20090526Qly Market Monitoring Reports.pdf

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QUARTERLY MARKT MONITORING REpORT
ON THE
MmÁMERICAN ENERGY COMPANY
For the
First Quarter 2009
Issued by:
Potomac Economics, Ltd.
Independent Market Monitor'
CONFIDENTIAL MATERIAL REDACTED
MEC Monitoring Report: First Qnarter 2009 Table of Contents
Table of Contents
I. Overview .................................................................................................................... i
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 Purchases .........................................................................................7
III. Transmission Congestion ........................................................................................ 9
A. Overview..........................................................................................................9
B. Congestion ....................................................................................................... 9
iv. Monitoring for Anticompetitive Conduct ........................................................... 10
A. Wholesale Sales and Purchases .............................. ....... ............... ........ ......... 10
B. Generation Dispatch ...................................................................................... 13
C. Transmission Outages.. .................... ......... ............ ......... ...... ..... ................ ..... 17
D. Conclusions.................................................................................................... 18
Redacted Version
MEC Monitoring Report: First Quarter 2009 List of Figures
List of Figures
Figue 1: Wholesale Prices and Peak Load.... .... ...... ........ .......... .... ..................... .............. ............. 6
Figure 2: Trends in Monthly Electrcity and Natural Gas Prices................................................... 7
Figure 3: Summary ofMEC Sales and Purchases .........................................................................8
Figure 4: Prices Received for MEC Sales and Purchases............................................................ 11
Figure 5: MEC Supply Curve ......................................................................................................14
Figure 6: Out-of-Merit Dispatch and Congestion Events ............................................................ 16
Redacted Version
MEC Monitoring Report: First Quarter 2009 Overvew
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- 1 10-000, the Commission accepted the market monitorig 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 first
quarter of 2009 for MEC.
The market monitoring plan for MEC is designed to detect any anticompetitive 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 ofMidAmerican, and scheduled loadings on
constrained transmission facilities; (ii) information concerning the volume of
transactions and prices charged by MidAmerican in the electrcity markets affected
by MidAmerican before and after MidAmerican implements redispatch or other
congestion management actions; and (iii) MidAmerican'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 A TC 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 A TC 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 during periods of congestion. We also collect certain key
data ourselves, including OASIS data and market pricing data.
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MEC Monitoring Report: First Quarter 2009 Overview
The purpose of this report is to provide the results of our monitoring activities and significant
events on the MEC system i for the first quarter of 2009.
A. Market Monitoring
Potomac Economics performs the market monitoring function 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
curtailments 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, weare sensitive to atypical 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 anticompetitive 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 first quarter of 2009.
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 flowgates that are electrcally close to
theMEC 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 anticompetitive. 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 quarter.
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: First Quarter 2009 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
$IIWh to $.MWh. Power prices generally moved in patterns consistent with the
fluctuations in natural gas prices and load in the first 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 particular 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 anticompetitive conduct may be possible.
2. Transmission Congestion
Curtailments. Congestion is managed on the MEC system by the Midwest iso through 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 territory. 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. During the period of study, there were 97 TLR events of a 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
quarter. We focus on real-time bilateral contracts because these best represent the spot price of
electrcity 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 during congested periods. Daily average
Redacted Version Page 3
MEC Monitoring Report: First Quarter 2009 Overview
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 naturally 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-meriC dispatch) occurs and causes congestion,
and this departe is not justified, then this raises potential competitive concerns.
Using an estimated supply curve, 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 during the study period that had significant effects on transmission constraints was
justified. Hence, we do not find evidence of anticompetitive conduct.
Transmission Outages. We evaluate MEC transmission outages in order to determine whether
outages may have contributed to the congestion events that occurred during the study period.
There were 94 transmission outages during the quarter. Of these, 35 were coincident with TLR
events and appeared to be unplanned. We investigated these outages in detaiL.
We found that three of the outages significantly contributed 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 anti competitive conduct related to the outages.
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MEC Monitoring Report: First Quarter 2009
4. Conclusion
Our review did not detect any anticompetitive conduct associated with the Company's operation
of its transmission system or generation.
Overview
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.
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MEC Monitoring Report: First Quarter 2009 Prices and Transactions
II. WHOLESALE PRICES AND TRANSACTIONS
A. Prices
We evaluate wholesale electrcity prices in the MEC region in order to provide an overview of
general market conditions. Examining price movements can provide insight into specific time
periods that may merit further investigation, although they are not definitive indicators of
anticompetitive 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. Figure 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
First Quarter 2009
150 5,000
.. Peak Load
- Wholesale Price
120 4,000
I 90 3,000 ~
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Because power prices are influenced by fuel cost and load levels, the figure also shows daily
peak load and natural gas prices at the Chicago City Gate translated to a power cost with an
assumed 8,000 btukWh heat rate. This value roughly corresponds to the marginal operating cost
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MEC Monitoring Report: First Quarter 2009 Prices and Transactions
of a natural gas-fired combined cycle power plant. Figue 1 shows that electricity prices were
generally influenced by both natural gas prices and load during the quarter.
Figure 2 compares average Chicago City Gate natural gas prices with average MAPP South
power prices for the months of January through March 2009 with average prices during the same
period over the past three years.
Figure 2: Trends in Monthly Electricity and Natural Gas Prices
January through March, 2006- 2009
120 12
.. Electricity Price
__ 100 .. Natural Gas Price 10.:~~----¡.""8 U'-80'"~CI --OJ "".1:'-~CIOJè6.1:
'0 60 ~
.1:'"..eoOJe"CI~'ii.CI 40 4 ='i ..eo'"ZCIÕ.:~20 2
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January February March
Figure 2 shows that electrcity prices have generally moved with natual gas prices over time.
Overall, our evaluation of wholesale electricity prices in the MEC region did not indicate a time
period that warranted further 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 nature. Figure 3 summarizes MEC's sales and purchase activity for trades
that had deliveries during the first quarter of2009. We consider only short-term trades because
we are interested in transactions made by MEC that could provide MEC the opportnity to
benefit from anticompetitive behavior. Short-term transactions include all transactions that 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 beRedacted Version Page 7
MEC Monitoring Report: First Quarter 2009 Prices and Transactions
created with anti competitive actions. Additionally, short-term transaction prices are good
indicators of wholesale market conditions as they reflect the expectations of the market
participants.
Figure 3: Summary ofMEC Sales and Purchases
First Quarter 2009
Redacted
As the figure shows, MEC's short-term
At a broad level, the fact that MEC's short-term
_ In general, a market participant 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 anticompetitive conduct.
j
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MEC Monitoring Report: First Quarter 2009 Transmission Congestion
III. TRANSMISSION 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 though the use of TLR procedures. These
procedures invoke schedule curailments, system reconfiguration, generation re-dispatch, and
load shedding as necessary 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 of TLR 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.
For the purposes of our analysis, we define an hour as congested when a TLR event oflevel 3 or
higher is invoked during that hour on a flowgate that is significant to MEC's operations. We
consider a flowgate 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, Alliant 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 three percent). For the period of study, we identified 97 such TLR events. These
97 TLR events affected 19 flowgates.
In Section iv, we examine MEC's operating activities to determine whether they may have
engaged in anticompetitive conduct to cause the congestion, and whether MEC was able to profit
from it.
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MEC Monitoring Report: First Quarter 2009 Monitoring for Anticompetitive Conduct
iv. MONITORING FOR ANTICOMPETITIVE 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 anticompetitive conduct, which includes the operation of either
MECs transmission assets or its generation assets to create transmission congestion and erect
barrers to rival suppliers, thereby raising wholesale electricity prices. To identify potential
concerns, we analyze MECs 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 further investigation. We are particularly interested in periods when transmission
congestion arises. If MEC was engaging in anti competitive 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 electricity and would be more likely to reflect any effort to exercise market
power. We would expect relatively high-priced sales. or low-priced purchases during periods of
transmission congestion if anticompetitive conduct was occurrng.
Figure 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 MECs position in the real-time bilateral markets.
To link curtailment events with days when curtailments could have potentially benefited MECs
position in the real-time bilateral markets, we calculate a measurement called the maximum daily
effective market position ("Max Effecf'). The Max Effect indicates the trade volume likely
affected by a particular curtailment. Periods with curtailments 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: First Quarter 2009 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 Figure 4 as the Max Effect.
Fi2ure 4: Prices Received for MEC Sales and Purchases
Redacted
The weighted average dai.1y prices ofMEC's sales range between $lMWh and $.MWh. The
volume-weighted average daily sales price was $~Wh. On days with curtailments that may
havebenefited MEC's net sales position, the average sales price was $~Wh. The weighted
average daily prices ofMEC's purchases range between $lMWh and $~Wh. The volume-
weighted average daily purchase price was $~Wh. On days with potentially beneficial
curtailments, the average purchase price was also $~Wh. At a broad level, MEC's weighted
average purchase prices and sales prices during times of potentially beneficial congestion were
about the same as other times during the quarter. During these times, the sales prices were about
$lMWh higher and the purchase prices were the same as the average. Overall these statistics
do not raise any competitive concerns.
2 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. Shift factors between -.01 and .01 are set to zero.
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MEC Monitoring Report: First Quarter 2009 Monitoring for Anticompetitive Conduct
We evaluated the five days that had a positive Max Effect greater than 75MW coincident with
either higher sales prices or lower purchase prices than the prevailing prices at the time. We
found the following:
. January 13, 2009: The congestion was on flowgate ..3 At the time of the high Max
Effect,
. February 11,2009: The congestion was on flowgate.. At the time of the high Max
Effect,
. February 26, 2009: The congestion was on flowgate.. At the time of the high Max
Effect,
. March 22, 2009: The congestion was on flowgate ..4 At the time of the high Max
Effect,
. March 24, 2009: The congestion was on flowgate.. At the time of the high Max
Effect,
Except for March 22 and March 24, the transactions at delivery points electrcally close to the
congestion were not at prices significantly more favorable than the prevailing prices at other
delivery points. Hence, the curtailments do not indicate potential competitive concerns. Our
primary concern is whether MEC created the congestion anticompetitively through generation
and transmission operations. Accordingly, we focus particular attention on March 22 and March
3
4
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MEC Monitoring Report: First Quarter 2009 Monitoring for Anticompetitive Conduct
24 when we evaluate MEC's generation dispatch and transmission 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
MECs dispatch during the study period to determine whether it was consistent with the least-
cost use of its resources. Congestion can result natually 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 MECs marginal cost curve or
"supply cure".5 To estimate marginal costs, we used incremental heat rate curves, 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 curve is re-calculated daily to account for fuel price
changes, planned maintenance outages, and planned deratings. Figure 5 shows the estimated
supply curve for a representative day during 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 curve as the basis for
estimating MECs least-cost dispatch for each hour in the quarter. 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 depart 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 opportnity costs, risks, and other factors not reflected in the incremental
production cost.
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MEC Monitoring Report: First Quarter 2009 Monitoring for Anticompetitive Conduct
Fie:ure 5: MEC Supply Curve
Redacted
For 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 running costs is justifiably not committed, our least-cost
dispatch will overstate the out-of-merit quantities because it will 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 certain units;.
Other justifiable operating factors that cause the out-of-merit dispatch to be overstated are energy
limitations, ancillary services, and ramp rates. An example of an energy limitation is the
governmental imposition of environmental permits that only allow a plant to operate for a
specific number of hours per year. Because the plant is still 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
part load rather than having the least expensive unit fully-loaded. These operational
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MEC Monitoring Report: First Quarter 2009 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 depares 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.
Figure 6 shows the daily maximum out-of-merit dispatch for the peak hours of each day in the
study period. Also shown in the figure 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 figure 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 necessary 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: First Quarter 2009 Monitoring for Anticompetitive Conduct
Figure 6:Out-of-Merit Dispatch and Congestion Events
400 80
"Congested
350 .. Path Impact 70--MaxOOM,-
~300 60'-
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50 :i
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Date
As the figure shows, there were three days (January 14, January 15 and March 24) when out-of-
merit dispatch contributed at least 10 MW of increased flow over congested paths during the
study period. We also include the two days that were identified in the sales and purchases
analysis for further evaluation (March 22 and March 24). We examined these days in more
detail and found the following events:
. January 14, 2009:
load while lower cost units at the
_ were at part-load. The reduced load at .. added to the flows on flowgate ii
as near minimum-
that was in TLR for some of this time. The units were committed to distribute operating
reserves across multiple units.
load while lower cost units at the
~ere at part-load. The reduced load at" added to the flows on flowgate ~
as near minimum-. January 15,2009:
8 Flowgate
9 Flowgate
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MEC Monitoring Report: First Quarter 2009 Monitoring for Anticompetitive Conduct
that was in TLR for some of this time. The units were committed to distribute operating
reserves across multiple units.
. March 22, 2009: This date was examined due to the "Max Effect" value associated with
flowgate "and purchase prices presented in the prior section. We determined that
Out-of Merit dispatch did not have a significant affect on flowgate".
· March 24, 2009: trpped on the
_ and The equipment trpped due to
caused by A portion of its capacity was
replaced with generation at which added to the flows on
flowgate .. that was in TLR for some of this time.
Our review of the documentation associated with these operational events indicated that all of the
out-of-merit dispatch during the study period that had significant effects on transmission
constraints was justified. Hence, we do not find evidence of anticompetitive conduct.
C. Transmission Outages
We evaluate MEC transmission outages in order to determine whether outages may have led to
the congestion events experienced during the time period of our report. We reviewed entres in
the Midwest iso Outage Scheduler that indicate the date, duration, and nature of the
transmission system outages. There were 94 transmission outage entries for the MEC area
during the study period. Ofthe.94 outages, 35 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 Distrbution Factor (LODF)!O of the transmission
element that was in outage relative to the monitored element of each flowgate that was subject to
a TLR event of level 3a or higher. The LODF indicates how much the outage 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 three outages that had a
significant impact!! on the monitored elements, which we evaluated in more detaiL.
10
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.
11 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 distribution factor? 3.5
percent).
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MEC Monitoring Report: First Quarter 2009 Monitoring for Anticompetitive Conduct
was out of service for a ten-hour planned maintenance
outage starting on . The outage was taken to . The LODF
was significant to flowgate .., which had a TLR event during the outage.
was taken out of service for 2.5 days starting on _
_ This was a planned outage The LODF was
significant to flowgate "12, which had TLR events during the outage.
as forced out of service for 4 days startng on
A structure that went down during severe weather conditions was replaced.
The LODF was significant to flowgate .., which had TLR events during the outage.
Only the third outage occurred on the days identified above when MEC had purchases and sales
positions that could have potentially benefited. However, this outage was not near the
constraints or delivery points identified in the purchases and sales analysis. Based on our review
of outages, we find that the line outages were justified and no other issues 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 during the period of study.
12 Flowgate
Redacted Version Page 18
~
.
r-,: .F... t'" ~'~ J i .! . .
\1 ~,r'
1 ;,.~_ '..-)"). °7.~J" u
REDACTED
QUARTERLY MARKT MONITORING REpORT
ON
PACIFiCORP
First Quarter of 2009
Issued by:
Potomac Economics, Ltd.
Independent Market Monitor
CONFIDENTIAL MATERIAL REDACTED
PacifiCorp Monitoring Report: First Quarter of 2009 Table of Contents
Table of Contents
I. Overview ................................................................................................................... 1
A. Market Monitoring.................................................................................... ....... 2
B. Sumar of Quarterly 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 ...........................................................16
A. Wholesale Sales and Purchases ........... ...... .... ..... ........................ .... ........... .... 16
B. Generation Dispatch ...................................................................................... 18
C. Transmission Outages.................................................................................... 22
D. Analysis of Curtailments............................................................................... 23
E. Conclusions on Monitoring for Anticompetitive Conduct.. .... ......... ..... ........ 26
Redacted Version
PacifCorp Monitoring Report: First Quarter of 2009 List of Figures
List of Figures
Figure 1: Southwest Wholesale Prices and Peak Load, First Quarter of 2009.................. 6
Figure 2: Northwest Wholesale Prices and Peak Load, First Quarter of 2009 .................. 7
Figure 3: Southwest Trends in Monthly Electricity and Natural Gas Prices..................... 8
Figure 4: Northwest Trends in Monthly Electricity and Natural Gas Prices..................... 9
Figure 5: Summary of PAC Sales and Purchases ........... ..... .... ...... .............. .................... 10
Figure 6: Disposition of Requests for Transmission Service on the PAC System.......... 13
Figure 7: Disposition of Transmission by Duration of Service ....................................... 14
Figure 8: Prices Received for PAC Sales and Purchases................................................. 17
Figure 9: PAC Supply Curve...........................................................................................19
Figure 10: Out-of-Merit Dispatch and Congestion Events.............................................. 21
Figure 11: Curtailment and Curailment Deviation .........................................................25
Redacted Version
PacifiCorp Monitoring Report: First Quarter of 2009 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. EC05-1 10-000, the Commission accepted market monitoring plans
for PAC and MidAmerican Energy Company ("MEe") 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
first quarter of 2009 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 of PacifiCorp, 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 electricity 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 ("ATe") and Total Transfer Capability ("TTC") over
transmission lines owned or controlled, in whole or in part, by PacifiCorp; and (vi)
plans for construction 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 during periods of congestion. We also collect certain key
data ourselves, including OASIS data and market pricing data.
The purpose of this report is to provide the results of our monitoring activities and significant
events on the PAC system) during the first quarter of2009.
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 substantive comments.
Redacted Version Page 1
PacifiCorp Monitoring Report: First Quarter of 2009 Overview
A. Market Monitoring
Potomac Economics performs the market monitoring function 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 curtailments 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 opportnity for
anticompetitive 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 curailments 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 antipompetitive 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 circumstances or events. No such
events occurred this quarter.
Redacted Version Page 2
PacifCorp Monitoring Report: First Quarter of 2009 Overview
B. Summary of Quarterly Report
1. Wholesale Prices and Transactions
Prices. We evaluate regional wholesale electricity prices to provide an overview of general
market conditions. Over the course ofthe quarter, Northwest and Southwest electricity prices
were fairly constant relative to other quarers. 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 wholesale
we evaluate
the prices of real-time transactions during congested periods in Section V.A to detect potential
anticompetitive conduct.
2. Transmission Congestion
We studied congestion on the PAC system by examining schedule curtailments and reductions.
In the period of study, PAC implemented 358 curtailments and schedule reductions totaling
9,648 MWh across fifteen paths. We utilize curtailments as an indication of congestion. In
addition, we analyze the accuracy of curtailments 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 difficulty 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 first quarter
of 2008 and lower than the fourth quarter of 2008. Although the volume of refusals was higher
than it was in the same quarter of the prior year, we are primarily interested in approved
volumes. Our review of the disposition of transmission requests does not indicate
anticompetitive behavior.
Redacted Version Page 3
PacifiCorp Monitoring Report: First Quarter of 2009 Overview
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
electricity and will most closely reflect power prices that might arise on the PAC system under
conditions most conducive to market power. Under a hypothesis of market power, we would
expect high sales prices or lower purchase prices during times when transmission congestion
arises. Real-time daily average transaction prices ranged between .MWh and ~Wh. We
focused our evaluation of PAC's generation and transmission on days with congestion that may
have benefited PAC's net sales position.
Dispatch. To further 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 naturally when PAC or any utility attempts to dispatch its units in a least-
cost manner. Such congestion does not raise competitive concerns. If an unjustified departre
from least-cost dispatch ("out-of-merit" dispatch) occurs, causing congestion, competitive
concerns arise. Our investigation found that out-of-merit dispatch during 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 also evaluate PAC transmission security events and transmission
outages in order to determine whether these events may have unduly caused congestion. We
focused our analysis on seven outage events that were associated with curtailments. We
investigated these events and found no evidence of anticompetitive conduct.
Curtailments. We analyze PAC curtailments to determine whether curtailments are being
properly implemented. PAC manages congestion, prioritization of schedules, and low voltage
events with schedule curtailments. We scrutinized 24 curtailments that were at least 75 MW
above what we estimate to be justified by net schedules and TTC. We were able to fully justify
all but two of these 24 curtailment deviations. Given that 439 curtailments were implemented
over the quarter, we find that actions taken to manage the system were accurate. We do not find
evidence of anti competitive conduct.
Redacted Version Page 4
PacifCorp Monitoring Report: First Quarter of 2009 Overvew
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 during the study period.
Redacted Version PageS
PacifCorp Monitoring Report: First Quarter of 2009 Wholesale Prices and Transactions
II. WHOLESALE PRICES AND TRANSACTIONS
A. Prices
We evaluate wholesale electricity 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 furter 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. Figure 1 shows the bilateral contract
prices for Four Comers and Mona (representing the Southwest) and Figure 2 shows the bilateral
contract prices for Mid Columbia and Mona2 (representing the Northwest).
Figure 1: Southwest Wholesale Prices and Peak Load, First Quarter of 200980 20,000
_ PACE Peak Load
70 - Four Corners Price
- - - SoCal Gas Cost
-Mona Price
60 15,000
,-50-=~,-~Ë 10,000 ~V''-
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2 Mona is a relatively illiquid and lightly traded market point in central Utah. It is included in both figues to
provide a baseline for comparison between them.
Redacted Version Page 6
PacifCorp Monitoring Report: First Quarter of 2009 Wholesale Prices and Transactions
Figure 2: Northwest Wholesale Prices and Peak Load, First Quarter of 2009
10,00080
.. PACW Peak Load
70 - Mid Columbia Price
- - - PG&E Malin Gas Cost
-- Mona Price
60
.-50-=
~/'
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System load data is also shown because of the expected correlation with power prices. The
Eastern control area load is shown on the Southwest figure and the Western control area load is
shown on the Northwest figure. Natural gas prices are also shown because natural-gas-fired
units are most often the marginal unit supplying the grid, and because fuel costs comprise the
vast portion of a generating units costs. For the Northwest analysis we use the daily price of
natural 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
surveys. The bilateral pricing data shown in the figure 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 electricity 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
PacifCorp Monitoring Report: First Quarter of 2009 Wholesale Prices and Transactions
Colorado, Arizona, and Utah meet. Prices at Four Comers represent the value of electricity in
the Desert Southwest.
Figure 1 and Figure 2 show that power prices at both Mid Columbia and Four Comers are
generally correlated with fluctuations in natural gas prices and load. The power prices for both
areas declined with declining gas prices while the load was nearly flat.
The next analysis compares the average Four Comers and Mid Columbia power prices for the
period from January 2006 through March 2009 with average prices during 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 figures show, electricity prices have
generally been correlated with natual gas prices over time.
Figure 3: Southwest Trends in Monthly Electricity and Natural Gas Prices
First Quarter, 2006-2009
120 12
_ Four Corners
-e SoCal Border Gas
100 10---=
~
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Redacted Version PageS
PacifiCorp Monitoring Report: First Quarter of 2009 Wholesale Prices and Transactions
Figure 4: Northwest Trends in Monthly Electricity and Natural Gas Prices
First Quarter, 2006-2009
120 12
II Mid Columbia
-- PG&E Malin Gas
100 10
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Overall, our evaluation of wholesale electrcity prices in the PAC region did not indicate any
time period that merits further investigation solely by virte of price patterns.
B. Sales and Purchases
PAC engages in wholesale purchases and sales of power, both firm and non-firm transactions.
Figure 5 summarizes PAC's sales and purchase activity for trades that delivered during the first
quarter of2009. We consider only short-term 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-term transactions include all transactions that 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. Additionally, short-term transaction prices are good
indicators of wholesale market conditions during periods of congestion.
Redacted Version Page 9
PacifiCorp Monitoring Report: First Quarter of 2009 Wholesale Prices and Transactions
Figure 5: Summary of PAC Sales and Purchases
First Quarter of 2009
Redacted
Figure 5 shows that PAC's short-term
_ At a broad level, the fact that PAC's short-te
Thus, we evaluate the prices of real-time transactions during congested periods in Section V.A to
detect potential anti competitive conduct.
Redacted Version Page 10
PacifCorp Monitoring Report: First Quarter of 2009 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 Arzona.
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 portinIl of the transmission facilities that provide
nort-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 north-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 actual flows on flowgates as opposed to scheduled flows on contract paths.
4
While north-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 certain 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 curtailment of schedules.
Redacted Version Page 11
PacifiCorp Monitoring Report: First Quarter of 2009 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 curtailments and
transmission service request refusals. We also examine plans for construction of expansions to
transmission facilities and found cases where the planned expansions may reduce congestion in
constrained areas. Nothing from our review of PAC's planned expansions raised competitive
concerns.
B. Transmission Operating Procedures
During the period of study, PAC did not invoke any UFRPs. However, it did implement 358
curtailments (including cases when curtailments were reversed) and schedule reductions totaling
9,648 MWh across fifteen paths.
Curtailments 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 capability of the path. The accuracy
of these curtailments and schedule reductions are evaluated in Section V.
).
Redacted Version Page 12
PacifiCorp Monitoring Report: First Quarter of 2009 Transmission Access
iv. TRANSMISSION 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 participants have had difficulty 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 vary 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 start and stop time.
Figue 6 shows the breakdown of transmission service requests in each month from January 2008
through March 2009 and summarizes the disposition of the requests.
Figure 6: Disposition of Requests for Transmission Service on the PAC System
January 2008 - March 2009
5,000
30,000
25,000
'i
~ 20,000
c.'-
:i'"""=
i 15,000..Q
""e
~ 10,000
~
o
2008 2009
Redacted Version Page 13
PacifCorp Monitoring Report: First Quarter of 2009 Transmission Access
The figue shows that the total volume of approved requests during the first quarter of 2009 was
higher than the first quarter of 2008 and lower than the fourth quarter of 2008. The volume of
refused service requests during the quarter was higher than the preceding quarter, averaging 1560
GWHr. Hence, the approval rate dropped from 96 percent for the fourth quarter of 2008 to 93
percent for the first quarter 2009. After further investigation, we found that the increase in refusals
is due to 2699 GWHr of volume over the quarter that was requested prior to early 2007 for yearly
service starting in 2009. Due to the way volumes are spread over time periods, this quarter is the
first time that these refusals appeared in the exhibit. These refusals are not associated with the
degree to which PAC has provided access to the transmission system during the period of study.
We see no evidence that these refusals were not legitimate or that PAC had unreasonably restrcted
access to its transmission system.
To further evaluate the disposition of transmission requests, 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 comparison is shown in Figure 7.
70,000
Figure 7: Disposition of Transmission by Duration of Service
:::Refused
60,000
II Approved
'i== 50,000
~
t; 40,000'l
j:"" 30,000Q
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First Quarter 2008 First Quarter 2009
Redacted Version Page 14
PacifCorp Monitoring Report: First Quarter of 2009 Transmission Access
Figure 7 indicates an increase in the volume of approvals for all categories of service except for
weekly and monthly. There was a substantial increase in the volume of refused yearly requests for
the reasons noted above. For these cases in general, the customers did not continue with the
application and study process needed to ultimately perform system upgrades to make the
transmission available. As a result, our review of the disposition of transmission requests does not
raise any anticompetitive concerns.
Redacted Version Page 15
PacifCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
V. MONITORING FOR ANTICOMPETITIVE CONDUCT
In this section, we evaluate the available market and operating data to identify any evidence of
anticompetitive conduct or market manipulation. The market monitoring plan calls for
identifying anti competitive 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 barrers to rival suppliers, thereby raising electricity 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 fourth 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 anticompetitive conduct that would warrant further
investigation. We are particularly interested in periods when transmission congestion arises. If
PAC were engaging in anti competitive 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 examined 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 will be limited if ATC is unavailable, transmission requests are refused, or schedules
.,iõ.
are curtailed. Curtailments are also an indicator of congestion because they can be made when a
path is over scheduled. If PAC's ability to curtail schedules is being abused, we would expect to
see systematically higher prices for sales or lower prices for purchases coincident with
curtailments.
Figure 8 shows the daily average prices received by PAC for real-time bilateral sales and
purchases. The figure also indicates days when curailments occurred that could have potentially
benefited PAC's position in the real~time bilateral markets. A curtailment may impact system
Redacted Version Page 16
PacifCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
flows at market delivery points to the benefit ofPACs 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 curailed path. "Max Effect" identifies periods when PAC is actively
buying or selling in constrained areas and, therefore, could benefit itself by restricting other
suppliers' access. The figue 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
First Quarter of 2009
Redacted
The volume weighted average daily sales prices ranged from ~Wh t~Wh and
average ~Wh. We say a day has a "beneficial curtailment" if PAC is a net seller at a
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 17
PacifCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
delivery point where the curailment restrcts supply or PAC is a net purchaser where the
curtailment increases supply. On days when potentially beneficial curtailments occurred, the
weighted average daily sales prices average ~Wh. The volume weighted average daily
purchases prices ranged from .MWh to $.MWh and the average was ~Wh. On days
with potentially beneficial curtailments, the weighted average purchase price was $.MWh.
These prices do not show a pattern of PAC benefiting from curtailments.
Though the overall price patterns do not raise concerns, we selected January 24, January 27,
January 28, February 10, February 14, February 16, February 20 and February 27 for closer
examination. We chose these days because they had maximum daily effective market positions
greater than or equal to . MW. 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 curailments in Section D
below.
B. Generation Dispatch
To further evaluate whether PAC's conduct raises any anti competitive 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 naturally when PAC or any utility dispatches its units in a
leåst-còst 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.
To identify out-of-merit dispatch, we first estimate PAC's marginal cost curve or "supply
curve"? We used incremental heat rate curves, fuel costs, and other variable operations and
7 We use the term marginal cost loosely in this context. The value we calculate is actually the incremental
production cost and does not include opportnity costs, risks, and other factors not reflected in the incremental
production cost.
Redacted Version Page 18
PacifCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
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.
Figure 9 shows the estimated supply cure for a representative day during the time period
studied. As the figure shows, the marginal cost of supply increases as more units are required to
meet demand, as expected.
Fi2ure 9: PAC Supply Curve
Redacted
We used each day's estimated marginal cost curve 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
dispatch because we do not consider all operating constraints that may require PAC to depart
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.
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PacifiCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
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, 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 running 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
durng low-load periods when it is not economic to commit certain 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 governmental
regulation limiting the number of hours a plant may run 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.
Ancillary 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 unplanned outage
may be an attempt to uneconomically withhold generation from the market. Hence, it wil tend to
overstate the quantity of generation that is truly out-of-merit. For our analysis, the accuracy of a
single point is not as important as the trend and any substantial deparres from the typical levels.
Figure i 0 shows the daily maximum "out-of-merit" dispatch for the peak hours of each day in the
study period. Also shown in the figure are days when PAC curtailments 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 curtailments occurred, the out-of-merit dispatch displayed
corresponds to the hour when the impact of the out-of-merit dispatch on the congested path was
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PacifiCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
at its daily maximum. The figure also shows "Path Impact" (red bars). This is a calculation of
the power flow change on the curtailed paths as a result of the out-of-merit dispatch. In other
words, if dispatch had been "in-merit", flow on the curtailed path would have been lower by the
amount shown. The impact of out-of-merit dispatch was determined using generation shift
factors8.
1600
1400
--~1200~'-è:c=1000~=
01.i~..800ei~'"
is;'600i.~~'iQi 400..=0
200
0
Figure 10: Out-of-Merit Dispatch and Congestion Events
First Quarter of 2009
_ Days with Curtailments
_ Path Impact
--MaxOOM
~~~~~~~~~~~~######V ~V~V~~ ~~~~~~ ~VNV~
Date
320
280
240
200 ~
6..~
160 ~
S'-
..120 if
80
40
o
As the figure shows, there were six days when out-of-merit dispatch was at least 400 MW and
contributed at least 60 MW of increased flow over congested paths durng the study period. We
inquired further into these days and the days noted above based on PACs market positions and
found the following.
.as off line for a 36-hour unplanned outage to repair a .
. This capacity was replaced with
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: First Quarter of 2009 Potential Anticompetitive Conduct
combined cycle generation in Utah, which caused high loadings and curtailments
on Path C.
had a six-hour derating due to
ad a one-hour derating due t
This capacity was replaced with combined cycle
generation in Utah, which caused high loadings and curtailments on Path C.
· was off-line for 58 hours to
was off-line for 51
hours to repai The capacity from these
two unplanned outages was replaced by combined cycle generation in Utah, which
caused high loadings and curtailments on Path C.· as off-line to
This capacity was replaced by combined
cycle generation in Utah, which caused high loadings and curtailments on Path C.
his capacity was replaced with combined cycle generation in Utah,
which caused high loadings and curtailments on Path C. .
Our review of the days with high "Max Effect" identified in the purchases and sales section
above determined that out-of-merit dispatch on those days had no impact on curtailed paths.
Based on our review of the outage information in the disturbance reports, the operating 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 anti competitive behavior.
C. Transmission Outages
We evaluate PAC security events9 to determine whether PAC's operation of transmission assets
may have contributed to the congestion events that occurred during 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 curailments that had curtailment deviations as presented in the
next section below. We did not find any additional transmission outage that coincided with a
9 Security events are defined as transmission security/reliability events that may impact the Provider's ability to
schedule transactions.
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PacifiCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
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:
.This four-day forced outage commenced on
The purpose of the outage was to replace two fire damaged
structures.
.is twenty-hour forced outage started on _
The line opened by automatic relay action. A broken ground wire was identified
that may have contacted a conductor. After repair the circuit tested "good "and was
~rvice. The outage reduced transfer capacity betwee~
_ leading to curailments.
.his ten-hour forced outage occured to
~e outage reduced transfer capacity and lead to curtailments on the
.This nine-hour maintenance outage occurred on
o replace the "x-arm" on a strctue. The outage reduced transfer
capacity and lead to curtailments on
.This s~ge occurred o~
causing schedule curtailment o~ The outage was taken
to pedorm emergency repairs and cleaning of insulators (insulators become contaminated
with bird droppings, which lead to ground faults).
.This twen -one-hour outa e started on_ausing schedule curtailments on Broken insulators
caused a three phase fault.
.This three-hour outage occured o~causing curailments on P4th in both directions. The line
opened on automatic relay action twice, but latter tested good. The outage was caused by
high winds in the area.
Through our review of the records and conference calls with PAC staff, we find that all the
outages were justified and the events raise no competitive concerns.
D. Analysis of Curtailments
Under PAC operating procedures, path flows can be managed by curtailing transactions
scheduled over the path. This can provide the opportnity for anti competitive conduct by
initiating curtailments when they are not necessary. 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: First Quarter of 2009 Potential Anticompetitive Condnct
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 curtailments 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 curtailment 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 curtailment 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 curtailment deviations calculated and reported in the analysis below equal the TTC value
minus the aggregated ex post net schedules. The curtailment deviations are limited to a ceiling
equal to the curtailment amount an~d a-floor of zero, since we are less concerned with under
curtailments. In the absence of emergency tags or tags otherwise submitted after PAC makes its
curtailment decision, if a path is over-scheduled and the curtailments are accurate, this value
should be close to zero.
i I Figure 11 shows the results of this analysis.
10 Effective April 28, 2008, PAC utilizes forecasted values for Path C capacity when making its curtailment
decisions. Accordingly, when evaluating curtailments on the path "PACE to Path C", we utilize the forecasted
capacity value rather than TTC.
11 The other reasons for curtailments aside from the path being over scheduled wil not necessarily result in a
curtailment deviation close to zero.
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PacifiCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive Conduct
Figure 11: Curtailment and Curtailment Deviation
First Quarter of 2009
1000
900
800
700
600
.=~500
:E
400
300
200
100
. Curtailment Deviation
o Curtailment o
(i
(i
o o o
o
~~o, ~~o, ~~o,
~'V ~'V B-'V.. ~ ~"
r£ .~(i (i
~o, ,,~o, ,,~o, ~o, ~o, ~o,
rV"Ir: ""~" ~"I" ~"Ir: ",~r: ~"Ir:~"I ~f\' -v -V'" -V~ -v'V
Date
sf ~o, ~~o, ~~o,~"Ir: ~"Ir: "'~ ~'V
")' ")~ ~~ ")~
Over the quarter, 358 curailments were implemented. Of these, 24 curtailments had at least a 75
MW deviation. We found that 22 of these curtailments were fully justified based on real-time
operating conditions. These conditions include security events, transmission outages, and events
where actual flows exceed line limits. For the remaining two curtailments,12 we can see in
retrospect that a smaller curtailment would have been suffcient. However, given thatthe flows
that these curtailments are managing are influenced by loop flows, and that loop flows are
diffcult to predict, we find that having only two curtailments identified as overly conservative
does not raise concerns. Hence, we do not find evidence of anticompetitive conduct, and we find
that actions taken to manage the system were very accurate.
12 Both these curailments occurred o~he first was a i 00 MW curtailment o~
hen at least a 24 MW curtailment was needed. The second was a 75 MW curailment
when at least a 39 MW curtailment was needed.
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PacifiCorp Monitoring Report: First Quarter of 2009 Potential Anticompetitive 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 raises potential competitive concerns durng the period of study.
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