Reliance on Tie Benefits: Assessment of Planning Assumptions for Objective Capability Studies

1. Agenda Item 4.1 Reliance on Tie Benefits: An Assessment of Planning Assumptions Appropriate for Use in Objective Capability Studies ISO New England for the NEPOOL Power Supply Planning Committee

2. Study Objective • Objective is to understand the implications of reliance on tie benefits • Termination of HQ II FEC releases interconnection capacity • Uncontracted resources in Quebec may be considered tie benefits • The inclusion of HQ as ‘tie benefits’ • Increases New England dependence on secondary resources • Reduces required native reserve margin significantly • Makes New England an outlier based on various “Regional Practices” metrics • Amount of tie benefits increase from previous assumptions • 1300 MW used in 2000/01 OC • 1000 MW used in 2001/02 OC • 2800 MW after FEC • Goal is to discuss benefit of a limit on the amount of tie benefits

3. Tie Benefits (Background - Slide 1) • Tie benefits are: • A resource available for enhancing the reliability of all participants in New England. • A source of “capacity” available to New England that is considered “free” and not sold in the “ICAP” market. • The equivalent firm capacity which represents the reliability benefits of interconnecting one system with another through a specific transfer capability. • Quantified when protecting New England against customer disconnection (OP-7)

4. Tie Benefits (Background - Slide 2) • Tie benefits are one resource that can enhance system reliability • Accepted as part of the planning process by NERC and NPCC • NEPOOL reliability criterion recognizes their importance • Tie benefits are capacity equivalents of: • Resources on a neighboring system above load and reserve • Shareable operating reserve during OP-4 actions • Shareable emergency operating procedures • This analysis does not consider “Replacement Reserves”

5. Tie Benefits (Background - Slide 3) • Over reliance on tie benefits can be detrimental to reliability • Dependence on a neighbor’s residual reserve capacity • We determine residual reserve capacity with probability methods • Probabilistic assessment requires many assumptions • Relying on their residual magnifies importance of assumptions • Residuals may be their cushion against the unexpected • Residuals may not be available after the unexpected • They may not share all of their residual reserves • May not be able to share • May not be willing to share • Primary obligation is the security of their own region

6. Tie Benefits (Background - Slide 4) • Reliability models (single area and multi-area) typically: • Assume independent, random forced outages • Limited ability to deal with transmission outages • Neglects common mode failures • Neglects fuel delivery issues • Neglects inter-dependencies of generator outputs • Neglects inter-dependencies of generators and transfer limits • “Murphy’s Law” suggest that bad things happen when you are least prepared to deal with them

7. Extent of Reliance on Tie Benefits - Study Approach • “Regional Practices” review using various metrics • Risk profile studies • Review of 1995 Risk Profile Study • Development of 2001 Risk Profile Study • Comparison of these two studies • Calls on OP-4 actions • Deterministic operating reserve margins • Hybrid probabilistic / deterministic operating reserve margins • Historical review of reliance on tie benefits

8. Regional Practices

9. Regional Practices Metrics for Comparison • “Regional Practices” review is an accepted procedure to: • Identify range of practices that are in use • Allow relative comparison among industry participants • Identify traits of industry leaders • Establish hypotheses for benefits / problems with outliers • Several industry metrics will be reviewed: • Reserve margin percentages • Tie benefits as a percent of reserve margins • Tie benefits as a percent of regional reserves • Tie benefits as a percent of regional reserves w/ native reserves

10. “Regional Practices” Metrics for Comparison Required Reserve Margin Percentages Note: HQ reserve margins are based on winter

11. “Regional Practices” Metrics for Comparison Tie Benefits as a Percent of Required Reserve Margin Note: HQ reserve margins are based on winter

12. “Regional Practices” Metrics for Comparison Tie Benefits as a Percent of Regional Reserves Note: Regional Reserves for ECAR, Michigan and SERC are estimated and reflect import transmission capability

13. Risk Profile Studies

14. Risk Profile Study Purpose • “Risk Profile” study purpose: • Analysis of frequency of OP-4 Actions • Reliance on tie benefits • Reliance on voltage reductions • Not an “Iron in Ground” study • Resources installed or under contract can be external

15. 1995 Risk Profile Study • Details of 1995 study are not available - Reconstruction Necessary • Showed 40+ occurrences of OP-4 Actions • Need to request voluntary customer curtailments • Need to implement Load Response Programs (LRPs) • Need to purchase emergency capacity from neighbors • Need to commandeer operating reserves • Need to implement voltage reductions • Need to disconnect customers • Results showed many occurrences of reliance on tie benefits • Many occurrences in low load months of spring and fall • Approximately 3 occurrences in both July and August

16. Rebuild of 1995 Risk Profile Study Results

17. 1995 Risk Profile Assumed Summer Higher than Winter Today’s View Has Summer More Dominant

18. 1995 Risk Profile Assumed TUA Maintenance Today’s View Has Much Less Maintenance

19. . Reference Case Adjust Using Firm Capacity to 0.1 days/year Remove 5% Record LOLE for Voltage Reduction Entering Action-12 Remove Record LOLE for 30 Minute Reserve Entering Action-11 Remove External Tie Benefits Record LOLE for Entering Action-6 Set Amount of Tie Benefits for Next Case . Procedure For Performing a Risk Profile Study

20. 2002 Risk Profile Study - Reliance on Tie Benefits MW Values Expected Days Per Year

21. 2002 Risk Profile Study - Reliance on 2800 MW of Tie Benefits

22. 2002 Risk Profile Study - Reliance on 2100 MW of Tie Benefits

23. 2002 Risk Profile Study - Reliance on 1400 MW of Tie Benefits

24. 2002 Risk Profile Study - Reliance on 700 MW of Tie Benefits

25. Rebuild of 1995 Risk Profile Study vs. 2002 Risk Profile Approximately 2800 MW of Tie Benefits in Both Cases

26. Deterministic Operating Reserve Margin

27. 2002 Risk Profile Study - Deterministic Assessment

28. Hybrid Deterministic / Probabilistic Reliance on 2800 MW of Tie Benefits

29. Hybrid Deterministic / Probabilistic Reliance on 1400 MW of Tie Benefits

30. Deterministic Allowance for Forced Outages Is Not Worst Case 2400 MW Deterministic Summer Outage

31. In “Surplus” Years, Actual Calls on Tie Benefits Should be Lower than Expected “At Criteria” Note: Participants are able to secure short term purchases to forestall OP-4 events. A need to call on OP-4 Action 6 means that this was insufficient “Surplus” based on OC being developed with a positive ALCC.

32. Historical Operating Reserve Margins

33. Estimating Reliance on Tie Benefits - A Historical Review • Hypothesis: • Risk Profile study suggests • Sufficient generating resources and long-term contracted purchases to provide adequate operating reserve • Limited number of tie benefits calls to meet operating reserve • Historical Review Based on ISO-NE Morning Reports • Net operating margin • Less import amounts over contracted (HQ, Highgate, NYPA) • Plus generating units unavailable due to start time • Record instances where operating reserve insufficient w/o tie benefits

34. Operating Reserves from Morning Report and Adjusted to Remove Quasi Representation of ‘Tie Benefits’

35. Operating Reserves from Morning Report and Adjusted to Remove ‘Tie Benefits’ but Add Economically Shut Down Resources

36. Operating Margin Highlighted by Square Symbols Suggests Reliance on Tie Benefits

37. Number of Occurrences of Historical Reliance on Tie Benefits (Many Caveats Apply)

38. ISO-NE Observations • Reliance on tie benefits is becoming more focused in summer • Increased weather dominated loads in summer • Regional loads are highly correlated and decreased load diversity • Reliability models do not capture all risks • Difficulty implementing deep levels of OP-4 (EOPs) everywhere • Calculated tie benefits are likely to be optimistic • Tie benefits do not require neighboring systems to: • Prepare and plan for delivery • Resources under contract more likely to be available when needed

39. ISO-NE Observations • “Regional Practices” review using various metrics • Approximately 1400 MW tie benefits would give typical statistic • Risk profile studies • Risk is now strongly focused on summer periods • Deterministic operating reserve margins • Approximately 1400 MW tie benefits would provide enough installed capacity to meet loads and use tie benefits for all operating reserve requirements. • Historical review of reliance on tie benefits • Risk profile and reliability studies are probably optimistic.

40. Summary of PSPC Concerns • No consensus on recommendations • Open Issues • Amount of tie benefits actually available • Impact of new transmission interconnections • Effect of SMD on tie benefits • Compatibility with a zonal capacity requirement