1. Draft extended reserve selection methodology
Extended Reserve Manager
Consultation briefing
31 October 2016 – Wellington
3 November 2016 – Auckland

2. NZX is the Extended Reserve Manager
The Code requires the extended reserve manager to:
Create and consult on an extended reserve selection methodology.
Run a selection process every 5 years to select extended reserve:
Create and consult on the extended reserve procurement schedule.
[Proposed Code]: Produce periodic performance reports to monitor AUFLS block performance during the 5 years of operations.

3. Selection methodology (SM) development
Process to date
Draft SM consultation
Selection methodology (SM) development
Selection process
1st Workshop
2nd Workshop
3rd Workshop
Briefing
Consultation paper
Draft selection methodology
Example procurement schedule
Data specification
Initial data request
Trial dataset
During the Selection Methodology development phase we have:
held 3 industry workshops.
produced an initial data specification; and
received and analysed data provided voluntarily by you
Feedback from these workshops has helped us develop the Selection Methodology and associated analytical tools
We are now in the formal consultation phase and we are currently consulting on the Selection Methodology and providing this briefing today.
To help inform your consideration of the SM we have also included in the consultation pack an example PS based on the trial data set and a revised data specification.

4. Methodology purpose
To select extended reserve to meet technical requirements and Code principles
TRS requirements:
Extended reserve is AUFLS
No IL
Size of 4 AUFLS blocks
Time – at all times
Speed – prefer faster, df/dt on block 4
Quality levels
Code principles:
Balance between extended reserve providers and system operator
Procure cost-effectively considering cost of providing AUFLS and customer interruption cost
Balance between certainty and flexibility
Quality levels is TRS clause 16. Grid voltage test.
Code principles are in 8.54H

5. Assessing AUFLS block performance
Sum of armed demand unit load in AUFLS block Sum of North Island GXP load
for each trading period
To explain graphically what the selection tool aims to achieve for each AUFLS block across the North Island.
The sum of the selected and armed demand unit load across the North Island must fit within the AUFLS block thresholds.
Here is the performance result for AUFLS block 1 of the example procurement schedule.

6. Selection process Selection tool Inputs: Selection result:
Demand units
Relays, customers, 4-year historic load profiles
Standard costs
Constraints, parameters
North Island GXP reference loads
Selection result:
Procurement schedule
Selected for block number
Armed
Armed flexible
On standby
Selection tool
The full list of inputs and constraints and parameters is in section 5.2 of the consultation paper.
The information goes into a mixed integer linear programme, which is an iterative process to progressively select a group of demand units for each AUFLS block that collectively meet the AUFLS block technical requirements – the – for as many trading periods in the observed data as possible, for the lowest overall selection cost.
PS – example is the csv file provided in Appendix B, template is in the methodology in Schedule 5.

7. Categories of selected demand units
127 77 59 58 61 25 23 26 27
Block 1
Block 2
Block 3
Block 4
Armed (662 MW)
Flexible armed (204 MW)
Flexible standby (95 MW)
572 demand units (DU) (961 MW)
321 DU’s
81 DU’s
170 DU’s
Flexible solve
The procurement schedule is a static document produced once at the conclusion of the selection process.
Taking the numbers selected in the Example Procurement Schedule:
572 demand units were selected, collectively representing 961 MW. This is 35% of the North Island load.
These demand units are put into three categories: armed (dark blue), flexible armed (light blue), and flexible standby (pink).
During the 5-year operational period, the extended reserve manager proposes to collect the unit load information only on all of these selected demand units each quarter.
The extended reserve manager will sum up the unit load files for every trading period and compare it to the overall North Island offtake for that trading period to get a measure of AUFLS block performance.
We also propose to run a flexible solve. The flexible solve takes the data from the latest 24 months and considers whether the aggregate AUFLS block performance can be improved by arming any standby units, or disarming any flexible armed units.
During operations ERM adjusts flexible armed / standby

8. Overview of the draft selection methodology
Who
What
When
How
Terms
Payment
I’d like to walk you through the draft methodology.
The body has 14 clauses.
The layout of the body of the methodology is in this order.
Who must provide information into a selection process
What information
When
How the extended reserve manager selects demand units
Terms and conditions that selected providers must abide by
Payment that selected providers will receive

9. Who is required to provide information
Clauses 3 and 4
Who
What
When
How
Terms
Payment
North Island only
Distribution companies
Directly connected consumers
Not very small parties
We are proposing that very small asset owners, whose total average annual offtake is less than a megawatt, not be required to provide demand unit information.
We’ve put in a threshold on efficiency grounds.

10. What information must be provided
Clauses 5, 6 and Schedule 1, data specification
Who
What
When
How
Terms
Payment
Information in demand units
Quantity requirement
Accuracy – data specification
Advise if commercially sensitive
The information must be presented in demand units. A demand unit means an AUFLS system
Separately controllable load with a relay that can be set to a frequency and tripped as per the system operator’s requirements
Quantity requirement is defined in Schedule 1 – will come back to that in more detail a bit later
The extended reserve manager will rely on the accuracy of the data submitted, and our assumption is it follows the data specification.
At the start of a selection process, which would happen every 5 years, asset owners must advise if any information that may be published by the extended reserve manager in the procurement schedule is commercially sensitive.

11. When the information is due
Clause 7
Who
What
When
How
Terms
Payment
At the start of a selection process the extended reserve manager will notify when information is due
Proposed minimum timeframes:
40 business days to provide
(ERM data review)
2. 10 business days to revise
Clause 7 sets out the minimum times for when information is due for a full selection process.
The extended reserve manager will issue a Data Request for an Extended Reserve Selection Process signalling the start of a full selection process.
The minimum timeframes that the extended reserve manager will set for asset owners to provide information into a selection process.
We have written it this way to provide some certainty for asset owners that the timeframe will not be any less than this amount of time.
We know that advance warning is important, for managers to organise resourcing to do this very occasional data collection process.
In the workshop 10 people said they needed 3 months and 2 more said more than 3 months.
We will have a business process to advise the industry as early as possible, i.e. about 6 months out. The 5-year operational period is set in the Code so we will be able to check with the Authority when the next selection process will occur some months before it is set.

12. When the information is due
Clause 7 and Schedule 1
Who
What
When
How
Terms
Payment
For the first selection process:
14 Feb – 14 Apr – data provision (42 business days)
15 April – 5 May 2017 – ERM review (15 business days)
2. 5 May – 19 May 2017 – revision (10 business days)
Late May – RUN SELECTION TOOL
This is what these dates look like potentially for the first data collection process, providing this consultation concludes as per our plan.
June – System operator reviews result
27 June – 14 July 2017 – draft procurement schedule consultation (15 days)
Sept 2017 – Authority approval and publish
The dependency for starting the first selection process is obtaining Authority approval post consultation for the selection methodology. We are targeting the beginning of February for that approval.

13. How the selection is made
Clauses 8-12, Schedules 3, 4, 6
Who
What
When
How
Terms
Payment
Follow TRS and Code to:
Select armed demand units to best fit the 4 AUFLS blocks for least cost
Select standby demand units
Historic data as a proxy for future
Aim to make best selection
So at the high level, the methodology follows the TRS and the Code to:
Select armed demand units that in aggregate best fit the 4 AUFLS blocks for least cost across the North Island
Select standby demand units, at least 10% per AUFLS block, to provide flexibility to respond to changes during the 5-year operational period.
The methodology proposes to use historic data – 4 years – as a proxy for the next 5 years of operational time
Clauses 8 to 12 lay out the basis on which extended reserve is selected.
Schedule 3 provides us with input values for the cost of relays and customer classes
The calculations in schedule 6 determine how input relay costs are calculated.
Schedule 4 is the mathematical heart - sets out the model formulation for the methodology.
You may have noticed appendix E of the consultation paper.
Clause 9 states historic data will be used and sampled. Upon the system operator’s recommendation we also propose to add another Part to Schedule 4 to describe in more detail the sampling and stopping criteria. As we received this feedback just before consultation we have put a draft Part 6 into the consultation paper in section 5.2 and in Appendix E.

14. How the selection is made
Schedule 5
Who
What
When
How
Terms
Payment
Example procurement schedule:
Template in Schedule 5
System operator technical review
Brief consultation
Authority approval
Q19-21: Example procurement schedule
Anything commercially sensitive, must advise during data provision
Propose to consult for 2 weeks
Procurement schedule feedback is technical and limited in scope
As the Code requires the procurement schedule to be produced in accordance with the methodology, we have no grounds to accept substitution of demand units or counter-proposals.

15. Terms for extended reserve providers
Clause 13, Schedule 2
Data specification, ERM calendar
Who
What
When
How
Terms
Payment
Methodology Schedule 2 – Terms and conditions
Procurement notice
SERO – statement of extended reserve obligations
For those parties who are selected to provide specific demand units, Schedule 2 of the methodology sets out the terms and conditions that the providers must adhere to during operations.

16. Terms for extended reserve providers
Clause 13, Schedule 2
Data specification, ERM calendar
Who
What
When
How
Terms
Payment
Extended reserve providers must:
Follow technical requirements
Prepare selected demand units
Provide in accordance with good electricity industry practice
Provide load information each quarter
Arm or disarm flexible units on request
At a high level, providers must…
We have a couple of issues to highlight a little later on.
The central clause relating to providing demand units is clause 5 of Schedule 2.

17. Payment for provision Who What When How Terms Payment
Clause 14 and Schedule 6
Who
What
When
How
Terms
Payment
Extended reserve providers to be paid standard costs as used in selection process:
AUFLS provision (capex and opex)
Customer interruption – when armed (opex)
Finally, in clause 14 and in Schedule 6 we set out that extended reserve providers are to be paid, and how the dollars are calculated.

18. Key points to highlight
Inputs
Key points to highlight
Selection
Operations

19. Inputs – Proposed quantity requirement
Schedule 1 – clauses 1 and 3
Quantity
Accuracy IL
Relay costs
At least 60% offtake – more is better
Exercise discretion to submit suitable demand units
Demand units with 100% public health & safety customers not eligible
4 historic years = robust result
Minimum viable unit = 1 year
At least 60% - We provide analysis to show that the more that is submitted, the lower the overall selection cost.
Not set at 100% for 2 reasons:
1. To provide asset owners with discretion to apply their knowledge to avoid unsuitable loads that the selection process cannot differentiate between on the basis of cost criteria
2. In recognition that asset owners do have other obligations and even some distribution companies struggle to make 60%.
We present some debate over selection of public health and safety customers. These customers are generally regarded as more sensitive. The selection result moves these to block 4.
Demand units with 100% public health and safety customers are not eligible because these customers are more at risk
4 years for each demand unit – to provide a robust and defensible selection result
1 year minimum – workshop feedback that if the minimum is 2 years then some suitable demand units cannot be submitted

20. 60% 31% 30% 70% IL 9% IL Required 60% + more if suitable
Party A has c.9% of IL in its network. It is required to submit 60% of non-IL load, and has the option of submitting more from the other 31% of non-IL load.
60% %
30%
70% IL
Required 60% but…
Party B offers 70% of its load as IL. It is required to submit 60% of non-IL load to the ERM. As it has only 30% non-IL load, it must submit all the remaining load.

21. Inputs – Information accuracy guidance
Schedule 1, clause 2 and data specification
Quantity
Accuracy IL
Relay costs
Selection process depends on data being accurate and consistent
More guidance:
Customer class allocation
Allocating to public health and safety
Method for estimating missing data
Treatment of interruptible load (IL)
What most affects the selection process is the unit load profile and the customer class allocation.
Analysing the trial dataset also, we can see fairly easily that different approaches were taken to estimating customer class allocation, particularly for allocating to public health and safety.

22. Inputs – Proposed method of subtracting IL
Data specification
Quantity
Accuracy IL
Relay costs
AUFLS has to dance around IL
Aiming to balance better accuracy against amount of effort, noting the size of “problem”
Subtracting an IL profile is more accurate than maximum contracted MW
If IL contract is >120kW, subtract curtailable (available) IL profile
The TRS requires us all to do a dance around interruptible load when selecting AUFLS. We must not double-count it.
We are aiming for a balance between accuracy and time, bearing in mind the relative size and impact of the potential inaccuracy introduced.
During the trial data process we requested that a single value, the maximum contracted amount, be subtracted.
This is a bit blunt and doesn’t very well represent the actual quantity of IL that might trip in any trading period.
In the trial data, IL was reported subtracted equivalent to about 9% of the submitted load
8 distributors subtracted 195 MW
In the example procurement schedule, 107 MW of IL was on the selected demand units, 70 of that on one party.

23. Inputs – Proposed method of subtracting IL
Data specification
Quantity
Accuracy IL
Relay costs
Proposed method:
Determine curtailable IL load profile for the most recent year
Subtract this “reference” IL profile from each historic year
If IL is sitting across several demand units, estimate quantity on each demand unit first.

24. Inputs – level of standard costs
Clauses 8-12, Schedules 3, 4, 5
Quantity
Accuracy IL
Relay costs
Standard costs for AUFLS provision:
Set through Beca survey
Significant costs only – some costs dropped
Costs of meeting technical requirements
Customer interruption costs:
Level of public health and safety cost
Q1-3: AUFLS provision costs
Schedule 3 Part 3: Standard set of relay costs, set through Beca survey
General rationale: simplicity balanced against accuracy: include costs that are significant enough and that don’t have unwanted outcomes
NOT INCLUDED: fast response incentive, flexible service cost, implementation cost.
Are they sufficient to cover a significant portion of your expected costs?
Q4-5: Customer interruption cost
Schedule 3 Part 1: Expected interruption hours
Schedule 3 Part 2: Standard customer class categories and costs
Feedback requested specifically for public health and safety cost

25. Propose 60% selection cap
Clause 8(c)
Selection cost $ / yr
The selection cap is the upper limit set on the percentage of offtake selected from any one provider.
Having any cap reduces the cost-effectiveness of selection. The Code requires a cost-effective selection.
The cap limits the tool from selecting some demand units with a suitable load profile that are cheaper than other demand units. You can see from this graph that, using the nice big 76% North Island load trial dataset, that the lower the selection cap on parties, the higher the overall cost.
We consider there are two good reasons for having a cap:
The cap provides certainty. No matter what percentage of your offtake you submit, you will be selected only up to the cap.
It acknowledges that there are practical limits to the quantity of suitable load available from any one provider.
We have discussed this cap at workshops and we have had verbal feedback that people prefer a lower cap.
We are interested in getting evidence-based feedback on what is a practical limit for this cap.
Selection cap applied (% of asset owner offtake)

26. Terms – Provide information every quarter
Schedule 2 clauses 8, 9
Delivery
Block settings
Withdrawal
Payment rationale
Provide unit load information on selected demand units quarterly because:
New scheme – prudent risk management
Regular opportunity to assess aggregate AUFLS block performance

27. Terms – Deliver as submitted
Schedule 2, clause 4
Providers to deliver as submitted:
New or existing relay
Faster responding demand units
Relays with SCADA remote control
Proposed selection requirements:
New relays – uf and df/dt
All relays – configure & test to multiple AUFLS blocks settings
Delivery
Block settings
Withdrawal
Payment rationale
The information that asset owners submit into the selection process will be relied upon for selection and for payment.
So if a demand unit is submitted as requiring a new relay, it is expected that a new relay will be installed.
Relays with SCADA remote control are regarded as easily flexible-capable and will be considered for flexible reserve.
We propose 2 selection requirements
All new relays to have both df/dt and under frequency functionality. This is so that we can consider all new relays for AUFLS block 4
All relays to be configured and tested to as many AUFLS block settings as they can hold and qualify for

28. Set relays to multiple AUFLS block settings
Schedule 2, clauses 4(a), 5(e), Schedule 1
Delivery
Block settings
Withdrawal
Payment rationale
Proposed because:
More cost-effective to do all at once
Second selection process: testing cost is only applied to those AUFLS blocks that a demand unit is not configured and tested for
Operations backstop: possible to switch demand units between AUFLS blocks if necessary
Q25: Configure and test for all AUFLS blocks
Proposed that all relays are configured and tested for all AUFLS blocks (or as many as older relays can hold/supply)
This was not discussed in workshops so more detailed questions are asked on cost, feasibility, switching between blocks during operations.
On the face of it, it seems sensible and more cost-effective. The most tricky aspect from the extended reserve manager’s perspective is managing information flows. But we haven’t heard from distributors. Are there hidden costs, are there other aspects that we haven’t considered.

29. Terms – provision & withdrawal of demand units
Schedule 2, clauses 5, 6 and 7
Delivery
Block settings
Provision
Payment rationale
Provide at all times, restoring any temporary loss as soon as practicable
‘Permanent loss of capability’ due to network reconfiguration may occur
Any other reasons?
Clause 5 of Schedule 2 sets out the central requirements regarding provision of demand units.
Must be armed on start date
Must endeavour in accordance with good electricity industry practice to provide AUFLS at all times, restoring any temporary loss as soon as practicable

30. Payment – rationale
Delivery
Block settings
Withdrawal
Payment
To equitably spread the burden of AUFLS provision across all consumers
Appropriate compensation
Appropriate incentives
We propose that extended reserve providers are paid for their services.
On balance we consider that one of the 3 arguments put forward by the Authority is persuasive, and this is to equitably spread the burden of AUFLS provision across all consumers.
We don’t consider the argument is compelling.
Our final recommendation to the Authority will include consideration of the incentives and behaviour that is driven in the presence or absence of payments.
Another argument is payment could provide incentives for distributors to enhance their AUFLS services – for example, by offering a payment for providing relays that respond in less than 250 milliseconds, or possibly for flexible service. Our view is the level of payment would have to be quite high to be a real incentive. But we do depend on asset owners to tell us whether a modest payment for flexible service or for providing faster relays does incentivize you to respond differently.

31. Questions Thank you ermanager@nzx.com 04 498 0057 Who What When How
Terms
Payment
Questions