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Market Surveillance Panel Consultation on CMSC

Issues Related to Constrained off Payments to Generators and Imports

Market Operations Standing Committee

March 5, 2003

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Contents

• Purpose & Context of Consultation• CMSC Payments - Background • Constrained off Payments – Various Rationale Noted

• Implications of Retaining Constrained off Payments

• Issues for Discussion• Request for Additional Comments

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Purpose & Context of Consultation

• Ongoing issue for MSP signaled earlier– constrained off payments do not seem necessary or

appropriate and have the potential for abuse• MSP Report: May-August 2002

• MSP Backgrounder paper April, 2002

– experience from the operation of the market

• MSP invites input – to focus discussion, reconsider constrained off

payments for energy to generators and imports

– if not eliminated, may need additional safeguards against abuse

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Purpose & Context of Consultation (cont.)

• Timetable – Feb 21: Posting of discussion paper

– Mar 31: Final date for submission of comments

– early May: MSP conclusions and recommendations

to IMO Board

• MOSC Consultation– to introduce issues

– to promote some initial discussion of issues

– to encourage subsequent written comments

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CMSC Payments - Background

• Design alternative to locational pricing– CMSC payments based on difference between offers

(bids) and MCP

– intended for transmission / reliability limits

– but also induced by non-transmission causes

• Mitigation framework limited to transmission• Weight of the recent evidence in other markets– constrained-off payments are not regarded as

necessary in spot markets

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CMSC Payments for Energy- May to Dec 2002

Constrained on($million)

Constrained off($million)

Generation 32.7 47.3

Imports 83.6 15.8

Other 0.4 16.2

Total 116.7 79.3

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Constrained off Payments - Various Rationale Noted

• Keep wholesale prices lower than otherwise• Enhance reliability – by maintaining critical plant in the marketplace

• Information about transmission bottlenecks– helpful in identifying areas for investment

• Operational benefits to the marketplace– encourages compliance; selection rule

• Compensates for departures from optimality– existing generation and transmission endowment

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Implications of Retaining Constrained off Payments

• Constrained off payments may interfere with appropriate signaling in the market– no incentive for generators to seek enhancements

– siting of new generation is indifferent to transmission conditions

• Potential to affect CMSC with offer price– treatment of negative offer prices

– some aspects of the local market power mitigation framework need to be reviewed

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Issues for Discussion

• Primary Discussion Issues– Implications for efficiency

– Implications for reliability

– Implications for coordinating transmission & generation

• Additional or Optional issues (selected subset)– Implications for local market power mitigation

– Implications for investment decisions

– Audience identified issues

– Discussion of one or two issues as time permits

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Implications for Efficiency

• What are the implications of keeping or removing constrained off payments?– Impact on market price

– Total payments

– Signals for suppliers or consumers

– Etc.

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Implications for Reliability

• What are the implications of keeping or removing constrained off payments? – Is it necessary or desirable to compensate a market

participant to comply with a dispatch instruction?

– Do payments help maintain critical plant in the market place?• Are constrained off payments the right vehicle?

– etc.

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Implications for Coordinating Transmission & Generation

• What are the implications of keeping or removing constrained off payments? – Are CMSC payments providing good transmission

investment signals?• Are there other more effective drivers or signals?

• What else is needed for transmission investment?

– Are generator siting signals being blunted?

– Is there a basis for treating new generation differently from earlier existing generation?

– etc.

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Additional Issues for Discussion

• To be determined– local market power mitigation framework?

– investment decisions?

– other identified issues?

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Request for Additional Comments

• See Consultation page and Discussion Paperhttp://www.theimo.com/imoweb/consult/consult_cmsc.asp

• Provide written comments for posting on web site– send to MACD@theIMO.com

• For background information on CMSC– see links from Consultation page