Assessment of Load Shed Service for Import (LSSi) Product

Assessment of Load Shed Service for Import (LSSi) Product Date: March 27, 2014 Prepared by: Prepared for: Mike Law Jenny Chen Senior Market Design Specialist Vice President, Market Services

Table of Contents 1 Executive Summary... 1 2 Background... 2 3 Assessment of LSSi Product Design Features... 4 4 Operational Assessment of LSSi... 7 4.1 Increase in Intertie Capability... 7 4.2 Learning Obtained Through Using LSSi and Potential Modifications to LSSi Contract... 10 5 Next Steps... 14

1 Executive Summary Load Shed Service for Imports (LSSi) is a transmission system reliability product developed by the AESO as part of the efforts to fulfill its intertie restoration obligation as mandated by legislation. LSSi is provided by loads that agree to be tripped following the frequency drop caused by the sudden loss of imports coming across the WECC connected interties (the AB-B.C. intertie and Montana Alberta Tie Line or MATL) due to intertie contingencies. This load shedding allows for arrest and recovery from frequency decay, and preserves system stability. LSSi is used to manage frequency risk so that import intertie capability can be increased, allowing additional scheduled imports to access the Alberta market without compromising system reliability. Historically, the AESO has used a number of under-frequency mitigation services to provide system reliability. These services included Import Load Remedial Action Scheme, Brazeau Fast Ramp and Load Shed Service. However, the AESO was unable to competitively contract these services in sufficient volume needed for import intertie restoration. The AESO attempted to competitively contract two other products (Load Shed Requirement and Fast Ramp Service) for the purpose of increasing intertie scheduling capability, but the Expression of Interest for both products was determined to be noncontestable due to a low level of responses. These unsuccessful procurement attempts necessitated the need for LSSi to be developed. LSSi was developed as part of the broader intertie restoration process, and also through demand response discussions that occurred in 2009. LSSi has a design feature that no other under-frequency mitigation services previously designed or implemented by the AESO have included, i.e. the providers are allowed to determine whether to make LSSi volumes available in a given hour, and one part of the LSSi payment is linked to availability. This feature reduces the risks of providing the service and incents providers to contract the service with the AESO. As a result, in late 2011, the AESO was able to successfully contract the needed volume through competitive procurement. The AESO contracted LSSi to increase import intertie capability in Q4 2011. With LSSi in use for two years now, the AESO conducted an assessment of the product. The assessment focuses on evaluating the product design features of LSSi that enable increased import capability, as well as the learning obtained through using LSSi. The assessment also identifies potential areas where modifications to the contracts may be made in order to better achieve desired outcomes. LSSi, as a tool to restore intertie capability, became effective in November 2011. In 2012, the import Available Transfer Capability (ATC) of the AB B.C. intertie reached 700 MW, 1 higher than the maximum import ATC posted in each of the five years prior to the use of LSSi. The increased import capability achieved with LSSi enabled over 100,000 MWh of additional imports to gain access to the Alberta market in the 12-month period between April 1, 2012 and March 31, 2013. The experience of using LSSi to restore import intertie capability helped the AESO identify areas where possible modifications to the product may be beneficial. The areas examined by the AESO for possible modification include: Decreased available volume of LSSi at higher price levels No modification suggested. Stability of available LSSi volumes between T-85 and T-20 Modification considered: Require commitment to LSSi availability volume at T-85 minutes prior to a delivery hour. 1 The System Controller arms LSSi based on Table 10 of Information Document ID#2011-001R. According to this table, without LSSi, in the hours where the ATC reached 700 MW, the ATC would have been lower. Page 1

Manual tripping of LSSi load through System Controller s directive Modification considered: Require manual tripping in all contracts. Payments for LSSi availability when AB B.C. intertie is on outage or other transmission limitations mean that LSSi cannot increase import capability Modification considered: Eliminate availability payments when system import capability is limited to a level below which LSSi could be utilized to increase capability. Clarity in compliance Modification considered: Clarify compliance terms under which contracts may be terminated. Overall, the AESO intends to continue the use of LSSi as part of the intertie restoration program, as physical infrastructure solutions which may mitigate the frequency risk are still deemed to be impractical to implement in the short to medium term. As part of the broader intertie restoration program, the AESO is conducting an intertie system operating limit study. Based on the results of the study, the amount of LSSi arming volume required at various load and schedule levels will be reviewed and updated. This will be used to inform the volume of LSSi targeted to be contracted in the next RFP process. 2 Background The AESO uses LSSi to help manage frequency risk associated with increased intertie capability, and to enhance the access of in-merit imports to the Alberta market. Intertie restoration is mandated by the Electric Utilities Act (EUA) and Transmission Regulation, and directed by the Transmission Development Policy. Section 16 of the Transmission Regulation mandates the AESO to restore interties that existed in August 2004 to or near to their path ratings. Further, subsection 15(e)(i) states that the AESO must plan a transmission system that is sufficiently robust so that 100% of the time, transmission of all anticipated inmerit electric energy referred to in section 17(c) of the Act can occur when all transmission facilities are in service. Subsection 17(c) of the EUA includes scheduled exchanges of electric energy and ancillary services between the interconnected electric system in Alberta and electric systems outside Alberta Finally, the Transmission Development Policy provides direction for the AESO in its intertie restoration efforts. It states Transmission internal to Alberta should be reinforced so that under normal conditions, the existing inter-ties can import and export power on a continuous basis, in accordance with their design capability. As per the mandate described above, LSSi is a product developed to aid the AESO in fulfilling its intertie restoration obligation. The intent of LSSi is to increase the import capability of the Alberta system available for use by market participants. LSSi is a load shed service provided by loads that agree to be tripped in certain circumstances following the frequency drop caused by the loss of the WECC connected interties in order to arrest and recover from frequency decay, and preserve system stability. Use of LSSi to increase import capability is consistent with the overall goal, as laid out in legislation and policy, of implementing an unconstrained transmission system to enable wholesale market competition. The AESO historically has contracted a number of services to manage under-frequency situations, including those caused by intertie contingencies. For various reasons, the AESO has been unable to competitively procure a sufficient volume of these services. As an alternative, LSSi was developed through consultation with industry stakeholders. The under-frequency mitigation services that the AESO has contracted before are described below. Page 2

Import Load Remedial Action Scheme (ILRAS) 2 ILRAS was an armable ancillary service provided by interruptible loads that would be automatically tripped following the loss of the AB B.C. intertie. In 2006, the AESO issued a request for Expressions of Interest (EOI) to competitively procure ILRAS. However, since the total volume offered by all EOI respondents was less than the AESO s required volume, the EOI was determined to be non-contestable. In January 2007, the existing ILRAS contract was altered to only being used to enable imports during energy supply shortfall events. In October 2007, the AESO proposed that ILRAS be provided by distribution companies as a mandatory service also to facilitate in market imports, i.e. the imports that are not for the purpose to alleviate energy shortfall situation. However, the proposal was rejected by stakeholders. Subsequently, the AESO formed an ILRAS working group to further explore solutions. Based on an under-frequency study, the AESO concluded that ILRAS could be combined with another under-frequency service, Load Shed Service (LSS), into a single service called Load Shed Requirements (LSR). 3 The working group stated that both LSR and a fast ramp service were required to increase AB B.C. intertie capability, and reached a general agreement that a competitive process should be utilized initially to attempt to procure the requirements for LSR and a fast ramp service. 4 In the meantime, the ILRAS contract for energy supply shortfall events remained in effect. This ILRAS contract expired in June 2012. Brazeau Fast Ramp (BFR) BFR was an always armed ancillary service 5 provided by TransAlta s Brazeau facility to help arrest and recover from frequency decay. The BFR contract was established bilaterally between the AESO and TransAlta. The contract was not renewed when it expired in 2008, 6 as the ILRAS working group suggested that a fast ramp service be procured competitively. Load Shed Service (LSS) LSS was an ancillary service provided by loads that agreed to be automatically tripped when the frequency of Alberta Interconnected Electric System (AIES) dropped to 59.5 Hz. LSS agreements also allowed for manual curtailment of the loads following a trip of the AB B.C. intertie. 7 LSS was permanently armed and generally used in combination with ILRAS load to allow higher import levels on the AB B.C. intertie. In June 2008, based on the suggestion of the ILRAS working group to competitively procure LSR and Fast Ramp Service (FRS), the AESO issued an EOI for 485 MW of LSR and 150 MW FRS. In the EOI, the AESO stated that both services are ancillary services that would be used to manage frequency risk when increased imports on the AB B.C. intertie are scheduled. 8 Both LSR and FRS were designed as armable products and loads were also invited to respond to the EOI of FRS. However, due to insufficient responses to supply all of the LSR and FRS needed, it was determined that the market for LSR and FRS was not contestable. In 2009, the AESO undertook a broader stakeholder consultation on intertie restoration, and new services to restore intertie capability were evaluated in the consultation. In the same year, the Demand Response 2 This was also referred to as Interruptible Load Remedial action Scheme in the past. However, the current AESO s Consolidated Authoritative Document uses the term Import Load Remedial Action Scheme. 3 The AESO, Meeting minutes for Working Group Session on Interruptible Load Remedial Action Scheme (ILRAS), April 17, 2008. 4 The AESO, Meeting minutes for Working Group Session on Interruptible Load Remedial Action Scheme (ILRAS), April 17, 2008. 5 The AESO ILRAS Working Group Presentation, December 6, 2007. 6 AESO Responses to Information Requests, July 13, 2009. 7 The AESO, Under-frequency Mitigation Services Procurement Plan, August 11, 2005, P1. 8 Request for Expressions of Interest ( EOI ) 485 MW of Load Shedding Requirements Service and 150 MW of Fast Ramp Service, June 4, 2008. Page 3

Working Group (DRWG) identified a revised form of LSS, referred to LSSi, to be a potential product for intertie restoration and greater participation by loads. 9 In March 2010, the AESO published its Alberta Intertie Restoration Initiative Discussion Paper (the Discussion Paper). In the Discussion Paper, the AESO examined the legislation and policy background and outlined preliminary options for import and export restoration. Although ILRAS, LSR and FRS could all technically provide intertie restoration service, the unsuccessful EOI of these products suggested that they were not viable competitive options. In addition, due to an expected lengthy development and implementation period, infrastructure solutions for intertie restoration were not deemed to be viable options in the short or medium term. Hence, the AESO recommended the LSSi product as a tool to manage frequency risk when increasing intertie import capability. Subsequent stakeholder comments on the Discussion Paper assisted the AESO in formulating recommendations on intertie restoration. In October 2010, the AESO published the Intertie Restoration Recommendation Paper (the Recommendation Paper), in which the AESO recommended proceeding with the LSSi product as a priority. 10 In the Recommendation Paper, the AESO recommended that LSSi be made available to increase import ATC in order to facilitate in market imports. 11 In November 2010, the AESO released a request for an EOI to provide up to 485 MW of LSSi. Multiple industrial and commercial sectors, as well as several demand response aggregators responded to the EOI. The respondents indicated an aggregate capability to supply between 700 MW and 800 MW of LSSi capacities. Based on the successful response to the EOI, the AESO started an LSSi procurement process in March 2011 by issuing the Request for Proposals for Load Shed Services for Imports (the RFP). As the result of the RFP, at the end of 2011, a total of 432 MW of LSSi from six load participants, including a load aggregator, was contracted with the AESO. As of January 31, 2014, the total contracted LSSi was 479 MW. 12 3 Assessment of LSSi Product Design Features LSSi has a number of design features that were established by the contract structure set out by the AESO s Load Shed Service for Import (LSSi) Requirements (LSSi Requirements), the RFP and LSSi Agreements signed between the providers and the AESO. Collectively, these documents assign rights and obligations to the contracting parties, establish the payment structure, and specify the measurement of actual volume of LSSi. Assignment of Rights and Obligations The LSSi contract gives the LSSi providers the right to determine whether to make LSSi available in a given hour. Furthermore, the current LSSi contract allows the providers to adjust available volumes until they are armed for a particular delivery period by the AESO. The LSSi contract assigns to the AESO the right to determine whether to use the product. LSSi is armed by the System Controller as required, based on scheduled flows and Alberta Internal Load (AIL). To maintain compliance with LSSi Requirements, LSSi providers are obligated to follow an arming dispatch from the System Controller. In addition, the LSSi Requirements also require that the committed amount of load be disconnected from the AIES within 0.2 seconds (12 cycles) of the frequency reaching 59.50 Hz (+/- 0.02 Hz) and that once the LSSi scheme is armed, the actual volume that will be tripped by 9 Alberta Demand Response Initiative Discussion Paper, October, 22, 2009, P23. 10 The AESO, Intertie Restoration, October 7, 2010, P9. 11 The AESO, Intertie Restoration, October 7, 2010, P9. 12 With LSSi contracts in place, the LSS program was discontinued. Page 4

the LSSi scheme remains within 95 per cent to 120 per cent of the dispatched volume. 13 These requirements impose the obligations on loads armed for LSSi to be in the position of providing the service and ready to be tripped in the event an intertie contingency causes a significant frequency drop. LSSi Payment Structure The LSSi payment structure consists of a three-part payment scheme, which includes an availability payment, an arming payment and a tripping payment. The availability payment is paid to LSSi providers in the hours when they choose to offer LSSi. The availability payment is paid based on the lowest availability volume within the hour and availability price. In the current LSSi contract, the availability price is set at $5/MW. The arming payment is paid to LSSi providers in the hours when their LSSi facilities are armed. Arming payment is based on a fixed price agreed to between the AESO and each individual LSSi provider. In addition, there is a minimum arming guarantee payment, should actual armed volumes fall below a minimum threshold. The tripping payment is paid to LSSi providers in the event that their armed load is tripped off when the AB B.C. intertie trip causes the frequency to drop. In the current LSSi contract, the tripping price is set at $1000/MW. Measurement of LSSi Volume Technically, loads that provide LSSi have to consume electricity in order to be in a position that enables them to mitigate frequency risk and hence provide intertie restoration service through load shed. The availability volume, armed volume and trip volume used to calculate LSSi payments are all measured based on the real power consumption of LSSi providers. Therefore, electricity consumption is a necessary condition for loads to provide LSSi and receive payments. The design features of LSSi make it different from other under-frequency service products used or designed by the AESO in the past. Table 1 compares LSSi to the other under-frequency products described above. 13 The AESO, Load Shed Service for Import (LSSi) Requirements, P4. Page 5

Table 1: Summary Table of Under-Frequency Mitigation Services the AESO has Designed LSSi ILRAS BFR LSS LSR FRS Used when frequency drops following intertie trip Used following intertie trip Used when frequency is at 59.5 Hz for 1.5 seconds Used when frequency drops following intertie trip Used when frequency drops following intertie trip Used when frequency drops following intertie trip Voluntary product: The service is available only if providers declare availability to System Controllers, but providers do not have to declare availability The service was available when loads were consuming, no need to declare availability to System Controller No need to declare availability The service was available when loads were consuming, no need to declare availability to System Controller The service was available when loads were consuming, no need to declare availability to System Controller No need to declare availability Armable by System Controller Armable by System Controller Always armed Always armed Armable by System Controller Armable by System Controller Load trip triggered automatically when frequency drops to 59.5 Hz or by directive from the System Controller following an intertie contingency Load trip triggered automatically by AB B.C. intertie trip Generation ramp triggered by frequency at 59.5 Hz for 1.5 seconds Load trip triggered automatically when frequency drops to 59.5 Hz or by the directive from the System Controller Load trip triggered automatically when frequency drops to 59.5 Hz Generation ramp triggered automatically by frequency drop to 59.5 Hz Competitively procured Not competitively procured Not competitively procured Competitively procured EOI not contestable EOI not contestable In Service Expired Expired Replaced by LSSi Not Procured Not Procured Unlike the other under-frequency services, LSSi contracts allow providers to decide whether to make the service available in real time, and use of the availability payment incents providers to make the service available. This design feature encouraged participation in the EOI and RFP and made it possible for the AESO to competitively procure the service with sufficient volume for intertie restoration. LSSi contracts also allow the AESO to dispatch the offered LSSi based on the need to reliably manage the grid in real time. It gives the AESO the right to not use the service when it is not needed. This feature provides operational flexibility in import ATC restoration. In addition, the current LSSi contracts associate a portion of the total payments, i.e. arming payment, with the usage of the service. This limits Page 6

unnecessary payments when the service is not used. This feature did not exist with the LSS or BFR used in the past, as these services were always armed. 4 Operational Assessment of LSSi In 2013, the AESO conducted an operational impact assessment of LSSi for the period of April 1, 2012 to March 31, 2013. The AESO estimated metrics based on LSSi availability, arming volumes, the pool price, ATC and import schedules. The analysis was intended to examine the effectiveness of the product and identify possible areas of improvement for the LSSi contracts. As LSSi is an ancillary service intended to enable increased import scheduling capability, the AESO s analysis does not include a cost-benefit analysis of the use of LSSi. 4.1 Increase in Intertie Capability The AESO started to arm LSSi as a tool to increase import capability in Q1 2012. In 2012, the import ATC of the AB B.C. intertie reached 700 MW, higher than the maximum import ATC posted in each of the 5 years prior to the implementation of LSSi. The AESO conducted an operational impact assessment of LSSi for the period from April 1, 2012 to March 31, 2013. Out of the 8,760 hours in the period, at least 100 MW of LSSi was offered and available to be armed for 85 per cent of the hours. (see Figure 1). Figure 1: LSSi Availability Duration Curve in All Hours April 1, 2012 to March 31, 2013 Using Table 10 of Information Document Available Transfer Capability and Transfer Path Management ID #2011-001R, the AESO created an estimate of the amount of additional import capability that could have been enabled through LSSi on the AB B.C. intertie. This was done by calculating the import capability for a given hour based on the load level in that hour, assuming that all available LSSi for that hour was armed, and the ability of achieving higher import ATC by arming LSSi was not limited by other constraints in the transmission system. This was then compared to the calculated import capability, assuming no LSSi was available. Based on this analysis, the available LSSi during the assessment period had the potential to increase import capability by an average of nearly 80 MW (see Figure 2). Page 7

Figure 2: Increased Potential Import Capability Due to Availability of LSSi Assuming No Other Transmission Constraints It is possible that other factors in the transmission system may prevent the available LSSi from reaching its full potential in increasing import capability. For example, if the Langdon Static Var Compensator (SVC) is out of service, arming LSSi may not be able to facilitate a higher import schedule. In a situation like this, the full potential of available LSSi in increasing import ATC would be limited by other constraints in the transmission system. However, even with other transmission constraints during the study period taken into account, the available LSSi between April 1, 2012 and March 31, 2013 had the potential to increase import capability by an average of over 60 MW (see Figure 3). Page 8

Figure 3: Increased Potential Import Capability Due to Availability of LSSi With Other Transmission Constraints Taken into Account Between April 1, 2012, and March 31, 2013, LSSi was armed to manage frequency risk and therefore enable increased intertie schedules in 2,059 hours, 24 per cent of the total hours in the period. Arming of LSSi over this period enabled over 103,000 MWh of additional imports to gain access to the Alberta market. This means that in every hour when LSSi was armed, an average of 50 MW of additional scheduled imports were enabled. Table 2 is a summary of intertie restoration facilitated by LSSi from April 1, 2012 to March 31, 2013. Page 9

Availability/Capacity Arming/Energy Table 2: Summary Data of Intertie Restoration Facilitated by LSSi April 1, 2012 to March 31, 2013 Number of Hours When LSSi was Armed 2,059 Average Volume Armed (MW) 137 Average Additional Import Schedule Achieved in Each Hour When LSSi was Armed (MW) 50 Total Additional Import Schedule Achieved (MWh) 103,077 Number of Hours When LSSi was Available* 8,551 Average Available LSSi Volume in Each Hour When LSSi was Available (MW) 192 Average Increase in Import Capability Achieved by LSSi (MW)** 60 Total Additional Import Schedule that could have been Achieved (MWh)** 527,691 Average Increase in Import Capability that could have been Achieved by LSSi (MW)*** 79 Total Additional Import Schedule that could have been Achieved (MWh)*** 687,950 *Only considers the hours when enough LSSi was available to increase the allowable schedule level for a given load level. **Taking into account of the transmission constraints that could have limited the use of LSSi during the period. ***Assuming there were no other transmission constraints that could have limited the use of LSSi during the period. 4.2 Learning Obtained Through Using LSSi and Potential Modifications to LSSi Contract With increased experience in using LSSi to increase intertie import capability, the AESO gained more insight into a number of aspects of the product. As described below, the AESO has examined these issues in more detail and identified the following potential modifications to the LSSi contracts, which may be included in the next round of contracting taking place in 2014. Before finalizing these changes, the AESO intends to solicit and review stakeholder feedback. Overall, as physical infrastructure solutions to address the issue are still deemed to be impractical to implement in the short to medium term, the AESO intends to continue the use of LSSi as a tool to mitigate frequency risk resulting from higher levels of import flows and hence advance the goals of the intertie restoration program. Decreased available volume of LSSi at higher price levels Since LSSi providers have the right to determine whether to make LSSi available in real time, the amount of increased import potential created through the LSSi product for a particular hour cannot be known ahead of time. This is because loads are required to consume electricity in order to be in a position to provide LSSi and the consumption of price-responsive loads who may also be LSSi providers may be impacted by the pool price. For a given hour, if the anticipated pool price exceeds the value of electricity to a particular load, the load may decide to reduce consumption and hence be unavailable to offer LSSi in that hour. Therefore, the total available LSSi volume may decrease as the anticipated pool price increases. Page 10

While LSSi was offered and available to increase import ATC for the majority of the hours when needed, LSSi availability data show that the total available volume varied at different price levels. However, a portion of LSSi volume was not sensitive to pool price levels. For example, Figure 4 shows that at pool prices above $300/MWh (approximately five per cent of all hours), on average 50 MW of LSSi was available. Figure 4: LSSi Availability (Average MW) and Proportion of Hours with LSSi Armed at Different Price Levels While it may be desirable to have more LSSi available during high-price hours so that intertie capability can potentially be further increased in these hours, the arming of LSSi (associated with import offers) does not necessarily coincide with high-price hours, as LSSi was also armed to increase import ATC during low-price hours. The green bars in Figure 4 depict the percentage of the hours when LSSi was armed out of the total number of hours when the pool price fell into the price ranges indicated by the horizontal axis. It can be seen that between April 1, 2012 and March 31, 2013, out of all the hours when the pool price was between $0 and $50, LSSi was armed 24 per cent of the time; whereas out of all the hours when the pool price was between $950 and $1000, LSSi was armed 18 per cent of the time. By design, LSSi is a voluntary product and providers have no obligation to make volumes available in any particular hour. The fact that the providers include both price-responsive loads and non-price-responsive loads suggests with reasonable certainty that volume will be available without requiring loads that would otherwise curtail to remain in the market. Since the LSSi contract gives providers the right to make LSSi offer decisions in real time and the availability is paid with an availability payment, compared with other under-frequency services used or designed by the AESO prior to LSSi, providers are incented to make the service available because of the availability payment. As there is a relatively limited amount of load with the economic desire, flexibility and technical ability to curtail as per the required specifications, the design features of LSSi appear to have had the benefit of incenting loads to bring enough volume to the RFP process to enable competitive procurement of the service. The successful procurement of LSSi in 2011 was a step forward in the AESO s intertie restoration efforts after continued procurement of previously utilized under-frequency Page 11

related products had proven untenable. In addition, as this is a new product, it is expected that more loads will consider this program in due course. Given the availability and arming patterns observed to date as well as the contracting considerations described above, the AESO does not recommend any changes in the requirements or the three-part payment structure of LSSi to address the issue of price-responsive load curtailment. Stability of available LSSi volumes between T-85 and T-20 Since LSSi providers do not have to lock down their offered volumes, the available LSSi volume at the time when it is required to be armed may not be consistent with the volume offered at an earlier point in time. This may be a concern because the AESO s ATC allocation rule involves the allocation of ATC at 85 minutes before the delivery hour (T-85) when maximum potential available system import capability is calculated based on available LSSi at that time; whereas the arming of LSSi occurs around 20 minutes before the delivery hour (T-20). Should the LSSi volume available for arming subsequently decrease between T-85 and T-20, import limits may decrease, thus invalidating the T-85 ATC allocation and requiring curtailments of e-tags when finalizing the delivery hour schedule. In order to better understand the issue, the AESO examined the potential impact of LSSi availability changes between T-85 and T-20 on import capability. If there are frequent occurrences where the change in LSSi availability volume between T-85 and T-20 affects maximum potential import capability, this may suggest a need to increase the firmness of LSSi availability between T-85 and T-20 so that the import ATC allocation can reasonably represent the actual import ATC. Figure 5: Distribution of Potential Decrease to Import ATC due to Change in LSSi Availability between T-85 and T-20 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -100-75 -50-25 0 MW Figure 5 plots the distribution of the potential decrease to import ATC due to decreases in LSSi availability between T-85 and T-20 during the period April 1, 2012 to March 31, 2013. The potential impact on the import ATC is calculated by taking the difference between the maximum import ATC that could have been achieved at the actual load level in each hour assuming all available LSSi at T-85 were armed, and the maximum import ATC that could have been achieved in the same hour assuming all Page 12

available LSSi at T-20 were armed. 14 Figure 5 indicates that in those cases where LSSi availability stayed the same or decreased from T-85 to T-20, the change in LSSi availability would have potentially decreased the ATC by at least 25 MW approximately15 per cent of the time. Modification Considered: The AESO is considering changing the LSSi contract terms to require lockdown of availability volume at T-85. While locking down of availability to some degree reduces the flexibility that the providers currently have, it is expected to also remove the chances of the ATC allocation at T-85 being invalidated due to a change in LSSi availability. The objective of this modification would be to reduce curtailments of e-tags when finalizing the delivery hour schedule and better facilitate import transactions by improving certainty around the ATC posted at T-85. Manual Tripping of LSSi load through System Controller s directive As per ISO OPP 402 Supplemental and Spinning Reserve Services, Alberta contingency reserve requirements for trips of the interties are reduced by armed LSSi volumes. In those circumstances where an intertie or combination of interties is the single largest contingency, the ability to manually trip armed LSSi loads in the event of a contingency ensures that LSSi can be used to offset reserve requirements as per OPP 402. The initial LSSi Agreements defined Trip as the disconnection of the Contracted Load from the System within 0.2 seconds (twelve (12) cycles) of the frequency reaching 59.50 Hz (+/-0.02 Hz). 15 As a result, Trip did not specifically include directives from the System Controller (i.e. ability to manually trip upon an intertie contingency, even at frequencies above 59.50 Hz) as a way of tripping load as per OPP 402. In 2013, most LSSi Agreements were renegotiated to add manual trip as a way of tripping load when the agreements were renewed. With the revision, Trip also includes the disconnection of LSSi loads within 10 minutes of receiving a directive from the System Controller. Modification Considered: The AESO proposes to revise LSSi contract requirements to include a requirement that loads be able to be manually tripped by the System Controller in the event of an AB B.C. intertie contingency. Payments for LSSi availability when AB B.C. intertie is on outage or LSSi cannot increase import capability The AESO observed that LSSi was offered and the availability payment was made to the providers when the AB B.C. intertie was on scheduled outage, despite the fact that LSSi could not have been used in this situation to increase import capability. In addition, there were other circumstances in which import capability was limited to a level where LSSi could not have been employed to increase import capability due to other conditions on the transmission grid. The current LSSi Agreements do not preclude payments made to LSSi providers when LSSi is unable to be used to increase intertie capability. In these situations, availability payments to the providers are essentially payments for a service that cannot be employed by the AESO to increase import capability. Modification Considered: The AESO proposes to revise the LSSi Agreement so that availability payments are not made during periods when maximum import capability is below the threshold at which LSSi would be armed to enable increased import capability. The objective of this potential revision is to avoid availability payments for LSSi service that cannot be used to increase import capability. Clarity in Compliance 14 This is a hypothetical case that assumes no other transmission constraints would limit the intertie restoration potential of the available LSSi. 15 LSSi Agreement 2011. Page 13

The LSSi Agreement could be enhanced by distinguishing non-compliance based on providers compliance efforts and the impact of the non-compliance on the system, as opposed to treating all noncompliance events equally and allowing them to carry equal weight in contributing to the termination of a provider s LSSi Agreement. Based on service provider input, the AESO agrees that, as a general principle, greater clarity regarding the relationship between non-compliance violations and LSSi Agreement terminations would help providers better understand the AESO s expectations of compliance practices. This would reduce unnecessary risks to LSSi Agreements. Modification Considered: The AESO proposes to establish guidelines that specify the AESO s expectations and criteria. For example, if LSSi providers can demonstrate they have made best efforts in compliance and have taken all necessary actions to minimize the impact of issues (i.e. removing themselves from the LSSi market by offering their availability at zero until the issue is resolved; addressing mitigating measures in a timely fashion) and if the non-compliance event does not pose a reliability risk, the non-compliance event may not count as a violation that contributes to a potential termination of the LSSi Agreements. The objective of providing greater clarity is to encourage LSSi providers to make best efforts in compliance and reduce unnecessary risks to the Agreement. 5 Next Steps As part of the broader intertie restoration program, the AESO is conducting a joint intertie system operating limit (SOL) study with BC Hydro. The study will examine various alternatives for increasing import and export capacity. 16 The study is designed to examine different SOL violation mitigation strategies. These strategies include ancillary services solutions, such as LSSi, and wires solutions such as HVDC converters on interties. The study is expected to help identify different alternatives to restore interties and include them in the intertie restoration tool kits. The AESO is also reviewing and updating the operating horizon intertie limit studies. Included in this work is a comprehensive review of required LSSi arming volumes at various load levels and scheduled import volumes. Based on of the results of this study, Table 10 of Information Document ID#2011-001R will be reviewed and updated. An initial update of this Information Document, including Table 10, was posted on January 30, 2014 and further study work is ongoing. Once the review and update are complete, the AESO is expected to be in a better position to assess the amount LSSi that needs to be contracted in conjunction with other intertie restoration alternatives. The update of Table 10 is expected to be completed in Q2 2014. The current LSSi Agreements expire at the end of 2014. As the AESO intends to continue to procure LSSi, stakeholder feedback is requested on the suggested contract modifications contained in this review. Taking this feedback into consideration, the AESO will propose and then finalize a revised LSSi contract. Following this, procurement of LSSi via an RFP process, likely for the 2015 2017 period, is expected to occur in Q3 2014. Next steps in the LSSi procurement process are expected to proceed as follows: Q2 2014: Information session and stakeholder comments on LSSi review and suggested contract changes. Revised contract language proposed and finalized. Determination of desired contracting volumes made based on updated LSSi studies. Q3 Q4 2014: RFP process held and contracts finalized for a January 2015 start. 16 The AESO, Intertie Restoration: Response to Recommendation Paper Stakeholder Comments and Next Steps, July 10, 2012, P7. Page 14

Stakeholder comments on the suggested contract modifications are requested by April 17, 2014. Comments received will be considered in the contract development process prior to the RFP. The AESO requests that comments be emailed to ruppa.minhas@aeso.ca Should you have any questions, please contact Ruppa by email or by phone at 403-539-2589. Page 15