# Presentation: 118602

## Pacific Northwest Hydro-Thermal System and RTO West Market Design 

- FERC Market Design Workshop
- January 23, 2002

## Overview

- Regional Characteristics
- Nature of Northwest Hydro Operations
- Hydro-Thermal Coordination Through Forward Bilateral Contracts
- Implications for Market Model
- Unit Commitment Process
- Transmission Rights

## Northwest Resource Inventory

- Overall system is energy constrained – not capacity constrained
- Highest NWPP actual peak load in January 2000 of 55,986 MW
- “Other Thermal” includes nuclear and combined cycle
- Intermediate and peaking units are less than 5% of capacity
- Unit commitment has never been a major issue for the Northwest
- The bulk of the thermal units only off line for maintenance and forced outages
- Hydro units can reach full output start up in minutes

## Major Hydro Systems

- The Columbia River System
- Storage in Canada and at Grand Coulee
- Limited storage at downstream projects
- Peace River System w/storage capacity
- Snake River System
- Lower Snake
- Upper Snake

## River Operations 

- Diverse ownership along the river – US Federal, BC Hydro, Public Power and Investor Owned projects.
- Agreements required to coordinate operations
- Columbia River Treaty – US & Canada agreement on storage and shared production
- Pacific Northwest Coordination Agreement (PNCA) – Coordinating production on main stem of Columbia
- Mid-Columbia Hourly Coordination Agreement – Daily production

## Hydro Optimization

- Objective Function:  Maximize ***annual firm energy*** production from the coordinated operation of all hydro system projects
- Constraints:
- Water availability,  snow pack and rainfall
- Units are not independent, this means water leaving Grand Coulee must pass downstream projects within limited time due to limited downriver storage (pondage)
- Multi-purpose projects (irrigation, flood control, navigation,  fish and wildlife, recreation, municipal and industrial water supply, safety and power production) restrict range operational flexibility
- Result:
- Incremental cost is difficult to determine for hydro
- Opportunity cost has to include economic loss when departing from long term optimum

## Historical Bilateral Market

- Bilateral contracts developed to achieve hydro-thermal coordination
- Centralized optimization would be exceedingly complex
- Forward market serves a surrogate coordinator
- Peak and shaping provided from hydro with off-peak refill
- Like an idealized “pumped hydro” plant:
- Hydro energy output used on-peak to follow load with stored water
- Energy returns off-peak allow refill of storage, as if from pumping
- Implemented through various exchanges, purchase and sales
- Trading hubs at COB and MidC developed to meet the needs of the bilateral trade to enhance hydro-thermal coordination activity

## Implications for RTO WestMarket Model

- Nodal prices must be based on voluntary, bid based prices
- Unit commitment process must be based on self-commitment to keep river operations with the hydro project operators
- New day-ahead and real-time markets must be consistent with and converge with the existing active bilateral forward market

## Major Features of RTO WestCongestion Management Proposal

- Real-time balancing market with nodal prices
- Balanced day-ahead schedules with day-ahead congestion clearing market
- Unit commitment based on balanced schedules, with penalties and supplemental commitment as necessary
- Transmission rights are financial (accept all schedules)
- Existing rights of Participating Transmission Owners (PTOs) are pooled as Cataloged Transmission Rights (CTRs) to meet net requirement  of existing uses and provide larger quantity of released rights
- Existing contracts of PTOs honored within CTRs
- Capacity in excess of CTRs released to market as Financial Transmission Options (FTOs) in auctions (6 Month to Daily)
- Ancillary Service Markets still a work in progress

## Summary

- Market design standards should include sufficient flexibility to permit optimization of the hydro system operations
- Unit commitment process allowing a self commitment of generation
- Transmission rights need to be designed to enable hydro-thermal coordination through bilateral contracts