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Overview of Loss of Load Expectation (LOLE) and Unforced Capacity (UCAP) Dan Huffman FirstEnergy Solutions November 20, 2007 OMS Board Workshop Resource Adequacy Requirements

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1 Loss of Load Expectation (LOLE)

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2 Resource Adequacy Planning starts with the Criteria Z The Resource Adequacy Criteria Normally expressed as the number of days/year that generation resources will be insufficient to meet load. Most widely accepted level: 1 Day in 10 Years Z The Problem: The Criteria creates a good target, but a lousy planning/compliance measure. Resource Adequacy obligations are being placed on Load Serving Entities (LSEs). Z The Solution: Convert the Criteria to a useful planning/compliance “yardstick”.

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3 Criteria Conversion: Z Widely accepted process: Use a Probabilistic Metric to translate the Criteria into a Deterministic Measure. Deterministic Measure: Example: Planning Reserve Margin Simple and static. Easy to use as benchmark for planning and compliance Probabilistic Measure: Example: Loss of Load Expectation (LOLE) Complex metric that can account for the dynamic nature of a power system Uses statistical methods to address future uncertainties in system components.

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4 Loss of Load Expectation (LOLE): Z LOLE is the probabilistic measure of the ability of a system’s resources to cover Load. Z NERC defines this index as: “The expected number of days in the year when the daily peak demand exceeds the available generating capacity. It is obtained by calculating the probability of daily peak demand exceeding the available capacity for each day and adding these probabilities for all the days of the year.” The index is referred to as Hourly Loss of Load Expectation if hourly demands are used in the calculations, instead of daily peak demands. Z How widespread is LOLE use? Six of the eight NERC Regional Entities use it (ERCOT, FRCC, MRO, NPCC, RFC, & SPP). Most of the ISO/RTOs use it (including ISO-NE, PJM, Midwest ISO, NYISO, and IESO).

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5 LOLE Calculations: Z LOLE calculations must take into account the following factors that affect system reliability. These include: Load Forecast Uncertainty (due to weather and economic conditions). Generating Resource information including number of units, size, forced outages, scheduled maintenance, and seasonal derates. Emergency operating procedures for maintaining reliability Transmission interconnections to other systems. Z These form the basis for inputs into computer models to run probabilistic simulations. Typical studies will normally consist of thousands of iterations to obtain reasonable convergence. Loss of Load Probabilities (LOLP) are calculated for each day (or hour) for each iteration. The LOLP results for each iteration are averaged and then summed to obtain an annual LOLE value.

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6 LOLE Uses: Z Calculate the installed reserve margins required to maintain a given resource adequacy criteria. Z Assess transmission development vs. new generation resource additions. Z Calculate reliability benefit of transmission interconnections to neighboring systems. Z Calculate and compare the resource adequacy level for any given system, including NERC Regional Entities, Power Pools, Independent System Operators, Regional Transmission Organizations, etc.

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7 Unforced Capacity (UCAP)

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8 A Basic Resource Adequacy Question: Z Do all generating resources contribute equally to Resource Adequacy? Well, No. Resources with higher availability contribute more to Resource Adequacy. Unit A: 100 MWs, 0% Forced Outage Rate Unit B: 100 MWs, 50% Forced Outage Rate Z Is there a way to recognize the relative contribution that each LSE makes towards Resource Adequacy? Yes, and there could be considerable benefit in doing so.

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9 Benefits of Recognizing Generator Contribution. Z Provides fair recognition of the RA contribution from each resource. Avoids treating “stellar” and “lame” resources equally. Z Sends market signal to support unit availability performance. PJM Experience Z Improved System Availability improves Resource Adequacy. Increase availability vs. Build Z Supports bilateral trades by recognizing the PRM-value of each unit and shifts unit performance risk to owners, where it belongs.

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10 Unforced Capacity (UCAP): Z UCAP is a straightforward approach to recognizing individual generator contribution to Resource Adequacy. As an added strength it can be implemented downstream of the LOLE calculation. Planning Reserve Margin obligations are converted to an unforced value based on the weighted average EFORd of all the generating resources. The capacity rating of each unit is adjusted by its specific EFORd value from the previous year. Z In effect, reserve requirements and resource supply are converted to another “currency” that recognizes the availability performance of generating units.

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11 Equivalent Forced Outage Rate (EFORd): Z EFORd is generally considered a better statistic than the Forced Outage Rate, for UCAP purposes since it includes partial derates. EFORd is also a refinement over the EFOR calculation as it only assesses availability during periods of demand when the resource is needed, hence the “d”. EFORd = [(ff x FOH + fp x EFDH)/(SH + ff x FOH)] x 100 (expressed as a %) Where: ff = full outage factor = ( 1/r + 1/T)/(1/r + 1/T + 1/D) r = FOH/(number of forced outages) T = RSH/(number of attempted starts) D = SH/(number of actual starts) fp = SH/AH FOH = Forced Outage Hours RSH = Reserve Shutdown Hours SH = Service Hours AH = Available Hours EFDH = Equivalent Forced Derated Hours UCAP is not wedded to the use of EFORd. Another availability statistic could easily be substituted, if better suited for a region.

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12 Addressing UCAP Concern #1 Z Adopting UCAP results in double-counting the impact of generator availability performance. After all, the LOLE study already included generator availability as a factor in the calculations. Z True only if the individual unit capacity levels were adjusted. However, the UCAP approach also adjusts the Planning Reserve Margin by the wtd. average EFORd. In this manner double- counting is avoided. Planning Reserve Margin Generating Units Wtd. Avg EFORd EFORd

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13 Addressing UCAP Concern #2 Z Adopting the UCAP method will somehow cause more resources to be needed to meet Planning Reserve Requirements than would otherwise be necessary. Z This does not happen. An example will further illustrate how UCAP works.

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14 Addressing UCAP Concern #2 Z Let’s assume: LOLE Study identified need for a 15% Planning Reserve Margin (PRM). System Resources consist of: 3 identical units each 100 MWs in size. Units have EFORd values of 4%, 6%, and 8%. Assuming a 261 MW load, total capacity needed is 300 MWs. The 3 units satisfy requirements. Z Converting to a UCAP Approach: Unforced PRM = (1+PRM)*(1-Avg EFORd) = (1+.15)*(1-.06) = System Unforced capacity consists of: Unit A: 100 MWs * (1-.04) = 96 Unforced MWs Unit B: 100 MWs * (1-.06) = 94 Unforced MWs Unit C: 100 MWs * (1-.08) = 92 Unforced MWs Total: 282 Unforced MWs Assuming 261 MW load, capacity need is 261*1.081 = 282 Unforced MWs. The 3 units satisfy the requirement.

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15 Another Look at UCAP Benefits: Z Provides fair recognition of the RA contribution from each resource allowing for fair compensation Z Sends market signal to support unit availability performance Z Supports bilateral trades by recognizing the PRM-value of each unit and shifts unit performance risk to owners, where it belongs. From the Previous Example: System Unforced capacity consists of: Unit A: 100 MWs * (1-.04) = 96 Unforced MWs Unit B: 100 MWs * (1-.06) = 94 Unforced MWs Unit C: 100 MWs * (1-.08) = 92 Unforced MWs Total: 282 Unforced MWs

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16 Questions?

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