Jeff King September 21, 2010

1. Northwest Power & Conservation Council Power CommitteeOver-generation and Negative Energy Prices – a work in progress Jeff King September 21, 2010

2. Spurious data (green) Valid data (red) Six episodes of low prices in recent years

3. Causative factors: • Development of economic must-run generating capacity in advance of need. • Exacerbated by California RPS delivery requirements not mandating within-hour delivery of energy with renewable energy credits.

4. Resulting operational problem: • Simultaneous high output from two variable resources, Hydropower and Windpower, during periods of low load • Wind generation economically displaces hydro because of negative variable operating costs from federal production tax credits and renewable energy credits) • Water is held back to the extent possible, but spill is necessary because of lack of load, or because all hydro units are operating at full capacity. • Spill is constrained by dissolved gas (nitrogen saturation) limits. • Contributing factors include southbound intertie congestion and operating slow-response thermal resources. • Because wind could be curtailed, an economic solution is possible, but would involve owners of carbon-free hydro generation paying the owners of carbon-free wind generation to curtail

5. June 2010 (Through 6/15) 1/1/2020 5

6. Related issues • Some negative: • Increased cost of renewable resources to meet PNW RPS needs • Increased cost of balancing reserves • Sub-optimal resource dispatch (?) • Lower surplus revenues for resource-long utilities • Increased capacity revenues may be needed to justify construction of new thermal resources • Some positive: • Development of more cost-effective resources, overall • Reduced need for transmission development • Local economic benefits • Investment benefits • Reduced cost for resource-short utilities • Generally lower carbon production

7. We are attempting to forecast the possible frequency and magnitude of over-generation/low-price events

8. Preliminary results: Q2 hrs <$5/MWh (Indicative, not absolute)

9. Preliminary results: Effect on Q2 average Mid-C prices

10. Brainstorm remedies I • Reduce rate of variable generating capacity development • Encourage development of firm low-carbon resources • Curtail demand • Increase loads during critical periods • Load shifting • Water heaters • Electric vehicles • Expand export capacity • More responsive intertie capacity release market • Upgrade intertie capacity • Reduce impact of CAISO congestion pricing • Augment spill capability • Improve dissolved gas controls • Relax dissolved gas standards • Develop alternative energy dump devices

11. Brainstorm remedies II Expand curtailment of wind generation during critical periods Increase system storage Additional in-river storage (e.g., raise reservoir elevations) Distributed storage (e.g., batteries) Develop central storage (e.g., pumped hydro storage) Reduce slow response thermal unit output Retrofits to lower minimum operating levels Seasonal shutdowns (may requires complementary fast response resources) Reduce negative price signal Revised variable resource incentive structure (e.g., fixed incentives) Expand RPS credit to resources used to balance variable RPS resources 1/1/2020 11

12. Where do we go from here? • Complete analysis of future frequency and magnitude of over-generation/low price events under various assumptions • Extent of wind development • Export capability • Hydro conditions • Native load • Describe issues and possible consequences • Lay out possible remedies • #3 & 4 to address policymaker audience • Participate in Bonneville’s proposed series of workshops to follow last week’s report on the June 2010 over-generation episode