Demand Curve Shape. Responses to Stakeholder Questions and Comments. Adequacy & Demand Curve Work Group P R E P A R E D F O R P R E P A R E D B Y

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1 Demand Curve Shape Responses to Stakeholder Questions and Comments P R E P A R E D F O R Adequacy & Demand Curve Work Group P R E P A R E D B Y Kathleen Spees Judy Chang Johannes Pfeifenberger David Luke Oates Peter Cahill Elliott Metzler N o v e m b e r 1, D r a f t M a t e r i a l s f o r D i s c u s s i o n Copyright 2017 The Brattle Group, Inc.

2 Agenda Overview Modeling Approach Supply Curve Demand Curve Next Steps Appendix 1 brattle.com

3 Agenda Overview Modeling Approach Supply Curve Demand Curve Next Steps Appendix 2 brattle.com

4 Overview This presentation responds to questions and analyses requested in the input provided by the working group in our last meeting and provided offline Based on this input we have revised various assumptions, tested the performance of several additional demand curve options, and conducted sensitivity analysis of curve performance We do not address seasonality, which will be discussed in the next working group meeting 3 brattle.com

5 Overview Questions Submitted by the Working Group Question Slide(s) Should Supply Shock Levels be Based on Historical Alberta Data? 7 How Sensitive Are Results to Shock Sizes? 8 Should Poor Reliability Outcomes be Limited Through Intervention? 9 How Would a Performance Incentive Regime Impact the Supply Curve? 11 How Does the Supply Curve Shape Affect the Demand Curve? 12 What is the Impact of Changing the Quantity of the Price Cap? 14 Price Cap: What if There is Administrative Error in Net CONE? 15 4 brattle.com

6 Overview Modeling and Tuned Curve Updates Based on working group questions and comments we have revised various assumptions underlying our tuned curves including: Alberta-specific supply shocks Performance incentives Convex curve Minimum Acceptable: 800 MWh/year EUE Target: 100 MWh/year EUE Tuned Linear, Oct 11 Base Impact of Model Updates % of Reliability Requirement Reserve Margin (% UCAP) UCAP MW ICAP MW Incremental changes Smaller Shocks Reduce the Average EUE 5 brattle.com

7 Agenda Overview Modeling Approach Supply Curve Demand Curve Next Steps Appendix 6 brattle.com

8 Modeling Approach Should Supply Shock Levels be Based on Historical Alberta Data? Draft Materials for Discussion Minimum Acceptable: 800 MWh/year EUE Target: 100 MWh/year EUE Base Prior Shocks % of Reliability Requirement Reserve Margin (% UCAP) UCAP MW ICAP MW 7 brattle.com

9 Modeling Approach How Sensitive are Results to Shock Sizes? Shocks to supply and demand are a major driver of simulation outcomes Base supply and demand shocks increased/decreased by 50% to create High/Low cases Minimum Acceptable: 800 MWh/year EUE Target: 100 MWh/year EUE Low Shocks Base Curve widths vary from ~3,000 MW with low shocks to ~9,000 MW with high shocks Impact of Shock Variation High Shocks % of Reliability Requirement Reserve Margin (% UCAP) UCAP MW ICAP MW Larger shocks lead to wider curves and more excess capacity procured 8 brattle.com

10 Modeling Approach Should Poor Reliability Outcomes be Limited Through Intervention? Intervening to prevent low reliability(>800 EUE) outcomes shifts the demand curve foot to the left by approximately 900 MW Interventions occur in a relatively small number of draws, but are relatively large due to the shape of the EUE curve Minimum Acceptable: 800 MWh/year EUE Target: 100 MWh/year EUE Impact of Reliability Intervention w/ Intervention Base ~4,700-5,600 MW Range Draft Materials for Discussion % of Reliability Requirement Reserve Margin (% UCAP) UCAP MW ICAP MW Shifting the demand curve to the left causes an increase in price volatility 9 brattle.com

11 Agenda Overview Modeling Approach Supply Curve Demand Curve Next Steps Appendix 10 brattle.com

12 Supply Curve How Would a Performance Incentive Regime Impact the Supply Curve? Draft Materials for Discussion Offer Floor = Hours Penalty Rate Balancing Ratio/ 365 Base Offer Floor = 10 $5,000 85% / 365 High Offer Floor LOLH modeling suggests Hours used in Offer Floor calculation should be between 2 and 20. Based on our judgment we selected 10 for our Base assumptions No Minimum Offer Base Offer Floor 11 brattle.com

13 Supply Curves How Does the Supply Curve Shape Affect the Demand Curve? Minimum Acceptable: 800 MWh/year EUE Target: 100 MWh/year EUE Draft Materials for Discussion 75% Net CONE Offer Floor 4,000 Coal MW 75% CONE Offer Floor Base Offer Floor No Minimum Offer Floor 75% Net CONE Offer Floor Base Coal 75% Net CONE Offer Floor No Minimum Offer Floor % of Reliability Requirement Reserve Margin (% UCAP) UCAP MW ICAP MW Impact of Supply Curves Very small changes in price volatility and reliability outcomes 12 brattle.com

14 Agenda Overview Modeling Approach Supply Curve Demand Curve Next Steps Appendix 13 brattle.com

15 Demand Curves What is the Impact of Changing the Quantity of the Price Cap? Adding/subtracting 500 MW from price cap quantity changes steepness of tuned convex curves Minimum Acceptable: 800 MWh/year EUE Target: 100 MWh/year EUE Price Cap +500 MW A higher price cap quantity creates a steeper curve, resulting in higher price volatility Base Price Cap -500 MW A lower price cap quantity creates a wider curve, resulting in lower price volatility Impact of Price Cap Quantity % of Reliability Requirement Reserve Margin (% UCAP) UCAP MW ICAP MW The widest curve has the lowest price volatility 14 brattle.com

16 An administrative Net CONE that is 20% below actual Net CONE fails to procure enough capacity resulting in poor reliability outcomes An administrative Net CONE that is 20% above actual Net CONE over procures capacity Draft Materials for Discussion Demand Curves Price Cap: What if There is Administrative Error in Net CONE? Minimum Acceptable: 800 MWh/year EUE Target: 100 MWh/year EUE Cap at 1.7 Net CONE % of Reliability Requirement Reserve Margin (% UCAP) UCAP MW ICAP MW Impact of Administrative Error in Net CONE Trade off between high EUE and high excess capacity 15 brattle.com

17 Agenda Overview Modeling Approach Supply Curve Demand Curve Next Steps Appendix 16 brattle.com

18 Next Steps Timing SAM Sept-Dec 2017 SAM Jan-Mar 2018 SAM Apr-Jun 2018 Scope Oct 4 Web/Phone Meeting Gather feedback from workgroup on scope Oct 10 In-Person Meeting: Discuss preliminary analysis of potential demand curve shapes Review Alberta-specific considerations affecting price volatility and desirable curve width/parameters Expand on and complement introduction of demand curve concepts/principles by providing information on modeling approach, impacts of key parameters and principles, preliminary suggestions about the workable range of demand curve parameters Nov 1 Meeting (Today): Discuss materials prepared in response to workgroup questions, requested sensitivity analysis, and requested demand curve alternatives Nov 15 Meeting: Discuss seasonal capacity auction Jan Meeting: Outline outstanding uncertainties/questions to be refined in SAM 4.0, primary interactions/uncertainties, gather stakeholder input on necessary refinements Feb or Mar Meeting: Answer outstanding questions, finalize demand curve parameters. Develop workgroup conclusion for SAM 4.0 demand curve parameters Make final adjustments to demand curve based on final AESO/workgroup input and conforming changes to other workgroups changes in SAM 4.0 April Meeting: Provide final presentation to the workgroup on selected demand curve and recommendations to be included in report. Last opportunity for stakeholder input/adjustments June Recommendations Report/Testimony: Prepare final recommendations report and deliver to workgroup/aeso. Document the defined objectives, principles, workgroup process, and dissention. Include final recommended Demand Curve. Submit report or testimony suitable for filing with governing body 17 brattle.com

19 Appendix (to be added) 18 brattle.com

20 Contact Information KATHLEEN SPEES Principal Boston, MA JUDY CHANG Principal and Director Boston, MA DAVID LUKE OATES Associate Boston, MA JOHANNES PFEIFENBERGER Principal Boston, MA The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc. 19 brattle.com

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