).

        d.  Transmission right reconfiguration services are implemented
            to enable better access to available capacity. This service
            combines release of capacity by transmission right holders
            with Available Flow Capacity (AFC)[^9] to provide wider
            trade in transmission rights and thereby improving access to
            short-term services ( from hourly service for the next
            operating day up to service for a full year).

        e.  Centralized, one-stop scheduling is provided for the
            regional network.

        f.  Voluntary consolidation of control areas using a day-ahead
            reserve market and a real-time balancing market is
            permitted.

        g.  A staged implementation will be used for building up Grid
            West's Basic Features. The implementation plan will allow
            functionality to be increased over time with a cycle of
            testing, user training and successful operation. The process
            will be repeated each time new features are added. This has
            proven to be a successful, cost effective approach compared
            to a "big bang" start with all features at the outset.

    2.  ***[Providing Transmission Service]{.underline}***

        a.  A transmission service framework has been developed that
            will allow the implementation of the flow-based methodology
            while leaving in place the pre-existing obligations and
            agreements of the Transmission Owners.

            i.  This is not a wholesale change in the provision of
                transmission service, but rather an incremental change.

                -   Because the pre-existing rights remain in place the
                    effect on the overall market will be quite modest.

                -   

                -   The change will better account for existing
                    commitments as rights are issued and rights trading
                    is enabled.

            ii. Transmission users with pre-existing rights may continue
                to use them as they have in the past.

                -   The contracts that establish such rights will
                    continue to define the rights granted and the
                    limitations imposed.

                -   The implementation of the Grid West flow-based model
                    will not force any change in pre-existing agreements
                    and obligations.

                -   The holders of pre-existing rights will have the
                    option of using Grid West's broader transmission
                    services or continuing to take transmission service
                    as defined by their pre-existing contracts.[^10]

            iii. The proposed transmission service framework has two key
                 aspects:

                 -   The transmission service structure and

                 -   The transmission tariff structure.

        b.  [The Grid West transmission service structure]{.underline}.

            i.  Grid West will offer Regional Network Service (RNS), new
                services that will allow users to obtain transmission
                rights to schedule energy movement across the entire
                regional network; this service suite includes:

                -   Reconfiguration Services and

                -   

                -   Capacity Expansion Service.

            ii. To qualify for RNS a user must meet the System Access
                Requirement (SAR). The SAR is verifies that a
                transmission customer is making a contribution to
                recovery of the system's fixed costs (i.e., the
                Transmission Owners' Revenue Requirements) that is
                appropriate for that transmission customer's situation.

                -   Load serving entities:

                    -   Where pre-exiting rights cover an entity's full
                        load, the SAR is met. This allows the entity to
                        use RNS to release unused rights for sale or to
                        obtain rights to reach new resources not covered
                        by their pre-existing rights.

                    -   Load not covered by pre-existing agreements will
                        pay a load based rate to cover such load, thus
                        making RNS available to the entity.

                -   Generators:

                    -   The SAR is met by paying for interconnection
                        with the system.

                    -   Those with pre-existing rights maintain those
                        rights by continuing to pay the contract charges
                        for the agreements that grant those pre-existing
                        rights.

                    -   Additional transmission rights can be obtained
                        using RNS.

                -   Marketers:

                    -   Marketers without generation must meet the
                        technical and credit standards common to all
                        users of RNS, but have no other intrinsic
                        obligation.

                    -   If they have pre-existing rights, like
                        generators, they maintained those rights by
                        paying the contract charges for the pre-existing
                        agreements.

                    -   Additional rights may be obtained using RNS.

                -   Exports:

                    -   An export from the Grid West system, whether
                        made by a load serving entity, a generator or a
                        marketer, will be treated as a load at the point
                        where the export occurs.

                    -   The exporter must either have pre-existing
                        rights to cover that export "load" at the point
                        of export or pay a Grid West load based rate to
                        cover the export "load".

            iii. The Regional Revenue Requirement Adjustment (R3A)

                 -   When Grid West commences operation, Transmission
                     Owners will no longer issue transmission rights.

                     -   The revenues associated with pre-existing
                         long-term transmission agreements will continue
                         to be paid to the Transmission Owners

                     -   Revenues for short-term firm and non-firm
                         service currently received by Transmission
                         Owners will no longer exist since they will not
                         be issuing such rights, instead, these services
                         will be replaced by IWRs purchased using the
                         Reconfiguration Services.

                     -   The loss of the short-term firm and non-firm
                         revenues is, therefore, a cost associated with
                         offering RNS.

                 -   The R3A will be a charge made to all parties who
                     choose to use RNS.[^11]

                     -   Grid West's sales of AFC through the
                         Reconfiguration Service will recover part (and
                         perhaps most) of the revenue that was
                         previously recovered by the Transmission Owners
                         sale of non-firm and short-term firm
                         transmission service.

                     -   The R3A will cover the net cost of offering
                         AFC: any administrative costs associated
                         uniquely with RNS markets and the residual lost
                         revenue from short-term firm and non-firm sales
                         not recovered by sales of AFC.

                     -   The R3A could also be zero if AFC sales fully
                         offset the lost non-firm and short term
                         revenues and RNS specific costs. Any surplus
                         could be used to reduce other Grid West cost,
                         to reduce the Company Rates of the Transmission
                         Owners, etc.

*\[Drafting note to readers:* *The following information on tariff
structure is based on the Module 1 work done during 2004 Layer 1 design
work. While it is the best information currently available, there will
be changes in this section as Layer 2 work to better define the tariff
structure and clarify relationships among the Transmission Owners,
Transmission Customer, and Grid West.*

c.  [The transmission tariff structure]{.underline}.

    i.  The above transmission service structure will be implemented
        through the issuance of a set of tariffs.

        -   Pre-existing rights will continue be covered by the
            transmission tariffs and contracts under which they were
            established by the Transmission Owners.

        -   New services will be covered by the Grid West Tariff and by
            Transmission Owner Tariffs that are integrated with the Grid
            West Tariff

        -   

        -   

        -   

    ii. 

    iii. The Grid West Tariff will cover:

         -   General provisions to cover requests for transmission
             service, planning and capacity expansion, scheduling, the
             recovery of Grid West's costs through a Grid Management
             Charge etc.

         -   A section on transmission interconnections:

             -   Interconnection requests will be covered provisions in
                 Transmission Owner Tariffs.

             -   Grid West will provide coordination of interconnection
                 requests and dispute resolution between Transmission
                 Customers and Transmission Owners.

         -   Provision covering RNS -- rules for satisfying the SAR for
             load (including exports) not covered by pre-existing
             contracts , auction market rules, the R3A, etc.

         -   

         -   The Company Rates applicable to additional loads (i.e. load
             not under a pre-existing arrangement including exports).

             -   A Transmission Owner may choose to have their Company
                 Rate included directly in the Grid West Tariff, or

             -   A Transmission Owner may choose to have the Company
                 rate included by reference with the Transmission
                 Owner's Tariff separately filed and approved.

    iv. 

    v.  Grid West will issue new transmission rights as Injection
        Withdrawal Rights (IWRs).

        -   Long term IWRs will be issued under the Capacity Expansion
            Service whether from then existing AFC or new AFC created by
            system expansion.

        -   Reconfiguration service will issue IWRs for as long as one
            year and a short as hourly for the Daily auction.

        -   Residual AFC will be made available from end of the
            day-ahead process until the cutoff to real-time on a first
            come-first served basis.

    vi. The white papers dealing with provision of transmission Service
        are:

    vii. *[Regional Planning & Capacity Expansion White
         Paper]{.underline}* -- Describes the regional planning process
         to be facilitated by Grid West and the mechanisms for capacity
         expansion. Grid West will develop an open transmission planning
         process that examines expansion needs from a single system
         perspective, tests for transmission adequacy and considers
         non-transmission alternatives to meeting system needs. The
         capacity expansion will enables market driven transmission
         projects and provide for expansion backstops for maintaining
         exiting transfer capability and meeting transmission adequacy
         standards.

    viii. *[Tariff Administration White Paper]{.underline}* -- Describes
          the provision of transmission service through the Grid West
          Tariff and the related Transmission Owner Tariffs. It
          describes the roles of Grid West, the Transmission Owners and
          the transmission customers, and provides discussion of issues
          related to pre-existing contracts, such as load growth,
          contract termination or roll-over, etc.

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3.  ***[Trading Transmission Rights]{.underline}***

    a.  The Reconfiguration Concept.

        i.  The challenge of an injection-withdrawal model is how to
            enable trade rights among transmission right holders.

            -   Altering injection and withdrawal points alter the
                commitments in the system which can only be done by the
                "gatekeeper".

            -   So independent trading requires a one-to-one match of
                injection and withdrawal points.

            -   However, such an exact match between parties is
                unlikely, so trade is limited.

        ii. This dilemma can be resolved by allowing right holders to
            "reconfigure" rights through a central auction.

            -   IWRs released to the auction increases AFC on specific
                flowgates.

            -   Requests made can now be granted by using the combined
                AFC (both latent and released).

            -   Trade no longer requires a one-to-one match of injection
                points and withdrawal points.

        iii. An example of IWR reconfiguration is shown in Figure 3.3.

             -   Situation:

                 -   Party X holds an IWR from A to B of 100 MW that it
                     will not be using next month.

                 -   Party Y wants to purchase an IWR from C to D for
                     200 MW that for next month.

             -   Since the points of injection and withdrawal do not
                 match no direct trade of rights is possible.

                 -   Both have different effects upon the constraining
                     flowgate for this example that is within the
                     ownership boundaries of V.

> Figure 3.3, An example of IWR reconfiguration.
>
> ![](media/image4.wmf){width="5.127777777777778in"
> height="3.7840277777777778in"}

-   The PUF for an AB injection-withdrawal pair is 30%, that is, for a
    100 MW schedule, there will be an incremental increase on flow of 30
    MW on the constraining flowgate.

-   The PUF for CD is 20%.

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-   Using the Reconfiguration Service a trade can be effected.

    -   Party X offers its 100 MW AB for sale, which makes the AFC on
        the constraining flowgate 30 MW (PUF~A-B~ x Offer).

    -   Party Y bids to buy 200 MW CD which would require 40 MW of AFC
        on the constraining flowgate.

    -   Y's full request cannot be satisfied, but 30 MW is available, so
        a 150 MW CD IWR can be issued. (AFC / PUF~C-D~)

    -   Without the trade, the capacity held for X's use would have gone
        unused, yet there was no way for such a trade to have occurred
        on a bilateral basis.

    -   Note that the number of MW are different because of the impact
        of each IWR on the constraining flowgate, which shows another
        difficulty of the one-to-one trading restrictions that must be
        in place without a reconfiguration market.

-   In actual practice, many offers to release and bids to buy will
    happen simultaneously. The auction software, using a security
    constrained power flow algorithm, will simultaneously IWRs available
    while keeping all subscriptions within flowgate limits.

-   IWRs issued in an auction are defined by the Grid West tariff. The
    nature of released rights of whatever vintage or source has no
    impact on an IWR characteristics.

iv. Addressing Scheduling Flexibility.

v.  A Day-Ahead Redispatch feature was included in the Regional
    Proposal[^12] as Basic Feature of Grid West.

    -   The purpose of the day-ahead redispatch was to enable greater
        use of the transmission system by getting advance scheduling
        commitments.

    -   Major difficulties were encountered in attempting to design such
        a  day-ahead redispatch

        -   Since participation would be voluntary only some schedules
            would be constrained by the day-ahead redispatch, so
            schedule changes made after the redispatch could undo any
            optimization and

        -   Measurement and settlement of committed schedules would be
            difficult because not all of them would be settled in the
            same balancing market, i.e., some within the CCA and some in
            non-CCA control areas. 

    -   When Day-Ahead Redispatch was revisited after the
        reconfiguration service had taken shape, it became clear that
        the desired effect of getting parties to release a portion of
        their scheduling flexibility (i.e. commit to a generation plan)
        could be accomplished through the Day-Ahead Reconfiguration
        Service (DA-RCS).

        -   If transmission right holders[^13] give up their scheduling
            flexibility in the DA-RCS, there is a reduction in the
            \"headspace\"[^14] set aside to preserve pre-existing
            rights.

        -   Reduced \"headspace\" becomes AFC that can be sold as IWRs. 

        -   A voluntary day-ahead redispatch is a partial energy market
            that must be settled against a real-time energy market, but
            since not all parties participate, the optimization achieved
            can be undone by parties who retain their pre-existing
            scheduling flexibility. In addition without a real-time
            energy market applicable to all users, settlement of
            commitments was problematic. Finally, it appeared that there
            were potential gaming problems that would have to be
            addressed.

    -   Enhancing the DA-RCS to handle releases of scheduling
        flexibility avoids the complications of the day-ahead redispatch
        service while achieving its objectives, namely making more
        capacity available through voluntary offers to restrict changes
        in generation patterns for the following day.

    -   With this modification, the typical day for pre-scheduling fits
        the general pattern in place today.

        -   Trades for the next day occur very early in the morning.

        -   Calls are made to find transmission from various
            transmission providers.

        -   Pre-schedules are submitted.

    -   The enhanced DA-RCS replaces the calls to individual providers
        find transmission with a central auction conducted by Grid West
        where AFC is made available through releases of scheduling
        flexibility along with AFC and releases of other transmission
        rights.

vi. Rights Translation.

    -   For many years pre-existing transmission rights will represent
        the major capacity commitments of the Grid West Managed
        Transmission System. Therefore in order to have a successful
        Reconfiguration Service, pre-existing right holders must have a
        way to offer their rights for sale in the RCS auction. This is
        enabled through a rights translation process.

    -   If a right holder wishes to offer rights in the RCS, it will
        come to Grid West and request a translation of its rights into
        an equivalent set of IWRs. This translation may be partial,
        i.e., some IWRs and a residual retained right, with the combined
        set having no greater capacity commitments than were required
        for the original rights.

    -   Once a translation is "certified", the right holder may (1)
        choose to do nothing and use its rights as before or (2) release
        the identified IWRs into an RCS auction for a specific period
        (for instance for all hours of the next day) and schedule its
        own use based on the residual retained right.

    -   A decision to offer rights in one auction, does not bind the
        right holder to offer in any future auction. For instance if a
        right holder offers IWRs for all hours of the next day in
        today's DA-RCS, it could subsequently choose not to release any
        IWRs tomorrow's DA-RCS and schedule using its original
        transmission rights.

    -   Scheduling flexibility for pre-existing rights can also be
        translated and released into the Daily Reconfiguration Service
        auction.

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a.  Treatment of Pre-Existing Firm Redirect Services

    i.  Under today's open access transmission tariffs, transmission
        customers may request that their Points of Delivery (PODs) and
        Points of Receipt (PORs) be changed or redirected to other PODs
        and PORs. Redirects are granted only if transmission capacity is
        available to enable the request. For the term of the redirect,
        the new points are firm.

    ii. When Grid West becomes the manager of available capacity for the
        Grid West Managed Transmission System, only Grid West will be
        able to make such availability determinations.

    iii. After Grid West is operational, Transmission Owners who receive
         redirect requests under pre-existing contracts will only be
         able to grant requests after Grid West has confirmed
         availability.

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b.  The white papers dealing with transmission right trading are:

    i.  *[Reconfiguration White Paper]{.underline}* -- Describes the
        implementation of the reconfiguration service: mechanisms for
        determining pre-existing obligations, auction rules and pricing
        of IWR sold and purchased.

        -   A series of auctions addresses different time periods:

            -   Annual for Monthly on-peak and off-peak products.

            -   Monthly for Monthly on-peak and off-peak products for
                the balance of the annual period of the auction cycles.

            -   Intra-monthly for Daily on-peak and off-peak products
                for the balance of a month.

            -   Daily for Hourly products for the next day.

        -   The Day-Ahead Reconfiguration Service (DA-RCS) will have an
            enhanced feature to enable trading of scheduling
            flexibility.

    ii. *[Rights Translation White Paper]{.underline}* -- Describes the
        processes used to identify the injection and withdrawal
        commitments associated with pre-existing agreements and
        obligations and allow pre-existing right holders to translate
        their rights into IWRs either in whole or in part for release in
        reconfiguration auctions.

    iii. *[Bilateral Trading White Paper]{.underline}* -- Describes the
         effects of current bilateral trading practices within the Grid
         West footprint and evaluates the impact of reconfiguration
         rights trading on such trade.

    iv. *[Redispatch White Paper]{.underline}* -- Describes the
        day-ahead redispatch service envisioned in the original Regional
        Proposal and explains how the objectives of day-ahead redispatch
        will be met by enhancements to the Daily-Reconfiguration Service
        without encountering the difficulties of reconciling day-ahead
        bids with real-time energy that were discovered during TSLG's
        Layer 1 work.

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4.  ***[Scheduling Related Processes]{.underline}***

    a.  Grid West will provide scheduling services for the use of the
        Grid West Managed Transmission System.

        i.  Initially the Transmission Owners will be determine
            compliance with pre-existing contracts and adjust their own
            use to keep commitments with the limits of the owner's
            system.

        ii. A transition of functions to Grid West will occur over a two
            year period.

    b.  The white papers on scheduling related processes are:

        i.  *[OASIS Management White Paper]{.underline}* -- Explains
            data and functional features of the OASIS used by Grid West
            for service requests, reconfiguration, scheduling and
            operational activities.

        ii. *[Outage Coordination White Paper]{.underline}* -- Describes
            the proposed Grid West process for coordinating outages with
            regional scheduling and consolidated control area
            operations.

        iii. [*Scheduling White Paper*]{.underline} -- Describes process
             and data needed by Grid West and market participants to
             schedule transactions including tagging requirements,
             timing requirements, etc. Describes the proposed process
             for adjusting schedules, after the completion of the
             day-ahead process but before the cut-off to real-time
             operations. Acceptance or rejection of adjustments being
             based on assuring reliable operation in real-time.
             Describes the checkout procedures required to insure
             accurate interchange and Net Scheduled Interchange with
             neighboring interchange authorities.

        iv. 

        v.  *[Losses White Paper]{.underline}* -- Describes the
            treatment of losses for pre-existing agreements and options
            for loss recovery methods that could be used for IWRs issued
            by Grid West.,.

5.  ***[Real-time Operation]{.underline}***

    a.  At the close of scheduling adjustments just prior to real-time
        operations, schedules will be handed-off to Control Areas for
        implementation.

    b.  The general white papers dealing with real-time operations are:

        i.  *[NERC Functional Model White Paper]{.underline}* --
            Describes proposed roles and responsibilities for Grid West
            and participants to meet the requirements of the NERC
            functional model.

        ii. *[Real-time Monitoring White Paper]{.underline}* --
            Describes the proposed real-time monitoring process
            including the data needed to support both reliability and
            market functions.

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4.  **Control Area Consolidation**

    1.  ***[Voluntary Control Area Consolidation]{.underline}***

        a.  The Regional Proposal[^15] noted that some of the
            Transmission Owners expected to be within the Grid West
            footprint, were discussing the possibility of consolidating
            their individual control areas. Grid West would provide the
            services needed by the consolidating parties to operate the
            Consolidated Control Area (CCA). The motivations of those
            considering participating in the CCA include reliability and
            operational efficiencies.

            i.  *[Reliability]{.underline}* -- Consolidation of control
                areas for volunteering Grid West transmission owners
                will put certain control functions for a substantial
                portion of the regional grid under a single operator who
                will have authority to take appropriate actions when
                needed. The need for wider visibility outside of
                individual control areas was identified as means of
                improving the capability of operators to make proactive
                adjustments to protect system reliability.[^16]
                Consolidation of control areas with an associated
                investment in infrastructure will be necessary to obtain
                this benefit.

            ii. *[Operational Efficiencies]{.underline} --*
                Consolidation is expected to reduce the total
                requirement for regulating reserves and balancing, due
                to diversity among the loads and generation within the
                CCA. Furthermore, the establishment of a market for
                providing the Integrated Operations Services (IOS)[^17]
                necessary for operating the CCA is expected to reduce
                the cost of these services.

            iii. *[Transmission Utilization]{.underline}* -- The CCA
                 will be able to make full use of transmission capacity
                 within its boundaries in real-time to follow load,
                 respond to contingencies, etc. without regard to
                 facility ownership.

            iv. In keeping with the voluntary nature of control area
                consolidation, each existing control area operator will
                make its decision about whether or not to join the CCA
                based it is own assessment of the benefits to be
                obtained.

    2.  ***[Grid West as a Control Area Operator]{.underline}***

        a.  Grid West will operate a Consolidate Control Area (CCA) for
            to those who voluntarily choose to consolidate control areas
            in order to obtain the benefits described in Section 4.1.

            i.  The IOS needed by Grid West for CCA operation are:

                -   Capacity arranged day-ahead to obtain contingency
                    reserve and regulating reserve needed for system
                    operations.

                -   Energy for balancing load, generation and
                    interchange in real-time.

            ii. Grid West will obtain IOS by operating markets since it
                is not an owner of nor in control of any the assets
                needed to provide these services. These markets will
                provide price transparency which will benefit both
                buyers and sellers and assist in market monitoring
                efforts.

                -   A Reserves Market will be used to obtain capacity
                    related IOS.

                -   A Balancing Market to obtain real-time energy for
                    balancing.

            iii. Grid West will encourage all market participants to
                 make offer to provide these IOS to the CCA. This should
                 provide a wider range of options with lower costs.

            iv. Service costs for CCA operation will be separated from
                other Grid West activities that apply to the entire Grid
                West Managed Transmission System.

        b.  The white papers dealing with reserves are:

            i.  *[Reserve Market White Paper]{.underline}* -- Describes
                the proposed operation of the reserve auction, including
                reserve requirements, limited offer obligations of
                consolidating parties, inputs and outputs to reserve
                market, locational nature of requirements and offers,
                etc.

            ii. *[Deployment of Reserves White Paper]{.underline}* --
                Describes the procedures to be used to deploy the
                reserves in real-time that were obtained through the
                Reserve Market.

            iii. *[Reserve Sharing White Paper]{.underline}* --
                 Describes the current reserve sharing agreements and
                 the role of Grid West as a control area operator in
                 future reserve sharing.

        c.  The white papers dealing with real-time operations within
            the CCA are:

            i.  *[Real-time Balancing Market and Dispatch White
                Paper]{.underline}* -- Describes the operation of the
                balancing market used to obtain balancing energy,
                including the nature and types offers, selection of
                resources, the command and control process for dispatch
                of resources selected to provide balancing, dispatch
                granularity, dispatch frequency, control signals process
                and routing, load following, AGC, etc.

            ii. *[Emergency Operations White Paper]{.underline}* --
                Describes the proposed emergency operations process
                covering topics that include contingency events,
                emergency levels, etc.

5.  **The Rest of the Story**

    1.  ***[Administrative Functions]{.underline}***

        a.  In order for Grid West to provide the services described
            above, a number of administrative functions must be put in
            place. While these functions may appear to be pedestrian in
            their nature, they are critical to success. Failure to
            render bills accurately, collect fees expeditiously and
            resolve disputes quickly can debilitate Grid West's ability
            to function.

        b.  The white papers dealing with administrative functions are:

            i.  *[Meter Data Management]{.underline}* -- Describes the
                proposed meter data management process, including SCADA
                vs revenue quality metering, load accounting,
                calibration, et.

            ii. *[Settlement and Billing]{.underline}* -- Describes the
                proposed process for settlement and billing for Grid
                West services and markets, including, settlements
                frequency, types of settlements, types of charges, roles
                and responsibilities for tariff billings, etc.

            iii. *[Invoicing & Payment Processing]{.underline}* --
                 Describes the proposed process for invoicing and
                 payments, including invoice frequency, late payments,
                 counter-parties, short-pay scenarios, etc.

            iv. *[Dispute Processing and Alternative
                Resolution]{.underline}* -- Describes the use of the
                Grid West ADR process for resolving settlement and
                billing disputes, including the resolution timelines,
                resettlement thresholds, etc.

            v.  

[^1]: Thomas P. Hughes, [Networks of Power, Electrification in Western
    Society, 1880-1930]{.underline}, Johns Hopkins University Press,
    Baltimore, MD 21218, 1983, pp. 282-283.

[^2]: "Regional Representatives Group, Regional Transmission Problems
    and Opportunities List, Organized by General Categories - Update and
    Accompanying Notes," August 14, 2003,

    <http://gridwest.org/Doc/RRGA_RefinedListClean_Aug142003.pdf>.

[^3]: Impedance is a measure of the opposition of an electrical element
    to a change in power flow in an AC network. It includes the effects
    of both the resistance and inductance, where inductance is a measure
    of the magnetic field effects created by current flowing in a wire.

[^4]: Loop flow or unscheduled flow is also called parallel flow within
    the industry. All three terms are equivalent.

[^5]: In spite of the difficulties of loop flow, no system every
    proposed cutting its interconnections to other systems. This is
    often unspoken testimony to the great value of interconnected
    transmission systems for both economic savings and system
    reliablity.

[^6]: Also called phase shifters or phase angle regulators, these
    devices installed in one of two parallel systems, can alter the
    apparent phase angle between their terminals and force (or draw)
    flow onto (or from) the parallel facilities.

[^7]: The flow-gate, physical rights model required each party to
    maintain a large, continually changing portfolio of rights on a set
    of critical flow gates. Limiting the number of critical flow gates
    to be considered was an approximation made to ease the user's
    burden. However by only considering a given set of identified
    constraints, adaptation was difficult as the system changed. If a
    new flowgate were deemed critical, each user's portfolios of rights
    would have to be restated each time a change occurred. However, the
    coupe de grace of this approach was the intractable problem of
    converting pre-existing rights to a distributed set of fractional
    rights. No unique set of such rights existed that would be agreeable
    to all parties.

[^8]: See Section 3.2a for more discussion on pre-existing transmission
    rights. Discussion of participation of pre-existing right holders in
    the Reconfiguration Services is provided in Section 3.3b and 3.3b.

[^9]: The term Available Transmission Capacity (ATC) has been used with
    the contract path model to designate an owner's uncommitted contract
    path capacity. In a flow-based method, the contract path no longer
    exists. Instead attention is termed to the amount of physical
    capacity on the critical elements or flowgates. Flowgate may be a
    single line or transformer or a set of parallel facilities that can
    be treated as a single network constraint. The uncommitted physical
    capacity of a flowgate is called Available Flow Capacity (AFC). AFC
    is not based on ownership but on actual network effects of a
    transmission reservation. A given injection-withdrawal right will
    result in commitments on multiple flow gates, however, the
    Transmission Customer is not required to manage these details.

[^10]: See the Tariff Administration White paper for further discussion
    of pre-existing rights and obligations, rollover, load growth, etc.

[^11]: The rate design for collecting the R3A will be covered by the
    Pricing Work Group.

[^12]: "Narrative Description of RRG Platform Group Regional Proposal",
    December 24, 2003, pp. 7-8,
    <http://gridwest.org/Doc/FinalNarrative_RegionalProposal_Dec242003.pdf>.
    The Regional Proposal described a Independent Entity (IE) that has
    since been given the name Grid West.

[^13]: These flexible scheduling rights include those used for native
    load service by Transmission Owner and the largest potential source
    of releases of existing scheduling flexibility.

[^14]: Headspace is a term used to describe the capacity set aside prior
    to an RCS auction to preserve pre-existing rights, including the
    scheduling flexibility (or optionality) of transmission right
    holders to change their schedules after the close of the day-ahead
    scheduling process.

[^15]: "Narrative Description of RRG Platform Group Regional Proposal",
    December 24, 2003, pp. 11-12,
    <http://gridwest.org/Doc/FinalNarrative_RegionalProposal_Dec242003.pdf>.

[^16]: "A principal cause of the August 14 blackout was a lack of
    situational awareness, which was in turn

    the result of inadequate reliability tools and backup
    capabilities... Improved visibility of the status of the grid beyond
    an operator's own area of control would aid the operator in making
    adjustments in its operations to mitigate potential problems. The
    expanded view advocated above would also enable facilities to be
    more proactive in operations and contingency planning." [Final
    Report on the August 14, 2003 Blackout in the United States and
    Canada: Causes and Recommendations,]{.underline} U.S.-Canada Power
    System Outage Task Force, April 2004 pp. 159-160.

[^17]: IOS are generation services that, when combined with transmission
    services create ancillary services.