Document 2006-22 November 15, 2006

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Pacific Northwest Resource Adequacy Warning Implementation Plan 

INTRODUCTON 

This paper describes the role the Council will take and the Council’s expectations of the 

roles others will take in the Pacific Northwest Resource Adequacy Implementation Plan. 

It includes current expectations about the outcome of Bonneville’s Regional Dialogue 

process, recognizing that those discussions are not yet complete. 

BACKGROUND 

Regional Awareness of Resource Adequacy Framework: There are a number of national, 

west-wide, regional and state efforts currently underway, which have thrust resource 

adequacy into the limelight. The Energy Policy Act of 2005 mandates the Electric 

Reliability Organization (ERO), established by the act to implement mandatory reliability 

standards for the bulk-power system under the purview of the Federal Energy Regulatory 

Commission (FERC), “to conduct periodic assessments of the reliability and adequacy of 

the bulk-power system in North America.” The North American Electric Reliability 

Council (NERC), which was certified as the ERO on July 20, 2006, is in the process of 

developing a standard for resource adequacy assessments. FERC said in its final rule on 

implementation of the ERO provisions of the legislation that it intends to require the ERO 

to make recommendations where entities are found to have inadequate resources 

following the assessments. 

In the West, the Western Electricity Coordinating Council (WECC) is developing 

guidelines to recommend appropriate methodologies for assessing resource adequacy. 

Although the NERC and WECC efforts act as drivers, momentum is also building within 

the region for a regional resource adequacy standard through the Forum and the 

resurgence of Integrated Resource Plans (IRPs). In fact, the state of Washington recently 

passed legislation requiring all large electric utilities, both public and private, to prepare 

IRPs. Utilities, state regulators and the elected boards of public utilities are all explicitly 

examining strategies for planning resources to meet load. The efforts described above, 

the active participation by the utility and state regulatory communities in the Forum and 

the adoption of an energy metric and target for the region by the Council all serve to 

elevate the electricity industry’s awareness of the regional standard, which is the first step 

to achieving resource adequacy. 

APPROACH 

Utility Reporting: Utilities, other than those that have chosen in advance to put their 

entire load on Bonneville, would report their load and resource forecasts annually to 

some regional entity. Bonneville would report for all the utilities that have chosen it as 

their ongoing resource supplier for load growth. Currently the utilities with responsibility 

for procuring resources to meet their load obligation report their forecasted loads and 

resources to PNUCC. This approach proposes to continue using PNUCC and its 
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Northwest Regional Forecast (NRF) as the vehicles for reporting. Aside from possible 

refinements in data definitions and development of protocols for any new data, this 

reporting process would involve little change from current practice, except for those 

utilities that are newly assuming independent resource procurement responsibility. The 

NRF currently uses a five-year planning horizon, which would be maintained for this 

purpose. Reporting is central to the proposed implementation process and relies on full 

participation by the utilities, their regulators and local boards, and Bonneville. 

Bonneville contracts would not require that its customer utilities develop resources to 

meet adequacy standards, but they would require that utilities who do not rely on 

Bonneville to meet their load growth to report their load and resource data for this 

assessment. 

PNUCC and Council Assessments: The results of this reporting would be used in an 

assessment, in which the regional totals would be checked against the regional energy 

and capacity metrics and targets. This assessment would be done in the first instance by 

PNUCC. The assessments for the planning years, five and three years out, would be of 

most consequence for the region. The results of these “bottoms-up” assessments could 

then be compared with the Council’s “top-down” regional assessments in order to 

validate the assessments, or, in the case of discrepancies, either inform quality control 

checks of the data to further refine the assessments in the future or highlight differences 

in assumptions. Some differences in assumptions e.g., about capacity factors of wind 

generation, might provoke additional research, while others could be the result of policy 

or regulatory decisions. 

At this stage, the results of the assessment(s) would be depicted on an aggregated basis, 

as is currently done in the NRF. Utilities would be able to compare their resource 

strategies for meeting load obligations to the regional resource adequacy situation and 

adjust their plans accordingly. The regional assessment(s) would include the “planning 

adjustment” (winter out-of-region spot market purchases plus hydro flexibility) and the 

regional uncontracted IPP generation in the regional totals, as described in the energy 

metric and target adopted by the Council. 

Highlighting how much the region is relying on the external spot market or on 

uncommitted regional IPP generation, compared to the amounts included in the currently 

proposed standard would provide a kind of warning signal to the region about potential 

upcoming adequacy problems. 

Indicators of Resource Adequacy Levels: The section below describes in more detail a 

“green light, yellow light, red light” approach to regional adequacy assessment and 

describes actions to be taken with each outcome. 

The description refers both to a physical standard, the target adopted by the Council, and 

to an economic standard, a target that provides more resources than simply enough to 

avoid loss of load. The Council’s implied economic target1

 developed in the Fifth Power 

 

1

 See Volume 2, Chapter 7, “Portfolio Analysis and Recommended Plan” in Northwest Power and 

Conservation Council. Fifth Northwest Electric Power and Conservation Plan. Portland, Oregon, 2005. 
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Plan is an example of a possible economic standard. Developed by analyzing the 

exposure of the Northwest power system to a large variety of risks, including the risk of 

high market prices, such as were experienced in 2000-01, this target would give the 

region approximately an additional 3,000 MW of resources, above the level that would be 

developed pursuant to the target adopted in the adequacy standard. 

An alternative economic standard could be when the region as a whole begins to show 

reliance on the extra-regional spot market and the uncontracted IPP generation within the 

region. 

The approach is summarized in the following table: 

 How Economic Standard Physical Standard 

 When Pass Fail Pass Fail 

5th Year Out Green Yellow Green Yellow 

3rd Year Out Green Yellow Green RED 

A green light would trigger an acknowledgement that the region is on track. The yellow 

and red lights would be used to trigger different regional actions. 

The process can also be described by the following flow charts: 

Fifth Year-Out Assessment: 

Third Year-Out Assessment: 

Pass - 

Green 

Fail - 

Yellow 

Physical 

Standard

Pass - 

Green 

Fail - 

Yellow 

Economic 

Standard

Economic 

Standard 

Physical 

Standard 

Pass - 

Green 

Fail - 

Yellow 

Pass - 

Green 

Fail - 

RED 
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Council Actions, Yellow Light: Since the yellow light would indicate a kind of early 

warning, a regional report could be issued by the Council. It would be presented at a 

Council meeting and public comment would be taken. This report would emphasize that 

the region is potentially entering a more serious situation and encourage utilities with 

load service responsibilities to take action. This report would not single out individual 

utilities. The Council could also convene a regional meeting to discuss the results of the 

assessment. 

Council Actions, Red Light: For the red light, additional actions would be taken. A 

regional discussion would be started to understand the reasons for being in the situation 

triggering a red light, to determine whether sufficient actions are being taken to remedy 

the forecast inadequacy, and to identify additional measures needed, if any. A regional 

conference would be held to begin that discussion. The goal of these discussions would 

be to ensure that sufficient actions will be taken to avoid an actual inadequacy. If the 

discussions are successful, then the Council would publicly announce its conclusion that 

sufficient actions are being taken to address the “red light” and would monitor progress 

on these actions. 

In the event that the Council concludes that these discussions did not succeed in 

providing sufficient assurance of avoiding inadequacy, further steps could be taken. One 

of those steps, for example, would be for the Council to report that the initial problem is 

not being adequately addressed. A second possible response would be for the Council to 

communicate directly with individual utilities, local boards or state commissions for 

those utilities that appeared to be disproportionately relying on uncommitted purchases. 

This action would ensure both that these key decision makers were aware of the potential 

problems and that the Council fully understood the reasons for the utilities’ being in such 

a circumstance. The Council could also consider publicly announcing which utilities are 

relying disproportionately on uncommitted purchases. With these options the Council 

would have sufficient recourse to follow up on regional inadequacy if it were to persist. 

Utility Economic Incentives for Meeting Adequacy Standards: Because of the variation 

in water conditions the Northwest experiences, prospective (planning) inadequacy will 

not necessarily turn into inadequacy in actual operations. However, should the region be 

inadequate on a near-term planning basis (too short a timeline for construction of new 

resources), utilities that are short, for whatever reason, would face the market price and 

any environmental mitigation consequences of their actions. This will provide a strong 

natural incentive to develop adequate resources. 

Expected Bonneville Actions: Though Bonneville contracts will not require its 

customers to meet adequacy standards, they will reinforce this economic incentive. The 

Regional Dialogue discussions are not complete and Bonneville has not yet issued a final 

decision. Assuming, however, that discussions continue along the path they are 

currently on, the following is one set of probable outcomes. Bonneville expects to 

negotiate contracts with its public agency customers that will provide that customers 

either make an election to (1) purchase load-following power products from BPA or (2) 
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take fixed amounts of power that do not follow load. Once a customer’s load is 

forecasted to exceed their entitlement to power at the Tier 1 rate on a three year out basis, 

the customer needs to decide whether to procure their own resources to meet its load 

growth, or to contract for power from Bonneville at the Tier 2 rate. Contracting for Tier 

2 power from Bonneville would potentially include a three-year notice requirement. This 

requirement would make it clear that Bonneville will not provide an assured “backstop” 

for utilities which fail to develop their own resources. The contracts would also include 

affirmation by the customers that they understand the resource adequacy standards and 

that Bonneville would not provide short-term backup service. 

The details of this relationship (amounts of power to be provided by Bonneville, etc.) will 

have to be worked out in the contract discussions between Bonneville and its power 

customers. 

It is also important to remember that, just as conditions could turn out in an operating 

year to be better than expected, they could also turn out to be worse. The planning 

metrics and targets are established based on a five percent LOLP, which means that they 

are not intended to protect against all possible outcomes. There will be some 

circumstances in which, even if utilities meet the planning criteria (guidelines to allow 

utilities to understand how the regional resource adequacy standards can be translated to 

individual utility planning criteria are slated for development in 2007), they could face 

high market prices or even potential load curtailments. 

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