Market Operations & System Reliability

Foreword

Foreword

This professional reference is one of a series Energy Compliance, Inc. publishes for registered entities and the people who run their compliance programs.

I’ve spent more than thirty years on every side of the bulk electric system. I’ve operated control centers as a Reliability Coordinator, Transmission Operator, and Power System Operator. I’ve audited grid facilities and signed off on findings as a senior compliance auditor. I’ve worked enforcement matters from inside the regulator’s process. For the last several years I’ve advised registered entities directly through the firm I founded.

The entities that do reliability well share a common habit. They take the standards seriously without confusing them with reliability itself. They know that a NERC Reliability Standard is a floor, not a ceiling. They know that compliance is something an auditor evaluates, but reliability is something a system either delivers or doesn’t. They prepare for audits by building programs that survive real questions, not binders that look thick.

That’s the perspective these references try to share. Each one focuses on a single topic. A standard family, an operational function, a regulatory framework, or an emerging industry challenge. Each one walks through how the topic actually works.

These references are written for the compliance manager who wants to understand the system, not just memorize requirements. For the legal counsel who has to brief a board honestly. For the senior operator who’s been told that compliance and reliability are the same thing and suspects they aren’t. And for the new compliance hire who got handed a binder and told good luck.

These references aren’t marketing material disguised as content. They’re the result of three decades of doing this work and watching it succeed and fail. I’ve written them in the same voice I use in a control room or in front of a Regional Entity audit team. Direct, evidence-grounded, honest about what the standards do and do not require.

Energy Compliance exists because most of the consulting offered to registered entities today is structured for billable hours rather than for outcomes. Every engagement is led by one senior practitioner. We don’t bring five people to a meeting that needs one. We automate the work that should be automated. We apply senior judgment to the work that requires it. If that approach matches what you’re looking for in a compliance partner, the back of this reference has our contact information.

If not, the reference still belongs to you. Take what’s useful. Apply it well. And remember the only test that ultimately matters: when the system needs to perform, does it?

Rob Smith, Founder, Energy Compliance, Inc.

EC-WP-403 Market Operations and System Reliability

Chapter 1

Operational Coexistence of Markets and Reliability Functions

The Real-Time Operation of Power Systems in a Market Environment This SWEbook presents an authoritative, in-depth examination of the relations between the real-time operation of power systems and market activities by integrating the standards-based reliability framework with the market operations. It delves into the relationship between the market services, their constraints and

interactions, their influence on real-time operation, the scope of market influence, and the role of reliability authorities. it investigates the circumstances under which successful and failed coordination occur and concludes with a thorough examination of operational risk, accountability, and governance in market-based power systems.

market and reliability operations are carried out in the same control rooms, using the same information systems and organizations. These activities appear to be carried out under rather different principles, given the different goals and sets of rules to which they are subject. This apparent distinction is not arbitrary: It is designed to provide a degree of functional governance and independence for economic transactions that is not incompatible with the need for centralized command and control that may be required to ensure system reliability in the face of substantial uncertainty and turbulence.

All market operations involve forecasting. Loads, resources and network conditions are all forecast to enable pricing, scheduling and contracting decisions to be made that support the desired operating outcome. Essentially the market operations bring to bear knowledge of what is normal under certain operating conditions and thereby provides a reference point from which dynamic analysis of system conditions can proceed to determine any deviations from normal that may pose reliability risks. However it is important to note that this method of developing expectations of system operating conditions does not inherently provide any judgment about what constitutes an acceptable level of system operating performance.

Reliability is an immediate function; that is, reliability functions are based on the immediate rather than on a predicted or expected condition. Because of this, the security of the system must be monitored on a current basis based on actual system voltage levels, load flow, switch positions and transmission line and transformer states and on an analysis of the amounts of emergency resources required to provide for post contingency reliability. The basic function of the reliability authority is to provide operating instructions to the operating personnel to implement operating and emergency responses based on current system conditions without regard to the cost of the instructions.

The simultaneous performance of the mentioned functions requires careful control of the boundaries between them. Market operations generate the operating schedules and prices that give the necessary economic incentives. However, these do not directly influence the safety of the system operation. Reliability assessments indicate if the operating conditions fall within the prescribed limits, but these do not provide information for optimizing the system performance. The boundaries have to be controlled so that the economic management of the system supports and does not hamper the operational decision making.

Operational coexistence is most visible in the activity sequencing. The analysis of market results serves as the basis for the initial dispatch and reserve positioning in order to provide a solid basis and horizon for the operations. As real time progresses, the operations will have to assess if developments occur in

line with initial expectations. In the event that developments are in line with initial expectations, market scheduling can proceed with little adjustment. In the event that developments diverge from initial expectations, reliability takes precedence over market alignment without further consideration of economic efficiency.

Also significant for the coexistence of tasks is organizational accountability. Staff employed for market administration are accountable to the Commission for the implementation of tariff provisions, for transparency in the operation of the market mechanisms and for the accuracy of settlement. Staff employed for reliability tasks are accountable to the Commission for preventing operating limit violations and for maintaining power system security. However, there is no full substitution of tasks. This ensures a clear framework for the assessment of the consequences in the event of a disturbance or market incident.

Information flow is a key aspect of grid coexistence. Market operations and reliability operations share some common data elements such as real time system conditions, resource states and network conditions. The meaning of those data elements are different for market operations and reliability operations. Market operations use the data to determine schedules and prices. Reliability operations use the same data to determine the margin, exposure and capability of the power system. This information is used for differing purposes, without separating the markets from the grid.

Operational coexistence defines the interactions between commercial activities carried out in parallel mode and real time transactions. It is a key aspect to explain why it is not possible to abolish operational expertise within organized markets. Indeed, it may very well be that commercial transactions follow all the market rules and, however,

lead to situations whose proximity to the reliability thresholds implies more than just mere respect of the dispatch sequence provided by the market, in order to avoid that operational management be seen as not successful.

This balance between market and reliability functions is a balance between structure and discretion. Markets provide structure for large parts of the system which has become highly decentralized. Reliability authority provides the discretion needed to deal with the many uncertainties and uncontrollable factors in the system. In order to achieve reliable operation, it is necessary to preserve both parts of the system and the border between them.

End-of-Chapter Summary

The market operations and reliability functions are carried out side by side, through the guarantee of an institutional separation designed to enable the economic coordination, while at the same time ensuring the operational security of the system. Market activities generate, in advance, the structure required for

the system operation; the reliability authority exercises its competence in real time, depending on the occurrence of any disturbances to the operating structure. Guarantees the continuity of the coexistence between the market and reliability functions, ensuring responsibility in the system operation.

FROM THE FIELD

Markets and reliability share institutional infrastructure. They don't share the same logic. Programs that don't recognize the difference get caught at the seam.

The market settles in price. Reliability settles in performance. The two converge in real time, and the convergence is where most of the operational complexity lives.

A market design that ignores reliability constraints produces unreliable markets. A reliability framework that ignores market behavior produces incomplete oversight.

Chapter 2

Transition from Market Schedules to Real Time Control

Moving from market schedules that are based on market models of real time operating conditions to real time operating conditions that begin to deviate from those models is arguably the most critical interace in an organized power system. On-going and in real time, planned conditions are converted to real time operating conditions and reliability of the grid is determined not by the accuracy of the market based schedules that precede real time, but by how efficiently and what rules are used to transition from scheduled conditions to real time operating conditions. The market schedule is designed to serve as a system timing tool to help establish the sequence of events for system operation. The day-ahead schedules, including real time revisions, are based on an estimate of peak load, resource availability and network conditions and are bounded by the constraints of the market model. The schedules serve to minimize uncertainty and enable a co-ordinated preplanning response among a broad range of market participants. From a reliability standpoint, market schedules serve as a basis for establishing a reference state for system planning and operations rather than being considered an enforceable operating plan. Real time control is engaged as events occur that are unforeseen. This includes such things as sudden changes in load, equipment failure, weather events and transmission line outages. Reliability is maintained by closely watching system operating limits, frequency, voltage levels and exposure to contingencies. In the event that deviations from plan are within defined bounds, operations proceed with only a minimum of adjustment to market schedules. Should deviations be outside defined bounds, control actions are taken. Reasons for deviating from market schedules are based on reliability criteria rather than on economic factors. Deviations from system operating limits are always counteracted, regardless of the price and the consequences in terms of settlements. This principle is inherent to organized markets: markets are there to support reliability, not to define its boundaries. Transition processes are governed by operational procedures and communication rules. The operator has to provide adequate information regarding the system margin, and based on the reserves required, to decide whether it is necessary to perform steps of reserve utilisation, interchange adjustment or resource re-allocation. These steps can decide whether or not the final exchange of energy is based on the market result. In any case the procedure rules shall preserve at the same time the required degree of transparency and accountability. The non-conformity with respect to the agreed deviations and their settlements are subsequently regulated by specific rules. Transitioning to real time is a reality that was made possible by advances in information technology but also exposes limitations in modeling that have

existed since markets were established. Market clearing relies on models that are sufficient for purposes of coordination but are not necessarily exhaustive. These models were designed to enable rapid market clearing and were not intended to represent all the complexities that arise in real time. In real time, it is the reliability authority’s responsibility to deal with unexpected interactions and constraints that are not covered by the assumptions built into the market clearing models. The clarity of the transition to accountability is important. When reliability actions are taken, the responsibility for actions is determined on a basis of adherence to reliability criteria and operating procedures rather than adherence to the schedule of the market. When market outcomes lead to difficult circumstances without a breach of reliability criteria, the accountabilities are still determined through the market governance processes rather than through the operational processes. There is often considerable confusion over the nature of this transition period. If it is seen as an operational activity as opposed to a market activity, then reactions are often too late. On the other hand, if operational interventions following deviations from market schedules are viewed as market failures, then they are often overlooked because these deviations are part of the normal operating regime for ensuring high system reliability. Improved governance practices are required to ensure that market schedules are not treated as ‘bibles’ that are always intended to be followed at all times. Rather, deviations from these schedules are the rule rather than the exception. The transition from the market schedule to real time control is therefore an expression of the hierarchy of institutions in the power sector. Economic control has to yield to security requirements as they arise. Assuring reliability does not mean refraining from this transition but rather managing it efficiently and transparently.

End-of-Chapter Summary

The change from market schedules to real time control is a key characteristic of organized systems. Market schedules provide participants with a set of coordinated expectations, while real time control influences system response to the actual circumstances of the system according to reliability criteria. The transition from market schedules to real time control must be accomplished in such a way as to maintain security, accountability and the intended relationship between markets and the reliability authority.

FROM THE FIELD

The handoff from market schedule to real-time operation is the most consequential interface in organized markets. It's also where most operating-period reliability issues originate.

Schedules are predictions. Real-time is reality. The reconciliation between them is operating work, not market work.

Programs that treat schedule deviations as a market issue misframe what's happening. Schedule deviations are reliability information first.

Chapter 3

Operational Authority, Decision Making, and Accountability

Reliability Operations have the operational authority in a coordinated market because their operational decisions are based on ensuring system reliability (i.e. security) rather than the market outcome. Although markets provide the basis for developing system load forecast expectations that guide operation and facilitate the coordination of resource use, operational decisions are made based on a set of specialized operational operating procedures that reflect the reliability-focused functional roles defined in the Reliability Standards and Operating Agreements. Such operational authority is necessary to ensure that system operating conditions are maintained within reliable ranges, whether the resulting market outcome is efficient or not. Opinion/Recommendation under Operational Control is required almost instantaneously and under a large degree of uncertainty. At times, real time system wide information regarding such matters as frequency response, steady state voltage, line and component conditions and contingency exposure are not available, and where available, may be subject to some degree of inaccurate or unknown time duration, allowing very little, if any, margin of error. In arriving at the decision relating to the reliability of a piece of apparatus, it is customary to err on the side of caution. The control center must primarily direct the maintenance of power system stability and integrity, the attainment of which frequently requires the adoption of precautionary practices and adherence to established standards and guidelines. Consequently, as opposed to attempting to secure an optimal solution to a problem, the normal approach is to establish guidelines relating to feasible operating practices within established operational and system design limits. The decisions as to who has responsibility for the decisions made using the reliability framework are defined within the reliability framework. Entities performing operational functions are held accountable to the reliability standards and operating procedures as defined in the reliability framework and not to market efficiency or outcomes. This helps to ensure that decisions regarding the bulk electric system are not driven by market considerations. Operational authority is exercised when

Grid Manager (GM) directs independent actions by one or more Transmission Operators (TOs). Actions such as changing the level of generation, reconfiguring the transmission system and making changes to interchange may be necessary to manage new risk as it develops. These directions are issued under the authority of the established operating relationships and are non-negotiable and binding on the recipient; they are issued whether the recipient is in a short position or a long position and whether or not they

are economically affected. The exercise of operational authority from the GM to the TO(s) is a function of the clarity of the roles and responsibilities, the discipline of the communication process and the understanding of reliability priorities. Operational decision making is a highly coordinated effort that requires function-wide horizontal communication. Reliability Coordinators, Transmission Operators and Balancing Authorities perform many unique functions but their decisions are highly interdependent. The organized markets have only added to this complexity as a plethora of schedules, commitments and other operating agreements must be managed while trying to coordinate real time operational needs. This lack of clear dominance of one function over the others during stressed conditions can cause great source of inefficiency. Reliability operational authority can only be reinforced by accountability for events that occur following activation of such authority. Thus, determination of accountability in the RTO/RAO and by market monitors in relation to disturbances and near misses associated with operations following one or more activation decisions will necessarily be compared to applicable criteria such as relevant voltage or reactive compensation standards or operating procedures. This comparison will relate to whether or not the decisions as to implementation of RTO actions were made when they were made, whether such implementation was appropriate in light of general reliability standards and Reliability Obligations, and other similar criteria. Determination of market effects or harm will be considered secondary to ensuring that the system operates safely and reliability-wise. Reliability Must Run Rules Ensure FRR Provider Has Clear Operational Authority FRR operational authority is critical for maintaining market integrity. Without it, operators may be reluctant to take involuntary actions that can disrupt the operation of their own facilities, while at the same time providing reliability services to the system. If the consequence of failing to provide FRR is an uncertain or unpredictable regulatory response, this removes the certainty and governing principle of market rules. Instead, operators and other market participants may face the reality of regulatory intervention – and possible penalties – on a basis that is open to economic interpretation, rather than being based on rule of law. Operational authority and operational accountability are the underlying conditions explaining why the reliability of the power system cannot be left to the market dynamics. Markets are planning behaviors. They do not eliminate the need for real time operational decisions to ensure operational reliability while meeting operational accountability obligations. The resilience of organized market structures also depends on preserving operational authority and ensuring that the associated accountability arrangements are properly enforced.

End-of-Chapter Summary

Each ISO/RTO has operational control in its region. Control is exercised through specific functions as defined in reliability standards and by market rules and operating agreements. Operations decisions are made with a focus on reliability preservation under uncertain conditions and are scrutinized in accordance with reliability standards rather than market-based criteria. Maintaining functional authority

and accountability, in addition to ensuring reliable operation of the grid and addressing the challenges of organized markets, remains a priority.

FROM THE FIELD

When market and reliability conflict, reliability wins. The operator with reliability authority overrides the market signal. The standards expect this.

The override isn't arbitrary. It's procedurally defined, evidenced in real time, and reviewed after the fact. Programs that overrode the market without documentation can't reconstruct the decision.

Reliability authority and market authority overlap. Knowing which one is in play at a given moment is part of operating effectively.

Chapter 4

Managing Uncertainty and System Stress in Market Environments

Uncertainty is a fundamental aspect of real time power system operations. The uncertainty embedded in real time power system operations includes forecast errors, equipment failures, weather volatility and human mistakes that cannot be avoided through market mechanisms. In an organized market, the management of the uncertainty has to involve at least three stages: (1) the pre-operational planning phase that comprises the coordination and scheduling activities based on expected conditions; (2) the reliability control in real time where the uncertainties are managed and the reliability and efficiency of the system are maintained; and (3) the fast response after the deviations from the expected conditions are detected. Market operations reduce uncertainty by reducing its width rather than eliminating it. Forecast-based scheduling, reserve procurement and the commitment process provide a basis for anticipating what are likely conditions in the system. Reliabilitywise this prepares the system to reduce the likelihood and impact of an event by reducing the exposure but does not eliminate the need for real time responses to unexpected developments in the system. System stress occurs when unexpected events or uncertainties cause operating limits to be threatened. Examples of system stress occur with severe weather, common-mode resource outages, deratings, and sudden changes in load. Ultimately, market schedules are not sufficient to manage system conditions in stressed conditions. The reliability organization must look not only at current circumstances, but also at the forecast of system stress and take action before operating limits are violated. Decision making under stress is focused on margin preservation. Bringing online additional reserve resources, adjusting transmission real and reactive power, limiting interchanges and adjusting resource output to mitigate losses of reliability restoration margin are common actions taken to mitigate the ongoing loss of security. Such actions may be market distorting and may run counter to generator operating practices and market participant expectations. However, they are acceptable due to the overriding obligation to provide reliable service. The market is an influencing factor but not a determinative factor. Stress management is another area where the principle of conservative assumptions comes into play. The system models rely on probabilistic or statistical assumptions. Under stress conditions the conservative assumptions for the operations need to be more adverse than what is implied by the outcome of the markets. It is important to understand that these conservative assumptions are part of reliability management and are not a sign of weakness of the markets. Communication is a key tool for managing uncertainty. Effective communication among operators, reliability coordinators and neighboring systems helps to coordinate responses to uncertain

situations. Organized markets provide a basis for sharing situational information through load and price schedules, but reliability communication requires more than just market information, involving direct operational status, assessment of available restoration options, and planned activities. Reliability in situations of stress, which imply challenging circumstances for institutions, is another major issue addressed by the CEIP Project on Grid Reliability, whose final report has already been presented. - Stress conditions are not only tested on networks and systems. Stress conditions are also a test for the institutions’ discipline. - The temptation to ensure that market prices and above all economic consequences are maintained can constitute a significant pressure for those that must make important decisions to meet reliability challenges in case of stress conditions, while the necessary immediate actions in such critical moments cannot always allow taking the necessary time to assess the relative importance of the economic and the price impacts and therefore could jeopardize institutional discipline. - For reliability to be ensured in the exercising of operational powers under reliability governance rules, the system must be such that those who exercise operational power have to operate within “silos” where market or economic consequences do not exert pressure on their actions. They should have only to worry about system reliability issues when they act in their operational power under the reliability governance rules; hence the institution should preserve reliability and its credibility. Post event review of stress situation is an opportunity to learn a great deal. This activity will look at how the market performed, how the operation reacted and how effectively the entities in the market were coordinated to understand where actual uncertainty exceeded anticipated or where assumptions proved to be incorrect. This allows for necessary adjustments to market preparation and operational procedures and should not be confused with one another. Uncertainty management and stress response in markets requires an understanding of the boundaries of predictability

and the need for authority. Markets can provide stability and readiness, but reliability of market operations is ensured by means of decision-making, caution and swift intervention in the event of uncertainty unfolding into a crisis.

End-of-Chapter Summary

Uncertainty and system stress are inherent to power system operation and cannot be reduced to zero through market mechanisms. A coordinated market design supports preparedness to reduce exposure to uncertainty while a reliability authority reduces stress through prudent planning and timely decision making. Reducing stress to acceptable levels within a power system requires definition of roles and responsibilities, effective communication and adequate technical and operational barriers to withstand potential economic pressures on the reliability decisions.

Chapter 5

Coordination Failure Modes Between Market Operations and Reliability Functions

These are fundamentally designed to coexist, but there is no a-priori reason that their interaction would have to be smooth. Coordination failures occur when market assumptions about the system do not hold, because of misunderstandings of system boundaries, or due to loss of vital information flows during periods of high system stress. These failure modes are not indicative of design flaws, but rather places where good governance and awareness of system dynamics are critical. One of the coordination failure modes comes from misunderstanding market pricing information. The fact that a schedule is settled and within the rules of the market does not necessarily mean the real time situation is adequate or known. This can be a problem when assumptions in models are too optimistic such as: negatively correlated resources behavior, overestimation of resource availability, and not accounting for transmission bottlenecks in a given area. It can take some time to understand the full impact on resource adequacy when a close in time assessment of the real time situation is not made. Another failure mode involves timing misalignment. Market processes operate on defined intervals, while operational conditions can change continuously. Rapid deterioration in system conditions may occur between market recalculations, leaving operators to manage evolving risk without immediate market adjustment. In these circumstances, coordination depends on the willingness to depart from market alignment promptly rather than waiting for formal recalculation. Coordination can also be impaired because of institutional boundary confusion. Market personnel, participants, or outsiders may mistakenly assign responsibility for ensuring the reliability of the market, which can in turn affect the actions of market operators. For example, these agents may: • Attempt to justify in economic terms any actions taken to ensure reliability; or • Request market operators to settle disputes or events that are outside of market management’s scope of responsibility. It is important to define the institutional boundaries to avoid any ambiguity that could hinder the actions of market operators. The degradation of information is a less obvious failure mode. The market and reliability functions both make use of partly overlapping data sets. During critical situations, the delays, errors and blocks in the data communication channels can be disturbing to the operator’s situation awareness. The ability to handle information is more a matter of interpreting and choosing the most relevant information for the situation at hand, and has less to do

with market economics and priority settings. Seams between market regions introduce another level of complexity. Such as differences in market timing, interchange rates and operating practices that must be coordinated to effectively manage conditions where the impact of a particular condition extends into more than one market region. Coordination across seams is difficult to achieve because of the lack of formal agreements and procedures to manage differences that arise when assumptions about potential interactions with adjacent systems are violated. This complexity must be considered by the Reliability organization regardless of any market structures that may be in place. As governance cannot anticipate and prevent coordination failures a fortiori post- event, it has to be able to react appropriately. In turn this necessitates ex-post analyses (carried out at an appropriate distance from the events to allow time to calm passions) making a first judgment on the respectively differing natures of possible market design failures, implementation shortcomings and external, perhaps inevitable and uncontrollable events, in order to avoid the risk of viewing purely incontestable coordinate failure inherent in the market economy as a matter of market design that calls for rectification, solely as a manifestation of poor implementation which demands a more rigorous monitoring and control apparatus, or that of circumstances often unavoidable or sometimes even desirable that should not call for greater preventive control. Failure to take into account in any measure possible bias in evaluation, which may always exist in particular contexts, prejudices potential lessons that may be extracted for the future in view of the imperatives of governance. By including coordination failure modes in risk models, one confirms the principles underlying the use of redundancy in Reliability governance. Independent assessment, conservative judgment and the ability to intervene are included in the control measure largely as an insurance against the impossibility of fully anticipating all situations through coordination. The market serves to make less frequent and less complex the rare occurrences when coordination is needed. While ensuring that market operations and reliability functions work together efficiently is a goal that can never be achieved perfectly, ensuring that these systems can withstand small misalignments is a goal that can be achieved with a small amount of excess capacity and clarity of institutional rules so that small discrepancies between these systems do not lead to dysfunction. In particular, if institutions can manage to quickly and unambiguously determine who should do what in the event of only a slight misalignment between these systems, then overall system reliability will be preserved.

End-of-Chapter Summary

The reasons behind coordination failures between market operation and reliability functions include market signals that are misleading or hard to interpret, operational timing that does not correspond to market planning horizons, confusion as to what falls under reliability and what falls under market operations, and information deterioration in real time. What lies behind these coordination failures is lack of foresight rather than poor design of institutions. Reliability can only be maintained through a

combination of clear lines of authority, risk averse decision making and regulatory procedures capable of differentiating between fundamental systemic changes and short term operations issues.

FROM THE FIELD

When market schedules don't match operating reality, coordination has to bridge the gap. When the bridge fails, reliability events follow.

Most market-reliability coordination failures aren't dramatic. They're slow. The accumulation of small misalignments produces a stress event that wasn't predicted by any single point of failure.

The framework codifies coordination expectations. Programs that operate by the codifications navigate the failure modes more cleanly than programs that improvise.

Each market mechanism allocates risk and creates incentive. Programs that read mechanisms as engineering puzzles miss the behavioral dimension.

Settlement is where market participants learn what the market actually rewards. The settlement signal shapes future behavior, regardless of how the market was designed to behave.

Markets evolve under stress. Mechanisms that weren't tested by the prior major event will be tested by the next one.

Market participants are subject to FERC oversight, IMM monitoring, and NERC compliance, simultaneously. Each has different evidentiary expectations.

A market behavior flagged by the IMM can become a NERC issue, an FERC issue, both, or neither. Sorting that out fast determines whether the matter is a compliance question or a market mitigation.

The future of these markets is closer coupling with reliability standards, not looser. The framework is moving in one direction; programs that anticipate it stay positioned.

Chapter 6

Visibility, Transparency, and Operational Awareness

In a market environment, system reliability cannot be preserved in the dark. System operations require knowledge of the status of the grid at all times. This includes both knowledge of the sequences of operation and knowledge of real time system conditions. These need to cover all periods except those covered by market schedules and price signals. Transparency supports the knowledge required for system operations. But operational transparency is different from market transparency provided to foster market confidence or to assist regulatory audits. That part of market transparency that reveals what actually happens to prices, volumes, and settlements is aimed at evaluating specific outcomes. Understanding how prices and schedules were determined and how bids and offers were submitted is important for pricing, scheduling and market rule enforcement and for post-event analysis and accountability. However, achieving operational awareness or providing sufficient information for reliable resource planning and operations is a different aspect of market transparency, one that calls for a more dynamic understanding of system conditions, margins and exposure in real time and ahead of time, an understanding that is not based on a posteriori examination of market outcomes. Real-time operational awareness is fundamentally a matter of observation. The Grid Planning and Operations Modernization project is assessing where information such as telemetry, alarms, contingency analysis results and real time grid assessments can be used to reduce the degree of interpretation and inference necessary to determine operational conditions from price. A number of factors including dynamic voltage behaviour, frequency response, changes in apparatus status and weather are known to reflect risk to the Grid that may not always be reflected in the wholesale market price. RERFs rely on these signals not only to understand the current state of the Grid but also to gauge its likely ability to withstand the next disturbance. In stressed conditions the differentiation between visibility and transparency becomes important. Market outcomes may be delayed or smoothed relative to the actual dynamics of the instability that is being modeled. In this case, for operational purposes, modelling should focus more on direct physical measures and less on derived economic variables. The consequence of not making these distinctions can be a late intervention and a shortened response time. Release of this information has associated governance consequences. Publication of this information will contribute to the public’s confidence in TSOs’ internal governance mechanisms. At the same time, it may present challenges in certain circumstances. In such situations, TSOs may be in the spotlight as they deal with the crisis, requiring adequate governance frameworks that protect their operational decision-making freedom.

Reliability decisions should always be taken with the security of the network in mind, and not with the aim of avoiding negative publicity. Information integration is another challenge. The market system and the operational system both have a lot of information specific to their purpose. Awareness management is about filtering, prioritizing and processing information to be useful to the user. It is not about having more information; it is about recognizing signal from noise, relevance versus not, and focusing on derivative information such as position, margin, or trends rather than primary data. Within a single organization the challenges of awareness may not be particularly daunting. However, once one adds in adjacent systems, transmission owners and reliability coordinators quickly realize that nobody has a complete view of a system that might be under risk from some shared phenomenon. Achieving a coordinated situational awareness of that risk requires information sharing that transcends market and boundary barriers. While certain information is obviously disclosed in a market, the process of achieving reliability coordination awareness involves information sharing and contextual understanding that spans market and other boundaries. These concepts are set to take on an even greater importance due to evolving system conditions. In light of developments such as dynamic resource characteristics and loads, as well as increasing interdependencies, it is no longer satisfactory to rely on a small set of static or hitherto always sufficient key figures. At the same time, knowledge of the overall system situation must be made more dynamic and must be supplemented by a spectrum of new indicator variables without detracting from the classic reliability criteria. Understanding visibility and transparency is key to recognizing the limitations of market information and why grid operators must supplement the market with direct knowledge of the grid. While markets provide some information, it is unreliable for any number of reasons, and the usefulness of that information is highly dependent on the quality of the underlying analysis and the degree of operational discretion that an operator

has to act on the information provided. This operational mindset and understanding of the grid is critical to ensuring reliable grid operations, even in the face of market dynamics.

End-of-Chapter Summary

Reliability performance in the market requires a operational perspective that is based on a real time operational view of the system rather than on market information. While market information can play a key role in ensuring accountability and coordination, the Reliability Authority’s decision to move to reliability restoration is typically based on physical parameters, local knowledge and a small set of operational information. Preserving this operational perspective allows for timely and secure management of the system in real time operational conditions.

Chapter 7

Real Time Intervention and Out of Market Actions

Real time intervention occurs at the reliability authority exercising its authority in the most visible fashion within the organized market environment. When the system margin approaches or enters negative territory, operators may take actions that are not consistent with the market outcome in order to maintain grid stability. These actions are not deviations from market rules but rather components of the broader governing framework that takes into account the need to balance reliability with market outcome consistency. An out of market action occurs when there is insufficient time in the market schedule, insufficient data such as prices or insufficient quantities of capacity committed in the market to manage a reliability risk. Out of market actions can occur as a result of poor weather forecast, component failure, transmission constraints or limitations which have not been fully accounted for in the market processes. In these circumstances the market recalculation mechanism is too slow or too uncertain to prevent the deterioration of system security. This authority derives from reliability duties rather than market rules. Operators performing RC, TO or BA duties have a duty under reliability standards and operating procedures to take certain actions to ensure system reliability. This duty takes precedence over any determination made by the market. In general, the determination of whether the authority to intervene was properly exercised derives from whether the actions were necessary under the reliability-related duties of the operator. Real time intervention, as the name suggests, involves actions taken in real time to mitigate potential issues with the power system. Some of the common methods used by operators to manage real time congestion include limiting transfer, shifting real time generation, calling on various types of reserves, reconfiguring transmission lines and reducing real time transaction volume. These actions are primarily designed to protect generation from losing operating margin, even if it means altering the market outcome or resulting settlements. The goal of real time intervention is to manage the physical behavior of the grid during times of volatility and not to correct market outcomes. Actions taken in market situations

have governance implications. Since market actions affect prices, generator revenues and consumer reaction they are visible and attract attention. Regulation of such market actions involves rules for providing information on the basis for taking market action, for any associated documentation and for post event analysis to ensure that the action to provide reliability of supply is appropriate and that the criteria used for determining when to take such action are applied in a non-discretionary fashion. The

regulation of market actions does not relate to the issue of whether the objective of price stability was met. The fact that we have out-of-making actions does not imply that the market has failed. A market is a tool to facilitate interaction of supply and demand under normal circumstances and that it is not always possible to anticipate the need to be able to act outside of normal conditions. An intervention is necessary in order to take into account the unpredictability of the system and to provide a reliability governance with a ‘bargaining chip’ in its disposal. In case the interventions happen regularly or on a continuous basis, this may indicate that there are not sufficient market signals to provide a match with the system behaviour; but the fact that interventions occur sporadically is not unusual in the context of reliable supply. The presence of intervention authority also has an impact on the way that participants behave. Knowing that Reliability Services will be called in to ensure that supply matches demand when needed, encourages participants to behave in a more disciplined fashion and to avoid trading in a market that assumes that all resources will always be able to meet demand for energy at any time and from any source. Such behaviour includes planning and participating in a way that is consistent with reliability requirements. Real time intervention is an important concept to understand in relation to institutional hierarchy in organized markets. Markets coordinate the expectations among their participants. The reliability authority is responsible to enforce actions whenever the expectations are not confirmed by the real world. Maintaining the hierarchy of markets as illustrated above helps in maintaining the markets as facilitating tools during the operation of power systems and thereby avoid operation of power systems under the constraint of markets.

End-of-Chapter Summary

Real time intervention and out of market actions are one of the three key components of reliability governance in a market based regime. They occur in situations where market processes are insufficient to deal with emerging system risk issues and are

based on the authority afforded to reliability functions. Real time intervention and out of market actions address issues of system security, impose standards of behaviour to reliability and consumption entities and indicate the boundaries of where market management can operate.

Chapter 8

System Restoration and Market Reentry After Disturbance

System restoration is an operating mode where reliability authority is exercised with little regard to market outcome. After a major disturbance, the goal of restoration is to provide reliable supply restoration while ensuring safety and a structured restoration of power system stability, regardless of market considerations. In a market environment, this mode of operation clearly illustrates the cessation of market influence and the controlled reintroduction of market processes once the power system has been restored to a stable state. During restoration, the operational priorities of the power system are dictated by its physical state and needed repair work. Blackstart capability, voltage control, synchronization of islands and load pickup sequencing are carried out via established restoration plans and direct operator communications in order to satisfy reliability requirements and operating agreements governing transitions in operating authority, responsibility and communication. Market scheduling information and prices and participant positions are not considered in the control of restoration activities until a reliable operating condition is established. To the apparent surprise of many, the Market is turned off during restoration. In normal operating conditions, markets work on the premise of a fully observable, controllable and accessible grid. These premises fail to hold when the grid has sustained outages or widespread deterioration. Trying to enforce the rules of markets during periods where unclear command and a need for excessive caution is required introduces risk and ambiguity in a situation where it is strictly unnecessary. Thus, reliability regulation designates restoration as a market exogenous process. Once the system conditions improve, the load is slowly returned to market operation. There is a lag period until RA verifies that transmission facilities are secure, communications are restrored, and the system has sufficient operating margins for real time coordination so that the market may be fully re-established. All what has been discussed above relates to the market reentry after a reliability restoration, but it includes another concept known as the reconciliation of the market. Therefore, the deviations that may occur on the different

settlement and component recovery costs (uplift) due to any intervention in the grid together with the buy/sell settlements related to the adjustments in the load shedding are required to be handled within specific procedures, but occur after fulfilling all the reliability restoration operations in the grid and are therefore handled by the market instead of through operational instructions. Another crucial component of a Market Curative Agreement is the restoration phase. The restoration phase also serves an

institutional learning function. As mentioned earlier, postevent evaluation is carried out on the restoration plan, on the interactions among agents and on the criteria governing the suspension and re opening of markets. The results of this assessment shall serve the purpose of optimizing emergency preparedness and response procedures in the markets, while leaving the function of restoration unintegrated. Restoration and Market Reentry provides a comprehensive understanding of the reliability governance lifecycle within market environments by exploring in detail the activities and time periods of restoration and market reentry. Markets exist in the equilibrium segment of the reliability operation domain where normal operating conditions are assumed to be stable. Control is handed back to reliability operations when normal stable conditions are violated. A disciplined approach to market reentry after restoration conditions are restored ensures that overall system reliability and power delivery security are maintained, as well as the regulatory structure integrity.

End-of-Chapter Summary

System restoration is a function that is outside of the market and thus is controlled within the reliability control area for the purpose of restoring physical components of the grid. The market operates off-line during restoration activities and is brought backon-line only when reliable operating conditions are established.

Chapter 9

Operational Risk Concentration and Market Dependency

New forms of operational risk concentration are emerging in the market environment which are not captured in price and scheduling decisions. Market operations disperse economic risk among a large number of participants, but can also concentrate exposure to specific types of risk. Understanding these exposures and their impact on grid reliability under stressful conditions is an important focus of research. We define “synchronization risk concentration” as the phenomenon where large numbers of system resources are synchronized or synchronized along multiple dimensions such as timing, assumptions and reaction expectations. On the margin, synchronized market schedules utilize all types of resources in an optimal manner. However, when tested by turbulent markets synchronized systems tend to accentuate the impact of forecast errors and decline in performance. A synchronized system has little redundancy in the forms of diversity of response to similar market events, a characteristic that is inherently lacking in stable, optimal market efficient systems. Recent reports published by the ESO highlight Concentration Sources which relate to the characteristics of generation and transmission assets. Two such sources are physical concentration arising from constraints inherent to the design and geographical location of transmission and distribution systems and reliance on common infrastructure and processes arising from the need for interlinked systems to support effective Market operation, including shared use of telecommunications, databases and operating systems. Damage to common infrastructure and processes can therefore prevent effective coordination of available generation despite adequate capacity in the transmission network, and reliability governance should extend not only to generation and transmission capability but also to institutional and technical processes enabling market coordination. Additional exposure arises from dependence on assumptions modeled. The ultimate market outcome depends on many assumptions, including resource capabilities, transmission network behavior, and load response. To achieve the functional form required for analytical solution, these assumptions inevitably are highly idealized. Because

the degree of idealization is unknown and potential deviations from idealized behavior can be large, a small material deviation between actual and modeled system behavior could cause many generation and consumption decisions made to be in synch with the market to be out of synch with the actual operating regime of the system. Preventing potential operational problems arising from such material deviations between actual and modeled behavior is a fundamental reliability role. However, the speed and scale of

actions required to prevent problems from developing could be as large or larger than in more diverse operational regimes. Operational risk concentration is also influenced by participants’behaviour. The market signals resulting from the incentive framework tend to encourage the assumption of normal market conditions with the objective of reducing any motivation to retain, other than in exceptional circumstances, skills that will not be required other than in such events or which will not be sufficiently rewarded. The market signals have the potential to adequately reflect and mitigate any under-pricing of such skills, however reliability governance should consider the likelihood of the market signalling an under-provision of certain types of flexibility or resilience. Margin addresses the interaction of market dependence and system stress. Operating margin provides “inventory” of time and opportunity to see if assumptions about a particular market scenario prove correct or not. Even though prices may appear to reflect extremely tight conditions, no amount of price reflects the fact that having adequate margin (physical and operational) removes the possibility that synchronization of market response results in rapid loss of security. The ability to identify and mitigate the different types of risk concentration does not imply that markets are a problem. On the contrary, it implies that complementary measures need to be implemented. Independent analysis, limited operating capacity and regulatory intervention mechanisms are the best means to mitigate the interdependencies that cannot be diversified by the market and which therefore still pose a threat to reliability. Operational risk concentration reveals the common consequences of market coordination, where the efficient coordination of market activity, often taken for granted as a basic economic achievement, brings with it unintended consequences, most notably the potential for greater dependency. Therefore, reliability governance must deal with the tension between the dependencies created by efficient market coordination, and the need for some diversity, redundancy, and room for managerial choice.

End-of-Chapter Summary

Operational risk concentration arises from synchronized market behavior, common physical facilities or infrastructure, and modeling assumptions. In the event of discrepancies between actual circumstances and model assumptions stress concentrations may arise. Maintaining margins, diversity of responses and reserve capacity provides high system reliability and supports timely authority to manage situations that arise from potential synchronized market behavior not being in the best interest of Grid Stability.

Chapter 10

Human Decision Making and Institutional Discipline

Reliability of today’s market-based electric system depends on two things: rules and people. Even with advanced automation and controls, all systems require more than just efficient algorithms and decision trees to make operational decisions. People always remain in the loop for a variety of very good reasons, not the least of which is when circumstances such as unpredictable weather or significant events like severe accidents or power lines down occur. Understanding the role of people in all this helps in understanding the necessity of discipline in our institutions as much as the technology upon which our grids are built. We deal mostly with the automated processes of the market and operations, which are governed by procedures. From time to time, schedules clear and prices are in line with market conditions and forecasts, and settlements happen according to certain rules that aim to reduce as much as possible the degree of human intervention. Reliability operations however have a very large component of judgement, because they depend on the assessment of the situation, on the degree of risk, which is also a matter of judgement, and on the timing of preventive measures. One of the major underlying reasons is that it is very difficult to fully automate the management of physical systems and their interaction with weather and climate extremes. Human judgement has both strengths and weaknesses. A well-provisioned and experienced operator can read between the lines of the data, understand that a change has broader implications and exercise caution when the models look questionable. On the other hand, mistakes can be caused by a multitude of human factors such as blindness to bias, tiredness or pressure in the workplace. Training, defining roles and responsibilities, providing sufficient procedure and designing in adequate levels of inherent redundancy can help to mitigate this risk, as opposed to relying solely on the competence of the individual operating the system. The effectiveness of institutional discipline on the exercise of human judgment is examined. The impact of clearly defined authority relationships that enable instantaneous operational intervention to prevent a potential loss of reliability is discussed. The trade-off between providing procedural detail for operational decisions and allowing technical judgment to prevail is investigated. Finally, the role of management structure in deterring political or economic pressures from influencing operational reliability judgments is examined. Things become even more complex when one considers the interaction between the market environment and the behavior of the agents that operate within it. Market outcomes can cause prices and schedules to act as an anchor for the agents behavior, with operators and other stakeholders treating them as indicative of security rather than as a coordination tool. Achieving institutional

discipline however requires that agents are constantly reminded that any market alignment is only a condition and is always subordinate to security criteria. Human Performance, Communication The language we use to communicate can impact our human performance. Examples include clear communication to support performance during stressful conditions, situational awareness and escalation procedures to help avoid confusion or delays. Current market language may not be sufficient to describe the nature of operational risk. Therefore it is recommended that all operational risk communication is framed within a reliability context rather than a market economy context. Post-Event Review is an important tool to ensure that our institutions are sufficiently disciplined. The analysis of decision making, the effectiveness of communication and adherence to the boundaries of authority in a PostEvent Review will be used for improvement purposes only, with no intention of criticising necessary and prudent caution. Our reliability culture is a culture that reinforces and recognises positive behavior rather than preventing employees from taking appropriate action through fear of negative review. This post is a reminder to always keep the human factor in mind when dealing with issues related to market reliability interaction. As we continue to think about the structures and mechanisms that create reliable grids, we must never lose sight of the fact that it is the human element that is called upon to act within those constraints to prevent potential disruptions, failures and threats. Markets create rules, reliability is a matter of people using their judgment within the parameters of institutions that impose a level of caution necessary to mitigate risks. Ultimately, no matter the sophistication of the market design, it is always necessary to give to grid operators the authority to act in times of high risk, to clarify the scope of that authority and to encourage risk-averse behavior when the unforeseen becomes a potential threat.

End-of-Chapter Summary

Human judgment is a critical element in ensuring reliable performance under market conditions. The use of automated market management tools can facilitate the coordination of activities necessary to respond to market events, but reliable performance is still contingent upon the quality of human judgment exercised under the rules and oversight of a disciplined operational environment. Effective management of the human factors associated with reliability risk requires comprehensive Governance, Training and Learning (GTL) activities.

Chapter 11

Institutional Learning From Operational Experience

Learning from Operational Experience is the most reliable way of getting realworld understanding of the market conditions and constraints to which the reliability commitments are applied. Planned system designs, modelling assumptions and regulatory frameworks provide the theoretical framework to reflect intentions, but operational experience is necessary to confirm the extent to which the real system reacts in accordance with those intentions and where adjustments may be needed. In order to create lasting knowledge for improving the efficiency of operational management, institutions should draw a clear distinction between market management functions and reliability management authorities. In reliability contexts learning is related to events rather than just outcomes. Information from near misses, operator actions, and disturbance response are an important part of the knowledge that can influence how utilities and markets manage system risk. It is essential that these events are viewed from the perspective of both operation and markets in order to separate the physical from the operational and market assumptions that govern the reliability of interconnected systems. Reliability analysis of post event performance: The operational performance after an event is reviewed under the reliability analysis umbrella. This review covers the proper use of discretionary authority, the effectiveness of communication and the measures taken to maintain system security. While market circumstances and the outcome of an event are important for the context of the review, they are not used in determining operational correctness, in order to keep a clear focus on what is appropriate and to maintain public confidence in prudent operations practices. Market analysis does not replace the reliability analysis. The market monitoring activities are used to understand whether the scheduling decisions, incentives or the timing of the actions have influenced the reliability stress or constrained the response. This type of analysis is used only for understanding the events and not to correct the situation. The results of the market analysis are to be discussed at the governance level. The operations should not be changed based on this analysis. The reliability decisions

should not be retroactively affected, nor should the economic constraints be imposed on the operations after the decisions have been made. Also relevant to Institutional learning is the ability to see patterns of events that can help differentiate an unusual, one-off occurrence as opposed to situations where problems occur more frequently. Uncommon events may be one-offs and only with reflection over time do we realise that the unusual event occurred due to some temporary factor whereas more common

events tend to reveal structural issues which are only uncovered by having a perspective that bridges more than one season, one period of high or low volatility, or one specific infrastructure configuration. Though the market provides many interesting observable trends, data should be interpreted within the context of the reliability environment as opposed to solely being a test of statistical probability. The translation of learning into change is accomplished through formal change management processes. Changes to market rules, procedures or planning assumptions are negotiated with affected stakeholders and regulatory authorities. The thoughtful approach helps to prevent over-reaction to individual isolated events, while enables changes to occur when the justification for doing so is clear. A balance between grid stability and operational agility is critical to effective reliability governance. Learning is not limited to learning events. Operator experience, informal observation and cross-functional discussion of system performance are all important sources of learning. Governance structures that reinforce information sharing and the recognition of operational knowledge will enhance the ability to anticipate the risk before it is potentially transferred into disturbance. This chapter discusses the institution of learning that governs the evolution of a market as an organized system. It explains why markets unfold incrementally over time rather than in a series of bursts. It points out that reliability improvement is an incremental process that depends on experience rather than on perfect insight that can be derived from sophisticated analysis. Finally, it emphasizes the role of markets as a source of information but focuses on the institutional aspects of the system when the market is subjected to a stretch.

End-of-Chapter Summary

In today’s market environment, institutional learning from operational experience is critical to ensuring reliability. Event analysis, pattern recognition and disciplined governance are all critical components that help to translate actual operating practices

into tangible improvement. Markets provide the data and context for such work, but learning is rooted in reliability performance and authority, rather than market outcome.

Chapter 12

Operational Interfaces Between Market Administration and Reliability Roles

Market operations and transmission reliability share no authority relationship. Instead the interfaces between these functions define the flows of information, the sequencing of activities, and the impacts of decisions made in one context on the other. For reliability to be realized as intended, these interfaces must be well defined and strongly discipline behavior, particularly at times of extreme system operation. The Market administration interface with reliability is through schedules, commitments and system data that are developed prior to real time. These are used to support operational planning by providing forecasted amounts of resources that can be used, forecasted amounts of interchange that can occur and forecasted amounts of congestion that may exist. The information is used for situational awareness and contingency planning purposes and does not relate to approval or validation of operational security. Reliability activities communicate with the real-time market management activities of the power grid operations through constraint detection and enforcement. When a grid operations team member determines that real time conditions do not confirm the assumptions contained in the real time market, he must take reliability actions to maintain the integrity of the system. These reliability actions could be related to change the dispatch order, to set limits on the maximum transfer capacity of some transmission lines, or to adjust assignment of generation resources to some units. The Grid operator communicates these actions to the market management system so they are accounted for in real time market settlements, and so they are visible to all market participants to validate the transactions that have taken place. Thus, reliability actions occur before any economic settlement or validation occurs on the real time market activity. At the interfaces of this transaction, high clarity of communication is required to avoid any time loss or misunderstanding. Market personnel should realise their role in merely activating the outcome of the power struggle which occurs within clearly defined rules of the system. The role of the reliability personnel is to take

into account the fact that the outcome of the market has a bias towards specific operating conditions, but that these are not deterministic and do not constitute authority. Blurring the interfaces, leading to a loss of coordination under pressure can occur. Operational interfaces also have a bearing on accountability. Performance in a reliability role is compared to established standards and operating criteria. Market management is evaluated for tariff compliance and procedural correctness. A functionally defined operational interface ensures that appropriate accountability is assigned and that

the measures for evaluating performance are not intermingled such that economic and security performance are not confused. As system complexity increases, the design of the interface between functional components becomes more critical. Short cycle times, wide ranges of component parameter values, and tight operating windows all contribute to a reduced margin for error or uncertainty in the interface, and ad-hoc or implicit or informal interfaces are generally not adequate for these situations. Careful consideration of the separation of responsibilities between function components and formal communication of these responsibilities to those who must implement and maintain the interface will all be essential to achieving the desired level of system performance. The reliability of a power system can also be influenced by the way operations communicate at the interface between market and reliability systems. Market and reliability functions require accurate and timely information. Market communications are often heavy in market terminology and can be overly focused on an economic perspective. Reliability communications typically focus on margin, trend and exposure and are not always focused on regulatory schedules or price relationships. Like other operational features, interfaces also evolve with time as a result of experience. Repeatedly taking the same actions to deal with recurrent constraint patterns or continually adjusting the same settlements suggest that the interface may require modification. These issues are handled through governance processes and do not require a redefinition of individual roles within the organization. Adaptation refers to the process of improving interface design while maintaining the separation of activities associated with different levels of authority. All information concerning the operational interfaces that make it possible to identify correspondences or oppositions between markets and reliability functions is contained in this topic. Generally speaking, operational interfaces are not interfaces of shared control, but of identification of the corresponding places. Market activities must not prejudge the operating rules that will be applied to a power system in a state of difficulty, to the extent that reliability requirements are not modified. Indeed, reliability is ensured, provided that these interfaces are strictly non-overlapping, governed by rules and dynamically fed with operating experience from the power system.

End-of-Chapter Summary

The operational interfaces between market operation and system operation/functions are rules about the exchange of information, delegation of authority and the relationship of accountabilities. Market outcome is used as basis for preventive planning, while operational decisions made to secure the system are used as response, with the economic reconciliation being done after the security has been preserved. In order to maintain reliable system operation, interfaces have to be clarified and strictly governed, particularly in the current complex market operation environment.

Chapter 13

Limits of Automation and Algorithmic Decision Support

The use of Automation and algorithms is widespread in today’s marketplace and on today’s systems and they play an important role in market operation and system monitoring activities. The scope for automation and algorithms within the reliability governance framework should however not be exaggerated. Algorithms are fast at applying predetermined rules to large sets of data but there is much that can not be replaced by automated rules or efficient processing of data including management of uncertainty, assessing of uniqueness or unforeseen situations and mitigation of system level risks. Understanding the true boundaries of automation for reliability purposes will become increasingly important as market operation activities continue to evolve in the fully automated era. Market operations are inherently automated processes. Scheduling engines, pricing algorithms, and settlement systems are all designed to apply large number of rule in a fast and transparent fashion. A key goal of market operations is to provide an infrastructure that supports scale, repeatability, and trading and price formation in a fair way for thousands of participants. From a reliability perspective, automation provides rigid structure and a tremendous amount of efficiencies, but typically it assumes conditions that may not be valid during exceptional or emergency situations. Reliability operations make heavy use of automated decision support tools such as contingency analysis, alarm processing and predictive analysis. They provide vital information to help increase situational awareness in the system, such as impending violations, and developing trends in the system. The automated tools are there to aid the operator in the decision-making process and while they can be given a high degree of influence in terms of suggesting actions to the operator, all such decisions have to be made by the operator in the end. The operator has to validate and possibly discount any recommendations based on their understanding of the particular situation and the reliability of the analysis underlying the decision. the operator may choose to take actions that are not suggested by the analysis because they may fall outside of the scope of the analysis. Another example of the inherent limitations of

algorithms is when a system is confronted with an unusual or non-probability event. If there is severe weather, multiple failures occur due to shared susbystems, there is a cyber attack or a communications failure, or an unexpected system interaction occurs, and these are not foreseen in the algorithm logic which was based upon historical trend analysis, then there can be delay in responding to the new situation if only automated decisions are made and potentially inappropriate action may be taken in

their absence. Ultimately all reliability governance principles will come to rely on the need for adequate operator intervention in dealing with unusual events in the overall operation of a grid. Market conditions add more complexity to the automation limits. Optimizing for profit does not necessarily mean to choose the most conservative value when there is some uncertainty in the modeled automation limits. Even when the optimizations are constrained to the reliability modeled limits, the market products do not really care about the risk tolerance and the consequence of a failure. So, it is still necessary to maintain a clear distinction between the applications of the optimization techniques and the automation limits based on reliability engineering expertise. With automation comes institutional behaviour The greater the capability of the automation, the greater the inclination to treat the automated responses as the true representation of the correct state of the process. Because of this, there may be an inclination not to act on the small number of times that the conditions that might cause us to feel apprehensive of the situation have not yet been met. Reliability Governance serves as a counterbalance to these effects by providing formal training, reinforcing procedures and emphasizing to the operators their levels of discretion. Accountability adds another constraint to the role of automation in operations. Reliability outcomes cannot be the sole responsibility of a computer algorithm. Ultimately, operators and companies will still be accountable for the decisions they take, with or without the aid of technology. The accountability paradigm means that the use of automated tools and systems must be transparent and that operators cannot hand over decision-making authority to the computers. Knowing the boundaries of what can be automated is critical to ensuring a disciplined approach to system design. Automation should be used to aid in providing visibility, reduce operator work load, and enforce certain patterns of behavior while leaving key judgement and authority decisions to the human operator. Inherent in the market and reliability designs is the expectation that systems will operate in a way that is “gracefully failing” i.e. the operator is given the option to override or choose to ignore automation suggestions based on an assessment of the current state of the system. Automation and market-based systems is the eighth in a series of reports examining limits of automation in various contexts. Previous reports identified such limits in relation to complex, dynamic systems in grid operations, industry, transportation systems, energy and resource consumption, and emergency response. The recognition of these limits is central to this report. The many examples of reliable performance in market environments all have one thing in common: they all involve a mixture of instruments, discretion and governance. While automation can be used to improve coordination between the many different components of a system, it is always human discretion exercised within clear institutional frameworks that provides the basis for reliable performance.

End-of-Chapter Summary

Automation and algorithmic tools can be used as a means to support market coordination and improve operational awareness. However, they are no substitute for dealing with uncertainty and the

unexpected. For reliable operation, human judgment, clear authority and accountability cannot be delegated to automation and should therefore be preserved to guarantee that automation does not become a bottleneck for reliability governance.

Chapter 14

Market Timelines, Operational Cadence, and Reliability Exposure

The structure of time for a coordinated market operation that provides reliability services is key to managing the risk of reliability events. The Market Time refers to the pacing rhythm that determines the sequence of actions for generation and transmission resources such as bidding, making bids, contracting, exchanging information, scheduling, committing, supplying energy and settling accounts. On the reliability side, Reliability must be a dynamic function since market times do not necessarily coincide with times when potential reliability problems could arise. managing reliability exposure to ensure that reliability targets are met involves a dynamic balancing process in real time that is not necessarily related to market prices. Exposure that is not visible under normal market conditions can, however, be a source of potential problems during periods of high demand. The intervals of a market are typically discrete. Day-ahead scheduling, intra-day adjustments and real time steps are all based on a sequence of instantaneous states of the power system. Discrete intervals facilitate the coordination of the activities of market players. From a reliability perspective discrete intervals are important but they do not match the continuous nature of the power system. System conditions change without regard to the rhythm of the market. Periodic changes in load, outages, weather, and power flow realignments all can occur while the market is in between periods of calculation. Monitoring system margin and monitoring system trajectory conditions continue. Even in the case of rapid exposure to potential violations, following market schedules may not be prudent as a protection measure. The interaction between discrete market time grids and continuous Reliability assessments is highlighted most during tightening conditions in the grid. As margins reduce, the time available for take remedial action to occur is reduced, and there may be significant time lags between market developments as determined by each Market Operator. This situation calls for significant judgement, and Reliability governance requires recognition of when such temporal disparities warrant urgent action. Also affecting preparation is the temporal relationship with

respect to the market time. A market time affects when assets are booked and placed, and impacts possible actions in real time. If e.g. bookings are made a couple of hours ahead of market start, it may be too late to do anything if the situation changes when the market opens. In addition to the current situation, also the increased inertia from previous time-sensitive preparations in line with the market need to be taken into account. Settlement procedures clearly differentiate between timing and price/

authority issues. Economic reconciliation addresses only issues arising after market rules have determined how transactions occurred. Any reliability actions taken during periods between the end of one market interval and the beginning of the next, or during times when the market is not operating, will be taken into account in the final settlement through designated adjustments. Reliability can respond at any time and the authority of the market to enforce economic transactions occurs after that response. To set a margin for error in real-time governance, to adapt market segmentation and time duration to the circumstances of the grid, and to attempt to better match supply and demand. To the extent that these efforts make wholesale price formation more closely align with real-time conditions they may succeed. However, they do not eradicate the need for real-time reliability assessment and forecasting. temporal refinement of wholesale markets, which is often pursued as an end in itself, must be understood in terms of exposure reduction rather than price stability. The pace of change in systems is accelerating, increasing the importance of time. Faster load variability, tighter margins and more interdependencies are all decreasing the margin for error and increasing the impact of even small delays. Reliability governance must be mindful that the speed at which the market operates should not become a measure of when systems are ready for operation or when their safety has been verified. While market timeframes can serve as a benchmark for some aspects of reliability, it is important to remember that reliability has its own timeframe. In the market we can coordinate activities within certain timeframes, but power system reliability requires real-time monitoring and actions that cannot always be scheduled to market timeframes.

End-of-Chapter Summary

Market operations are characterized by discrete time periods for synchronization purposes. However reliability and response to uncertainty is a continuous process. Asynchrony between the market time periods and BPS/BSC reliability time periods creates a window of exposure, particularly during periods of high volatility. Grid reliability will

be ensured by identifying potential impacts of this asynchrony and by BPS/BSC excercising operational authority based on a real time understanding of system conditions rather than a schedule based synchronization of market operations.

Chapter 15

Market Dependency During Prolonged Stress Conditions

Stress conditions that are sustained pose unique challenges to the relationship between market operations and power system reliability. Unlike transient disruptions caused by short periods of high prices, tight margins, or constrained resources that can be managed through real time responses, sustained adverse conditions challenge assumptions related to the dynamics of market dependence over time and the ways in which utilities manage persistent deviations between forecast and real time system performance and reliability. Market dependency increases with increasing levels of stress. Market-based scheduling, market based contracts and price incentives are typically effective over several hours or days of operation. As levels of stress increase, reliability and market management activities need to determine when changes in market dependency are moving from being a supportive factor to becoming a constraint. Extended stress erodes the ability to rebuild operating reserves. Spent reserves may not fully recover between cycles, and the performance of resources can start to decline. Even though price signals for scarcity may continue to be sent through the market, the fact that prices alone do not facilitate recovery of reserves means that RTOs/UPOs will have to account for the increased risk associated with extended periods of stress. The symptoms of operational fatigue were seen for the first time in the current crisis as an additional source of stress. As people work for long periods without rest, their ability to work and communicate effectively can start to reduce, as well as the institutional discipline required to work safely. As we have seen, market alignment does not take account of these symptoms, yet they have a material impact on reliability performance. Controls need to be put in place to address the effects of rotation, escalation and taking a conservative approach to mitigate the impacts of operational fatigue on individual and group decision making. Stress can also highlight dependencies between different systems and regions. Components that were imported during the initial phase of stress may not be available when neighboring regions are also under stress. Market signals may not fully account for such regional convergence given that the timing and extent of such stress can differ between regions. Reliability studies should account for decreasing support diversity with increasing stress duration. High voltage stress and governance This section highlights the interaction between stress and governance of HV. Many of the practices are relevant to both transient and long term stress. As mentioned earlier any regular intervention or persistent deviation from desired voltage – current relationship may attract the attention of senior management and enforcement. The RLG section again cautions against premature normalization of high voltage stress conditions that have not fully normalized in degraded stations. As

well as providing a basis for determining the authority for operational decisions and helps with risk justification to ensure conservative practices are maintained. Learning from prolonged stress vs acute events is a very different process than learning from isolated events. Life and other patterns become apparent over days and weeks and these contain patterns, relationships and assumptions that are obscure to isolated events. While the market can give us insight into issues related to prolonged stress, it should be judged in the context of reliability, not economics. Understanding market dependency under stressed conditions and learning to navigate margin, diversity and discretion is an increasingly important topic. Markets provide a foundational support for our coordinated activity under normal conditions but can be readily managed when stress is extended and divergent to market conditions. Ensuring reliability means recognizing the shift and the associated necessary adjustments to our institutional posture.

End-of-Chapter Summary

High stress situations increase the level of market dependence and test assumptions in the coordination mechanisms. When deviations between the assumed and real situations are long lasting they require a highly conservative reliability planning in order to take into account the accumulation of stress, system fatigue and decreasing level of external reserves. Increased market dependence indicates the need to know when the dependence has become critical and to be able to provide necessary counter measures for the whole period in order to secure reliability of supply.

Chapter 16

Seams, Interactions, and Reliability Across Market Boundaries

While the Market Operations and Reliability functions primarily address issues within a particular region, the market and reliability consequences of power flow, shared contingency events and external disturbances do not respect regional boundaries and can have a direct impact on neighboring regions – both market and non-market. Seams are the interfaces where coordination of the diverse functions and systems is required to ensure that the grid can be operated reliably. A market boundary is an administrative definition superimposed on a smooth physical network. Transactions in one market area affect the real-time conditions in neighboring areas, possibly in unpredictable ways. Consequently, the reliability planner must take into account conditions outside the defined market boundaries and especially during periods of stress when inter-area relationships are intensified. Seams challenges are introduced by differences in timing and scheduling conventions or the way that interchange is handled. Seams challenges generally deal with synchronizing and aligning the different views of what is changing and the manner in which different entities should react to those changes. While communication protocols and agreements are needed to define how interfaces between companies should behave, it is primarily a matter of managing communication and situational awareness rather than a matter of synchronizing markets. Reliability coordination across seams is based on the principle of functional authority rather than market harmonization. Reliability Coordinators share operating data, analyze mutual reliability risks and coordinate actions to prevent and/or mitigate potential or actual facility or transmission system limit violations. These reliability activities occur independently of market price determination and may involve Reliability Coordinator actions that impact amounts of energy scheduled for interchange or quantity of MW scheduled for delivery according to scheduling rules of adjacent markets. Such actions are based on reliability responsibilities rather than market equilibrium. Seams stress has increased due to increased stress and stress duration in certain areas. As conditions start to converge, the amount of diversity of support reduces. Plans assume imports would be available to meet peak demand, but under high stress conditions these could all be in short supply or non-existent at the same time. What were low cost, high voltage transactions that made economic sense during normal times, can become a significant operational risk under stress conditions and must be accounted for in the reliability assessment, rather than being based on static assumptions of interchange. Seams affecting accountability: Consideration of functional roles When reliability actions affect transactions that cross seams to multiple regions, issues of accountability need to be addressed in each region taking into

account the functional role of the entity involved. Any market wide effects may be experienced unevenly but reliability accountability is still based on the authority exercised by an entity within its defined role and seam clarity can help to avoid potential points of contention and promote coordinated action. Learning from the challenges that are experienced by grid connected to the grid via seismic interfaces will need an interregional approach. After the seminar, it is important to reflect on how the coordination mechanisms performed across interconnections, if cross-border information was exchanged in a timely manner and where the exercise of the control power was effective. The markets studies may provide the answers, but again only in relation to reliability performance and not to market balance and consequently economic symmetry. Understanding seams interaction helps reinforcing the notion that grid operation is all about interconnection reliability operating within an umbrella of overall system interconnection. Regional coordination within the market allows for efficient operation of a given region but the reliability at the interconnection or seams between the regions depend on the level of commission, communication and degree of conservatism operating above the market structure and reliability arrangements and therefore should be reinforced in the reliability governance framework.

End-of-Chapter Summary

Reliability between markets depends on careful seam management to ensure that boundaries along the continuous physical resource do not interfere with discipline required to coordinate across market boundaries. Differences between markets pose a challenge to efforts to achieve synchronization, but the reliability authority and the systems that support it provides a means to enforce responsive behavior through

cross-region communication and mutual understanding of risk. Proper seam management affirm’s the principle that reliability of supply to all markets is the overriding consideration.

Chapter 17

Reliability Accountability in Market Operating Environments

Accountability for reliable system operation does not change with the advent of markets, nor is it diminished by the introduction of economic controls. Market operation does not change the initial assignment of responsibilities embedded in the existing structure of accountability. Accountability in organized markets and in market operation environments is relevant to both assessing reliability performance and the institutional legitimacy of the power sector. Reliability accountability is a function of rules and the resultant obligations arising from those rules for registered participants who exercise the functions covered by those rules. These obligations remain at all times including during periods of low demand and when market outcomes are within price limits and trader behaviour is benign. Market circumstances do not substitute for rules as the basis for reliability accountability – they rather coexist with the regulatory rules that continue to provide the basis for compliance monitoring and enforcement functions. Accountability can be obscured by the creation of markets and increased institutional complexity with many organizations being responsible for transactions in complex schedules of agreements, through numerous purchases and administrative actions. The reliability governance includes means to avoid ambiguity about the identity of the entities in charge and their corresponding criteria to support the actions they took while having authority over the power system, rather than looking at the market’s social behavior. The Operational Accountability is visible when we are in the Intervention Mode. When operators take actions to prevent changes to their grid configuration to meet security constraints, FERC has defined certain reliability criteria and guidelines that should be adhered to when performing these actions. While market implications are considered, they are generally secondary to the key reliability and security checks that occur to determine whether an operator’s decision was appropriate or not. Ultimately this helps to maintain system-wide confidence in operator and management decisions. The Market structure also applies to non-operational roles and thereby imposes market responsibility. Market administrators shall comply with applicable tariffs, market transparency and other rules and procedures applicable to the market in question. Market participants shall comply with the rules of participation and performance rules included in the market design. This market responsibility does not change the fact that reliability accountability for non-operational roles registered for functional purposes remains applicable. To provide accountability clarity, oversight institutions have a key role. Reliability organization issues certificates attesting compliance with relevant standards. Regulators monitor behavior on the power market and enforce relevant rules. It is important to separate

these functions to avoid any confounding between market economy and reliability performance and to ensure that governance remains proportionate even in the event of an incident affecting both aspects. The public’s interpretation of the market’s actions can complicate the situation. Large price moves on days when markets open or close (such as for events in the evening in the US) are widely reported and may spark understandable questions as to who or what on the market caused the move to occur. This cannot be permitted to intrude on the functional role of reliability as the governing principle of wholesale electricity price formation. Care must be taken to communicate the lines of authority and jurisdiction in a way that does not confuse attribution or interpretation of market events. Accountability can also affect the long-run behavior of institutions. If the reliability responsibility can be clearly assigned and enforced, it will tend to curb reckless behavior and encourage more cautious behavior. A lack of clarity can create uncertainty that deters action and fosters the passing on of risk. And to ensure that organized markets operate efficiently, they must foster rather than obfuscate the accountability of each participant. Reliability accountability in market operating environments is a fundamental concept. Although markets facilitate coordination, accountabilities related to reliability continue to rest with designated responsibility organizations and standards, metrics and monitoring, which is essential for reliable operation of the grid, effective governance of markets and reliability of the power system in a way that maintains public confidence in a market-based system.

End-of-Chapter Summary

Reliability accountability in market environment remains rooted in functional accounts and standards. There is no automatic reallocation of accountabilities in the market. Rather, such arrangements occur in parallel to traditional accounts and standards. Clearly defined accounting of lines of authority and control were necessary to maintain reliability, to underpin risk averse behavior, and to legitimate corporate actions.

Chapter 18

Market Signals as Indicators Rather Than Determinants of Reliability

In the organized market environment, market signals have played a major role in the electric power systems. It is, however, not widely understood what reliability implications these have. Market prices, schedules, and reserve demand curve are often viewed as an indicator of the reliability of the power system or its availability. Seen from the reliability perspective, market signals can be viewed as factors that provide information on the actual state of the system and the incentives provided to consumers and producers. This paper shows that these factors have no effect on reliability performance. The market signal is a byproduct of the optimization process undertaken to solve the constrained problem formed by combining the SCUC/ SCPB models of the system with their respective parameter values. These signals are the prices that convey information about the relative scarcity and degree of binding in the constraint set at a given time and location. While very useful for indicating system stress, congestion or shortages, the prices do not constitute a formal or authoritative measure of system security. For reliability issues, the security of a system must be determined directly from its operating limits, margins and real contingency exposures, which cannot be reflected solely in economic terms. When everything is tightening, the indication and determination of margin can become critical issues. It is important to understand that a rising price does not always mean that the margin is also increasing, and not all reliability risks are indicated by a corresponding increase in price. Some reliability risks exist which do not have a corresponding large price response, such as in the case of a structural, local, or off-peak risk that was not captured in the models. Conversely, high prices do not always indicate that the system is facing low reliability, as a significant amount of margin can exist while maintaining an adequate level of system reliability. It is not always wise to rely on market prices as an indicator for making reliability decisions. Market indicators are also backward- and interval-looking metrics. At the time of exchange or settlement of contracts, they reflect the state of affairs at that particular instant in time. Reliability assessment, on the other hand, must be a forward- and trajectory-looking discipline focusing on speed of margin erosion, as well as the potential system responses to future disturbances. This differential in timeframes reinforces why market information alone cannot be used as a substitute to real-time operational analysis and evaluation. Market signals in planning and governance demonstrate the indicative role of market signals. Persistent patterns of prices may indicate possible constraints or over capacity issues that need further investigation. However, the reliability decisions made based on market signal analysis need to be confirmed and validated by detailed engineering analysis and probabilistic assessment. Market signals

can show where to look into possible challenges, but they cannot confirm that the reliability standards have been met. Relying on market indicators to determine accountability can be problematic. If market outcomes become the metrics by which one’s reliability is measured then the determination of responsibility for the security of a facility is determined by market outcome as opposed to the ability to defend it. This obfuscates the operational authority and clarity of action that is necessary. Governance of reliability recognizes that market indicators are for determining conditions, not for determining whether or not to take action. The way we communicate has to take into account the difference between normal and stressed conditions. Talking about the state of the framing system in terms of price during stressed conditions can potentially distract from the operational significance of the situation and can even be misleading for customers. In reliability communications, the margin, limits and exposure are more important than price movements. Sometimes market conditions may be referred to but only in a relative sense. The fact that market signals are seen as indicators rather than as determinants of actions, imposes a discipline on the interaction between market mechanisms and reliability functions. Market mechanisms are seen as providing information and analysis to support decisions, but their role should not be exaggerated. Excessive reliance on markets can undermine the authority required to ensure reliability and stability. These considerations preserve both the operational and regulatory effectiveness of the market-based approach.

End-of-Chapter Summary

Market signals provide visibility to system conditions but do not determine reliability. Market prices and schedules are based on a model of scarcity and constraint, and the determination of whether those market signals relate to real system reliability conditions is a judgment that must be made directly based on understanding of real-time operating limits, margin and operating trajectory. Treating market signals as context provides clarity of authority and supports adherence to the reliability determination process.

Chapter 19

Executive Oversight of Market Operations and Reliability Performance

Executive control is situated at the intersection of the two main dimensions of market operation and power system reliability. The executives are not directly involved in the operational detail or the day-to day activities in the market, rather their main responsibility is to ensure that the organization’s structure, and processes and other accountability mechanisms function so that reliability and coordination in power systems can co-exist. In other words, their role is more about maintaining the prerequisites for reliable operation and coordinate market activities than influencing real-time operation of power systems or day-to-day developments in the market. The view points to look at market operations and reliability performance are quite different. Market performance oversight involves looking at EU wide adherence to market rules, transparency of messages and data, timely and accurate settlements and monitoring of electricity producer and consumer behavior. Reliability performance oversight looks at EU wide adherence to operating limits, disturbance event outcomes and adherence to grid codes. The view points are quite distinct and even when there is overlap executives need to be aware of the different perspectives. One of the primary oversight challenges is avoiding the outcomedriven temptation to conflate price increases, extreme volatility or government intervention as major events. Because these outcomes can distract from the true issues at hand – whether there was a reliable operations failure or success – it is essential to maintain focus on the core regulatory issues. These include the integrity of operational processes, the appropriate exercise of regulatory discretion and the preservation of accountability during periods of turmoil. Boundary protection is another element of executive oversight. Sometimes, after a market issue arises, there is pressure to quickly fix it and market activities can overstep what is appropriate. The executive should protect the boundaries between planning, operations and market activities to prevent an inappropriate diffusion of responsibilities and to preserve the integrity of the standards of accountability that pertain to operations. As discussed earlier, information framing is also a key element of oversight. Presidents and CEOs often act as the “bridge” between operational reliability performance and the external world of Board Members, regulators and politicians. Framing the reliability of an operation exclusively in terms of economic costs can potentially lead to misleading conclusions rather than proper assessment of reliability criteria, margins and risk trending. Proper oversight implies that such communication is correctly framed on the basis of reliability criteria, margins and risk trending, rather than on price behavior alone. Long-term risk management is a key dimension of executive responsibility. Chief Executives need to decide whether a persistent situation

is indicative of a lasting strategic mismatch or is instead a transient response to an occasional external or internal shock. To do this, they will inevitably draw on their planning work, on lessons derived from operational experience, and on their perceptions of market developments. None of these will carry weight in isolation. Decisions on longer-term issues affecting markets, networks or utilities, such as trends in demand, the need for new investment, or options for reform, all depend on taking a fully integrated view of the circumstances facing the business. Board oversight extends to culture. Executives play a material role in determining whether reliability judgment is conservative, whether determining when to intervene is viewed as an acceptable effort to maintain safe operation or as a failure, and whether there is a learning culture rather than a blame culture. Culture influences the behaviour of organisations during high pressure situations just as much as the rules that apply. Ultimately, executive oversight secures the longevity of the market and reliability system. Markets and reliability arrangements need to endure more than single events, shifts in executive teams, or policy initiatives. Achieving the long-term institutional health that secures a proper focus on longterm market and reliability outcomes rather than near-term events and metrics is an essential aspect of effective executive oversight. Ensuring institutional health and thereby a more enduring market and reliability system secures the benefits of having markets that serve as effective price-coordinating institutions within a regulatory framework of standards.

End-of-Chapter Summary

Executive oversight of market operations and reliability performance provides a measure of institutional consistency. Effective oversight of this nature maintains separation of roles, avoids conflation of outcomes with individual responsibilities, secures accurate understanding of events and conditions, and adherence to disciplined reliability judgement. Market-based solutions are enduring only to the extent that such oversight is focused on institutional factors rather than outcomes.

Chapter 20

Operational Resilience Beyond Market Design

Operational Resilience is the ability of the grid to absorb and manage a wide range of disturbances, to recover from affected components and to maintain reliability performance within acceptable thresholds. Resilience in organized markets is sometimes discussed in the context of market incentives or products. However, in relation to reliability framework, it is an operational, procedural, institutional and governance practice. Markets are an important, but also a relatively indirect contribution to the resilience of a system. They influence the availability of materials and the signal of scarcity and hence only marginally affect the physical or operational aspects of a system’s resilience. Rather than being created from scratch through markets, a system’s resilience is determined by the amount of margin it has, the diversity it contains, the degree of redundancy it has, and its capacity to reorganise itself during times of stress. All of these factors are determined through more direct and tangible means such as forward planning, investments in physical assets and systems, and the building of operational reserves. Flexibility that supports operational resilience is not typically recognized and valued within existing market frameworks. For example, deciding which transmission lines to switch on and off in case of unexpected occurrences, choosing not to utilize full transmission capacity in order to maintain some extra headroom and having sufficient types of flexible resources available in case of an event are all operational decisions based on engineering discretion rather than the economics determined by the market. This part covers governance related aspects. Similar to other elements, institutional readiness is also required. In order to effectively prepare, implement and manage the restoration plan, emergency procedures, mutual assistance agreements and communication protocols have to be in place. The wholesale market presumptions are based on the assumption of adequate institutional and infrastructure services on site; more generally resilience requires adequate preparations to deal with possible institutional stress as well as with infrastructure and facility stress. Reliability governance accordingly covers preparations in periods when market conditions look low, as to be ready to be effective at the times when really needed. For many in the power industry, the words “resilience” and “efficiency” are often

treated as mutually exclusive. And while managing inefficiency for the purpose of reserving generation for high-demand or uncertainty-reduction purposes can be treated by markets through means like settlement revisions and uplifts, it can’t be justified. First, because reliability is always the prime

objective, and second, because resilience carries a price. The relationship between resilience and learning is reciprocal. Each disruption or near-disruption event provides an opportunity for reflection on how the system behaved and performed during the event and, in particular, how it absorbed disruptions, where in the system it adapted or failed to adapt, and how the market performed during the period of disruption. While the market data will reveal the consequences of the actual coordination of trades during a near-disruption event, assessing the level of resilience of the system focuses more on whether the system lost control of prices during the disruption and whether it was able to rapidly recover. The information derived from reflecting on these events and their impact is used within the governance processes of the systems to decide on the best mechanisms for improving their performance, and the choice of mechanism may involve changes to the market design. The over-emphasis on market design as a tool to foster grid resilience, overlooks other aspects of the energy system and thus potentially threatens them. While adjusting or refining rules in the energy market can help improve the interactions between demand and supply in line with the required responses of the energy system, it is no substitute for proper investments in networks, training of personnel, preparedness of companies and other institutions. Building energy system resilience is about providing the right diversity of measures from all areas of the energy system. As we continue through this ebook we’ll revisit the theme that operational resilience is not the same as market performance. Wholesale markets are an important mechanism for coordination, but they are only one part of a more comprehensive reliability system. In order to design systems that are truly resilient, we need to focus on building strong links and redundancies across all components of the system – including those that operate outside of market driven constraints.

End-of-Chapter Summary

Operational resilience in markets is more than market design and includes margin, flexibility, institutional preparedness and a degree of operational autonomy that is built in conservatively. Markets facilitate coordination, but do not by themselves ensure resilience of the system. Performance under stress will depend on whether the system has been prepared, flexible enough and that its governance ensures sufficient security, even in situations where optimal market performance cannot be guaranteed.

Chapter 21

Sustaining Reliability Culture in Market Operating Organizations

Reliability culture refers to a common set of assumptions, values, and behaviors that govern the actions of grid operators when they face challenges or conflicts over managing energy delivery systems, including ensuring the reliability of the power grid while meeting other energy delivery needs such as providing heating and cooling for buildings during peak summer and winter periods. Building and sustaining a reliability culture in a market based system is not guaranteed or inherent; rather it must be actively and regularly reinforced. In market based environments, operators must be constantly reminded of the importance of reliability when conflicts or challenges to energy delivery arise in conjunction with other operational considerations. Market forces create powerful incentives which can significantly influence operational behavior. Time, terms of payment and reward structures can all serve to focus mind on commercial priorities, procedural compliance and external image. These effects are only neutralised by appropriate cultural reinforcement. Otherwise conservative approach to disputed operating conditions and lack of readiness to intervene in situations where plant operation remains technically within bounds but commercially or operationally uncomfortable can soon become the norm. Reliability culture is needed to prevent this from happening. Reliability culture is a key element of a strong reliability culture and it is evident at all levels of the organization. Market availability is not the prime driver of performance; rather it is an operational parameter that can be modified in the event of an insufficiency or surplus of gas, depending on reliability requirements. Policies must be clearly articulated and actions must be evaluated and remedial actions processed in a manner that affirms the importance of reliability. A reliability culture is enhanced when reliability actions to operate and maintain the system are not questioned by management due to market considerations. Leadership behaviour is a major determining factor. What leaders ask of, tolerate in and reward their personnel is a key determining factor in how these people act and the company performs. Companies oriented towards markets must have leaders who continuously enforce

rules and practices for secure operations of infrastructure, and have practices and ways of working that make the stability of the grid and supply a condition for economic success – as opposed to market conditions being the main objective, even during problematic times in the power system. Indecisiveness and lack of clear guidance when conditions are tense can easily be interpreted by personnel as an imperative to try to maintain market equilibrium at all cost, and in that way undermine leadership.

Reliability and Sustainabilty of Culture The basis of culture is formed by the training and the experience. Operating staff, engineers and sales staff must be trained to experience a situation when reliability and market does not coincide. They should be provided with practice experience when they have to act in the situation of divergence. Different techniques such as simulation, drills and cross functional training are provided to instill confidence in operation staff, sales staff as well as management that the operation will intervene if the reliability limits are approached or reached regardless of the direction of spot market prices. Operational interfaces can also influence culture. When market and reliability functions communicate, the terminology used is critical. Speaking in terms of margin, exposure and trajectory perpetuates reliability thinking. Talking in terms of prices, settlements or participant impact perpetuates the notion of market equilibrium and the idea that security decisions are tantamount to commercial transactions. Controlled communication is therefore important to preserve the cultural framework. Equally important are the post-event activities of the review. If the review focuses solely on whether the authority was exercised at the right time in a sufficiently cautious manner, it reinforces the reliability culture. If the focus is instead on the commercial consequences of the intervention or on the reactions from outsiders, it will be very discouraging for operational personnel. The learning experience should be designed to reinforce, not undermine, the reliable operation culture. Maintaining reliability culture over time is a big challenge in evolving systems. Advances in technology, the changing demographics of the workforce, and the increasing level of automation between the operator and the process can break the link between the direct consequences of actions and their outcomes. Reliability culture acts as this link. It anchors our decision making in a sense of accountability rather than technology and the market. Reliability culture must be ongoing and be reinforced by leaders, by governance structures, by learning and by accountabilities. While the Reliability of Financial Markets programme was established primarily with respect to the market crisis impact environment, there is an additional and significant reason for its ongoing relevance: the need to maintain reliability culture

in the market operations environment – an environment where economic coordination is both needed and visible, and where financial markets can continue to be effective (rather than potentially risky) tools in the economy.

End-of-Chapter Summary

It is important to recognize that maintaining a reliability culture in a market operator will require a number of actions to be taken in order to actively promote and remind all employees of the importance of system security and that these actions are a fundamental element of their reliability culture. Leaders’ behavior, training, communication discipline and lessons learned following events all contribute to whether the market is able to promote or hinder the reliability operations which may be required in

order to avoid exercising overly cautious reliability judgment. Above all, authority must be exercised in a timely manner to reconcile potential market and security conflicts.

Chapter 22

Market Operations as Inputs to Reliability Planning and Assessment

Data from market operations is one of the sources of information for a reliability planning and analysis operation. However, the actual market operation is not a defining factor. Reliability planning and analysis activity would primarily rely on historical schedules, prices, resource commitment levels and performance derived from market operations. But all such information is only used as a guide in reliability analyses and determinations, and is merged with informed system knowledge and with standards-based risk assessment criteria. Planning assessments are lookahead and consequence based. They assess the ability of the power system to meet expected loads and additional challenges under stressed conditions, while considering possible contingencies. Market outcomes are helpful in terms of understanding possible patterns of usage, duration of periods of congestion, and possible consequences of possible system actions, but they are not the basis for determining adequacy or security margins. The reliability criteria used in reliability planning, whether based on deterministic or probabilistic analysis, are not related to market conditions. Market data is a valuable resource for the analysis of trends in the power system. persistent congestion, scarcity conditions or a need for ongoing intervention, e.g. during periods of high heat waves or droughts, are all indicators of some type of issue affecting the grid. These indicators may point to issues of transmission capacity, resource capabilities, or system operations practices. Indicators of market stress alone do not necessarily indicate a reliability problem. When analyzing indicator(s) of stress in the power system using planning tools, the analysis must be linked to risk as described through reliability criteria, rather than solely as an economic issue. Changes happening in real time in the market are also being used to update assumptions in planning models. This includes reliability model assumptions related to availability, ramp rates, outage correlation and response to stress. Updating these assumptions using actual performance data as opposed to being based on static assumptions helps to improve the credibility of the planning effort, while at the same time protecting against market events that could be

triggered by other factors and that should not be used to validate conservative reliability assumptions. There must be a clear separation between market pricing and reliability decisions. If the outcome of the market is held to be determinative of whether supply and demand are sufficient to meet demand or whether the grid is secure, then the determination of need for reliable grid operations will be outcomebased and reactive. Rather, for reliable grid operations to be determined by thoughtful

judgment, market pricing and outcomes must be considered along with all other relevant information. Market pricing reflects exposure of existing conditions, but it does not address the underlying needs. One other difference between market operations and planning reliability assessments is timing. Market operations inherently deal with current time (short-term) coordination among utilities, whereas planning reliability assessments look ahead to periods often ranging from several to tens of years. Current hour or even short-term success does not assure that a system will be adequate in the long term. Nor does short-term shortage or stress assure that insufficient capacity will be a future problem. Reliability assessments must consider appropriately the time frame of market operations or other related information. Also the institutional discipline for bringing market information into the planning forums is an object of study. Ex post it must be translated into terms that are relevant for the reliability analysis, namely margin, exposure, etc. The economic framing of the information may blur the relation with the planning processes and may sometimes exacerbate its importance. It is important to balance the need to preserve the analysis objectivity with the one to avoid that the planning and operational activities are disconnected. A reliability analysis shall view the functioning of markets as inputs, and not as drivers. The purpose of having visible market operation is to gain an insight into how the system coordinates given the current state of the power market. From this visibility the Reliability Planner can verify hypotheses, study potential risks, and determine how much and what type of resources, systems or operating reserves to pre-position to mitigate the risk of unserved energy to consumers without ceding decision-making authority to price signals.

End-of-Chapter Summary

Market operations provide reliability planning and analysis with actual insights of how markets really behave. These insights can include actual load and resource patterns and stress levels. While valuable information, the insights are not determinative of reliability conclusions. Market analysis simply provides additional information that is used in conjunction with established reliability criteria and engineering judgment to ensure proactive reliability management.

Chapter 23

Regulatory Oversight of Market Operations Affecting Reliability

The regulatory constraint impacts on market activities that may affect reliability from an external perspective. In other words, it provides external discipline to the system. In an organized market, this discipline does not affect the real-time operation of the market or the outcome of the trading activities. It is a posteriori in nature, in that it provides a constraint on the activities of the market by defining the rules to be followed, reviewing compliance, and enforcing sanctions. This regulatory constraint serves to highlight the clear distinction between the activities associated with market operation and those associated with reliability management. Market operation oversight is exercised by means of tariff approvals, rule changes and enforcement processes. Rules that affect the availability, ordering and response of resources require prudential review to ensure that they are in line with legislation and reliability issues. This review will examine if the rules ensure that coordination is supported in a reasonable and non-intrusive manner, without impeding operational freedom while ensuring that reliability standards are met. Reliability oversight operates in parallel and independently of market analysis using two criteria: 1) adherence to FCRCC regulations and standards, and 2) that actions taken by reliability personnel were within their authority and performed to accepted standards. The FERC relies on the NERC and Regional Entity processes to determine whether FCRCCs and their contractors/ affiliates performed reliability work within their approved scope of authority and to appropriate performance standards. While market analysis may provide some context to help understand the market conditions that existed during the period under review, it does not affect the standards to which reliability performance is measured. One of the key activities of regulation is boundary policing. When the authors of market design proposals and rules arguably, or unarguably, ‘assign’ reliability outcomes to market or economic developments, they must be challenged through the regulation process. When reliability-related actions are undertaken to impact on the market outcomes of economic decisions, it is necessary for regulation to ascertain that any use of

regulatory discretion was exercised within the regulatory boundaries that have been set. Boundary policing therefore serves to avoid uncertainty about the parameters of action and thus to prevent regulatory drift. In addition to providing the authoritative viewpoint on the grid, oversight also serves as a means of dealing with recurring misalignment issues. Regular use of emergency measures, exposure to stressful conditions, and observation of grid instability can trigger regulatory interest into the need for

changes to market rules to better reflect system realities. Rather than imply wrongdoing, this approach recognizes the need for potentially modifying rules, increasing redundancy, or improving disclosure in order to address the cause of any instability. Reliable grid governance is fundamentally about reviewing developments systematically, rather than responding to events on an ad hoc basis. Transparency is at the heart of any effective oversight activity. This means that data on transparency and publication of reports, market monitoring analyses and reliability assessments are used as evidence in the Commission’s assessment. On this basis, the Commission is able to tell whether the volatility and risks inherent to energy systems are normal and manageable or rather a sign of a possible problem with the solidity of individual parts of the system. Information from the markets is very important, but always needs to be understood in light of regulatory and reliability conditions. Market oversight has two elements – market design and market regulation. Equally important to designing markets and regulations is the principle of governance restraint. Attempting to fine-tune real-time reliability market outcomes through economic means can erode both the operational authority and accountability of utilities. Oversight is about ensuring that institutions are working as intended – rather than second-guessing their actions once they have occurred. This principle of restraint is fundamental to strong reliability governance. Regulatory oversight and its interaction with the operations of the market and reliability performance is a complex subject, which can be clarified by learning some key details. Regulatory oversight does not ensure reliability of supply nor optimize the market. Rather, its effect is: to ensure that the rules of the interconnection (such as grid codes and operational guidelines) do not obstruct the proper functioning of the system; to ensure that penalties for non-compliance are in place and enforced; and to ensure that any necessary changes to processes and procedures are carried out systematically.

End-of-Chapter Summary

Rules, monitoring and enforcement of compliance deal with events that have already occurred in the market; they provide a backstop to ensure that operational responsibilities and the rules of the market are maintained in a manner that ensures reliability. These activities serve to reinforce the rules and separation between the market and operational responsibility, and deal with the perpetual issue of preventing market activity from becoming operational in nature, through a governing forum. The purpose of the rules, monitoring and enforcement process is to ensure that the market and system operations arrangements promote reliability through enhancing the long-term reliability and transparency of the system, and promoting accountability of participants. Rules, monitoring and enforcement do not provide real time control of the system. Rather they act to reinforce system durability.

Chapter 24

Integrated View of Market Operations and Reliability Risk Management

Reliability risk management in organized market environments is not carried out by a single entity or mechanism. Rather, it is a function of the overall interaction of the market, operations, planning analysis and regulatory functions. Each of these carries out different components of risk management and reliability is the end result of their interaction rather than the result of a consolidation of functions. Market prices adjust for some of the risks from decentralized decisions. They can help to avoid the possibility of infeasible and unstable outcomes. This can be done by providing price schedules, binding commitments and shared assumptions and understanding among agents that induce coordinated actions that avert such outcomes. While these markets can lower the risk that unintended consequences occur (i.e. lower the baseline risk), they do not eliminate all of the other market risk exposures (e.g. due to uncertainty, dependence, etc. that arise above this baseline). This operating procedure describes the management of operational authority for security risk associated with real time margin, real time trajectory and real time contingency exposure. Real time management of the security limit allows for operational authority to be exercised in real time to manage such risks. This may arise from a margin that falls below the minimum required or where an operating constraint causes a deviation from expected trajectory and/or requires the engagement of a contingency resource which exposes real time margin, trajectory and contingency exposure risks beyond acceptable limits. While advance coordination of operating requirements should seek to mitigate many such risks, some security risks will arise which are too dynamic or unpredictable for management prior to the occasion arising. Risk management planning process is a method for managing structural risk. Long-term risk assessment analyses whether the structural design, resource characteristics and operational practices of a system will be adequate to cope with possible future conditions. While the market provides information for long-term risk assessment, the assessment itself is based on reliability criteria that are independent of market signals. Risk management of structural risk therefore

ensures that sufficient physical capacities are in place to enable adequate coordination and operational control of the system. Oversight governance manages institutional risk. Regulatory and reliability oversight preservers roles, scope of authority, and processes. Oversight does not get rid of risk, it is

about making sure that the risk is identified, managed and not disguised with ill-defined institutional arrangements and poorly aligned incentives. To achieve integration between these functions, they must be aligned, not identical. Different domains operate with different objectives, time horizons and accountabilities. Attempting to impose uniformity in these differing domains can lead to overburdening individual mechanisms and to loss of accountability. Achieving reliability governance in these domains requires recognizing the need for specialization while also achieving integration. Risk management is a facade that is easily stripped bare under conditions of stress. Coordination can always be assumed, until it cannot, and when it cannot the appropriate response is for operational authority to act unilaterally. The dynamics of a system can always be handled within its normal operating framework, until they cannot, and then planning must address the structural impediments in the system that have suddenly surfaced. Repeated incidents of misalignment between intentions and actual performance should be a signal to governance that some change is needed; instead the oversight response too often looks inward rather than outward, trying to modify managerial practices rather than dealing with underlying design or governance issues. Markets bring to light dynamics in each of these domains, but none of them can be replaced by markets. An integrated perspective on reliability helps explain why reliability performance is not a direct measure of market success or failure. Reliable grid performance can be maintained through the bulk of the market period even in the face of significant market challenges; and significant market activity can occur without any adverse impact on reliability. The focus for reliability analysis should therefore be on whether individual risk management actions were performed as intended and that the interactions among risk management actions remained orderly. The analysis of market operations within an integrated reliability risk management framework just confirms what this little ebook is all about. That markets are coordination tools, and that risk management responsibility must be shared across various entities, in a smart architecture that ensures reliability. That the latter is based on defined borders and complementarities between entities.

End-of-Chapter Summary

The Reliability risk management in market operations is derived from the interactions between Wholesale Markets, Distribution Utility Operational Authority, Planning Assessment and Governance. The management of different risk dimensions by the various components and the fact that reliability is managed as a process through the interactions of the individual risk management components, rather than a risk being managed through consolidation, are major contributors to this category. Markets play a coordinating role but cannot substitute for the need for horizontal integration across risk management functions to secure long-term reliability.

Chapter 25

Future System Conditions and Operational Reliability Implications

The future system will face new challenges for market and reliability operations. The interaction between these two aspects will have to cope with a growing number of challenges. The evolution of resources, loads, weather condition and grid interchanges will affect how markets work and how reliability risks are expressed in real time. A solid understanding of the impact of these changes on market and reliability operations is necessary to ensure reliable operation while avoiding a redefinition of the functions of each component. Increased variability in future conditions will be a hallmark of the operating environment. Both supply and demand levels are likely to change more rapidly and with less predictability than in the past. While market management systems are designed to manage variability through management of scheduling, operational and reserve capacity within a grid using concepts of scheduling flexibility and real-time synchronization to manage changes, variability reduces operating margin and shrinks decision windows, requiring more dynamic operational management by RAs to respond to changes in state and rate of change of supply and demand rather than solely managing for static balance of supply and demand at all times. This also increases the exposure to assumption error, since margins are reduced between design values and normal or expected operating ranges. The market may still be in equilibrium but the operational risk of the system is increased. Reliability management must recognize that confidence in synchronization does not necessarily translate into confidence in security during unusual operating conditions. Interdependence among regions is expected to increase. Similar exposure to weather, correlated performance of resources, and increased interchanges all reduce the historical diversity that supported regional resilience. While markets express these interdependencies through prices, reliability assessments must consider the real operational consequences. The increased simultaneous stress experienced by regions also highlights the assumption of regional support that underpins the market and planning frameworks. This also impacts the balance between automation and human judgment in the future. More complex systems will require more advanced decision support tools, yet there will still be considerable amounts of uncertainty and novelty. The reliability authority must have the means to err on the side of caution in the event that the automated decision support tools give the all-clear for potentially questionable conditions. This balance cannot be determined by the market. Rather, it must be set through political and pedagogical means. A transition to policy driven changes will only add to the complexity of ensuring future reliability performance. The impact of policy driven changes in generation additions and retirements may not be directly observable and can alter

system behavior in unintended ways regardless of prevailing market signals. Reliability tools will have to adjust to these new realities while at the same time neutral market signals will continue to provide the coordinating mechanism for participation. Preserving the principle of institutional separation that has been a core of electric industry governance is therefore more important than ever. The future looks a very different place indeed. And yet markets do not disappear as a form of coordination for the reason of dynamical complexity as such. Rather markets are simply more important in exactly those conditions that are precipitated by increasing complexity. Markets provide different forms of coordination in different circumstances; from stability to adaptability. Stability under relatively more certain conditions was the original mandate of marketbased control. Stability, in one form or another, has been a prime goal of economic governance throughout the era of neo-classical thought. What will happen to reliability, to the postures of confidence and governance, if our institutions recognise and therefore act on the changed form of market coordination required by conditions of dynamically increasing complexity? Even with increasing uncertainty, preparing for the future comes down to discipline rather than revolution. Markets need to continue to deliver coordinating functions. The reliability authority must be able to act autonomously. Future developments must be anticipated in the planning process – without overestimating the influence of trends. Supervision is about drawing borders and providing scope for movement. Reliability is preserved when each organization acts flexibly within its own field of responsibility – without overstepping the mark into foreign territory.

End-of-Chapter Summary

Increased complexity and variability in the future grid environment will lead to more dynamic interactions between market operations and reliability functions. Although markets will still provide a coordination mechanism, reliability governance will need to accommodate lower margins for error and increased speed of action. Reliability can only be maintained through a dynamic evolution of existing institutions and rules.

Chapter 26

Enduring Principles for Market Operations and System Reliability

Despite the rapid pace of change in technology, policy and market design, a fixed set of underlying relations continue to govern the interaction between markets and reliability. These are not necessarily products, timeframes or rules; they are more fundamental. They are a consequence of running a huge system that is subject to immense volatility and requiring thousands of independent parties to act in a coherent manner to achieve reliable supply. Physical System Limit Precedence is the first enduring principle for design. Electrical system behavior is governed by physical laws that do not accommodate economic or management considerations. Any design approach to the market or economy must recognize these physical laws and the resulting physical system limits. They are the precedence that any control or management approach must accommodate. The role of a reliability authority is to ensure physical system limits are not violated when market-based approaches to power system operation fail. A second principle is the principle of authority under uncertainty. No amount of preplanning or forecasting can reliably eliminate the inevitable sources of uncertainty - from weather to equipment and from human to human. Authority of all kinds is then needed to allocate decisions, and to provide grounds for conservative action when possible and for speedy action when necessary. Markets provide a reward for foresight, and authority provides a rule for reacting to events when they happen. In this context, one third principle stands out, namely the separation of coordination and accountability. Behavior and performance are governed by the market and rendered transparent. However, market relationships do not provide redress or indemnification in the case of events to which power system security has contributed. These are rather tasks that must be performed by trusted providers in the framework of mandatory reliability standards and for which the corresponding accounts of accountability are maintained. Margin is another of the many principles we apply in our power business. Margin gives us time, flexibility and options in case of unforeseen occurrences or deteriorating circumstances. Markets can signal that a commodity has become scarce, but margin is always a result of our long term planning, investments in infrastructure and prudent operations. Reliability governance also includes governing the margin in cases where markets signal that there is no need to operate efficiently. Some organizations are beginning to start to understand and document the Institutional learning associated with a large systems change. (this is a new element in the QPI – so will need to be documented) Systems change – old assumptions are proved incorrect and new risk arise. Reliability of the system is critical and requires understanding experience, integrating knowledge in real time, operation, maintenance, repairs, planning

and in market analysis to know when to make planned changes versus going to an emergency mode. The market provides much of the data which must be interpreted with a reliability prism through which judgments are made. Transparency and restraint are principles that together promote the whole of accountability. By transparency we mean the ability to see what is happening. By restraint we mean the understanding that visibility is not the same as interference. Good governance balances the forces of transparency and restraint in a way that maintains both accountability and reliability, and that preserves the legitimacy of institutions. Role discipline is the fourth prerequisite of durability. Markets, operations, planning and oversight are all necessary but in each case for different purposes. The redundancy of the financial system as a whole is maintained by discipline in the interactions among its various parts. Increasing the functions performed by any single institution is not an effective way to improve the reliability of the system as a whole. Because they appear to be invariant across different market designs, regulatory regimes, and system configurations, we believe them to reflect inherent system operating characteristics rather than specific institutional choices. And, we regard them as fundamental or universal for design and policy deliberations because they constitute a base-line against which dynamic changes can be defined, as opposed to inalienable characteristics of reliability that could be defined as contingencies or specific episodes of supply. Seeing market operations and system reliability through the eyes of the enduring principles in this section supports the main argument of this paper. That organized markets are an important part of a general reliability architecture and should be a focuss on design and operation which resists the urge for change with the times, and instead remains anchored in a set of fundamental physical, social and procedural constraints.

End-of-Chapter Summary

The rules of Market Operation and System Reliability come from 5 basic principles derived from physical constraints, delegating management decisions under uncertainty, clear assignment of responsibilities, preserving reserves, knowledge acquisition at all levels and separating duties. Whatever the evolution of the market or the structure of the system, these principles are robust and allow an effective and reliable management of Market Operation and System Reliability activities.

Glossary

Glossary

Ancillary Services: Those services that must be provided in order to move electricity from the point of origin to the point of delivery under the requirements for Control Areas and Transmission Providers within a Control Area in order to ensure reliable generation and transmission of electricity.

Balancing Authority (BA) An entity that acts as a scheduler prior to real time to ensure the resources in the BA area are scheduled in accordance with the grid resource plans. The BA is responsible to maintain the load interchange and generation balance within its respective BA area in real time and to provide additional services to help stabilize the frequency of the Interconnection.

Bulk Electric System (BES) - Except where modified by additional definitions in the following lists, all Transmission Elements operating above 100 kV and all Real Power and Reactive Power resources interconnected at points operating above 100 kV. Does not include facilities used for distribution of electric energy at the point of consumption.

Capacity – The rated continuous load-carrying ability, measured in megawatts, of Generation, Transmission or other Electrical Equipment.

Energy - Electrical work over a period of time, expressed in megawatt-hours.

Reliability Coordinator (RC) - Entity that is in a position of ultimate authority over the operation of a portion of the Bulk Electric System to ensure reliable operation of the BES, possesses a wide area view of the BES, and has available operational tools, processes and procedures to prevent or mitigate SOLO or IR OL violations.

Transmission Operator (TOP) – The entity responsible for the reliability of its local transmission system, and that operates or directs the operations of the transmission facilities.

“This glossary includes selected definitions from the NERC Glossary of Terms (NERCGOT). It is provided for reference purposes only and does not supersede or modify NERC-GOT in any way. Contact the [email protected] team with any comments or questions.”

About the Author

About the Author

Rob Smith is a senior electric industry professional with over thirty years of experience across every major function of the North American Bulk Electric System. His work spans reliability coordination, transmission operations, regulatory compliance, and cybersecurity reliability.

Rob has worked directly in real-time grid operations as a Reliability Coordinator, Transmission Operator, and Power System Operator within RTO/ISO and utility control center environments. He has also held senior regulatory and oversight roles, including senior compliance auditor and subject matter expert for NERC Reliability Standards. In those roles he audited grid facilities for compliance with applicable standards, evaluated the adequacy of mitigation actions, supported the development of violation notifications and settlements as part of FERC-directed enforcement actions, and participated in risk based oversight of utility mitigation activities.

Rob founded Energy Compliance, Inc. to bring senior, regulator-side compliance authority to registered entities directly, without the layered staffing, billable-hour overhead, and generalist advice typical of larger consulting firms. Every Energy Compliance engagement is led by Rob personally.

About Energy Compliance, Inc.

About Energy Compliance, Inc.

Energy Compliance, Inc. is an independent consulting and advisory firm focused exclusively on electric reliability, cybersecurity reliability, and regulatory compliance for organizations connected to the North American Bulk Electric System.

Our work supports registered entities, including Generator Owners and Operators, Transmission Owners and Operators, Reliability Coordinators, Balancing Authorities, and Distribution Providers. We work across NERC Reliability Standards, FERC orders, RTO/ISO market participation rules, Regional Entity oversight, and state regulatory frameworks.

We do this work differently than larger consulting firms. Engagements are led by a single senior practitioner with regulator-side experience. We don’t staff for billable hours. We staff for outcomes. Our deliverables are written to be operationally executable and audit-defensible, not to manufacture activity. Where automation can replace manual work, we build the automation. Where senior judgment is required, the senior is in the room.

Energy Compliance is not affiliated with, sponsored by, or endorsed by the North American Electric Reliability Corporation, the Federal Energy Regulatory Commission, or any Regional Entity.

Services Provided

Our services are written to be clearly defensible. Operationally executable in real time. Audit-defensible at compliance review. Every deliverable is structured for the auditor’s question, not the consultant’s binder.

Energy Compliance services include, but are not limited to:

• NERC reliability and compliance advisory support
• Reliability governance and program assessments
• Registration and applicability analysis
• Operational and engineering reliability alignment
• Compliance program design and improvement
• Audit and enforcement support (non-advocacy)
• Mitigation planning and Self-Report development
• Training and executive briefings on reliability frameworks
• Regulator-perspective program reviews

Each engagement is scoped to the entity’s role, function, and bulk system impact.

ENERGY COMPLIANCE PROFESSIONAL REFERENCE

Rigorous Compliance. Defensible Programs. Energy Compliance, Inc. partners with registered entities on the institutional and technical questions that define strong reliability and cybersecurity programs, from classification through audit through enforcement response.

N ERC CO MP LIANC E S ENIO R ADV ISO RY Program support, interpretation, and audit Direct engagement on complex reliability preparation. questions.

I ND USTRY ENGAGEMENT AUD IT D EFENSE Standards development and working-group Notice of Penalty response and settlement participation. posture.

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