#### Request for DOE funding of an:

#### 

#### Analytical Needs and Model Assessment Study 

#### 

#### 

#### Sponsored by BPA and WAPA in coordination with the 

####  Seams Steering Group -- Western Interconnection (SSG-WI) 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### Date: 11/29/03

#### 

#### Prepared by:

#### Dennis Phillips, BPA 

#### Chair, Model Improvement Group (MIG), 

#### a sub-group of the SSG-WI Planning Work Group (PWG) 

#### Introduction

BPA and WAPA are requesting DOE financial assistance to fund development
of the next generation in modeling tools and database systems that will
be used by transmission planners to support decision-making in the
21^st^ century.

New technologies in long--term transmission planning are needed because
existing state-of-the-art capabilities in Optimized Power Flow (OPF)
[^1] modeling have failed to address many of the key questions and
technical issues confronting today's transmission planners and
decision-makers. [^2]

The following proposal:

-   

-   Identifies and describes modeling and database deficiencies that
    restrict our ability to evaluate the economic, environmental and
    reliability tradeoffs between transmission and non-transmission
    alternatives.

-   Discusses a few of the enhancements and alternative approaches that
    have been proposed to correct these deficiencies and advance the
    state-of-the-art in long-term transmission planning.

-   Outlines a two-stage process that provides a framework from which to
    build the analytical tools and databases that will be required by
    tomorrow's planners and decision-makers.

-   Provides an organizational overview of SSG-WI and the history behind
    this proposal. Western interests in this proposal will be
    coordinated through the SSG-WI Planning Work Group.

## Organizational Overview 

## 

##  *SUGGEST* *MOVING* *THE* *3* *PARAGRAPHS (IN BLUE) TO THE END OF THIS SECTION. With SSG-WI in a coordination role, emphasis should first be on BPA and WAPA* *and their roles.*

SSG-WI has just completed its first comprehensive review of the Western
Interconnection transmission expansion needs for 2008-2013 entitled
"Framework for Expansion of the Western Interconnection Transmission
System, October 2003". This analysis expands on the August 2001 report,
issued by the Western Governors' Association entitled: "Conceptual Plans
for Electricity Transmission in the West".

During the course of the analysis, the SSG-WI Planning Work Group (PWG)
recognized that existing Optimized Power-Flow (OPF) models and database
tools do not adequately address some of the key questions and issues
confronting today's transmission planners and decision-makers[^3]. In
order to remedy this situation, the PWG created the Model Improvement
Group (MIG) and assigned it the task of improving the analytical
capabilities of transmission planning and decision-making within the
Western Interconnection.

However, given the scope of this project and recognizing that the
potential benefits of improved decision making extend beyond the borders
of the Western Interconnection, BPA, WAPA and SSG-WI are requesting DOE
assistance in funding this project.

All formal obligations, responsibilities and arrangements that normally
exist with this type of federal grant will exist exclusively between
BPA, WAPA and DOE as SSG-WI has no legal status or formal funding
mechanism. Therefore, BPA will be the formal contracting official,
having ultimate responsibility for monitoring all performance criteria
associated with this grant as well as any sub-contracts that may result
from this grant and ensuring the completion of the deliverables in a
timely fashion.

BPA and WAPA intend to conduct all aspects of this grant in a
collaborative and open manner so as to serve the interests of all SSG-WI
members.

BPA proposes that the organizational structure consist of BPA acting as
Project Manager, WAPA as co-sponsor with a Steering Committee which will
include SSG-WI representatives who provide guidance and oversight over
all aspects of the grant including its scope, terms, conditions, and
deliverables.

The contractors selected to implement the Stage 1 scope of work will
work closely with BPA, WAPA and the Steering Committee (hereafter
referred to as team members) to define the deliverables that address the
scope of work; however, the contractors will ultimately be responsible
for completing the deliverables in the specified timeframe.

### 

### **Project Overview**

This project involves a "two-stage" approach:

**Stage 1:** This stage pf the project focuses on an "Analytical Needs
and Model Assessment" study and consists of the following three-phased
effort:

-   Phase 1: This phase of the work will inventory the capabilities of
    existing modeling and database technologies and identify the future
    needs of long-term transmission planners and decision-makers in the
    western interconnection and larger electric industry.

-   Phase 2: Will identify, describe and compare the costs and benefits
    associated with each modification, enhancement, reformulation or
    alternative design that has the potential to better serve the needs
    identified in Phase 1.

```{=html}
<!-- -->
```
-   Phase 3: Will make recommendations as to which specific
    enhancements, formulations and designs should be pursued, estimate
    the cost and provide preliminary design specifications on all
    associated development, including descriptions of all conceptual
    algorithms, logic diagrams, database structures, etc.

> *(Note: Phase 1,2 and 3 are discussed in greater detail below)*

**Stage 2:** This is the development stage of the project in which Stage
1 concepts and preliminary designs are converted into the software and
database systems that future transmission planners and decision-makers
will actually use.

> The specifics of Stage 2 will be discussed once the deliverables from
> Stage 1 are completed.
>
> The remainder of this document will focus on providing a detailed
> description of the Stage 1 effort.

#### 

#### Stage 1- Statement of Work & Deliverables:

BPA/WAPA, in coordination with the SSG-WI, will select a team of
recognized experts experienced in mathematical modeling, hydro system
modeling, optimized power flow (OPF) modeling, decision analysis, risk
analysis, electricity market design and de-regulation to work in a
collaborative team with DOE and SSG-WI members on the following
three-phase project:

-   **Stage 1 - Phase 1 (defining the analytical needs)**

The team members shall identify a comprehensive list of the key economic
and physical data and decision criteria transmission planners and
decision-makers will need in order to perform the following functions
more effectively: evaluating long term tradeoffs between transmission
and non-transmission expansion alternatives, market monitoring,
coordinating annual transmission maintenance scheduling, maintaining
long-term reliability standards, evaluating long-term environmental
impacts, allocating costs/benefits equitably among individual
participants and providing ADR/litigation support.

The information contained in this list shall include units and ownership
and be of sufficient temporal and locational resolution as to meet the
following OPF output specifications:

1.  Locational marginal prices (LMPs) shall be available on an "expected
    value" basis, at all load buses at or above 115KV and throughout the
    Western Interconnection. These prices will be made available on a
    chronological, hourly basis over study horizons of up to 20 years
    and across multiple scenarios that factor in the short and long-term
    uncertainties shown below.

2.  Congestion costs shall be made available on an "expected value"
    basis throughout the study horizon and across all scenarios.

3.  All costs and benefits will be traceable to the individual owners of
    generators, transmission and loads, including those costs and
    economic benefits associated with transmission projects that have
    joint economic, reliability, and environmental benefits.

To some extent the Phase 1 process is already underway. The following
list discusses some of the potential improvements and future analytical
needs that were identified by the Model Improvement Group (MIG).

### Potential Model and Database Improvements 

1)  [Uncertainty:]{.underline} The internal decision logic of most
    existing optimized power flow models simply "knows too much" about
    future operating conditions when allocating hydro storage,
    committing thermal units, scheduling annual maintenance or expanding
    the system. This problem is especially pronounced when dealing with
    allocation decisions that have longer-term implications.

In reality, operators make decisions based on "forecasts" of future
operating conditions and prices. And since forecasts can turn out to be
wrong, operators make mistakes in allocating scarce resources. These
mistakes eventually manifest themselves as shortages and surpluses,
which leads to greater volatility in prices.

OPF models have difficulty emulating these realities (see: "curse of
dimensionality"), because doing can create a huge increase the
"dimensionality" of the problem.

As a result, OPF models produce prices that exhibit unrealistically low
volatility because they never over or under-build resource capacity,
sub-optimally schedule planned maintenance, under or over-commit
generation or misallocate hydro storage, etc.

A more realistic approach might be to incorporate uncertainty directly
into OPF internal decision-making logic as illustrated in the following
graphic.

2)  [Gaming/Strategic Bidding:]{.underline} OPF models have historically
    modeled perfect competition, which maximizes total social benefit
    but fails to account for market power and strategic bidding
    behavior. In reality, prices become extremely volatile whenever
    firms attempt to maximize profits by withholding generation. Hence,
    a more accurate pricing algorithm would incorporate economic
    equilibrium concepts such as those proposed by Cournot and Nash.

3)  [Hydro Modeling]{.underline}: Incorporate cascaded multi-dam hydro
    regulation logic directly into an Optimized Power Flow (OPF)
    formulation and simulate hydro operations using historical
    unregulated inflow data or with mathematically synthesized inflows
    that are derived from the historical record and correlated across
    space and time.

4)  [Resource Acquisitions:]{.underline} Because transmission and
    generation are both substitutes and complements, the same economic
    factors and reliability issues that drive transmission acquisition
    decisions also affect resource acquisition decisions, and vice
    versa - it's a classic "chicken & egg" situation. Consequently both
    strategies need to be developed in a consistent manner so as to not
    introduce a bias in study results.

"Hardwiring" new resource acquisitions may be a viable option when
analyzing only a few scenarios or a single year. However, this approach
becomes unwieldy and probably infeasible when the study horizon spans
multiple years or if Monte Carlo techniques are adopted to simulate
long-term uncertainty in fuel prices, loads and hydro conditions. A more
practical solution may be to incorporate "optional" resource acquisition
logic directly into the OPF formulation.

5)  [Bus Bar Loads:]{.underline} Bus bar loads are a major part of the
    dispatch equation and yet they are probably one of the weakest links
    of the input-data chain. Bus bar loads used in today's OPF models
    are an amalgamation of data derived from various sources in an
    arcane process that begs to be streamlined. Sources include: state
    regulatory filings, WECC power-flow studies and proprietary sets of
    historical data. And, when historical load data is available, its
    value is sometimes questionable due to changing consumption
    patterns.

As a result, existing OPF technologies fail to capture the spatial and
temporal variability one would expect to observe over study horizons
that span multiple years and many scenarios. Improvements might include:
developing a stochastic process for synthesizing bus bar loads that
actually reflect the spatial and temporal variability one would expect;
correlating load data to other phenomena such as runoff, precipitation,
economic growth, fuel prices, etc.; and simulating extreme load events
that stress system performance, e.g., extreme heat wave or cold wave
scenarios.

6)  [Ownership/Property Rights:]{.underline} Existing OPF models do not
    track costs and benefits to the individual buyers and sellers at
    each node or even within a given area. Therefore, decision-makers
    are limited in their ability to answer one of the most fundamental
    questions being asked, i.e., Who are the winners and losers and by
    how much are they impacted by any given transmission decision?

7)  [Modeling of Wind:]{.underline} Gathering additional historical data
    on site-specific temporal characteristics of the wind, as well as
    developing more sophisticated models to simulate the performance of
    wind plants on an hourly basis.

8)  [Marginal Losses:]{.underline} Incorporating marginal losses into
    OPF dispatch logic may be an improvement worth pursuing because
    marginal loss rates can create large LMP differentials that, when
    ignored, can lead to inefficient dispatch and resource siting
    decisions.

9)  [The "Curse of Dimensionality":]{.underline} Existing modeling
    algorithms are challenged by the huge *dimensionality* of the
    problem of simultaneously optimizing the operation of large nodal
    networks of thermal generators, cascaded hydro plants, storage
    reservoirs, loads and transmission elements with hourly detail over
    long periods of time and doing so while representing all of the
    uncertainties described above. To overcome this challenge two
    techniques are commonly employed:

a\) Reducing or "equivalencing" the electrical grid into simpler
representations.

> b\) Reducing the number of scenarios or future outcomes in loads,
> hydro inflows, fuel prices and resource scenarios to a manageable
> level that is within existing computer processing and model
> formulation capabilities, (e.g., latin square).

However, these approaches are time consuming to implement, difficult to
perform accurately, subject to error and analytically flawed when it
comes to representing decision making under uncertainty. They also come
at a high cost -- i.e., the inability to measure or "see" the physics
and economics of system operations with the resolution that will
actually shed light on the questions decision-makers are asking.

Hence the team members may need to conduct a thorough review of the
underlying methodologies and formulations, especially with respect to
their practical ability to handle the huge dimensionality of this
problem in an internally consistent manner.

-   **Stage 1- Phase 2 (inventory existing modeling &**

> **database capabilities)**

The team members shall identify and document the ownership,
characteristics, structure, attributes, accessibility, and relationships
of existing OPF databases and tables that are used or can be used to
generate OPF input data files. Team members shall identify and document
missing OPF data, poor quality data, and data inputs that are
inaccessible for proprietary reasons.

In addition the team members shall conduct a thorough review of existing
commercial OPF models and their capabilities, including input-output
systems and graphical user interfaces. This review will evaluate and
document model formulation technique, algorithms, modularity,
scalability, unique features, input-output and report-writing
capabilities, technical support, cost and ease of use.

The team members shall evaluate, compare and contrast and document all
attributes and/or deficiencies of existing models and databases.

Special attention shall be paid to each model's ability to satisfy one
or more of the "opportunities for improvement" noted above, especially
its ability to handle the huge dimensionality problem created by this
type of modeling problem.

-   **Stage 1 - Phase 3 (Recommend improvements &**

> **remedies for existing deficiencies)**

Team members shall identify and document all suggested enhancements,
designs and re-formulations that could remedy any of the deficiencies
noted in Phase 2. These remedies could be limited to projects that
enhance existing data collection systems, projects that improve on the
capabilities of existing OPF models, or that involve new development
efforts.

The team members shall provide detailed descriptions, cost estimates,
flowcharts and logic diagrams of all proposed enhancements and
formulations. This information shall be conveyed at an intuitive level
that can be understood by industry decision-makers, and at a technical
level that will be useful to the practitioners of decision analysis and
OPF software design.

In documenting these enhancements, re-designs and re-formulations, the
team members shall also provide intuitive explanations that explain how
and why such modifications will improve on existing database and
modeling techniques.

**Stage 1 -- Timelines/cost:**

Team members shall commence work on Stage 1 as soon as the contracting
process allows and the final report will be due to DOE and SSG-WI
members no later than one year after the initiation of work.

Up to \$500,000 of grant money is currently being requested from DOE to
conduct Stage 1 of the project.

Note: As noted above, the total cost of Stage 2 is difficult to
estimate. However, BPA/WAPA may eventually seek an additional \$3-5
million from DOE for Stage 2 in order to implement Stage 1
recommendations. BPA/WAPA may also approach DOE with a collaborative
proposal that could include a number of different participants
contributing either direct funding or work-in-kind.

[^1]: In this document "OPF" will henceforth refer to models that
    optimize generation dispatch subject to the physical operating
    constraints of the system and while conforming to Kirchhoff's
    electricity laws.

[^2]: See below :"Potential Model and Database Improvements"

[^3]: See below :"Potential Model and Database Improvements"