12/12/2012 MARKETS COMMITTEE

Aleks MitreskiMARKET DEVELOPMENT

AMITRESKI@ISO-NE.COM (413) 535-4367

Proposed changes to the Energy Market

Energy Market Offer Flexibility

Problem Identification

During the October MC presentation the following observed

problems were discussed:

1. Stale energy offers during the operating day2. Varying intraday costs cannot be reflected in one identical offer for

all hours of the day3. Current Self-Scheduling practice decreases the full dispatch capability

of a generator4. Inability to offer energy below the offer floor price

These issues have been also captured in a whitepaper.

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Presentation Objective

• The ISO is proposing the following changes to the energy market: 1. Intraday Reoffers2. Hourly Offers3. Changes to the way Self-Scheduling is performed4. Negative Offers

• Today’s presentation contains:– Proposed enhancements to the current market rules– Proposed assumptions for the impact analysis that the ISO will

perform since this project qualifies as a major initiative

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ENHANCEMENT 1:INTRADAY REOFFERSParticipants will be allowed to update some parameters of their Supply Offer during the Operating Day

Background

• By noon on the day prior to the operating day, participants must submit their supply offer in the day-ahead market

• Later that day, during the Re-Offer Period (16:00-18:00) , participants have one final opportunity to change some parameters of the Supply Offer

• Any changes to operating costs after the closing of the Re-Offer Period cannot be reflected in the generator’s supply offer (stale offer)

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Proposed Enhancement

• The ISO is proposing allowing participants to submit updates to their supply offers prior to and during the operating day

• At this time reoffer capability will be introduced to generators and DARDs– The ISO will discuss introducing this functionality for DR (as part of

PRD) and External Transactions in separate projects in the near future

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Proposed Enhancement cont.

• Modification of the supply offer must be submitted within a certain lead time prior to the top of the hour in order to be effective for that hour (e.g., 60 minutes)– Still evaluating if a shorter lead time (e.g., of 30 minutes) can be

accommodated

• The reoffer capability (regardless if the resource cleared in the day-ahead market) will start during the Re-Offer Period

• The reoffer capability for the operating day is suspended during the Reserve Adequacy Analysis period, but will resume afterwards

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Reoffer Availability with Current Energy Market Timeline*

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Real-Time Energy Market

Day-Ahead Energy Market00

:00—

DA Energy Market results

published

16:0

0―

18:0

0―

Re-Offer

Period

12:0

0—

DA Energy Market

offer and bid period

closes

OPERATING DAYOPERATING DAYOPERATING DAY - 1OPERATING DAY - 1

22:0

0―

Initial RAA is

performed

Reoffer For Operating Day

Available

Reoffer Availability

*There is an ongoing project to revise the current market timing. Similar concept will be in place under the revised market timing.

Parameters That Can Be Reoffered in Real TimeGenerators

DARD

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Parameter Name UnitIncremental Offer (i.e. MW- Price pairs) MW, $/MWh

No Load Fee $/hr

Cold Startup Fee $/Start

Intermediate Startup Fee $/Start

Hot Startup Fee $/Start

Use Offer Slope Select

Parameter Name UnitIncremental Offer (i.e. MW- Price pairs) MW, $/MWh

Use Offer Slope Select

Re-declaration of Other Parameters

• Like today, certain parameters (e.g., Minimum Down Time) that impact the operational characteristic of the generator should be re-declared to the ISO’s Control Room as soon as practical

• No advance time would be required, and changes would be effective upon ISO acknowledgement– Apart from Self-Commitment requests for which a rolling 30 Min lead

time requirement would be needed

• This approach is consistent with the process that is effective today

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Example

• Assuming the advance time is 60 minutes

• The participant would like to update its Incremental Offer values for hours 16:00 and beyond

• A modification to the Incremental Offer values should be submitted no later than 15:00 in order to be effective for hour 16:00 and any subsequent hour

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Still Under Consideration

• Potentially decreasing the lead time for submittal of reoffers to 30 minutes prior to the top of the hour

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ENHANCEMENT 2:HOURLY OFFERSParticipants will have an opportunity to submit certain parameters with hourly granularity in the Day-Ahead Energy Market (and Real Time)

Background

• Participants can submit only one value for the Start Up Fee, No Load Fee, and the Incremental Offer that is identical for all hours of the day

• Some parameters, such as Economic Min and Economic Mix can already be submitted with an hourly granularity

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Proposed Enhancement

• The ISO is proposing to introduce additional parameters that can be submitted on an hourly basis during the day-ahead market and for the balance of the day in real time

• Parameters for which hourly granularity is allowed, but only one identical value was submitted for all hours in the day ahead, would be allowed to be reoffered with varying hourly values in real time

• The ability to offer these parameters on an hourly basis would be available to generators and DARDs

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Proposed Parameters with Hourly Granularity

Generators

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Parameter Name UnitCurrent

GranularityProposed

Granularity

Incremental Offer (i.e. MW- Price pairs)

MW, $/MWh Daily Hourly

No-Load Fee $/hr Daily Hourly

Cold Start-Up Fee $/start Daily Hourly

Intermediate Start-Up Fee $/start Daily Hourly

Hot Start-Up Fee $/start Daily Hourly

Use Offer Slope Select Daily Hourly

Cold Notification Time hh:mm Daily Hourly

Intermediate Notification Time hh:mm Daily Hourly

Hot Notification Time hh:mm Daily Hourly

Cold Start-Up Time hh:mm Daily Hourly

Intermediate Start-Up Time hh:mm Daily Hourly

Hot Start-Up Time hh:mm Daily Hourly

Ramp Rate/MW pairs MW/min Daily Hourly

Offered Claim 10 MW Daily Hourly

Offered Claim 30 MW Daily Hourly

Proposed Parameters with Hourly Granularity

DARD

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Parameter Name UnitCurrent

GranularityProposed

Granularity

Incremental Offer (i.e. MW- Price pairs)

MW, $/MWh Daily Hourly

Use Offer Slope Select Daily Hourly

Example – Reoffering Parameter With Hourly Granularity in Real Time

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Hour Day Offer

Real Time Flow Through

Real Time Hourly Reoffer

1 $1,000 $1,000 $1,000

2 $1,000 $1,000 $1,000

3 $1,000 $1,000 $1,000

4 $1,000 $1,000 $1,000

5 $1,000 $1,000 $2,000

6 $1,000 $1,000 $2,000

7 $2,000 $2,000 $2,000

… $2,000 $2,000 $2,000

ENHANCEMENT 3:SELF-SCHEDULE REFORMSModifying the way Self-Scheduling is achieved

Background

• Currently a Self-Scheduling request may achieve one or both actions:– Self-Committ a resource– Request to operate a generator as a price taker at a desired minimum

output

• A participant may increase/decrease the Economic Min parameter based on the desired minimum output of a generator

• Normally, the ISO honors this request unless there is a reliability concern

• The ISO cannot access the dispatch range below the Economic Min unless a Min Gen event is declared

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Proposed Enhancement

• The ISO is proposing that the Economic Min is no longer used for Self-Scheduling purposes

• The Economic Min parameter should be consistently used as a value that corresponds to specific attribute of a generator

• The Economic Min parameter is already defined this way in the tariff (but a provision is allowed to modify the Economic Min for Self-Scheduling pourposes)

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Economic Min

• The Economic Min value would always identify the value where the incremental cost of a generator switches from negative to positive as output increases

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True Incremental Cost ($/MW)

Output (MW)Emergency Minimum

Economic MinEconomic Max

Considered Enhancement (Self-Scheduling)

• The ability for a generator to be a price taker (Self-Scheduling) will remain available in the future

• To Self-Schedule, a participant would offer an energy block of its choice at the offer floor price

• The Self-Commitment will be unchanged in the day-ahead market (selection of the must run flag)

• In real time, participants can request to come on-line as long as the request is submitted with a 30 minute lead time

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Example of Self-Scheduling Under the Proposal

• Participant offers 150MW block of energy at the floor price

• Normally, the system will dispatch the generator at 150MW

• ISO can dispatch the generator across nominal dispatch range

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ENHANCEMENT 4:SUBMITTING NEGATIVE OFFERS/BIDS

Background

• When the system experiences low load/surplus generation conditions the energy price may reach $0/MWh – This can happen through normal dispatch, or– Administratively through Min Gen event

• The current offer floor price of $0/MWh does not send a strong signal to generators that their output needs to be decreased

• Additionally, participants do not have a capability to price their desired output during these conditions

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Proposed Enhancement

• The ISO is proposing lowering the current offer floor price for offers bids (in the Day-Ahead and Real-Time Energy Markets)

• Still considering what the new offer floor value should be (e.g., -$100/MWh, -$500/MWh, -$1,000/MWh)

• For comparison the floor price is:– -$1,000/MWh in NYISO, PJM and SPP – -$500/MWh in MISO– -$30/MWh in CALISO (To be increased to -$150/MWh)

• This change will enable participants with less flexible generators to price their desired output level during surplus generation/low load conditions

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MAJOR INITIATIVE IMPACT ANALYSIS

Major Initiative Framework

• The scope of this project has been identified as a major initiative

• The ISO will present quantitative and qualitative information associated with this proposal per the process outlined within the “Framework for Evaluating Major Initiatives”

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Major Initiative Process Overview

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Markets Committee: Min. of 2 meetings likely

MarketsCommittee:

1 meeting likely

Project Definition / Requirements

Gathering

Analysis/ Conceptual Design Detailed Design Impact Analysis Tariff / Market

Rules Revisions

External Input: ad hoc , sector and CLG meetings

Preview problem and potential solutions;Indicate if initiative is major and decide whether to pursue the initiative; stakeholders may raise alternatives

Refine project scope and solutions; develop ISO proposal; obtain input on assumptions for impact analysis; stakeholders may raise alternatives

Provide qualitative and quantitative information on major ISO initiative

Draft Tariff changes based on design

Markets Committee: 1-2 meetings likely

CLG: 1 meeting to provide overview of major

initiative

Markets Committee: 2

meetings min.

(discuss and vote)

Current Activities

Major Initiative Analysis – Intraday Reoffers

• Study period January 2010 – July 2012

• The ISO will calculate a “daily change factor” based on the historic natural gas price variations between day ahead and real time

• Forecast how the energy offers would have changed if participants had the ability to update offers in real time using the “daily change factor”

• Simulate revised Locational Marginal Prices and simulate revised generator payments based on the “updated” offers

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Major Initiative Analysis – Negative Offers

• Review the hours when Min Gen events and warnings were declared in 2012

• Review the hours when energy price fell to $0/MWh and estimate costs/charges with different energy price scenarios(e.g., price reached -$20 MWh, -$50 MWh)

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Major Initiative Analysis cont.

• As part of the major initiative process participants have the opportunity to provide feedback and propose assumptions for the impact analysis

• The impact analysis will be presented during the February MC

• Participants also have the opportunity to propose alternative designs

• Please provide information to amitreski@iso-ne.com by 01/11/2013

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