Compensation for Restoration Energy
Whitepaper
May 29 2013
Prepared by
MISO Emergency Preparedness and Power System Restoration
Working Group
Compensation for Restoration Energy
Table of Contents
Executive Summary ............................................................................................................ ii
Restoration Planning .......................................................................................................... 1
Restoration Energy Cost Recovery ................................................................................... 1
Blackstart Service .............................................................................................................. 2
Review of Current Methodology......................................................................................... 3
Proposed Calculation Methodology................................................................................... 5
Market Settlements ............................................................................................................ 5
Restoration Energy Cost Determination ............................................................................. 5
Qualifications for Participation .......................................................................................... 9
Requirements .................................................................................................................... 9
Eligible Costs ..................................................................................................................... 9
Administration and Settlement........................................................................................... 9
Registration ....................................................................................................................... 9
Implementation .................................................................................................................. 9
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Compensation for Restoration Energy
Executive Summary
The purpose of this paper is to present a proposal for considering the compensation of
generators that are used to supply energy needed for system restoration. The MISO
Emergency Preparedness and Power System Restoration Working Group was tasked by the
MISO Reliability Subcommittee to research and recommend a means of allowing generator
owners to recover their production costs and to allocate those costs appropriately when
islanded from the interconnection. The proposal would require a FERC tariff filing for the
cost allocation methodology and for treatment of the market impacts.
This discussion provides a proposed framework to determine the energy costs and to assign
the costs to the load areas that are served by the generators. The determination of
compensation is a two part process that utilizes the real time pricing adjustments for isolated
areas and applies a revenue adjustment calculation. While the real time pricing adjustments
allow the settlement of the Day Ahead and Real Time markets, the calculation of restoration
energy costs allows further adjustments to appropriately compensate the generation
resource for costs of providing restoration energy. This calculation allows asset owners to
supply a FERC-approved rate that determines the appropriate costs for settlement following
a separation event. The approach is based on the restoration philosophy whereby
Transmission Operators(TOP) execute their prescribed plans and the Balancing
Authorities(BA)/Local Balancing Authorities(LBA) control generation for balancing and
frequency control. Costs are accumulated for each island and distributed to the load areas
or portions of load areas contained within the islands.
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Compensation for Restoration Energy
Restoration Planning
System restoration requires a coordinated plan of action between the entities that operate
the facilities needed to return the power system to a normal state of operation. Significant
planning is done in advance to prepare for islanding or black-out conditions and to ensure
that the recovery can be implemented in a timely manner. Plans are shared among the
neighboring systems to avoid conflicting strategies and to coordinate interconnection
activities.
The Transmission Operators maintain a set of documented plans to recover from events that
result in islanding or black out situations and to provide guidance to operators on the steps
needed to re-establish an interconnected system. During system restoration events, the
transmission system in the isolated or blacked out areas must be re-energized and
expanded to create a stable island that can eventually be re-synchronized to the
interconnection. In such a scenario, the Transmission Operator is responsible for reenergizing their transmission facilities and identifying the generation and load needed to
support system operation. The process of building cranking paths to restart additional
generators that can support the transmission network requires balancing of the load and
generation to maintain the system within acceptable operating parameters. Balancing
Authorities must maintain proper balancing of load and generation to keep frequency within
acceptable ranges and to respond to contingent loss of generation.
The restoration activity ends when the separated areas have been re-synchronized with the
interconnection and normal generation dispatching operations have resumed under the
direction of the Balancing Authority.
Restoration Energy Cost Recovery
While MISO is able to economically commit and dispatch generation in an interconnected
system, the generators in the separated area(s) do not obtain unit dispatch instructions from
MISO. The restoration strategy involves the transfer of generation control from the MISO
BA to the Local Balancing Authority for the separated areas, as generation resources are
determined by the TOP. As additional generation is committed and dispatched to meet the
TOP requirements, the cost recovery mechanism for this energy supporting the isolated load
is either through local rates for the non-market BAs or through a MISO ex-post settlements
process for the market LBAs.
In the current MISO market process, pricing nodes that are isolated from the interconnected
market footprint do not have LMPs and pricing must be determined by manually identifying
nodal prices from the market footprint in the ex-post settlements process. Prices are
obtained from the interconnected market buses at a boundary node and the LMP is
distributed uniformly for all nodes in the island.
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Compensation for Restoration Energy
Island 1
Gen1 100 $25
Gen2
90 $25
Gen3
75 $25
Total
265
$2,500 Load1
$2,250 Load2
$1,875 Load3
Load4
$6,625
60
120
50
35
265
$25
$25
$25
$25
$1,500
$3,000
$1,250
$875
$6,625
Black Start Service
Black start service is a specific resource that has been identified by the Transmission
Operator to provide a means of re-energizing the power system from a black out condition.
These resources are able to start without external power and meet the testing and fuel
supply requirements that are imposed by the Transmission Operator. While black start
service has traditionally been included in rates of vertically integrated utilities or through
contracts with the Transmission Operator, the cost of black start service is recoverable
under MISO Tariff Schedule 33 provisions as an option to generation owners that are
seeking an alternate means of cost recovery to their current arrangements with the
Transmission Operator. The MISO black start provisions are designed to recover the cost to
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Compensation for Restoration Energy
maintain operational readiness of the black start generator and the energy needed to
establish cranking path to another generating facility. Presently no generators have
subscribed to the MISO Schedule 33 services.
Review of Current Methodology
The current approach to determining the nodal pricing allows generators in the islanded
area to recover costs at the real time market rates where prices are set by the market
solution in the interconnected footprint. This makes use of the market solution to allocate
the costs to the load zones that have nodes in the isolated area. Although the approach
requires a manual effort to find the appropriate price and set the isolated nodes to that price,
the simplicity of the design minimizes the burden of accounting for price variations or directly
assigning the costs to local loads in the isolated area.
The current approach does present limitations that have prompted the proposal for a new
methodology aimed at more equitable compensation and assignment of costs to supply
energy to the loads that are being served during system restoration. This approach is
intended to address the deficiencies in the current process while providing a manageable
administrative framework to calculate and distribute the costs. Items considered in the
development of the methodology include:

MISO does not dispatch units when they are islanded since this is a restoration event
and restoration is within the scope TOP responsibility (TOP restoration plan).
TOP executes restoration procedures to re-energize their transmission system which
requires the use of generation resources and load for system stability. TOP directs
the startup of generators and identifies loads to be restored along transmission
corridors. TOP determines the cranking paths and the order of generators that will
receive startup power.

LBAs are responsible for balancing functions when their systems or parts of their
systems are separated from the interconnection
MISO market systems are limited to dispatching generation in a single island.
Islanded generation must be controlled by the LBAs to support stable frequency and
contingency reserves. Re-design of market systems to control generation in multiple
islands is a major initiative and costly effort that is not justifiable for the low
probability of occurrence.

LBAs will respond to TOP instructions to start units and add load to rebuild their
systems.
TOPs define the restoration process that includes the generation resource
requirements and the loads needed to support balanced operation.

IPPs are not directly controlled by the LBAs but would need to be considered since
they may be part of the restoration process.
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Compensation for Restoration Energy
In normal operations, MISO interacts with the IPP generation, directly sending
dispatch set-points for unit output. In restoration scenarios IPP generators provide
restoration energy and LBAs require a line of communication to allow the LBA to
account for the output of IPP generators.

Market prices have no relationship to isolated systems.
Use of a single nodal price in the island that is determined by the market price may
provide more or less compensation than required by the generator to cover costs if
congestion is present at the onset of the restoration event. Moreover the additional
units that are started may have higher costs than the prevailing market price causing
generators to receive less than their operating costs.

Limit cost recovery to production costs that are known or fixed in advance
Cost based recovery limits the compensation to only those costs necessary to return
the system to normal operation. The costs should be established prior to an event in
order to limit market price fluctuations and loads are not exposed to excessive costs.

Low frequency of use so cost/effort should be minimized.
Restoration events occur infrequently and processes used to settle generation costs
should not require extensive development effort or financial investments.

Need for simple accounting to allow BA/LBA to track generation/load.
With the low frequency of occurrence and focus on the activities need to return the
system to normal, the effort to track status and output of generators as well as the
online load should not be burdensome.

Allocation of costs to load that is served during the restoration.
Since islanded systems have a direct correlation between the generators and load
served, the costs should be distributed based on the proportion of the BA load that is
within the island.

Proposal covers the energy needed for restoration but does not address reactive
supply
During restoration reactive power control is crucial to maintaining stability of the
system. However, it is assumed that units online may be injecting or withdrawing
reactive power to help support system voltages without additional compensation for
those services under this methodology.

Applicability for any type or scale of restoration event
Since restoration can involve small or large-scale events, the proposed methodology
should be designed to cover all possible scenarios.
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Compensation for Restoration Energy
Proposed Calculation Methodology
The cost calculations and distribution of charges relies on the monitoring of generator output
and the amount of load being served within the island. As restoration progresses, islands
may be re-synchronized to form a larger island which remains isolated from the
interconnection. Likewise system separation can occur to form islands within a BA/LBA
footprint or span multiple BA/LBA footprints. The strategy to restore the system to normal
operation does not rely on economic commitment and dispatch but instead addresses the
immediate need for energy supply needed to support stable power system operation. Thus
all generation within a given island will essentially serve all load in the island.
The mechanism for compensation of restoration energy requires two steps that include
market settlement and the determination of the incremental payment or charges to be
applied to the generators and loads in the island.
Market Settlements
As is currently done in treatment of islands, the process for settlement of the market awards
is handled in real time pricing. The island nodes are assigned LMPs from a nearby pricing
node in the contiguous market footprint. The settlement of the real time market provides a
means of reconciling the financial positions from the Day Ahead and Real Time markets.
However, in islanding conditions, the decoupling of the island load and generation from the
market requires additional steps to ensure generators receive sufficient compensation to
cover their costs and that load served by the generation is appropriately charged for energy
supplied for restoration.
Restoration Energy Cost Determination
Isolated Systems
The period of applicability is determined to be from the first partial hour to the last partial
hour prior to re-synchronization with the interconnection. In each island, the the cpnodes
within in the island(s) are known and used to determine the share of LBA load in the island.
Load data and Generator output data is obtained from metered information in the market
settlements system. The asset owner may file a generator cost recovery rate with FERC,
that includes startup costs, fuel and variable operation/maintenance costs and submit it to
MISO. The hourly restoration cost recovery payment for the generator is determine by
multiplying the Mwh value by the greater of i))110% of the FERC-approved rate on file or ii)
$100/Mwh.
For exporting BA/LBA areas, the sum of all generator costs for a given hour is then split into
an internal BA/LBA component and an external component which are determined by the
proportion of the internal load requirements and net exports.
Internal Load for exporting BA pays for the HourlyInternalLoadSharey
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Compensation for Restoration Energy
HourlyGeneratorPaymentn = (GenerationMwhn * max(1.1 *
GenerationRATEn,$100))
For the nth generator
HourlyInternalLoadSharey = Sum(HourlyGeneratorPaymentn) *
(LoadBAy/Sum(LoadBAy + ExportsBAy)
Where LoadBAy is the internal load
And ExportsBAy is the net export from the BA
HourlyExportSharey =
Sum(HourlyGeneratorPaymentn) *
(ExportsBAy/Sum(LoadBAy + ExportsBAy)
Where LoadBAy is the internal load
And ExportsBAy is the net export from the BA
For importing BA/LBA areas, the sum of all BA/LBA generator costs are allocated to the
internal load, and in addition, the export share of the generation costs from the exporting
areas are prorated and allocated to the internal load.
HourlyGeneratorPaymentn = (GenerationMwhn * max(1.1*
GenerationRATEn,$100))
For the nth generator
HourlyImportSharez =
Sum(HourlyExportSharey) *
ImportsBAz/ Sum(ImportsBAz)
Where ImportBAz is the net import for the zth BA
And Sum(HourlyExportSharey ) is the total of all costs
for generation exported
HourlyInternalLoadSharez = Sum(HourlyGeneratorPaymentn) + HourlyImportSharez
Calculation of Compensation Adjustments
The generator payment must be offset by the total energy market revenue to ensure that the
compensation reflects the actual cost of energy in the restoration event. The net payment
due the generator is the difference between the restoration energy cost payment and the
total market revenue. Loads are allocated the difference in costs for the restoration energy
supplied to the island.
The compensation adjustment provides the recovery of costs for providing the Real Time
energy and the generator would not be eligible for Real Time Revenue Sufficiency
Guarantee payments. However, for resources that cleared the Day Ahead Market, the
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Compensation for Restoration Energy
resource is eligible for Day Ahead Revenue Sufficiency Guarantee and Day Ahead Margin
Assurance Payment which would be paid by the market.
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Compensation for Restoration Energy
Simplified Example (assuming Day Ahead and Real Time positions are the same):
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Compensation for Restoration Energy
Calculation of Costs and Adjustments
Synchronized Systems with Limited Ties Once islands have been restored and
determined to be ready to synchronize to the interconnection, an initial tie line is established
to create a contiguous system. However, market generation in the reconnected system will
continue to be controlled by the Local Balancing Authorities until additional ties have been
established to create a firm interconnected system. During this time, nodal prices will be
generated by the MISO market process including LMPs at the nodes of the former island.
This pricing is used to determine the appropriate compensation for energy based on the
market settlements process. The generator will receive payment at the prevailing nodal
price and loads will be charged according to the nodal price determined for their commercial
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Compensation for Restoration Energy
load zone consistent with normal market operation. No incremental costs are calculated
once the system has been synchronized to the market footprint.
.
Qualifications for Participation
Any Generation Resource capable of running and supplying energy to assist in the
restoration effort is eligible for compensation provided they have met the requirements
identified below. This may include generators typically available for economic commitment
as well as units that may be offered in as emergency only generation.
Requirements
Generators participating in this cost recovery mechanism must provide revenue metered
information for the unit output. Market Generation Resources may have an approved
restoration energy rate on file with FERC that are submitted to MISO for compensation or
may elect to receive the default floor rate. . .
Eligible Costs
Any Generation asset seeking recovery through a FERC-approved rate must make a cost
recovery filing to FERC detailing their cost basis. The cost components may include startup
costs, fuel costs and operating costs. Capital costs associated with normal plant operations
are not included since they would be recovered through normal market rates. Generator
owners will recover their costs based on the FERC approved restoration energy rates or the
standard floor rate stated above and any market revenues will be deducted from the energy
costs determined for the duration of the event.
Administration and Settlement
Registration
Each generator owner may file a restoration energy rate with FERC for recovery of
production costs. Once approved, the generator owner submits an application to MISO
which includes submittal of technical information for each unit including the unit name and
ID and additional data:


Generator Min/Max MW
Unit SCADA point (ICCP Object ID) for MW output
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Compensation for Restoration Energy
For generators that not register their FERC-approved costs, MISO will apply the default floor
rate.
Implementation
At the onset of a blackout or islanding event, MISO and the Transmission Operator assess
the conditions and determine the actions needed. If the disturbance results in system
separation MISO will take the units off control to avoid dispatching the generation. LBAs
with units in the resulting islands assume responsibility for controlling the unit output either
manually or through automatic generation control systems. If the area is blacked out, the
affected TOPs will prepare the system for black start and initiate their procedures to begin
re-energization.
MISO and Transmission Operator will identify the boundary of the impacted area and
BA/LBAs will assess the amount of their surviving load and generation that are included in
the impacted area.
For duration of the restoration period including the initial hour(partial hour) to the final hour
(partial hour) in which the island is resynchronized, MISO will calculate the energy supplied
by each generator for the each hour. The Mwh value is obtained from revenue metering that
is provided by the Asset Owner. Unit regulation via AGC or by governor control is included
in the total unit output. IPP generation resources may be utilized in restoration to maintain
generation/load balancing and contingency reserves and are eligible for compensation.
For each island MISO will identify the cpnodes that comprise the island and determine the
share of LBA hourly load in the island based on the metered load data. Hourly interchange
will be calculated from the metered data for the generation and portion of LBA load in the
island.
MISO will establish the real time prices by assigning the LMP for the island nodes and
adjust the payments to the generators by the calculated energy costs. Since the
adjustments are intended to provide recovery of the cost for supplying energy, the result
may be an increase or reduction in payment to the generation resource. The difference in
revenue is then passed to the loads as an additional charge or offsetting payment.
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