Commissioner McAdams reports on SPP activities

Commissioner McAdams’ Memo

On August 2, 2023, Commissioner McAdams filed a memo addressing recent activities of the Southwest Power Pool (SPP) Regional State Committee (RSC) and Board of Directors.

At July 2023 meetings, SPP’s RSC and Board adopted the Resource and Energy Adequacy Leadership (REAL) team’s recommendations on the winter season resource adequacy requirements (Revision Request 549). The revision set SPP’s planning reserve margin (PRM) for the winter season at 15% (the same as summer) and specified a deficiency payment. Commissioner McAdams noted an outstanding concern about how maintenance outages will be addressed.

Commissioner McAdams reported that SPP has also discussed westward expansion of SPP into RTO West and Markets+, specifically how to equitably balance the interests of existing members with a potentially rapid expansion into several Western states. SPP hopes to integrate parts of Colorado, Utah and Arizona by 2026.

Commissioner McAdams noted that a ramping capacity requirement will be discussed in October with a view towards forming a policy later in 2024. The REAL team also expects to deliver revision requests for performance-based accreditation and Effective Load Carrying Capability (ELCC). The commissioner noted that he is looking forward to seeing how SPP’s ELCC analysis compares with the analysis was done by Astrape’ Consulting for ERCOT earlier this year.

Finally, the REAL team intends to further develop the winter PRM and address it separately from the summer PRM, which will require the development of improved maintenance outage policies and a need to improve new VOLL and Expected Unserved Energy (EUE) metrics. Both of these will serve as a basis for SPP’s consideration of a new reliability standard.

Open Meeting Discussion

Commissioner McAdams noted that the purpose of his memo was to report on activities currently underway at the Southwest Power Pool (SPP) and highlight key projects that have been launched in which Texas will need to engage over the next 2 years.

Commissioner McAdams noted that SPP intends to grow into the West and file a new expansive plan, for approval by FERC by 2024. Upon approval, SPP will be engaged in governance discussions concerning how the East and West parts of the system will work together. SPP is currently contemplating two separate balancing authority areas interconnected by existing ties and potentially future DC ties. The discussion will include debates on cost allocation and interregional transfer capacity upgrades. Texas has a major load ratio share within the SPP footprint and he wants to ensure that these costs are equitably and fairly apportioned within the ISO/RTO.

Commissioner McAdams highlighted ramp accreditation, a policy the REAL team has taken on in conjunction with other stakeholder-driven groups at SPP. Ramp capabilities are becoming a more acute challenge in all ISOs and are very valuable in a system where variable energy, i.e., solar and wind, becomes the dominant energy source. He noted that a certain threshold of ramp level capacity is needed to meet the challenges of wind fall off and rising and setting of the sun. The commissioner suggested that this is challenging and complicated, requiring a lot of analysis within SPP. A policy deliverable is currently scheduled by January 2024 but is likely to be delayed due to prioritization, including for performance-based accreditation and Effective Load Carrying Capability (ELCC) evaluation within the system, which is hoped to be delivered to the SPP Board and Regional State Committee (RSC) in October 2023.

Commissioner McAdams noted a recommendation to accredit facilities based on their actual performance, which will form the foundation of capacity obligations in the future. It also accounts for fuel security, which SPP is also approaching through an accreditation construct, with firm fuel contracts or on-site fuel storage resulting in a higher degree of accreditation, value that can offset capacity obligations.

Commissioner McAdams reported that SPP has imposed a financial capacity obligation for the winter season. While other regions, including the Midcontinent Independent System Operator, Inc. (MISO) have applied seasonal capacity obligations, this is a first for SPP, although the financial capacity obligation for winter is currently very low. Commissioner McAdams reported that there is broad-based recognition within several ISOs that winter is the new problem, that these are the months the system has not been designed for over the last century. As a result, the appropriate level of reserve capacity that utilities must meet is probably much higher than the current 15%, the summer obligation just being applied to winter.

Commissioner McAdams noted that, in order to determine the appropriate level, other policy decisions must be made first, for example, how planned outages are accounted for during the winter season. He noted this is becoming a real point of strain within the governing council of SPP regulators because the northern states are much more susceptible to extreme cold. As a result, they are acutely aware of how planned outages can impact their ability to meet their capacity obligation. Therefore, the method for doing this has become a key priority for the REAL team and stakeholder work groups.

Commissioner McAdams suggested that the reliability standard, including an evaluation of an Expected Unserved Energy (EUE) based on a determination of Value of Lost Load (VOLL), is strategically the most important thing the system will establish next spring. A VOLL study will be undertaken concurrent with an analysis of EUE-driven metrics, exactly what ERCOT is doing, with results being developed on a similar timeframe.

Commissioner Cobos asked whether SPP would be conducting a customer survey as part of its VOLL study.

Commissioner McAdams noted that concerns have been expressed about that but after numerous meetings and discussions with the SPP Board and REAL team, he believes there is a commitment to conduct a consumer-facing VOLL study. This study will not be conducted by SPP staff. The commissioner noted that Berkeley National Laboratory is currently conducting consumer-facing outreach on a regional basis, which may be tied in with potential ERCOT efforts.

Commissioner McAdams noted that VOLL has a lot of good uses, adding that a methodology that has regional consensus from stakeholders helps set the value of scarcity, which can drive market-driven behavior, even among vertically-integrated monopolies. He suggested that the whole point of ISO/RTOs is to incent trades among them, adding that this could have many positive uses in ERCOT due to the competitive nature of the system.

Noting that there are high hopes for VOLL, Commissioner McAdams suggested that it takes a certain amount of convincing people to take the leap of engaging with consumers, who they are terrified of, but that this would benefit all of the systems.

Commissioner McAdams noted that SPP wants to expand all the way to the Pacific but this is heavily dependent upon actions taken by CAISO in trying to set up their own RTO/ISO and competing markets. He noted that Markets+ is already well-established and has broad-based participation, adding that governance is a key stumbling block to CAISO’s ambition to secure the western part of the U.S.

Commissioner McAdams stated that SPP has visions of a broad-based balancing authority that goes all the way to Washington and Oregon and is actively engaged in convincing those state regulators and utilities that it can be effectively managed. He stated that the east will be secure from a resource adequacy and reliability standpoint, no matter what, but the West will be “something to watch over the next decade.”

Commissioner Glotfelty noted that RTO’s have been seen to continue to grow and grow and it is not always good or easy but they will continue a never-ending fight for territory.