CAISO 15-Min LiquidityCAISO Stakeholder Meeting

October 6, 2015

Alex SpainTrading Floor ManagerPower ServicesBPA

Dave DernovsekDay Ahead TraderPower ServicesBPA

Presentation Objectives

Federal Columbia River Power System (FCRPS) • Facts and Myths

CAISO HASP/FMM Liquidity Impediments• Operational Considerations

• Transmission Utilization

• Market Issues

CAISO HASP/FMM Liquidity Solutions

2

FCRPS: Facts

3

FCRPS is a partnership– US Army Corps of Engineers

(Corps)

– US Bureau of Reclamation

(Reclamation)

– Bonneville Power Administration

(BPA)

FCRPS 31 hydro plants– 21 Corps (14,651 MWs)

– 10 Reclamation (7,807 MWs)

– 209 Generating Units ranging from 1 MW (Boise Diversion) to 805 MW (Grand Coulee)

Canada has 15% basin area, but provides 30% of ave annual flow at The Dalles

FCRPS: Facts

Multiple FCRPS Objectives

4

– Flood Control

– Irrigation

– Navigation

– Recreation

– Fish Operations (BiOps)

– Control Area Services

– Power

FCRPS Myth #1

5

FCRPS has lots of flexibility

– Average January - July runoff is 106 million acre feet

(ranges from 50 – 150 MAF)

– Federal storage about 30 MAF: Storage Limited System

– When the FCRPS is empty, we can store 25 % of the

annual runoff.

– The Colorado or Missouri systems can store two to three times the annual

runoff.

– 12 Hydro Projects provide 94% of gen capacity

– Generation is driven by need to move water.

– ~1000 MWs of INC/DEC Capacity is allocated to Gen/Load Imbalance

– FCRPS persistently faced Spring Oversupply due to lack of flexibility

FCRPS Myth #2

6

FCRPS is always Surplus

– White Book (WBK 2014)

– 1958 (Ave Water Year) and 1937 (Critical Low Water Year)

– Graph shows % of FCRPS capacity and energy allocated to LT

Obligations

Balanced Water Year Driven Oversupply Risk

FCRPS Myth #3

7

Trading Floor controls majority of FCRPS Capacity

– ~ 90% of BPA Power Services revenues and FCRPS Flexibility is

committed prior to Trading Floor transactions

BPA Trading Floor

O N D J F M A M J J A S

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Typical Annual Operations Cycle

Natural Flow TDA Flow

Market Transactions support BPA needs to reshape natural flows to

meet operational requirements prior to Real Time

BPA Trading Floor

Goal is to achieve load service and operational requirements

prior to real time (Hourly)

BPA Trading Floor

CA/CAISO volume is capped by intertie transmission capacity

143 MAF

129 MAF

98 MAF

108 MAF

85 MAF

BPA Trading Floor

Risky

HASP/FMM Price and Dispatch Uncertainty introduces costs and risks

BPA Trading Floor

CAISO DA avoids HASP/FMM price and dispatch costs and risks

NOB/Sylmar (FMM – HASP) Spread

Recurrent periods of volatile FMM/HASP spread

CAISO DA bids hedge recurring HASP/FMM price volatility

FMM-HASP Spread Frequency and Bias

HASP < FMMHASP < FMM HASP > FMM HASP > FMM

Heavy tail on Sylmar where HASP price is more than $100 below

eventual FMM

NOB/Sylmar: Implications of FMM-HASP Spread Bias

Risk of ineffective economic hourly bid strategy incentivizes

resources to self-schedule as a price taker or in the DAM

Sylmar hourly block bidding - inc Unit opportunity cost: -$

5/1/14 - 8/31/15 Transmission cost: 2.00$

bid price MWh HASP $/MWh FMM $/MWh revenue p/l

price taker 11,875 23.00$ 33.38$ 396,363$ 372,613$

-$ 10,924 32.60$ 35.11$ 383,572$ 361,724$

5.00$ 10,660 33.36$ 35.19$ 375,168$ 353,848$

10.00$ 10,454 33.85$ 35.45$ 370,596$ 349,688$

15.00$ 10,175 34.43$ 35.74$ 363,700$ 343,350$

20.00$ 9,594 35.42$ 36.54$ 350,591$ 331,403$

25.00$ 8,054 37.78$ 38.83$ 312,766$ 296,658$

30.00$ 5,819 41.78$ 42.95$ 249,916$ 238,278$

35.00$ 3,809 46.65$ 48.01$ 182,857$ 175,239$

40.00$ 2,083 54.34$ 55.98$ 116,607$ 112,441$

NOB/Sylmar: FMM-HASP Spread Bias Costs

FMM – HASP Spread risk increases when CAISO sends a HASP

signal to incentivize Exports.

NOB/Sylmar: Cost Implications of FMM/HASP Bias

Sylmar FMM dec prices 5/1/14 - 8/31/15 # intervals avg HASP avg FMM FMM - HASP

All instances when avg FMM < 0 610 (29.24)$ (38.20)$ (8.96)$

instances where HASP > 0 and FMM < 0 354 25.98$ (27.94)$ (53.92)$

Positive HASP signal does not protect against negative binding

FMM price in almost 3% of hours

COB/Malin (FMM – HASP) Spread

Greater price convergence but still evidence of upward bias

COB/Malin: FMM Price Protection with Stranded Costs

12/1/2014 - 8/31/2015

COB+NOB COB only

DAM 99.47% 99.05%

Hourly Block 98.97% 98.58%

FMM 75.67%

CAISO Market Transactions - ratio of flow to

awarded MWh

Stranded firm intertie and FCRPS generation capacity more

prevalent in FMM compared to DAM or Hourly Block

COB/Malin: FMM Price Protection with Stranded Costs

Decreasing FMM interval volatility

In absence of alternative compensation, FMM volatility alone may be insufficient to recover the costs associated with providing CAISO 15-min dispatch option

HASP Liquidity impediments for BPA

• FCRPS operational requirements generally met in preschedule

• There are structural challenges to participating in CAISO economic

hourly block markets, specifically persistent FMM/HASP spread bias

– Main cause of FMM/HASP divergence traced to HASP clearing near or

below price floor of -$150

– High tail of positive FMM/HASP divergence affects overall strategy when

attempting to utilize CAISO economic real-time markets

– Economic bidding at low opportunity costs in Hourly Block becomes

suboptimal compared to self-scheduling as a price taker

– There will be no liquidity in dec market if market participants cannot rely on

HASP to send a realistic price signal

FMM Liquidity impediments for BPA

• FMM Market provides no Operational Benefits

– Real-Time markets small portion of overall transaction portfolio

– FCRPS operational requirements generally met on an hourly basis

• BPA has limited incentive to expand FMM participation

– Need economic incentive to lose a quarter of transmission while giving

free option to CAISO

– Interval FMM volatility may not always be sufficient to compensate intertie

and flexible generator owners for the option value

HASP and FMM Potential Liquidity Solutions

• Greater FMM/HASP price convergence at nodes where FMM is not

available

– Create greater liquidity in both import and export economic bids

– Potential to reallocate transactions from DA to RT

• Compensate for reduced flow and resource utilization in FMM

– Capacity/FlexiRamp/Mileage charge

– Interval FMM volatility sufficient to incentivize FMM over Hourly Block

– Introduce 15-minute scheduling on the DC

• More detailed discussion of contributing factors to market price signals

– Inelastic supply stack (marginal MW that binds the tie is a self-schedule)

– Disparity of 15-minute scheduling ability across TSPs

– Seams issues: scheduling practices, intertie TTC assumptions

– Load/generation variability and changes in modeling assumptions

(Transmission Reliability Margin, Operator adjustments)

• Questions

QUESTIONS ?