POTENTIAL MARKET CHANGES IN THE WESTERN INTERCONNECTION

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1 POTENTIAL MARKET CHANGES IN THE WESTERN INTERCONNECTION A View from Peak s Pike Caitlin Liotiris November 7, 2017

2 State of Play in the Western Interconnection Group of utilities located mostly in Colorado and Wyoming that are planning to join the Southwest Power Pool (SPP) in late 2019 Mountain West Transmission Group (MWTG) RC Services are currently provided to all of the Western Interconnection (except Alberta) by Peak Reliability Southwest Market Alternative Group (SMAG) Lesser known group of utilities in the Southwest exploring market alternatives, including SPP The Western EIM is operated by the California Independent System Operator (CAISO) and has seen rapid expansion Western Energy Imbalance Market (EIM) Reliability Coordinator (RC) Services California Independent System Operator (CAISO) Expansion Meaningful CAISO regional expansion will require a change in governance structure (which must be approved by the Legislature) 2

3 Mountain West Transmission Group (MWTG) MWTG Participants Basin Electric Power Cooperative Black Hills Energy Black Hills Power, Inc. Black Hills Colorado Electric Cheyenne Light, Fuel and Power Colorado Springs Utilities Platte River Power Authority Public Service Company of Colorado Tri-State Generation and Transmission Association, Inc. Western Area Power Administration Loveland Area Projects (WAPA RMR) Colorado River Storage Project (WAPA CRSP) MWTG Characteristics 70,000 GWh of load served/year 21,000 MW of generating capacity in the region 16,000 miles of transmission Currently in negotiations to join SPP by late 2019 Proposed Changes to SPP s Structure Only in MWTG Footprint Zonal construct, special cost shift mitigation Capacity Accreditation for intermittent generation in the West Transmission cost allocation structure (including utilities maintaining authority over the allocation methodology) Local transmission planning done outside of typical SPP process Stricter competitive bidding requirements Changes to interconnection and transmission service safe harbor provisions Changes to creditable upgrades process Changes for the full SPP footprint Board voting in open ballot Cost allocation for the current DC ties between SPP and MWTG MWTG would take RC services from SPP MWTG would no longer be a part of Peak Reliability 3

4 Southwest Market Alternatives Group Rough List of SMAG Participants Arizona Electric Power Cooperative El Paso Electric PNM Tri-State Tucson Electric Power Western Area Power Administration Desert Southwest SMAG Status Meeting for quite some time, but have been flying under the radar Evaluating market alternatives, including impacts to reliability and dispatch, market costs and benefits and impacts on renewable integration Contains two entities that have other loads already participating in MWTG Experiences and lessons-learned being shared One participant, PNM, involved in a regulatory docket investigating the feasibility of joining SPP GENERAL SMAG FOOTPRINT 4

5 EIM & SPP Expansion Current and Future EIM Participants 70% of load in the Western Interconnection Current EIM Entities provide maximum EIM transfer capability of more than 6,300 MW From inception (November 2014) through Q3 2017, EIM Entities have seen: Benefits totaling $255M 502,357 MWh of reduced renewable curtailments 214,927 metric tons of CO 2 reductions Potential Impact of Losing EIM Entities Nevada s exploration of retail choice may increase NV Energy s likelihood to join a market NV Energy is central to EIM Transfers Eliminating NV Energy severs significant EIM Transfer capability PacifiCorp and northwest entities would be limited to EIM Transfers to CAISO of: 331 MW on Path MW on Path 78 (PACW through APS) 5

6 Reliability Coordination & SPP Expansion Impacts to BAs/TOPs and Reliability Impacts of Multiple RCs on Generator Curtailment 900, , , , Impact on Peak Reliability Funding as Entities Exit 784, , ,334 $0.386 $0.45 $0.40 $0.35 $0.30 Peak Reliability s Enhanced Curtailment Calculator is used to help in determining curtailment responsibility during system events GWh/year 500, , , , , $0.057 $ ,763 $0.066 $0.116 Current Peak Footprint Less MWTG Less MWTG & SMAG Less MWTG, SMAG, CAISO & BC Hydro NEL (GWh) Peak Cost per MWh 115,476 Less MWTG, SMAG, CAISO, BC Hydro & EIM Entities $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 Fracturing the RC in the West, and its tools, may lead to competing congestion management between RCs, which could cause more curtailment of tags than the West experiences today 6

7 What s Next? SPP Expansion Across the West Appears Inevitable Expanding market in the Western Interconnection could increase opportunities for generation and transmission developers Key areas of market design to ensure an efficient, effective, and reliable market include: Developers and other stakeholders ability to have a meaningful impact on SPP s policy decisions Interconnection procedures and policies Policies on transmission planning (including interregional coordination) and competitive bidding Will the EIM Survive? Entities like NV Energy and PacifiCorp appear interested in joining a regional market Given the current governance structure, CAISO is not a viable option The only other cost-effective alternative will likely be joining SPP If PacifiCorp or NV Energy leave the EIM, the remaining transfer capability may result in decreased benefits for remaining EIM Entities which could lead to exploration of other market options, such as SPP Reliability and Curtailments Like markets, RCs are likely best able to perform (economically and reliably) with a large footprint MWTG s exit from Peak Reliability is likely to lead to other high profile exits and multiple RCs in the West BAs and TOPs remaining with Peak will see drastically higher costs and may need to consider other RC options (SPP or CAISO?) Potential for competing generation curtailments by RCs and more cut tags in the West, under a regime with multiple RCs 7

8 THANK YOU Energy Strategies 215 South State Street, Suite 200 Salt Lake City, Utah (801) Caitlin Liotiris, Partner energystrat.com 8

9 Presentation at WPTF Chapter Meeting ENERGY STRATEGIES SERVICES Providing tailored, technically grounded analysis and objective guidance in an increasingly complex energy market Power Market and Transmission Analysis Energy Policy and Management Regulatory Services We help solve our clients most nuanced and technical challenges by analyzing markets and the transmission system. We maintain a suite of analytical tools to help provide our client insight into: Transmission and Interconnection Services Energy Markets and Financial Analysis Project Economics Provides clients with valuable perspectives and strategic advice on energy and environmental policy though a broad base of services in the following arenas: Policy Analysis and Energy Market Policy Support Environmental Services Natural Gas Services Helps our clients understand the impacts of utility regulatory proceedings, both electric and natural gas through analysis and support on: Utility Revenue Requirements Cost Allocation and Rate Spread to Customer Classes Rate Design & Rate Adjustment Riders Pricing of Independent Generation (including Avoided Costs) 9