R.11-10-023: RA Flexibility Workshop Flexible Capacity Procurement Proposal

1. R.11-10-023: RA Flexibility WorkshopFlexible Capacity Procurement Proposal Presented by: Mark Rothleder John Goodin Karl Meeusen

2. Agenda • Mark- Why we need flexible capacity • Review Demonstrated Need for Flexible Capacity • Next “Analysis” Steps • John- Flexible capacity proposal and process • Short-term vs. long-term solution • Interim Flexible Capacity Proposal • Process and Timeline

3. Future procurement should provide operating flexibility and satisfy traditional capacity requirements Contingency Reserve Frequency responsive, spin/non-spin capability 1-in-2 peak demand forecast Flexibility Requirements regulation, load following capability for forecast uncertainty and intra-hour variability Ramping Requirements Continuous ramping or trough-to- peak shapeable capacity, including ramping needs in above normal weather conditions Minimum Load Requirements Base load, non-flexible capacity

4. Maximum 1-hour net-load change comparison --- Actual 2010 & 2011 --- Simulated 2020 Observation: Hourly changes increases in 2020 in shoulder periods.

5. Maximum 1-hour ramp rate based on net load --- Actual 2010 & 2011 --- Simulated 2020 Observation: Speed of ramp increases in 2020 in shoulder periods.

6. Maximum continuous net load ramps (trough to peak) -Actual 2010 & 2011--- Simulated 2020 Observation: Range of continuous ramp decreases in summer periods.

7. Maximum continuous ramp rates based on net load Actual 2010 & 2011---- Simulated 2020 Observation: Speed of increases in shoulder periods.

8. Maximum continuous ramp duration based on net load Actual 2010 & 2011---- Simulated 2020 Observation: Length of continuous during summer decreases to 2-3 hours in 2020

9. Large range of net load in summer period requires flexible capacity commitment capability Net Load hourly averages - Trajectory Case 4 selected days July 2020 - Peak net load ranges from 32,000 MW to 56,000 MW and shifts between HE14 to HE20 56,000 52,000 48,000 44,000 40,000 36,000 32,000 28,000 24,000 20,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

10. Conventional resources will be dispatched to the net load demand curve – High Load Case Load, Wind & Solar Profiles – High Load Case January 2020 46,000 10,000 6,300 MW in 2 hours 13,500 MW in 2 hours 44,000 8,000 MW in 2 hours 9,000 42,000 8,000 40,000 7,000 38,000 36,000 6,000 Load & Net Load (MW) Wind & Solar (MW) 34,000 5,000 32,000 4,000 30,000 28,000 3,000 26,000 2,000 24,000 1,000 22,000 20,000 0 0:00 1:30 3:00 4:30 6:00 7:30 9:00 10:30 12:00 13:30 15:00 16:30 18:00 19:30 21:00 22:30 0:00 Load Net Load Wind Solar

11. Net load pattern changes significantly starting in 2015 Typical March Day – significant change starting in 2015 Potential Over-generation

12. Analysis Roadmap • “Step 1” Process for 2014-2016 net load • Develop minute by minute estimate of net load • From the results derive the requirements for the amounts of flexibility needed • Regulation • Load Following • Maximum Ramping • Results by early September • This data will allow us to • Determine how effective any interim proposal will be at ensuring sufficient flexible resources • Develop long term flexible requirements • Determine when requirements might become binding

13. Other Issues • What is level of net import/export • Palo Verde & Hoover (~ 1,200 MW jointly owned by ISO entities) • Collecting data on what other WECC BAs are assuming about their flexibility needs and how this might impact our estimates • Level of DER, DR, and EE • Amount of conventional resources that must remain on-line for reliability (frequency response)

14. Understanding the Fleet’s Capabilities Analysis Objective: Matching system flexibility needs with the fleet’s capabilities will determine which flexibility requirements are binding and if there will be enough flexibility in future years. Generator Characteristics: • Pmin and Pmax, Regulation Point and Range • Ramp rates • Minimum run or down times • Start Up Times • Run Limitations Preliminary Conclusions: • Not all plants can ramp over their full range, or ramp while being at their most efficient state • Flexibility contributions differ between technologies, and within technologies • The sum of flexibility requirements, rather than a single individual requirement, could be the binding factor Next Steps: • Determine if fleet can meet short term flexibility requirements and which requirements could be binding in future

15. Supporting Material

16. 2011 RA resources ramping capability

17. Summary of flexibility needs for 2011

18. Summary of flexibility needs for 2020

19. Resource start up times as of May 25, 2012

20. Resource ramp rates as of May 25, 2012

21. John Goodin Flexible Capacity proposal and process

22. Two Key ISO Objectives • Institute an Interim RA Solution with an explicit flexible capacity requirement beginning in the 2014 compliance year. • Collaborate with the CPUC and stakeholders to create a more durable and sustainable RA solution that takes us beyond 2020, beginning in the 2017 compliance year.

23. Why an Interim Flexible Capacity Procurement Solution? “Institute an Interim RA Solution with an explicit flexible capacity requirement beginning in the 2014 compliance year” • Ensure sufficient flexible capacity is procured to reliably operate the grid through the 2016 RA compliance year by establishing an explicit flexible capacity need • Minimize changes to the existing bi-lateral, 1-year forward RA program • Avoid disrupting existing procurement practices in the interim period

24. Why is a longer-term RA solution required? • “Create a more durable and sustainable RA solution that • takes us beyond 2020, beginning in 2017” Need a roadmap for where we want to go and how we get there • Rapidly evolving supply portfolio and changing load patterns • A single “dispatchability” attribute doesn’t fully capture need • Multi-year requirement to address risk of retirement concerns • More complex procurement given multiple attributes • Ability to buy or sell small RA capacity quantities • Load migration true-up capability (essential with multi-year) • More fungible capacity products and refined cost allocation

25. Once-Through-Cooling Phase-out Compliance Source: California Clean Energy Future, Dec. 23, 2011

26. RPS Compliance Phase-in “2011 showed the greatest year-to-year increase in the capacity of renewable generation achieving commercial operation since the beginning of the program, and 2012 is already on track to far surpass 2011.” +5% +8% “In 2012, 2,500 MW is scheduled to come on line before the end of the year. That compares with 2,871 MW of new renewables capacity to come on line since the RPS program started in 2003.”

27. Net load patterns change significantly starting in 2015 Typical March Day – significant change starting in 2015

28. Interim Flexible Capacity Proposal • Previous proposal added three new RA attributes: • Regulation • Load following • Maximum continuous ramping • New “Dispatchability Tag” Proposal: • Is more simplistic and implementable under the existing RA program given implementation time • Adds a single “dispatchability” attribute • Minimizes changes to existing procurement practices

29. Conventional resources will be dispatched to the net load demand curve- Load minus Wind + Solar Load, Wind & Solar Profiles – High Load Case January 2020 46,000 10,000 6,300 MW in 2 hours 13,500 MW in 2 hours 44,000 8,000 MW in 2 hours 9,000 42,000 8,000 40,000 7,000 38,000 36,000 6,000 Load & Net Load (MW) Wind & Solar (MW) 34,000 5,000 32,000 4,000 30,000 28,000 3,000 26,000 2,000 24,000 1,000 22,000 20,000 0 0:00 1:30 3:00 4:30 6:00 7:30 9:00 10:30 12:00 13:30 15:00 16:30 18:00 19:30 21:00 22:30 0:00 Load Net Load Wind Solar

30. Assessing Flexibility Needs: An Example 46,000 Required Flexibility 44,000 42,000 40,000 Uncertainty Range (95% Confidence) 38,000 36,000 Load & Net Load (MW) 34,000 32,000 30,000 28,000 26,000 Ramp = 17,000 MW in 3 hrs 24,000 22,000 20,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Net Load

31. Assess “Dispatchability” of the Resource Fleet:Example: Satisfy Ramp Rate of 17,000 MW Over 3 Hrs Faster

32. Translating Flexible Capacity Needs into Procurement

33. Interpretation of Results in this Example In this 2020 Example: • If the slowest dispatchable resources were procured, the ISO would need 22,285 MW of dispatchable capacity to meet a 17,000 MW ramp over 3 hrs (2020 scenario) • The total capacity to be procured relative to the flexible capacity need depends on: • Resource ramp rates and ability to deliver full capacity over period required e.g., 3 hours in this example • Amount of PMin to procure in overall fleet • Actual requirement would be set based on need in each month of the corresponding RA compliance year

34. Assessment of Market Power Concerns • ISO conducted a basic “HHI” market power test using resources currently with dispatchable flags • HHI Results (size of firms relative to industry): • Using all market participants, HHI = 0.076 (Low) • Using top 12 and “All others,” HHI = 0.119 (Moderate) • US Department of Justice considers HHIs between 0.1500 and 0.2500 to be moderately concentrated and indices above 0.2500 to be highly concentrated

35. Flexible Capacity Need Will Increase Each YearInterim solution sets flexible capacity need one year at a time 2020 13,500 MW • Note: • No Confidence Interval Applied • Hourly data, not 1- minute data 2015 9,000 MW

36. Model flexible capacity process after the local capacity requirement process For instance: • LCR and Flexible Capacity Study Produced and vetted in May • Include how much flexibility is needed in each month of the upcoming RA compliance year based on a net load evaluation • Flexibility would be evaluated on a system-wide basis; not locally • Resource “dispatchability” reported to the ISO • CAISO check against PMax/NQC and deliverability • Resource “dispatchability” election made in June for each month of the following RA compliance year • CAISO publishes a list of dispatchable resources and quantity of available flexible capacity by month for the RA compliance year • LSE procurement and showings made • CAISO issues a residual analysis of local and flexible capacity needs

37. Run ISO Stakeholder Process in Coordination with the CPUC Target March 2013 CPUC Decision on Flexible Capacity • Conduct Supporting ISO Stakeholder Process to: • Set the year-ahead monthly forecasts and procurement needs and publication timing • Determine resource eligibility • Consider treatment of intertie energy • Address self-scheduling • Establish the treatment of use-limited resources • Modify the Must offer obligation, as necessary • Address resource substitution/replacement rules

38. Process and Timeline Schedule Modifications Updated Flexible Capacity Proposal Submitted Potential workshop or call to discuss proposal ISO Stakeholder Process FERC Process (as necessary)