20091127Qly Market Monitoring Report.pdf

Potomac Economics, Ltd.
701 City Center Drive
CarmeL, IN 46032
POTOMAC
ICONO'IICS
Telephone: [phone]
Facsimile: 3 i 7-249-5943
November 13, 2009
Members of Service List (EC05-11 0)
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Re: Quarterly Market Monitoring Report
Dear Service List Member:
Please find attched the public (redacted) version of the Third Quarter 2009 Quarterly
Market Monitoring Reports for MidAmerican Energy Company and PacifiCorp.
Regards,
~~
Michael W. Chiasson, P.E.
Vice President
Enclosure (2)
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QUARTERLY MARKT MONITORIG REpORT
ON THE
MIDÁMERICAN ENERGY COMPANY
For
July and August, 2009
Issued by:
Potomac Economics, Ltd.
Independent Market Monitor
CONFIDENTIAL MATERIL REDACTED
REDACTED
"
MEC Monitoring Report: July and August 2009 Table of Contents
t
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.................................................................................... 16
D. Conclusions.................................................................................................... 18
Redacted Version
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MEC Monitoring Report: July and August 2009 List of Figures
..
List of Figures
Figue 1: Wholesale Prices and Peak Load.................................................................................... 6
Figue 2: Trends in Monthly Electrcity and Natual Gas Prices................................................... 7
Figue 3: Summary ofMEC Sales and Puchases ......................................................................... 8
Figue 4: Prices Received for MEC Sales and Purchases............................................................ 11
Figue 5: MEC Supply Cure ...................................................................................................... 14
Figue 6: Out-of-Merit Dispatch and Congestion Events............................................................ 16
Redacted Version
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MEC Monitoring Report: July and August 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.
EC05-110-000, the Commission accepted the market monitoring plans for the MidAmerican
Energy Company ("MEC" or "the Company") and PAC, and Potomac Economics was retained
as the independent market monitor for both companies. The plans established that separate
reports would be produced for each company. This is the market monitoring report for the
months of July and August of 2009 for MEC.
As of September 1,2009, MEC became a transmission-owning member of the Midwest ISO. All
fuctional control of its transmission system was tued over to the Midwest ISO at that time,
which is subject to the Market Mitigation Measures specified in Module D of the Midwest iSO
Open Access Transmission, Energy and Operating Reserve Markets Tariff. Accordingly, as
MEC provided in notice to the Commission on June 29, 2009, the aforementioned market
monitoring plan for MEC ceases as of August 31, 2009. Therefore, this is expected to be the
final report under the MEC market monitoring plan.
The market monitoring plan for MEC is designed to detect any anti competitive conduct from the
operation of the Company's transmission system, including any transmission effects from the
Company's generation dispatch. As stated in the plan:
The Market Monitor shall provide independent and impartial monitoring and
reporting on: (i) generation dispatch ofMidAmerican, and scheduled loadings on
constrained transmission facilties; (ii) information concerning the volume of
transactions and prices charged by MidAmerican in the electricity 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 ATC and TTC as set forth in item (iii) was to be monitored by Potomac
Economics until a Transmission Service Coordinator ("TSC") became operational and began
calculating the ATC and TTC for the MEC system. Effective September 1, 2006, TransServ
International, Inc. became the TSC for MEC. Accordingly, Potomac Economics no longer
monitors the calculation of ATC and TTC.
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MEC Monitoring Report: July and August 2009 Overview
To execute the monitoring plan, Potomac Economics routinely receives data from MEC that
allows us to monitor generation dispatch, transmission system congestion, and the Company's
operations and commercial activity durng periods of congestion. We also collect certain key
data ourselves, including OASIS data and market pricing data.
The purose of this report is to provide the results of our monitoring activities and significant
events on the MEC system i for July and August of 2009.
A. Market Monitoring
Potomac Economics pedorms the market monitoring fuction on a routine basis, as well as
performing periodic reviews and special investigations. Our primary market monitoring is
conducted via regular examination of market data relating to transmission outages, congestion,
and transmission access. This involves examination of data on transmission outages and
curailments or other actions taken by MEC to manage congestion. Analyses of these data aid in
detecting congestion and whether market partcipants have full access to transmission service.
Aside from routine monitoring of transmission outages, we are sensitive to atyical events such
as price spikes, severe weather, and major generation outages that could have a negative impact
on the capability of the transmission system. These events warrant particular attention in our
monitoring for potential anti competitive conduct.
Our periodic review of market conditions and operations is based on operating data provided by
MEC, as well as data that we collect. This report contains our review of July and August 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 sumarize 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 the MEC transmission system. In the final section, we address potential anti competitive
conduct. These analyses examine periods of congestion and evaluate whether MEC operating
activities may be anticompetitive. The operating activities that we evaluate are generation
As specified in the monitoring plan, a draft of the findings has been submitted to MEC prior to submission to
the Commssion. MEC had no comments.
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MEC Monitoring Report: July and August 2009 Overvew
dispatch, wholesale purchases and sales, and trmission outages coincident with instaces of
congestion.
In addition to our periodic reviews, we may be requested to or deem it necessar to underte a
special investigation in response to specific circumstaces or events. No such events occured
this quarer.
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 thoughout these two months from
$22/M to $44/M. Power prices generally moved in patterns consistent with the
fluctuations in natual gas prices and load in July and August. This is consistent with
expectations and the market results historically. Based on our evaluation of wholesale electrcity
prices in the MEC region, we did not identify a time period that merited a paricular focus.
Sales and Purchases. MEC engages in wholesale purchases and sales of power on both a short-
term and long-term basis.
examine periods when such anti competitive conduct may be possible.
2. Transmission Congestion
Curtailments. Congestion is managed on the MEC system by the Midwest ISO through the use
ofTLR procedures. MEC is under the umbrella of the Midwest ISO reliability authority.
However, prior to September 1,2009, the Midwest ISO did not control its transmission assets,
nor were its generating assets registered with the Midwest ISO. MEC served 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
monitorig. 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 90 TLR
events of a level 3 or higher within or electrcally close to MEC' s control area.
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MEC Monitoring Report: July and August 2009 Overview
3. Potential Anticompetitive Conduct
Wholesale Sales and Purchases. We examine MEC sales and purchases delivered durng the
quaer. We focus on real-time bilateral contracts because these best represent the spot price of
electricity and wil most closely reflect power prices that might arse on the MEC system under
conditions most conducive to market power. Under a hypothesis of market power, we would
expect high sales prices or lower purchase prices durng congested periods. Daily average
transaction prices are volatile, ranging between I MW andll/M. We focused our
evaluation ofMEC's generation and transmission on days with congestion that may have
benefited MEC's net sales position. Our analysis indicated that MEC did not act
anticompetitively to create the congestion.
Dispatch. To fuher evaluate potential market power or manipulation issues, we examine
MEC's generation dispatch to determine the extent to which congestion may be caused or
exacerbated by uneconomic dispatch. Congestion can result natually when MEC or any utility
dispatches its units in a least-cost maner. Such congestion does not raise competitive concerns.
If a departe from least-cost dispatch ("out-of-merit" 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 unplanned outage
and units that may not have been economic to commit. Hence, it wil tend to overstate the
quantity of generation that is trly out-of-merit. Our investigation found that all out-of-merit
dispatch durng the study period that had significant effects on transmission constraints was
justified. Hence, we do not find evidence of anti competitive conduct.
Transmission Outages. We evaluate MEC transmission outages in order to determine whether
outages may have contrbuted to the congestion events that occured durg the study period.
There were 50 transmission outages durng July and August. Of these, 26 were coincident with
TLR events and appeared to be unplaned. We investigated these outages in detaiL.
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MEC Monitoring Report: July and August 2009 Overview
We found that three of the outages significantly contrbuted to the congestion and were planed
less than two weeks in advance. Investigation into the outages revealed that they were justified.
Hence, we find no evidence of anticompetitive conduct related to the outages.
4. Conclusion
Our review did not detect any anticompetitive conduct associated with the Company's operation
of its transmission system or generation.
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: July and August 2009 Prices and Transactions,
II. WHOLESALE PRICES AND TRASACTIONS
A. Pnces
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 fuher investigation, although they are not defInitive indicators of
anticompetitive conduct.
MEC was not part of a centralized wholesale market where spot prices are produced
transparently in real time. Wholesale trading in the areas where MEC operates was conducted
though bilateral contracts. Figue 1 shows the bilateral contract prices as reported by Platts
durng the quarter for Mid-Continent Area Power Pool South ("MAPP South"), which is the
pricing point most proximate to the MEC system.
Figure 1: Wholesale Pnces and Peak Load
July and August 2009
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Because power prices are influenced by fuel cost and load levels, the figue also shows daily
peak load and natual gas cost at the Chicago City Gate translated to a power cost with an
assumed 8,000 btuWh heat rate. This value roughly corresponds to the marginal operating cost
of a natual gas-fired combined cycle power plant. Figue 1 shows that electricity prices were
generally influenced by both natual gas cost and load during the quarter.
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MEC Monitoring Report: July and August 2009 Prices and Transactions ,
Figue 2 compares average Chicago City Gate natual gas prices with average MAP South
power prices for the months of July and August 2009 with average prices durg the same period
over the past thee years.
Figure 2:
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120
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Trends in Monthly Electricity and Natural Gas Prices
July and August, 2006- 2009
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ii Electricity Price
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Figue 2 shows that electricity 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 waranted fuer investigation solely by virte of price patterns.
B. Sales and Purchases
MEC engages in wholesale purchases and wholesale sales of power. These transactions are both
firm and non-firm in natue. Figue 3 summarizes MEC's sales and purchase activity for trades
that had deliveries durng July and August 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 anti competitive 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 be
created with anticompetitive actions. Additionally, short-term transaction prices are good
indicators of wholesale market conditions as they reflect the expectations of the market
paricipants.
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MEC Monitoring Report: July and August 2009 Prices and Transactons
Figure 3: Summary ofMEC Sales and Purchases
July and August 2009
In Section IV, we evaluate the prices during
congested periods to detect potential anti competitive conduct.
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MEC Monitorig Report: July and August 2009
III. TRASMISSION CONGESTION
Transmission Congestion
A. Overview
MEC is within the region for which the Midwest iso serves as the reliability coordinator.
However, prior to September 1,2009, neither its transmission assets nor its generating assets
were controlled by the Midwest iso. Moreover, it was not subject to the monitoring and market
power mitigation measures in the Midwest iSO Tariff. MEC served 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 reconfiguation, generation re-dispatch, and
load shedding as necessar to relieve congestion by reducing flows below the first-contingency
transmission limits on all transmission facilities. The Midwest iso, in its role as reliability
coordinator for the region, manages all TLR procedures. Hence, the Midwest iso monitors the
power flows on all ofMEC's transmission facilties (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 intiation 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 puroses of our analysis, we define an hour as congested when a TLR event ofleve13 or
higher is invoked durng that hour on a flowgate that is significant to MEC' s operations. We
consider a flowgate significant to MEC' s operations if (1) the associated transmission facilities
are in one of the following control areas: MEC, Allant Energy Corporate Services, LLC-West,
or Dairyland Power Cooperative; (2) MEC, Allant Energy, or Dairyland Power Cooperative is
the transmission provider on the facilities, or (3) MEC's generation affects the flowgate
significantly (as defined by a generation shift factor that is higher than thee percent or lower
than negative thee percent). For the period of study, we identified 90 such TLR events. These
90 TLR events affected 19 flowgates.
In Section iv, we examine MEC's operating activities to determine whether they may have
engaged in anti competitive conduct to cause the congestion, and whether MEC was able to profit
from it.
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MEC Monitoring Report: July and August 2009 Monitorig 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 anti competitive conduct, which includes the operation of either
MEC's transmission assets or its generation assets to create transmission congestion and erect
barers to rival suppliers, thereby raising wholesale electrcity prices. To identify potential
concerns, we analyze MEC's wholesales sales in the first subsection below, its dispatch of its
generation assets in the second subsection, and its transmission outages in the third subsection.
A. Wholesale Sales and Purchases
In this subsection, we examine transaction data to determine whether the prices at which MEC
made sales or purchases may raise concerns regarding anti competitive conduct that would
warant fuer 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 makig sales at higher prices in the constrained areas or purchases at lower
prices in areas adjacent to constrained areas.
We examined the real-time bilateral transactions made by MEC using MEC internal sales
records. We focus on real-time transactions (traded the same day) because they best represent
the spot price of electrcity and would be more likely to reflect any effort to exercise market
power. We would expect relatively high-priced sales or low-priced purchases durig periods of
transmission congestion if anti competitive conduct was occurng.
Figue 4 shows the daily average prices received by MEC for real-time bilateral sales and
purchases. The blue shading indicates days when curailments occurred that could have
potentially benefited MEC's position in the real-time bilateral markets.
To link curailment events with days when curtilments could have potentially benefited MEC's
position in the real-time bilateral markets, we calculate a measurement called the maximum daily
effective market position ("Max Effect"). The Max Effect indicates the trade volume likely
affected by a particular curailment. Periods with curilments and high Max Effect levels are
fuher evaluated to determine if the transactions were done at pricing levels that raise potential
competitive concerns.
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MEC Monitorig Report: July and August 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 trdes by suming 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 sumed across all delivery points. Second, from this set of
values, we select the highest hourly value of the day for any single constrint. If the highest
value is positive, it appears on Figue 4 as the Max Effect.
Figure 4: Prices Received for MEC Sales and Purchases
The weighted average daily prices ofMEC's sales range betweenl/MWh andll MWh. The
volume-weighted average daily sales price wasll/MWh. On days with curtailments that may
have benefited MEC's net sales position, the average sales price wasll/MWh. The weighted
average daily prices ofMEC's purchases range betweenl/MWh andll/MWh. The volume-
weighted average daily purchase price wasil MWh. On days with potentially beneficial
curtailments, the average purchase price was alsoll MWh. At a broad level, MEC's weighted
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: July and August 2009 Monitoring for Anticompetitive Conduct
average purchase prices and sales prices durng times of potentially beneficial congestion were
about the same as other times durg the quarer. Durng these times, the sales prices were about
I/MWh lower and the purchase prices were aboutl MWh lower. Overall these statistics do
not raise any competitive concerns.
We evaluated the five days that had a positive Max Effect greater than 55MW coincident with
either higher MEC sales prices or lower MEC purchase prices than the prevailing market prices
at the time. We found the following:
.
.
.
.
.-
Ou primary concern is whether MEC created the congestion anticompetitively though
generation and transmission operations. The circumstances surounding the five congestion
4
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MEC Monitoring Report: July and August 2009 Monitorig for Anticompetitive Conduct t
events above raise potential concern. These events require additional attention in our evaluation
ofMEC'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
MEC's dispatch durng 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 utilty attempts to
dispatch its units in a least-cost maner. This does not raise competitive concerns. If a departe
from least-cost dispatch ("out-of-merit" dispatch) occurs unjustifiably and it causes congestion,
this can raise potential competitive concerns. We consider a unit to be out-of-merit when it is
dispatched, but could have been replaced by lower-cost generation that was not dispatched.
In order to identify out-of-merit dispatch, we first estimate MEC's marginal cost cure or
"supply cure".5 To estimate marginal costs, we used incremental heat rate cures, fuel cost,
and other varable operations and maintenance cost data provided by MEC. This allowed us to
calculate marginal costs for all ofMEC's units. We ordered the marginal cost segments for each
of the units from lowest cost to highest cost to represent the least-cost method of meeting various
levels of demand. For our analysis, the cure is re-calculated daily to account for fuel price
changes, planed maintenance outages, and planed deratings. Figue 5 shows the estimated
supply cure for a representative day durng the time period studied.
As Figue 5 shows, the marginal cost of supply increases as more units are required to meet
demand, as expected. We used each day's estimated marginal cost cure as the basis for
estimating MEC's least-cost dispatch for each hour in July and August. In general, this wil not
be the exact level of least-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 actully the incremental
production cost and does not include opportity costs, risks, and other factors not reflected in the incremental
production cost.
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MEC Monitoring Report: July aÍld August 2009 Monitoring for Anticompetitive Conduct
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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, ancilary services, and ramp rates. An example of an energy limitation is the
governental imposition of environmental permits that only allow a plant to operate for a
specific number of hours per year. Because the plant is stil capable of operating at full load for
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MEC Monitorig Report: July and August 2009 Monitorig for Anticompetitive Conduct
l
a shorter time period, the condition does not result in a planed outage or derating. The
necessity to limit operating hours can cause the out-of-merit values to be overstated.
Ancilar services requirements such as spinng reserves, system ramp rate limitations, and
AGC control requirements can make it operationally necessar to dispatch a number of units at
part load rather than having the least expensive unt fully-loaded. These operational
requirements can cause the out-of-merit values to be overstated. For our analysis, the accurcy
of a single point is not as important as the trend or any substantial depares from the tyical
levels.
Our analysis does not model ramp rates6. We attempt to avoid ramping periods by focusing on
on-peak hours from hour ending 12 to hour ending 22. However, in the event of a unit retuing
from outage during peak hours, our analysis may overstate the out of merit quantity because the
unit is not immediately available at full capacity.
Figue 6 shows the daily maximum out-of-merit dispatch for the peak hours of each day in the
study period. Also shown in the figue are days with congestion (i.e., a TLRevent rated 3a or
higher in effect) represented as blue bars. For these days, the out-of-merit dispatch displayed
corresponds to the hour when the impact of the out-of-merit dispatch on the congested path was
at its daily maximum. The figue also shows "Path Impact" (red bars). This is a calculation of
the power flow change on the congested facilities as a result of the out-of-merit dispatch. In
other words, if dispatch had been "in-merit", flow on the congested path would have been lower
by the amount shown. The impact was determined using generation shift factors.
7
6 Ramp rate is defined as the expected response rate of a generator measured in MW /miute and is used to
determine the amount of time necessar for a unit to change output levels.
7 Generation Shift Factors are defined as the incremental increase or decrease in flow on a flowgate divided by an
incremental increase or decrease in a Generation Resource's output.
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..
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MEC Monitoring Report: July and August 2009 Monitoring for Anticompetitive Conduct
Figure 6:Out-of-Merit Dispatch and Congestion Events
400 80
_Congested
350 _ Path Impact 70--MaxOOM,-
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As the figue shows, the impact from out-of-merit generation dispatch was minimal durng the
quarter. The maximum impact contrbuted 4 MW of increased flow over a congested path while
the out-of-merit generation was 150 MW. This occured on August 5, 2009 and was due to Neal
Unit 4 incurng a forced outage to repair a reheat tube leak. We do not find evidence of
anti competitive conduct.
Of five days identified above in the purchases and sales section only August 16, 2009, coincided
with a significant out-of-merit event. The out-of merit dispatch on this day was 103 MW and the
impact was 3.9 MW. The out-of-merit dispatch was due to
We do not find evidence of anticompetitive conduct.
c. Transmission Outages
We evaluate MEC transmission outages in order to dete_ine whether outages may have led to
the congestion events experienced durng the time period of our report. We reviewed entres in
the Midwest iso Outage Scheduler that indicate the date, duration, and natue of the
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MEC Monitoring Report: July and August 2009 Monitoring for Anticompetitive Conduct
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transmission system outages. There were 50 trmission outage entres for the MEC area
durng the study period. Of the 50 outages, 26 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)8 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 contrbution to the need for a TLR event. We found three outages that had a
significant impacë on the monitored elements, which we evaluated in more detaiL.
The was taken out of service for a five-hour scheduled
outage on July 16,2009. At the time was subject to a TLR event. The line
outage was not the cause of the TLR event because the TLR event lasted longer than the line
outage. However, the LODF is strong enough to have an effect. The outage was taen to
replace broken guy wires and anchors on one of the strctues.
The line was forced out of service on automatic relay action on July
25,2009. The line was in outage for fifteen hours. This outage may have contrbuted to TLR
The cause of the outage was found to be a bad lightning arestor at the
The e was taken out of service for a four-hour scheduled
outage on August 3,2009. This led to TLRs on__ The outage was taken to repair
an infrared hot spot located on a disconnect switch at
Our review of the transmission outages did not identify events that caused congestion significant
to the five days identified above in the purchases and sales section.
8
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.
A transmission outage is considered significant if over 3.5 percent of the pre-outage flow on the outaged line is
transferred to the monitored element (pre-contingent) of the constraint (line outage distrbution factor:; 3.5
percent).
9
Redacted Version Page 17
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MEC Monitoring Report: July and August 2009 Monitoring for Anticompetitive Conduct
l
More broadly, our review of outages revealed that the line outages were justified and we found
no other issues that raise potential competitive concerns.
D. Conclusions
Based on our overall analysis ofMEC's conduct and the market outcomes, we fid no evidence
of anti competitive conduct durng the period of study.
Redacted Version Page 18
-,
h Ëi',", ~.. ,'c,' ~~......~
,
l~ Q. 'ìS
"JM1' ~!n\/ 'ì 1 r,il J" "J viUU-) ¡'~W ~ L; . 'I
QUARTERLY MARKT MONITORIG REpORT
ON
PACIFICORP
Third Quarter of 2009
Issued by:
Potomac Economics, Ltd.
Independent Market Monitor
CONFIDENTIAL MATERIAL REDACTED
REDACTED
t
PacifCorp Monitoring Report: Third 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...................................................................................... i 1
A. Overview........................................................................................................ 11
B. Trasmission Operating Procedures .............................................................. 12
iV. Transmission Access ............................................................................................. 13
v. Monitoring for Anticompetitive Conduct ........................................................... 15
A. Wholesale Sales and Purchases ..................................................................... 15
B. Generation Dispatch ...................................................................................... 18
C. Transmission Outages.................................................................................... 23
D. Transmission Operations ...............................................................................24
E. Conclusions on Monitoring for Anticompetitive Conduct................. ........... 28
Redacted Version
"-,
PacifiCorp Monitoring Report: Third Quarter of 2009 List of Figures
J
List of Figures
Figure 1: East Wholesale Prices and Peak Load, Third Quarter of 2009 ........ ..... ............. 6
Figure 2: West Wholesale Prices and Peak Load, Third Quarer of 2009 ......................... 7
Figue 3: East Trends in Monthly Electrcity and Natual Gas Prices............................... 8
Figue 4: West Trends in Monthly Electrcity and Natual Gas Prices ............................. 9
Figue 5: Summary of PAC Sales and Purchases ............................................................ 10
Figue 6: Disposition of Requests for Transmission Service on the PAC System.......... 13
Figure 7: Disposition of Tranmission by Duration of Service....................................... 14
Figue 8: Prices Received for PAC Sales and Purchases................................................. 16
Figue 9: PAC Supply Cures ......................................................................................... 19
Figue 10: East Out-of-Merit Dispatch and Congestion Events ......................................21
Figue 11: West Out-of-Merit Dispatch and Congestion Events..................................... 22
Figue 12: Curailment and Curailment Deviation .........................................................26
Redacted Version
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PacifiCorp Monitorig Report: Third Quarter of 2009 Overvew \
I. OVERVIEW
In connection with MidAerican Energy Holdigs Company's ("MEHC's") acquisition of
PacifiCorp ("PAC" or the "Company") in Federal Energy Regulatory Commission
("Commission") Docket No. EC05-11O-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 monitorig report for the
third quarter of 2009 for PAC.
The market monitoring plan for PAC is designed to detect any anticompetitive conduct from
operation of the company's trnsmission 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
reportng on: (i) generation dispatch ofPacifiCorp, and scheduled loadings on
constrained transmission facilities; (ii) details on binding transmission constraints,
such as transmission refusals, or other relevant information; (iii) operating guides and
other procedures designed to relieve transmission constrints and the effectiveness of
these guides or procedures in relieving constrints; (iv) information concerning the
volume of transactions and prices charged by PacifiCorp in the electricity markets
affected by these companes 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 ("TIC") over
transmission lines owned or controlled, in whole or in part, by PacifiCorp; and (vi)
plans for constrction by PacifiCorp of expansions to its transmission facilities.
To execute the monitoring plan, Potomac Economics routinely receives data from PAC that
allows us to monitor generation dispatch, transmission system congestion, and the Company's
operational and commercial activity durng periods of congestion. We also collect certin key
data ourselves, including OASIS data and market pricing data.
The purose of this report is to provide the results of our monitoring activities and significant
events on the PAC system
i durng the third quarter of 2009.
As specified in the monitorig plan, a draft of the findigs has been submittd to PAC prior to submission to the
Commssion. PAC had no substative comments.
Redacted Version Page 1
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PacifCorp Monitoring Report: Third Quarter of 2009 Overvew
.I
A. Market Monitoring
Potomac Economics pedorms the market monitoring fuction on a regular basis, as well as
pedorming periodic reviews and special investigations. Our priary 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 Capabilty ("ATC"), and curailments or other actions taken by PAC
to manage congestion. Analyses of these data aid in detecting congestion and determining
whether market partcipants have full access to transmission service.
In addition to the regular monitoring of outages and reservations, we also remain alert to other
significant events, such as price spikes, major generation outages, and extreme weather events
that could adversely affect transmission system capability and give rise to the opportity for
anti competitive conduct.
Our periodic review of market conditions and operations is based on operating data PAC
provides us, as well as other data that we collect on a routine basis. Our review consists of four
parts. First, we evaluate regional prices and trnsactions to provide an assessment of overall
market conditions. Second, we sumarze 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 circumstaces 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 securty 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 necessar
to undertake a special investigation in response to specific circumstances or events. No such
events occured this quarter.
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PacifiCorp Monitoring Report: Third Quarter of 2009 Overvew \
B. Summary of Quarterly Report
1. Wholesale Prices and Transactions
Prices. We evaluate regional wholesale electrcity prices to provide an overview of general
market conditions. Over the course of the quarter, Eastern and Western control area electrcity
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.
evaluate the prices of real-time transactions durng 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 curailments and reductions.
In the period of study, PAC implemented 190 curailments and schedule reductions totaling
16,451 MWh across 22 paths. We utilize curailments 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 determe whether
market participants have had diffculty accessing the PAC transmission network. If requests for
transmission service are frequently denied, this may indicate an attempt to exercise local market
power. The volume of approved requests was higher than the levels observed in the third quarer
of 2008 and higher than the second quarter of 2009. The volume of refusals was slightly lower
than the preceding quarter, but higher than it was in the same quarter of the prior year. 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: Third Quarter of 2009 Overvew
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 durng times when transmission congestion
arises. Real-time daily average transaction prices ranged between I MWh andll 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 fuer evaluate competitive issues, we examine PAC's generation dispatch to
determine the extent to which congestion may be caused or exacerbated by uneconomic dispatch.
Congestion can result natually when PAC or any utility attempts to dispatch its units in a least-
cost maner. Such congestion does not raise competitive concerns. If an unjustified depare
from least-cost dispatch ("out-of-merit" dispatch) occurs, causing congestion, competitive
concerns arise. Our investigation found that out-of-merit dispatch durng the study period that
had significant effects on transmission constraints was justified. Hence, this analysis did not
reveal evidence of anti competitive conduct.
Transmission Outages. We also evaluate PAC transmission securty events and transmission
outages in order to determine whether these events may have unduly caused congestion. We
focused our analysis on six outage events that were associated with curailments. We
investigated these events and found no evidence of anti competitive conduct.
Transmission Operations. We analyze PAC curailments to determine whether curailments are
being properly implemented. PAC manages congestion, prioritization of schedules, and low
voltage events with schedule curailments. We scrutinized 25 curilments that were at least 75
MW above what we estimate to be justified by net schedules and TTC. We were able to fully
justify 22 of these 25 curailment deviations. Given that 190 curailments 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
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PacifiCorp Monitoring Report: Third 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 durng the study period.
Redacted Version PageS
"\
PacifiCorp Monitoring Report: Third Quarter of 2009 Wholesale Prices and Transactions
II. WHOLESALE PRICES AND TRASACTIONS
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 Western and Eastern portions of PAC's system. Figue 1 shows the bilateral contract prices
for Four Comers and Mona (representing the East) and Figue 2 shows the bilateral contract
prices for Mid Columbia and Mona2 (representing the West).
Figure 1: East Wholesale Prices and Peak Load, Third Quarter of 200980 20,000
.. PACE Peak Load
- Four Corners Price
---- SoCal Gas Cost
-Mona Price
70
60 15,000
,-50..~
E 40~
'".,
.S:..30i:
20
10
~
10,000 :
..=,.
5,000
o
)~ )~ . '\~ )~ )~ ~~ ~~ ~~ ~~ ~~~ ~~~ ~êl ~êl~ ~ ..~ ",'V ~ "f~ ..'Y~ ~'~ ",Id~ 'Y ~' ..Id ","'
Date
o
2 Mona is a relatively illquid and lightly traded market point in central Uta. It is included in both figues to
provide a baseline for comparson between them.
Redacted Version Page 6
r
PacifCorp Monitorig Report: Third Quarter of 2009 Wholesale Prices and Transactions
Figure 2: West Wholesale Prices and Peak Load, Third Quarter of 2009
80 ....._.............................................._.............................._.~~..._.._.__.__....._~._-_...--.._............~....~.~_.........................................._~-~......_~....................~.... 10,000
!I P ACW Peak Load
- Mid Columbia Price
---- PG&E Mali Gas Cost
-- Mona Price
70
60
10
7,500
,.~
5,000 ë,
'0..Q..
2,500
,. 50-=~
~~ 40
.~
~ 30
20
o
)~ )~ .. ~~ )~ )~ ~~ ~~ ~~ ~~ ~l~' 9l~ . ~e5 ,~e5'\ q; ,"1 ,,'" ~ '?~ ,'V~ ~,~ ,,'c~ '" q ,'c- ~
Date
o
System load data is also shown because of the expected correlation with power prices. The
Eastern control area load is shown on the East figue and the Western control area load is shown
on the West figue. Natual gas prices are also shown because natual-gas-fired units are most
often the marginal unit supplying the grd, and because fuel costs comprise the vast portion of a
generating unit's costs. For the West analysis we use the daily price of natual gas deliveries at
PG&E Malin (at the Northern California Border) translated to a power cost assuming an 8,000
btuWh heat rate. This number roughly corresponds to the fuel cost portion of the operating
cost of a natual gas combined cycle power plant. For the East comparison, we use SoCal
Border Gas (at the Southern California Border) price and apply the same power-cost conversion.
Prices for bilateral contract transactions are compiled and published by commercial pricing
sureys. The bilateral pricing data shown in the figue above is published by Platts. The Mid
Columbia pricing location includes a collection of hydroelectrc units along the Columbia River
in Oregon and Washington, and represents the value of electrcity in the Pacific Northwest. This
is a liquid point in PAC's Western control area. The Four Comers location is at the southern end
of the PAC transmission system where New Mexico, Colorado, Arizona, and Utah meet. Prices
at Four Comers represent the value of electrcity in the Desert Southwest. This is the liquid point
that is closest to PAC's Eastern control area.
Redacted Version Page 7
"\
PacifCorp Monitoring Report: Third Quarter of 2009 Wholesale Prices and Transactions
Figue 1 and Figue 2 show that power prices at both Mid Columbia and Four Comers are
generally correlated with fluctuations in natual 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 July 2006 though September 2009 with average prices durg the same period over
the past three years. These results are shown together with the average Platts SoCal Border and
PG&E Malin natual gas prices discussed above. As the figues show, electrcity prices have
generally been highly correlated with natual gas prices over longer timeframes.
120
100
:=~
~80ia~~..
'C¡:£60..
'C-..~~~40"~~0-=~20
0
Figure 3: East Trends in Monthly Electricity and Natural Gas Prices
Third Quarter, 2006-2009
----.......-.--........-......................-................................................................~........~.~.~.~~.~"_....-..._.-.-.............--.....-.....................~..~......-...................~~....~.~...................................................... 12
July August September
10
s~8 =~
~~~
6 ~'C¡:~"C4 -;..
.e"z
2
o
Redacted Version PageS
PacifCorp Monitoring Report: Third Quarter of 2009
F'\
Wholesale Prices and Transactions
\.
Figure 4:
120
100
::~
~80~.....~
¡:È 60..
'C-..Jl~40Jl....Jl=..~20
0
West Trends in Monthly Electricity and Natural Gas Prices
Third Quarter, 2006-2009
July August September
12
10
S
Eo8 =~
~~..
6 8
'C¡:....~
4 -f
.e..z
2
o
Overall, our evaluation of wholesale electrcity prices in the PAC region did not indicate any
time period that merits fuher investigation solely by vire of price patterns.
B. Sales and Purchases
PAC engages in wholesale purchases and sales of power, both fir and non-firm transactions.
Figue 5 sumarizes PAC's sales and purchases activity for trdes that delivered durng the third
quarer 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 durng 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 durng periods of congestion.
Redacted Version Page 9
,...
PacifCorp Monitoring Report: Third Quarter of 2009 Wholesale Prices and Transactions
Figure 5: Summary of PAC Sales and Purchases
Third Quarter of 2009
Figure 5 shows that PAC's
the prices of real-time transactions during congested periods in Section V.A to detect potential
anti competitive conduct.
Redacted Version Page 10
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PacifiCorp Monitoring Report: Third Quarter of 2009 Transmission Congestion
III. TRASMISSION CONGESTION
A. Overvew
PAC is a member of the Western Electrcity Coordinatig Council (WECC). In WECC, regional
congestion is primarly managed by ensurg 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 trsmission network causes power to
circulate around the perimeter of the system. Typically, power transfers from the Pacific
Nortwest are scheduled south to California. However, sometimes this nort-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 Californa from the west
though Arzona.
The PAC system consists of two control areas: PACWin 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
16,400 miles of transmission lines and approximately 10,700 MW of owned or controlled net
generation capacity. PAC operates a significant portion ofthe transmission facilities that provide
north-to-south flow along the eastern perimeter ofWECC.4 These flows pass through a key
interface that is operated by PAC known as Path 20 (sometimes referred to as Path C). Path 20
was a "qualified path" in the nort-to-south direction under the UFRPs used by WECC.5
3 This is in contrast to how congestion is managed in the Eastern Interconnect where congestion management
generally is focused on actul flows on flowgates as opposed to scheduled flows on contract paths.
4 While nort-to-south flow is common, patterns of schedules and generation dispatch sometimes cause south-to-
nort flow.
5 WECC uses UFRPs when actual flow exceeds scheduled flow on a "qualified path". There are a limted
number of qualified paths identified based on certain criteria that include the path having a history of
unscheduled flow. The UFRP consists ofa series of nine steps that are intended to relieve the congestion
through the operation of equipment and, ultimately, the curilment of schedules.
Redacted Version Page 11
,.,
PacifiCorp Monitoring Report: Third 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 curilments and
transmission service request refusals. We also examine plans for constrction of expansions to
transmission facilities and found cases where the planed expansions may reduce congestion in
constrained areas. Nothing from our review of PAC's planned expansions raised competitive
concerns.
B. Transmission Operating Procedures
Durng the period of study, PAC implemented 190 curailments (including cases when
curailments were reversed) and schedule reductions totaling 16,451 MWh across 22 paths.
Curilments can be initiated when one of four conditions occurs: (1) the path is overscheduled
(due to conditions on the transmission system causing a reduction in TTC); (2) a schedule with a
higher priority reservation displaces a schedule with a lower priority reservation; (3) a 10w-
voltage constraint is binding; or (4) actual flows exceed the capabilty of the path. The accuracy
of these curailments and schedule reductions are evaluated in Section V.
Redacted Version Page 12
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PacifCorp Monitoring Report: Third Quarter of 2009 Transmission Access
IV. TRASMISSION ACCESS
A main component of the market monitorig 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 trsmission requests and their disposition are
helpful in determining whether market parcipants have had diffculty accessing the PAC
transmission network.
In order to make this evaluation, we calculate the volume of requested capacity that spanned the
time period under study. For example, if a request was approved in January for service in June, we
categorize that as an approval for June. Because requests 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.
Figue 6 shows the breakdown of transmission service requests in each month from July 2008
though September 2009 and summarizes the disposition of the requests.
Figure 6: Disposition of Requests for Transmission Servce on the PAC System
July 2008 - September 2009
25,000
20,000
'i
:=
~~15,000......~=='~~..=10,000~e
.æ=~
5,000
o
2008 2009
Redacted Version Page 13
PacifiCorp Monitoring Report: Third Quarter of 2009 Transmission Access
The figue shows that the total volume of approved requests durg the third quarter of 2009 was
higher than the third quarter of 2008 and higher th the second quarter of 2009. The volume of
refused service requests durng the quarter was slightly lower than the preceding quarer, averaging
2827 GWH. Hence, the approval rate increased from 95.4 percent for the second quarter of 2009
to 96 percent for the third quarer 2009. 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 uneasonably
restricted access to its trsmission system.
To fuher evaluate the disposition of trnsmission requests, we compare the volume of
transmission requests over the study period by increment of servce to the requests from the
corresponding period twelve months prior. This comparson is shown in Figue 7.
Figure 7: Disposition of Transmission by Duration of Servce
70,000
,::Refused ;.._-:
60,000
il Approved
'i= 50,000
~~
i 40,000=~
~ 30,000~..a
.! 20,000
~
10,000
o ;;..=:~o=
;;
=l..Q
;;..::f;f;~
;;..=¡.zo~
;;..
=:..f;;;
;;;;;;;;;;..=l ......
=:::==:~..f;¡...0 Q f;Z f;=~0 ;;
~
Third Quarter 2009Third Quarter 2008
Figue 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 figue because the requested service
spans the period of study. 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 anti competitive concerns.
Redacted Version Page 14
PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
v. MONITORIG FOR ANTICOMPETITIV CONDUCT
In this section, we evaluate the available market and operating data to identify any evidence of
anti competitive conduct or market manpulation. The market monitorig plan calls for
identifying anticompetitive conduct, which includes conduct associated with the operation of
either PAC's generation assets or its tranmission 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, transmission outages in the third subsection, and
PAC's transmission operations in the fourh subsection.
A. Wholesale Sales and Purchases
We examine sales and purchase data to determine whether the prices at which PAC transacted
power may raise concerns regarding anti competitive conduct that would warant fuher
investigation. We are particularly interested in periods when trnsmission congestion arises. If
PAC were engaging in anticompetitive conduct to create the congestion, it could potentially
benefit by makig sales at higher prices in constrined areas or purchases at lower prices adjacent
to constrained areas. We examined the real-time bilateral tranactions made by PAC using PAC
internal records. We focus on real-time trsactions 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 wil be limited if ATC is unavailable, transmission requests are refused, or schedules
are curailed. Curailments are also an indicator of congestion because they can be made when a
path is over scheduled. If PAC's ability to curil schedules is being abused, we would expect to
see systematically higher prices for sales or lower prices for purchases coincident with
curailments.
Figue 8 shows the daily average prices received by PAC for real-time bilateral sales and
purchases. The figue also indicates days when curilments occured that could have potentially
benefited PAC's position in the real-time bilateral markets. A curtailment may impact system
Redacted Version Page 15
PacifiCorp Monitoring Report: Third 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 figue) 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 sellng in constrained areas and, therefore, could benefit itself by restrctig 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
The volume weighted average daily sales prices ranged fromll MWh toll MWh and the
average was II/MWh. We say a day has a "beneficial 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 supply. On days when potentially beneficial curtailments occurred, the
6 The relationship between constrained paths and market delivery points is determined through shift factors,
which are the portion of power injected at the market delivery point that flows over the constrained transmission
path.
Redacted Version Page 16
PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct l
weighted average daily sales prices average ii MWh. The volume weighted average daily
purchases prices ranged froml MW toll MW and the average wasll/M. On days
with potentially beneficial curilments, the weighted average purchase price wasil MWh.
These prices do not show a pattern of PAC benefitig from curailments.
Though the overall price patterns do not raise concerns, we selected five days for closer
examination. On these days, the maximum daily effective market positions were greater than or
equal to 45 MW.
.
.
.
.
.
Max Effect was a 300 MW sale at NOB (Nevada Organ Border) for
_Wh.
Our primary concern is whether PAC anticompetitively created the congestion through
generation and transmission operations. Accordingly, we focus particular attention on these days
Redacted Version Page 17
,
PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
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 V.D below.
B. Generation Dispatch
To fuer 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 durng the study period to determine whether it was consistent with the least-cost use of
its resources. Congestion can result natually when PAC or any utility dispatches its units in a
least-cost manner, and does not raise competitive concerns in such circumstances. If a depare
from least-cost dispatch ("out-of-merit" dispatch) occurs unjustifiably and it causes congestion,
this effect can raise potential competitive concerns. We consider a unt to be out-of-merit when it
is dispatched, but could have been replaced by lower-cost generation that was not dispatched.
The PAC system is made up of two control areas: PAC West and PAC East. PAC is the
balancing authority for both of these control areas. The movement of power between the two
systems is limited by both transmission capability and contractual rights. Efficient merit order
dispatch is practical within each control area, but not necessarily between them due to these
limits. To account for this, we evaluate out-of-merit dispatch for each control area separately.
To identify out-of-merit dispatch, we first estimate each control area's marginal cost cures or
"supply cures".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 maner. For our analysis, the cure is re-calculated daily to account for fuel price
changes, planed maintenance outages, and planned deratings.
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 opportity costs, risks, and other factors not reflected in the incremental
production cost.
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
Figue 9 shows the estimated supply cures for a representative day durng the time period
studied. As the figue shows, the maginal cost of supply increases as more unts are required to
meet demand, as expected.
We used each day's estimated marginal cost curves as the basis for estimating each control area's
least-cost dispatch for each hour in the quarter. In general, this will not be the exact level 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 limited to peak hours to avoid
times of ramping and commitment issues which prevent achievement of the theoretical least-cost
dispatch.
This analysis does not model generator commitments, assuming instead that all available
generators are online. While market monitoring resources could have been expended refining the
estimated generator commitment and dispatch to make it correspond more closely to actual
operating parameters (i.e., start costs, 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.
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct,
When a unt with relatively low rung 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 operatig factors that cause the out-of-merit dispatch to be overstated are energy
limitations and ancilary services. An example of an energy limitation is a governental
regulation limitig 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 planed outage or derating. The
necessity to limit the hours of plant operation can cause the out-of-merit values to be overstated.
Ancilar services requirements such as spinning reserves, system ramp rate limitations, and
AGC control requirements can make it operationally necessary to dispatch a number of units at
par load rather than having the least expensive unit fully-loaded. These operational requirements
can cause the out-of-merit values to be overstated.
The out-of-merit quantities include unts on unplaned 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 trly out-of-merit. For our analysis, the accuracy of a
single point is not as important as the trend and any substantial depares from the tyical levels.
Figue 10 and Figue 11 shows the daily maximum "out-of-merit" dispatch for the peak hours of
each day in the study period for the Eastern and Western control areas, respectively. Also shown
in the figues 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 curailments occured, 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 figues also show "Path Impact" (red bars). This is a calculation of
the power flow change on the curiled paths as a result of the out-of-merit dispatch. In other
words, if dispatch had been "in-merit", flow on the curailed path would have been lower by the
amount shown. All curailed paths are tested for impact from generation dispatch from
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct ,
generators in both control areas. The impact of out-of-merit dispatch was determned using
generation shift factors
8 .
Figure 10:
800
700
:i 600is
g=500"=0'
-=~400"i:
.r¡¡:;i 300....~..~..200=0
100
East Out-of-Merit Dispatch and Congestion Events
Third Quarter of 2009
~ Days with Curtments
ll Path Impact
--MaxOOM
200
175
I
150
I
125 :i
isoW..100 a
e..;
75 "i:
50
25
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~~ ~~ . '\~ . '\~ ~~ ~~4ø ~~4ø ~~4ø ~~4ø ;,e,e. ;.e. ~e,e. ;,e,e.y 'l ..K' "."r ".0, l- .."1 ..0( "."" ii 0, .. 'c ".'"
Date
As the analysis of the East control area in the figue shows, there were thee days when out-of-
merit dispatch was at least 240 MW and contrbuted at least 30 MW of increased flow over
congested paths durng the study period. We inquired fuher into these days and found the
following:
. July 22: Naughton 1 and 2 were operating at part-load economically.
available for their full output with gas over-fire. However, their incremental cost while
buring gas made them less economical than gas combined cycle units in the area which
were ruing at the time. Thus, we dismiss this out-of-merit indication as being
overstated because our screens did not captue the effects of the opacity limitation. At the
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: Third Quarter of 2009 Potential Anticompetitive Conduct
time of the part-load operation, schedules on the Path C to Northern Utah path were being
curailed. The Naughton units are a strong raise-help (raising output relieves congestion)
on this path by providing counter flow.
. July 23: Naughton 2 had a ten-hour forced outage when the
At the time of the outage, schedules on the Path
C to Nortern Utah path were being curailed.
. August 5: Dave Johnston 4 trpped, initiating a twelve-hour forced outage.
We confirmed that the trp
occured by observing an abrupt loss of output that was reflected in the data. At the time
of the outage, schedules on the Yellowtail to PAC Wyoming path were curailed. The
Dave Johnson units are a strong raise-help on that path.
Figure 11: West Out-of-Merit Dispatch and Congestion Events
Third Quarter of 2009
800
700
~600
g=500os:=0'
-=
~400i:.f:~
;¡300..~..i 200:=0
100
0
i. Days with Curtments
.. Path Impact
--MaxOOM -
,
~-
~.~~.~\/'\ IN iJ )~\ Jt ~I /~V.,
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o
:i~ ,:i~ :i~ _ ~~ ..~ ..~~ ..~~ ..~~ ..~~ cJ~ C.e~ C.e~ ~e~.. ~ ..k ..'V- ..O¡~ .v .v .v .V ..P- ..p ..ic" ..:" . . k ,,"I ~' ",ic · .. " .
Date
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
"
As the West control area figue shows, there was one day (July 13,2009) when out-of-merit
dispatch was at least 240 MW and contrbuted at least 30 MW of increased flow over congested
paths durng the study period. We inquired fuer into this day and found that the out-of-merit
dispatch was justified due to Jim Bridger 3 incurng a 36-hour unplaned outage
This outage was coincident with curailments on the
Yellowtail to PAC Wyoming path. The Jim Bridger units are a raise-help because they provide
counter flow. Also, the higher-cost unit that replaced the Jim Bridger generation (Chehalis) is a
lower-help because the incremental flow from Chehalis to replace Jim Bridger generation
increases flows across the constrined path.
In addition to the events associated with out-of-merit dispatch described above, we reviewed the
five days identified in the Whole Sales and Puchases analysis above. We did not find any
significant out-of-merit dispatch that affected constrained paths for those days.
Based on our review of the outage information in the operating logs, and information garered
from discussions with PAC personnel, we conclude that the aforementioned outages from both
control areas were justified and did not constitute attmpts to engage in anticompetitive behavior.
c. Transmission Outages
We evaluate PAC security events9 to determine whether PAC's operation of transmission assets
may have contrbuted to the congestion events that occured durng the study period of the report.
We also evaluate transmission outages recorded in PAC's "Compass" system, its transmission
outage logging system. Between the two systems we found six transmission outage events that
were associated with schedule curailments. This includes one transmission outage associated
with curailments that coincided with the thee days in August of 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:
.
9 Securty events are derined as transmission security/reliability events that may impact the Provider's ability to
schedule trsactions.
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
.
.
However, t e outage was sc e u e over two
mont s II a vance, so we 0 not II it to be anticompetitive. The timing of an outage
scheduled far in advance prevents it from being an exploitation of short-term market
conditions.
.
.
.
T is outage oes not raise anticompetitive concerns ecause it was
sc e u e a most two months in advance and was taken to pedorm a justifiable work
scope. Curtilments on the Yellowtail to PAC Wyoming path coincided with this outage.
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. Transmission Operations
Under PAC operating procedures, path flows can be managed by curailing transactions
scheduled over the path. This can provide the opportity for anti competitive conduct by
initiating curailments when they are not necessary. By selectively initiatig 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 curailments are being
initiated properly. PAC initiates curailments when one of four conditions occurs: (1) the path is
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PacifiCorp Monitorig Report: Third Quarter of 2009 Potential Anticompetitive Conduct
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 constrint is binding, or (4) actual flows exceed the capabilty 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 22 paths where curailments were initiated by PAC. We compare aggregated ex
post net schedules and real-time flows to TTC. Ex post net schedules are the net schedules
actually realized at the end of the operating hour. PAC makes the curailment decision twenty
minutes prior to the operating hour. However, NERC standards also allow schedules (referred to
as "etags") to be submitted up until twenty miutes prior to the hour. Because it takes ten
minutes to evaluate a submitted schedule, the resulting net schedule can change from what it was
when PAC initially made the curailment decision. There may also be emergency etags
submitted later than twenty minutes prior to the hour. Yet, this ex ante data is not available.
Thus, utilzing ex post data provides only an approximation.
The curilment deviations calculated and reported in the analysis below equal the TTC value
minus the aggregated ex-post net schedules, except for the "Nortern Utah to Path C" path. On
the "Northern Utah to Path C", loop-flow is significant, so we calculate these curailment
deviations as the TTC value minus the maximum of either the real-time flows or the aggregated
ex-post net schedules. Using real-time flow allows us to captue the loop-flow on this path. The
curtailment deviations are limited to a ceiling equal to the curailment amount and a floor of zero,
since we are less concerned with under curailments. In the absence of emergency tags or tags
otherwise submitted after PAC makes its curailment decision, if a path is over-scheduled and the
curailments are accurate, this value should be close to zero.
11 Figue 12 shows the results of this
analysis.
10 Effective April 28, 2008, PAC utilizes forecasted values for Path C capacity when making its curailment
decisions. Accordigly, when evaluating curilments on the path "PACE to Path Coo, we utilize the forecasted
capacity value rather than TTC.
11 The other reasons for curailments aside from the path being over scheduled wil not necessarily result in a
curilment deviation close to zero.
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
Figure 12:Curtailment and Curtailment Deviation
Third Quarter of 2009
700
. Curment Deviation 0
o Curtailment
600
soo
cP400
..0~::
300 0
0
00
200
100
0
~il #'¡§q #'¡§q ¡§q ¡§q ~..q i$##'#'#'¡§q,,~,,~~~,,~..~~~~.,~~..~~~~q~qft~~b~~~~,,\~~q\q\
Date
Over the quarter, 190 curailments were implemented. Of these, 25 curailments had at least a 75
MW deviation. We reviewed all 25 for accuracy.
At the beginning of the quarter, PAC implemented a new softare system called "CAS" to
replace the KWH system. The CAS system had some problems that contrbuted to curtailment
deviations. One issue was that the CAS system failed to reject some invalid schedules that were
not supported by suffcient active transmission service rights. When invalid schedules were
curailed, they appeared as curailment deviations in our screens, though the curilments were
justified. Of the 25 curailment deviations that are under review, 18 were caused by this problem.
When we adjusted for the invalid schedules, all but four events were shown to have no
curailment deviations. The deviations of the remaining four events were all less than 50 MW.
So we dismiss them. PAC implemented upgrades to the CAS system on September 24, 2009 to
resolve this issue.
We now review the remaining seven events.
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
Two events occured on There were 160 MW curilment deviations for two
consecutive hours caused by 160 MW schedule curailments implemented on the
path. These curilments were justifiably taken because the
apparent deviation was caused by the TTC not immediately reflecting the line being out-of-
service. The TTC was set to zero within two hours of the line outage.
On there was a 100 MW curailment deviation caused by a 100 MW schedule
curailment implemented on the . However, PAC discovered and corrected
this in a timely fashion by reloading the curailed schedule.
hour ending 1112, there was a 101 MW curilment deviation on the_
This was caused by an operator error in the use ofa new curailment tool
associated with CAS. The operator failed to specify the direction of the curailment, which
resulted in curailments being implemented in both directions. This 101 MW curailment
deviation is an example of a curailment in the wrong direction. There were many other similar
events, but none caused a deviation that was greater than 75 MW. PAC addressed this issue
through email instrctions to the operators later that same day and then again on September 10,
2009.
On was a 150 MW curailment deviation for one hour. The curailments
were justifiably taken because the was forced out
of service through automatic relay action. The apparent deviation was caused by a counter-flow
schedule for 150 MW that was not curailed.
On , there was a 160 MW curailment deviation because curailments were
erroneously made for the outage after the line was
back in service. The event occured because the update to the outage system that reflected the
line status failed to transfer correctly to the rest of the systems.
12 The curailments noted for hour ending 11 are not the same ones that are referred to in the East control are out-
of-merit dispatch for that same day, which are for hour ending 14. Although both sets of curilments are for the
same path and both directions were curailed, this path was the proper direction for hour ending 14.
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PacifiCorp Monitoring Report: Third Quarter of 2009 Potential Anticompetitive Conduct
')
there was a 75 MW curailment deviation on the
The limits were lowered due to the
_The curtailments were a justified action to keep the physical flows within the revised
limits.
Of the 25 curailments that we reviewed, only two were found to be inaccurate or unjustified.
Both were softare related. With the new CAS system, it is understandable that defects need to
be resolved and the operators need to get familiar with the system. We find that having only two
curailments identified as inaccurate does not raise concern. Hence, we do not find evidence of
anti competitive conduct, and we find that actions taken to manage the system were very accurte.
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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