20090223Fourth Quarter 2008 Report Market Monitoring.pdf

Potomac Economics, Ltd.
701 City Center Drive
Carmel, IN 46032
Members of Service List (EC05-1 1 0)
POTOMAC
ECONOMICS
February 17,2009
Re: Quarerly Market Monitoring Report
Dear Service List Member:
Telephone: [phone]
Facsimile: 317-249-5943
PAC1= -OS-o§
Please find attached the public (redacted) version of the Fourh Quarter 2008 Quarterly
Market Monitoring Reports for MidAmerican Energy Company and Pacificorp.
Regards,
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Michael W. Chiasson, P.E.
Vice President
Enclosures (2)
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QUARTERLY MARKT MONITORIG REpORT
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MIDAMERICAN ENERGY COMPAN
For the
Fourth Quarter 2008
Issued by:
Potomac Economics, Ltd.
Independent Market Monitor
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MEC Monitoring Report: Fourth Quarter 2008 Table of Contents
Table of Contents
I. Overvew .................................................................................................................. 1
A. Market Monitoring........................................................................................... 2
B. Summary of Quarterly Report ......................................................................... 3
C. Complaints and Special Investigations ............................................................ 5
II. Wholesale Prices and Transactions ....................................................................... 6
A. Prices................................................................................................................6
B. Sales and Puchases ......................................................................................... 7
III. Transmission Congestion .............................................................................. '9
A. Overview..........................................................................................................9
B. Congestion ....................................................................................................... 9
IV. Monitoring for Anticompetitive Conduct ........................................................... 10
A. Wholesale Sales and Puchases..................................................................... 10
B. Generation Dispatch ...................................................................................... 13
C. Transmission Outages................................................... ................................. 17
D. Conclusions.................................................................................................... 18
Redacted Version
MEC Monitoring Report: Fourth Quarter 2008 List of Figures
List of Figures
Figue 1: Wholesale Prices and Peak Load.................................................................................... 6
Figue 2: Trends in Monthly Electrcity and Natual Gas Prices................................................... 7
Figue 3: Summary ofMEC Sales and Puchases .........................................................................8
Figue 4: Prices Received for MEC Sales and Purchases............................................................ 11
Figue 5: MEC Supply Cure ...................................................................................................... 14
Figue 6: Out-of-Merit Dispatch and Congestion Events............................................................ 16
Redacted Version
MEC Monitoring Report: Fourth Quarter 2008 Overview
I. OVERVIEW
In connection with the acquisition by the MidAerican Energy Holdings Company ("MEHC")
ofPacifiCorp ("PAC") in Federal Energy Regulatory Commission ("Commission") Docket No.
EC05-ll0-000, the Commission accepted the market monitoring plans for the MidAmerican
Energy Company ("MEC" or "the Company") and PAC, and Potomac Economics was retained
as the independent market monitor for both companies. The plans established that separate
reports would be produced for each company. This is the market monitoring report for the fourh
quarter of 2008 for MEC.
The market monitoring plan for MEC is designed to detect any anti competitive conduct from the
operation of the Company's transmission system, including any transmission effects from the
Company's generation dispatch. As stated in the plan:
The Market Monitor shall provide independent and impartial monitoring and
reporting on: (i) generation dispatch ofMidAerican, and scheduled loadings on
constrained transmission facilities; (ii) information concerning the volume of
transactions and prices charged by MidAerican in the electrcity markets affected
by MidAmerican before and after MidAmerican implements redispatch or other
congestion management actions; and (iii) MidAerican's calculation of Available
Transmission Capability ("ATC") and Total Transfer Capability ("TTC") over
transmission lines owned or controlled, in whole or in part, by MidAmerican.
The calculation of ATC and TTC as set forth in item (iii) was to be monitored by Potomac
Economics until a Transmission Service Coordinator ("TSC") became operational and began
calculating the ATC and TTC for the MEC system. Effective September 1, 2006, TransServ
International, Inc. became the TSC for MEC. Accordingly, Potomac Economics no longer
monitors the calculation of A TC and TTC.
To execute the monitoring plan, Potomac Economics routinely receives data from MEC that
allows us to monitor generation dispatch, transmission system congestion, and the Company's
operations and commercial activity durng periods of congestion. We also collect certain key
data ourselves, including OASIS data and market pricing data.
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MEC Monitoring Report: Fourth Quarter 2008 Overvew
The purose of this report is to provide the results of our monitoring activities and significant
events on the MEC system i for the fourh quarer of 2008.
A. Market Monitoring
Potomac Economics performs the market monitoring fuction on a routine basis, as well as
performing periodic reviews and special investigations. Our primary market monitoring is
conducted via regular examination of market data relating to transmission outages, congestion,
and transmission access. This involves examination of data on transmission outages and
curailments or other actions taken by MEC to manage congestion. Analyses of these data aid in
detecting congestion and whether market participants have full access to transmission service.
Aside from routine monitoring of transmission outages, we are sensitive to atyical events such
as price spikes, severe weather, and major generation outages that could have a negative impact
on the capability of the transmission system. These events warrant particular attention in our
monitoring for potential anti competitive conduct.
Our periodic review of market conditions and operations is based on operating data provided by
MEC, as well as data that we collect. This report contains our review of the fourh quarter of
2008. We divide the report into three sections. In the first section, we evaluate regional prices to
assess overall market conditions. In the second section, we summarize transmission congestion
in order to detect potential competitive problems. Congestion is identified by Transmission
Loading Relief ("TLR") procedures events of level 3 and higher on flow gates that are electrcally
close to the MEC transmission system. In the final section, we address potential anticompetitive
conduct. These analyses examine periods of congestion and evaluate whether MEC operating
activities may be anti competitive. The operating activities that we evaluate are generation
dispatch, wholesale purchases and sales, and transmission outages coincident with instances of
congestion.
In addition to our periodic reviews, we may be requested to or deem it necessar to undertake a
special investigation in response to specific circumstances or events. No such events occured
this quarer.
As specified in the monitoring plan, a draft of the findings has been submitted to MEC prior to submission to
the Commission. MEC had no comments.
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MEC Monitoring Report: Fourth Quarter 2008 Overview
B. Summary of Quarterly Report
1. Wholesale Prices and Transactions
Prices. We evaluate regional wholesale electrcity prices in order to provide an overview of
general market conditions. Wholesale prices have fluctuated throughout the quarter from
$IlWh to $IlWh. Power prices generally moved in patterns consistent with the
fluctuations in natual gas prices and load in the fourth quarter. This is consistent with
expectations and the market results historically. Based on our evaluation of wholesale electricity
prices in the MEC region, we did not identify a time period that merited a partcular focus.
Sales and Purchases. MEC engages in wholesale purchases and sales of power on both a short-
term and long-term basis. MEC short-term
Accordingly, we examine
periods when such anti competitive conduct may be possible.
2. Transmission Congestion
Curtailments. Congestion is managed on the MEC system by the Midwest iso though the use
ofTLR procedures. MEC is under the umbrella of the Midwest iso reliability authority.
However, the Midwest iso does not control its transmission assets, nor are its generating assets
registered with the Midwest iso. MEC serves as the balancing authority and transmission
operator for its service terrtory. Monitoring and reporting on the effectiveness of the Midwest
iso in managing congestion does not fall within the scope of our monitoring. However, TLR
events initiated by the Midwest iso provide a useful measure of congestion on the MEC
transmission system. Durng the period of study, there were 107 TLR events ofa level 3 or
higher within or electrically close to MEC's control area.
3. Potential Anticompetitive Conduct
Wholesale Sales and Purchases. We examine MEC sales and purchases delivered during the
quarer. We focus on real-time bilateral contracts because these best represent the spot price of
electricity and wil most closely reflect power prices that might arise on the MEC system under
conditions most conducive to market power. Under a hypothesis of market power, we would
expect high sales prices or lower purchase prices durng congested periods. Daily average
Redacted Version Page 3
MEC Monitoring Report: Fourth Quarter 2008 Overvew
transaction prices are volatile, ranging between $lMWh and $~Wh. We focused our
evaluation ofMEC's generation and transmission on days with congestion that may have
benefited MEC's net sales position. Our analysis indicated that MEC did not act
anticompetitively to create the congestion.
Dispatch. To fuher evaluate potential market power or manipulation issues, we examine
MEC's generation dispatch to determine the extent to which congestion may be caused or
exacerbated by uneconomic dispatch. Congestion can result natually when MEC or any utility
dispatches its units in a least-cost manner. Such congestion does not raise competitive concerns.
If a departre from least-cost dispatch ("out-of-merit" dispatch) occurs and causes congestion,
and this departe is not justified, then this raises potential competitive concerns.
U sing an estimated supply cure, we analyze MEC' s actual dispatch to determine whether the
actual dispatch departed significantly from what we estimate to be the most economic dispatch.
In instances when dispatch departed substantially from the estimated optimal dispatch at the
same time a congestion event occured that may have been beneficial to MEC's short-term
market positions, we evaluate the circumstances more carefully to determine if congestion was
created and/or exploited by MEC. The out-of-merit quantities include units on unplaned outage
and units that may not have been economic to commit. Hence, it wil tend to overstate the
quantity of generation that is trly out-of-merit. Our investigation found that all out-of-merit
dispatch durng the study period that had significant effects on transmission constraints was
justified. Hence, we do not find evidence of anti competitive conduct.
Transmission Outages. We evaluate MEC transmission outages in order to determine whether
outages may have contrbuted to the congestion events that occured during the study period.
There were 125 transmission outages during the quarter. Of these, 42 were coincident with TLR
events and appeared to be unplanned. We investigated these outages in detaiL.
We found that two of the outages significantly contrbuted to the congestion and were planned
less than two weeks in advance. Investigation into the outages revealed that they were justified.
Hence, we find no evidence of anticompetitive conduct related to the outages.
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MEC Monitoring Report: Fourth Quarter 2008
4. Conclusion
Our review did not detect any anticompetitive conduct associated with the Company's operation
of its transmission system or generation.
Overvew
C. Complaints and Special Investigations
We have not been contacted by the Commission or other entities regarding any special
investigation into MEC's market behavior, nor have we detected any conduct or market
conditions that would warrant a special investigation.
Redacted Version Page 5
MEC Monitoring Report: Fourth Quarter 2008 Prices and Transactions
II. WHOLESALE PRICES AND TRANSACTIONS
A. Prices
We evaluate wholesale electrcity prices in theMEC region in order to provide an overview of
general market conditions. Examining price movements can provide insight into specific time
periods that may merit furer investigation, although they are not definitive indicators of
anti competitive conduct.
MEC is not part of a centralized wholesale market where spot prices are produced transparently
in real time. Wholesale trading in the areas where MEC operates is conducted through bilateral
contracts. Figue 1 shows the bilateral contract prices as reported by Platts durng the quarter for
Mid-Continent Area Power Pool South ("MAPP South"), which is the pricing point most
proximate to the MEC system.
Figure 1: Wholesale Prices and Peak Load
Fourth Quarter 2008
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Because power prices are influenced by fuel cost and load levels, the figue also shows daily
peak load and natual gas prices at the Chicago City Gate translated to a power cost with an
assumed 8,000 btuWh heat rate. This value roughly corresponds to the marginal operating cost
Redacted Version Page 6
MEC Monitoring Report: Fourth Quarter 2008 Prices and Transactions
of a natual gas-fired combined cycle power plant. Figure 1 shows that electrcity prices were
generally influenced by both natual gas prices and load durng the quarter.
Figue 2 compares average Chicago City Gate natual gas prices with average MAPP South
power prices for the months of October through December 2008 with average prices during the
same period over the past three years.
Figure 2: Trends in Monthly Electrcity and Natural Gas Prices
October through December, 2005- 2008
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- Elcity Pre
140 14
~~ Natu Ga Pr
'"120 12
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Figue 2 shows that electricity prices have generally moved with natual gas prices over time.
Overall, our evaluation of wholesale electrcity prices in the MEC region did not indicate a time
period that warranted fuher investigation solely by virte of price patterns.
B. Sales and Purchases
MEC engages in wholesale purchases and wholesale sales of power. These transactions are both
firm and non-firm in natue. Figue 3 summarizes MEC's sales and purchase activity for trades
that had deliveries durng the fourth quarter of2008. We consider only short-term trades
because we are interested in transactions made by MEC that could provide MEC the opportity
to benefit from anti competitive behavior. Short-term transactions include all transactions that
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MEC Monitoring Report: Fourth Quarter 2008 Prices and Transactions
are less than one month in duration. Longer-term transactions generally occur at predetermined
prices that would not be directly affected by transitory periods of congestion that could be
created with anticompetitive actions. Additionally, short-term transaction prices are good
indicators of wholesale market conditions as they reflect the expectations of the market
paricipants.
Figure 3: Summary of MEC Sales and Purchases
Fourth Quarter 2008
Redacted
As the figue shows, MEC's
_ In general, a market parcipant exercising market power would be a short-term net
seller making short-term sales at high prices. In Section IV, we evaluate the prices durng
congested periods to detect potential anti competitive conduct.
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MEC Monitoring Report: Fourth Quarter 2008 Transmission Congestion
III. TRSMISSION CONGESTION
A. Overview
MEC is within the region for which the Midwest iso serves as the reliability coordinator.
However, neither its transmission assets nor its generating assets are controlled by the Midwest
iso. Moreover, it is not subject to the monitoring and market power mitigation measures in the
Midwest iso Tariff. MEC serves as the control area operator and transmission operator for its
own service terrtory.
B. Congestion
Congestion is primarily monitored and managed through the use of TLR procedures. These
procedures.invoke schedule curilments, system reconfiguation, generation re-dispatch, and
load shedding as necessar to relieve congestion by reducing flows below the first-contingency
transmission limits on all transmission facilities. The Midwest iso, in its role as reliability
coordinator for the region, manages all TLR procedures. Hence, the Midwest iso monitors the
power flows on all ofMEC's transmission facilities (or "flowgates") and invokes a TLR event
when the flow rises to within 95 percent of the transmission limit. MEC is only minimally
involved in the TLR process and, therefore, the initiation ofTLR events is not an area of
monitoring concern. We evaluate TLR events in order to identify periods of congestion and
determine whether MEC actions may have caused or exploited such events.
F or the puroses of our analysis, we define an hour as congested when a TLR event of level 3 or
higher is invoked durng that hour on a flowgate that is significant to MEC's operations. We
consider a flow gate significant to MEC's operations if (l) the associated transmission facilities
are in one of the following control areas: MEC, Allant Energy Corporate Services, LLC-West,
or Dairyland Power Cooperative; (2) MEC, Allant Energy, or Dairyland Power Cooperative is
the transmission provider on the facilities, or (3) MEC's generation affects the flowgate
significantly (as defined by a generation shift factor that is higher than three percent or lower
than negative thee percent). For the period of study, we identified 107 such TLR events. These
107 TLR events affected 22 flowgates.
In Section IV, we examine MEC's operating activities to determine whether they may have
engaged in anti competitive conduct to cause the congestion, and whether MEC was able to profit
from it.
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MEC Monitoring Report: Fourth Quarter 2008 Monitoring for Anticompetitive Conduct
iv. MONITORIG FOR ÅNTICOMPETITIVE CONDUCT
In this section, we evaluate the available market and operating data to identify any evidence of
anti competitive conduct or market manipulation. The market monitoring plan calls for the
market monitor to identify anti competitive conduct, which includes the operation of either
MEC's transmission assets or its generation assets to create transmission congestion and erect
barers to rival suppliers, thereby raising wholesale electrcity prices. To identify potential
concerns, we analyze MEC's wholesales sales in the first subsection below, its dispatch of its
generation assets in the second subsection, and its transmission outages in the third subsection.
A. Wholesale Sales and Purchases
In this subsection, we examine transaction data to determine whether the prices at which MEC
made sales or purchases may raise concerns regarding anti competitive conduct that would
warrant fuher investigation. We are paricularly interested in periods when transmission
congestion arses. IfMEC was engaging in anticompetitive conduct to create the congestion, it
could benefit by making sales at higher prices in the constrained areas or purchases at lower
prices in areas adjacent to constrained areas.
We examined the real-time bilateral transactions made by MEC using MEC internal sales
records. We focus on real-time transactions (traded the same day) because they best represent
the spot price of electrcity and would be more likely to reflect any effort to exercise market
power. We would expect relatively high-priced sales or low-priced purchases durng periods of
transmission congestion if anticompetitive conduct was occurng.
Figue 4 shows the daily average prices received by MEC for real-time bilateral sales and
purchases. The blue shading indicates days when curailments occured that could have
potentially benefited MEC's position in the real-time bilateral markets.
To link curilment events with days when curilments could have potentially benefited MEC's
position in the real-time bilateral markets, we calculate a measurement called the maximum daily
effective market position ("Max Effect"). The Max Effect indicates the trade volume likely
affected by a particular curailment. Periods with curailments and high Max Effect levels are
further evaluated to determine if the transactions were done at pricing levels that raise potential
competitive concerns.
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MEC Monitoring Report: Fourth Quarter 2008 Monitoring for Anticompetitive Conduct
The Max Effect is calculated in two steps. First, for each hour, constraint, and delivery point, we
calculate a shift-factor-weighted2 volume of trades by summing the product of the shift factors
and the net trade volumes (purchases minus sales). These values represent the implied flows
across each constraint that are caused by all ofMEC's purchases and sales. For each hour and
each constraint, the values are summed across all delivery points. Second, from this set of
values, we select the highest hourly value of the day for any single constraint. If the highest
value is positive, it appears on Figue 4 as the Max Effect.
Fi2ure 4: Prices Received for MEC Sales and Purchases
Redacted
The weighted average daily prices ofMEC's sales range between $l!Wh and $~Wh. The
volume-weighted average daily sales price was $~Wh. On days with curilments that may
have benefited MEC's net sales position, the average sales price was $~Wh. The weighted
average daily prices ofMEC's purchases range between $~Wh and $~Wh. The volume-
weighted average daily purchase price was $~Wh. On days with potentially beneficial
curailments, the average purchase price was $~Wh. At a broad level, MEC's weighted
average purchase prices and sales prices durng times of potentially beneficial congestion were
about the same other times during the quarter. Durng these times, the sales prices were about
$l!Wh higher and the purchase prices were about $l! higher then average. Overall these
statistics do not raise significant competitive concerns.
2 The relationship between constrined paths and market delivery points is determned through shift factors,
which are the portion of power injected at the market delivery point that flows over the constrained
transmission path. Shift factors between -.01 and .01 are set to zero.
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MEC Monitoring Report: Fourth Quarter 2008 Monitoring for Anticompetitive Conduct
We evaluated the six days that had a positive Max Effect greater than 25MW in more detail and
found the following:
· October 10,2008: The congestion was on flowgate _ At the time of the high Max
Effect,-
· October 11,2008: The congestion was on flowgate.. At the time of the high Max
Effect,-
· October 12, 2008: The congestion was on flowgate.. At the time of the high Max
Effec_.
· October 15, 2008: The congestion was on flowgate.. At the time of the high Max
Effect, there were no sales at prices greater than the weighed average sales price for the
quarter and no purchases at prices less than the weighted average purchase price for the
quarer.
· October 30, 2008: The congestion was on flowgate.. At the time of the high Max
Effect,-
. November 27, 2008: The congestion was on flowgate ..4 At the time of the high
Max Effect,
Except for October 12 and November 27, the transactions were not at prices significantly more
favorable than the prevailng prices during the days immediately before and after when the
curilments were in effect. Hence, the curailments do not indicate potential competitive
concerns. Ou primar concern is whether MEC created the congestion anticompetitively
through generation and transmission operations. Accordingly, we focus paricular attention on
3 Flowgate
4 Flowgate
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MEC Monitoring Report: Fourth Quarter 2008 Monitorig for Anticompetitive Conduct
October 12 and November 27 when we evaluate MEC's generation dispatch and trnsmission
outages in the remainder of this section.
B. Generation Dispatch
In this subsection, we examine the Company's generation dispatch to determine the extent to
which congestion may have been the result of uneconomic dispatch. Therefore, we first evaluate
MEC's dispatch during the study period to determine whether it was consistent with the least-
cost use of its resources. Congestion can result naturally when MEC or any utility attempts to
dispatch its units in a least-cost manner. This does not raise competitive concerns. If a departe
from least-cost dispatch ("out-of-merit" dispatch) occurs unjustifiably and it causes congestion,
this can raise potential competitive concerns. We consider a unit to be out-of-merit when it is
dispatched, but could have been replaced by lower-cost generation that was not dispatched.
In order to identify out-of-merit dispatch, we first estimate MEC's marginal cost cure or
"supply cure".5 To estimate marginal costs, we used incremental heat rate cures, fuel cost, and
other variable operations and maintenance cost data provided by MEC. This allowed us to
calculate marginal costs for all ofMEC's units. We ordered the marginal cost segments for each
of the units from lowest cost to highest cost to represent the least-cost method of meeting various
levels of demand. For our analysis, the cure is re-calculated daily to account for fuel price
changes, planned maintenance outages, and planed deratings. Figue 5 shows the estimated
supply cure for a representative day durg the time period studied.
As Figure 5 shows, the marginal cost of supply increases as more units are required to meet
demand, as expected. We used each day's estimated marginal cost cure as the basis for
estimating MEC's least-cost dispatch for each hour in the quarer. In general, this wil not be the
exact level ofleast-cost dispatch because we do not consider all operating constraints that may
require MEC to depar from what our method identifies as the most economic use of its
resources.
5 We use the term marginal cost loosely in this context. The value we calculate is actually the incremental
production cost and does not include opportity costs, risks, and other factors not reflected in the incremental
production cost.
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MEC Monitoring Report: Fourth Quarter 2008 Monitoring for Anticompetitive Conduct
Fi2ure 5: MEC Supply Curve
Redacted
F or example, our analysis does not model generator commitments, assuming instead that all
available generators are online. While market monitoring resources could have been expended
to refine the estimated generator commitment and dispatch to make it correspond more closely to
actual operating parameters (i.e., start costs, run-time and down-time constraints, etc.), we
believe this simplified incremental-operating-cost approach is adequate to detect instances of
significant out-of-merit dispatch that would have a material effect on the market.
When a unit with relatively low ruing costs is justifiably not committed, our least-cost
dispatch wil overstate the out-of-merit quantities because it wil identify the more expensive unit
being dispatched in its place as out-of-merit. This may result in higher levels of out-of-merit
dispatch during low-load periods when it is not economic to commit certin units.
Other justifiable operating factors that cause the out-of-merit dispatch to be overstated are energy
limitations, ancilary services, and ramp rates. An example of an energy limitation is the
governental imposition of environmental permits that only allow a plant to operate for a
specific number of hours per year. Because the plant is stil capable of operating at full load for
a shorter time period, the condition does not result in a planned outage or derating. The
necessity to limit operating hours can cause the out-of-merit values to be overstated.
Ancilary services requirements such as spinning reserves, system ramp rate limitations, and
AGC control requirements can make it operationally necessary to dispatch a number of units at
par load rather than having the least expensive unit fully-loaded. These operational
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MEC Monitoring Report: Fourth Quarter 2008 Monitoring for Anticompetitive Conduct
requirements can cause the out-of-merit values to be overstated. For our analysis, the accuracy
of a single point is not as important as the trend or any substantial departes from the typical
levels.
Our analysis does not model ramp rates6. We attempt to avoid ramping periods by focusing on
on-peak hours from hour ending 12 to hour ending 22. However, in the event of a unit retuing
from outage during peak hours, our analysis may overstate the out of merit quantity because the
unit is not immediately available at full capacity.
Figue 6 shows the daily maximum out-of-merit dispatch for the peak hours of each day in the
study period. Also shown in the figue are days with congestion (i.e., a TLR event rated 3a or
higher in effect) represented as blue bars. For these days, the out-of-merit dispatch displayed
corresponds to the hour when the impact of the out-of-merit dispatch on the congested path was
at its daily maximum. The figue also shows "Path Impact" (red bars). This is a calculation of
the power flow change on the congested facilities as a result of the out-of-merit dispatch. In
other words, if dispatch had been "in-merit", flow on the congested path would have been lower
by the amount shown. The impact was determined using generation shift factors.7
6 Ramp rate is defined as the expected response rate of a generator measured in MW /minute and is used to
determine the amount of time necessar for a unit to change output levels.
7 Generation Shift Factors are defined as the incremental increase or decrease in flow on a flowgate divided by an
incremental increase or decrease in a Generation Resource's output.
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MEC Monitoring Report: Fourth Quarter 2008 Monitoring for Anticompetitive Conduct
Figure 6: Out-of-Merit Dispatch and Congestion Events
60
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As the figue shows, there were seven days (November 17, December 6, December 7, December
16, December 17, December 19 and December 20) when out-of-merit dispatch contrbuted at
least 25 MW of increased flow over congested paths durig the study period. We also include
the two days that were identified in the sales and purchases analysis for fuher evaluation
(October 12 and November 27). We examined these days in more detail and found the following
events:
. October 12: This day was selected for review in the "max effect" analysis of Sales and
Puchases presented above. The out-of-merit was minimal at 20 MW, and there was no
congestion that was electrically closes to the MEC area.
. November 17: _ was derated due to a primary air fan bearing failure forcing a mil
out of service. The reduced output from _ increased flows on flowgate ",8
which was subject to a TLR event durng the deration.
8 Flowgate
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MEC Monitoring Report: Fourth Quarter 2008 Monitorig for Anticompetitive Conduct
. November 27: This day was selected for review in the "max effect" analysis of Sales
and Puchases presented above. The out-of-merit was minimal at 20 MW. This out-of-
merit generation dispatch did not contrbute to the congestion in the region.
. December 6 and 7: _ was in unplanned outage to replace a leakng flue gas vent
line expansion joint, and _ was at par load because control problems with a
primary air fan damper made it necessary to take a mil out of service. The reduced
output from the" station increased flows on , which was subject to a
TLR event durig the time.
. December 16 and 17: _ trpped on high dr level and _ was at part-load
due to a mil being out of service. The reduced output from the "station increased
flows on , which was subject to a TLR event durng the time.
. December 19 and 20: _ was in an unplanned outage to repair a tube leak in the
finishing superheater, and _ was in unplaned outage to clear the slag tap at the
bottom of the boiler. The reduced output from the "station increased flows on
flowgate .., which was subject to a TLR event during the time.
Our review of the documentation associated with these operational events indicated that all of the
out-of-merit dispatch durng the study period that had significant effects on transmission
constraints was justified. Hence, we do not find evidence of anti competitive conduct.
C. Transmission Outages
We evaluate MEC transmission outages in order to determine whether outages may have led to
the congestion events experienced durng the time period of our report. We reviewed entries in
the Midwest iso Outage Scheduler that indicate the date, duration, and nature of the
transmission system outages. There were 125 transmission outage entres for the MEC area
durng the study period. Of the 125 outages, 42 were concurent with congestion events, lasted
at least two hours, and were requested less than two weeks in advance. We examined these
outages in more detail to determine the Line Outage Distribution Factor (LODF)9 of the
transmission element that was in outage relative to the monitored element of each flowgate that
was subject to a TLR event oflevel 3a or higher. The LODF indicates how much the outage
9
Line Outage Distribution Factors (LODFs) are a sensitivity measure of how a change in a line's status affects
the flows on other lines in the system. On an energized line, the LODF calculation determines the percentage
of the present line flow that wil be transferred to other transmission lines after the outage of the line.
Redacted Version Page 17
MEC Monitoring Report: Fourth Quarter 2008 Monitoring for Anticompetitive Conduct
affects the monitored element. Hence, an outage with a large LODF indicates an outage that
potentially had a significant contribution to the need for a TLR event. We found two outages
that had a significant impactlO on the monitored elements, which we evaluated in more detaiL.
The was forced out of service for three days
~e outage was taken to repair a bad switch. One phase of the switch was arcing
because it would not close completely and it had a bad interrpter. The LODF was significant to
flowgate "Ii which had a TLR event durg the outage.
The were forced out of
service together for 32 hours staring on The Lehigh line is the source for
the Webster transformer. The outage was needed to replace cracked post insulators on the.
The LODF was significant to flowgate "12 and flowgate"13 which had
TLR events during the outage.
These outages did not occur on the days identified above when MEC had purchases and sales
positions that could have potentially benefited. Based on our review of outages, we find that the
line outages were justified, and find no other issues that would raise potential competitive
concerns.
D. Conclusions
Based on our overall analysis ofMEC's conduct and the market outcomes, we find no evidence
of anticompetitive conduct durng the period of study.
io A transmission outage is considered significant if over 3.5 percent of the pre-outage flow on the outaged line is
transferred to the monitored element (pre-contingent) of the constraint (line outage distrbution factor ~ 3.5
percent).
Flowgate
12 Flowgate
II.
Redacted Version Page 18
lm
KCNOMIæ
&t reF 1" iret!-. he '-'_.., ':' i..;..,;
2009 FEB 23 AM 8= 4S
QUARTERLY MARKT MONITORIG REpORT
ON
PACIFiCORP
Fourth Quarter of 2008
Issued by:
Potomac Economics, Ltd.
Independent Market Monnor
CONFIDENTIAL MATERIL REDACTED
REDACTED
PacifCorp Monitoring Report: Fourth Quarter 2008 Table of Contents
Table of Contents
I. Overview .................................................................................................................. 1
A. Market Monitoring................ ................................................... ....................... 2
B. Sumar of Quarerly Report ........................................................................ 3
C. Complaints and Special Investigations........................................................... 5
II. Wholesale Prices and Transactions ....................................................................... 6
A. Prices...............................................................................................................6
B. Sales and Purchases ........................................................................................ 9
III. Transmission Congestion ................................................................................... 11
A. Overview......... .......................................................... .................................... 11
B. Transmission Operating Procedures ............................................................. 12
IV. Transmission Access ............................................................................................. 13
V. Monitoring for Anticompetitive Conduct ........................................................... 15
A. Wholesale Sales and Purchases........................ .................................. .......... 15
B. Generation Dispatch...................................................................................... 17
C. Transmission Outages...................................................................................22
D. Analysis of Curilments...............................................................................23
E. Conclusions on Monitoring for Anticompetitive Conduct...... ........... .......... 26
Redacted Version
PacifiCorp Monitoring Report: Fourth Quarter 2008 List of Figures
List of Figures
Figue 1: Southwest Wholesale Prices and Peak Load...................................................... 6
Figue 2: Nortwest Wholesale Prices and Peak Load...................................................... 7
Figue 3: Southwest Trends in Monthly Electrcity and Natual Gas Prices..................... 8
Figue 4: Nortwest Trends in Monthly Electricity and Natual Gas Prices..................... 9
Figue 5: Summary of PAC Sales and Puchases............................................................ 10
Figue 6: Disposition of Requests for Transmission Service on the PAC System .......... 13
Figue 7: Disposition of Transmission by Duration of Service ....................................... 14
Figue 8: Prices Received for PAC Sales and Purchases................................................. 16
Figue 9: PAC Supply Cure ....................................... .................................................... 18
Figue 10: Out-of-Merit Dispatch and Congestion Events ..............................................20
Figue 11: Curtailment and Curilment Deviation Fourh Quarter 2008.......................25
Redacted Version
PacifiCorp Monitoring Report: Fourth Quarter 2008 Overview
I. OVERVIEW
In connection with MidAmerican Energy Holdings Company's ("MEHC's") acquisition of
PacifiCorp ("PAC" or the "Company") in Federal Energy Regulatory Commission
("Commission") Docket No. EC05-ll 0-000, the Commission accepted market monitoring plans
for PAC and MidAmerican Energy Company ("MEC") and Potomac Economics was retained as
the independent market monitor for both companies. The plans established that separate
quarterly reports be produced for each company. This is the market monitoring report for the
fourh quarer of 2008 for PAC.
The market monitoring plan for PAC is designed to detect any anticompetitive conduct from
operation of the company's transmission system, including any transmission effects from the
company's generation dispatch. As stated in the plan:
The Market Monitor shall provide independent and impartial monitoring and
reporting on: (i) generation dispatch ofPacifiCorp, and scheduled loadings on
constrained transmission facilities; (ii) details on binding transmission constraints,
such as transmission refusals, or other relevant information; (iii) operating guides and
other procedures designed to relieve transmission constraints and the effectiveness of
these guides or procedures in relieving constraints; (iv) information concerning the
volume of transactions and prices charged by PacifiCorp in the electrcity markets
affected by these companies before and after the companies implement redispatch or
other congestion management actions; (v) PacifiCorp's calculation of Available
Transmission Capability ("ATC") and Total Transfer Capabilty ("TTC") over
transmission lines owned or controlled, in whole or in par, by PacifiCorp; and (vi)
plans for constrction by PacifiCorp of expansions to its transmission facilities.
To execute the monitoring plan, Potomac Economics routinely receives data from PAC that
allows us to monitor generation dispatch, transmission system congestion, and the Company's
operational and commercial activity durg periods of congestion. We also collect certain key
data ourselves, including OASIS data and market pricing data.
The purose of this report is to provide the results of our monitoring activities and significant
events on the PAC system! during the fourh quarter of 2008.
As specified in the monitoring plan, a draft of the findings has been submitted to PAC prior to submission to the
Commission. PAC had no substative comments.
Redacted Version Page 1
PacifiCorp Monitoring Report: Fourth Quarter 2008 Overview
A. Market Monitoring
Potomac Economics performs the market monitoring fuction on a regular basis, as well as
performing periodic reviews and special investigations. Our primary market monitoring is
conducted by way of regular analysis of market data relating to transmission outages, congestion,
and transmission access. This involves data on transmission outages, transmission reservation
requests, Available Transfer Capability ("ATC"), and curailments or other actions taken by PAC
to manage congestion. Analyses of these data aid in detecting congestion and determining
whether market participants have full access to transmission service.
In addition to the regular monitoring of outages and reservations, we also remain alert to other
significant events, such as price spikes, major generation outages, and extreme weather events
that could adversely affect transmission system capability and give rise to the opportity for
anti competitive conduct.
Our periodic review of market conditions and operations is based on operating data PAC
provides us, as well as other data that we collect on a routine basis. Our review consists of four
parts. First, we evaluate regional prices and transactions to provide an assessment of overall
market conditions. Second, we summarize transmission congestion in order to detect potential
competitive problems. Congestion is identified by schedule curilments on the PAC
transmission system. Third, we evaluate the disposition of transmission service requests to
analyze transmission access and to detect whether there are circumstances on the PAC system
that require closer analysis. Finally, to monitor for anticompetitive conduct, we examine periods
of congestion and evaluate whether PAC operating activities raise concerns that PAC appears to
be behaving anti-competitively. The operating activities that we evaluate are wholesale
purchases and sales, generation dispatch, transmission security events, and the curailment and
reduction of schedules.
In addition to our periodic reviews, we may from time-to-time be asked to or deem it necessary
to undertake a special investigation in response to specific circumstaces or events. No such
events occured this quarter.
Redacted Version Page 2
PacifCorp Monitoring Report: Fourth Quarter 2008 Overview
B. Summary of Quarterly Report
1. Wholesale Prices and Transactions
Prices. We evaluate regional wholesale electrcity prices to provide an overview of general
market conditions. Over the course of the quarter, Northwest and Southwest electricity prices
were fairly constant relative to other quarters. Prices remained correlated with load and natual
gas prices. Overall, the pattern did not indicate a partcular time period of competitive concern.
Sales and Purchases. PAC engages in wholesale purchases and sales of power on both a short-
term and long-term basis. PAC short-term
examine periods that may raise competitive concerns in Section V.A.
2. Transmission Congestion
We studied congestion on the PAC system by examining schedule curailments and reductions.
In the period of study, PAC implemented 439 curailments and schedule reductions totaling
27,601 MWh across 15 paths. We utilize curilments as an indication of congestion. In
addition, we analyze the accuracy of curtilments because unjustified curailments can be used to
foreclose competition.
3. Transmission Access
We evaluate the patterns of transmission requests and their disposition to determine whether
market participants have had diffculty accessing the PAC transmission network. If requests for
transmission service are frequently denied, this may indicate an attempt to exercise local market
power. The volume of approved requests was higher than the levels observed in the third quarter
of2008 and the four quarter of 2007. The volume of refusals was lower and thus the approval
rate was higher than it was in the prior quarer.
4. Potential Anticompetitive Conduct
Wholesale Sales and Purchases. We examined the transactions that PAC executed durng the
period of study. We focus on real-time transactions because these best represent the spot price of
electrcity and wil most closely reflect power prices that might arise on the PAC system under
Redacted Version Page 3
PacifiCorp Monitoring Report: Fourth Quarter 2008 Overview
conditions most conducive to market power. Under a hypothesis of market power, we would
expect high sales prices or lower purchase prices durng times when transmission congestion
arises. Real-time daily average transaction prices ranged between $~Wh and $~. We
focused our evaluation of PAC's generation and transmission on days with congestion that may
have benefited PAC's net sales position. Our analysis indicated that PAC did not act anti-
competitively to create the congestion.
Dispatch. To fuer evaluate competitive issues, we examine PAC's generation dispatch to
determine the extent to which congestion may be caused or exacerbated by uneconomic dispatch.
Congestion can result natually when PAC or any utility attempts to dispatch its units in a least-
cost maner. Such congestion does not raise competitive concerns. If an unjustified departe
from least-cost dispatch ("out-of-merit" dispatch) occurs, causing congestion, competitive
concerns arise. Our investigation found that out-of-merit dispatch durng the study period that
had significant effects on transmission constraints was justified. Hence, this analysis did not
reveal evidence of anti competitive conduct.
Transmission Outages. We evaluate PAC transmission securty events and transmission outages
in order to determine whether these events may have unduly impacted market outcomes. We
focused our analysis on seven outage events that were associated with curailments. We
investigated these events and found no evidence of anti competitive conduct.
Curtailments. We analyze PAC curtilments to determine whether curilments are being
properly implemented. PAC manages congestion, prioritization of schedules, and low voltage
events with schedule curailments. We scrutinized 40 curailments that were at least 75 MW
above what we estimate to be justified by net schedules and TTC. We were able to justify all but
foureen of the curtilment deviations. We do not find that PAC could have benefited from these
curilments because they did not fall on the six days when PAC was actively buying and sellng
in constrained areas. Moreover, given that 439 curilments were implemented over the quarter,
we do not find the foureen curtailments that are not fully justified to be evidence of
anti competitive conduct.
Redacted Version Page 4
PacifiCorp Monitoring Report: Fourth Quarter 2008 Overview
C. Complaints and Special Investigations
We have not been contacted by the Commission or other entities regarding PAC's market
behavior. We also have not detected any conduct or market conditions that would warrant a
special investigation. There were no complaints lodged against PAC regarding transmission
access durng the study period.
Redacted Version PageS
PacifCorp Monitoring Report: Fourth Quarter 2008 Wholesale Prices and Transactions
II. WHOLESALE PRICES AND TRANSACTIONS
A. Prices
We evaluate wholesale electrcity prices in the PAC region in order to provide an overview of
general market conditions. Examining price movements can provide insight into specific time
periods that may merit fuer investigation, although they are not definitive indicators of the
presence or absence of anti competitive conduct.
PAC is not part of a centralized wholesale market where spot prices are produced transparently
in real time. Wholesale trading in the areas where PAC operates is conducted under bilateral
contracts. Because of its geographic expanse, we consider two sets of pricing points to represent
the Northwest and Southwest portions of PAC's system. Figue 1 shows the bilateral contract
prices for Four Comers and Mona (representing the Southwest) and Figue 2 shows the bilateral
contract prices for Mid Columbia and Mona2 (representing the Nortwest).
Figure 1: Southwest Wholesale Prices and Peak Load
Fourth Quarter of 2008
100 30,000
_PeakLoad
- Four Corners Price
- - - SoCal Gas Cost
'- Mona Price
25,000
75
25
20,000
I..'"..
æ
~15,000 "C
j
10,000
5,000
0 0
~,,"-~,,"-0'"0'"0'"IlCJ IlCJ IlCJ..~~O ~P ~~~~~~o,~~~~~"."f "S ".'V ""'
Date
2 Mona is a relatively iliquid and lightly trded market point in central Uta. It is included in both figues to
provide a baseline for comparison between them.
Redacted Version Page 6
PacifiCorp Monitoring Report: Fourth Quarter 2008 Wholesale Prices and Transactions
Figure 2: Northwest Wholesale Prices and Peak Load
Fourth Quarter of 2008
100 30,000
_PeakLoad
- Mid Columbia Price
- ~ - PG&E Malin Gas Cost
-Mona Price
25,000
75
20,000
I ~rI
.~
ii
~
15,000 :;
==..
10,000
25
5,000
0
~..~~~..0'"0'"0'"Il(¡Il(¡Il(¡
..P ~"~"s:"~~();f!fl~o,~'l~I;~.."I "S ..~'V ~~
Date
o
System load data is also shown because of the expected correlation with power prices. Natural
gas prices are also shown because natual-gas-fired units are most often the marginal unit
supplying the grd, and because fuel costs comprise the vast portion of a generating unit's costs.
For the Northwest analysis we use the daily price of natual gas deliveries at PG&E Malin (at the
Northern California Border) translated to a power cost assuming an 8,000 btuWh heat rate.
This number roughly corresponds to the fuel cost portion of the operating cost of a natual gas
combined cycle power plant. For the Southwest comparison, we use SoCal Border Gas (at the
Southern California Border) price and apply the same power-cost conversion.
Prices for bilateral contract transactions are compiled and published by commercial pricing
sureys. The bilateral pricing data shown in the figue above is published by Platts. The Mid
Columbia pricing location includes a collection of hydroelectric units along the Columbia River
in Oregon and Washington, and represents the value of electrcity in the Pacific Northwest. The
Four Comers location is at the southern end of the PAC transmission system where New Mexico,
Redacted Version Page 7
PacifiCorp Monitoring Report: Fourth Quarter 2008 Wholesale Prices and Transactions
Colorado, Arizona, and Utah meet. Prices at Four Comers represent the value of electricity in
the Desert Southwest.
Figue 2 shows that power prices at both Mid Columbia and Four Comers are generally
correlated with fluctuations in natual. gas prices and load. The power prices for Mid Columbia
did increase in mid December due to both natural gas prices and load. The load shown in the
figues is the total of the Eastern and Western portions of PAC. However, the increase is drven
by the Western region. Mid Columbia is located in the Western region and thus had a larger
price increase than Mona or Four Comers.
The next analysis compares the average Four Comers and Mid Columbia power prices for the
period from October though December 2008 with average prices durng the same period over
the past three years. These results are shown together with the average Platts SoCal Border and
PG&E Malin natual gas prices discussed above. As the figues show, electricity prices have
generally been correlated with natual gas prices over time.
Figure 3:
120
100::
~~80
~
'C~
f
60
r:..40:!..Q-=~20
0
Southwest Trends in Monthly Electricity. and Natural Gas Prices
Fourth Quarter, 2005-2008
12
_ Four Corners
-- SoCal Border Gas
10
s..
8 ~
~~
6 .~~
~
4 'Es"z
2
o
October November December
Redacted Version Page 8
PacifCorp Monitoring Report: Fourth Quarter 2008 Wholesale Prices and Transactions
Figure 4: Northwest Trends in Monthly Electrcity and Natural Gas Prices
Fourth Quarter, 2005-2008
120
o
12
_ Four Corners
~ SoCal Border Gas
100
i
~ 80
~
.i=..i:
:i 60
-=
jl~
.¡ 40'"
'å.c~
10
~
8 !X
l
'"~
6 .i=
It
~
4 f
~z
20 2
o
October November December
Overall, our evaluation of wholesale electrcity prices in the PAC region did not indicate a time
period that merits fuher investigation solely by virte of price patterns.
B. Sales and Purchases
PAC engages in wholesale purchases and sales of power, both finn and non-finn transactions.
Figue 5 summarzes PAC's sales and purchase activity for trades that delivered durng the
fourth quarter of 2008. We consider only short-tenn trades because we are interested in
transactions made by PAC where they could have benefited from any potential market abuse
during this time period. Short-tenn transactions include all transactions that are less than one
month in duration. Longer-tenn transactions generally occur at predetennined prices that would
not be directly affected by transitory periods of congestion. Additionally, short-tenn transaction
prices are good indicators of wholesale market conditions during periods of congestion.
Redacted Version Page 9
PacifiCorp Monitoring Report: Fourth Quarter 2008 Wholesale Prices and Transactions
Figure 5: Summary of PAC Sales and Purchases
Fourth Quarter of 2008
Redacted
Figue 5 shows that PAC's short-term
t a broad leve
. In general, a
market participant exercising market power would be a net seller, taking advantage of periods of
transmission congestion to . Accordingly, in Section V.A,
we evaluate the real-time sales prices durng congested periods to detect potential
anticompetitive conduct.
Redacted Version Page 10
PacifiCorp Monitoring Report: Fourth Quarter 2008 Transmission Congestion
III. TRANSMISSION CONGESTION
A. Overview
PAC is a member of the Western Electrcity Coordinating Council (WECC). In WECC, regional
congestion is primarily managed by ensurng that the scheduled flows do not exceed flow limits
on specified paths.3 However, because actual flows sometimes exceed scheduled flows due to
loop flow (or parallel path flow), additional congestion management procedures are employed.
Power flows in the WECC follow a relatively predictable pattern. Most of the flows over the
network occur on the high-voltage facilities that roughly correspond to the geographic perimeter
ofWECC. The transmission system in the interior of the WECC boundaries operates at a lower
voltage and carres less power. The topology of the transmission network causes power to
circulate around the perimeter of the system. Typically, power transfers from the Pacific
Northwest are scheduled south to California. However, sometimes this north-to-south power
flow results in unscheduled increases in flow around the perimeter of the WECC system in the
clockwise direction, passing through the PAC system and then on to California from the west
through Arizona.
The PAC system consists of two control areas: PACW in Northern California, Western and
Central Oregon and Southeast Washington, and PACE which is in Wyoming, Southeast Idaho,
and Utah. PAC extends across a broad geographical area, having a presence in six states. It has
15,800 miles of transmission lines and approximately 10,000 MW of owned or controlled net
generation capacity. PAC operates a significant portion of the transmission facilities that provide
north-to-south flow along the eastern perimeter ofWECC.4 These flows pass through a key
interface that is operated by PAC known as Path 20 (sometimes referred to as Path C). Path 20
was a "qualified path" in the nort-to-south direction under the UFRPs used by WECC.5
3 This is in contrast to how congestion is managed in the Eastern Interconnect where congestion management
generally is focused on actul flows on flowgates as opposed to scheduled flows on contract paths.
4 While nort-to-south flow is common, patterns of schedules and generation dispatch sometimes cause south-to-
north flow.
5 WECC uses UFRPs when actual flow exceeds scheduled flow on a "qualified path". There are a limited
number of qualified paths identified based on certin criteria that include the path having a history of
unscheduled flow. The UFRP consists of a series of nine steps that are intended to relieve the congestion
through the operation of equipment and, ultimately, the curailment of schedules.
Redactèd Version Page 11
PacifCorp Monitoring Report: Fourth Quarter 2008 Transmission Congestion
However, effective September 15,2008, the path was disqualified by the WECC operating
committee.
In this section we investigate congestion on the PAC system by examining curilments and
transmission service request refusals. We also examine plans for constrction of expansions to
transmission facilities and found cases where the planed expansions may reduce congestion in
constrained areas. Our review of PAC's planned expansions does not raise competitive
concerns.
B. Transmission Operating Procedures
During the period of study, PAC did not invoke any UFRPs. However, it did implement 439
curailments (including cases when curilments were reversed) and schedule reductions totaling
27,601 MWh across twelve paths.
Curilments can be initiated when one of four conditions occurs: (1) the path is overscheduled
(due to conditions on the transmission system causing a reduction in TTC); (2) a schedule with a
higher priority reservation displaces a schedule with a lower priority reservation; (3) a low-
voltage constraint is binding; or (4) actual flows exceed the capabilty of the path. The accuracy
of these curailments and schedule reductions are evaluated in Section V.
Redacted Version Page 12
PaCifiCorp Monitoring Report: Fourth Quarter 2008 Transmission Access
iv. TRASMISSION ACCESS
A main component of the market monitoring fuction is to evaluate transmission availability on the
PAC system. In this section, we evaluate access to the transmission network by analyzing the
disposition of transmission requests. The patterns of transmission requests and their disposition are
helpful in determining whether market partcipants have had diffculty accessing the PAC
transmission network.
In order to make this evaluation, we calculate the volume of requested capacity that spanned the
time period under study. For example, if a request was approved in January for service in June, we
categorize that as an approval for June. Because requests var in magnitude and duration, we
assign a total monthly volume (GWh) associated with a request, which provides a common
measure for all types of requests. Hence, a yearly request for 100 MW has rights for every hour of
the month for which the request spans, just a like a monthly request. A request covering less than
the entire month is assigned the hours between its sta and stop time.
Figue 6 shows the breakdown of transmission service requests in each month from October 2007
through December 2008 and sumarizes the disposition of the requests.
Figure 6: Disposition of Requests for Transmission Service on the PAC System
October 2007 - December 2008
3~~
I~=I in250
ti 2~~""
l 150
's
~-a 1~~~
50
0
20 20
Redacted Version Page 13
PacifiCorp Monitoring Report: Fourth Quarter 2008 Transmission Access
The figue shows that the total volume of approved requests durng the fourh quarter of 2008 was
slightly higher than the third quarer of 2008 and the fourh quarter of 2007. The volume of refused
service requests during the quarter was lower than the preceding quarter, averaging 833 GWHr.
Hence, the approval rate increased from 96 percent for the third quarter of 2008 to 96.5 percent for
the fourh quarter 2008. Investigating fuer, we found that 71 percent of the total refusal volume
over the quarter was refused because the customer failed to return the system impact study and/or
otherwise complete the application process. As such, we accept these refusals as legitimate. This
indicates that PAC has not uneasonably restrcted access to its transmission system.
To evaluate the disposition of transmission requests fuher, we compare the volume of
transmission requests over the study period by increment of service to the requests from the
corresponding period twelve months prior. This comparson is shown in Figue 7.
Figure 7: Disposition of Transmission by Duration of Servce
70,00
;:: Refu
60,00 -Awwd
~50,00""
j 40,00I
'S 30,00
J
~20,00
10,00
0
!
;
~i iQ
¡
Fom1 Qur 20
ii ;Q I ~ i
Fom1 Qur 20
Figue 7 indicates an increase in the volume of approvals for all categories of service. There was a
substantial increase in the volume of refused yearly requests. However, 76 percent ofthe volume
of refused yearly requests is accounted for by the customer not continuing with the process as noted
above. As a result, our review of the disposition of transmission requests does not raise any
anticompetitive concerns.
Redacted Version Page 14
PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
V. MONITORIG FOR ÁNTICOMPETITIVE CONDUCT
In this section, we evaluate the available market and operating data to identify any evidence of
anti competitive conduct or market manipulation. The market monitoring plan calls for
identifying anticompetitive conduct, which includes conduct associated with the operation of
either PAC's generation assets or its transmission assets that can create transmission congestion
or erect barriers to rival suppliers, thereby raising electrcity prices. To identify potential
concerns, we analyze PAC's wholesale sales in the first subsection below, its dispatch of
generation assets in the second subsection, operation of transmission assets in the third
subsection, and PAC's transmission flows and congestion in the fourh subsection.
A. Wholesale Sales and Purchases
We examine sales and purchase data to determine whether the prices at which PAC transacted
power may raise concerns regarding anti competitive conduct that would warant fuher
investigation. We are particularly interested in periods when transmission congestion arises. If
PAC were engaging in anticompetitive conduct to create the congestion, it could potentially
benefit by making sales at higher prices in constrained areas or purchases at lower prices adjacent
to constrained areas. We examied the real-time bilateral transactions made by PAC using PAC
internal records. We focus on real-time transactions because they best represent the spot price of
electricity.
Competition is facilitated by the ability of rivals to reserve and schedule transmission service.
This ability wil be limited if A TC is unavailable, transmission requests are refused, or schedules
are curailed. Curailments are also an indicator of congestion because they can be made when a
path is over scheduled. If PAC's ability to curil schedules is being abused, we would expect to
see systematically higher prices for sales or lower prices for purchases coincident with
curilments.
Figue 8 shows the daily average prices received by PAC for real-time bilateral sales and
purchases. The figure also indicates days when curtilments occured that could have potentially
benefited PAC's position in the real-time bilateral markets. A curilment may impact system
Redacted Version PagelS
PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
flows at market delivery points to the benefit of PAC's net position at those delivery points.6 The
maximum daily effective market position (labeled as "Max Effect" in the figure) is also
displayed. This is the impact of PAC's sales and purchase transactions on the congested paths,
calculated as the sum of the products of the volume of each market position and the shift factor of
the delivery point to the curiled path. "Max Effect" identifies periods when PAC is actively
buying or selling in constrained areas and, therefore, could benefit itself by restrcting other
suppliers' access. The figure displays this value for the path and hour that has the maximum
value for each day.
Figure 8: Prices Received for PAC Sales and Purchases
Fourth Quarter of 2008
Redacted
The volume weighted average daily sales prices ranged from $~Wh to $~Wh and average
$~Wh. We say a day has a "beneficial curilment" if PAC is a net seller at a delivery point
6 The relationship between constrained paths and market delivery points is determined through shift factors,
which are the portion of power injected at the market delivery point that flows over the constrained transmission
path.
Redacted Version Page 16
PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
where the curilment restrcts supply or PAC is a net purchaser where the curilment increases
supply. On days when potentially beneficial curilments occured, the weighted average daily
sales prices average $~. The volume weighted average daily purchases prices ranged
from -$lth to $~Wh and the average was $~. On days with potentially beneficial
curilments, the weighted average purchase price was $~Wh. These prices do not show a
pattern of PAC benefiting from curtailments.
Though the overall price patterns do not raise concerns, we selected October 5, October 13,
October 14, December 8, December 18 and December 25 for closer examination. We chose
these days because they had maximum daily effective market positions greater than or equal to 40
MW and volume-weighted average daily sales prices greater than $~Wh or volume-weighted
average daily purchase prices less than $~Wh. Our primary concern is whether PAC
anticompetitively created the congestion through generation and transmission operations.
Accordingly, we focus particular attention on these days when we evaluate PAC's generation
dispatch and transmission outages in the remainder of this section. We also review the accuracy
of all curtailments in Section D below.
B. Generation Dispatch
To fuher evaluate whether PAC's conduct raises any anticompetitive concerns, we examine the
company's generation dispatch to determine the extent to which congestion may have been the
result of uneconomic dispatch of generation by PAC. Therefore, we first examine PAC's
dispatch during the study period to determine whether it was consistent with the least-cost use of
its resources. Congestion can result natually when PAC or any utility dispatches its units in a
least-cost manner, and does not raise competitive concerns in such circumstances. If a departe
from least-cost dispatch ("out-of-merit" dispatch) occurs unjustifiably and it causes congestion,
this effect can raise potential competitive concerns. We consider a unit to be out-of-merit when it
is dispatched, but could have been replaced by lower-cost generation that was not dispatched.
Redacted Version Page 17
PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
To identify out-of-merit dispatch, we first estimate PAC's marginal cost cure or "supply
cure".7 We used incremental heat rate cures, fuel costs, and other variable operations and
maintenance cost data provided by PAC to estimate marginal costs. This allowed us to calculate
marginal costs for PAC's units. We ordered the marginal cost segments for each of the units
from lowest cost to highest cost to represent the cost of meeting various levels of demand in a
least-cost manner. For our analysis, the cure is re-calculated daily to account for fuel price
changes, planned maintenance outages, and planned deratings.
Figue 9 shows the estimated supply curve for a representative day durg the time period
studied. As the figue shows, the marginal cost of supply increases as more units are required to
meet demand, as expected.
Fieure 9: PAC Supply Curve
Redacted
We used each day's estimated marginal cost cure as the basis for estimating PAC's least-cost
dispatch for each hour in the quarter. In general, this wil not be the exact level ofleast-cost
7 We use the term marginal cost loosely in this context. The value we calculate is actully the incremental
production cost and does not include opportity costs, risks, and other factors not reflected in the incremental
production cost.
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PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
dispatch because we do not consider all operating constraints that may require PAC to depar
from our estimate of the least-cost dispatch. The analysis is limited to peak hours to avoid times
of ramping and commitment issues which prevent achievement of the theoretical least-cost
dispatch.
This analysis does not model generator commitments, assuming instead that all available
generators are online. While market monitoring resources could have been expended refining the
estimated generator commitment and dispatch to make it correspond more closely to actual
operating parameters (i.e., start costs, ru-time and down-time constraints, etc.), we believe this
simplified incremental-operating-cost approach is adequate to detect instances of significant out-
of-merit dispatch that would have a material effect on the market.
When a unit with relatively low ruing costs is justifiably not committed, our least-cost dispatch
wil overstate the out-of-merit quantities because it wil identify the more expensive unit being
dispatched in its place as out-of-merit. This may result in higher levels of out-of-merit dispatch
during low-load periods when it is not economic to commit certin units.
Other justifiable operating factors that cause the out-of-merit dispatch to be overstated are energy
limitations and ancilary services. An example of an energy limitation is a governental
regulation limiting the number of hours a plant may ru in a year. Since the unit is physically
capable of producing, the limitation does not result in a planned outage or derating. The
necessity to limit the hours of plant operation can cause the out-of-merit values to be overstated.
Ancilary services requirements such as spinning reserves, system ramp rate limitations, and
AGC control requirements can make it operationally necessary to dispatch a number of units at
part load rather than having the least expensive unit fully-loaded. These operational requirements
can cause the out-of-merit values to be overstated.
The out-of-merit quantities include units on unplanned outage since a sudden unplaned outage
may be an attempt to uneconomically withhold generation from the market. Hence, it wil tend to
overstate the quantity of generation that is trly out-of-merit. For our analysis, the accuracy of a
single point is not as importt as the trend and any substantial departes from the typical levels.
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PacifCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
Figue 10 shows the daily maximum "out-of-merit" dispatch for the peak hours of each day in the
study period. Also shown in the figue are days when PAC curailments were made on paths that
were loaded by out-of-merit dispatch. These days are represented as blue bars. For these days
when potential generation-induced curilments occured, the out-of-merit dispatch displayed
corresponds to the hour when the impact oftheout-of-merit dispatch on the congested path was
at its daily maximum. The figue also shows "Path Impact" (red bars). This is a calculation of
the power flow change on the curiled paths as a result of the out-of-merit dispatch. In other
words, if dispatch had been "in-merit", flow on the curtiled path would have been lower by the
amount shown. The impact of out-of-merit dispatch was determined using generation shift
factors8.
Figure 10: Out-of-Merit Dispatch and Congestion Events
Fourth Quarter of 2008
1600
1400
~1200~'-
-è~=1000==Oi
-=
~800
Co.~Q..600'C~~..Q.!400=0
200
0
320
280
240
200 ~
't
160 =
S'..
120 ~~
80
40
o~ ~ ~ ~ ~ ~ ~~~~~~~ ~~~~~~
oJ \(0 ~P ~ .J \(0 ~o L.i& ,.i& L.i& ,.i& L.i& ,.i& ~~ ~~ ~~. ~~ k~ ~~~~~~~ ?~~~~~ ~~~~~
Date
8 Generation Shift Factors are defined as the incremental increase or decrease in flow on a flowgate divided by an
incremental increase or decrease in a Generation Resource's output.
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PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
As the figure shows, there were foureen days when out-of-merit dispatch was at least 500 MW
and contrbuted at least 70 MW of increased flow over congested paths durng the study period.
We inquired fuher into these days and the days noted above based on PACs market positions
and found the following.
. October 5: This day was selected for review in the Sales and Purchases analysis
above. There was congestion on _ in hour ending 21, but the 471 MW out-
of-merit generation dispatch durng this hour did not contrbute to the congestion.
. October 13 and 14: _ had an 18 hour unpla~ due to a bad
bearng on a boiler feed pump drve tubine. Also, __ had a two-day
unplanned outage to repair a boiler tube leak in the economizer. This contrbuted
to high flows and curilments on the
.was off-line for 34 hour~e ofthe . At the same time, __ was
off-line on the last day of a 57-hour outage to repair the bottom ash removal
~m drve chain. This capacity was replaced with combined cycle generation in
_ which caused high loadings and curilments on _
.October 30: extended a maintenance outage by a week to repair the
bottom ash hopper. This capacity was replaced by combined cycle generation in
.., which caused high loadings and curilments on _ .
. November 4: initiall tr ed off-line on automatic action from the
trip of the . However, the unit
stayed down though to repair a feedwater~and a
boiler tube leak in the water wall section of the boiler. Also, __ came
off-line to repair a tube leak in the water wall section of the boiler. This capacitywas ~hich contrbuted to congestion and curilments on
the '_'path.
. November 6: was at part load retuing from the outage described
on October 30. This capacity was replaced by combined-cycle generation in ..,
which caused high loadings and curtailments on _.
. November 10: had an unplaned outage to repair a tube lead in
the water wall section of the boiler. This capacity was replaced with combined-
cycle generation in", which caused high loadings and curailments on _.
. December 1: _ was at part-load because it was being used for regulation
and was propositioned for the afternoon pickup in demand.
. December 8: This day was selected for review in the Sales and Purchases analysis
above. There was congestion on _ in hour ending 21, but the 366 MW out-
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PacifCorp Monitoring Report: Fourth Quarter 2008 Potential Ánticompetitive Conduct
of-merit generation dispa~ur made only a small contrbution (31
MW) to the congestion. __ was showing out-of-merit up, but it
was at its dispatch minimum.
· December 17: tripped off-line because ofa failure of the main
transformer. Also on that same day, the _ unit was in an unplanned outage
following a trp on caused by bad contacts in the generator field
breaker. This contrbuted to congestion and curilments on the'-
. December 18: This day was selected for review in the Sales and Puchases
analysis above. There was congestion on ' , in hour ending
., but the 744 MW out-of-merit generation dispatch durng this hour made only a
small contrbution (28 MW) to the congestion. Most of the out-of-merit dispatch
indicated was comparing dispatch of units in the PACE control area and with a
unit in the P ACW control area. However, Path C limitations prevent a merit order
dispatch across the combined areas.
· December 25: _ was at par-load because it was bei~ regulation
and was propositioned for the afternoon pickup in demand. __ was at part
load due to condenser freezing. Much of the out-of-merit dispatch indicated was
comparing dispatch of a unit in the PACE control area and with another unit in the
P ACW control area. However, Path C limitations prevent a merit order dispatch
across the combined areas.
Based on our review of the outage information in the distubance reports, the outage logs, and
information garnered from discussions with PAC personnel, we conclude that the aforementioned
outages were justified and did not constitute attempts to engage in anticompetitive behavior.
C. Transmission Outages
We evaluate PAC securty events9 to determine whether PAC's operation of transmission assets
may have contrbuted to the congestion events that occured durng the study period of the report.
We also evaluate transmission outages recorded in PAC's "Compass" system, its transmission
outage logging system. Between the two systems we found seven transmission outage events that
were associated with schedule curilments that had curilment deviations as presented in the
next section below. We did not find any additional transmission outage that coincided with a
time when PAC had purchase and sales positions that may have benefited from congestion as
presented above. We reviewed these seven outages and found the following:
9 Securty events are defined as transmission security/reliability events that may impact the Provider's ability to
schedule transactions.
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PacifCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
. This seventeen-hour planed outage occured on
The purose of the outage was to replace guy wire insulators on one of
the strctues. The outage reduced the transfer capability across _, which led to
schedule curailments.
. : This ten-hour forced outage affected
. The outage was taken to replace a damaged structue, to isolate a series capacitor,
and to install some instruentation. The outage contributed to _ loadings and
associated schedule curailments.
.: This foureen-minute p~on
ausing schedule curilment on the '._ path in
both directions. The outage was taen to remove a reactor from service.
.: This twelve-day outage started on . The
~ was taken to replace strctues. The outage reduced the transfer capability across
_, which led to schedule curilments.
.: This six-day outage started on . The
purpose was to replace sleeves used to connect transmission cables. The outage reduced
the transfer capability across _, which led to schedule curilments.
.: This twelve-hour ~cured on
, causing schedule curilment on the "__' path.
The outage was taken because two high speed transfer trp relay packages were out of
service due to equipment failure. The repair work included replacing strctues and
insulators.
.
curves is minimaL.
Through our review of the records, and conference calls with PAC staff, we find that the outages
were justified and did not find evidence that the events were part of a strategy to engage in
anticompetitive behavior.
D. Analysis of Curtailments
Under PAC operating procedures, path flows can be managed by curtailing transactions
scheduled over the path. This can provide the opportity for anti competitive conduct by
initiating curailments when they are not necessar. By selectively initiating these procedures,
PAC may have the ability to influence power prices in the region to its benefit.
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PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Ánticompetitive Conduct
Accordingly, we analyze the transmission schedules to determine whether curailments are being
initiated properly. PAC initiates curtailments when one of four conditions occurs: (1) the path is
overscheduled (due to conditions on the transmission system causing a reduction in TTC); (2) a
schedule with a higher priority reservation displaces a schedule with a lower priority reservation;
(3) a low voltage constraint is binding, or (4) actual flows exceed the capability of the path.
To be over-scheduled, the net schedules (the sum of firm and non-firm schedules minus the sum
of schedules that provide counter-flow) must exceed the TTC (less the scheduled amount of
capacity reservations where applicable). 10
We analyzed the 15 paths where curailments were initiated by PAC. We compare aggregated ex
post net schedules to TTC. Ex post net schedules are the net schedules actually realized at the
end of the operating hour. PAC makes the curailment decision twenty minutes prior to the
operating hour. However, NERC standards also allow schedules (referred to as "etags") to be
submitted up until twenty minutes prior to the hour. Because it takes ten minutes to evaluate a
submitted schedule, the resulting net schedule can change from what it was when PAC initially
made the curailment decision. There may also be emergency etags submitted later than twenty
minutes prior to the hour. Yet, this ex ante data is not available. Thus, utilizing ex post data
provides only an approximation.
The curailment deviations calculated and reported in the analysis below equal the TTC value
minus the aggregated ex post net schedules. The curilment deviations are limited to a ceiling
equal to the curailment amount and a floor of zero, since we are less concerned with under
curailments. In the absence of emergency tags or tags otherwise submitted after PAC makes its
curailment decision, if a path is over-scheduled and the curailments are accurate, this value
should be close to zero.
i I Figue 11 shows the results of this analysis.
10 Effective April 28, 2008, PAC utilizes forecasted values for Path C capacity when making its curilment
decisions. Accordingly, when evaluatig curailments on the path "PACE to Path C", we utilize the forecasted
capacity value rather than TTC.
11 The other reasons for curilments aside from the path being over scheduled wil not necessarly result in a
curtilment deviation close to zero.
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PacifCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
Curtailment and Curtailment Deviation Fourth Quarter 2008
. Cmnt Devitiono Cmnt.
.
ooo
o lI
~/~/./~/ /~/ /~/~/ /~i'l'~ /
Da
We reviewed additional documentation on curailments when the curailment deviations were at
least 75MW. There were 40 such cases that affected eight paths. We requested additional
information regarding these cases and found legitimate reasons for all but foureen. of them.
These reasons include securty events, transmission outages, and events where actual flow
exceeds line limits.
Of the 40 curtailment deviations that were at least 75 MW, 25 of these were for'
.'. Although the reason logged for these curilments was usually "overscheduled", we
reviewed all of these against actual flows and eliminated 15 where the flows were within 50 MW
of the limit. We cannot determine that the remaining ten were legitimate based on the data
provided. In general, there were a series of line outages that reduced the capacity on Path C. The
logs show that Path C was requirg near constant attention from the operators as it frequently
went in and out of alarm. The operators were frequently adjusting transformer taps and, in some
cases, redispatching generation to manage Path C flows. However, we find that schedule
curailments were overused. These ten curailment deviations occured on six days of the quarer
and averaged 128 MW.
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PacifiCorp Monitoring Report: Fourth Quarter 2008 Potential Anticompetitive Conduct
On October 8 and 9, 2008, there were
events were due to operators failing to implement revised tools and procedures. PacifiCorp
management identified these events and reminded the operators of the revised procedures on
December 18, 2008.
In summary, 439 curailments were implemented over the quarer. We were able to justify all but
foureen of the curtilment deviations. We do not find that PAC could have benefited from these
curailments because they did not fall on the six days when PAC was actively trading in the
constrained areas. Hence, we do not find the foureen curailments that are not fully justified to
be evidence of anti competitive conduct.
E. Conclusions on Monitoring for Anticompetitive Conduct
Based on our analysis of PAC's conduct and the market outcomes, we find no conduct by PAC
that raise potential competitive conduct durng the period of study.
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