1. OPPORTUNITIES AND CHALLENGES IN THE RESTRUCTURED ELECTRICITY SYSTEM : POSSIBLE STRATEGIES FOR DEALING WITH THEM
presentation by
George Gross
University of Illinois at Urbana-Champaign
Seminar “Electric Utilities Restructuring”
Institut d’Electricité Montefiore
Université de Liège
December 8, 1999
© Copyright George Gross, 1999

2. OBJECTIVES OF THE PRESENTATION
Review the principal thrusts of electricity restructuring
Provide some results in the California restructuring
Identify key challenges and issues of concern in monitoring and control
Define the scope of research and possible strategies required to meet the needs of real-time control in the restructured environment
Throw some light on the complexities of congestion management

3. OUTLINE Review of restructuring impacts
The unbundled open access transmission system
Example : California restructuring
Scope of issues, challenges, and opportunities in monitoring and control
Re-examination of control laws
Analytical and software tool enhancement
Concluding remarks

4. THE EXISTING ELECTRIC INDUSTRY STRUCTURE
Customers
Customer Service
Customer Service
Distribution
Distribution
Transmission
Transmission
Self-
generation
IPP
Generation
Generation

5. THE EXISTING ELECTRIC INDUSTRY STRUCTURE
Self-
generation
IPP
Generation
Generation
Transmission
Transmission
Distribution
Distribution
Customer Service
Customer Service
Customers

6. THE VERTICALLY INTEGRATED UTILITY AND SERVICE BUNDLING
All services are bundled
The basic design was for the entire system to meet the utility’s own customers’ needs:
transmission loading and voltage specified in such a way as to supply all the customers’ load and energy demands under all including peak demand conditions;
generation capacity installed was sized for the same purposes;
voltage regulation, frequency control, VAr support, generation and VAr reserves were all bundled into this single design for those very purposes

7. MAJOR THRUSTS OF RESTRUCTURING
Customer choice
Open access transmission
Unbundled services
Development of distinct markets
Establishment of new structures and new restructuring paradigms
Congestion management

8. BASIC REQUIREMENT IN COMPETITIVE MARKETS
All players -- buyers, sellers, brokers -- require non-discriminatory transmission services to get products to markets or to acquire products competitively from the supplier of choice
Each transmission customer needs to have service comparable to that available to native loads of the transmission service provider
Transmission service is the most critical element in making competitive electricity markets work

9. “COMMON CARRIER” TRANSMISSION SERVICE
Broker /
marketer
Transmission
system
Utility
generation
Other
utility QF
IPP
EWG
Self

10. ELECTRICITY SERVICE UNBUNDLING
In the vertically integrated utility environment, electricity services were bundled
The unbundling of services entails
energy completely separated from transmission
basic transmission service provision to all eligible entities engaged in wholesale markets
ancillary services as separate services

11. VERTICALLY INTEGRATED UTILITY STRUCTURE IS DISINTEGRATING
Distribution wires
Customer
Service
Customer
Service
Marketing/
trading
Transmission ownership
Distribution
Generation
System
Operations
Transmission
Ancillary
services
Generation
Power
exchange
ISO

12. } * UNBUNDLING EXAMPLE Baggage Service Takeoffs Landings
In-Air Pillow/Blanket Service
Oxygen
Bath rooms
Backup Service
FLY THE FRIENDLY SKIES
WITH
UNBUNDLING ‘R’ US *
* Bundled service available upon customer request

13. ANCILLARY SERVICES : DEFINITION
System support services that are essential for physical delivery of energy from a source point to a load point
Fundamental and indispensable system services required for the provision of transmission service and in their absence instantaneous system collapse would result
These services are provided mostly by generation sources

14. FERC ANCILLARY SERVICES

15. NERC LIST OF INTERCONNECTED OPERATIONS SERVICES
Regulation
Load following
Energy imbalance
Operating reserve -- spinning
Operating reserve -- supplemental
Backup supply
System control
Dynamic scheduling
Reactive power / voltage control from generation sources
Real power transmission losses
Network stability services from generation sources
System blackstart capability

16. OPEN ACCESS SAME-TIME INFORMATION SYSTEM (OASIS) RULE
Transmission customers must have access to same information as the transmission provider at the same time
Information must be disseminated electronically using real-time information networks and industry-wide communications protocols
Display information on transmission services available, tariffs, schedules and available transfer capability estimates
Establishment of Standards of Conduct to prevent preferential access to transmission prices and availability
Biggest current challenge was thrown to utilities by FERC in the open access NOPR (Notice of Proposed Rulemaking)
FERC will soon require the opening of all transmission networks to wholesale power providers.
FERC will require that transmission customers have access to the same information as transmission owners at the same time as transmission owners do
FERC is considering a requirement to have information disseminated electronically using real-time-information networks (RINs)
An industry-wide protocol must be adopted for the RINs to allow for all interested utilities to invest in these systems

17. EQUAL INFORMATION AVAILABILITY
Transmission
Provider
Transmission
Customer
OASIS
RIN
For Sale
For Sale
Wanted
Wanted
Transmission Service:
Palo Verde to Midway
Palo Verde to Midway
Four Corners to Midway
Transmission Service:
Transmission Service:
200 MW at $4/MWh
Four Corners to Midway
Call SCE
200 MW at $4/MWh
Call SCE
Call SMUD
200 MW at $3/MWh
Call SMUD
200 MW at $3/MWh
Transmission Service:
Transmission
Provider
Transmission
Customer

18. THE OASIS NETWORK to another OASIS node Internet OASIS node TC TC TP
TSIP TC TP
OASIS
node TP
Operational since January 3, 1997
Network comprised of 23 nodes operated by 175 transmission
providers
One of the first large-scale Internet applications for business to
business

19. SCHEDULING COORDINATOR(SC)
Agent of transmission customers providing interface with the transmission system operator
May be a transmission customer, a generator, another utility, a marketer/broker or a bilateral contracts manager
Scope of responsibilities may include:
contracting for supply-side and demand-side portfolios to meet direct access customers’ requirements
scheduling supply to meet its customers’ load on a monthly/daily/hourly basis and to respond to contingencies/curtailments
submission of balanced schedules to the operator
contracting for adequate ancillary services
participation in the settlement process

20. . . . . . . . . . . THE POWER EXCHANGE $ $ $ $ $ $ PX Seller 1
Seller i
Seller M
MWh
MWh
MWh $ $ $ PX
MWh
MWh
MWh $ $ $ . . . . . .
Buyer 1
Buyer j
Buyer N

21. MARKET CLEARING PRICE
market clearing price
market clearing quantity

22. INDEPENDENT SYSTEM OPERATOR
ESP
end user
load aggregator
D I S T R I B U T I O N (W I R E S)
ISO
power exchange
scheduling coordinator
ancillary services market
...
...
... G G G G G G G G G G G G G G G G G G G G G

23. MOTIVATION FOR THE INDEPENDENT SYSTEM OPERATOR
The implementation of the open access regime makes the “transmission and...” business considerably more difficult, problematic and possibly of more limited strategic value
The increasing volumes of transactions in each region have made critically important the need to solve transmission problems on a regional basis
Transmission owning entities realize that independent decision making on transmission service and pricing issues necessitates the removal of control of the transmission system from the owners who also control other sectors of the electricity business
Facilitation of the commercial market by an independent entity that would remove impediments to access the grid and provide transmission service

24. PRINCIPAL ROLES OF THE ISO
Provision of non-discriminatory open access to the grid with all users subject to the same access protocols and tariffs
Coordination of the day-ahead scheduling and real-time load/resource balancing
Maintenance of system reliability/security
compliance with NERC - reliability council operating and reliability standards
control/dispatch of the ISO’s transmission facilities
management of emergency response

25. PRINCIPAL ROLES OF THE ISO
Management of transmission network congestion and constraints
Specification, competitive acquisition and management of unbundled ancillary services
Settlement of accounts
Provision of information to market participants
Participation in system expansion

26. THE ANCILLARY SERVICES MARKET
customer service
load aggregator
end user
D I S T R I B U T I O N (W I R E S)
ISO
ancillary services market
power exchange
scheduling coordinator
...
...
... G G G G G G G G G G G G

27. ANCILLARY SERVICE CHARGES
All customers connected to the grid except those who are self providers are deemed to be users of ancillary services and are charged for those services by the ISO
The ISO allocates the costs it incurs in procuring reserve capacity to all non-self-provider entities in an amount proportional to their scheduled/metered loads

28. UNIT/PLANT SALE CHOICES
Energy Payments
balancing market energy
( including AGC)
Capacity Allocation
reserved for real-time
balancing market
spinning
reserve
hour-ahead energy market
hour-ahead market
AGC downward capability
day-ahead energy market
day-ahead market

29. METERING REQUIREMENTS
Unbundling brings about new measurement and metering needs
A primary requirement is the quantification of each service
Each service introduces its own specific needs in measurement: nature, level of detail, frequency and accuracy
Specialized communications may be required to transmit measurement data to interested parties
Metering may be offered as an unbundled service

30. METERING DATA Major challenges in effective data management:
collection
storage
extraction
compression
utilization
dealing with data overwhelm
data visualization
Key Issue: ownership of metering data

31. SETTLEMENT AND BILLING
Similar to metering, settlement and billing become an unbundled service
Data collection required for
MWh injected by each generator
MWh withdrawn by each load
MVArh of reactive energy support by each generator
other ancillary service measurements -- capacity and energy
transmission network usage and contract information
transmission congestion information
Settlement and billing entail the production of periodic bills for all providers and consumers of services

32. THE NEW TRANSMISSION BUSINESS
Customer choice
Vertical unbundling and horizontal consolidation
Increasing volume in inter-regional energy transfers
Proliferation in the number of transactions
“Instantaneous” changing of suppliers and buyers
Independent grid operators without generation resources
Decentralized decision-making 5 5

33. NEW PARADIGMS FOR ELECTRICITY
Basic requirements
compatibility with the physics/engineering of electricity
customer choice
economic efficiency goals
market innovation
Prime mover is the introduction of free markets
Principal design issues
accommodation of economic decisions made by individual suppliers and users
attainment of economic efficiency goals through the appropriate level of centralization/decentralization

34. NEW PARADIGMS FOR ELECTRICITY
Key issues
maintenance of system security/reliability
availability of firm transmission rights
meeting coordination requirements in a competitive environment
new structures
rules of the road

35. MARKET STRUCTURE
Central issue : role and level of authority of central institutions vs. those of decentralized decision making by individual market players
General agreement on the need for coordination of the power system
The two emerging paradigms
Pool model
Bilateral model

36. THE POOL MODEL The pool is the sole buyer and seller of electricity
The pool uses the offers of the suppliers and the bids of the demanders to determine the set of successful bidders whose offers and bids are accepted
The pool determines the “optimum” by solving a centralized economic dispatch model taking into account the network constraints

37. THE BILATERAL TRADING MODEL
Players arrange the purchase and sale transactions among themselves
Each schedule coordinator (SC) and each power exchange (PX) are responsible for ensuring supply/demand balance
The independent system operator (ISO) has the role to facilitate the undertaking of as many of the contemplated transactions as possible subject to ensuring that no system security and physical constraints are violated

38. THE POOL PARADIGM
Centralized control with a single entity in charge of markets and operations
“Pool” concept merges grid operator’s coordination role with a centralized dispatch function
Grid operator as both air traffic controller and central scheduler for a mega-airline in charge of coordinating the number of flights, determining the prices for all landing rights and the commodity prices for all airline seats

39. THE POOL MODEL customer customer customer retail merchants
distribution wires businesses
Independent System Operator (ISO)
including power exchange and
ancillary services market
multi-lateral
transaction
markets
marketers / brokers
generation entities

40. THE BILATERAL TRADING PARADIGM
Coordination between one or more markets and an independent grid operator
Independent grid operator in charge of system reliability/security
Bulk energy market consisting of one or more “power exchanges”
Basic requirement : effective coordination among all players in a decentralized decision-making environment
Grid operator as air traffic controller in charge of take-offs, landings, congestion but not of prices for airport landing rights or seats on planes

41. THE BILATERAL TRADING MODEL
customer
customer
customer
retail merchants
distribution wires businesses
Independent System Operator (ISO)
multi-lateral
transaction
markets
ancillary
services
markets
power
exchanges
marketers / brokers
generation entities

42. scheduling coordinator ancillary services market
THE CALIFORNIA SYSTEM
ESP
end user
load aggregator
D I S T R I B U T I O N (W I R E S)
ISO
bilateral contracts
power exchange
scheduling coordinator
ancillary services market
...
...
... G G G G G G G G G G G G G G G G G G G G G

43. THE DISTINCT ELECTRICITY MARKETS
ISO PX
transmission
congestion management
market
short- term
forward
energy markets
real-time
balancing
market
ancillary
services
markets

44. THE ISO BALANCING MARKET
ISO administers a real-time market to ensure exact supply-demand balance: purchases from generators energy not supplied to the grid but demanded by the loads
The balancing market is strictly a physical delivery mechanism; it provides load following and frequency control services
The balancing market compensates for
random unit outages
forecasting errors
shortfalls in PX and bilateral contract commitments

45. THE ISO BALANCING MARKET
The balancing market is the only truly physical electricity market and is the basis for all other markets
While the ISO has the responsibility to track load, it may not have direct control over the generators except under emergency conditions; responsibility of each SC is to bring its units to the desired level of operation
ISO charges out-of-balance SC’s for balancing energy; payments for balancing energy by the ISO are based on the prices and amounts specified by the units

46. THE PX MARKETS The PX conducts two distinct markets day-ahead market
hour-ahead market
The PX markets are essentially short-term forward markets in which generators bid for the right to serve load and loads bid for the opportunity to have their demands satisfied
auction mechanism establishes the required prescheduling
schedules are financially binding on generators and loads
commitments are virtually physical since widespread violation of PX commitments may bring about disruption of system integrity

47. THE PX AUCTIONS
The day-ahead market is 24 separate double auctions, one for each hour
These auctions operate without considering transmission; all transmission constraints and congestion management issues are ignored [“unconstrained” PX]
Auctions are iterative with prescribed activity rules designed to provide progressive price discovery
The PX sets a maximum price and buyers may submit price-insensitive demand bids for noncurtailable loads they must serve representing their willingness to pay up to that price

48. ISO CONGESTION MANAGEMENT
The PX and other SC’s submit their proposed schedules to the ISO -- preferred schedules
SC’s submit adjustment bids--incs and decs--for their units specifying amount and price for changing a unit’s output -- up or down -- to mitigate congestion
If the preferred schedules lead to interzonal interface congestion, the ISO prepares an advisory redispatch with suggested modifications based on the adjustment bids and publishes a uniform interzonal congestion price or transmission usage charge for all SC’s and the PX
PX and SC’s may submit revised schedules to the ISO
ISO then determines final redispatch and usage charges by either accepting the revised schedule submitted if there is no congestion or repeating the procedure in the advisory redispatch preparation

49. RESERVES
Reserves are unloaded capacity which is available within a prescribed amount of time
The reserves constitute an option to generate
The distinguishing characteristics of the three reserves

50. ISO’s RESERVES AUCTION
Each bidding unit provides
a capacity reservation price – $/MW
an energy strike price – $/MWh
The winning bidders are selected on the basis of the capacity reservation price bid; all winning bidders receive a uniform payment per MW
Energy supplied is paid according to the balancing market price

51. THE RESERVES AUCTION required reserves $/MW uniform price paid for
reserve capacity MW
the winning bidders
the losing bidders
required reserves

52. RETAIL ENERGY COSTS 4/1/98 - 3/31/99
public purpose 5%
transmission 4%
wholesale
energy
21%
distribution
30%
stranded
costs
23%
rate
reduc-
tion
bonds
13%
ISO costs 5%
total costs = $ 28 billion
CA ISO estimates

53. THE 4/23/98 REAL-TIME MARKET2 5 2
GWh 1 5 1 5 1 2 3 4 5 6 7 8 9 1 1 1 1 2 1 3 1 4 1 5 16 17 18 19 20 21 22 23 24
ISO forecast
actual load
forward market load

54. THE ANCILLARY SERVICES AUCTIONS
the sequence of ancillary services auctions
schedules
energy
non-spinning
reserves
AGC
spinning
reserves
replacement
reserves

55. REAL TIME MARKET ENERGY SOURCES3%
12% 4%
81%
supplemental energy
spinning reserves
non spinning reserves
replacement reserves
CA ISO estimates

56. CALIFORNIA PX AND ISO PRICE CAPS
1 The price floor is 0 but under certain conditions negative prices are allowed at specific scheduling points

57. THE TRANSMISSION NETWORK UNDER OPEN ACCESS
Transmission systems are being used in a manner and asked to do tasks not contemplated when they were planned and designed
greater volume and variety of transactions involving transmission
higher frequency of hitting transmission constraints
increasing tendency to reserve firm transmission service
Open access impacts include
heavier loading of transmission lines
increased loop flows
wider variability of transmission pricing as a result of increased use of constrained interfaces
need for more detailed transmission planning studies arising from constrained interfaces

58. THE TRANSMISSION NETWORK UNDER OPEN ACCESS
Multi-system transactions require increased communications and expanded system oversight
Generation is being added, but not always at the most appropriate location from the transmission point of view
Management of transmission resources has become very challenging: coordination, allocation, specification of the rules of the road

59. OPEN ACCESS AND TECHNICAL CONSIDERATIONS
The physical characteristics of the electric transmission system -- the lines, transformers and substations -- remain unchanged under open access
Transmission lines and transformers must be protected against high currents which would cause damage; this need becomes particularly critical during system disturbances
The system must be protected against violations of its electrical limits and operational limits

60. SYSTEM SECURITY REQUIREMENTS
Under open access, the system security monitoring, analysis and control function remains unchanged but may be placed in hands different than those in the vertically integrated utility
The protection of the system from overstress due to the proliferation of transactions, the large number of players and the new rules of the road, remains a basic requirement for reliable electricity

61. POWER SYSTEM SECURITY
Power system security refers to the ability of the system to withstand contingencies
Security is an instantaneous condition and is a function of time and system robustness with respect to all imminent disturbances; in general, the power system is continually subject to disturbances encompassing a wide range of conditions
Security of power system operations is the analogue of reliability in power system planning

62. POWER SYSTEM SECURITY
Security is defined with respect to a set of credible next contingencies; security analysis requires that a set of contingencies be specified.
An operating state is secure if under each of the postulated contingencies the system continues to maintain secure normal operations
An operating state is insecure if a specified contingency transitions the state into emergency.
Security assessment analyzes the vulnerability of the system to a set of postulated contingencies on a real - or near-real-time - basis.
Aim of security control is to prevent the system state from transitioning from secure operation into emergency

63. CLASSIFICATION OF STATES
NORMAL
EMERGENCY
RESTORATIVE
VIOLATED CONSTRAINTS
SYSTEM LOADS
SYSTEM CONSTRAINTS
some of the loads are not met (partial to total blackout)
none
some operating limits on line overloads, underfrequency and/or overvoltages
partial system is in normal state

64. CONTROL ACTIONS
Principal task of operations is to ensure that the generation tracks the load around the clock
A broad range of control actions is deployed to ensure that this supply-demand balance is met reliably and cost effectively
The response times of the control actions to the onset of a disturbance provide a basis for their classification

65. REAL-TIME CONTROL ACTION TIME SCALE
market price update
operator - initiated/ manual control
ULTC voltage control
AGC
governor control
underfrequency load shedding
exciters and PSS
FACTS
response time after the onset of an event in seconds
protective system
10-2
10-1 1 10
100
1000
1 cycle
1 cycle

66. SYSTEM VOLATILITY
The multiplicity of the players results in the proliferation of transactions of typically shorter duration and larger variety
This leads to increased volatility in the system characterized by:
more frequent changes in system conditions and flows
more volatile pattern of generator commitment
unpredictable and more frequently varying structure/configuration
greater variability in controllers
marked price variability

67. KEY IMPACT: PRICE-DRIVEN FEEDBACK LOOPS
New dynamic phenomenon: response of generators and loads to market signals that are impacted by grid conditions which, in turn, are influenced by the generator and load response
This price-driven feedback path must be explicitly modeled for analysis and control design

68. CONTROL UNDER UNBUNDLING
Under restructuring the providers of the control actions and the controling authority are separately owned
There is a need to specify procedures -- rules of the road -- for the acquisition and deployment of control services
Key challenges:
integrated control of unbundled generation and transmission
information availability due to competitive market considerations
maintenance of system security without unduly affecting the market
measurement and metering
control performance assessment

69. ADDITIONAL CHALLENGES AND OPPORTUNITIES UNDER UNBUNDLING
Determination of static and dynamic limits
Protection system reliability
The changing nature of EMS
Advances in measurement instrumentation and communications technology
Hybrid controls

70. THE DATA OVERWHELM PROBLEM
Vast amounts of data are required for monitoring and control in large-scale power systems under open access
The data problem is exacerbated in the restructured industry by:
the marked increase in the total number of players
the increasing role of markets
the proliferation in the number of transactions
the impacts of increased volatility in the system
the greater region covered by an IGO
the challenges brought about by advances in computing and communications

71. KEY ISSUE: DATA AVAILABILITY AND MANAGEMENT
Two principal aspects:
data acquisition: the availability of all data required for monitoring and control
data overwhelm problem: the effective management of the increasing volumes of data
Availability of data is critical due to the potential for conflicts between physical data and market data
Effective schemes for data storage, extraction, compression, and display are daunting challenges

72. REEXAMINATION OF CONTROL LAWS
The need to ensure the security of the power system under new paradigms established in the restructured environment will continue to require improved controls
The reexamination of control laws needs to take advantage of the opportunities from incorporating new advances in
electrotechnology -- substation automation, FACTS devices and dispersed resources
control theory, particularly in the area of robust control
communications technology for the deployment of faster controls

73. WAMS
The use of the global positioning system (GPS) enables the measurement of the relative phase angles of geographically dispersed sinusoidal voltages in the grid
The wide area measurement system or WAMS makes extensive use of the GPS in various phase measurement units which are interconnected by data concentrators
WAMS provides the capability to time stamp measurements and communicate the data over large distances with acceptable latency
WAMS implementation to cover a wide region such as the Western Interconnection in the US is underway

74. IMPACTS OF ADVANCES IN COMMUNICATIONS
Special protection schemes such as remedial action schemes integrate very fast acting controls with protective relays and operate on the same time scale as the protection system
The deployment of such schemes will allow WAMS to make possible the effective implementation of faster controls for security enhancement

75. ENHANCEMENT OF ANALYTICAL AND SOFTWARE TOOLS
Data visualization
Analytical tools for information management, state estimation, voltage security analysis and available transfer capability
Software engineering
Model development and validation
Training simulators

76. SUMMARY
Identification of the critical research needs to meet the vast scope of challenges in control to ensure reliable and cost effective electricity in the future
The effective integration of technology advances in the areas of computers, communications, control and power electronics advances is a major challenge
The coming to grips with the data overwhelm issues , the formulation of new control laws and the development of new enhanced analytical tools/software in the areas of automatic controls, security monitoring and security enhancement are key elements of the research agenda

77. 1