# Presentation: 290624

## Status of Efforts to Establish Resource Adequacy Metrics/Targets

**Mary Johannis**
**BPA Industry Restructuring, Resource Adequacy Lead**
**October 18, 2004**

## Topics

- What is Resource Adequacy (RA)?
- National and Western Drivers for RA Metrics and Standards
- North American Electric Reliability Council’s (NERC’s) Resource and Transmission Adequacy Task Force (RTATF) Report
- RA Standard Authorization Request (SAR) Status and Standard Development Process
- Western Electricity Coordinating Council’s (WECC’s) Development of Resource Adequacy Criteria Process
- WECC and State Coordination on Resource Adequacy
- Northwest Power and Conservation Council’s (NWPCC’s) Fifth Power Plan

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Resource and Transmission Adequacy

**Key to keeping “Lights On”**
**Prerequisite for Well-Functioning Markets**

- Resource Adequacy

- Transmission Adequacy

- Power System Adequacy

- Power System
- Reliability;
- Operational Adequacy

- Well-Functioning
- Electricity Markets

- Timeframe

- 1 – 10
- Years out

- Within Year

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Resource vs. Operational Adequacy

**Operational Adequacy**
- Near-term—next days, next month, next season
- Plan for extreme events such as cold snaps
- Assessments start with existing hydro conditions
- Forums to deal with emergencies e.g. Energy Response Team
- Contingency Reserves: 5%/7%/5%  hydro/ thermal/ wind--for resources serving firm load
- Reserve sharing
- If generation insufficiency, no time to construct new power plants

**Resource Adequacy**
- Long-term time horizon  1-10 years out
- Plan based on medium load forecast
- Adverse hydro assumed
- Sufficient time to construct new resources
- Before 2000, WSCC (predecessor of WECC) had planning standard—not now
- Most PUCs have guidelines for IOUs
- BPA has internal standards
- Many Public Utilities have their own IRP processes

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Momentum Building for Resource Adequacy /Metric Standard

**Post-2001 Energy Crisis Resource Adequacy Issues:**
- In 2001, critically dry hydro conditions in Western Markets caused an energy rather than a capacity crisis characterized by energy shortages over prolonged time periods rather than lack of capacity during peak hour of day 1/
- Western Interconnection supply adequacy has typically been measured based on peak capacity metric and not considered the energy aspect of resource adequacy
- In 2001, market prices incentivized new construction, but lag time to complete Generation Infrastructure is unacceptable because electricity is a Unique Commodity that is not easily stored and must be supplied instantaneously to exactly meet Load at the Location of the Load
- 1/*** ****The Western Energy Market: Inherent Risks and Market Solutions *by Jeffrey D. Roark

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Momentum Building for Resource Adequacy Metric/Standard

- Demand-side Management can help, but may not completely alleviate need for new generation
**Public has little tolerance for high and volatile market prices over a prolonged period**
- Market manipulation points to need for Market Monitoring to go hand-in-hand with Resource Adequacy Framework
- Merchant power industry needs long-term contracts in order to secure bank financing of new generation infrastructure
- Transmission & Natural Gas infrastructure investments are also necessary to ensure deliverability and fuel supply for new generation
- Adequate Power System Infrastructure are prerequisites to well-functioning Electricity Markets

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Drivers and Forums

- 2001 Energy Crisis

- August 2003
- Blackout

- NWPCC
- Power Supply
- Adequacy Forum

- CA Enforceable
- Resource Adequacy
- Standard

- : Resource Adequacy
- Work Group

- FERC’s SMD/WMP

- NERC’s
- Resource and
- Transmission Adequacy
- Task Force (RTATF)

- National Legislation

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## RTATF Report

- NERC approved RA Recommendation #1-4:
**Recommendation #1:**
- Each Region to establish probabilistic-based RA Criteria
-  Consistent with established state or provincial RA criteria or requirements
- Each Region or sub-region to establish RA Requirements such as reserve planning margin
-  Consistent with the Regional Criteria
-  RA requirements may be established by ISO/RTOs that span multiple Regions, so long as those requirements comply with the resource adequacy criteria of each such Region
- Region or sub-regions should be accountable and/or hold the control areas, individual systems, or other subdivisions accountable for compliance with the RA requirements
- Each Region to demonstrate periodically that Regional RA Requirements satisfy the applicable RA Criteria

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## RTATF Report

**Recommendation #2:**
- Results of all Regional RA assessments are to be made public
-  Confidential data which supports the assessment may not be made public
**Recommendation #3:**
- NERC to perform periodic audits to validate the compliance of the Regional RA Requirements with Regional RA Criteria
**Recommendation #4:**
- NERC, in conjunction with the Regions, to conduct periodic reviews of Regional RA Criteria to evaluate
-  Their impact on adjacent Regions
-  The treatment of contract considerations
-  The deliverability of resources to load

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Resource Adequacy SAR

- On June 15, 2004 NERC Board approved RTATF Report and directed Resources Issues Subcommittee (RIS) to draft a SAR recognizing the elements of recommendations 1, 2, 3, and 4 for submittal to the Standard Authorization Committee (SAC) by October 2004
- Status of Resource Adequacy SAR:
- RIS established drafting team
- SAR is in preliminary drafting stage; intent to present to NERC PC in November and then have NERC post SAR
- Decision to include Recommendation 4 from *Gas/Electricity Infrastructure Task Force Report, *which is to draft standard recognizing the role of fuel infrastructure in resource adequacy
**Submittal of SAR into NERC process is just starting point:**
**Official SAR drafting team**
**Then Standard Process**

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Standards Process Overview 

**Submit Standard Authorization Request (SAR)**

**Post SAR for Comment              **

**Solicit Participants for Ballot Pool and Drafting Team**

**Authorize Drafting Standard**

**Draft Standard**

**Post Draft Standard for Comment**

**Conduct Field Tests (if needed)**

**Analyze Comments & Field Test Results**

**Ballot Draft Standard**

**Adopt Standard **

**Implement Standard **

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## What is a SAR?

- Why spend so much time developing a *request for a standard?*
- SAR determines:
- Scope of standard to be developed
- Need for standard
- Functions to which standard applies
- Reliability and Market Interface Principles are met
- Regional differences

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Standards Process Roles

- Standards
- Authorization
- Committee

- StandardsProcess
- Manager

- Drafting
- Teams

- Standards
- Ballot Body

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

##  WECC & Resource Adequacy

- The predecessor of WECC, the WSCC had a Power Supply Adequacy Standard until 2000, when it was deemed to be inconsistent with deregulated markets
- WECC continued to develop Power Supply Reports
- These reports did not alert the Western Interconnection (WI) to a problem in 2001 in large part because the summer peak hour capacity metric is not sufficient to judge whether WI is Resource Adequate
- The WECC Board subsequently decided to make the development of Resource Adequacy Criteria an important goal for FY 2004.
- WECC’s Reliability Subcommittee (RS) established Resource Adequacy Workgroup in April 2004 to formulate recommended Resource Adequacy Criteria

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## WECC’s Resource Adequacy Workgroup (RAWG)

- Workgroup includes WECC staff, Utilities (IOU and public)—generators and transmission owners, State regulators and energy offices, Federal power marketing agencies, Merchant power entities, Renewable & other energy interests
- 4 meetings held to date; next meeting on October 28
- Analytical Subgroup established
- 3 Phase Work Plan and Schedule established
- Scope, Approach and Building Blocks = Principles agreed upon
- Draft Analytical Options and Criteria to evaluate Options formulated
- Report Outline accepted by Group
- Report due to WECC RS in beginning of December

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Approach and Scope

- WECC to develop RA criteria to evaluate whether WI and/or sub-areas are RA; States would be in the position to use this information to implement RA Criteria
- Results of RA Assessments need to be presented at sufficient level of granularity to be useful to State Regulators
- Approach to recognize the interrelationship among resource and transmission adequacy and natural gas infrastructure, but focus on resource adequacy
- Develop Common Definitions for Load and Resource Parameters either on a sub-regional basis, or for the entire WI
- Formulate a draft Metric or Metrics
- Test the Metric(s) to determine whether WI is adequate based on the Metric(s) and Formulate Numerical Resource Adequacy Targets
- Address Confidentiality of Information Concerns

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Approach and Scope

- Specific Considerations in Developing RA Criteria for the WI:
- Need for linkage between WECC RA Criteria and utilities’ Integrated Resource Plans (IRPs).  WECC will look to the states and local jurisdictions to approve IRPs that will result in the Western Interconnection being resource adequate
- WECC is by far the largest and most geographically diverse council, Multiple Metrics and Targets are likely to be necessary, which means Seams Issues (e.g. imports/exports among sub-regions) become very important
- Selection of RA Targets needs to consider the value (e.g.  reducing risk of insufficiency) with the cost of resource infrastructure to achieve the RA Target
- Need to consider WECC resources (staff and funding) in recommending metrics, targets and possible tools with which to evaluate resource adequacy

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Building Blocks

**Tools:**
- need better tool(s) to do energy assessments & evaluate probabilistic metrics
- evaluate the appropriateness, cost, and feasibility of power system assessment models
**Data Collections Standards:**  Develop common standards for load and resource data collection that
- build on the existing WECC loads and resources (L&R) data submission processes
- support the selected analytical methods and models
- provide a consistent set of data for analysis
**Adequacy Metrics and Targets:**  Consider the relevant deterministic and probabilistic reliability metrics and targets
- how can they be applied at the regional and sub-regional levels
- How to ensure that sub-regions are not inequitably leaning on one another

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Building Blocks

**Role of Reserve Margins:**
- gain a better understanding of the benefits of avoiding outages versus the cost of capacity to meet reserve planning targets or other RA targets
**Fuel Supply:**  Explore how potential shortages in gas (or other fuels) or constraints in the delivery system for that fuel affect the assessment of resource adequacy:
- natural gas infrastructure disruptions
- natural gas supply shortfalls under severe weather conditions
- environmental constraints on the operation of gas-fired plants
- Hydro and wind fuel limitations

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Building Blocks

**Flexibility:** Need flexibility in loss-of-load probability (LOLP) or other probabilistic planning techniques to reflect demand-side management resources, etc:
- need to model the willingness of customers to drop loads in response to high market prices
- look at correlation of these conditions with operating and planning reserve shortages.
**Transparency:**  Ensure that the modeling techniques are sufficiently transparent:
- to allow results to be independently evaluated using different techniques
- to be understandable by regulatory commissions and other planning agencies with which WECC must work cooperatively to facilitate implementation of resource adequacy targets

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Slide 21

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Institutional Landscape for RA

**FERC**

**States**

- (Possible Future Mandatory Role if Reliability Legislation Passes)

- (IOU Cost Recovery)

- PUCs

- Energy Offices

- NW Power
- Council

- CREPC

- 1/

- 1/ Committee on Regional Electric
-  Power Cooperation
- 2/ Westwide Resource Assess-
- ment Team

- WRAT

- 2/

**Power Supply**
**Adequacy Forum**

**CA Enforceable**
**RA Standard**

**NERC**

- (Voluntary)

- Regional
- Reliability
- Councils

**WECC**

- Planning Coordination
- Committee

- Reliability Subcommittee

- Resource Adequacy
- Workgroup

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## WECC and State Coordination on Resource Adequacy

- State PUC Role is to grant cost recovery to IOUs for acquisition/construction of resources
- PUCs are logical agencies to implement RA criteria
- May modify criteria to reflect State priorities
- Multi-state entities such as Northwest Power and Conservation Council have important role in recommending/coordinating RA targets for the areas under their purview
- WECC-CREPC Coordination on RA is ongoing
- The lack of a mechanism to ensure that non-jurisdictional agencies comply with RA Targets is an outstanding issue

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Northwest Power Planning Council Resource Adequacy Forum

**NWPPC initiated Power Supply Adequacy Forum in 2003:**
- Agreement that a Resource Adequacy Metric is needed; however no consensus on enforceable RA Standard.
- The NW region and its utilities need to ensure that a standard appropriately considers the dominant influence of hydro resources.
- There needs to be further clarity on the obligation to serve.
- Consistency of reporting though the Power Pool to WECC is the first step.
- Work with WECC to develop west-wide view of regional conditions.
**Develop Draft Northwest RA Metric.**

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

**Notes:**
 Concern that NW could repeat 2000-01 Energy Crisis without resource adequacy mechanism in place.
 Renewed interest in integrated resource planning on part of LSEs and state regulatory commissions.
(3) Desire to demonstrate to FERC that NW has initiated regional resource adequacy process to preclude FERC from advancing one-size-fits-all SMD approach for NW. 
Concerns that a standard approach would not account for the capacity rich, but energy limited hydro system (NE example of “run of river” natural gas)

## Historic NW Energy L/R Balance based on Critical Water(PNUCC Data)

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## Interregional Transfers Important for Resource Adequacy/Reliability

- NWPPC Loss of Load Probability Analysis shows the importance of Imports for NW Resource Adequacy
- Summer NW Exports to California also continue to be important for California’s Resource Adequacy
- NW monthly load shapes and shape of hydro-generation conducive to mutually beneficial seasonal exchanges/transfers
- NW Hydropower ability to ramp up/down quickly helps maintain reliability of entire interconnected grid

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

**Notes:**
Historically the region suffers no reliability crisis even when capability drops below critical – SW imports make up the difference.

Loss of load probability (LOLP) is the likelihood that service to electricity customers will be curtailed (this includes reserve violations).
A 5 percent LOLP means that a portion of the region will experience a “significant” curtailment only once in twenty years, on average.

Example of light plane that recently crashed into a 500-kilovolt transmission line north of Los Angeles
Sent tremors through the entire Western power grid through frequency drop
CalISO asked for 500 MW of Grand Coulee Power, which stabilized the frequency

## Implications for 

- A reasonable assumption is that 3,000 MW Surplus Capacity is available from outside the NW over the winter period
- This assumptions yields an acceptable LOLP (5%) in a scenario with a 1,000 aMW L/R deficit.
- The NW could plan to a critical-water L/R deficit of 1,000 aMW and still maintain a reliable power system,
- Described differently this would mean planning to a zero L/R balance under BETTER than critical water conditions.

**Implications for **
**a Physical NW RA Metric**

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## SW Surplus Winter Capacity Needed for a 5% LOLP as a function of Adverse Hydro

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004

## NWPCC 5th Power Plan:Physical vs. Economic Adequacy

- Physical

- Economic

- Economic

- Physical

- Economic Risk dominated by market risk – additional resources dampen market risk more than they increase capital risk

- Economic Risk dominated by capital risk – doing
- more than necessary to assure physical adequacy increases economic risk

- WPS Forum: NERC & WECC Resource Adequacy Efforts

- November 8, 2004