20090824Qly Market Monitoring Report.pdf

Potomac Economics, Ltd.
701 City Center Drive
Camiel, IN 46032
Telephone: [phone]
Facsimile: 317-249-5943
August 12, 2009
Members of Service List (EC05-ll 0)
Re: Quarterly Market Monitoring Report
PAc-E -06= '3
Dear Service List Member:
Please find attached the public (redacted) version of the Second Quarter 2009 Quarterly
Market Monitoring Reports for MidAmerican Energy Company and PacifiCorp.
Regards,
Michael W. Chiasson, P.E.
Vice President
Enclosures (2)
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QUARTERLY MARKT MONITORING REpORT
ON
PACIFICORP
Second Quarter of 2009
Issued by:
Potomac Economics, Ltd.
Independent Market Monitor
CONFIDENTIAL MATERIAL REDACTED
PacifiCorp Monitoring Report: Second Qnarter of 2009 Table of Contents
Table of Contents
I. Overview. .................................................................................................................. 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 Purchases .........................................................................................9
III. Transmission Congestion ...................................................................................... 'i i
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.................................................................................... 23
D. Analysis of Curtailments ...............................................................................24
E. Conclusions on Monitoring for Anticompetitive Conduct ................ ... ......... 27
Redacted Version
PacifiCorp Monitoring Report: Second Quarter of 2009 List of Figures
List of Figures
Figure 1: Southwest Wholesale Prices and Peak Load, Second Quarter of2009.............. 6
Figure 2: Northwest Wholesale Prices and Peak Load, Second Quarter of2009.............. 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 ........................................................................................... 20
Figure 10: Out-of-Merit Dispatch and Congestion Events.............................................. 22
Figure 11: Curtailment and Curtailment Deviation ......................................................... 25
Redacted Version
PacifiCorp Monitoring Report: Second 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-llO-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
second quarter of 2009 for PAC.
The market monitoring plan for PAC is designed to detect any anti competitive 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 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 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 second quarter of 2009.
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 comments.
Redacted Version Page 1
PacifiCorp Monitoring Report: Second Quarter of 2009 Overview
A. Market Monitoring
Potomac Economics pedorms the market monitoring function on a regular basis, as well as
pedorming 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 opportity 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 curtailments 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 circumstances or events. No such
events occurred this quarter.
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PacifCorp Monitoring Report: Second 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 of the quarter, Northwest and Southwest electricity prices
remained correlated with load and natual gas prices. Overall, the pattern did not indicate a
particular 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-te
prices of real-time transactions during congested periods in Section V.A to detect potential
anti competitive conduct.
2. Transmission Congestion
We studied congestion on the PAC system by examining schedule curtailments and reductions.
In the period of study, PAC implemented 293 curtailments and schedule reductions totaling
6,863 MWh across seven paths. We utilize curtailments as an indication of congestion. In
addition, we analyze the accuracy of curailments 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 lower than the levels observed in the second
quarter of 2008 and higher than the first quarter of 2009. Although the volume of refusals was
higher than it was in the same quarter of the prior year, and in the preceding quarter, we see no
evidence that these refusals were not legitimate. Our review of the disposition of transmission
requests does not indicate anticompetitive behavior.
Redacted Version Page 3
PacifiCorp Monitoring Report: Second Quarter of 2009 Overview
4. Potential Anticompetitive Conduct
Wholesale Sales and Purchases. We examined the transactions that PAC executed during the
period of study. We focus on real-time transactions because these best represent the spot price of
electricity and wil 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 MWh and _ MWh.
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 curailments. We
investigated these events and found no evidence of anticompetitive conduct.
Curtailments. We analyze PAC curailments to determine whether curtailments are being
properly implemented. PAC manages congestion, prioritization of schedules, and low voltage
events with schedule curtailments. We scrutinized five curtailments that were at least 50 MW
above what we estimate to be justified by net schedules and TTC. We were able to fully justify
three of these five curtailment deviations. Given that 293 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.
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PacifiCorp Monitoring Report: Second Quarter of 2009 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 ormarket conditions that would warrant a
special investigation. There were no complaints lodged against PAC regarding transmission
access during the study period.
Redacted Version PageS
PacifiCorp Monitoring Report: Second 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 fuher investigation, although they are not definitive indicators of the
presence or absence of anticompetItive 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 Figue 2 shows the bilateral
contract prices for Mid Columbia and Mona2 (representing the Northwest).
Figure 1: Southwest Wholesale Prices and Peak Load, Second Quarter of 200980 20,000
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2 Mona is a relatively illiquid and lightly traded market point in central Utah. It is included in both figures to
provide a baseline for comparison between them.
Redacted Version Page 6
PacifiCorp Monitoring Report: Second Quarter of 2009 Wholesale Prices and Transactions
Figure 2: Northwest Wholesale Prices and Peak Load, Second Quarter of 2009
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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 unit's 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 natural 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 Nortwest. The
Four Comers location is at the southern end of the PAC transmission system where New Mexico,
Redacted Version Page 7
PacifiCorp Monitoring Report: Second 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.
Figue 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, which is consistent with
expectations in a properly fuctioning market.
The next analysis compares the average Four Comers and Mid Columbia power prices for the
period from April 2006 through June 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 natural gas prices discussed above. As the figures show, electricity prices have
generally been highly correlated with natual gas prices over longer timeframes.
Figure 3: Southwest Trends in Monthly Electricity and Natural Gas Prices
Second Quarter, 2006-2009
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Redacted Version PageS
PacifiCorp Monitoring Report: Second Quarter of 2009 Wholesale Prices and Transactions
Figure 4: Northwest Trends in Monthly Electricity and Natural Gas Prices
Second Quarter, 2006-2009
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Overall, our evaluation of wholesale electrcity prices in the PAC region did not indicate any
time period that merits fuher investigation solely by virte of price patterns.
B. Sales and Purchases
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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
second quarter of 2009. 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: Second Quarter of 2009 Wholesale Prices and Transactions
Figure 5: Summary of PAC Sales and Purchases
Second Quarter of 2009
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
PacifiCorp Monitoring Report: Second 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 ensuring 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
of WECC. 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 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 flow gates 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: Second Qnarter 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 171
curtailments (including cases when curtailments were reversed) and schedule reductions totaling
6,863 MWh across seven 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.
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PacifiCorp Monitoring Report: Second Quarter of 2009 Transmission Access
iv. TRANSMISSION ACCESS
A main component of the market monitoring function 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 tyes 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.
Figure 6 shows the breakdown of transmission service requests in each month from April 2008
through June 2009 and summarizes the disposition of the requests.
Figure 6: Disposition of Requests for Transmission Service on the PAC System
April 2008 - June 2009
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Redacted Version Page 13
PacifiCorp Monitoring Report: Second Quarter of 2009 Transmission Access
The figure shows that the total volume of approved requests during the second quarter of 2009 was
slightly lower than the second quarter of 2008 and higher than the first quarter of 2009. The
volume of refused service requests during the quarter was higher than the preceding quarter,
averaging 1152 GWHr. Hence, the approval rate dropped from 95.1 percent for the first quarter of
2009 to 94.6 percent for the second quarter 2009. After further investigation, we found almost 70
percent of the increase in refusals is due to refusals of requests from affiliates. We reviewed the
refusals for indications that they were not justified. 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.
Figure 7: Disposition of Transmission by Duration of Service
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Figure 7 indicates an increase in the volume of approvals for all categories of service except for
weekly and monthly. There was an increase in the volume of refused yearly requests, all of which
were submitted prior to March 2007. They appear in this figure because the requested service
spans the period of study. For these cases in general, the customers did not continue with the
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PacifiCorp Monitoring Report: Second Quarter of 2009 Transmission Access
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 anti competitive concerns.
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PacifiCorp Monitoring Report: Second 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
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 barrers 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 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 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 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 trnsmission service.
This ability will be limited if A TC is unavailable, transmission requests are refused, or schedules
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 curtailments occurred that could have potentially
benefited PAC's position in the real-time bilateral markets. A curtailment may impact system
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PacifCorp Monitoring Report: Second Quarter of 2009 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 curtailed 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
The volume weighted average daily sales prices ranged from t/MWh to t1/MWh and average
t1/MWh. We say a day has a "benefìcial curtailment" if PAC is a net seller at a delivery point
where the curtailment restricts supply or PAC is a net purchaser where the curtailment increases
6 The relationship between constrained paths and market delivery points is detennined through shift tàctors,
which are the portion of power injected at the market delivery point that t10ws over the constrained transmission
path.
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PacifiCorp Monitoring Report: Second Quarter of 2009 Potential Anticompetitive Conduct
supply. On days when potentially beneficial curailments occurred, the weighted average daily
sales prices average _/MWh. The volume weighted average daily purchases prices ranged
_/MWh to $5l/MWh and the average was _/MWh. 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.
There were seven days this quarter when the weighted average purchase prices were negative.
This is a change from the past and is caused by the California ISO's launch of its Market
Redesign and Technology Upgrade (MRTU), with locational marginal pricing, on April 1, 2009.
Prior to the MRTU, purchasers did not pay less than what they bid. Under the MRTU market,
bidders may pay much less than their bid price. The limit for bids is -$30/MWh, but there were
hours when PAC was paying (or receiving as is the case when prices are negative) much less than
./MWh. The lowest price hour_ MWhr. These negative prices do not appear to be
associated with PAC congestion, but rather with low load conditions when the California iso
system had difficulty further reducing generation due to generators being at the lower end of their
dispatch ranges or having limited ramp capability. As can be seen in the figure, the negative
prices are usually not coincident with PAC TAG curtailments and in the cases where they are, the
Max Effects of the sales and purchase positions on the congested paths are minimaL.
Though the overall price patterns do not raise concerns, we selected June 17 for closer
examination. We chose this day because it had maximum daily effective market positions greater
than or equal to 40 MW. The congested path was JBSN to JBWT.Our primary concern is
whether PAC anticompetitively created the congestion through generation and transmission
operations. Accordingly, we focus particular attention on this day 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 further 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
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PacifCorp Monitoring Report: Second Quarter of 2009 Potential Anticompetitive Conduct
its resources. Congestion can result naturally 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.
To identify out-of-merit dispatch, we first estimate PAC's marginal cost curve or "supply
curve".7 We used incremental heat rate curves, 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 curve is re-calculated daily to account for fuel price
changes, planned maintenance outages, and planned deratings.
Figure 9 shows the estimated supply curve 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.
7 We use the term marginal cost loosely in this context. The value we ealculate 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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PacifiCorp Monitoring Report: Second Quarter of 2009 Potential Anticompetitive Conduct
We used each day's estimated marginal cost curve as the basis for estimating PAC's least-cost
dispatch for cach hour in the quarter. In gencral, this will not be the exact Icvel of least-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 limitcd 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 availablc
gcnerators are online. While market monitoring resources could havc been expendcd rcfining the
estimated gencrator commitment and dispatch to make it corrcspond 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 dctect 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
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PacifCorp Monitoring Report: Second Quarter of 2009 Potential Anticompetitive Conduct
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 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 unplanned outage
may be an attempt to uneconomically withhold generation from the market. Hence, it will 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 important as the trend and any substantial departres from the tyical levels.
Figure 10 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 also loaded as a result of 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 at its daily maximum. The figue 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 factors 8 .
8 Generation Shift Factors are defined as the incremental increase or deerease 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: Second Quarter of 2009 Potential Anticompetitive Condnct
Figure 10: Out-of-Merit Dispatch and Congestion Events
Second Quarter of 2009
1000
_ Days with Curtailments
_ Path Impact
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Date
As the figure shows, there was one day when out-of-merit dispatch was at least 400 MW and
contributed at least 50 MW of increased flow over congested paths during the study period. We
inquired further into this day and the day noted above based on P ACs market positions and found
the following:
We also evaluated June 17 because this was the day identified with high Max Effect in the
purchases and sales section above. The maximum out-of-merit for this day was 637 MW, but
this did not increase flows on the path JBSN to JBWT that was managed with TAG curtailments.
The out-of-merit dispatch unloaded the curtailed path, which reduced the need for curtailments.
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PacifiCorp Monitoring Report: Second Quarter of 2009 Potential Anticompetitive Condnct
Based on our review of the outage information in the operating logs, and information garnered
from discussions with PAC personnel, we conclude that the aforementioned outage was justified
and did not constitute attempts to engage in anticompetitivebehavior.
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 six transmission outage events that
were associated with schedule curtailments. This includes one transmission outage associated
with curailments that coincided with June 17, 2009 when PAC had purchase and sales positions
that may have benefited from congestion as presented above. We reviewed these six outages and
found the following:
· : This ten-da
2009. T e purpose of t e outage was t
outage reduced transfer capacity on the "PACE to Monument" pat
curtailments.
· This seven-hour planned outage occured on April 30, 2009
T e outage reduced transfer capacity on the "JBSN-JBWT" pathl
eading to curtai ments.
· : This 58-day planned outage started on May 3, 2009. It reduced
transfer capability on path JBSN to JBWT, contributing to the need for curtailments on 26
days including June 17, when purchases and sales ositions existed that ma have
benefited as identified above. The outa e
.
4,2009 to
The outage re
path.
· This ei ht-hour planned outage occurred on May 16,2009 . The outage reduced transfer capacity and lead
to curtailments on the "PACE to G en Canyon" path.
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: Second Quarter of 2009 Potential Anticompetitive Condnct
.
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.
Accordingly, we analyze the transmission schedules to determine whether curtailments 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 ofthe 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 eight 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
io Effective April 28, 2008, PAC utilizes forecasted values for Path C capacity when making its curailment
decisions. Accordingly, when evaluating curailments on the path "PACE to Path C", we utilize the forecasted
capaeity value rather than TTC.
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PacifiCorp Monitoring Report: Second Quarter of 2009 Potential Anticompetitive Conduct
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 curailment deviations are limited to a ceiling
equal to the curtailment amount and 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 curailments are accurate, this value
should be close to zero. i i Figure 11 shows the results ofthis analysis.
Figure 11: Curtailment and Curtailment Deviation
Second Quarter of 2009
250
. Curtailment Deviation
o Curtailment
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Over the quarter, 293 curtailments were implemented. Of these, five curtailments had at least a
50 MW deviation. We reviewed all five for accuracy.
II 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: Second Quarter of 2009 Potential Anticompetitive Conduct
On April 22, 2009, there was a 50 MW deviation caused by a 196 MW schedule curtailment
implemented on the Pinto to Four Comers path. We can not distinguish between this being
operator error or intentional added conservatism since most of the curtailment was needed. There
was significant curtailment activity going on at the time of the deviation, so either explanation is
plausible.
On April 25, 2009, there was a 99 MW deviation caused by a 99 MW schedule curtailment
implemented on the Pinto to Four Comers path. The tags appear to have been curailed in error
since they were reloaded within two minutes of the curtailments. The tags were restored too soon
to have impact on the market. A message in the log referred to a software problem being
identified and corrected.
On April 25, 2009, there was a 75 MW deviation caused by a 75 MW schedule curtailment
implemented on to Path C to PACE. The prior hour for this path had a justified curtailment of
the same amount. This is consistent with the operator incorrectly assuming that conditions would
persist and curtailed the second hour for the same amount early. PAC has since instructed the
operators to not implement curtailments on this path until late in the hour when the inputs are the
most accurate.
On May 24, 2009, there was a 52 MW curtailment deviation on the "Hot Springs to Mil Creek"
path. This event is justified for PAC because the curtailment was called for by Northwestern
Energy. The accuracy of curtailments on this path can not be determined from PAC data due to
the lack of data on reservations and schedules from the other owners of the path.
On June 2, 2009, there was a 54 MW curtailment deviation on the "PACW to John Day" path.
This event is justified for PAC because the curailment was called for by BP A. The accuracy of
curtailments on this path can not be determined from PAC data due to the lack of data on
reservations and schedules from the other owners of the path.
We found that two of these curtailments were fully justified for PAC because they were called for
by other entities. Of the remaining three curtailments, two were found to be inaccurate and one,
due to a softare error, was resorted without market impact. However, given that the flows that
these curtailments manage are influenced by loop flows, and loop flows are diffcult to predict,
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PacifiCorp Monitoring Report: Second Quarter of 2009 Potential Anticompetitive Conduct
we find that having only two curtilments identified as inaccurate 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.
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 during the period of study.
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