August 6, 2003


The Western Area Power Administration (Western) appreciates the American Wind Energy Association’s (AWEA) active participation in the public process for the transmission and ancillary services rate adjustment, particularly the regulation and frequency response service for intermittent renewable resources rate.  Western is also reviewing and giving consideration to the formal comments from AWEA.  All comments received from interested parties will be addressed in the final Federal Register Notice (FRN) expected to be published by late November 2003.  At this time, Western has not arrived at a final methodology for regulation service for intermittent renewable resources.


QUESTION 1:  AWEA asks that the Western provide an understandable example of how much the new Western wind “regulation and frequency response” rate will cost wind projects in dollars per megawatt-hour equivalent costs.


ANSWER 1:  Western, in its rate brochure dated June 2003, Appendix B, page B-7, displayed how the proposed charges for regulation for intermittent renewable resources are calculated.  The exact charges for specific units are dependent on several factors such as unit performance, plant factor, and scheduling of the units.  These factors may vary greatly from unit to unit, and from company to company.  Therefore, the exact impact of Western’s new rate would not apply across the board to all wind units within the Western Area Colorado Missouri control area (WACM).  Interested parties may determine impacts to their particular units by making assumptions about how the units will be run, how they will perform against a submitted schedule, and the amount of anticipated energy produced. 


It is important to note that Western is assessing these proposed charges to recover the costs incurred by the control area to regulate for these units.  Inasmuch as Western cannot declare any of its costs as non-reimbursable, any costs not assessed for regulation service would have to be borne by other customers taking firm electric service, transmission, or ancillary services.


QUESTION 2:  AWEA asks that Western provide support from the literature, from practice elsewhere, or from any other source, for its average deviation method of determining wind variability.


ANSWER 2:  Western’s proposal was not based on proposals drafted or submitted by parties outside the agency, but was the result of empirical research done on data collected for the four operating wind sites within WACM.  Minute-to-minute variation data collected for several months on these four intermittent renewable resources showed resources with differing variation rates.  The range of resource variation for these intermittent renewable resources ran from 0 to 100 percent, while the absolute value of the average deviation ranged from 23 percent to 33 percent, resulting in an average of 27 percent variation for intermittent renewable resources within WACM.  Since Western had actual operating data from four different sites, Western did not want to reduce the accuracy of the data by adding sources external to its control area.  The variability described above makes it apparent that Western would incur additional costs to provide control for any wind resources that are installed in the area.  Consistent with our full-cost recovery requirements, Western must assess the cost of providing the service to those taking it. 


Western’s primary goal is the establishment of ancillary services rates that reflect

the cost of providing the service(s) and the proper assessment of charges to those taking the service. 


QUESTION 3:  AWEA asks whether Western can provide examples where its method has been used to determine wind “regulation and frequency” costs.


ANSWER 3:  Western is not aware of any other utility that has implemented a rate for regulation that recognizes the additional costs of integrating intermittent renewable resources into a control area; by implication, we are also unaware of whether any entity has used Western’s proposed method.


QUESTION 4 and 6:  AWEA asks whether Western’s method for determining wind regulation costs applies equally to other generation sources or to loads.  If not, why not?  (Questions 4 and 6 were duplicates.) 


ANSWERS 4 and 6:  Western’s proposal for regulation of intermittent renewable generating resources was not applied to other generation sources or loads because Western determined that other generation sources in the control area did not have the same impacts (e.g., the variation in their generation patterns) on the system as the four WACM wind sites.  Thermal generators, as well as hydro generators with storage capabilityrws, are not as operationally limited as wind and according to Western’s analysis, have predictable patterns of operation that do not require the same level of regulating capacity.   Western does not consider the application of these costs to wind generators to be an inappropriate method of recovering costs. 


In relation to load, this proposal was not applied to load-based regulation charges as they are already assessed a charge based on a separate methodology and place different demands on the system. 


The analysis for intermittent resources is an effort by Western to ensure that entities are assessed a fair and equitable charge for the impact they have on the control area.


QUESTION 5:  AWEA asks if Western considered and rejected any other method or methods for determining these costs.  If so, what were they and why were they rejected?


ANSWER 5:  Initially, Western did consider the viability of assessing the load-based regulation and frequency response service rate against 100 percent of an intermittent renewable resources’ nameplate capacity.  However, after a variation study of the intermittent resources showed a regulation requirement that is greater than the variation of traditional generation resources, Western proposed a rate that was more reflective of the impact on WACM.  Western believes the proposed rate to be a better presentation of cost recovery for the type of service provided.  That methodology, based on consumption, is shown in the rate brochure and was presented at the July 14, 2003, Public Information Forum.


QUESTION 7:  Does Western propose to eliminate imbalance penalties for intermittent renewable resources?  If so, will intermittent renewable generators still pay for imbalances?  Can Western provide tariff language and a simple explanation of how these payments will be calculated and paid?


ANSWER 7:  In its revised Energy Imbalance Service rate schedule, L-AS4, published in the Federal Register on June 11, 2002, Western specifically addressed treatment of intermittent renewable resources.  The rate order states in part:


“Western promotes the installation of renewable sources of energy, but recognizes that these resources fluctuate significantly as a normal part of their operation.  WACM is a geographically large control area with few resources available to balance loads and resources, which limits WACM’s ability to cover the fluctuation anticipated with an intermittent renewable resource.  Western will apply Energy Imbalance Service to renewable energy resources.  However, Western is willing to purchase, on a pass-through cost basis, the regulation and energy required to mitigate the fluctuations inherent in intermittent resources.  This will assure that the intermittent resources only pay for their impact on the system and are not penalized for out-of-band excursions.” 


As an example, assume a wind generator scheduled 5 MW for a particular hour, but had an output of 0 MW that hour.  The Energy Imbalance Service rate schedule establishes a bandwidth of +/-5%.  This bandwidth is calculated against a customer’s load.  However, Western has removed any bandwidth calculation for intermittent renewable resources and will charge the wind generator only 100 percent of the energy costs, plus transmission and/or transformer losses, involved in balancing the output of the generator (0 MW) with the schedule (5 MW). 


Western’s emphasis is not to penalize wind generators or any other customer, but rather to collect only the cost(s) of providing an ancillary service.


QUESTION 8:  Does Western propose to apply its “regulation and frequency response” rates to run of the river hydro electric production?  If not, why not?


ANSWER 8:  At present, the only intermittent renewable resources within WACM are the four wind farms analyzed and referenced in Western’s rate proposal.  There are no true run-of-the-river hydro plants within WACM at the current time.  Therefore, to apply the rate for intermittent resources to any of Western’s hydro plants would be inequitable.  Western has determined that the hydro plants referenced as “run-of-the-river” in its Regulation and Frequency Response Service proposed rate, are plants that cannot be used to regulate.  Despite this fact, these plants do have limited reservoir storage systems and a consistent flow of water scheduled through them by the Bureau of Reclamation for agricultural, municipal, and industrial needs, which results in reliable and predictable generation output.  Therefore, Western does not consider these plants as intermittent renewable resources. 


QUESTION 9:  AWEA asks if Western has read and analyzed the material cited in the footnotes to the written AWEA and Wind Parties’ comments submitted on

July 14, 2003.  If so, what is Western’s response to the comments and what changes to its rate proposals does Western intend to make based on its analysis?


ANSWER 9:  Western is analyzing AWEA and Wind Parties’ July 14, 2003, comments and concerns about implementation of a rate for regulating for intermittent renewable resources.  Western’s response to all comments will be part of its final FRN to be published by late-November 2003.


QUESTIONS 10 through 13:  Does Western believe that a resolution to its concerns about wind scheduling and forecasting can be worked out successfully within the time proposed for the consideration of the rates proposed in this proceeding?  If the answer to the above question is ‘yes’, then does Western have a proposal that details the analysis and implementation of a scheduling and forecasting process?   If the answer to the above question is ‘no’, then would Western act favorably on the proposal by AWEA and the wind parties to delay the Regulation and Frequency Response Service for Intermittent Renewable Resources rate proposal?  Would Western consider favorably setting up a procedure to work with interested parties over a 6-month to

1-year period to resolve forecasting and scheduling issues for intermittent renewable resources? 


ANSWERS 10 thru 13: Western's current operating policy provides for the risks for scheduling and forecasting to be borne by the companies owning the resources.  This is standard operating procedure for all control areas currently operating within the Western United States today.  Western believes that its current proposal is consistent with this model.  Western, at present, has no reason to believe that constraints exist to the implementation of the proposed rate action.  Western cannot comment on how it will address a particular customer proposal prior to the close of the public comment period (September 11, 2003).  Western’s goal is to implement a rate for this service that is fair and equitable to all parties, and that recovers costs in a manner that reflects service taken from the control area."



QUESTION 14:  Please explain how the proposal offered by Western meets the principles of cost-causation, particularly as it related separately and distinctly to the:  1) continuous operation of regulation units; and 2) to intermittent dispatch of load-following units. 


ANSWER 14:  Although WACM has historically analyzed and designed its regulation rate based on the combined effect of all the generators and loads in the control area, Western’s current proposed rate for regulation and frequency response service for intermittent renewable resources does treat the intermittent renewable resources separately and distinctly in terms of measuring the actual (cost-causation) impact on WACM’s regulation requirements. 


Western believes that its proposal meets the principles of cost-causation.  Since Western does not operate a vertically integrated control area, determination of cost-causation for intermittent renewable resources should be assessed on an individual basis, rather than in the aggregate.  It has been suggested that the true cost should be the net minute-to-minute regulation requirement of the entire control area.  Western does not agree with that approach. That approach increases the probability that costs will be shifted and different customers may or may not be paying their fair share at any given time.  At the July 14, 2003, Public Information Forum, Western suggested that individual wind developers aggregate their operations/scheduling to minimize control area impacts.  Efforts by wind developers to actively address control area impact issues will greatly assist Western with development of a cost-effective regulation rate.


QUESTION 15:  Please provide the variation of Western’s loads (disaggregated to the extent possible) and individual generation resources as calculated in a manner similar to that proposed for wind.  Please provide the results in both percentage terms and in absolute quantity terms.


ANSWER 15:  The variation of Western’s (or WACM’s) discrete loads was not incorporated in the analysis or proposed rate design.  Loads were taken as an aggregate, and their variability in both amount and duration was shown in the rate brochure and discussed at the July 14, 2003, Public Information Forum.   Data on the variation of other generating resources was also provided at the July meeting, and subsequently posted on Western’s website.


Regarding AWEA’s specific request for discrete load data, Western does not provide information during the public process that was not used in the formulation of the proposed rate. Therefore, Western respectfully declines this request for data.  This information may, however, be requested from Western under the Freedom of Information Act.


QUESTION 16:  If Western is intending to implement some form of regulation and frequency response rate, would it be willing to implement a rate that was subject to refund pending an analysis of cost-causation? 


ANSWER 16:  Western’s intent in the filing of this rate is fair and equitable recovery of cost of service.  If formulated and implemented properly, there should be no cause for refunds, no issues related to cross subsidies between customers, or no under-recovery of costs. 


The proposed rate for regulation and frequency response service will be reviewed and approved by the Deputy Secretary of Energy and implemented on a provisional basis, pending final approval by the Federal Energy Regulatory Commission (FERC).  If, during the period of provisional rate implementation, but prior to approval by FERC, charges are assessed that are ultimately rejected by FERC, provisions are available for refund under 18 CFR 300.21(g).  Changes, if necessary, will also be made to the rate at that time.