Stakeholder Comments Template. Subject: SCE Comments on Dynamic Transfer Revised Final Draft 2/18/11

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1 Stakeholder Comments Template Subject: SCE Comments on Dynamic Transfer Revised Final Draft 2/18/11 Submitted by Company Date Submitted Rich Mettling SCE Mar 15, 2011 Introduction SCE is pleased to contribute to the CAISO s effort to bring market efficiencies to intertie scheduling. As requested, our comments address each of the sections of the CAISO s draft. Although SCE supports most of the provisions of this draft, this version has raised concerns for SCE with its proposal for stringent dispatchability requirements and for implementation of LMP Pricing for resources outside of the BA. Due to these concerns we make our case on those issues before addressing the rest of the proposal. Dispatchability Requirements and Curtailment Rules The CAISO has proposed an extensive list of qualifications for dynamic transfer in their draft Proposal. 1 Since dynamic transfer is a scheduling arrangement, it is appropriate to require dynamically transferred resources to operate within a certain tolerance during normal operations and respond appropriately to intertie curtailments during operating orders. However, it is not necessary to require specific operational characteristics (e.g., to reduce output in 5 MW step-size increments, voltage control, or to have an automatic frequency control system) in order to participate in dynamic transfers. Although SCE understands the CAISO s desire to have dynamically transferred resources mirror internal resources, it may be impracticable to require dynamically transferred variable energy generators to meet the requirements as defined. Many in-state variable energy resources meet those requirements because California s interconnection process also requires such operational capability. However, out-of-state variable energy resources do not have the same operational requirements for interconnection. It would be inappropriate to require generators in other balancing authorities to comply with CAISO operating standards in order to participate in a scheduling agreement. Moreover, many out-of-state contracts are executed, approved, and will soon be delivering that do not require the attributes identified in the Proposal. The strict requirements identified in the Proposal will exclude these facilities from participating in dynamic transfers. Furthermore, utilities that depend on renewable energy from out-of-state facilities to meet California s mandated RPS requirements may be unable to count such 1 Dynamic Transfer Revised Final Draft Proposal, CAISO 2/18/11 p Page 1

2 energy. The recent CPUC Decision on tradable Renewable Energy Credits only allows utilities to meet 25% of their RPS targets with out-of-state energy that is not dynamically transferred into California, hence forth referred to as RECs. If a utility has already met its 25% quota of REC usage, and cannot dynamically transfer additional renewable energy into California because its contracted facilities do not adhere to the identified requirements, it will be unable to count the additional renewable energy toward its RPS. Although, the cost of this more restrictive and unanticipated list of qualifications is uncertain it is certain to make the market for tie capacity less liquid and thus more volatile. As an alternative, SCE suggests that the CAISO not have such prerequisites to participate in a dynamic transfer arrangement, but rather, require participants to operate within a reasonable tolerance from schedule and to respond to operating orders. The CAISO should make such requirements, but should allow participants to respond in their own manner. This may involve an approach based on economic incentives. In response to a real time curtailment of intertie capacity, a facility should have the choice to reduce its output, sell-off excess energy to another party in the native BA, or make a payment to the CAISO for failure to back down its generation. If a generator does in fact meet the defined set of requirements outlined in the Proposal, that facility should be able to avoid payments for non-compliance, and will be unaffected by this alternative approach. This strategy will encourage the appropriate improvement in technology without closing the door to dynamic transfer participation. SCE supports the CAISO s proposed effort to distinguish operating orders from routine dispatches. If the CAISO is to make conformance to operating orders a criteria for ongoing participation in dynamic transfer, that concept must be clearly delineated. Locational Pricing 2 The CAISO proposes estimating the LMPs of dynamic transfer contracted resources outside its BA and proposes to dispatch those resources accordingly. SCE is skeptical of the ISO s ability to gather all of the data necessary for LMP calculations on a real time basis. On the intertie it may be that generators from outside the CAISO s BA can judge their own dispatch and transmission potential more accurately than could be provided by a dispatch by the CAISO based on its estimate of LMP. Furthermore, an error prone LMP could result in resource dispatch inferior to that which occurs using economic bids. Prior to implementation of a proxy LMP, SCE would expect the CAISO to make a definitive demonstration of its ability to produce meaningful LMPs outside of its control area. Aside from data gathering and limited information, the modeling of more of the WECC would seem to add complications to the substantial updates already in 2 Ibid 1 at p Page 2

3 the queue for MRTU. For example: the disconnect between HASP and real-time pricing, intra-hour scheduling, and MSG. Finally, SCE is uncertain how prices at a particular tie can reflect the LMP price of a remote resource while resolving bid prices of firm resources scheduling at the tie. SCE is concerned that the use of LMP for dynamic transfer schedules while using intertie prices for static resources would make the intertie ripe for gaming. In addition such pricing is inappropriate and inconsistent as it provides different prices to different classes of resources. For example a specific resource could receive the Proxy LMP for a dynamic schedule in hour 1 and follow in hour 2 with a bid on the intertie receiving the intertie price. The combination of switching from dynamic to static schedules and dual pricing at the intertie would add unnecessary complications to an already complex dynamic scheduling concept without providing a significant benefit. Other Provisions of the Draft Final Proposal Transmission Reservations 3 The CAISO states that it will limit and intermittent resource s transmission reservation to no more than the maximum capacity stated in its dynamic transfer agreement and a non-intermittent resource to the transmission reservation (i.e., the sum of the resource s initial energy schedule and ancillary service awards, plus any additional capacity to allow for a real-time increase in output as sent in dispatches) to no more than its highest offered capacity in its submitted bid. SCE supports this approach with a single reservation: The definition of capacity reservation limit for non-intermittent resources includes additional capacity to allow for real-time increase in output as sent in dispatches. This introduces an element of uncertainty that implies that units need to accommodate dispatch beyond the economic bid. SCE asks that this limit be more precisely defined. In defining the application of congestion charges to capacity reservations the CAISO states the following: To discourage submission of self-schedules for intermittent resources the ISO will base settlements of dynamic transfers for the congestion component of LMPs and the Grid Management Charge on the greater of scheduled transmission reservations and actual delivery. SCE supports the application of congestion and GMC charges as described but continues to emphasize the need for equal treatment of all resources which should be reconsidered after the successful implementation of this dynamic transfer initiative. 3 Ibid 1 at p Page 3

4 Congestion Management The CAISO states that a resource may designate its expected delivery and maximum delivery in its day-ahead and real-time bids. The ISO proposes to offer a scheduling option for dynamic transfers of Eligible Intermittent Resources, which will allow these resources to adjust their dynamic schedules for variations in their availability within the operating hour, for reasons other than price-responsive dispatches or response as regulation reserve. The dynamic resource would be recognized in some ISO software systems as having a variable self-schedule, which in this case would be reported to the ISO as its expected output during 5-minute time intervals during a two hour look-ahead period. The ISO sends the value to the resource as the ISO s dispatch. These resources could choose between their variable self-schedule and a persistence selfschedule which would replicate the current output two intervals ahead using existing market software. This would define the instructed operating point for the resource. 4 SCE believes this approach will provide incentives for improved forecasts by Variable Energy Resources (VERS) and may be useful to ramping resources. That said there are still question around the details of implementation. Will bidding be done close enough to the dispatch so that it can be adjusted to resource conditions. Pro Rata Allocation of Deviations Among BAAs 5 Deviation responsibility is shared based on pro rata share of generator schedule. SCE supports pro rata allocation of deviations. Limits of Dynamic Imports 6 Limits not required for dynamic resources. SCE supports the allocation of resources through market means as opposed to an allocation. Management of Requests for Dynamic Transfers 7 The ISO will provide for sharing of dynamic transfer agreement data that will reflect the total of dynamic transfer capacity agreements on any given tie. SCE supports aggregate sharing of dynamic transfer capacity agreements at the intertie level. 4 Ibid 1 at p Ibid 1 at p Ibid 1 at p Ibid 1 at p Page 4

5 Aggregation of Conventional and/or Renewable Resources 8 The ISO supports aggregation as a concept but sees limitations if sites were aggregated that are not electrically close. SCE supports the ISO s cautious approach to aggregation. Generator-only Balancing Authority Area 9 The ISO will validate Generator only BAs to assure that the BA is successfully managing its inadvertent energy and providing sufficient contingency reserves. SCE supports this prudent method of validation. Expansion of Dynamic Transfer Based Services Dynamic Export Schedules and Pseudo-ties 10 Dynamic exports and pseudo-ties will require software upgrade which will be identified as the ISO receives specific project proposals. SCE supports further study of these additional market features. Layoffs 11 The ISO will develop provisions to address operational and market issues around layoffs off energy by resources within a pseudo-tie. SCE supports layoffs at the pseudo-tie. Division of Physical Generators into Multiple Dynamic Schedules 12 Currently not supported but will consider such needs as they arise. SCE supports this wait and see approach. Firmness of Transmission 13 The ISO proposes to not require firm transmission through external BAAs for dynamic schedule of energy. SCE is neutral. 8 Ibid 1 at p Ibid 1 at p Ibid 1 at p Ibid 1 at p Ibid 1 at p Ibid 1 at p Page 5

6 Documentation for Ancillary Service Certification 14 ISO will modify Appendix X in conjunction with certification of A/S from dynamic system resources. SCE supports further study as needed. Coordination with Neighboring BAAs, to Avoid Creating Seams Issues 15 The ISO believes that the proposals contained in this document do not conflict with coordination with other efforts on seams issues. SCE believes that the long term coordination of BAAs is essential to the longer term success of intertie programs and asks the CAISO to make every effort to coordinate the current initiative with other effected BAAs. Summary SCE complements the CAISO on its efforts thus far and supports its provisions with the exception of the dispatchability criteria and the out of BA LMP. SCE asks that the ISO reconsider its proposed dispatchability methodology in favor of incentive based rules that will move existing resources toward the desired dispatchability. SCE further requests that the CAISO defer consideration of LMP for out of BA resources until such time as it can demonstrate reliable, effective and extended experience with the acquisition and processing of the extensive information required for out of BA LMP. 14 Ibid 1 at p Ibid 1 at p Page 6