Regional System Operator Issues Analysis Ron Lehr Western Clean Energy Advocates January 7, 2016

Market Options 3.5 Regional System Market Design, Operations, and Governance: “A Clean Energy Improvments Checklist” Principles RSO improvements “Leapfrog” ideas Implementation Targets

Principles Apply to CA legislation, ISO actions, clean energy All clean energy should compete Support CA climate policies No resource shuffling coal into CA All tools used at least cost to consumers – Markets, standards, integrated planning, ratemaking, financial incentives, speed best practices Accommodate state regulation and resource selections Improve investment certainty Minimize clean energy curtailments Increase system flexibility Transmission cost recovery without pancaked rates Mitigate market power Minimize market administrative costs

RSO Improvements Expand RSO footprint—more flex, less cost RSO = opportunities for clean energy Expanding the EIM should be encouraged Reduce generation oversupply, decommit thermal resources in real time Integrate demand resources into RSO market Use standards and operating procedures to supply inertia, primary frequency response and load following Evaluate changes in reserve sharing Compensate VERS for supplying system resources Greater focus on seams coordination: transmission use and costs, operational impacts, need ECC Feedback between market and IRP and O1000 planning State of the art technology: synchrophasors Flow based network transmission service, line ratings Retire aging fossil fleet

“Leapfrog” Targets Address larger, longer term RSO issues – Regional Planning Perspective: IRPs informed by regional analysis or implemented through regional acquisition process – Regional Open Season—seek partners for larger, less costly resource solutions – Carbon based operations, dispatch, markets, including carbon trading – CPP Credit Trading Market

Implementation Targets Expand the EIM: TEP, PNM, IP, WAPA & BPA State approvals, conditions on CAISO PAC merger CAISO RSO stakeholder processes – Transmission Access Charges – Resource Adequacy – RSO costs and benefits – Governance

“Strawman” Proposal: Six Priorities RSO costs and benefits Grid reliability and resource adequacy Preserving state prerogatives Market assurance: preventing gaming and market manipulation Seams between RSO, public power and bilateral markets RSO governance

Market Issues for States in RSO Expansion RSO costs and benefits Reliability Improvements, resource adequacy Preserving state policy prerogatives Maintaining efficient markets RSO governance (includes seams issues)

Capacity and Capability Modernizing the Grid: How Our Electric System Can Welcome New Resources, Improve Reliability and Reduce Costs. David Olsen Ron Lehr

Capacity based operations To summarize: environmental and financial constraints, clean variable generation, fast- response customer resources and new communications and control technologies make the capacity resources paradigm itself obsolete. Basing system operation around large blocks of inflexible power limits utilization of our most cost effective resource, energy efficiency. It limits grid flexibility. It restricts ability to add clean variable power and frustrates efforts to diversify and modernize electric service.

Capability based operations With goals for reducing emissions, system operation might seek to utilize low-carbon resources first, to provide as much energy, capacity and system balancing services as possible, and deploy gas-fired generation and other resources to fill in around the preferred clean resources to meet cost and reliability requirements. Grids continue to need capacity, energy and operational flexibility to ensure voltage and frequency stability in all hours at all locations. If the constraints of basing system operation around base load capacity resources are removed, these attributes can be supplied at lower cost from the more diverse range of non-fossil technologies and flexible gas generation now available.