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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

Proposal for Benefit / Cost Analysis Table of Contents Section I .Schedule______________________________14 .Post Analysis Report___________________ 13 Section V .Background_____________________________3 Information on Benefits and Costs Analysis___________3 Section II – Toolkit Overview________________________5 Overview of Proposed WECC Toolkit_________________5 Section III – Benefits and Costs Analysis_______________9 Scope of Work___________________________________9 Benefits and Cost Analysis Funding________________11 Section IV .

WECC staff and SIS members will prepare an aggregate report. 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. The first benefit-side analysis method will use traditional production cost modeling with assumptions regarding hurdle rates and regional dispatch capability. 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. The second benefitside analysis method will evaluate the potential cost savings associated with reduced renewable integration costs using regional dispatch capability. Other regions which have developed similar capability will be consulted to validate the cost-side analysis. Two different methods will be used to analyze potential benefits from the proposed EIS.Section I .) The benefit and cost analysis will be performed through work on three independent components.Background Information 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 third component of the effort will forecast costs associated with development and deployment of the proposed EIS. (The toolkit itself is described briefly in Section II of this document. As a wrap-up to the benefit and cost analysis. for subsequent follow-up to the WECC Board of Directors on a recommendation to proceed with development. 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 . The aggregation of the benefits and cost analysis will be used to brief the WECC Market Interface Committee and if indicated.

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. so while the cost estimate of the toolkit may be refined. This study specification and analysis plan has been prepared for reference by the WECC Standing Committees and the WECC Board of Directors. Then calculate the maximum feasible toolkit carrying cost that could be supported based on the avoided cost. WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 4 .. evaluate the capital costs for market design. 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 benefit cost analysis plan components are intended to be independent elements. the cost-benefit study will also estimate the perparticipant-side initial participation costs. and computer systems for market operations and settlement. ongoing operations and administrative costs. This study output data will be retained and used to calculate the production cost difference on a per-Balancing Area basis. and. If the initial results of the B/C analysis show benefits in continuing development.  Cost Analysis: Using information from comparable regional initiatives. it may be useful for the cost estimate associated with the toolkit to be examined again based on a more detailed product specification. However.  Benefit Method 2: Evaluation of reduction in renewable integration costs associated with using regional dispatch capability rather than local balancing-area dispatch. Using information from other regional footprint stakeholders. this would not necessitate the benefits analysis portions to be re-run.

In developing a tool which establishes more efficient spot balancing between generation and load. 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 this WECC starting point. as this benefit/cost analysis may confirm. In anticipation. called an Energy Imbalance Service (EIS) Tool. In order to address these reliability issues. called a Seams Tool. 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. strengthens the WECC Reliability Coordinator foundations. increases efficiency and reliability for balancing areas. transmission providers and energy suppliers that must maintain proper balance between generation and load. This section provides a high-level background for a proposal for such a service. Increasing renewable generation adds variability: picture changes in wind and sunshine causing imbalance between the generation and load. one can simultaneously provide an improved congestion management and seams coordination process in the Western Interconnection. 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. The first part. In 2008 WECC deployed essential software for their Reliability Coordinators (the “State Estimator” and “Contingency Analysis” functions). Please refer to this document for greater detail as to the elements of the proposed toolkit. including proposed roles and requirements of potential market participants.Section II – Toolkit Overview Overview WECC EIS Toolkit Proposal The companion document to this analysis plan is the “WECC EIS Toolkit Overview and High-Level Specification”. The second part. expanding the regional ability to manage energy imbalance and seams coordination is anticipated to be the reasonable and low-cost alternative. the Seams Issues Subcommittee is advancing a two-part WECC reliability proposal. transmission providers and the WECC. WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 5 .

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 “traditional” Balancing Area in the WECC updates its levels of exports or imports (scheduled interchange) only hourly.Executive Summary The physics of electricity production. While other sub-regions of WECC could develop the EIS portion of this proposed toolkit. The state estimator and contingency analysis form the backbone and cornerstone for the additional capability being proposed by the SIS. The WECC has made successful investments in region-wide situational awareness tools for the Reliability Coordinator (RC). these coordination decisions are performed within a single firm operating as a Balancing Area. 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. they would have to develop their own state estimator/contingency analysis tools. transportation and consumption require the coordination of supply and demand in real time (i. The time frame for operating decisions is short and situational awareness is increasingly important. 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). transmission providers in WECC would have the option to include their facilities in the EIS footprint. First. the need for real-time modifications to scheduled interchange is increasing. (and in many instances installed in one Balancing Area with the output sent to a different Balancing Area). continuously balance). However the transmission customer WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 6 . 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. supply and demand must. Once the transmission provider’s decision to participate in the EIS is established. 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. within tight tolerances. then participation by their transmission customers in the EIS would be mandatory as part of the transmission provider’s terms and conditions of service. This would be a long-term decision by the transmission provider. In the vertically integrated structure of the traditional utility. Indeed. Variable resources do not provide the steady and predictable flow patterns on the grid that were observed when all connected resources were dispatchable. which would represent a duplicative cost.e. With increasing levels of variable generation installed.

The proposed EIS software uses security-constrained economic dispatch to obtain the least-cost offered available resources to manage the transmission constraint. However the WECC EIS design would likely require an independent market monitor function. For example. there is no obligation for a transmission customer of a participating transmission provider1 to offer their dispatchable resources to the EIS market. Features of the WECC Toolkit The fundamental features of the WECC toolkit proposal are as follows:    1 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. 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. non-discriminatory and auditable fashion. Further to the extent a market participant operates their load and resources consistent with their scheduled delivery. The EIS mechanism provides the appropriate tools to manage the increasing complexity of real time energy flows in a transparent. there would be no Energy Imbalance Service (EIS) settlement position – ‘the bill is zero’. when applicable. similar to the mandatory settlements under current tariffs for Schedule 4 (Energy Imbalance) and Schedule 9 (Generator Imbalance). 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. 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 would be a mandatory EIS settlement for the energy imbalance created by the schedule error. 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). WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 7 . similar to the SPP design as well as tariff rules to prevent the potential for gaming scheduled deliveries. Congestion Management.retains several options. Seams Coordination The transmission customer of an EIS-participating transmission provider is referred to as a “market participant” or “EIS market participant” in this document. However for a market participant’s deviation from their scheduled operation. Participating transmission providers would provide meter data after-the-fact to support the energy imbalance settlements.  Curtailments of flows on binding transmission constraints will be managed through the Seams Coordination Tool.

is able to provide a comprehensive solution. OASIS methods use off-line models to track purchase and sale of transmission service. The EIS method. has numerous drawbacks.  Balancing Area operators receive aggregate adjustment to their scheduled interchange based on the sum of generator dispatch setpoint adjustments in their boundary.Coordination between the different markets within the WECC would be implemented through stated rules and policies to assure equitable treatment of all WECC members. would develop expanded capabilities to manage allocation of curtailment responsibility for the nonparticipating entities. For example. Also the alternative use of many short-term bilateral transactions ignores the complexity already facing the real-time desk for system operators. 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. The existing rudimentary tool used on a voluntary basis in the WECC. 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. 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. however. 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. Namely. There are simply too many permutations and too much administrative overhead associated with tracking. which uses dynamic scheduling techniques. 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.    Advantages of the proposed WECC EIS The EIS toolkit has advantages over several potential alternatives. Such models alternate between two extremes: they are either so conservative in their assumptions that potentially useful capability is left unsold. Further the OASIS-reliant method ignores a critical element in managing reliability. This approach. settling and managing reliability when potentially hundreds of bilateral transactions with varying counterparties are all to be considered as part of grid operations. or a comparable tool. or they overestimate the WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 8 . First. 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.

First with the Seams Coordination tool.  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 retain the existing bilateral arrangements for most energy delivery. to provide relief) based on contributing sources of flow to the limiting transmission constraint. 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.available capability with the off-line model and sell extra service. there are only very limited no tools available to the RC to manage the reliability solution. Second with the EIS tool. 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. Alternatives to the EIS proposal. A WECC-approved mechanism to physically curtail generation or WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 9 .  The Seams tool would be used throughout the WECC footprint. which results in the need to develop improved congestion management tools. such as those promoting solutions through increased reliance on OASIS. But if the RC sees a problem developing. The EIS proposal solves the OASIS problem. Energy Imbalance Service (EIS) for imbalance and congestion is simultaneously optimized using a least-cost securityconstrained economic dispatch. With this toolkit proposal two significant insights become available to help manage grid reliability.  Congestion would be transparently managed by allowing locational imbalance prices to fluctuate. 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. This provides clear identification of the contributors to overloads on the grid and provides an equitable basis to order relief. Because of the security constraint. The EIS tool is used to manage grid reliability. 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. but provides an efficient and equitable basis to achieve the solution. the RC is able to determine the sources of flow on the limiting element(s) on the grid. These same resources can be used by the EIS tool to provide redispatch in cases where congestion occurs. Today the WECC RC is able to anticipate potential grid reliability problems by use of the state estimator and contingency analysis software. the energy balancing obligation of the region can be met from all available (and voluntarily offered) resources. It would allow equally for bilateral and spot (real time) purchases or sales of energy as well as self-scheduling of generation.  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 tool is consistent with and would be implemented while maintaining multiple balancing authority areas.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. 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. It is an advantage to make use of an existing design.  The use of regional security-constrained economic dispatch has been implemented in many other regions. benefitting from lessons learned and avoid the pitfalls of starting from a blank sheet of paper.  The EIS would establish a spot energy market where the effects of congestion are reflected in prices. The proposed process. approximate timelines and activities are delineated in the following diagram. EIS Operating Process Overview  The basic operational elements of the real time coordination process are scheduling and dispatch. Figure 1: Operation Timeline and Activity for the WECC EIS Toolkit WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 10 . A market design for Energy Imbalance Service comparable to the WECC proposal has been implemented by the Southwest Power Pool.  Actions taken by the WECC EIS tool operator would be transparent and auditable. work efforts will integrate the phase-shifting transformer operations under UFMP with the EIS process. 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 SPP experience demonstrates significant annual production cost savings which justify their development.

at a balancing Area level. for adequate supply resources. Real Time Reliability. WECC ANALYSIS OF BENEFITS AND COSTS OF PROPOSED TOOLKIT PAGE 11 .  Adequacy of supply in real time will be assured by continuing the existing requirements.

20% and 30% by annual energy.Section III – Benefits and Costs Analysis Scope of Work General Parameters The 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. 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. However for both benefits modeling methods proposed in this study.  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.  The costs analysis will include an evaluation of increased capital and operating expense associated with a new WECC division to operate the toolkit. However for benefits modeling the analysis may use a modeled representation of the entire WECC. and State jurisdictional totals. the seams tool itself will not require any explicit representation. The study will assume established seams coordination agreements so that the EIS dispatch capability will permit effective coordinated dispatch operations WECC-wide. 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. Benefits results reported will include Balancing Area totals. The renewable penetration levels assumed for this analysis will be 10%.  The geographic scope for the EIS tool is the non-CAISO portion of the WECC footprint. The model will use TEPPC base case data for system topology and renewable sites. The production cost model method. The Method 2 analysis may be independent of the Method 1 analysis.  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. RSC REQUEST FOR PROPOSAL – COST BENEFIT ANALYSIS PAGE 12 .  Method 2 benefits analysis will evaluate the potential cost savings associated with reduced renewable integration costs by using regional dispatch capability. However the benefits and costs analysis results will be evaluated only for the EIS portion of the footprint. for example. 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. The production cost analysis will assume different toolkit hurdle rates to evaluate potential benefits based on toolkit implementation costs. will simulate the effect of the EIS tool through hurdle rate assumptions.

 The model will include the renewable portfolio projections using base case data developed as part of the TEPPC process. and EMS upgrades  Evaluate the Seams Coordination tool as a WECC Reliability Coordinator function. with spot optimization of energy only. load forecasting. evaluate the potential cost savings associated with reduced renewable integration costs using regional dispatch capability.  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. control centers and staff accommodations. Include in the evaluation recognition of the existing WECC infrastructure for regional State Estimation. 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. administrative support. 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. training. compliance support staff. 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. legal support. Include in cost considerations staff for real-time EMS engineering. The production cost simulation for the toolkit case should continue to assume local balancing-area level of unit commitment to meet forecasted demand. 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. DTS engineer. Stated another way. The Method 1 benefits analysis will at a minimum cover the period specified in the WECC Variable Generation Subcommittee production cost analysis. If less than an annual interval is evaluated the analysis will be projected to an annual benefits basis. Contingency Analysis and also the latent Optimal Power flow capability in-house. RSC REQUEST FOR PROPOSAL – COST BENEFIT ANALYSIS PAGE 13 . Include estimation of the development of a settlements system for toolkit users and for administration of the umbrella transmission tariff service. As of this time the VGS expectation is for a minimum of two seasons. Include in cost considerations for infrastructure expansion to data centers. settlements staff. market quality.

$450. The Method 2 and Costs analyses will require additional funding. and. 3) any necessary communication and programming changes for interface to the EIS tool. To fund this cost/benefit analysis. additional funds will be necessary. For portions not covered by the VGS study. scenario two will include a medium or large-sized utility scheduling group that will establish toolkit interaction through an automated programmatic interface. RSC REQUEST FOR PROPOSAL – COST BENEFIT ANALYSIS PAGE 14 . 2) capability to provide meter data information required for EIS settlements. 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. 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. depending upon which aspect of the work effort. Unless otherwise directed. the Seams Issues Subcommittee will lead this effort. Benefit / Cost Analysis Funding The funding for this analysis activity will derive from several sources.000 will be included in the 2011 Business Plan and Budget. Funding from the potential source options may be pooled.  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. This does not assume a full market-power analysis of the toolkit footprint.  Estimate the costs associated with development of an EIS market monitoring function to guard against potential market abuse. 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. Much of the labor and model development required for the Method 1 benefits analysis is already included in the DOE-funded VGS study. 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.

including costs at WECC as well as potential participant-side costs for training and deployment of the toolkit.  Evaluate and discuss role of imbalance and redispatch toolkit operational results with regional transmission planning forums.Section IV – Post-Analysis Report Use 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.  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. separate division. RSC REQUEST FOR PROPOSAL – COST BENEFIT ANALYSIS PAGE 15 .  Other benefits or areas of impact that may be identified.  Evaluate and discuss the ratio of benefits to costs for the proposed toolkit. 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. independent governance or other) if the toolkit proposal were implemented.  Impact of the toolkit on WECC Contingency Reserve Sharing Groups.g.  Evaluate and discuss the potential WECC organization structure impacts (e.  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.  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.  Evaluate and discuss the imbalance and redispatch toolkit impact on the ability of companies to exercise market power in the toolkit footprint.  Evaluate and discuss the overall toolkit proposal taking into account estimated benefits and estimated costs.  Evaluate and discuss the impact of settlement of intra-WECC inadvertent on the same basis as imbalance energy.

the start date and project deliverables schedule will be adjusted relative to the first date of funding availability. staff and methods completed 8/31/10 Completion of Method 1 analysis 12/1/10 Completion of Method 2 analysis 12/1/10 Completion of Cost analysis 1/31/11 Review Results with WECC MIC Spring 2011 Final Report and Recommendation to WECC BOD 4/1/11 RSC REQUEST FOR PROPOSAL – COST BENEFIT ANALYSIS Duration 5 months 4 months 5 months 1 month 1 month PAGE 16 . Proposed Schedule Task Start Date WECC Board of Directors motion to authorize this analysis 4/29/10 Benefit Analysis Method 1: Finalize study scope coordination with the WECC VGS and WECC staff 6/30/10 Benefit Analysis Method 2: Establish study scope and methods 7/31/10 Cost Analysis task scope. If potential alternative funding sources are not available.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.