Pricing Enhancements Revised Straw Proposal

Transcription

1 Pricing Enhancements Revised Straw Proposal Guillermo Bautista Alderete, Ph.D. Manager, Market Validation and Quality Analysis October 3, 2014

2 ISO Stakeholder Initiative Process POLICY AND PLAN DEVELOPMENT Issue Paper Straw Proposal Draft Final Proposal Board Stakeholder Input We are here

3 Objective and Agenda Introduce the Straw Proposal. Estimated Time Topic Presenter 13:00-13:10 Introduction Kristina Osborne Guillermo Bautista 13:10-14:50 Background Alderete Administrative Pricing Rules Priority of self schedules with existing transmission rights Compounded pricing of multiple contingencies Multiplicity of prices 14:50-15:00 Next Steps Kristina Osborne Slide 3

4 Scope of this Initiative 1 Scope set forth in initial administrative pricing initiative Administrative pricing rules, Emergency tariff authority, and Force Majeure. 2 Priority for schedules protected with existing transmission rights. 3 Compounded pricing of multiple contingencies. 4 Multiplicity of prices. Page 4

5 Item 1: Administrative Pricing Rules On June 2012, FERC granted the ISO s petition to waive tariff provisions. ISO committed to conduct a stakeholder process to revise to tariff language. In the Issues Paper, the ISO defined a broad range of items for discussion about What modifications were required to the current administrative pricing, What clarifications were needed for market suspensions/system emergencies, Force majeure. Page 5

6 Item 1: Administrative Pricing Rules Straw Proposal Use a three-tier approach for Administrative Pricing. Tier I: use existing logic of last available price but only if prices are missing for less than 12 (RTD) or 4 (FMM) intervals. Tier II: Use day-ahead prices if prices are missing for more than 11 (RTD) or 3 (FMM) intervals. Allows for FMM and RTD substitution if one market is available. Captures the time-based trend of prices. Minimizes imbalance charges between markets. Page 6

7 Iitem 1: Administrative Pricing Rules Straw Proposal Tier III: To deal with market suspension only. Use day-ahead (full LMP) prices. No explicit region separation. Page 7

8 When to trigger a market suspension? Trying to define a threshold would be a futile exercise. Market suspension due to system emergency or to prevent a system emergency and market cannot support reliable operation of the system, or the market does not reflect actual conditions After the event, the ISO commits to provide a description of the conditions leading to the suspension. Page 8

9 Force Majeure, system emergency and settlement A need to distinguish force majeure events from system emergencies and/or market suspension. The administrative pricing proposal expressly addresses market disruption with or without market suspension. Tier III of administrative pricing is expected to be for very infrequent occurrences. Force majeure is not necessary linked to a system emergency or a market suspension. Page 9

10 Force Majeure, system emergency and settlement Force Majeure does not and should not excuse financial obligations. There are some concerns that existing language is not clear enough in this regard. As part of the discussion related to the September 8, 2011, the ISO committed to clarify the definition of a force majeure event and the settlement consequences. Page 10

11 Force Majeure, system emergency and settlement The ISO market design at its core relies on a two-step settlements between day-ahead and real time markets. Day-ahead market is financially binding. It imposes financial obligations on parties to pay or be paid. If uninstructed deviations from the day-ahead occur, parties have the obligation to pay for it. This is the foundation for allocating price risk between the day-ahead and real-time markets. Page 11

12 Force Majeure, system emergency and settlement The inherent nature of the power system makes outages/derates, over which a market participant may not have any control, a typical occurrence. ISO proposes to maintain the policy of not excusing the settlement impact of settling deviations at the real-time energy price. Excusing financial obligations, undermines the efficiency of the market by having a myriad of settlements changes after the fact. Results in a complexity for factual investigation for each case invoking force majeure provisions. Challenges for cost allocation and causation. Page 12

13 Force Majeure, system emergency and settlement Further clarifications are done for administrative pricing only under a market suspension. Under Tier III of administrative pricing, Imbalance charges will be washed out by using dayahead prices for real-time. For resource deviating per operating instructions they will get the Exceptional dispatch settlement. Convergence bids will be liquidated at day-ahead prices. No winners or losers. Congestion revenue rights are not impacted by market suspension of the real-time market. IST trades will also settle at the day-ahead prices. Page 13

14 Furthermore, what if the day-ahead market is suspended? The ISO needs to plan for a catastrophic event that prevents the completion of the day-ahead market. If by 20hrs of the run day, the day-ahead results cannot be obtained, the day-ahead market will be suspended. In the absence of a day-ahead market solution, Leave it fully up to the real-time market With its limited time window, the real time market may not commit long start units. This may require a lot more outside the market dispatches. The ISO proposes to default to use the most recent and similar day results. Page 14

15 Item 2: Priority for schedules protected with existing transmission rights Existing transmission contracts and transmission ownership rights are exempt from any congestion charges. There have been some instances where a bid submission error related to transmission rights results in costly congestion. Currently, the bids are not rejected but rather passed as price-taker self schedules. Prices associated with such congestion are not subject to price corrections. Page 15

16 Item 2: Priority for schedules protected with existing transmission rights -Straw Proposal The ISO is proposing to target specific cases where a bid error results in a zero entitlement of existing rights. Only for these instances, the bid will be rejected instead of being accepted with lower priority. Original ISO proposal has general support from participants. Page 16

17 Item 3: Compounded pricing of multiple contingencies The Security Constraint Unit Commitment enforces transmission constraints for both base and contingencyrelated cases. All contingencies enforced are studied and defined through operations studies. With all the contingencies being credible, there is no mechanism to identify a priori the most severe contingency. Page 17

18 Item 3: Compounded pricing of multiple contingencies Currently, each contingency is treated as an independent mathematical constraint, and if binding each one will usually have a shadow price. Market solutions based on the administrative relaxation parameters indicate the system exhausted all controls to relieve congestion. Last resort is to use constraint relaxation. Page 18

19 Item 3: Compounded pricing of multiple contingencies If these constraints are binding based on the administrative relaxation parameters, compounded congestion may not provide any further economical relief. There have been instances where a constraint binds concurrently for multiple contingencies. Page 19

20 Item 3: Compounded pricing of multiple contingencies - Straw Proposal The ISO is proposing to enhance the logic in the market to price only the most limiting contingency. All constraints, base and contingency cases, will be enforced as usual. Page 20

21 Item 3: Compounded pricing of multiple contingencies -Straw Proposal All contingencies will have a common slack variable for constraint relaxation purposes. The slack variable for each constraint set will be priced only once. The scope of this enhancement is only for when constraint relaxation occurs. This requires only a small change to the formulation. Cases of non-relaxation solutions would require a different approach which might require a major redesign of the current formulation. That may be explored in the future. Page 21

22 Item 4: Multiplicity of Prices The California ISO market uses a locational marginal pricing scheme, similar to other ISOs in the United States. The core of the optimization relies on a security constraint unit commitment (SCUC) and is solved with a mixed integer programming (MIP) methodology. A common feature of electricity markets is the use of multi-segment bids, typically multi-stepwise bids. Page 22

23 Item 4: Multiplicity of Prices Multiplicity of prices may arise in electricity markets and their root is deep in the mathematical formulation. Multiplicity of prices still reflects mathematically optimal solutions. The ISO has observed instances where multiplicity of prices arise under some scenarios, such as with intertie constraints. Page 23

24 Item 4: Multiplicity of Prices - Numerical example Bid stack for imports and export for an intertie with 0 MW limit in the export direction. At the solution, the system marginal energy cost is $30/MWh. 0 MW awards for imports and exports. The import bids set the price at the intertie location at $250 Shadow price for the intertie constraint is at ($30-$250)=-$220 in the export direction Multiplicity of prices means Shadow price for intertie =[0, -220] $/MWh, and LMP at intertie scheduling point= [30, 250] $/MWh. Page 24

25 Item 4: Multiplicity of Prices Straw Proposal Current formulation does not adopt specific rules to predetermine a solution from the possible set. The ISO is proposing an enhancement to its formulation of pricing constraints. Consider for a reference the current formulation of the scheduling and pricing runs: Page 25

26 Item 4: Multiplicity of Prices Straw Proposal The enhanced formulation modifies the current mathematical structure of the linear programming security constraint dispatch The linear constraints are expanded with another slack This slack variable is appended into the objective function. The linear programming problem is now casted as a quadratic programming problem. The formulation is convex, which guarantees uniqueness of prices. The additional slack variable now competes with the existing slack variables to fulfill any constraint relaxation. An epsilon associated with the new slack variable needs to be small enough to preserve the proper price signal. Page 26

27 Numerical example for constraint relaxation Solution in scheduling run: G1=250 MW, LMP=$50 G2=50 MW, LMP=$5050 Line flow= 250 MW Constraint relaxation=100mw Shadow price for line constraint=-$5000 Shadow price for power balance=$5050 Pricing run set-up Solution in pricing run: G1=250 MW, LMP=$50 G2=50 MW, LMP=$1050 Line flow= 250 MW Constraint relaxation=100mw Shadow price for line constraint=-$1000 Shadow price for power balance=$1050 Page 27

28 Numerical example for constraint relaxation With the proposed formulation, the same expected solution reflecting relaxation is expected to be obtained. It is here where the epsilon parameter may play a role. In this example an Epsilon of 1E-3 is small enough to converge to the same solution Page 28

29 Further considerations The enhanced formulation will apply to both day-ahead and real-time markets. It will be applied to the pricing run since this is the run that produces the binding awards and prices. The formulation will apply programmatically to any transmission constraint that has an effect on locational marginal prices, including power balance flowgates, transmission corridors scheduling limits nomograms EIM-related constraints Page 29

30 Item 4: Multiplicity of Prices -Numerical example with enhanced formulation Bid stack for imports and export for an intertie with 0 MW limit in the export direction. At the solution, the system marginal energy cost is $30/MWh. 0 MW awards for imports and exports. The LMP at the intertie scheduling point equals the SMEC=$30/MWh. Shadow price for the intertie constraint is $0/MWh. Page 30

31 Item 4: Multiplicity of Prices A second scenario Bid stack for imports and exports for an intertie with 0 MW limit in the import direction. 0 MW awards for imports and exports. Current formulation Proposed formulation LMP at the tie= -$29 - LMP at the tie= $36.05 Shadow price of constraint= -$ Shadow price of constraint=$0 Multiplicity of prices LMP at the tie [36.05, -29] $/MWh Shadow price [0, ] $/MWh Page 31

32 Next Steps Date Tue 7/01/14 Thu 07/10/14 Tue 7/22/14 Fri 9/26/14 Fri 10/03/14 Event Issue Paper and Straw Proposal Posted Stakeholder Call Stakeholder Comments Due Revised Straw Proposal Posted Stakeholder Call Fri 10/10/14 Wed 10/29/14 Wed 11/05/14 Wed 11/12/14 December 2014 Stakeholder Comments Due on Revised Proposal Draft Final Proposal Posted Stakeholder Call Stakeholder Comments Due on Draft Final Proposal BOG Page 32

33 Please send comments to Questions? Contact Guillermo Bautista Alderete Page 33