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BPA Explores Capacity Market by Staff BPA Journal, August 2014

In recent months, BPA established an elaborate -- yet efficient -- cross-agency process to reduce the occasions on which BPA has to curtail wind generation. The new procedure addresses occasional constraints that can diminish the federal hydropower system's capacity to balance supply and demand for power. The process allowed BPA to explore an untested capacity market this spring to acquire balancing reserves from third-party -- or nonfederal -- sources.

BPA's goal was to determine if excess preschedule (day-ahead) capacity exists in the Northwest; whether suppliers are willing to sell it in 24- to 48-hour blocks (and at what price); and whether BPA can rely on that third- party capacity when federal balancing resources are unavailable.

"Establishing the ability to acquire nonfederal balancing reserves is an important strategic objective for BPA," said BPA Administrator Elliot Mainzer. "This has been a very successful initiative built on effective teamwork and collaboration with external partners. I applaud the work that's been done and look forward to seeing where we can take it from here."

BPA used the new process for the first time in April and continued to purchase preschedule capacity through May. A wet spring had translated into a large supply of hydropower fuel, stored in the form of snowpack in the Canadian Rockies and mountains of Montana and Idaho. As the snowpack began to melt and run downstream, BPA had to pull out all the stops to avoid power oversupply this spring.

Under normal conditions, BPA carries 900 megawatts of balancing capacity to increase federal hydropower production. But as stream flows picked up in early May, BPA found itself limiting the balancing supply by as much as 500 MW on almost a daily basis. With its new process in place, BPA was able to go to the market to replace the shortfall in federal capacity.

"This is an entirely new type of capacity product and process for BPA," says account specialist Matt Schroettnig. "Everything about it is brand new."

For one, BPA's Power Services -- which seeks to acquire the capacity on Transmission's behalf -- only has a couple days' notice that the hydro system will be constrained. This means BPA has to purchase the capacity in the pre-schedule time frame -- an anomaly in the world of transmission operations.

"Typically, transmission providers will attempt to purchase capacity months, or sometimes even years in advance," says Andy Meyers, manager of Power Prescheduling, the group at BPA responsible for much of the implementation. "We didn't know if anybody would have excess capacity they were willing to sell in that time frame, especially during the spring."

So far, the findings are mixed. BPA's process worked well and the agency was able to acquire reserves on a number of days to make up for the shortfall in federal capacity, reducing the amount of curtailments imposed on variable generators. But there usually wasn't sufficient response from suppliers, and BPA couldn't always replace the full amount of the shortfall. And with prices that were higher than expected, BPA expended its $2 million budget in a matter of weeks.

"There just didn't seem to be a lot of excess capacity out there," says John Wellschlager, Power account executive. "One reason might be the timing. Thermal generators tend to schedule maintenance shutdowns during the spring, when there's usually a lot of hydropower and energy prices are low."

Wellschlager says it's also possible that generators don't want to risk selling capacity that they might end up needing themselves during that same time period.

In ongoing workshops to prepare for the BP-16 rate case, BPA and its stakeholders are discussing these findings and will work together to refine the acquisition process. For example, some customers have suggested giving suppliers more notice. But the timing is tricky -- BPA can't seek the third-party capacity until it is certain that the federal capacity will be limited.

BPA is interested in working with potential suppliers on ideas to make this process more effective.

"Ultimately, we want to provide our customers the best service at the best rate," says Schroettnig. "The experience we've gained from testing this market will help us get there."