M A Y 6 - 7 , 2 0 1 4 | N E P O O L M A R K E T S C O M M I T T E E

Matt BrewsterM A R K E T D E V E L O P M E N T

M B R E W S T E R @ I S O - N E . C O M | 4 1 3 . 5 4 0 . 4 5 4 7

Quantitative analysis demonstrating Energy and Reserve market revenue results

Subhourly Real-Time Market Settlements

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• Simulation results indicate that subhourly settlements:– Increase or decrease asset compensation (on the order of +/- 5%)

• Energy revenue change between -40% and 138%• Reserve revenue change between -100% and 11%

– Produce small aggregate changes in annual market revenues• Energy revenues increased by $3.4M; up 1%• Reserve revenues decreased by -$2.8M; down 5%

• Quantitative estimates are drawn from simulated 5-minute real-time Energy and Reserve market settlements for 2013

• The simulation applied the ISO’s conceptual design proposal for 5-minute settlement of generators and DARD pumps only– Conceptual proposal was discussed at the January 14-15, 2014 MC

The quantitative analysis indicates subhourly settlement does improve market incentives

CONCEPTUAL DESIGN OVERVIEWBrief recap of project objective and conceptual proposal

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Subhourly settlements will improve resource compensation relative to hourly average credits

• Resource dispatch is determined subhourly (e.g., 5 minute)

• Market prices are established every 5 minutes

• However, the settlements are performed using market prices and quantities averaged* over hourly intervals– Averaging can either increase or decrease resource compensation

relative to the market value of products provided within the hour– If quantity and/or price are constant for the hour then averaging does

not alter compensation

• Resources that receive lower energy market revenue due to hourly averaging may require NCPC

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*Energy quantity is determined using megawatt-hour (MWh) per hour meters; “average” is used for convenience of discussion .

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Objective of subhourly settlement is to improve market incentives for flexible resources

• Resource performance and flexibility in response to dispatch is an important factor in maintaining system reliability

• Aligning the performance and pricing intervals for settlement can help improve market incentives for resources to respond to current system conditions

• Subhourly settlement establishes resource credits using the market value of energy and reserve at the time when these products were provided

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Conceptual design: 5-minute real-time Energy and Reserve settlement of generators & DARD pumps

• 5-minute settlement of generators and DARD pumps– Resource dispatch and market pricing interval for real-time Energy and

Reserve market correspond to 5-minute intervals

• 1-hour settlement of all other market activity (no change)– e.g., load assets, charge allocations, bilateral contracts

• Market design principles will not be modified, but must be adapted to apply under subhourly settlement

• Coordinated Transaction Scheduling (CTS) project requires 15-minute settlement interval at the external interface

• Modifications to NCPC, Regulation, FRM, and FCM for application of 5-minute data will be evaluated

SIMULATION RESULTSQuantitative results from simulated 5-minute real-time Energy Market and real-time Reserve settlements for 2013

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Simulation period and methodology

• Study period includes all months of 2013

• Dispatchable generators and DARD pumps were settled using 5-minute interval quantities and prices (rather than hourly)– All other assets and market activity were kept hourly

• 5-minute energy quantities were estimated in two steps:1) Creating an asset “profile” of energy output within each hour using

telemetry data2) Scaling the asset profile to match the hourly revenue quality energy

quantity submitted by the meter reader

• Energy simulation excluded about 1% of hours where subhourly data were not available

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Subhourly settlement improves compensation by aligning performance and pricing periods

• Energy: subhourly settlement tends to increase credits– Convex nature of supply stack (prices rise faster as quantity increases)

tends to result in higher subhourly credits during system ramp– Although some resources will have lower credits if energy is not

provided during periods of high LMP (e.g., a unit that trips)

• Reserve: subhourly settlement tends to reduce credits– 5-minute accounting ensures MW credited for reserve are not greater

than the reserve requirement (which tends to reduce total credits)– Although some resources receive more revenue for MW provided to

maintain requirements when credited at the coincident price

• Examples of these outcomes are included in the last slides

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delta < (5%) (5%) < delta < 0% 0% < delta < 5% delta > 5%0%

20%

40%

60%

80%Generators & DARD pumps (2013)

RT ReservesRT Energy

Asset Percentage Change in Revenue

Perc

enta

ge o

f Ass

ets

Annual market revenue change for most generators and DARD pumps is within +/- 5%

• For individual assets, subhourly settlement tends to:– Increase net annual Energy credits (majority increase < 5%)– Decrease net annual Reserve credits (majority decrease < 5%)

Decreased asset revenue Increased asset revenue

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In aggregate there are small changes in the real-time Energy and Reserve market revenues

All Assets

Non-Fast Start

Fast Start

($4.0M) ($3.0M) ($2.0M) ($1.0M) $0.0M $1.0M $2.0M $3.0M $4.0M

($2.8M)

($0.4M)

($2.4M)

$3.4M

$2.1M

$1.2M

Generators & DARD pumps (2013)

RT ReservesRT Energy

Aggregate Revenue Change (Millions)

Asset Type

RT Reserve RevenuesDecrease in aggregate

RT Energy RevenuesIncrease in aggregate

• Real-time (RT) energy credits increased by $3.4M; up 1%

• RT reserve credits decreased by -$2.8M; down 5%

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RT Energy subhourly settlement results for generators and DARD pumps (2013)

• Individual Asset RT Energy revenue change for 2013:

Asset Type HourlyRT Revenue

Subhourly RT Revenue

RevenueChange

PercentChange

All Assets $365.6M $369M $3.4M 0.9%Fast Start $59.1M $60.3M $1.2M 2.1%

Non-Fast Start $306.5M $308.7M $2.1M 0.7%

RT Revenue = RT Deviation Energy Quantity x Energy RT LMP

• Aggregate RT Energy revenues for 2013:

Dimension MIN MEDIAN MAX

Annual Energy Revenue Change (%) -40% 0.3% 138%

Annual Energy Revenue Change ($) -$127K 1.2K $252K

• Total energy market value for 2013 was above $8 billion– $3.4 million is about 0.04% of the annual market value

RT Reserve subhourly settlement results for generators and DARD pumps (2013)

• Individual Asset RT Reserve revenue change for 2013:

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Asset Type HourlyRT Revenue

Subhourly RT Revenue

RevenueChange

PercentChange

All Assets $54.4M $51.7M -$2.8M -5.1%Fast Start $45.3M $42.9M -$2.4M -5.3%

Non-Fast Start $9.1M $8.7M -$0.4M -3.9%

RT Revenue = RT Reserve Product Quantity x RT Reserve Product Price

• Aggregate RT Reserve revenues for 2013:

Dimension MIN MEDIAN MAX

Annual Reserve Revenue Change (%) -100% -3% 11%

Annual Reserve Revenue Change ($) -$274K -$3.5K $30K

EXAMPLESStylized examples that demonstrate different revenue outcomes between hourly and subhourly settlement

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Energy settlement examplesExample 1 – ramped up to provide additional energy

Example 2 – tripped at mid-hour

• Energy prices tend to rise more quickly as quantities increase (convex supply function)

• As a result, units dispatched up or down as system ramps will receive lower revenue when credited using hourly averages

• Hourly averages obfuscate whether quantity and prices occurred coincidentally

• A unit that trips benefits from a high LMP afterward since its payment rate includes samples from the high price intervals

Interval(15 minute)

Energy Price($/MWh)

EnergyMW

SettlementCredit

1 (:00 - :15) $40 20 $200

2 (:15 - :30) $40 20 $200

3 (:30 - :45) $60 44 $660

4 (:45 - :60) $72 52 $936

  Subhourly Credit = $1,996

Hourly Credit = $53 34 $1,802

Interval(15 minute)

Energy Price($/MWh)

EnergyMW

SettlementCredit

1 (:00 - :15) $40 32 $320

2 (:15 - :30) $40 32 $320

3 (:30 - :45) $60 0 $0

4 (:45 - :60) $72 0 $0

  Subhourly Credit = $640

Hourly Credit = $53 16 $848

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Depiction of how hourly averages in the reserve settlements produce higher credits

a) When available reserves exceed the requirement, the reserve price is zero. Available reserves often exceed the requirement.

b) When available reserve is equal to (or less than) the requirement, the reserve price is positive. These periods are typically short.

c) The total MW credited for reserve should be equal to (or less than) the requirement. This would be the result in 5-minute periods, but is often not the outcome with hourly averages.

d) With hourly settlement, all reserve MW provided in the hour (blue shaded area) are credited using the hour's average reserve price.

e) With subhourly settlement, only reserve MW provided from [:30 to :45] (orange shaded area) are credited for reserve. 5-minute settlement tends to reduce total reserve payments, but can increase individual asset payments.

:05 :10 :15 :20 :25 :30 :35 :40 :45 :50 :55 :60

Available Reserve Reserve Requirement

5-minute Interval

MW

Available Reserve is equal to Requirement between [:30-:45]. There will be a positive reserve

price during this interval.

Reserve settlement examples

Interval(15 minute)

Reserve Price($/MWh)

ReserveMW

SettlementCredit

1 (:00 - :15) $0 44 $0

2 (:15 - :30) $0 44 $0

3 (:30 - :45) $36 8 $72

4 (:45 - :60) $36 8 $72

  Subhourly Credit = $144

Hourly Credit = $18 26 $468

Interval(15 minute)

Reserve Price($/MWh)

ReserveMW

SettlementCredit

1 (:00 - :15) $0 8 $0

2 (:15 - :30) $0 8 $0

3 (:30 - :45) $36 44 $396

4 (:45 - :60) $36 44 $396

  Subhourly Credit = $792

Hourly Credit = $18 26 $468

Example 1 – most reserves provided when zero price

Example 2 – dispatched to provide additional reserve

• More reserves than required are available during most periods (reserve prices are zero)

• The hourly average quantity tends to credit resources for more MW than provided to maintain the requirement (when reserve prices are non-zero)

• Some resources will be dispatched to provide more reserve during tight conditions

• For resources that are dispatched to maintain the reserve requirement, hourly averages tend to under-value performance

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