wecc eis benefit cost analysis doc 2 25 10_final

Proposal for Benefit and Cost Analysis

For the Purpose of Conducting a Benefit and Cost Analysis of WECC’s Proposed Reliability Toolkit to

Manage Energy Imbalance and Congestion Redispatch on the Bulk Electric System

Document version 2/25/10

SEAMS ISSUES SUBCOMMITTEE

Proposal for Benefit / Cost AnalysisTable of Contents

Section I - Background_____________________________3Information on Benefits and Costs Analysis___________3

Section II – Toolkit Overview________________________5Overview of Proposed WECC Toolkit________________5

Section III – Benefits and Costs Analysis______________9Scope of Work___________________________________9Benefits and Cost Analysis Funding________________11

Section IV - Post Analysis Report___________________ 13Section V - Schedule______________________________14

Section I - BackgroundInformation on Benefits and Costs Analysis

Purpose

The purpose of this analysis is to analyze potential benefits and costs associated with a proposed WECC Energy Imbalance System (EIS) toolkit. (The toolkit itself is described briefly in Section II of this document.) The benefit and cost analysis will be performed through work on three independent components.

Two different methods will be used to analyze potential benefits from the proposed EIS. The first benefit-side analysis method will use traditional production cost modeling with assumptions regarding hurdle rates and regional dispatch capability. The second benefit-side analysis method will evaluate the potential cost savings associated with reduced renewable integration costs using regional dispatch capability.

The third component of the effort will forecast costs associated with development and deployment of the proposed EIS. The cost estimates will take into account the existing capabilities within WECC which could be leveraged along with estimates of the capital and operating expenses to provide the regional EIS service. Other regions which have developed similar capability will be consulted to validate the cost-side analysis.

As a wrap-up to the benefit and cost analysis, WECC staff and SIS members will prepare an aggregate report. The aggregation of the benefits and cost analysis will be used to brief the WECC Market Interface Committee and if indicated, for subsequent follow-up to the WECC Board of Directors on a recommendation to proceed with development.

This benefit/cost analysis plan must be implemented in a flexible manner in order to adapt to the circumstances and opportunity that will arise over the coming months.

General Information

The following criteria outline the scope of the proposed cost-benefit analysis:

WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 3

Benefit Method 1: Evaluation of total production cost difference between the stand-alone balancing area scenario and the study scenario that most closely matches the toolkit scenario. The Method 1 analysis will evaluate this cost difference using assumed balancing area hurdle rates for the toolkit dispatch at the assumed levels of renewable penetration in the scenario. This study output data will be retained and used to calculate the production cost difference on a per-Balancing Area basis.

Benefit Method 2: Evaluation of reduction in renewable integration costs associated with using regional dispatch capability rather than local balancing-area dispatch. Then calculate the maximum feasible toolkit carrying cost that could be supported based on the avoided cost.

Cost Analysis: Using information from comparable regional initiatives, evaluate the capital costs for market design, and computer systems for market operations and settlement; and, ongoing operations and administrative costs.. Using information from other regional footprint stakeholders, the cost-benefit study will also estimate the per-participant-side initial participation costs.

This study specification and analysis plan has been prepared for reference by the WECC Standing Committees and the WECC Board of Directors.

If the initial results of the B/C analysis show benefits in continuing development, it may be useful for the cost estimate associated with the toolkit to be examined again based on a more detailed product specification. However, the benefit cost analysis plan components are intended to be independent elements, so while the cost estimate of the toolkit may be refined, this would not necessitate the benefits analysis portions to be re-run.


Section II – Toolkit Overview OverviewWECC EIS Toolkit Proposal

The companion document to this analysis plan is the “WECC EIS Toolkit Overview and High-Level Specification”. Please refer to this document for greater detail as to the elements of the proposed toolkit.

Increasing renewable generation adds variability: picture changes in wind and sunshine causing imbalance between the generation and load. In anticipation, the Seams Issues Subcommittee is advancing a two-part WECC reliability proposal. The first part, called a Seams Tool, strengthens the WECC Reliability Coordinator foundations. The second part, called an Energy Imbalance Service (EIS) Tool, increases efficiency and reliability for balancing areas, transmission providers and energy suppliers that must maintain proper balance between generation and load. In 2008 WECC deployed essential software for their Reliability Coordinators (the “State Estimator” and “Contingency Analysis” functions). With this WECC starting point, expanding the regional ability to manage energy imbalance and seams coordination is anticipated to be the reasonable and low-cost alternative, as this benefit/cost analysis may confirm.

Background Material and Executive Summary

The members of WECC have already identified several issues related to a need for shorter scheduling periods than currently available. With increasing penetration of variable energy resources (typically wind and solar generation) the need for efficient regional dispatch operations to maintain balance between resources and demand is also increasing. In developing a tool which establishes more efficient spot balancing between generation and load, one can simultaneously provide an improved congestion management and seams coordination process in the Western Interconnection. In order to address these reliability issues, the WECC Seams Issues Subcommittee (SIS) is proposing to develop a real time energy balancing tool to permit efficient use of generation assets and increase use of the existing transmission grid. This section provides a high-level background for a proposal for such a service, including proposed roles and requirements of potential market participants, transmission providers and the WECC.


Executive Summary

The physics of electricity production, transportation and consumption require the coordination of supply and demand in real time (i.e. supply and demand must, within tight tolerances, continuously balance). In the vertically integrated structure of the traditional utility, these coordination decisions are performed within a single firm operating as a Balancing Area. The “traditional” Balancing Area in the WECC updates its levels of exports or imports (scheduled interchange) only hourly.

With increasing levels of variable generation installed, (and in many instances installed in one Balancing Area with the output sent to a different Balancing Area), the need for real-time modifications to scheduled interchange is increasing. The time frame for operating decisions is short and situational awareness is increasingly important. Variable resources do not provide the steady and predictable flow patterns on the grid that were observed when all connected resources were dispatchable.

The WECC has made successful investments in region-wide situational awareness tools for the Reliability Coordinator (RC). The RC tools include a solving state estimator (which provides a highly accurate picture of power line flows) and a contingency analysis program (which is used to anticipate problems in case of outage to grid elements). The state estimator and contingency analysis form the backbone and cornerstone for the additional capability being proposed by the SIS. While other sub-regions of WECC could develop the EIS portion of this proposed toolkit, they would have to develop their own state estimator/contingency analysis tools, which would represent a duplicative cost.

This toolkit design does not propose the formation of a Regional Transmission Organization (RTO) as defined by the Federal Energy Regulatory Commission (FERC) in Order 2000. Since this proposal does not include a single consolidated regional transmission tariff for network service it is believed to be deficient in the scope and characteristics required for an RTO. Indeed, the explicit direction of the WECC Market Interface Committee to the SIS was to develop a proposal that did not include formation of an RTO.

The toolkit proposal has two components:

1) A Seams Coordination tool – used throughout the entire WECC footprint

2) An Energy Imbalance Service (EIS) tool – used by transmission providers who have voluntarily elected to participate and their transmission service customers (including native or network loads of the transmission provider system)

There are two aspects proposed for voluntary participation in the WECC EIS. First, transmission providers in WECC would have the option to include their facilities in the EIS footprint. This would be a long-term decision by the transmission provider.

Once the transmission provider’s decision to participate in the EIS is established, then participation by their transmission customers in the EIS would be mandatory as part of the transmission provider’s terms and conditions of service. However the transmission customer


retains several options. For example, there is no obligation for a transmission customer of a participating transmission provider1 to offer their dispatchable resources to the EIS market.

Further to the extent a market participant operates their load and resources consistent with their scheduled delivery, there would be no Energy Imbalance Service (EIS) settlement position – ‘the bill is zero’. However for a market participant’s deviation from their scheduled operation, there would be a mandatory EIS settlement for the energy imbalance created by the schedule error, similar to the mandatory settlements under current tariffs for Schedule 4 (Energy Imbalance) and Schedule 9 (Generator Imbalance), when applicable.

The EIS settlements are performed using hourly integrated energy data. The hourly settlement price is proposed to be established through use of voluntary dispatch offers in a security-constrained economic dispatch algorithm. Participating transmission providers would provide meter data after-the-fact to support the energy imbalance settlements. The EIS mechanism provides the appropriate tools to manage the increasing complexity of real time energy flows in a transparent, non-discriminatory and auditable fashion. In an EIS-style design the majority of all energy transfers remain self-scheduled or bilateral transactions. The EIS style design has been implemented by the Southwest Power Pool (SPP) and has operated successfully for several years. There are some modifications to the SPP design because the WECC is not an RTO and does not propose to offer a single consolidated regional transmission tariff. However the WECC EIS design would likely require an independent market monitor function, similar to the SPP design as well as tariff rules to prevent the potential for gaming scheduled deliveries.

Features of the WECC Toolkit

The fundamental features of the WECC toolkit proposal are as follows:

Energy Imbalance Service The WECC regional EIS service would use regional security-constrained

economic dispatch to supply imbalance energy. Participating transmission providers would amend their Open Access Transmission Tariffs to substitute the WECC EIS settlement for their OATT Schedule 4 – Energy Imbalance and OATT Schedule 9 – Generator Imbalance.

Congestion Management. Curtailments of flows on binding transmission constraints will be managed

through the Seams Coordination Tool. Information on curtailments would pass from the Seams tool to the EIS interface for purposes of settlements (because adjustment to scheduled values changes the energy imbalance calculation). The proposed EIS software uses security-constrained economic dispatch to obtain the least-cost offered available resources to manage the transmission constraint.

1 The transmission customer of an EIS-participating transmission provider is referred to as a “market participant” or “EIS market participant” in this document.


Seams Coordination Coordination between the different markets within the WECC would be

implemented through stated rules and policies to assure equitable treatment of all WECC members. The existing rudimentary tool used on a voluntary basis in the WECC, or a comparable tool, would develop expanded capabilities to manage allocation of curtailment responsibility for the non-participating entities.

Balancing Area Operations Generators within participating balancing areas would receive dispatch

setpoints directly from the EIS tool if they elect to make their output dispatchable by the EIS tool.

Balancing Area operators receive aggregate adjustment to their scheduled interchange based on the sum of generator dispatch setpoint adjustments in their boundary.

Transmission Provider Cost Recovery The WECC EIS proposal would address transmission provider cost recovery

for loss of hourly non-firm transmission tariff revenues due to spot delivery under the EIS mechanism. This aspect differs from the existing Southwest Power Pool EIS market design due to the WECC EIS proposal not including a consolidated regional network transmission tariff as an RTO.

Advantages of the proposed WECC EIS

The EIS toolkit has advantages over several potential alternatives. For example, one design alternative to the EIS would be to augment OASIS capability and dynamic scheduling methods to permit increased reliance on rapid and numerous bilateral settlements. This approach, however, has numerous drawbacks.

First, use of large numbers of bilateral transactions does not achieve the simultaneous dispatch solution (taking all parties positions into account in a single solution) that is established using the EIS method. This means the methods promoting increased bilateralism only result in a transfer of the variability problem caused by increasing renewable penetration from one balancing area to another. The EIS method, which uses dynamic scheduling techniques, is able to provide a comprehensive solution.

Also the alternative use of many short-term bilateral transactions ignores the complexity already facing the real-time desk for system operators. There are simply too many permutations and too much administrative overhead associated with tracking, settling and managing reliability when potentially hundreds of bilateral transactions with varying counterparties are all to be considered as part of grid operations.

Further the OASIS-reliant method ignores a critical element in managing reliability. Namely, OASIS methods use off-line models to track purchase and sale of transmission service. Such models alternate between two extremes: they are either so conservative in their


assumptions that potentially useful capability is left unsold, or they overestimate the available capability with the off-line model and sell extra service, which results in the need to develop improved congestion management tools.

The EIS proposal solves the OASIS problem. Energy Imbalance Service (EIS) for imbalance and congestion is simultaneously optimized using a least-cost security-constrained economic dispatch. Because of the security constraint, the flow impact on the grid of the energy imbalance dispatch is limited within the grid physical capabilities based on the current actual state of the grid and without the limitations of the off-line OASIS modeling problem.

Today the WECC RC is able to anticipate potential grid reliability problems by use of the state estimator and contingency analysis software. But if the RC sees a problem developing, there are only very limited no tools available to the RC to manage the reliability solution. Alternatives to the EIS proposal, such as those promoting solutions through increased reliance on OASIS, overlook the circumstance that the actual operating conditions causing the grid limitation are not captured in the off-line models used to sell conventional transmission service. With this toolkit proposal two significant insights become available to help manage grid reliability. First with the Seams Coordination tool, the RC is able to determine the sources of flow on the limiting element(s) on the grid. This provides clear identification of the contributors to overloads on the grid and provides an equitable basis to order relief. Second with the EIS tool, the energy balancing obligation of the region can be met from all available (and voluntarily offered) resources. These same resources can be used by the EIS tool to provide redispatch in cases where congestion occurs. The EIS tool is used to manage grid reliability, but provides an efficient and equitable basis to achieve the solution.

Some of the features of the Seams tool and the EIS tool include:

The Seams tool would be used to establish the obligation to curtail (or stated another way, to provide relief) based on contributing sources of flow to the limiting transmission constraint.

The Seams tool would be used throughout the WECC footprint, so it would provide a mechanism to coordinate between areas that already have sub-regional dispatch (such as CAISO) and the rest of the footprint.

The Seams tool would provide information to the EIS for transactions within the EIS footprint to permit proper settlements of scheduled delivery in the energy imbalance footprint.

The EIS would allow for the alignment of efficient commercial methods with the requirement to maintain a reliable electricity system by providing efficient energy imbalance and congestion redispatch settlements.

The EIS would retain the existing bilateral arrangements for most energy delivery. It would allow equally for bilateral and spot (real time) purchases or sales of energy as well as self-scheduling of generation.


Congestion would be transparently managed by allowing locational imbalance prices to fluctuate. A WECC-approved mechanism to physically curtail generation or transmission (currently the Unscheduled Flow Mitigation Procedure) would only be used as a fall-back in the event the EIS Market has insufficient resources to manage congestion redispatch. If the EIS development proceeds, work efforts will integrate the phase-shifting transformer operations under UFMP with the EIS process.

Actions taken by the WECC EIS tool operator would be transparent and auditable. Process and methods similar to those already used in the SPP regional EIS will be developed if the proposal is shown as beneficial from this analysis.

The EIS would establish a spot energy market where the effects of congestion are reflected in prices.

The EIS tool is consistent with and would be implemented while maintaining multiple balancing authority areas.

The use of regional security-constrained economic dispatch has been implemented in many other regions. A market design for Energy Imbalance Service comparable to the WECC proposal has been implemented by the Southwest Power Pool. The SPP experience demonstrates significant annual production cost savings which justify their development. It is an advantage to make use of an existing design, benefitting from lessons learned and avoid the pitfalls of starting from a blank sheet of paper.

EIS Operating Process Overview

The basic operational elements of the real time coordination process are scheduling and dispatch. This paper identifies the proposed process by which generating units are scheduled and dispatched to meet load and maintain system reliability in the most economical manner. The proposed process, approximate timelines and activities are delineated in the following diagram.

Figure 1: Operation Timeline and Activity for the WECC EIS Toolkit


Real Time Reliability. Adequacy of supply in real time will be assured by continuing the existing

requirements, at a balancing Area level, for adequate supply resources.


Section III – Benefits and Costs AnalysisScope of Work

General ParametersThe general parameters of each benefits analysis are discussed below:

The geographic scope for the seams coordination portion of the toolkit is the entire WECC footprint. However for both benefits modeling methods proposed in this study, the seams tool itself will not require any explicit representation. The production cost model method, for example, will simulate the effect of the EIS tool through hurdle rate assumptions.

The geographic scope for the EIS tool is the non-CAISO portion of the WECC footprint. However for benefits modeling the analysis may use a modeled representation of the entire WECC. The study will assume established seams coordination agreements so that the EIS dispatch capability will permit effective coordinated dispatch operations WECC-wide. However the benefits and costs analysis results will be evaluated only for the EIS portion of the footprint.

Method 1 benefits analysis will use traditional production cost modeling methods to estimate the benefits realized by WECC balancing areas from consolidated services for energy imbalance and congestion redispatch. Benefits results reported will include Balancing Area totals, and State jurisdictional totals. The renewable penetration levels assumed for this analysis will be 10%, 20% and 30% by annual energy. The production cost analysis will assume different toolkit hurdle rates to evaluate potential benefits based on toolkit implementation costs. The model will use TEPPC base case data for system topology and renewable sites.

Method 2 benefits analysis will evaluate the potential cost savings associated with reduced renewable integration costs by using regional dispatch capability. This analysis will project a range of cost savings associated with regional energy imbalance service to evaluate a potential range of benefits based on toolkit implementation costs. The Method 2 analysis may be independent of the Method 1 analysis.

The final report using the Method 1 and Method 2 analysis information will also include a qualitative analysis of those costs and benefits that cannot be readily quantified by the study methods. A part of the qualitative analysis will include an evaluation of the sensitivity of the benefit/cost threshold to potential balancing area non-participation in the EIS toolkit. It is anticipated that the Method 2 benefits calculation will be useful in establishing ratio of benefits estimations that could assist in this aspect of the qualitative evaluation.

The costs analysis will include an evaluation of increased capital and operating expense associated with a new WECC division to operate the toolkit.

The Method 1 benefits analysis will at a minimum cover the period specified in the WECC Variable Generation Subcommittee production cost analysis. As of this time the

RSC REQUEST FOR PROPOSAL – COST BENEFIT ANALYSIS PAGE 12

VGS expectation is for a minimum of two seasons. If less than an annual interval is evaluated the analysis will be projected to an annual benefits basis.

The Method 2 benefits analysis will evaluate a period equivalent to the window used for Method 1.

Method 1 Benefits Analysis The general parameters of the Method 1 benefits analysis are discussed below:

Energy imbalance transactions are free-flowing across WECC’s footprint, with the application of a hurdle rate across balancing area zones within the imbalance toolkit boundary

The proposed toolkit will not provide a security-constrained unit commitment capability. The production cost simulation for the toolkit case should continue to assume local balancing-area level of unit commitment to meet forecasted demand, with spot optimization of energy only.

The model will include the renewable portfolio projections using base case data developed as part of the TEPPC process.

Method 2 Benefits Analysis

The general parameters of the Method 2 benefits analysis are discussed below:

Evaluate the avoided costs on a per-balancing area level for reduction of flexible reserve burden using a range of assumptions regarding the cost of flexible dispatch reserves. Stated another way, evaluate the potential cost savings associated with reduced renewable integration costs using regional dispatch capability.

Costs Analysis The general parameters of the cost-side analysis are discussed below:

Evaluate the increased IT systems and staffing required to operate a regional imbalance and redispatch toolkit. Include in the evaluation recognition of the existing WECC infrastructure for regional State Estimation, Contingency Analysis and also the latent Optimal Power flow capability in-house. Include estimation of the development of a settlements system for toolkit users and for administration of the umbrella transmission tariff service. Include in cost considerations staff for real-time EMS engineering, load forecasting, market quality, training, DTS engineer, compliance support staff, settlements staff, administrative support, legal support, Include in cost considerations for infrastructure expansion to data centers, control centers and staff accommodations, and EMS upgrades

Evaluate the Seams Coordination tool as a WECC Reliability Coordinator function. The estimated minor portion of the Seams Coordination tool costs that would support EIS operations will be evaluated as an EIS expense and those costs would be evaluated against the EIS portion of the WECC footprint.

Estimate the level of user integration costs for two scenarios: scenario one will include small or medium-sized utility scheduling group that will limit EIS tool interaction to the


manual portal XML interface; scenario two will include a medium or large-sized utility scheduling group that will establish toolkit interaction through an automated programmatic interface.

Estimate the level of transmission provider integration costs to develop: 1) revisions to balancing area automatic generation control software to accept variable dispatch setpoints for offered resources within the balancing area footprint; 2) capability to provide meter data information required for EIS settlements; and, 3) any necessary communication and programming changes for interface to the EIS tool.

Estimate the costs associated with development of an EIS market monitoring function to guard against potential market abuse. This does not assume a full market-power analysis of the toolkit footprint, rather assumes an estimate of the costs to provide the market monitoring function and (to the extent feasible) estimating any separately quantifiable benefits of limiting the exercise of market power.

Benefit / Cost Analysis Funding

The funding for this analysis activity will derive from several sources, depending upon which aspect of the work effort. Funding from the potential source options may be pooled.

Much of the labor and model development required for the Method 1 benefits analysis is already included in the DOE-funded VGS study. For portions not covered by the VGS study, additional funds will be necessary.

The Method 2 and Costs analyses will require additional funding.

To fund this cost/benefit analysis, $450,000 will be included in the 2011 Business Plan and Budget. WECC staff will coordinate with NERC to make the appropriate filing with FERC to request Section 215 funding in 2011 for the cost-benefit analysis.

The Post-analysis Report will be prepared by the WECC Seams Issues Subcommittee under the guidance of the Market Interface Committee stakeholders after completion of the tasks listed above. Unless otherwise directed, the Seams Issues Subcommittee will lead this effort.


Section IV – Post-Analysis ReportUse of data from three analysis components

Post-analysis use of data from the Method 1 and Method 2 and Costs analysis: Using information developed from the Method 1 and Method 2 analysis and the Costs analysis, the report team will develop discussion around the following aspects of the toolkit proposal. Evaluate and discuss the impact of the elimination of spot transmission rate pancaking

within the WECC imbalance toolkit footprint

Evaluate and discuss reliability impacts resulting from improved regional seams agreements;

Evaluate and discuss role of imbalance and redispatch toolkit operational results with regional transmission planning forums.

Evaluate and discuss the impact of settlement of intra-WECC inadvertent on the same basis as imbalance energy.

Evaluate and discuss the imbalance and redispatch toolkit impact on the ability of companies to exercise market power in the toolkit footprint.

Impact of a WECC Market Monitoring function (such as an Independent Market Monitor) to guard against and respond to market power and market manipulation problems.

Impact of the toolkit on WECC Contingency Reserve Sharing Groups;

Development considerations for the toolkit umbrella tariff which would replace individual OATT Schedules 4 and 9 as well as recover spot transmission access fees on behalf of participating transmission providers.

Other benefits or areas of impact that may be identified.

Evaluate and discuss the overall toolkit proposal taking into account estimated benefits and estimated costs, including costs at WECC as well as potential participant-side costs for training and deployment of the toolkit.

Evaluate and discuss the ratio of benefits to costs for the proposed toolkit.

Evaluate and discuss the sensitivity to assumptions used in the analysis including the impact of variations in the level of renewable (non-dispatchable) resources in the regional dispatch portfolio.

Evaluate and discuss the potential WECC organization structure impacts (e.g. separate division, independent governance or other) if the toolkit proposal were implemented.


Section V – Schedule

Discussion of plan deliverables

Note – this schedule assumes additional or alternative funding for the benefit cost analysis in order to support a work start in 2010. If potential alternative funding sources are not available, the start date and project deliverables schedule will be adjusted relative to the first date of funding availability.

Proposed Schedule

Task Start Date Duration WECC Board of Directors motion to authorize this analysis 4/29/10Benefit Analysis Method 1: Finalize study scope coordination with the WECC VGS and WECC staff 6/30/10Benefit Analysis Method 2: Establish study scope and methods

7/31/10Cost Analysis task scope, staff and methods completed 8/31/10Completion of Method 1 analysis 12/1/10 5 monthsCompletion of Method 2 analysis 12/1/10 4 monthsCompletion of Cost analysis 1/31/11 5 monthsReview Results with WECC MIC Spring 2011 1 monthFinal Report and Recommendation to WECC BOD 4/1/11 1 month


wecc eis benefit cost analysis doc 2 25 10_final

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