Economic Adequacy Standard January 29 2010 Resource Adequacy

Economic Adequacy Standard January 29, 2010 Resource Adequacy Forum Steering Committee January 29, 2010

Outline • • Arguments For an Economic Standard Arguments Against an Economic Standard Options for an Economic Standard An example using the Power Plan January 29, 2010 2

Arguments For an Economic Standard • Adequacy thresholds are a minimum requirement only • They do not give any indication of the optimum amount of resource • Could be linked to the Council’s power plan for consistency January 29, 2010 3

Arguments Against an Economic Standard • Economic target would only provide the desired magnitude of resource not the mix • Council’s power plan already provides regional guidance on the optimum magnitude and mix of resource • Could be misused as a surrogate for an IRP process January 29, 2010 4

Options for an Economic Standard 1. Use the Council’s power plan 2. Use a modified NRF/White Book calculation 3. Develop a new method January 29, 2010 5

Options: Pros and Cons Option Pros Cons 1 Matches the Council’s plan. Utilizes completed work. Less work for the Forum. Council’s method may not be universally accepted. 2 Familiar and easily understood. Less work for the Forum. Not based on an economic model. No guarantee to reduce risk. 3 Chance to revisit economic risk methodology. Would give more ownership to participants. Will take lots of time and effort. May not be any better. May get politically bogged down. January 29, 2010 6

Technical Committee Recommendations (2007) (if an economic standard is to be developed) • • Use the Council’s power plan Adopt the Council’s measure for economic risk (TVar 90) Convert selected “plan” on the efficient frontier into economic target (Example follows) January 29, 2010 7

Efficient Frontier Minimizes Cost Space of feasible solutions Increasing Risk Alternative Risk Levels Efficient Frontier January 29, 2010 Minimizes Economic Risk Increasing Cost 8

Efficient Frontier Physical Target LOLP ~ 5% Illustrative Only Firm Bal ~ - 1, 500 MWa Physical Adequacy Limit LOLP = 5% Example: Using the Power Plan to define an Economic Standard January 29, 2010 Council Draft Plan LOLP ~ 0% Tie Economic Target to Council’s resource plan 9

Using the Council’s Power Plan to develop 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) January 29, 2010 10