Interface Pricing. MISO-PJM JCM Meeting March 21, 2014

Transcription

1 Interface Pricing MISO-PJM JCM Meeting March 21, 2014

2 Overview Purpose: Provide update on MISO s status for resolving the MISO IMM raised issue of overstatement of external congestion value in Interface price Key takeaways: MISO believes that the IMM proposed solution to exclude congestion on external Market-to-Market constraints from the interface price is the appropriate solution for the PJM interface node MISO will collaborate with PJM, the two IMMs and stakeholders to continue to improve long term solution MISO decided to retain the existing PJM Interface definition and pricing method in the near term because the over-statement issue would have increased while the chosen alternative is being implemented 2

3 Objectives of Interface Pricing Basic Objective: The interface price for an external region should accurately reflect marginal cost of transferring incremental energy to/from the external region Energy Congestion Losses Implications: Achieves optimality at each five-minute dispatch interval through minimization of cost in the joint region Generally incents transaction from low cost region to high cost region Could incent transactions that simply relieve congestion Complex implementation Prices could be highly volatile 3

4 Objectives of Interface Pricing (continued) Precise implementation of the basic objective is impractical and unnecessary Five-minute precision is unnecessary since lowest granularity of transaction duration is 15-minutes in RT and hourly in DA Highly volatile prices are not most efficient for participants to react to and also for desired predictability in relation to longer term contracts Current methodology sufficiently represents the marginal energy cost Revised objective can focus on opportunities to improve representation of congestion and losses 4

5 Objectives of Interface Pricing (continued) Derived Objective: Select a static set of nodes and a calculation methodology that provide: Adequate representation of marginal cost of incremental energy transfer Desired correlation of price calculated at the interface and shadow price on key transmission constraints at the seam Implications: Reasonable balance between simplicity and accuracy Direct achievement of optimal cost for the joint region is not guaranteed Periodic review and adjustment to the definition would help ensure proper price signal and transaction settlement Incents transactions from high cost region to low cost region Could incent transactions that simply relieve congestion Simpler implementation Prices could be relatively less volatile 5

6 Description of Interface Pricing Issues In 2012/2013 MISO identified that: MISO s calculated price for the PJM interface undercharged/underpaid for key M2M constraints Primarily MISO owned M2M constraints and possibly PJM owned M2M constraints As a result, MISO-PJM transactions are possibly undercharged/ underpaid Constraint Type Internal Non-M2M Internal M2M External M2M MISO Assessed Impact OK Understatement Possible understatement 6

7 Description of Interface Pricing Issues (continued) In 2012 State-of-the-Market report, the MISO IMM raised that: MISO-PJM transactions are possibly overcharged/overpaid due to inclusion of external M2M constraints in the Interface price calculations for the other region Transactions with 3 rd Party (for e.g. TVA) are not impacted MISO agrees with the IMM s characterization of the overstatement issue associated with the PJM monitored M2M constraints Constraint Type Internal Non-M2M Internal M2M External M2M MISO Assessed Impact OK Understatement Overstatement 7

8 Solutions Explored At the November 2013 JCM meeting, MISO discussed a revised definition of the PJM interface 9-node Definition MISO identified a set of 6 generator nodes in PJM Classic and 3 generator nodes in PJM (ComEd) through evaluation of impacts on key M2M constraints Equal weighting of prices at for aggregated price calculation At the January JCM meeting, MISO IMM discussed two solution alternatives IMM Alternative #1 Exclude external constraints from congestion component of interface Use load reference bus in neighboring RTO as an interface IMM Alternative #2 A common interface definition comprising of a combination of elemental pricing nodes in MISO and PJM 8

9 MISO s Selection of Pricing Method The IMM proposed solution to exclude congestion on external Market-to-Market constraints from the PJM interface price is the appropriate long-term solution for MISO Established through review and conceptual validation of IMM s analysis Alternative #2 is less efficient during intervals when constraint shadow prices calculated by the RTOs do not converge MISO performed analysis determine the best near term option Collected/reconstructed Marginal Congestion Component (MCC) of prices in 2013 using several methods Compared options by reviewing difference in Interface MCC calculated by MISO and PJM to estimate how much a MISO to PJM transaction would get charged/paid in total 9

10 MISO Findings Internal Non-M2M constraints Internal M2M constraints External M2M constraints Option 1: MISO Current Option 2: 9 Node Definition Option 3: IMM Alternative #2 OK OK OK Understatement Overstatement OK Overstatement Takeaways Understatement or Overstatement Understatement or Overstatement Option 4: IMM Alternative #1 Possible Understatement OK OK IMM Alternative #1 Reconstructed MCC by removing impact of external constraints IMM Alternative #2 Reconstructed MCC using set of 10 nodes identified by PJM Option 4 provides better overall representation for all types of constraints Revised node selection may address issue related to internal non-m2m constraints Option 3 is impacted when shadow prices on M2M constraints do not converge 10

11 Comparison of combined congestion charge/ payment by MISO and PJM Estimated congestion charge/payment [MISO re-calculated PJMC MCC using different options] [PJM re-calculated MISO Interface MCC using Alternative #2] Option 1: Historical MCC calculated by MISO Option 2: Reconstructed MCC using 9 nodes Option 3: IMM Alternative #2 Reconstructed MCC using set of 10 nodes identified by PJM Option 4: IMM Alternative #1 Reconstructed MCC by removing impact of external constraints Takeaway With MISO using Option 1 coupled with PJMs choice of Alternative #2 using the 10 node model, the combined PJM and MISO congestion costs is closest to the Alternative #1 solution 11

12 Next Steps MISO is utilizing existing PJM Interface definition in its annual ARR allocation and FTR auction currently underway MISO will continue to collaborate with PJM, the two IMMs and stakeholders to evaluate long term solution options MISO has started working on software changes that will be necessary to implement Alternative #1 Questions and comments to be sent to: Dhiman Chatterjee 12