Document name
Report of the Generation Re-Dispatch
Compensation Task Force
Category
(XX ) Report
Document Publication Date
February 2007
Approved By
Market Interface Committee
Date Approved
March 7, 2007
Custodian (entity responsible for
maintenance and upkeep)
Market Interface Committee
Stored/Filed
Physical Location:
Web URL:
http://www.wecc.biz/documents/library/board/MIC/G
RDC%20Final%20Report-Complete.pd
Previous Name/Number
None
Status
(XX ) In Effect
( ) Usable, Minor Formatting/Editing Required
( ) Modification Needed
( ) Superseded By _____________________
( ) Other _____________________________
( ) Obsolete/Archived)
WECC Report
Report of the Generation Re-Dispatch Compensation Task Force
March 7, 2007
Western Electricity Coordinating Council
Generation Re-Dispatch
Compensation Task Force
A Task Force to evaluate the need to develop
an economic compensation method for a generator or entity
that complies with a WECC Reliability Coordinator
directive to re-dispatch generation.
TABLE OF CONTENTS
(Pagination changed when inserted into this document.)
Discussion White Paper ..................................................................................... 1
Introduction and Purpose ........................................................................... 1
A Question – Is a Compensation Method Needed...................................... 2
Applicability................................................................................................. 3
Standard, Business Practice, or Guideline ................................................. 4
What Other Regions Do ............................................................................. 6
Compensation Principles and Methods ...................................................... 6
Sources of Funding .................................................................................... 7
Final Report and Summary Report of Responses to Comments .................... 9
General ....................................................................................................... 9
Executive Summary.................................................................................... 9
Is Compensation Method Needed? .......................................................... 10
Variation or Imbalance Accounting – Hold Harmless................................ 11
Should Uninstructed or Imbalance Penalties be Suspended .................... 12
Applicability – RC Directive Regardless of Cause .................................... 13
WECC Standard, Business Practice, or Guideline ................................... 14
Compensation Principles and Methods Cost Based – Market Based ....... 15
Lost Opportunity Costs ............................................................................. 16
Payment of Penalties or Sanctions ........................................................... 16
Sources of Funding .................................................................................. 17
Funding Risk Management – Suspend Process ....................................... 18
List of Commenters and Acronyms .......................................................... 20
Responses to Comments ................................................................................. 21
WESTERN ELECTRICITY COORDINATING COUNCIL
Generation Re-Dispatch Compensation Task Force
DISCUSSION WHITE PAPER
October 18, 2006
Introduction and Purpose
The WECC Board of Directors created the Reliability Coordination Strategic Initiative
Task Force to evaluate from a strategic perspective, how WECC can most effectively
and efficiently perform the Reliability Coordination function. A potential issue identified
by the task force is the lack of a process to provide economic compensation to entities
or generators that redispatch generation under a Reliability Coordinator directive. The
Board assigned the Market Interface Committee (MIC) to evaluate the issue and report
findings to the Board. The MIC assigned the Market Issues Subcommittee (MIS) to
evaluate the issue and bring findings to the MIC. The MIS then created the Generation
Re-Dispatch Compensation (GRDC) Task Force to do the initial gathering and
evaluation of data, and is the group issuing this white paper.
The purpose of this discussion white paper is to engage members of the WECC,
electric industry participants, and others in addressing whether developing such
a compensation methodology is needed or warranted in the WECC. It is intended
to stimulate thought, discussion and motivate entities and individuals to
participate in this evaluation by submitting comments on any and all areas
discussed in this paper.
The paper is structured to:




Determine the scope and applicability of the topic.
Identify major areas for evaluation and provide a brief summary of findings.
Offer recommendations on most areas of the paper.
Solicit comments from the industry in all areas.
The GRDC will evaluate and respond to the comments received and report results
through the Market Issues Subcommittee to the Market Interface Committee and
the WECC Board. If development of a process is indicated, a more detailed
proposal will be drafted and posted for comments.
It should be noted that GRDC has not found a single incident where a generator has
refused an RC redispatch directive due to lack of a compensation mechanism. Any
assumption entities or generators are resisting redispatch directives due to lack of a
compensation mechanism is not founded. Nothing in evaluating this topic is to imply a
reduction of generator responsibility to respond to an RC directive immediately and
without regard to economics. This process will not place any requirements on the RC in
when to direct a redispatch or how to determine which units to redispatch. The GRDC
wishes to remind readers that this discussion white paper is the work product of the task
force and does not represent the position of any single entity or person.
This is an infrequent problem in the WECC and care should be exercised to keep a
methodology reasonably simple with the goal of fundamental fairness, not complete
financial equity. In short, no entity should be unduly harmed for complying with an RC
directive to redispatch.
GRDC will not be evaluating or addressing the following:
 The authority of the Reliability Coordinator to issue a redispatch directive.
 Place obligations or restrictions on the Reliability Coordinator in determining the
need or effectiveness of a generation redispatch option.
 The obligation of entities or generators to comply with a redispatch directive.
 Existing market protocols or tariff obligations.
 Curtailment of schedules before the redispatch of generation.
 Redispatching of generating in the long-term or short-term planning horizon.
GRDC will evaluate and address the following:
 The desirability or need for a WECC compensation method when entities or
generators receive a redispatch directive from a Reliability Coordinator.
 Whether a resulting method should be formalized as a reliability standard,
business practice or a guideline.
 Existing models in the industry for providing compensation for reliability related
redispatch of generation.
 Possible sources of compensation funding.
A Question – Is a Compensation Method Needed?
A fundamental question is whether a compensation method is needed or appropriate for
an RC redispatch directive.
A principle GRDC approves and finds common among ISO and RTO procedures is;
7
Uninstructed energy or off schedule penalties for all entities must be
SUSPENDED for the duration of an RC directive to redispatch.
Given the above, the GRDC offers the following for industry comment.
Entity and Generator Interconnection Agreements
All entities and generators have interconnection agreements with the host Balancing
Authority. While there is limited consistency among interconnection agreements, a
common element is the need for a variation or imbalance account due to the dynamic
nature of the electric industry. An entity or generator establishes a schedule for the
hour and is obligated to meet the schedule. When generating more than the schedule
the value of the over-generation is not lost to the entity or generator but is placed in the
variation account. Likewise, under-generation compared to schedule is also placed in
the variation account. If the variation exceeds a predetermined band-width, penalties or
sanctions commonly apply to assure a reasonable amount of compliance in matching
scheduled and actual generation.
There are generally two types of settlement of variation account balances. One is the
energy in kind similar to the method most often used in managing Balancing Area
inadvertent interchange accumulations. The other method is a financial settlement
mechanism where funds are exchanged to reset the variation balance to zero. In some
cases, the variation is financially settled hourly, sometimes daily, or some other
periodicity. Regardless of which method is utilized, a fundamental principle is the value
of overgeneration is not lost and undergeneration must still be covered.
The GRDC task force suggests the variation or imbalance accounts fundamental
to operations may also be the vehicle to assure entities and generators are not
unduly harmed when complying with an RC redispatch directive.
One question to address is the widely varying mechanisms found in Interconnection
Agreements throughout the industry. The lack of consistency introduces the possibility
of inequitable treatment with some agreements more restrictive than others. Should
WECC consider developing a separate compensation method for use by all entities for
the unique situation of an RC redispatch directive? Such a method might bring a
greater level of consistency for all entities and reduce the chance of an entity being
harmed by an RC redispatch directive, but may be problematic due to the contractual
nature of Interconnection Agreements and transmission tariffs.
8
The GRDC believes there is merit to the suggestion that variation or imbalance energy
accounting in existing Interconnection Agreements may essentially hold harmless
entities and generators from undue financial impact that comply with a redispatch
directive, provided uninstructed energy or off-schedule penalties are suspended. The
GRDC seeks industry comments on the assumptions made on this concept and
whether it reduces the need for a WECC-wide redispatch compensation methodology.
Additionally, the GRDC recommends WECC develop a policy indicating penalties or
sanctions for uninstructed energy or imbalance should be suspended for events of an
RC directive to redispatch and seeks comments on this recommendation.
Applicability
This white paper and any identified methodology to redispatch compensation would
apply to Reliability Coordinators and serve as a model for Balancing Authorities as well.
The RC’s responsibility is to ensure a safe and reliable interconnected system. As the
RC evaluates and issues a redispatch directive, the solution needs to be based on
reliability and the effectiveness of the directed actions, not on the economics associated
with the actions. Additionally, any identified method is not intended to circumvent
existing organized market structures or the associated congestion management
methods.
It is recognized the RC may issue a redispatch directive either to a specific generator or
to an entity such as a Balancing Authority. A redispatch compensation method would
be intended to essentially hold harmless all entities from undue financial impact for
complying with an RC redispatch directive.
The GRDC identified two scenarios to consider when a compensation method could
apply. The two scenarios are:


An RC directive to redispatch generation for any reason or,
An RC directive to redispatch generation in real-time in response to a
contingency or event on the system that has caused the need for rapid
rebalancing of the interconnection.
The GRDC discussed this topic at length as applicability is a prime component in
determining when a resulting compensation procedure would be activated. First, it is
restated that nothing in this white paper or in a resulting compensation procedure limits
the ability of an RC to issue a redispatch directive or determine which generating unit to
redispatch. This discussion is only for the activation of a possible compensation
method.
9
There is concern if the compensation method only applied in cases where a
contingency or event has occurred; it will be addressing only a subset of potential RC
redispatch directives.
Conversely, there is concern if the compensation method does not require a
contingency or event to be activated, it may lead to:


Use of RC redispatch directives as a congestion management tool rather than an
emergency action to re-establish or stable the interconnection.
Frequent use of RC redispatch directives that impact a single entity or generator
to address recurring congestion issues that arise through normal real-time
operations.
The GRDC believes the due diligence exercised by the RCs when making a redispatch
directive will prevent the above types of scenarios from becoming problematic.
The GRDC recommends the process apply when an RC issues a redispatch directive to
alleviate an actual or imminent overload on the transmission system, regardless of any
contingency or event on the bulk electric system. The GRDC seeks industry comment
on this recommendation.
Standard, Business Practice, or Guideline
Any resulting WECC process could be in the form of:





Reliability Standard accepted by the FERC with mandatory compliance and
economic sanctions
WECC Reliability Standard with mandatory compliance but no economic
sanctions
NAESB Business Practice submitted to the FERC
WECC Procedure or Guideline
WECC Business Practice
Reliability Standard accepted by the FERC
A reliability standard accepted by the FERC would include mandatory compliance with
associated sanctions. Reliability Standards already address the obligation of entities to
comply with RC directives. An economic redispatch compensation methodology would
not be considered a reliability standard as it deals with a payment mechanism rather
than compliance with an RC directive. Redispatching of generation in response to a
10
system emergency is already an established reliability issue and compensation would
likely be viewed by the FERC as a commercial business practice.
For the above reasons, GRDC does not recommend the methodology become a
Reliability Standard accepted by the FERC with mandatory compliance and associated
sanctions and seeks comments on this recommendation.
Regional Reliability Standard without submitting to the FERC
A regional reliability standard can be developed but not submitted to the FERC. Such
regional reliability standards do not have compliance sanctions but are considered a
requirement for applicable entities. As with the comment above on a FERC accepted
reliability standard, a methodology for compensation is more appropriately a business
practice rather than a standard.
For the above reasons, GRDC does not recommend the methodology become a
Regional Reliability Standard and seeks comments on this recommendation.
NAESB Business Practice
The FERC recognizes NAESB as a standards setting organization for business
practices related to the energy industry. The NAESB business practice standard
development process is an open, inclusive and ANSI approved process. However,
approved business practices are copyright by NAESB and available only to NAESB
members or for purchase. An approved NAESB business practice is submitted to the
FERC for consideration for inclusion in the Pro-forma Open Access Transmission Tariff
(OATT). If accepted by the FERC it becomes a required business practice for
jurisdictional entities. Non-jurisdictional entities do not have a legal obligation to comply
with the Business Practice.
While GRDC believes the methodology is closer to a business practice than a reliability
standard and does not recommend submitting the methodology to NAESB for
establishment as a Business Practice. The GRDC seeks comments on this
recommendation.
WECC Guideline
The methodology could be incorporated as a WECC Guideline. Such guidelines are an
accepted statement from the industry on a method to handle an identified situation.
There is no specific requirement to follow a guideline and there is no compliance
11
monitoring. However, some regulatory bodies may consider a regional guideline to be a
“good utility practice” which can become a requirement in some jurisdictions.
The GRDC does not recommend the methodology be a WECC Guideline. The
methodology needs more consistent application than would otherwise be expected with
a voluntary guideline. The GRDC seeks comments on this recommendation.
WECC Business Practice
The WECC Board of Directors is willing to consider approving Business Practices
developed through the WECC Process for Developing and Approving Standards.
Whether a WECC Regional Reliability Standard or a WECC Business Practice, they are
considered a requirement but no economic sanctions apply. It is acknowledged there
will be inherent inconsistencies in developing a Business Practice where parts of the
WECC have established market mechanisms that address reliability redispatch and
others do not.
The GRDC believes development of a WECC Business Practice is the appropriate
action if a compensation method is developed and seeks comments on this
recommendation.
What Other Regions Do
The GRDC investigated if other regions or ISOs have a compensation policy in place
and if so, how does it work.
The following entities were approached:






ERCOT – Electric Reliability Council of Texas
SPP – Southwest Power Pool
NEISO – New England Independent System Operator
MISO – Midwest Independent System Operator
CISO – California Independent System Operator
AESO – Alberta Electric System Operator
The principle challenge to comparing what other regions and organizations do for
redispatch compensation is the unique nature of how WECC performs the Reliability
Coordination function. The WECC model of providing the RC function without also
operating an electricity market is unique in North America. Generally, large ISOs,
RTOs, or balancing areas with market structures perform the RC function and utilize
market solutions. In centralized markets, compensation for reliability redispatch tends
12
to be complex and varies more widely than anticipated. Since WECC does not operate
a market, the examples below are instructive as to meeting the objectives of a
compensation methodology but none can be implemented unaltered in the WECC.
Common themes in centralized markets include:





Uninstructed energy penalties are suspended or otherwise mitigated in the event
of an RC redispatch directive.
Generators directed to increase output are paid an hourly market price or
previously submitted bid.
Generators required to decrease output are usually charged an hourly market
price or previous bid and are not paid for reducing output.
Funds paid out generally come from the costs of running the market
Compensation for raising a generator includes startup costs if applicable.
Compensation Principles and Methods
When an RC issues a directive to redispatch generation, the Balancing Area should
suspend all uninstructed energy charges or penalties for being off-schedule. Penalizing
a generator or operating entity for helping the interconnection under an RC directive by
being off schedule is fundamentally unfair and a flawed concept. Additionally, GRDC
rejects any process that would require RCs to be tied with an on going function such as
accepting bids and building bid stacks.
Market-based or cost-based compensation methods could be at the option of the
generator or operating entity in advance or on a case-by-case basis. The method of
compensation will likely vary depending on the fuel type of the generator. Purely for
example purposes the following illustrates possible scenarios for differing types of
generators when a directive to increase generation is issued:
Coal units – incremental fuel cost as determined and utilized by the generator
operator for economic dispatching of the unit – OR – an hourly real-time index
price at a predetermined trading hub.
Gas units – incremental fuel cost at the daily gas index for the region or at a gas
cost documented by the generator operator – OR – an hourly real-time index
price at a predetermined trading hub.
Hydro or Pumped Storage units – an hourly real-time index price at a
predetermined trading hub.
13
Nuclear units and most all renewable generators are usually not dispatchable,
at least not in raising generation.
Typically in organized markets, a generator required to decrease generation pays to do
so largely due to saved fuel cost. However, some generators may see little or no
savings from decreasing generation and some may actually experience a cost in
decreasing. In instances where there are increased costs, if the generator can
sufficiently document the costs, a compensation process should cover such costs.
The GRDC discussed whether lost opportunity costs should be eligible for
compensation and determined it would add a layer of complexity that doesn’t warrant
inclusion in a WECC process, but seeks industry comment on this recommendation.
It is possible an entity or generator may be subject to a penalty or sanction for
complying with an RC directive to redispatch. This includes penalties from a Balancing
Area, an operating entity, regulatory body, environmental or biological authorities, and
others.
The GRDC discussed whether penalties or sanctions should be eligible for
compensation and recommends including these costs but only if they were known to the
RC at the time of the directive. For example, if the RC has information a generator will
violate air quality standards and incur penalties, but still issues the directive to increase
generation, the resulting sanctions would be eligible for compensation. The GRDC
recognizes this is a problematic area and seeks industry comments on this
recommendation.
Sources of Funding
A process of this nature does not generally have revenue, thus funding is mostly a
payout. In many scenarios it will not be possible to quantify the economic benefits of an
RC redispatch directive or what entity benefited beyond the benefits to the
interconnection as a whole. This makes it problematic or impossible to identify and
collect funds from specific entities that may benefit from an RC redispatch directive.
It is possible to consider a requirement for entities that decrease generation to pay into
the fund for savings associated with the directed decrease.
14
Funds for all areas will likely need to come from WECC dues allocated for Reliability
Coordination.
The GRDC recommends funding for a compensation method come from the WECC
Reliability Coordination budget but does so largely for the lack of another viable option
and seeks industry comment on this recommendation.
Additionally, GRDC recommends any implemented process be suspended and revisited
by WECC if the cost of reimbursement exceeds a yet to be determined amount in a
calendar year. This would effectively place a ceiling on the cost risk to WECC and
should trigger a re-evaluation of the process. GRDC seeks industry comment on these
recommendations.
15
WESTERN ELECTRICITY COORDINATING COUNCIL
Generation Re-Dispatch Compensation Task Force
Final Report
and Summary Report of
Responses to Comments
February 23, 2007
General
The purpose of the discussion white paper was to engage members of WECC, electric
industry participants, and others with interest in addressing whether developing a
compensation methodology is warranted for instances where a WECC Reliability
Coordinator (RC) issues a directive to redispatch generation. Since this evaluation is at
the conceptual stage, the white paper was intended to stimulate thought, discussion,
and to motivate entities and individual’s participation in the evaluation process by
submitting comments on any and all areas discussed in the paper.
This “Final Report and Summary Report of Responses to Comments” contains a brief
executive summary, addresses each topic area of the white paper, briefly summarizes
the comments received, and states the task force finding or recommendation on the
topic area. Please note a list of acronyms used is included as the last page of this
report.
Members of the Generation Re-Dispatch Compensation Task Force are noted below:
Jerry Bicknell (SRP) – Chair
Duane Helderlein (TSGT)
Eric King (BPAT)
Bill Casey (PGE)
Greg Ford (CISO)
Jeff Ackerman (WAPA)
16
Bob Schwermann (SMUD)
Mike Wells (WECC)
Executive Summary
The Generation Re-Dispatch Compensation Task Force (GRDC) evaluated 20 sets of
comments received from the industry, re-evaluated each area and developed the
recommendations that are stated in this report. The conclusions and recommendations
were reported to and discussed with the Market Issues Subcommittee (MIS) which
accepted the report for presentation to the Market Interface Committee (MIC). Only one
WECC topic has ever received more industry comments. The GRDC appreciates the
depth of thought and effort that went into the comments and wishes to assure
everyone that each comment was carefully reviewed and considered. The WECC
membership can have confidence this topic received a fair and thorough evaluation with
consideration of the extensive industry comments.
Following review, evaluation and discussion of all comments received, the GRDC
makes the following finding and recommendation:
Within the context of the discussion white paper, the GRDC does not recommend
WECC develop an economic compensation methodology for generators and
entities that comply with a Reliability Coordinator directive to redispatch
generation.
The reasons include:

No consensus on the need – the 20 commenters were split nearly 50-50 on
whether there was a need for WECC to develop a methodology.

An RC directive to redispatch a specific generator has never occurred – this
topic is not a problem in WECC. Current practice is an RC would issue a
directive to a Balancing Authority who would determine what actions to take to
relieve an overloaded path. There is nothing on the horizon to credibly suggest
this method of providing reliability coordination in the West will be changing. If it
does change, the industry dynamic will also have changed and that would be the
appropriate time to re-examine this issue.
17

WECC is not an organized market – in evaluating what methods are used in
other regions of North America it is apparent that compensation for reliability
redispatch is addressed within organized markets. In the WECC region, only the
California ISO (CISO) and the Alberta Electric System Operator (AESO) are
organized markets. Regions dominated by bilateral markets have not developed
compensation methods for reliability redispatch.

Complexity – it is evident that if WECC did develop a process, it would be
detailed and complex, and well beyond what the GRDC believes would be
warranted given an RC directive to redispatch a specific generator has never
occurred in the West.

Funding – this is a significant challenge outside an organized market structure.
The RC budget is not an appropriate way to fund such a process. The primary
alternative expressed by commenters was entities that benefit from the
redispatch should pay for the redispatch. This is a valid concept but difficult or
impossible to determine. In most cases an RC redispatch directive would be
issued to maintain the integrity of the Interconnection benefiting those beyond
just the path operators.
Is a Compensation Method Needed?
A fundamental question is whether a compensation method is needed or appropriate for
an RC redispatch directive. A redispatch compensation method would be intended to
essentially hold harmless all entities from undue financial impact for complying with an
RC redispatch directive. Penalizing a generator or operating entity for helping the
interconnection under an RC directive by being off schedule is a fundamentally unfair
and flawed concept.
Summary of Industry Comments
The question is based on the premise that a problem must first exist if you are going to
suggest a solution. Many comments suggested that 1) there was not a problem
associated with the RCs issuing a redispatch directive but rather 2) that the problem
existed in some cases with orders received from either the Balancing Authority (BA) or
the Transmission Service Providers (TSP). It was stated by Arizona Public Service
(AZPS) that path operators are responsible for the operation of their assigned path and
that the RCs don’t have a need to give directions on generation re-dispatch to mitigate a
transmission emergency. It was further stated by the Reliability Coordination
Comments Work Group (RCCWG) that—per NERC standards—a Balancing Authority,
Generator Operator, or Transmission Operator has mandatory obligations to follow RC
directives. In addition, the RCCWG felt that economic compensation is a business
practice and that the WECC RCs should have no mention as an applicable party. This
18
puts the issue of specific generator redispatch on the BAs and TSPs rather than directly
on the RC. The RCCWG further states that to date there have been no generator
specific redispatch directives issued by an RC. Northwest-Intermountain Independent
Power Producers Coalition (NIPPC) and Seattle City Light (SCL) stated there have
been instances of redispatch orders from BAs or TSPs but again not from the RCs. The
AESO states that the argument for redispatch is still not clear.
Many entities suggested a need for redispatch compensation without speaking to the
applicability due to RC’s directives. Black Hills states that, while there have been no
specific redispatch directives to date there are indications that they will occur in the
future. Other commenters just speak to the need for developing a methodology without
pointing to specific instances of redispatch. NorthWestern Energy (NWMT) states that if
generators responded immediately to BA or RC redispatch requests, there would be no
need for WECC to be involved in an economic incentive program. Bonneville (BPA)
states that the method developed should hold harmless all entities. Calpine states that it
is necessary to provide economic compensation, and Puget Sound Energy (PSEI)
contends that a universal WECC approach is not the right approach. Salt River Project
(SRP) states implementing a compensation mechanism that would be applicable to all
WECC members has a number of practical difficulties, including identifying the source
of the problem, funding mechanism determination, administration, etc. They believe that
at the present time there are a number of other more pressing issues for WECC
members to address.
After considering the industry comments, the GRDC finds the industry split on
whether a process is warranted and more importantly, if developed, whether it would
receive sufficient industry support to be approved. In addition, it is noted the RCCWG
does not support developing a process that has any connection with the actions of a
Reliability Coordinator.
Variation or Imbalance Accounting – Hold Harmless
The GRDC suggested that the variation or imbalance accounts in generator
interconnection agreements may essentially hold harmless entities from undue financial
impact when complying with a redispatch directive. There are generally two types of
settlement of variation or imbalance accounts. One is the energy in kind similar to the
method most often used in managing Balancing Area inadvertent interchange
accumulations. The other method is a financial settlement where funds are exchanged
to reset the variation balance to zero. In some cases, the variation is financially settled
hourly, sometimes daily, or some other periodicity. Regardless of which method is
utilized, a fundamental principle is that the value of overgeneration is not lost and
undergeneration must still be covered.
19
The GRDC recommendation in the white paper states:
The GRDC believes there is merit to the suggestion that variation or imbalance
energy accounting in existing Interconnection Agreements may essentially hold
harmless generators and entities from undue financial impact that comply with a
redispatch directive, provided uninstructed energy or off-schedule penalties are
suspended. The GRDC seeks industry comments on the assumptions made on
this concept and whether it reduces the need for a WECC-wide redispatch
compensation methodology.
Summary of Industry Comments
Most of the comments directed at this question suggest that the variation or imbalance
accounts do not adequately protect generators and entities from undue financial
impacts as a result of complying with a redispatch directive. It was stated by Black Hills
Power (BHPL), Calpine (CALP), Sempra Generation (SER), and Reliant (REI) that
variation or imbalance accounts do not capture the value of energy at the time of
redispatch. Likewise, BPA did not believe that the current interconnection agreements
alone assure that generators and entities are not unduly harmed. Commenters
indicated there remains a lack of consistency in many generator interconnection
agreements making them unsuitable for ensuring a reasonable amount of equity
between generators.
After considering the industry comments, the GRDC finds the concept—that existing
generator or entity interconnection agreements provide essential fairness when a
generator or entity complies with an RC redispatch directive—to be unsupported.
Should Uninstructed or Imbalance Penalties be Suspended
A principle GRDC found in common among ISO and RTO procedures related to
reliability redispatch of generation:
Uninstructed energy or off schedule penalties for all entities must be
SUSPENDED for the duration of an RC directive to redispatch.
It is recognized the RC may issue a redispatch directive either to a specific generator or
to an entity such as a Balancing Authority. A redispatch compensation method would
be intended to essentially hold harmless all entities from undue financial impact for
complying with an RC redispatch directive.
The GRDC recommendation in the white paper states:
20
Additionally, the GRDC recommends WECC develop a policy indicating penalties
or sanctions for uninstructed energy or imbalance should be suspended for
events of an RC directive to redispatch and seeks comments on this
recommendation.
Summary of Industry Comments
Industry comments support the principle that penalties should be suspended. BPA
states that a compensation method should be developed that holds harmless all entities
from undue financial impacts for complying with an RC directive. Calpine states there is
a need for suspension of penalties or sanctions for uninstructed energy or imbalance.
PSEI states that all penalties should be suspended for the duration of an RC redispatch
directive and NIPPC states that penalties must be waived in transmission tariff
provisions such as e-Tagging during an RC directed redispatch. Reliant states that not
only penalties and sanctions, but also imbalance charges should be suspended during
these conditions. PacifiCorp, LS Power Generation, and Seattle City Light agree that
penalties should be waived or suspended. Note that LS Power Generation stated the
term “Uninstructed Energy” is an inappropriate term and it is really “Instructed Energy
Deviation” we are dealing with. They were also concerned there are many other
penalties which may be encountered other than those stated in the paper (such as
contractual generation performance obligations and ancillary service obligations) which
must be addressed.
After considering the industry comments, the GRDC finds strong support for the
concept that mitigation of generator or entity uninstructed energy or imbalance penalties
should be an essential principle. Penalizing a generator or entity for helping the
interconnection, under an RC directive, by being off schedule is a fundamentally unfair
and flawed concept.
Applicability – RC Directive Regardless of Cause
The GRDC identified two scenarios to consider when a compensation method could
apply. The two scenarios are:


An RC directive to redispatch generation for any reason or,
An RC directive to redispatch generation in real-time in response to a
contingency or event on the system that has caused the need for rapid
rebalancing of the interconnection.
There is concern if the compensation method only applied in cases where a
contingency or event has occurred; it will be addressing only a subset of potential RC
redispatch directives.
21
The GRDC recommendation in the white paper states:
The GRDC recommends the process apply when an RC issues a redispatch
directive to alleviate an actual or imminent overload on the transmission system,
regardless of any contingency or event on the bulk electric system. The GRDC
seeks industry comment on this recommendation.
Summary of Industry Comments
The RCCWG stated it is imperative that the WECC Reliability Coordinators have no
direct connection to any effort to provide economic compensation for reliability
redispatch. Several commenters stated a compensation method should be applicable
when a generation redispatch directive is given regardless of the cause.
BPA states an RC directive to redispatch generation will only take place within an hour
when the need for rapid rebalancing of the interconnection is needed for system
stability, regardless of whether a system contingency or event has occurred. Therefore,
BPA believes that it is appropriate that a redispatch compensation method should be
applied any time an RC redispatch directive is issued.
PSEI agrees with the recommendation that the redispatch process apply when an RC
issues a redispatch directive to alleviate an actual or imminent overload of the
transmission system, regardless of any contingency or event on the bulk electric
system. Attempting to distinguish between what types of events would be considered for
compensation would be cumbersome, open for interpretation and complex to
administer.
Sempra Generation states it is imperative that providing compensation under such a
methodology only be allowed under unusual system reliability conditions (for example,
operating conditions that do not have a standard mitigation practice in place such as
congestion management protocols, WECC path specific pro-rata cut methodology, etc.).
LS Power states the RC should only exercise the ability to redispatch generation in the
event of an emergency or contingency and a compensation methodology should also be
limited to emergency redispatch. Furthermore, the ability of the RC to redispatch
generation (for any reason) coupled with a payment methodology for that redispatch,
could deal a crippling blow to the development of viable capacity and congestion
management markets in the western U.S.
22
After considering the industry comments, the GRDC recognizes no consensus
within the industry exists at this time. If WECC reconsiders developing a process,
further discussion and comments on this topic will be needed. A cost/benefit analysis of
“all inclusive” versus “limited applicability” situations should be performed, as well as a
review of impacts on reliability for both perspectives.
WECC Standard, Business Practice, or Guideline
Any resulting WECC process could be in the form of:





Reliability Standard accepted by the FERC with mandatory compliance
WECC Reliability Standard with required compliance
NAESB Business Practice submitted to the FERC
WECC Business Practice with required compliance
WECC Procedure or Guideline
Redispatching of generation in response to a system emergency is already an
established reliability principle and a compensation method would likely be viewed by
the FERC as a commercial business practice. Whether a WECC Regional Reliability
Standard (not submitted to FERC) or a WECC Business Practice, both are considered a
requirement but no economic sanctions apply at this time.
The GRDC recommendation in the white paper states:
The GRDC believes development of a WECC Business Practice is the
appropriate action if a compensation method is developed and seeks comments
on this recommendation.
Summary of Industry Comments
Industry comments were split but there was general support that a compensation
method would be best developed as a WECC Business Practice. The RCCWG states
economic compensation is a business practice having no tie to actions taken by a
WECC Reliability Coordinator. Black Hills Power, Sierra Pacific Resources, and
Sempra Generation state development of a WECC Business Practice would be the
appropriate vehicle to establish a methodology. Some commenters like BPA and Reliant
support the development of a WECC Reliability Standard. Calpine states it should be a
financial settlement that is formalized in a pro-forma contract or rate schedule for
system support services to be filed at FERC. Puget Sound Energy does not support the
business practice approach and states a redispatch compensation method is needed
but a WECC wide methodology is not the right approach. This should be left up to the
regional RCs. PSEI also goes on to state that, if WECC is compelled to develop a
23
redispatch protocol, it should be incorporated only as a business practice. Finally,
several commenters such as Alberta, Sacramento Municipal Utility District (SMUD), and
Salt River Project state neither a business practice nor a standard is needed as a
compensation methodology is not needed at this time.
After considering the industry comments, the GRDC notes a lack of consensus on
what type of requirement would be appropriate. However, the GRDC evaluation finds
that a WECC Business Practice would be the only appropriate choice if a process is
ever developed. Compensation issues and methods do not qualify to be reliability
standards and a regional method is not always best served in an international forum.
Compensation Principles and Methods
Cost Based – Market Based
Market-based or cost-based compensation methods could be at the option of the
generator or operating entity in advance or on a case-by-case basis. The method of
compensation will likely vary depending on the fuel type of the generator.
Typically in organized markets, a generator required to decrease generation pays to do
so largely due to saved fuel cost. However, some generators may see little or no
savings from decreasing generation and some may actually experience an increase in
costs when reducing generation. In instances where there are increased costs, if the
generator can sufficiently document the costs, a compensation method could be
structured to cover such costs. The GRDC did not make a recommendation on this
topic.
Summary of Industry Comments
This topic did not receive a great deal of attention from the commenters and those that
did comment were split on which payment philosophy should apply. Some felt strongly
that any compensation method must be cost-based only. Others felt market-based with
inclusion of any startup costs was appropriate. GRDC restates the goal of a WECC
process would be fundamental fairness, not complete financial equity. In short, no entity
should be unduly harmed for complying with an RC directive to redispatch.
After considering the industry comments, the GRDC finds there is no consensus
opinion on a cost-based versus market-based compensation calculation. However, it is
apparent that “one-size fits all” is not appropriate due to the diversity of generating unit
types. If a process is ever developed, generators should have the ability to select either
a cost-based or market-based calculation.
24
Lost Opportunity Costs
The GRDC discussed whether to consider “lost opportunity costs” in a redispatch
compensation methodology. In some instances, lost opportunity costs could be a very
real issue.
The GRDC recommendation in the white paper states:
The GRDC discussed whether lost opportunity costs should be eligible for
compensation and determined it would add a layer of complexity that doesn’t
warrant inclusion in a WECC process, but seeks industry comment on this
recommendation.
Summary of Industry Comments
Several industry comments were received, ranging from support for the initial
recommendation to support for inclusion of lost opportunity costs. NorthWestern states
if anyone is compensated for redispatch, it should be cost-based rather than value
based. Both Sierra Pacific Resources and Sempra Generation stated they would rather
have opportunity costs eligible for compensation but acknowledge the complexities
involved. Sempra Generation states that lost opportunity costs are real and could be
quite large if a generator was re-dispatched under certain system conditions. They do
however agree with the GRDC that inclusion of these would add a layer of complexity to
the process since lost opportunity costs have been debated at length in many forums
with minimum consensus on a methodology for compensation.
Calpine stated a preference for payment of applicable opportunity costs. Reliant also
alluded to this, stating the method of compensation should capture the full value of
energy at the time of the directive.
After considering the industry comments, the GRDC recognizes lost opportunity
costs can be a legitimate issue, but finds inclusion of lost opportunity costs would add a
layer of complexity beyond what is envisioned in a WECC process. If a process is ever
developed, this will be an area needing further evaluation.
Payment of Penalties or Sanctions (emission, biological, etc)
It is possible that an entity or generator may be subject to a penalty or sanction for
complying with an RC directive to redispatch. This includes penalties from a Balancing
Area, an operating entity, regulatory body, environmental or biological authorities, and
others.
25
The GRDC comment in the white paper states:
The GRDC discussed whether penalties or sanctions should be eligible for
compensation and recommends including these costs but only if they were
known to the RC at the time of the directive. For example, if the RC has
information a generator will violate air quality standards and incur penalties, but
still issues the directive to increase generation, the resulting sanctions would be
eligible for compensation. The GRDC recognizes this is a problematic area and
seeks industry comments on this recommendation.
Summary of Industry Comments
Several entities have stated that redispatch of thermal units that would cause a violation
of permits or sanctions could be very problematic, mostly because the violations could
cause criminal penalties. Commenters recommended against any redispatch that
would cause generators to violate environmental or biological regulations of any kind. If
such a directive was issued and penalties assessed, some felt that any penalties or
sanctions should be eligible for compensation. On the other hand Sempra Generation
did not agree with the recommendation that penalties or sanctions should be eligible for
compensation if costs were known to the RC at the time of the directive, specifically in
the environmental arena.
After considering the industry comments, the GRDC finds a process that would
reimburse environmental or biological penalties and sanctions incurred by an entity for
complying with an RC redispatch directive would support the hold harmless concept, but
would add a layer of complexity beyond what is envisioned in a WECC process. In
many cases, the restrictions on changing generation are a matter of law including
emissions, environmental and biological restrictions. RC redispatch directives have not
been issued and it is even more unlikely that a unit restricted for emissions,
environmental or biological reasons would receive an RC directive to redispatch.
Sources of Funding
A process of this nature does not generally have revenue, thus funding is mostly a
payout. In many scenarios it will not be possible to quantify the economic benefits of an
RC redispatch directive or what entity benefited beyond the benefits to the
Interconnection as a whole. This makes it problematic (or impossible) to identify and
collect funds from specific entities that may benefit from an RC redispatch directive.
The GRDC recommendation in the white paper states:
26
The GRDC recommends funding for a compensation method come from the
WECC Reliability Coordination budget but does so largely for the lack of another
viable option and seeks industry comment on this recommendation.
Summary of Industry Comments
The Industry comments were almost unanimous that the RC budget was not the proper
source of funding. The WECC Reliability Coordination Comments Work Group stated
the RC budget is not the proper funding mechanism for a business practice and RC
actions must remain independent from any financial business practice. They state funds
to cover this type of business practice can only be assigned to the MIC, with an
associated budget line item. Both Black Hills and Bonneville stated it does not seem
appropriate to fund a compensation method from the RC budget.
NorthWestern Energy states there should be no generation redispatch costs added to
WECC dues: the cost associated with every redispatch action should be determined
and reimbursements made on a case by case basis between the affected parties (i.e.
generators and load serving entities). This keeps Montana from paying for redispatch in
Southern California and vice versa. Sierra Pacific states they are concerned that
funding for the program is open ended and comes from WECC dues. Sierra further
offers that the numbers need to be fully discussed before being added to member dues.
Reliant believes that developing a unanimously approved approach to fund the cost of
an economic compensation method may be elusive. However, a reliability surcharge
added to the retail cost of power by control area (balanced periodically to keep it from
being too high or low) may be one possible way. They also feel that WECC dues do not
appear to be a proper funding mechanism. PacifiCorp suggests that WECC dues could
be the proper funding mechanism for a procedure as long as the cost is allocated to all
users of the system and not just the load ratio share of each Balancing Authority.
When asked about specific sources of alternate funding the industry appeared to have
the same quandary as GRDC…if not by dues, then how? APZS states they have no
idea how WECC would fund compensation for redispatch since it is really a market
issue and WECC doesn’t have an organized market. The Western Interconnection
wholesale market is robust but it is a bilateral market, not an organized market. BPA
offers that the entity causing the problem should be the one who funds the
compensation.
NIPPC states that redispatch costs should be recovered from Transmission Providers or
through revenues produced by the Reliability Management System (RMS) penalties
associated with compliance violations associated with the root cause of generation
redispatch. They further state that WECC may receive penalty revenue under the
27
provisions of the RMS or sanctions proposed under provisions of EPAct 2005. They feel
that these revenues may be the most appropriate source of funding for the redispatch
costs. Sempra Generation is unsure of what the correct source of funding should be
for a compensation method and suggests further discussions to include all viable
options.
After considering the industry comments, the GRDC agrees the RC budget is not an
appropriate way to fund such a process. The primary alternative of “entities that benefit”
should be the ones who pay for the redispatch is a valid concept but difficult or
impossible to determine. In most cases an RC directive to redispatch generation would
be to maintain the integrity of the Interconnection. Trying to determine which entities
benefit would be much more complex than determining which entity provided the
energy. If WECC develops a process in the future, evaluation and discussion will need
to occur, probably at the executive level, to determine an appropriate funding source.
Funding Risk Management – Suspend Process
The GRDC believes it would be a prudent action to place a “ceiling” on the amount of
compensation that could be paid out in a calendar year. This is a fundamental risk
management practice to ensure that unforeseen circumstances do not place undue
financial obligation on WECC or upon whatever funding method is utilized.
The GRDC recommendation in the white paper states:
Additionally, GRDC recommends any implemented process be suspended and
revisited by WECC if the cost of reimbursement exceeds a yet to be determined
amount in a calendar year. This would effectively place a ceiling on the cost risk
to WECC and should trigger a re-evaluation of the process. GRDC seeks
industry comment on these recommendations.
Summary of Industry Comments
Only one comment was received on this recommendation and it was not supportive.
The commenter suggested a suspension of the process should occur only upon a vote
of the membership rather than when payments reach a pre-determined level.
After considering the industry comment, if WECC ever develops a process, the
GRDC recommends a provision to place a ceiling on the amount of funds to be paid out
in a calendar year as determined in the WECC budgeting process. The GRDC also
favors a provision where the process can be suspended by a vote of the WECC Board
of Directors.
28
29
List of Commenters and Acronyms in this Report
AESO
Alberta Electric System Operator
AZPS
Arizona Public Service
BA
Balancing Authority
BHPL
Black Hills Power
BPAT
Bonneville Power Administration – Transmission Business Line
CISO
California Independent System Operator
EPAct 2005 Energy Policy Act of 2005
FERC
Federal Energy Regulatory Commission
GRDC
Generation Redispatch Compensation Task Force
ISO
Independent System Operator
LSPG
LS Power Generation
MIC
Market Interface Committee
MIS
Market Issues Subcommittee
NAESB
North American Energy Standards Board
NERC
North American Electric Reliability Council
NEVP
Nevada Power
NIPPC
Coalition
Northwest-Intermountain Independent Power Producers
NWMT
NorthWestern Energy
PAC
PacifiCorp
PGE
Portland General Electric
PPLM
PPL Montana
PSCO
Public Service Company of Colorado
PSEI
Puget Sound Energy
RC
Reliability Coordinator
RCCWG
RC Comments Work Group
REI
Reliant Energy
RTO
Regional Transmission Operator
SCL
Seattle City Light
30
SER
Sempra Generation
SMUD
Sacramento Municipal Utility District
SPR
Sierra Pacific Resources
SRP
Salt River Power
TSGT
Tri-State Generation and Transmission
TSP
Transmission Service Provider
USBR
U.S. Bureau of Reclamation
WAPA
Western Area Power Administration
WECC
Western Electricity Coordinating Council
31
Responses to Comments
Generation Redispatch Compensation Task Force
Discussion White Paper
February 26, 2007
The GRDC prepared a “Final Report and Summary of Responses to Comments”
as the most effective way to address the many comments received on the discussion
white paper. It should be noted the GRDC is not recommending WECC develop a
compensation process. All interested persons are encouraged to review the final
report.
32
Arizona Public Service Company
Mr. MIC Chairman,
As requested, I am sending you my two comments on the WECC generation redispatch white paper.
1) WECC needs to deal with the fact that "Path Operators" are 100% responsible for
the operation of their assigned paths. That is why the Reliability Coordinators don't
need to give directives on generation re-dispatch for congestion mitigation. It is the
Path Operators that request generation re-dispatch for this purpose.
2) I have no idea how WECC would fund compensation for re-dispatch. This is really a
market issue and we have no organized market. The western interconnection
wholesale market is robust but it is a bilateral market not an organized brokerage
market.
Thanks for the opportunity to comment.
Tom Glock
Manager Power Operations
Arizona Public Service Company
office 602-250-1160
mobile 602-799-2407
GRDC Comments: The task force appreciates the comments of AZPS and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments the GRDC confirmed an RC directive to redispatch a
specific generator has never been issued. As for funding a process, it is clear the
industry does not support funding through the RC budget and that funding would be a
major challenge.
Reliability Coordinator Comments Work Group (RCCWG)
On behalf of the WECC Reliability Coordination Subcommittee (RCS), the WECC
Reliability Coordination Comments Work Group (RCCWG) appreciates the work effort
by the Generation Re-Dispatch Compensation Task Force required to draft the
discussion white paper. We would also like to express appreciation for the opportunity
33
to provide comments to the task force.
The RCCWG is very concerned regarding content of the re-dispatch white paper.
Specifically, the nexus of the reliability coordinator and reliability directives throughout
the white paper, specification of the applicability of the white paper and identified
compensation methodology to the Reliability Coordinator, and identification of the
WECC Reliability Coordinator budget to any re-dispatch compensation process.
It is imperative that the WECC Reliability Coordinator have no nexus to any effort to
provide economic compensation for reliability dispatch. The RCCWG believes that the
paper should, at most, state once that per NERC Reliability Standard TOP-001-0 R3;
adherence by a Balancing Authority and/or Generator Operator to a Reliability
Coordinator or Transmission Operator reliability directive is mandatory. There should
be no further mention of the Reliability Coordinator, and the WECC Reliability
Coordinator should not be mentioned as an applicable party. Economic compensation
is a business practice having no tie to actions taken by a WECC Reliability
Coordinator. The RCCWG recommends that all references to Reliability Coordinator
actions be removed.
The RCCWG recognizes that the RC is one reliability entity that has the authority to
direct re-dispatch of generation. No WECC RC Directive, issued to date, has been so
specific as to direct a certain generator to re-dispatch generation. RC Directives have
been more general in nature, directing a reliability entity (BA or TOP) to mitigate a
problem that in the eyes of the RC is degrading or has the potential to degrade the
reliability of the interconnection. It has historically been left up to the entity receiving the
RC Directive to mitigate the identified problem in whatever manner they choose. Tying
a compensation process specifically to Reliability Coordinator directives will encourage
generation entities not to respond until, and unless, a WECC Reliability Coordinator
directive is issued. Balancing Authorities and Transmission Operators have primary
responsibility to correct system conditions. This process inadvertently erodes the
authority of these entities to correct issues without resorting to Reliability Coordinator
directives.
The WECC Reliability Coordinator budget is not the proper funding mechanism for a
business practice. WECC Reliability Coordinator actions must remain independent
from any financial business practice. Funds to cover this type of business practice can
only be assigned to the MIC, with an associated budget line item.
The RCCWG requests that the Generation Re-Dispatch Compensation Task Force
review the white paper and address the concerns stated in these comments. It is
imperative that WECC Reliability Coordinators maintain independence from any
economic practice. Further, any proposal that would erode response to real-time
reliability concerns needs to be modified.
34
Again, thank you for the opportunity to respond.
WECC Reliability Coordination Comments Work Group
Nancy Bellows, Chair
GRDC Comments: The task force appreciates the comments of RCCWG and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments the GRDC confirmed an RC directive to redispatch a
specific generator has never been issued. The RCCWG concern that RCs have no
connection with such a process is noted. As for funding a process, it is clear the
industry does not support funding through the RC budget and that funding would be a
major challenge.
Black Hills Power
I appreciate the work the GRDC task force has done – this is an issue that must be
addressed. While there have been no specific redispatch directives to date, there is
every indication that they will occur with increasing frequency in the future. It seems
very unlikely that a BA or TOP will consider financial ramifications of redispatch
directives at the time they are issued; it does seem likely that because of system
dynamics the same BAs and TOPs will suffer the majority of the directives and it
seems reasonable that they should expect fair compensation for compliance.
The following responses correspond to requests for comment in the White Paper:
A methodology is required for RC directed generation redispatch compensation variation or imbalance accounts do not capture the value of energy at the time of
redispatch.
The process developed should be applicable for any instance of RC directed
generation redispatch.
Development of a WECC Business Practice is the appropriate vehicle to establish the
methodology.
It seems reasonable to compensate for both incremental and decremental costs
35
associated with redispatch directives.
Penalties and sanctions knowingly incurred at the time of the directive, however
unlikely, should be eligible for compensation.
It does not seem appropriate to fund compensation from the RC budget.
Larry Williamson
Manager of Generation Dispatch and Power Marketing
Black Hills Power
GRDC Comments: The task force appreciates the comments of BHL and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
NorthWestern Energy
It was nice to see the effort put into the generation redispatch compensation white
paper. This issue needs to be dealt with by the WECC and while Northwestern Energy,
Montana does not have all of the answers, NWMT has the unique perspective of being
a transmission-only balancing authority/transmission operator with no generation.
The issue of compensating generators for redispatch is complex and made even more
complex by adding wind energy to the picture. The basic problem with wind is that it is
almost uncontrollable and for this reason, it often gets a by when redispatch is
required. The issue of generator redispatch compensation is also made more complex
when generation redispatch for transmission loading relief gets mixed up with the idea
of generation redispatch for imbalance, which is really not what the white paper is
addressing.
Thus in order to properly address the WECC white paper, the comments provided
herein by NWMT will focus on what might be called traditional redispatch where:
A less expensive generator (A) is reduced and more expensive generator (B) is
increased to relieve transmission loading. In this case, who if anyone pays whom?
The underlying assumption causing a transmission operator to try to unload the path in
the first place is that an overloaded path could create a disturbance that trips many
generators and potentially darkens many customers and might even damage
generation and/or customer equipment. Given this scenario, the tiny cost of generation
36
redispatch to the two affected generators is trivial compared to the huge potential cost
of doing nothing to unload the path.
As a side-note, when A and B are redispatched it will be necessary to write a new tag
from generator B to generator A and NWMT believes that this may eventually affect the
tagging practices used in the WECC real-time market.
NWMT realizes that many transmission operators have expressed frustration with not
being able to get generators to move to relieve path loading and using economics to
encourage generators to move certainly gives the operators another bullet to use to
unload paths. The economic incentive provided by making generator A and B (as
described above) financially whole could turn out to be a huge benefit to unloading
paths.
One could argue that in a perfect world, the RC’s and BA’s have ultimate reliability
authority and no economic incentive to redispatch is necessary. However, most
operators agree there are times when the generators won’t respond and a redispatch
compensation plan might help.
NWMT also believes that if anyone is compensated for redispatch, it should be costbased rather than value based. Thus, in an example using less expensive generator A
and more expensive generator B, if A backs off and saves 8 mils fuel costs and if B
runs and incurs 35 mils running cost, then the redispatch plan would need to send 27
mils to B and A would need to send 8 mils to B. This example introduces the notion
that which generator runs and which backs off is important and NWMT strongly
believes that if the WECC members are going to pay for re-dispatch with dues
increase, the RC had better used economic dispatch to be sure to come up with the
least-cost redispatch solution.
In general from a planning perspective, NWMT does not believe that anyone would
locate a generating plant specifically in a bad transmission location to take advantage
of a redispatch compensation program. However the white paper needs to address any
effort by generator operators to game the redispatch program.
NWMT encourages more open discussion concerning the white paper and would like
to see the following items address in future versions:
1. There should be no generation redispatch costs added to our WECC dues: the cost
associated with every redispatch action should be determined and reimbursements
made on a case by case basis between the affected parties (i.e. generators and load
serving entities). This keeps Montana from paying for redispatch in southern California
and vice verse.
2. It should be recognized that if generators responded immediately to BA or RC
37
redispatch requests, there would be no reason for the WECC (a regional reliability
organization with NO RTO-type market power) to be involved in this economic
incentive program. NWMT believes the BA’s and RC’s should NOT bear the financial
burden for any economic reimbursement.
3. It should also be recognized that the generator owners should have their own (nonWECC) mechanism to recover redispatch costs. A surcharge on every MWH sold in
the west, for example, would build a fund to provide the 27 mils mentioned in the
example above involving generators A and B.
4. It is true that many entities on the WECC grid absorb costs everyday associated with
reliability and never ask for compensation (like customers whose load was shed for
underfrequency or undervoltage events, or generators producing VAR’s at the expense
of MW’s or line crews pulled off of maintenance because the line couldn’t be freed up
at the last minute). In the interest of fairness, why should the generators asking for
redispatch compensation be treated any differently than other grid customers?
5. NWMT recognizes that there is a chance that the generation redispatch plan might
eliminate the need for the non-phase shifters parts of the unscheduled flow mitigation
plan (and WebSAS). However, extreme caution should be used as the UFMP has
many features including coordinated operation of phase shifters and a section to
address competing paths where helping one path hurts another. The redispatch
compensation white paper should address competing requests for re-dispatch and how
this would be dealt with.
GRDC Comments: The task force appreciates the comments of NWMT and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments the GRDC found a lack of consensus in the industry with
many aspects of developing a compensation process. In terms of a funding process, it
is clear the industry agrees it should not be through the RC budget (WECC dues) and
that funding would be a major challenge.
Bonneville Power Administration
The Bonneville Power Administration (BPA) appreciates the efforts of the Generation
Re-Dispatch Compensation Task Force in drafting the discussion white paper. BPA
would also like to express appreciation for the opportunity to provide comments to the
task force.
38
BPA wants to stress that this initiative does not in anyway impact the Reliability
Coordinators (RC) authority, nor does it place any obligations or restrictions on the RC
in determining the need or effectiveness of a generation redispatch option. Likewise,
this initiative does not change or impact the obligation of entities or generators to
comply with redispatch directives.
The GRDC’s White Paper asked the members of WECC for comments on a number of
issues. BPA’s comments follow:
1. BPA believes that a redispatch compensation method should be developed which
essentially hold harmless all entities from undue financial impact for complying with an
RC redispatch directive.
2. BPA does not believe that the current interconnection agreements alone assure that
entities and generators are not unduly harmed when complying with an RC redispatch
directive. As noted in the GRDC's white paper, one common element of
interconnection agreements are penalties or sanctions for when generation deviates
outside a predetermined generation imbalance band-width. It is BPA’s opinion that
when a deviation is a result of an RC redispatch directive, the generator should be
made whole from the penalties or sanctions it may suffer.
3. An RC directive to redispatch generation will only take place with-in hour when the
need for rapid rebalancing of the interconnection is needed for system stability,
regardless of whether or not a system contingency or event has happened. Therefore
BPA believes that it is appropriate that the redispatch compensation method should be
applied any time an RC redispatch directive is given.
4. The NERC standards that involve Reliability Coordinator actions do not specifically
discuss a Generation Redispatch request. The NERC standards identify that 'requests'
from the Reliability Coordinator are to be met. Because WECC is identifying
Generation Redispatch as one of the requests that a Reliability Coordinator can make,
we are adding detail into the NERC standard that would apply to the WECC. Because
of this, the Reliability Coordinator directives for Generation Dispatch would be a
candidate for a WECC standard. This standard would include sanctions for those who
do not comply, and these sanctions should be structured such that they provide
compensation to those who are harmed through non-compliance of another party.
BPA supports the development of a WECC standard specific to a Reliability
Coordinator request for Generation Redispatch and supports compensation to harmed
parties through compliance to the standard measurements and sanctions.
5. The WECC dues allocated for Reliability Coordinator budget does not seem to be
the proper funding mechanism. BPA believes that ultimately it should be the entity
39
causing the problem who funds the compensation.
Again, thank you for the opportunity to comment
Bonneville Power Administration
Eric King - GR - Comment Coordinator
GRDC Comments: The task force appreciates the comments of BPA and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments GRDC agrees that entities should be held harmless when
responding to an RC redispatch directive. GRDC found that there was support for your
opposition to using WECC dues to fund a compensation process.
Sierra Pacific / Nevada Power Transmission
Sierra Pacific / Nevada Power transmission (submitted by Patricia Englin) agree that a
WECC business practice should be the preferred solution to the compensation issue.
This business practice should be coordinated with existing FERC Open Access
Transmission Tariffs to be sure there is not a conflict. If OATT revisions are required,
they should be coordinated throughout WECC.
We also believe the compensation method should be simple and easy to administer,
which probably rules out lost opportunity cost compensation and savings associated
with a directed decrease in generation.
We are also concerned about the funding for this program being open-ended and
coming from WECC dues. The numbers need to be fully discussed before being added
to dues in future years.
Overall, we are impressed with the thorough discussion of issues in this report and we
thank the team for its efforts.
GRDC Comments: The task force appreciates the comments of SPR and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
40
GRDC is not recommending WECC develop a compensation process.
Specific to your comments GRDC agrees if WECC developed a compensation process
an evaluation of any conflicts with the FERC OATT will need to be completed. GRDC
agrees that any compensation method needs to be simple, but there is a desire to try
and address lost opportunity costs. GRDC found that there was support for your
opposition to using WECC dues for compensation.
Alberta Electric System Operator
The Independent System Operator operating as the Alberta Electric System Operator
(AESO) would like to thank the Generation Re-dispatch Compensation Task Force
(GDRC) for the opportunity to provide comments on the concepts they have explored
in their Discussion White Paper. Having experience dealing with these same or similar
concepts within the Alberta electricity market, the AESO also acknowledges the
challenge this task force has volunteered to explore.
The paper has sought comments ranging from the appropriateness or need for a redispatch methodology to the appropriate form of proposed re-dispatch rules. However
the AESO will focus its comments on what it sees as the more fundamental and
important of the questions the question of need for a WECC standard or business
practice for compensating re-dispatch and in particular those directed by Reliability
Coordinators (RC). The paper itself comments on the rarity of these events and the
lack of non-compliance concerns. While the presumption that frequency of re-dispatch
may increase with added congestion until transmission infrastructure catches up with
demand, the argument for common WECC business practice for re-dispatch
compensation is still not clear.
The GRDC has appropriately noted that there are areas within WECC where market
structures and forces address compensation and valuation in general, and those
without market structures. The conclusion that there is unfairness in the compensation
or lack of compensation is not appropriate and not a position WECC should take.
Terms and conditions for service and operations including reliability obligations are
defined and part of the valuation and compensations within market and non-market
arenas. Fair valuation of market and operation activities including re-dispatch for
reliability purposes are established through either regulated processes or approved
market rules. Inserting WECC established valuation on any re-dispatch scenarios will
inevitably create market distortions, conflict with existing tariffs and regulations and
potentially could increase reliability problems with incorrect or unbalanced
compensation for RC directives.
41
In conclusion, given the fact that the WECC is comprised of different market and nonmarket jurisdictions, valuation for reliability operations should be addressed within
those jurisdictions.
GRDC Comments: The task force appreciates the comments of AESO and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Public Service Company of Colorado
Public Service Company of Colorado (submitted by David Lemmons) appreciates the
work that has been done to develop the white paper. Our comments related to this
issue are below.
A generation redispatch directive may provide flow relief upon a transmission element.
However the WECC GRDC has not proposed anything that will deliver the specific
assessment of who had the obligation to provide relief. The party or parties being
directed to redispatch may not be the contributors to the need to redispatch at all.
The obligation to provide relief is rooted in rights based in ownership and tariff or
contract use of the grid. Generally FERC has directed that flow relief obligations are to
be allocated pro rata and comparably among all users within the lowest curtailment
priority buckets necessary to obtain the required relief. Further, redispatch of native
load resources is equivalent to a firm curtailment which should be included in the pro
rata assessment of firm relief obligations.
We must bear in mind that the capability to provide relief on a transmission element is
not the same as the duty to provide relief. The financial duty for a redispatch directive
should be allocated to those parties who had the pro rata obligation to curtail their
impacts upon the congested transmission element.
We need to improve our tools in the WECC to track flow impacts by curtailment priority
bucket, including native load dispatch effects. These tools must be capable of
establishing accurate pro rata allocations of the obligation to provide relief. Once our
tools have improved to the point of being able to determine flow contributions and the
duties of parties to curtail, the matter of cost allocation becomes much simpler.
42
GRDC Comments: The task force appreciates the comments of PSCO and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments GRDC received several comments in support of coming up
with a business practice that would address re-dispatch compensation. GRDC realizes
that there is a need to go further into detail. GRDC wanted to come up with a broader
approach before drilling down into more detail. The paper served its purpose by
finding support at the same time uncovering the numerous other details that would
have to be addressed if we were to proceed.
Calpine Corporation
Calpine Corporation appreciates the Generation Re-Dispatch Compensation Task
Force’s attention to the issue of generator compensation for reliability (redispatch)
services that may be provided to the grid. In addition, thank you for this providing this
opportunity to provide comments.
It is absolutely necessary for the WECC to develop a process to provide economic
compensation to generators that redispatch generation (incremental or decremental)
pursuant to a Reliability Coordinator directive.
Assuming a compensation process is developed, it should be a financial settlement
that is formalized in a pro-forma contract or rate schedule for system support services
to be filed at FERC. As an example, please see the Rockgen Energy LLC Rate
Schedule for System Support Services filed at FERC in Docket No.ER02-2314-000 on
January 29, 2003. A balancing account cannot adequately compensate generators for
the value of redispatched generation at the time the instruction was given. The
compensation process developed should always be applicable when a generation
redispatch directive is given regardless of stated cause. The Generation Re-Dispatch
Compensation Task Force should also consider establishing the following:
-- A FERC approved pro-forma contract;
-- A minimum compensation level that would discourage abuse (for example, the
higher of $400 MWhr (the current FERC west-wide price cap) or actual production cost
plus 25%);
-- Payment for startup costs (if applicable);
-- Payment for opportunity costs (if applicable);
-- Payment for emissions costs incurred ;
43
-- Payment within 30 days; and
-- A written report or summary that explains the need for the re-dispatch event; and
-- Suspension of penalties or sanctions for uninstructed energy or imbalance.
Calpine looks forward to working with the Task Force to develop a fair and
nondiscriminatory Generation Re-Dispatch Compensation methodology.
Thanks
Duncan Brown
GRDC Comments: The task force appreciates the comments of Calpine and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments, the GRDC has found that the industry is split on whether a
compensation process is warranted, and if developed, whether it would receive
sufficient industry support to be approved. Regarding methods of compensation, the
GRDC finds there is no consensus opinion on a cost-based versus market-based
compensation calculation. However, it is apparent that “one-size fits all” is not
appropriate due to the diversity of generating unit types. If a process is ever
developed, generators should have the ability to select either a cost-based or marketbased calculation. Additionally, in review of the topic of payment of penalties and
sanctions, the GRDC recognizes lost opportunity costs can be a legitimate issue, but
finds inclusion of lost opportunity costs would add a layer of complexity beyond what is
envisioned in a WECC process. If a process is ever developed this will be an area
needing further evaluation. Finally, the GRDC finds a process that would reimburse
environmental or biological penalties and sanctions incurred by an entity for complying
with an RC redispatch directive would support the hold harmless concept but would
add a layer of complexity beyond what is envisioned in a WECC process. In many
cases, the restrictions on changing generation are a matter of law including emissions,
environmental and biological restrictions.
Puget Sound Energy Merchant
Puget Sound Energy Merchant – PSE (submitted by Joe Hoerner) comments on the
WECC Generation Re-Dispatch Compensation (GRDC) White Paper
44
PSE appreciates the efforts of the GRDC Task Force in drafting the discussion white
paper. PSE would also like to express appreciation for the opportunity to provide
comments to the task force.
PSE would like to stress the GRDC initiative should not in anyway impact the authority
of the Reliability Coordinator (RC), nor should it place any obligations or restrictions on
the RC in determining the need or effectiveness of a generation redispatch option.
Likewise, this initiative does not change or impact the obligation of entities or
generators to comply with redispatch directives.
PSE believes that the GRDC initiative should be primarily focused on clearly defining
the specific conditions, criteria or metrics that must exist prior to the RC issuing a
redispatch order. This is a reliability issue and the GRDC’s focus needs to be from the
reliability perspective. WECC, via the GRDC initiative should avoid attempting to define
commercial terms and conditions for calculating and/or compensating costs or benefits
between counterparties.
PSE agrees with the principle objectives of keeping the generation redispatch process
reasonably simple, easy to administer and of fairness to all parties. Our comments to
the white paper’s specific issues and questions are as follows.
A redispatch compensation method is needed but a universal WECC wide
methodology is not the right approach. This should be left up to the regional RCs. We
do agree that uninstructed energy or off schedule penalties for all entities must be
suspended for the duration of an RC redispatch directive. In addition, we strongly
recommend that in any redispatch compensation methodology that the use of financial
settlement rather than the return of energy in kind be incorporated. This is keeping with
the goal of simplicity and also mitigates the transmission impacts of parties attempting
to return energy to true-up variation accounts.
PSE agrees with the recommendation that the redispatch process apply when a RC
issues a redispatch directive to alleviate an actual or imminent overload of the
transmission system, regardless of any contingency or event on the bulk electric
system. Attempting to distinguish between what types of events would be considered
for compensation would be cumbersome, fraught with interpretation and not at all
simple to administer.
If WECC is compelled to develop a redispatch protocol then it should be incorporated
only as a business practice. This is the most fair and equitable of the proposed options
even though there may be inconsistencies in parts of the WECC that do not have
established market mechanisms.
PSE is in alignment with the common themes that exist in centralized markets and
encourages any entity considering a redispatch compensation methodology to consider
45
at a minimum the following:
Generators directed to increase output are paid an hourly market price.
Generators required to decrease output are charged an hourly market price and are
not paid for reducing output.
Funding comes from the costs of running the market, e.g., locational marginal pricing
concept.
Compensation for increasing generation should include start-up costs, if applicable.
GRDC Comments: The task force appreciates the comments of PSE and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments, the GRDC has found the industry split on whether a
compensation process is warranted and if developed whether it would receive sufficient
industry support to be approved. The GRDC fully agrees this initiative does not change
or impact the obligation of entities or generators to comply with redispatch directives.
With respect to RC directives regardless of cause, the GRDC recognizes no
consensus within the industry exists at this time. If WECC reconsiders developing a
process, further discussion and comments on this topic will be needed. A cost/benefit
analysis of “all inclusive” versus “limited applicability” situations should be performed,
as well as a review of impacts on reliability for both perspectives. As far as whether or
not the compensation methodology should be a standard, business practice or
guideline, the GRDC notes a lack of consensus on what type of requirement would be
appropriate. However, the GRDC evaluation finds that a regional Business Practice
would be the only appropriate choice if a process is ever development by the WECC.
Specific compensation issues do not qualify to be reliability standards and a regional
method is not best served in a NAESB forum. Finally, regarding compensation
principles and methods, the GRDC finds there is no consensus opinion on a costbased versus market-based compensation calculation. However, it is apparent that
“one-size fits all” is not appropriate due to the diversity of generating unit types. If a
process is ever developed, generators should have the ability to select either a costbased or market-based calculation.
Northwest-Intermountain Independent Power Producers Coalition
46
The Northwest-Intermountain Independent Power Producers Coalition (NIPPC)
supports the Generation Re-Dispatch Compensation (GRDC) Task Force proposal to
provide compensation for redispatch directed by Reliability Coordinators (RCs). NIPPC
member generating companies have experienced uncompensated curtailments a
crude form of re-dispatch with increasing frequency in recent years. These incidents
typically conclude without settlement of substantial costs to both generators and
purchasers. While efforts are underway to develop re-dispatch procedures that can be
implemented by Transmission Providers (TPs), many of the principles should be
translated into procedures applicable to RC directed re-dispatch.
It is widely recognized that system operating limit violations are most effectively
resolved through generator re-dispatch rather than curtailment. While the method for
selecting re-dispatch must, first and foremost, provide effective relief of path loadings
by considering the physics of the power system and feasibility of gaining timely relief,
the economic costs must also be considered when invoking redispatch directives. And
equally important, at the conclusion of the re-dispatch event, a corresponding financial
settlement of the redispatch costs should be conducted. Without financial settlement,
the procedure will likely cause disputes regarding the fairness and equity of the
directive.
NIPPC wishes to stress the following points regarding Reliability Coordinator generator
re-dispatch:
1. Economic impacts on generators that provide re-dispatch must be factored into the
selection of generators called upon for path loading relief. This may take the form of
economic ranking of redispatch options by RCs in conjunction with physical path
sensitivities to redispatch generator candidates.
2. Penalties associated with transmission tariff provisions and other reliability
standards, such as E-Tagging, must be waived or mitigated during RC directed
redispatch.
3. NIPPC does not believe that WECC should establish a congestion clearing market
for re-dispatch.
4. In the Northwest, congestion clearing markets do not exist, therefore financial
settlements should be based on visible on-peak and off-peak market prices adjusted by
adders which compensate for additional costs and risks associated with real-time
operational changes.
5. If environmental compliance penalties result from redispatch events, additional
compensation should be provided to permit recovery of costs that are above and
beyond those associated with normal market-based production costs.
6. NIPPC assumes that reliability standard compliance violations are likely associated
with the underlying causes which necessitate RC-directed redispatch. Therefore
WECC may receive penalty revenue under the provisions of RMS or sanctions
proposed under ERO provisions of EPAct 2005. These revenues may be the most
appropriate source of funding for the redispatch costs.
47
7. It is not clear however, that a WECC Business Practice would permit disbursement
of RC-directed redispatch costs to affected generators.
8. Redispatch costs should be recovered from Transmission Providers or through
revenues produced by RMS penalties associated with compliance violations
associated with the root cause of generation re-dispatch.
NIPPC commends the efforts of the GRDC Task Force and appreciates opportunity to
comment on this proposed standard.
Robert D. Kahn
Executive Director
Email: rkahn@nippc.org
Phone: 206.236.7200
GRDC Comments: The task force appreciates the comments of NIPPC and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments, the GRDC has found strong support for the concept that
mitigation of generator or entity uninstructed energy or imbalance penalties should be
an essential principle. Penalizing a generator or entity for helping the interconnection,
under an RC directive by being off schedule, is a fundamentally unfair and flawed
concept. Regarding compensation principles and methods, the GRDC finds there is
no consensus opinion on a cost-based versus market-based compensation calculation.
However, it is apparent that “one-size fits all” is not appropriate due to the diversity of
generating unit types. If a process is ever developed, generators should have the
ability to select either a cost-based or market-based calculation. Furthermore, as far
as for payment of penalties or sanctions, the GRDC recognizes lost opportunity costs
can be a legitimate issue, but finds inclusion of lost opportunity costs would add a layer
of complexity beyond what is envisioned in a WECC process. If a process is ever
developed this will be an area needing further evaluation. Additionally, the GRDC finds
a process that would reimburse environmental or biological penalties and sanctions
incurred by an entity for complying with an RC redispatch directive would support the
hold harmless concept but would add a layer of complexity beyond what is envisioned
in a WECC process. In many cases, the restrictions on changing generation are a
matter of law including emissions, environmental and biological restrictions. RC
redispatch directives have not been issued and it is even more unlikely that a unit
restricted for emissions, environmental or biological reasons will be ordered to
redispatch. Finally, regarding sources of funding, the GRDC agrees the RC budget is
not an appropriate way to fund such a process. The primary alternative of “entities that
benefit” should be the ones who pay for the redispatch is a valid concept but difficult or
48
impossible to determine. In most cases an RC directive to redispatch generation would
be to maintain the integrity of the Interconnection. Trying to determine which entities
benefit would be much more complex than determining which entity provided the
energy. If WECC develops a process in the future, evaluation and discussion will need
to occur, probably at the executive level, to determine an appropriate funding source.
Sempra Generation
Sempra Generation ("Sempra") appreciates the efforts of the GRDC Task Force for
drafting the Re-Dispatch Compensation white paper. We would also like to express our
thanks for the opportunity to provide comments.
Our key points are as follows:
-- Sempra supports development of a compensation methodology for generators,
regardless of who issues the re-dispatch directives for a generator (e.g. RC or BA on
behalf of an RC directive) in order to maintain system reliability. Sempra believes that it
is imperative that these RC-driven re-dispatch directives providing compensation under
such a methodology, only be allowed under unusual system reliability conditions (i.e.
operating conditions that do NOT have standard mitigation practices in place such as
congestion management protocols, (WECC path specific) pro-rata cut methodology,
etc.). Note that typical generator Interconnection Agreements are transmission facility
based agreements and do not cover actual operating and market issues (i.e. do not
hold generators harmless under re-dispatch directives).
-- Lost opportunity costs are real and could be quite large if a generator was redispatched under certain system conditions. We do however; agree with the GRDC
that inclusion of these would add a layer of complexity to the process since lost
opportunity costs have been debated at length in many forums with minimum
consensus on a methodology for compensation. We would like to note that another real
cost exposure to a generator under a re-dispatch directive that is not addressed in this
white paper are Liquidated Damages (LDs) under an existing contract. LDs are
determinable and are a real cost to a generator if it fails to deliver scheduled energy.
This exposure further substantiates our point above that RC-driven re-dispatch
directives should only be used for unusual system reliability conditions (i.e. operating
conditions that do NOT have standard mitigation practices in place).
-- Sempra Generation cannot fundamentally agree with the recommendation that
penalties or sanctions should be eligible for compensation if costs were known to the
RC at the time of the directive specifically in the environmental arena. In your example,
knowingly violating air quality standards may not only incur financial penalties but could
also be deemed criminal.
49
Other
-- We agree with the GRDC that the compensation methodology should be considered
as a WECC Business Practice.
-- We agree that at a minimum, a policy be developed indicating penalties or sanctions
for uninstructed energy imbalance should be suspended for events of an RC directive
to re-dispatch.
-- We are unsure of what the correct source of funding should be for compensation and
suggest further discussions to include all viable options.
Leslie Padilla - Sempra Generation
GRDC Comments: The task force appreciates the comments of Sempra Generation
and has reviewed and discussed the content. The GRDC has responded to all
comments in its “Final Report and Summary of Responses to Comments.” It
should be noted the GRDC is not recommending WECC develop a compensation
process.
Specific to your comments, the GRDC has found the industry is split on whether a
process is warranted and if developed whether it would receive sufficient industry
support to be approved. In addition, it is noted the Reliability Coordination Comment
Work Group does not support a process be developed that has any connection with the
actions of an RC. Regarding lost opportunity costs, the GRDC recognizes lost
opportunity costs can be a legitimate issue, but finds inclusion of lost opportunity costs
would add a layer of complexity beyond what is envisioned in a WECC process. If a
process is ever developed this will be an area needing further evaluation. With respect
to payment of penalties and sanctions, the GRDC finds a process that would reimburse
environmental or biological penalties and sanctions incurred by an entity for complying
with an RC redispatch directive would support the hold harmless concept but would
add a layer of complexity beyond what is envisioned in a WECC process. In many
cases, the restrictions on changing generation are a matter of law including emissions,
environmental and biological restrictions. RC redispatch directives have not been
issued and it is even more unlikely that a unit restricted for emissions, environmental or
biological reasons will be ordered to redispatch. As far as the type of document, the
GRDC notes a lack of consensus on what type of requirement would be appropriate.
However, the GRDC evaluation finds that a regional Business Practice would be the
only appropriate choice if a process is ever development by the WECC. Regarding the
suspension of imbalance penalties, the GRDC finds strong support for the concept that
mitigation of generator or entity uninstructed energy or imbalance penalties should be
50
an essential principle. Penalizing a generator or entity for helping the interconnection,
under an RC directive by being off schedule, is a fundamentally unfair and flawed
concept. Finally, the GRDC agrees with comments received that the RC budget is not
an appropriate way to fund such a process. The primary alternative of “entities that
benefit” should be the ones who pay for the redispatch is a valid concept but difficult or
impossible to determine. In most cases an RC directive to redispatch generation would
be to maintain the integrity of the Interconnection. Trying to determine which entities
benefit would be much more complex than determining which entity provided the
energy. If WECC develops a process in the future, evaluation and discussion will need
to occur, probably at the executive level, to determine an appropriate funding source.
Sacramento Municipal Utility District – Merchant
The SMUD Merchant appreciates the opportunity to comment on a well thought out
paper. SMUD appreciates the time and effort that went into drafting the issues in a
concise manner to gain maximum industry participation.
SMUD is not aware of an issue regarding compensation for emergency dispatch so
these payments must either be either very rare or not needed as the generators must
be satisfied with the current payment structure. I base this on the fact that I have not
heard of compensation for emergency dispatch being an issue. Given this, there
appears to not be a great need for devoting the time and efforts in creating a RC
Redispatch methodology.
Having said that, it seems the incremental cost or real-time index method outlined on
page 7 is an easy way to compensate the generators for emergency dispatches.
However, it should be the generators choice to pick the payment structure because
their incremental costs may be above or below the market at any given time. The
exception to listed compensation methods would be option #3 - hydro generation which
should allow for compensation based on forward prices to reflect the potential higher
future value of the energy.
Dennis Holcomb
SMUD Energy Trading
GRDC Comments: The task force appreciates the comments of SMUD and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments, the GRDC has found the industry is split on whether a
51
process is warranted and if developed whether it would receive sufficient industry
support to be approved. In addition, it is noted the Reliability Coordination Comment
Work Group does not support a process be developed that has any connection with the
actions of an RC. Regarding compensation principles and methods, the GRDC finds
there is no consensus opinion on a cost-based versus market-based compensation
calculation. However, it is apparent that “one-size fits all” is not appropriate due to the
diversity of generating unit types. If a process is ever developed, generators should
have the ability to select either a cost-based or market-based calculation.
Furthermore, as far as for payment of penalties or sanctions, the GRDC recognizes
lost opportunity costs can be a legitimate issue, but finds inclusion of lost opportunity
costs would add a layer of complexity beyond what is envisioned in a WECC process.
If a process is ever developed this will be an area needing further evaluation.
Reliant Energy
Reliant greatly appreciates the efforts of the Generation Re-Dispatch Compensation
Task Force in drafting the discussion white paper on such an important issue. In
response to the requests in the white paper, Reliant offers the following comments:
1) There is a need to address economic compensation to entities/generators that
redispatch generation under a Reliability Coordinator directive.
2) The method of compensation should capture the full value of energy at the time of
the directive.
3) A WECC Standard would be appropriate to establish the appropriate compensation
methodology.
4) It is reasonable to compensate for both incremental (including start-up, if applicable)
and decremental costs associated with a directive.
5) Penalties, sanctions and imbalance charges incurred at the time of the directive due
to the directive should be part of the compensation if such charges are not otherwise
suspended.
6) Developing a unanimously approved approach to fund the cost of this economic
compensation may be elusive however a reliability surcharge added to the retail cost of
power by control area (balanced periodically to keep it from being too high or low) may
be a reasonable way.
7) WECC dues do not appear to be a proper funding mechanism.
52
Thank you for the opportunity to comment.
Derek Bandera
Director Federal Regulatory Affairs
Reliant Energy, Inc.
GRDC Comments: The task force appreciates the comments of Reliant and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments the GRDC confirmed an RC directive to redispatch a
specific generator has never been issued and that a compensation methodology for
redispatch had no general consensus. Regarding compensation principles and
methods, the GRDC finds there is no consensus opinion on a cost-based versus
market-based compensation calculation. However, it is apparent that “one-size fits all”
is not appropriate due to the diversity of generating unit types. If a process is ever
developed, generators should have the ability to select either a cost-based or marketbased calculation. Furthermore, as far as for payment of penalties or sanctions, the
GRDC recognizes lost opportunity costs can be a legitimate issue, but finds inclusion
of lost opportunity costs would add a layer of complexity beyond what is envisioned in
a WECC process. If a process is ever developed this will be an area needing further
evaluation. The development of a WECC standard had some support from others in
the industry but the GRDC evaluation finds that a regional Business Practice would be
the only appropriate choice if a process is ever development by the WECC. The GRDC
found no general consensus on funding sources or methodologies. Many in the
industry agree that penalties incurred due to reliability directives should not be
assessed.
US Bureau of Reclamation
We appreciate the work the Generation Re-Dispatch Compensation Task force has
taking on this issue and agree it is a topic that requires broad discussion within WECC.
We make the following general comments.
- If directed to reduce generation by the Reliability Coordinator, hydro units may not
realize the fuel savings that thermal plants enjoy since many hydro facilities must
maintain water release schedules regardless of contingencies facing the power
system. The reduction in generation may force these facilities to spill water to maintain
53
the required release schedules. In the case of federal facilities this may result in loss of
revenue due to the reduction of generation levels and force the Power Marketing
Administrations to acquire replacement power for preference customers and project
users.
There is concern that if reliability is threatened, due to congestion, to the extent that
Reliability Coordinators must direct generation re-dispatch the Balancing Authorities
and Transmission Operators have not addressed the issue at that level before it
reached the crisis stage. Any compensation plan must guard against entities leaning
on the Reliability Coordinators to solve congestion issues that should be addressed at
the Balancing Authority/Transmission Operator level.
Jay Seitz, US Bureau of Reclamation
303-445-2844
GRDC Comments: The task force appreciates the comments of USBR and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments. The GRDC found no general consensus on funding
sources or methodologies. Regarding compensation principles and methods, the
GRDC finds there is no consensus opinion on a cost-based versus market-based
compensation calculation. However, it is apparent that “one-size fits all” is not
appropriate due to the diversity of generating unit types. If a process is ever
developed, generators should have the ability to select either a cost-based or marketbased calculation. Many in the industry expressed concern that a compensation
method must not provide an incentive for generators to behave in an unreliable
manner.
Salt River Project
The Salt River Project (SRP) appreciates the efforts of the Generation Re-Dispatch
Compensation Task Force in drafting the discussion white paper. SRP would also like
to express appreciation for the opportunity to provide comments to the task force.
SRP believes that the concept of compensating a generator that has responded to a
Reliability Center’s redispatch directive has merit. However, implementing a
compensation mechanism that would be applicable to all WECC members has a
54
number of practical difficulties, including problem source identification, funding
mechanism determination, administration, etc. We believe that at the present time
there are a number of other more pressing issues for WECC members to address.
Therefore, SRP believes that further consideration of this issue should be deferred at
this time.
Jerry Bicknell, Senior Marketing Rep.
Salt River Project
GRDC Comments: The task force appreciates the comments of SRP and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments the GRDC confirmed an RC directive to redispatch a
specific generator has never been issued and that a compensation methodology for
redispatch had no general consensus. The GRDC also found no general consensus on
funding sources or methodologies.
PacifiCorp – Commercial and Trading
PacifiCorp commercial and trading appreciates the opportunity to comment on the
Generation Re-Dispatch Compensation White Paper. The GRDC Task Force has done
an excellent job of identifying the issues and identifying potential solutions.
PacifiCorp commercial and trading offers the following comments in three categories.
Conditions and Obligations





A redispatch order in this forum should be solely for reliability of the
interconnected system and not for commercial reasons.
A redispatch order must be within the operating hour and possibly the next hour
if the actual flow is going to continue to reach the OTC of a qualified path under
WECC path rating catalog.
Redispatch order shall recognize the physical and fuel restrictions of the
generator(s) providing the service.
The RC and ultimately the balancing authority must have sufficient tools to
clearly identify there are reliability issues in the interconnected system. The
constrained path must be clearly identified by specific POR and POD.
RCs must coordinate their actions on redispatch before triggering an order to
55



make sure an action taken in one region is not adversely impact the another
region. Again, appropriate tools with full system model are critical in such
determination.
A redispatch order to a generator must be initiated by the balancing authority. If
the balancing authority fails to maintain system security and reliability then the
RC may directly order generator(s) to redispatch.
The redispatch order should be logged and the actions followed must be
auditable with degree of effectiveness.
We agree with GRDC that the generator(s) complying with such redispatch
order must be exempt from any imbalance penalty or uninstructed deviation
penalty for the hours of redispatch as long as the generator output was within its
prescheduled range.
Compensation / Pricing




The transaction price used to determine the cost of decreasing the supply of
energy at the POR end of the transmission path shall be based on a formulaic
combination of FERC approved market price indices, but not lower than the
Generator’s decremental generation cost. The transaction price for such volume
will be equal to the decremental generation cost inclusive of fuel and variable
operating and maintenance costs.
The transaction price used to determine the cost of increasing the supply of
energy at the POD end of the transmission path shall be based on a formulaic
combination of FERC approved market price indices, not higher than
Generator’s incremental generation cost. The transaction price for such volume
will be equal to the incremental generation cost inclusive of fuel and variable
operating and maintenance costs plus any applicable start-up costs and will
include any excess run time costs to meet minimum run requirements.
Pricing of hydro resources, if used for Redispatch Service, shall be based on the
hydro opportunity cost adjusted for operating efficiency losses.
The incremental or decremental generation costs associated with designated
thermal units shall be based on FERC Form 1 heat rates multiplied by the
applicable Gas Daily index plus applicable transportation costs for natural gas
units at that time, or the FERC Form 1 designated Total Production Expenses
per megawatt hour for coal units. Note: Specific market price indices applicable
to each WECC qualified path must be determined.
Funding

The WECC could be the proper funding mechanism for this procedure as long
as the cost allocated to all users of the system not just the load ratio share per
each balancing authority.
GRDC Comments: The task force appreciates the comments of PAC and has
56
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments, the GRDC found no general consensus on the conditions
where compensation would be warranted, nor even a consensus on whether a
compensation process is warranted to begin with. Therefore the GRDC did not
specifically respond to the proposed implementation details outlined in your comments.
Regarding the suspension of imbalance penalties, the GRDC found strong support for
the concept that mitigation of generator or entity uninstructed energy or imbalance
penalties should be an essential principle. Penalizing a generator or entity for helping
the interconnection, under an RC directive by being off schedule, is a fundamentally
unfair and flawed concept.
Regarding the area of compensation and pricing, the GRDC found PacifiCorp’s
comments helpful in understanding the complexity in determining a compensation
philosophy that would be fundamentally fair. The complexity involved is a major
reason that the GRDC is NOT recommending that a funding mechanism be developed
at this time.
Finally, regarding the area of funding sources, the GRDC found a lack of support for
WECC funding of the process, and no general consensus on an alternative funding
mechanism. If WECC develops a process in the future, evaluation and discussion will
need to occur, probably at the executive level, to determine an appropriate funding
source.
LS Power Generation
LS Power Generation, LLC supports the concept of development of a Generation Redispatch Compensation methodology for compensating generating units to change
their output in response to the orders issued by the Reliability Centers (RC). We
strongly agree that the operations of a reliable transmission grid can only be achieved
through the coordinated operations of the generation and transmission resources
connected to the grid. Though we generally agree with the concept presented in the
white paper, there are several issues that have been discussed in this white paper
which in our view have far reaching consequences. We like to bring these concerns to
light so that these issues can receive their due considerations and would be
appropriately addressed prior to taking the next steps in this arena.
First, any modification in the output of a generating resource in response to a RC
57
directive should not be referred to as UNINSTRUCTED ENERGY or UNINSTRUCTED
ENERGY DEVIATION. Changing the output of generating units in response to the
instructions issued by the RC to maintain the reliability of the transmission grid is in
affect INSTRUCTED ENERGY DEVIATION and should be treated as such.
Second, Imbalance Energy Penalties are ONLY one component of charges that the
generating resources have to face while deviating from their schedule. There are
several other charges that are associated with not following schedule. For example, a
generator decreasing their output in response to the RC instructions could face
penalties associated with their existing power contracts that may have performance
obligations. On the other hand, a generating that has sold Ancillary Services such as
Spinning Reserves increases its output in response to RC call, then the resources
owner could be subject to no pay associated with the inability to provide the Ancillary
Service product. These and similar costs and lost opportunities would have to be
addressed in determining the appropriate payment for generation re-dispatch under RC
directive.
Third, the paper has referred to the RC’s ability to issue re-dispatch generation for any
reason and has recommended the process apply when an RC issues a re-dispatch
directive to alleviate an actual or imminent overload on the transmission system,
regardless of any contingency or event on the bulk electric system. The GRDC seeks
industry comment on this recommendation. Furthermore, the white paper has
dismissed the concerns that if the compensation method does not require a
contingency or event to activate, to could lead to some undesirable consequences. We
believe that first of all, the RC should only exercise the ability to re-dispatch generation
in the even of an emergency or contingency. Furthermore, the compensation
methodology for generation re-dispatch should also be limited to emergency redispatch of generation by the RC. The ability of the RC to re-dispatch generation for
any reason coupled with a payment methodology for that re-dispatch could in our view
deal a crippling blow to the development to viable capacity and congestion
management markets in the western US.
Finally, the paper has alluded to the fact that the cost of associated with violations of
environmental regulations while responding to an RC instructions should be a part of
the Generation Re-dispatch Compensation. The concept though noble, is extremely
problematic because the consequences of violation of environmental permits are not
limited to financial penalties, but could be as high as criminal penalties. Violating EPA
and/or local air district rules and regulations could result in enforcement action against
the generating owner by the agency with jurisdiction. Initially, the enforcement actions
are likely a notice of violation, leading to a fine. However, continued violations can
result in substantial civil or even criminal penalties along with loss of a permit. As a
result, we would like to strongly recommend that under no circumstances the RC have
the ability to call the resource to perform an action that is outside its physical capability
or operate in a manner that would cause it to violate either an environmental or
58
governmental regulation.
We look forward to working very closely with WECC Board and the appropriate MIC
subcommittees on this issue in the upcoming months. If you have any questions,
please contact me at (408) 204) 7630.
Best regards,
Ali Amirali, P.E.
Assistant Vice President
LS Power Generation, LLC
GRDC Comments: The task force appreciates the comments of LS Power and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments, the GRDC found strong support for the concept that
mitigation of generator or entity uninstructed energy or imbalance penalties should be
an essential principle. Penalizing a generator or entity for helping the interconnection,
under an RC directive by being off schedule, is a fundamentally unfair and flawed
concept. Regarding the issue of other, additional charges and penalties, the GRDC
found LS Power’s comments helpful in understanding the complexity in determining a
compensation philosophy that would be fundamentally fair. The complexity involved is
a major reason that the GRDC is NOT recommending that a funding mechanism be
developed at this time.
Regarding the issue of the conditions under which compensation would apply, GRDC
found no general consensus on these triggering conditions, nor even a consensus on
whether a compensation process is warranted to begin with. This lack of consensus is
another major reason why the GRDC is not recommending that a funding mechanism
be developed at this time.
Finally, regarding the area of environmental compliance, GRDC found LS Power’s
comments helpful in understanding the legal as well as financial implications of these
restrictions. This will be an important area to address in the event that a dispatch and
compensation methodology is developed in the future.
Jon Williamson – PPL Montana
59
Please consider the following thoughts regarding redispatch of generation, which are
my own. PPL Montana (PPLM) has not fully considered all potential implications
regarding this issue, but we would appreciate that the Generation Re-Dispatch
Compensation (GRDC) work group consider these ideas. PPLM appreciates the
opportunity to comment regarding Reliability Coordinator (RC) directives to re-dispatch
generation to help relieve electric system reliability problems. We apologize for our late
response and hope our comments will be considered by WECC and the GRDC work
group. PPLM fully supports efforts to maintain an electric system that is operated in a
safe, reliable, and cost efficient manner.
PPLM is an Exempt Wholesale Generator (EWG), which owns and operates
approximately 1,250 MW of generation interconnected to the NorthWestern Energy
(NWMT) control area. PPLM generation includes coal fired and hydro electric
generators. Essentially all of the PPLM hydro generation is run of the river generation
with limited ability to vary output for periods of time lasting more than one scheduling
hour.
Because PPLM is an Independent Power Producer (IPP) operating under marketbased rates, we do not have the ability to recover costs through normal rate of return
rate-making methodologies. All costs and the risk of cost increases are born by PPLM.
Our situation is also somewhat unique in the WECC in that we are interconnected to
NWMT, which owns almost no generation itself. Therefore, our concerns and
comments come from a very different perspective than more traditional WECC member
companies.
The following comments address PPLM concern’s regarding questions raised by the
GRDC WECC Task Force white paper:
Compensation:
PPLM believes that a re-dispatch compensation method needs to be developed which
will hold harmless all entities from the financial impact of complying with an RC redispatch directive. This includes entities that operate on a market basis rather than on
a cost basis. At a minimum, the compensation should be based upon an index price, or
combination of index prices, from the relevant energy trading market(s). PPLM would
prefer that lost opportunity costs be considered among the possible alternatives for
compensation. Unless modified to reflect markets and market-based sales, an
incremental-decremental cost of generation compensation methodology may severely
harm an IPP, such as PPLM. For PPLM as an IPP, there is no guaranteed cost
recovery for our investment in, or operation of, our generators.
2. Applicability:
PPLM fully agrees that ensuring a safe and reliable interconnected system must be the
top priority for RCs, BAs, and all other entities using the interconnected system.
60
Reliability cannot be compromised for any reason. However, economics and
congestion cannot be ignored because to do so might invite decisions made in the
guise of maintaining reliability, which could in reality be a method to reduce congestion.
A generator’s location might cause it to be dispatched to meet a local congestion
problem. In the extreme, a generator might be forced to operate as a swing resource to
relieve local congestion. This must be carefully considered. RC instructions should be
limited to regional reliability and should not be substituted for local BAs’ responsibilities.
Under many circumstances, a BA has its own generation to use to meet its own loads
and provide regulating margin. However, if the BA does not fit that category, it could
ignore the economic concerns of any IPP interconnected to its system and request redispatch of any IPP generation to meet its own local system requirements.
Therefore, rules for when and why a re-dispatch directive is issued must be written to
ensure that re-dispatch be used only when emergencies threaten system reliability, not
for relieving local congestion, or other system or reliability requirements.
3. Standard, Business Practice, or Guideline:
PPLM believes development of a WECC Business Practice is the appropriate action if
a compensation method is developed. The Business Practice needs to be written to
ensure fairness to all entities, not just a majority of the voting membership. Procedures
need to be in place to provide that all WECC members concerns can be addressed.
The Business Practice must be written to ensure that re-dispatch be used only when
emergencies threaten system reliability. As the GRDC develops this re-dispatch
business practice, they must carefully consider the potential implications a re-dispatch
directive might have on other contractual obligations.
In the event that the Business Practice is not written to ensure that re-dispatch only
occurs in emergencies threatening system reliability, any entity complying with
directives under the re-dispatch business practice should be excused for performance
if directives result in a violation of NERC Reliability Standards, FERC hydro license
terms, permits, or other contractual requirements.
4. Compensation Principles and Methods
PPLM believes that if a RC issues a directive to re-dispatch generation, the BA should
suspend all related energy deviation charges or penalties for being off-schedule. Some
examples are:
Generation imbalance charges
Energy imbalance charges
Unscheduled flow violation sanctions
61
Market-based or lost opportunity compensation methods should be considered to
compensate the generator or operating entity.
5. Sources of Funding
PPLM suggests that one approach to consider may be that a surcharge be added to all
wholesale energy sales in WECC to cover the payments for re-dispatched generation.
Thank you for the opportunity to comment.
Jon Williamson
PPL Montana
45 Basin Creek Road
Butte, MT 59701
GRDC Comments: The task force appreciates the comments of Jon Williamson of
PPLM and has reviewed and discussed the content. The GRDC has responded to all
comments in its “Final Report and Summary of Responses to Comments.” It
should be noted the GRDC is not recommending WECC develop a compensation
process.
Specific to your comments on compensation, the GRDC found the comments helpful in
understanding the complexity in determining a compensation philosophy that would be
fundamentally fair. The complexity involved is a major reason that the GRDC is NOT
recommending that a funding mechanism be developed at this time. Regarding the
issue of the conditions under which compensation would apply, GRDC found no
general consensus on these triggering conditions, nor even a consensus on whether a
compensation process is warranted to begin with. This lack of consensus is another
major reason why the GRDC is NOT recommending that a funding mechanism be
developed at this time.
Regarding the issues of Standards, Business Practices, or Guidelines, the GRDC
noted a lack of consensus on what type of requirement would be appropriate.
However, the GRDC evaluation agrees with PPL Montana that a regional Business
Practice would be the only appropriate choice if a process is ever developed by
WECC. Regarding the issue of suspension of penalties the GRDC found strong
support for the concept that mitigation of generator or entity uninstructed energy or
imbalance penalties should be an essential principle. Penalizing a generator or entity
for helping the interconnection, under an RC directive by being off schedule, is a
fundamentally unfair and flawed concept.
Finally, regarding the area of funding sources, the GRDC found a lack of support for
62
WECC funding of the process, and no general consensus on an alternative funding
mechanism. If WECC develops a process in the future, evaluation and discussion will
need to occur, probably at the executive level, to determine an appropriate funding
source.
Seattle City Light
Executive Summary:
Seattle City Light (SCL) supports the Generation Re-Dispatch Compensation (GRDC)
Task Force proposal to provide compensation for redispatch called upon by Reliability
Coordinators (RCs) in response to system conditions that are most effectively resolved
through generator redispatch. The method for selecting redispatch must, first and
foremost, provide effective relief of path loadings by considering the physics of the
power system and feasibility of gaining timely relief. SCL supports the following
conclusions in the comments that follow this summary:





Economic considerations, while important in the context of operational
planning, are tertiary considerations in the context of RC directed redispatch,
and economic ranking of redispatch options may not be feasible for
consideration by RCs.
Penalties normally associated with OATT provisions and other reliability
standards must be waived or otherwise abated during RC directed
redispatch.
Because redispatch may not be performed in conjunction with congestion
clearing markets, financial settlements may be based on visible market index
prices and appropriate adders.
In certain instances, for example where environmental compliance penalties
may result from redispatch events, additional compensation may be
warranted.
The cost of redispatch should be born by the Transmission Providers that
are responsible, in the first instance, for managing path flows within accepted
limits.
SCL looks forward to commenting further on this proposal when it is issued as a
WECC Business Practice.
Background:
In recent years, Seattle City Light has been called on numerous times by its
transmission provider, BPA, to curtail interchange transactions and alter dispatch of its
generation used to serve load in the City of Seattle. These events have resulted in
63
redispatch of its own generating resources to relieve transmission congestion on the
following WECC Rated Paths: West of Hatwai (Path 6), Northwest to Canada (Path 3,
a.k.a. Northern Intertie), and COI (Path 66). Curtailments by transmission providers
(TPs) are intended to reduce path loadings by causing redispatch of generating units
operated by Generation Providing Entities (GPEs) and Load Serving Entities (LSEs).
Unfortunately, curtailments do not always produce effective line loading relief because
the amount of relief is highly dependent upon which generators change output in
response to the curtailment order. More sophisticated methods for redispatching
generators to provide greater certainty in the amount of loading relief produced are
being developed for use in the first instance by transmission providers. Some of these
methods are based on voluntary offers to provide quantities of generation dispatch at
stated prices. These methods are preferred over curtailments and are designed to
provide more certain amounts of transmission line loading relief.
In the WECC GRDC-TF white paper, it is envisioned that there may be instances
where a Reliability Coordinator (RC) issues a redispatch directive when immediate line
loading relief is needed. The predicate for such an action by an RC is that TPs are
unable to manage interchange transactions and schedules with sufficient impact on a
rated path to restore loadings to reliable operating limits. SCL expects that such
actions are highly improbable and the GRDC policy should be based on principles that
support the maximum effectiveness of resolving the physical constraint with an afterthe-fact settlement that mitigates disputes among the parties subject to the redispatch
directive.
For hydroelectric systems the cost of redispatch may take the form of lost opportunity
costs, future environmental and recreational compliance obligations, and other
collateral impacts that are as difficult to quantify as the non-fuel costs impacting fossil
generating plants. Opportunity costs are generally associated with calls to increment
hydroelectric output, thereby reducing the amount of energy stored for future periods
when the cost of replacement energy purchases or sales are higher. Incrementing
hydroelectric output may also result in fisheries requirements to sustain river levels
during the salmon egg/alevin/fry stages (6 to 9 months). A number of other specific
hydro licensing requirements may also come to bear on the redispatch cost calculation.
For these reasons, SCL favors compensated, voluntary redispatch – implemented by
the TP – as the first line approach to meeting operating criteria.
SCL Responses to GRDC TF Questions
A Question – Is a Compensation Method Needed
From past experience with forced redispatch caused by curtailments, lack of a fair
64
redispatch financial settlement protocol results in after-the-fact disputes that could be
avoided if compensation were provided.
While the white paper does not discuss the specifics regarding how RCs would stack
generators for redispatch, SCL suggests that RCs consider flow impact, feasible
generator output changes and time required to change output as the primary
constraints affecting the selection of generating units that provide redispatch. While it
is commonly accepted that efficient redispatch requires analysis of both the physical
effectiveness and cost of redispatch options, SCL recognizes that RC redispatch
should primarily focus on effective reduction of line loadings when operating limit
violations are imminent. The most important consideration in selecting redispatch
generators is their physical sensitivity to power flows across the constrained path.
These sensitivities are typically evaluated using Generator Shift Factors (GSFs), Power
Transfer Distribution Factors (PTDFs), and Outage Transfer Distribution Factors
(OTDFs). It is expected, given the current modes of communication available for
redispatch, that generator size and feasible redispatch amount in a short period of time
will be the next consideration.
As systems such as the WSM are implemented, they may support structured analytical
assessments of redispatch, and additional compensation factors may be considered.
Furthermore, automation of the RC directed redispatch process, including electronic
notification to Balancing Authorities via WECCNet Messaging, e-Tag, or other forms of
electronic communications, would make it feasible to effectively redispatch more
generators, including many smaller generators, to solve system congestion.1
Ultimately "cost" could be taken into account as a tie breaker by the software which
would select the generator(s) and communicate their movement amounts or set-points
and settlement information. The phone should only be used as a last resort.
Waiver of Penalties during Redispatch Events
Uninstructed energy or off schedule penalties for all entities must be SUSPENDED for the duration of
an RC directive to redispatch.
SCL strongly agrees that the following transmission tariff penalties and charges must
be waived for participating GPEs during redispatch events: unauthorized increase
charges (e.g. BPA OATT GRSP Section II.G), and Energy Imbalance Service (e.g.
BPA OATT Schedule 4). Furthermore, WECC compliance metrics including ACE and
1
Because time is a critical constraint in a redispatch event, many small generators that are effective
redispatch candidates are unlikely to be called upon unless the process is automated.
65
E-Tagging should be adjusted to reflect that within hour scheduled interchange may be
required for GPEs to effectively redispatch generating units.
The GRDC believes there is merit to the suggestion that variation or imbalance energy
accounting in existing Interconnection Agreements may essentially hold harmless
entities and generators from undue financial impact that comply with a redispatch
directive, provided uninstructed energy or off-schedule penalties are suspended. The
GRDC seeks industry comments on the assumptions made on this concept and
whether it reduces the need for a WECC-wide redispatch compensation methodology.
Suspending penalties, as discussed in the prior section, does not reduce the need for
redispatch compensation. Variation/imbalance accounts were designed to
accommodate smaller generator output variations than what is typically experienced
during redispatch events. Furthermore, because redispatch is usually associated with
transmission system congestion, prices tend to diverge rapidly across the region when
congestion is present. It is simply not equitable to value generation products equally at
different locations when the transmission system is congested. Use of
variation/imbalance accounting could result in very high cost generation being called
upon during peak periods where congestion is present, yet the GPE may only be paid
back with power during peak periods when congestion is absent.
The GRDC recommends the process apply when an RC issues a redispatch directive
to alleviate an actual or imminent overload on the transmission system, regardless of
any contingency or event on the bulk electric system. The GRDC seeks industry
comment on this recommendation.
SCL agrees that the compensation method should apply whenever redispatch is called
upon by an RC regardless of any contingency or event on the bulk power system. By
definition, congestion is present when an actual or imminent overload on the
transmission system occurs. The concern about use of RC redispatch directive as a
congestion management tool should be addressed by determining the root cause of
congestion (e.g. over-selling transmission service, line outages, etc.), and determining
measures to prevent future incidents. If the same limit violation occurs repeatedly and
requires RC intervention, such chronic congestion needs to be addressed by the
Transmission Providers on a prospective basis to avoid undue burdens on specific
generators that are most effective in relieving congestion. Furthermore, as stated
below, the TP(s) that were unable to mitigate congestion, and therefore necessitated
the RC redispatch directive, should bear the cost of any RC directed redispatch.
66
GRDC does not recommend the methodology become a Reliability Standard accepted
by the FERC with mandatory compliance and associated sanctions and seeks
comments on this recommendation….GRDC does not recommend the methodology
become a Regional Reliability Standard and seeks comments on this
recommendation…. While GRDC believes the methodology is closer to a business
practice than a reliability standard and does not recommend submitting the
methodology to NAESB for establishment as a Business Practice…. The GRDC does
not recommend the methodology be a WECC Guideline. The methodology needs more
consistent application than would otherwise be expected with a voluntary guideline.
The GRDC believes development of a WECC Business Practice is the appropriate
action if a compensation method is developed and seeks comments on this
recommendation.
SCL agrees that the methodology should be implemented as a WECC Business
Practice rather than a mandatory Reliability Standard, Guideline or NAESB Business
Practice.
The GRDC discussed whether lost opportunity costs should be eligible for
compensation and determined it would add a layer of complexity that doesn’t warrant
inclusion in a WECC process, but seeks industry comment on this recommendation.
While SCL points out that lost opportunity costs and other pricing refinements are
commonly considered in pricing redispatch in markets used to manage congestion,
SCL agrees that these costs and pricing mechanisms are not warranted during RC
directed redispatch events. This WECC Business Practice should be intended to
address exceptional instances of system congestion rather than manage chronic
congestion. Accordingly, an appropriate index-based price that is time-differentiated
(e.g. Mid-Columbia, COB), with an additional increment and decrement for difficult to
quantify costs (e.g. changes to operating plan and accounting), should suffice for
compensating generators for redispatch costs. The increment above index price would
be added to the selected index to determine an INC price for settlement with
generators increasing output during redispatch events. The decrement from index
price would be subtracted from the selected index to determine a DEC price that
generators pay into the redispatch settlement fund.
The GRDC Task Force proposed Business Practice must stress that for every unit of
incremental output by a generator providing redispatch, there must be a corresponding
decrement of output by another generator. The decrementing generators will generally
incur lower operating costs and should be expected to pay into the funds for redispatch
based on an expected savings value. The White Paper states that there may be
67
possible exceptions to this general principal of power system operations – where
power production costs increase as power output is decreased. SCL agrees that these
circumstances should be validated with documentation prior to granting such claims for
redispatch compensation.
The GRDC discussed whether penalties or sanctions should be eligible for
compensation and recommends including these costs but only if they were known to
the RC at the time of the directive. For example, if the RC has information a generator
will violate air quality standards and incur penalties, but still issues the directive to
increase generation, the resulting sanctions would be eligible for compensation. The
GRDC recognizes this is a problematic area and seeks industry comments on this
recommendation.
SCL agrees that any penalties or sanctions that a generator may be liable for if
redispatched should be known to the RC, and factored into its criteria for stacking
redispatch candidates. In the event that a generator is called upon to operate outside
of its compliance envelope, all resulting penalties and sanctions should be subject to
compensation under this method in addition to the index price based payments
described above. These considerations should apply not only to fossil generator
emissions, but also hydroelectric plant operating constraints described above in the
Background Section of these comments.
The GRDC recommends funding for a compensation method come from the WECC
Reliability Coordination budget but does so largely for the lack of another viable option
and seeks industry comment on this recommendation.
Additionally, GRDC recommends any implemented process be suspended and
revisited by WECC if the cost of reimbursement exceeds a yet to be determined
amount in a calendar year. This would effectively place a ceiling on the cost risk to
WECC and should trigger a re-evaluation of the process. GRDC seeks industry
comment on these recommendations.
The revenue source should be fair, transparent and reflect cost-causation principles. The most
probable first-order cause of RC directed redispatch will be the failure of Transmission
Provider(s) (TPs) to provide transmission service within the physical limits of their transmission
systems. Second order causes may include facility outages and temporary deratings. In both
cases, it is appropriate that TPs the pay the net redispatch settlement costs. If a TP sells
transmission service in excess of its system capacity, it will receive revenues in excess of what
the capacity of its system will support and therefore will hold a pool of revenues that should be
68
used to abate any costs of redispatch incurred. If facility outages are the cause, redispatch may
become an operational strategy for deferring needed investment in facility upgrades. To recover
such costs from the WECC general treasury would undermine any incentive to make timely
upgrades to transmission systems.
Regardless of the approach taken, each RC directed redispatch event should be followed by a
report on the actions taken and the settlement of redispatch transactions. The procedure should
only be suspended in the case of a vote to suspend, not due to some pre-determined amount
being exceeded.
GRDC Comments: The task force appreciates the comments of SCL and has
reviewed and discussed the content. The GRDC has responded to all comments in its
“Final Report and Summary of Responses to Comments.” It should be noted the
GRDC is not recommending WECC develop a compensation process.
Specific to your comments on implementation details, the GRDC found no general
consensus on the conditions where compensation would be warranted, nor even a
consensus on whether a compensation process is warranted to begin with. Therefore
the GRDC did not specifically respond to the proposed implementation detail outlined
in your comment.
Regarding the issue of suspension of penalties the GRDC found strong support for the
concept that mitigation of generator or entity uninstructed energy or imbalance
penalties should be an essential principle. Penalizing a generator or entity for helping
the interconnection, under an RC directive by being off schedule, is a fundamentally
unfair and flawed concept. Regarding the area of compensation and pricing, the GRDC
found SCL’s comments helpful in understanding the complexity in determining a
compensation philosophy that would be fundamentally fair. The complexity involved is
a major reason that the GRDC is NOT recommending that a funding mechanism be
developed at this time. Regarding the area of environmental compliance, GRDC found
SCL’s comments helpful in understanding the financial implications of these
restrictions. This will be an important area to address in the event that a dispatch and
compensation methodology is developed in the future.
Finally, regarding the area of funding sources, the GRDC found a lack of support for
WECC funding of the process, and no general consensus on an alternative funding
mechanism. If WECC develops a process in the future, evaluation and discussion will
need to occur, probably at the executive level, to determine an appropriate funding
source.
69
Approved By:
Approving Committee, Entity or Person
Date
Market Interface Committee
March 7, 2007
70