Economic Adequacy Target Resource Adequacy Forum Steering Committee September 27, 2007

September 27, Outline Proposed economic risk measure Options for determining the appropriate level of economic risk for the region Steering Committee decision

September 27, Proposed Economic Risk Measure Objective – choose a parameter that indicates the region’s exposure to high cost years Process Simulate the power system’s operation over many different future conditions Calculate the total cost for each future Plot a histogram of all costs Risk Measure – the average cost for the top 10 percent highest cost futures (TVar90)

September 27, Council’s Method Average Cost and Economic Risk for a Resource Plan Likelihood (Probability) Avg Cost Power Cost (¢/kWh)-> Risk = average of costs> 90% threshold TVar90

September 27, Options for Selecting an Appropriate Risk Level 1.Calculate the average cost (over all futures) and the risk for many different resource plans 2.Plot the cost and risk for each plan to create a feasibility space 3.Viable plans lie along the efficient frontier 4.The appropriate risk level depends on the choice of resource plan along the efficient frontier

September 27, Space of feasible solutions Efficient Frontier Increasing Risk Increasing Cost Alternative Risk Levels Efficient Frontier Minimizes Cost Minimizes Economic Risk

September 27, A B C D

8 Options Along the Efficient Frontier (Illustrative) Note 1: The LR balances are based on firm resources only. Note 2: The implied NRF LR balance target is zero but it should use available resource generation instead of expected generation. Physical Target LOLP ~ 5% Firm Bal ~ - 1,500 MWa Efficient Frontier Council Plan LOLP = 0% LR Bal = MWa Physical Limit LOLP = 5% LR Bal = MWa Implied NRF/2 0% < LOLP < 5% LR Bal = 0 MWa Current Status LR Bal = 200 MWa/1

September 27, Determining an Economic Target Select the desired point along the efficient frontier Derive the implied LOLP from the corresponding resource plan Use that LOLP to set the energy and capacity economic targets (same method that is used to set the physical targets)

September 27, Technical Committee Recommendations The Technical Committee recommends using the TVar90 parameter for economic risk. The committee does not have a recommendation for a target point along the efficient frontier

September 27, Steering Committee Options 1.Use the Council’s process to choose a target point Use the 5 th plan to set the current target Engage in the Council’s pubic process to develop a new target for the 6 th plan 2.Develop a separate method to choose a target point a.Use a modified NRF/White Book calculation b.Come up with a new method

September 27, Options: Pros and Cons OptionProsCons 1 Matches the Council’s plan. Utilizes completed work. Less work for the Forum. Council’s method is not well defined. Council’s data may need some updating. 2a Familiar and easily understood. Less work for the Forum. Not based on an economic model. No guarantee to reduce risk. 2b Chance to revisit economic risk methodology. Will be more up to date. Will result in a better feeling of ownership. Will take lots of time and effort. May not be any better. May get politically bogged down.