# Possible Points on Western Market Differences

## Three step progression or priority

> RTO West certainly wants excellent economic characteristics and
> performance. But, we cannot skip over necessary elements to get there.
>
> Acceptable to the region
>
> Safe / secure
>
> Economic optimization

## Distance does matter -- to economic performance

[Not]{.underline} because of the usual reasons (stability, voltage,
etc.)

> We have a good rating process
>
> We know how to apply safe limits and operate within them

Our distances are extreme -- therefore, extreme sparsity

Idaho Power has a peak load of 3000 MW, probably less than a single city
in PJM. Our transmission system extends from Jim Bridger in central
Wyoming to La Grande Oregon. If Bridger were placed in Washington DC, La
Grande would be about halfway from Detroit to Chicago.

Sparsity affects how much transmission capacity we have and the use of
the capacity

> Long distances make transmission relatively expensive per amount of
> load
>
> A consequence is we work the transmission real hard
>
> System is not overbuilt with lots of spare capacity
>
> Operate frequently at or near limits
>
> Example: PJM has 51,700 MW of load and two commercially significant
> constraints (3 hubs). Idaho Power has 3000 MW of load and seven
> commercially significant constraints

Result = thin markets for redispatch

There are so many constraints in so many places, it is very common that
there are only a very few generators that can effectively relieve a
congested constraint by changing production. This is unlike eastern
markets where there is likely a good choice among many effective
generators. PJM has over 200 generators, which almost assures there to
be a choice of generators downstream of a constraint during congestion.

> The geographic sparsity of the Northwest creates the additional
> difficulty that ownership tends to be concentrated. When you are
> trying to redispatch out of a problem, you look around for what
> generators can help and you find that not only are there not very many
> of them, but also one company owns them all.
>
> This means we have to be very careful about market power and market
> monitoring. Probably more so than in the east

## How hydroelectric generation is different

**Storage:**

> Because of large energy storage, the marginal cost of hydro cannot be
> determined by looking at plant operating costs (fuel etc.). The
> immediate marginal cost is an opportunity cost representing the
> difference between generating now and generating later. Sometimes this
> is months later, or even more than a year later. Owners can reflect
> this in their bid prices easy enough, but market monitors cannot
> easily tell whether this is close to a cost based bid.

**River Linkages:**

> Often in our area two generators on opposite sides of a constraint are
> on the same river. If the plan is to dec the upstream plant and inc
> the downstream, there is a problem because the dec takes away the
> water the inc needs. Point is that the two prices are linked. A bid on
> one side affects the price that can be bid on the other side.
> Traditional LMP does not have to cope with linked Locational prices.

**External Constraints**

> Safety, Fish, Recreation, Etc. Thrust is, owners cannot shirk ultimate
> responsibility. Sudden changes in water flow endanger the lives of
> boaters, fishermen, and others on the river. People have died and we
> are unwilling to take chances. Water flow is also critical to a myriad
> of other things, like fish and transportation. A transmission operator
> or tight pool cannot be left to run hydro however some grid
> optimization routine comes out. There are extreme circumstances where
> water control is a safety issue that supercedes even load service.

**The Hydro Bottom Line**

> Hydro has operational features that will make it extremely difficult
> to judge whether its economic behavior in the market is reasonable.
> This will really complicate the life of a market monitor. Bid prices
> cannot be easily compared to some kind of cost basis because bids are
> estimates of future opportunity costs and locational prices interact.
> Economic withholding cannot be fairly assessed because of the
> complexity of water flow constraints. These would not be fatal flaws
> in an LMP system if the total quantity of hydro production was a small
> fraction of the total market (maybe like 10% or less). In the Pacific
> Northwest, hydro production is more like 60%. Its economic behavior
> will present major market design challenges. We cannot afford to
> afford to just adopt a CM model from a thermal market whole-cloth.

## A Political Dimension

> Cannot even get started (make a filing) without a framework that the
> region can accept. This means the whole region, not just the utilities
> -- it includes customers, state regulators, political leaders, etc.
>
> Northwest has the lowest prices now. We were clearly in the "show me"
> crowd at FERC RTO week. See also the delegation letter. We must
> convince key decision makers that an RTO is a good idea, benefit cost
> is important.
>
> We are already carrying some baggage -- tangible costs and intangible
> benefits. RTO West has its own operation costs, which are likely to be
> substantial. We are also considering some cost sharing (uplift) in
> pricing and maybe in congestion management. These threaten to further
> increase costs.
>
> Cannot afford to further weaken the RTO position with a congestion
> management model that poses a threat to take away, or degrade, rights
> necessary for load service
>
> Northwest has low prices in large part because of the hydro system --
> one of the benefits of hydro is flexibility -- if we lose this
> flexibility by inappropriately managing transmission rights the
> northwest can lose some of the value of its hydro
>
> A consequence of forming an RTO cannot be that, overall, the retail
> customers in the region think they are worse off. If that is the
> perception, we are unlikely to get to first base.

## Another Point

PJM was built on the foundation that they had, we also need to build
from our existing foundation. PJM had a tight pool. we have a bilateral
market.