# Presentation: 520016

## PNUCC Board of Directors Meeting

- Regional Resource Adequacy
- June 4, 2004

## Is the Time ripe for a Resource Adequacy Framework in the NW?

- Adequacy = Key to Keeping Lights ON & Electricity Market Prices REASONABLE

- Resource Adequacy

- Transmission Adequacy

- Power System Adequacy

- Power System
- Reliability;
- Operational Adequacy

- Well-Functioning
- Electricity Markets

- Timeframe

- 2 – 10
- Years out

- Within Year

## 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

##     2001 Energy Crisis exposed Post-Deregulation Adequacy Challenges

- Disconnects
- Transmission and Resource Planning not integrated in new paradigm
- Retail Access results in Lack of Clarity regarding Load Serving Obligation
- No Regional Adequacy Standard/Metric
- Without adequate Market Monitoring, Market Manipulation may create situations of Artificial Generation Insufficiency
- High market prices incentivize Construction of New Generation; however, 2 year construction period constitutes an unacceptable lag time
- Demand-Side Response may not entirely address Immediate Problem
- Public has little patience with High and Volatile Electricity Prices
- Price Controls Distort Incentives

##  Resource Adequacy (RA) Challenges

- SOURCE: 3/10/03 Standard & Poor’s Utilities and Perspectives Article “Merchant Energy Survival Hangs on the FERC’s Blueprint for Market Design”

- Merchant Plant Financing Issues:

- Many merchant generators are experiencing Credit Problems making it unlikely that they will build resources to meet loads without long-term contracts

## RA Challenges

**RA Challenges**

- In Northwest, additional issue is that in 3 years out of 4, hydro-generation could economically displace some gas-fired generation

## RA Challenges

- NATURAL GAS ISSUES:
- Lack of storage sites
- U.S. produces nearly 90%; Canada remainder
- U.S gas fields have matured
- More drilling and investment is required
- more remote supplies require more infrastructure
- long lead times
- increased capital requirements
- higher estimated costs than conventional gas supply
- Pipeline Infrastructure needs to be expanded
- Competition between natural gas for direct use vs. electricity
**Prognosis = Higher Prices for Natural Gas and Electricity**** **

## RA Challenges

- TRANSMISSION ISSUES:
- Lack of Transmission Investment has resulted in Congested Transmission Systems
- PNW: Puget Sound Area, Cross-Cascades, West of Hatwai, North of John Day, South Alston
- California: Path 15, Path 26 & Intertie to Arizona
- Difficulties in Constructing New Transmission
- Lack of regulatory certainty
- Allocation of responsibility for new lines
- Lack of funding
- Siting issues—differing multi-state jurisdictions
- Lack of Coordination between Transmission and Resource Adequacy Efforts

## Establishing RA Frameworks

**Momentum Building for RA Frameworks**
- National Reliability Legislation Proposed—Drivers=2001 Energy Crisis and August 2003 Blackout
- FERC’s Standard Market Design included RA Standard; since then Regional Approach OK’d
- NERC’s RTATF Found:
- 8 out 10 Reliability Councils have Resource Adequacy Standards
- Criterion: LOLP=10% or LOLE 1 day/10 years
- Translates into requirements such as reserve margin or load/ resource balance expectation
- Recommendations:
- Each Reliability Council to establish RA Criteria
- Consider already established Province/State/Sub-Regional RA Criteria

## Establishing RA Frameworks

- New WECC RA Work Group to address WECC’s 2004 Goal to establish RA Criteria
- First Meeting on May 19, 2004
- Build on resource adequacy efforts in CA and NW
- Formulate draft metric or metrics and targets that indicate Western Interconnection (WI) is resource adequate
- Assess whether metric and targets constitute WI RA
- Next Meeting: June 17; 10-3; PDX Conference Center
- NWPCC Power Supply Adequacy Forum looking at RA Standard/Metric for NW
- Two meetings of forum pointed to formulation of NW resource adequacy metric as first step in RA Framework
- First NW Resource Adequacy Metric Meeting held on January 30, 2004
- Small Workgroup formed to develop and evaluate draft NW resource adequacy metric

## Definitions & Status

**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  1-3 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
- No explicit resource adequacy metric in place for Northwest

## Historic NW Energy L/R Balance(PNUCC Data)

**Notes:**
During the 1980s, the region experienced a surplus of firm generating capability. Little resource development was done. Efforts went into managing the surplus.

By about 1990, the surplus was gone and talk of deregulation became more prominent. Also, several species of salmon were listed under the ESA, which prompted a more constrained hydro operation and a reduction in overall hydro generation.

Even though the load/resource balance was continuing to decrease, no one was particularly alarmed. The region was counting on being able to “share” resources with the southwest, since their peak demand season is late summer and the Northwest’s peak season is winter. 

With the onset of deregulation, utilities and IPPs were reluctant to build new resources because of the financial risk. 

By the late 1990s it became evident that if something were not done soon that the Northwest’s electricity system would not longer be adequate.

## What, Me Worry?

- Nearly 4,000 aMW more energy under average water conditions (vs. critical).
- Over 6,500 MW of transmission capacity connecting the northwest and the southwest.
- Southwest **winter** surplus generating capacity is forecasted for some time.

## Estimated California Surplus(2003 CEC data – may be optimistic)

## What Happened Since 2000?

- NW demands dropped by over 2,000 aMW (mostly DSIs)
- Added over 3,000 aMW of new generating resources*
- Turned a forecasted annual L/R deficit of 4,000 aMW into about a 1,000 aMW surplus

***Much of this new generation comes from IPP resources, which we assume are uncommitted and would be available during emergencies.**

## Forecast NW Energy L/R Balance(medium forecast, critical water)

## Relationship BetweenAnnual L/R BalanceandLOLP

## Loss of Load Probability

- 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.

## Sample Curtailment Events(1973 water condition)

- Each event has a peak and duration.

## Loss of Load Probability

- Simulated 300 winters (December through March)

- Out of 300 winters, 15 had an average curtailment greater than 10 MW-seasons, which means that the
- Winter Loss of Load Probability (LOLP) = 15/300 = 5 percent

**Notes:**
One way utilities historically have thought about generation reliability is loss of load probability.  LOLP is the probability that generation will be insufficient to meet demand at some point over some specific time window.
We’ve defined the winter months, December to March as the time window, and in 300 simulations, examined 36,300 days. 
Any reliability event in any hour of a winter (regardless of size or duration) causes a winter to be recorded as one in which load was lost.
Out of the 300 winters simulated, resources were insufficient to meet needs, including reserve requirements, one or more times in 52 of them, resulting in an LOLP for winter of 17.3 percent.

We also examined the daily loss of load probability in the worst month, February.  Of the 8400 days examined, 252 or 3 percent had some curtailment.  

## Loss of Load Probability

## Characteristics

- Annual L/R Balance is a static tally of resources and loads.
- L/R balance is well understood and easily calculated.
- LOLP is a dynamic assessment of load serving capability.
- LOLP is more complicated to understand.
- A simulation model is required.
- LOLP is a function of available imports.

## Transmission Modeled in GENESYS

- NW region includes: East (E)                   West (W)             Captain Jack (CJ)
- Solid** **lines indicate transmission into and out of the region

**C**

**E**

**W**

**CJ**

**SW**

**NC**

**SC**

## LOLP vs. Imports(Constant L/R Balance Curves)

## Imports Required to Maintain a 5% LOLPas a Function of L/R Balance

**Does not cross zero, which means that we need imports even when L/R = 0**

## Implications for NW Planning

- Planning to a “critical water” standard and a zero L/R balance while assuming that no imports are available is too conservative (and costly).
- Assuming that the entire projected SW winter surplus is available for import is too risky.
- Somewhere in between these two is appropriate, for example...

## Implications for NW Planning

- ... using a conservative assumption about **average** SW imports (say 1,250 MW/month which assumes 3,000 MW Surplus Capacity over the winter period) yields an acceptable LOLP (5%) in a scenario with a 1,000 aMW L/R deficit.
- In this example, the region could plan to a critical-water L/R deficit of 1,000 aMW and still maintain a reliable power system,
- or, it could choose to plan to a zero L/R balance but based on a water condition better than critical.

## Illustrative Example Only

**1000 aMW Deficit Planning Assumption Yields Adverse Hydro **
**DEFINITION of 86%**
**Exceedence**

**86%**

**1000**

**Notes:**
This slide shows that if the import assumption is 1000 aMW—then adverse hydro can be defined as the generation and capacity associated with the 86% runoff exceedence condition on the Columbia river, which equates to water conditions similar to those that occurred in 1973.

## SW Surplus Winter Capacity Required to Maintain a 5% LOLP as a Function of Adverse Hydro*

- *For current loads and resources.

## Implications for the Development of a NW Resource Adequacy Metric

- The Small Group is in the process of defining a proposed Metric using the methodology discussed in this presentation.
- LOLP may be the best metric to use but it is complicated and requires a simulation model to calculate.
- L/R balance is not a precise metric but it is easily calculated (and understood) and it can be “calibrated” using LOLP methods.

## “Calibrating” the L/R Balance Metric

- Using the LOLP methodology, a relationship between imports and adverse water conditions could be established so that a zero L/R balance would always yield a 5% LOLP.
- In other words, the region could plan to a zero L/R balance, but the adverse water year used for that calculation would depend on the long-term forecasted availability of imports.
- NW Resource Adequacy Metric is intended provide guidance on the minimum resource adequacy target needed to ensure that the NW can “keep the lights on.”
- Utilities may want to plan more conservatively to minimize economic risk.

## Other Issues to Consider

- Is an LOLP of 5% appropriate if all other Reliability Councils use an LOLP of 10%?
- Should the risk of high and volatile market prices be considered in deciding on a Metric or just the risk of not “keeping the lights on?”
- What is the NW region for the purposes of defining a Metric—the Pacific Northwest, the NWPP U.S. Footprint, or the entire NWPP footprint?