SMD

FTR/ARRFTR/ARROVERVIEWOVERVIEWFTR/ARRFTR/ARROVERVIEWOVERVIEW

Welcome to . . .

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Today’s Presentation

• FTRs– What are they?– What are they worth?– How do I get them?– FTR Auction startup

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Today’s Presentation

• ARRs– What are they?– Who gets them?– How are they allocated?– How are they valued?– ARR settlement timeline– Incremental ARRs

Financial Transmission Rights (FTRs)

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What are FTRs?

• Financial instrument that entitles the holder to receive a credit or be assessed a charge based on differences in Day-Ahead (DA) Congestion Components of Locational Marginal Prices (LMPs)

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FTR Characteristics

• Financial entitlement, not physical right– Independent of energy delivery– Settled hourly against differences in

Congestion Component of Day-Ahead Energy Market LMPs

• Begin and end date– On-Peak or Off-Peak

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• Identified from source to sink in MWs– Unidirectional– Location to location

FTR Characteristics

QQ

PP

RR

SS

TT

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Cost to serve the next MW of load at a specific location, using the lowest production cost of all available generation,

while observing all transmission limits

What is an LMP?

EnergyEnergy

CongestionCongestion

LossesLosses

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LMP Congestion Component in a constrained system

QQ

PP

RR

SS

TT

Zone 1 Zone 1

$14.90$14.90

Thermal Limit240 MW

$20.00

$13.55

$11.15

$5.00

$0.50

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Congestion Component of LMP

Total LoadMWs

Total LoadMWs

Zone Congestion Component

$

Zone Congestion Component

$

Total Load Congestion Component

Charges$$$

Total Load Congestion Component

Charges$$$

Specific Node Congestion Component

$

Specific Node Congestion Component

$

Total Generation Congestion Component Payments

$

Total Generation Congestion Component Payments

$

Total Generation

MWs

Total Generation

MWs

Total Load CC Charges

$$$

Total Load CC Charges

$$$

Total Generation

CC Payments$

Total Generation

CC Payments$

Congestion Revenue

$$

Congestion Revenue

$$

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Congestion Revenue Fund

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How FTR Holders are compensated

SR $11.15 $13.55 ($2.40) 80 MW ($192.00)

PT $20.00 $0.50 $19.50 200 MW $3900.00

PZONE1 $14.90 $0.50 $14.40 200 MW $2880.00

FTR Capacity

Point of Injection

FTR Credit or Payment

FTRPoint of

WithdrawalDifference

QQ

PP

RR

SS

TT

Zone 1 Zone 1

$14.90$14.90

$20.00

$13.55

$11.15

$5.00

$0.50

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Things to consider....

ConsiderationConsiderationFTR ? FTR ? Congestion ?Congestion ?

• Cost of FTR purchase price

• Possible to receive Congestion Credit

• Possible to incur Congestion Charge

• Cost of FTR purchase price

• Not eligible for Congestion Credits

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Acquisition of FTRs

FTR Auction

Secondary Market

OR

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How can I acquire an FTR?

• FTR Auction– Centralized market

• Annual and monthly auctions– Method of distributing existing FTR

capability – Customers bid for or offer to sell FTRs

• Secondary market – Holders can sell all or part of an FTR via

registered bilateral trading

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FTR and Auction Update

• Registration– Financial Assurance

• Market Trials– MT1 (August): monthly auction– MT2 (September): Long term followed by

monthly auction

• Initial Auction– Nov 8 opening of initial monthly auction

window for Dec 1 start-up

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Auction Startup

• First, initial monthly auctions– offer full system capacity

• Then, initial long-term auctions– Introduce long-term auctions within 7 months of SMD

Effective Date; term > 1 month, < 1 year– Post 30-day notice in advance of initial auction– Include schedule and percent of system offered– Coordinate with neighboring Control Areas

• Followed by annual and monthly auctions– 50% of system annually, balance monthly– Within 2 years of SMD Effective Date, evaluate

offering FTRs with term > 1 year (1 yr increments)

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11 175 8 912 2 1163 41 1210 5432 6

2002 2003 2004

11 175 8 912 2 1163 41 1210 5432 6

2002 2003 2004

LEGEND

Auction Window

Target

MR 1X Latest

Results Published

SMD Effective Date12.01.2002

11 175 8 912 2 1163 41 1210 5432 6

2002 2003 2004

LEGEND

Auction Window

Target

MR 1X Latest

Results Published


Target6-month

6-month10%25% 1 Year

50%

11 175 8 912 2 1163 41 1210 5432 6

2002 2003 2004

LEGEND

Auction Window

Target

MR 1X Latest

Results Published


Target6-month


50%

10%MR 1X Latest 6-month

25%

3-month

11 175 8 912 2 1163 41 1210 5432 6

2002 2003 2004

LEGEND

Auction Window

Target

MR 1X Latest

Results Published


Target6-month


50%


25%

6-month

6-month10%

10%25%

6-month2-month?

1 Year

50%


25%

3-month

11 175 8 912 2 1163 41 1210 5432 6

2002 2003 2004

LEGEND

Auction Window

Target

MR 1X Latest

Results Published


Target6-month


50%



6-month

6-month10%25%

5-month

6-month10%25%

6-month

25%

7-month

25%

1 Year

50%

1 Year

50%


25%

6-month

6-month10%

10%25%

6-month2-month?

1 Year

50%


25%

3-month

SMD Effective Date & Auction Scenarios

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Auction Time Line

• Long-term auction– 5 business day quoting period– opens 5 business days before first day of month

preceding period FTRs are effective– results posted within 6 business days (intended

to be before monthly auction window opens)

• Monthly auction– 5 business day quoting period– opens 15 business days before start of auction

month– results posted within 4 business days

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FTR Auction Timeline

Month Preceding the periodfor which FTRs are being Auctioned

Post Long Term Auction Results

within 6 BD

Post MonthlyAuction Results

within 4 BD

5th BD prior

End ofPreceding

Month~

Beginning ofAuctioned

Period

Last BD 15th BD 10th BD Last BD

Beginning ofPreceding

Month

MonthlyAuction

MonthlyAuctionCloses12 Noon

MonthlyAuctionOpensMidnight

Long TermAuction

Long TermAuctionOpensMidnight

Long TermAuctionCloses12 Noon

Beginning 5 business daysbefore the first business dayof the month preceding theperiod in which the FTRs areto be effective.

Beginning fifteen daysprior to the start ofthe auction month

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Auction Business Rules

Manual 6, Page 3-8

• Non-Participant one-time registration fee of $500

• Bids and Offers:– Bids: may not specify a negative price– Financial Assurance requirement must be met

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Auction Revenue Rights (ARRs)

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ARR Definition & Eligible Entities

• ARRs represent shares of revenues generated by sale of FTRs in a specific auction and characterized by:

– an injection Node/External Node– a withdrawal Node– a MW quantity

• ARRs are allocated to entities exposed to paying the cost of congestion in NEPOOL:

– Transmission Customers – Congestion Paying Entities – Parties to Excepted Transactions, NEMA Contracts

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ARR Overview

• FTR Auction revenues are distributed to:

– Sellers of FTRs in the Auction

– Certain entities paying for new transmission upgrades (holders of Incremental ARRs as described in Manual 6, section 8)

– Entities that pay Congestion Charges (ARRs are awarded through the 4-step process described in Schedule 15 of NOATT)

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ARR Allocation: 4-Stage Process

• Stage 1 - ARRs (MW) are initially assigned based on:

– Excepted Transactions (Attachments G & G2 of NOATT)

– Load ratio share of NEPOOL generators and tie sources

• Stage 2 - Remove negatively valued ARRs, run SFT

– Eliminate initially assigned ARRs having negative values in associated FTR Auction

– Reduce remaining ARRs to achieve simultaneous feasibility; these are Stage 2 ARRs

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ARR Allocation: 4-Stage Process

Stage 3 & 4 reallocate ARRs to NEMA LSEs

• Stage 3

– Replace NEMA Stage 2 ARRs with initial assignment of NEMA Contracts

– Eliminate initially assigned NEMA Contract ARRs having negative values in associated FTR Auction

– Reduce remaining NEMA Contract ARRs to achieve simultaneous feasibility, resulting in Stage 3 ARRs

• Stage 4

– Stage 2 and Stage 3 awards are tested for simultaneous feasibility, with only NEMA Stage 2 ARR awards reduced; these are Stage 4 awards

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ARR Settlement Timeline

Auction revenues are settled on a monthly basis

• Monthly Auctions: – Auction revenues are collected and distributed in

second month after the auction– ARR quantities and values are calculated using data

for the month in which the auctioned FTRs are effective

• Long-term Auctions: – Monthly share of revenue (by number of days in a

month) collected and distributed as for the monthly auctions.

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FTR Auction & ARR Timeline

Month Preceding the periodfor which FTRs are being Auctioned

Post Long Term Auction Results

within 6 BD

Post MonthlyAuction Results

within 4 BD

End ofAuctioned

Month- or -

1st Month forLong Term

FTRs

5th BD prior

End ofPreceding

Month~

Beginning ofAuctioned

Period

Last BD 15th BD 10th BD Last BD

Beginning ofPreceding

Month

MonthlyAuction

MonthlyAuctionCloses12 Noon

MonthlyAuctionOpens

Midnight

Long TermAuction

Long TermAuctionOpensMidnight

Long TermAuctionCloses12 Noon

Beginning 5 business daysbefore the first business dayof the month preceding theperiod in which the FTRs areto be effective.

Beginning fifteen daysprior to the start ofthe auction month

Bill goes out by the 15th

Bill FTR Auction BidsDistribute Auction Revenues

All data needed to settle isavailable by the 3rd BD

after end of monthSettle FTRs

Allocate ARR Revenue

Auctioned FTRs Effective

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Section 8 - Incremental ARRs (IncARRs)

• Schedule 15 provides few specifics

• In keeping with SMD, looked to PJM while respecting differences in OATTs

• Design principles:– Conform to NEPOOL OATT and existing processes

governing transmission upgrades– Measure incremental value of upgrade fairly using

mature tools– Offer choices to customers– Provide reasonably enduring results– Correlate with related PJM practices

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Section 8- Incremental ARR Overview

• IncARRs and Eligibility for Awards

– Awarded for new transmission upgrades that make additional FTRs possible

– Upgrades paid by RNS rate do not qualify

– Share costs, share IncARRs proportionately

– IncARRs continue with cost support/upgrade life

– In MW, unidirectional, from Node to Node

– A claim on auction revenue, not an FTR

– Multi-step process offering customer choice

– Initially, will offer Interim IncARRs on auction by auction basis (until first annual auction)

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ARR Information

• Manual 6 Technical Session was held April 26, 2002

• Next Technical session early June

• Send comments/questions on ARRs or IncARRs or on Manual 6 by May 20, 2002 to: [email protected]

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ARR Information

• SMD Customer Training scheduled for July,2002:

– Intro to eFTR software – ARR session

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ISO on the web: www.iso-ne.com

What’s New

Email: [email protected]

CST Helpline: 413-540-4220

Still have questions?

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Documents

Transcript of SMD