Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators

Transcription

1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators Docket No. AD14-14 COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY ON RTO/ISO REPORTS ON PRICE FORMATION ISSUES On November 20, 2015, the Federal Energy Regulatory Commission (Commission or FERC issued an Order Directing Reports, 1 which required Regional Transmission Operators and Independent System Operators (collectively, RTOs/ISOs to respond separately to specific questions regarding various price formation issues. 2 The Order Directing Reports indicated that responsive comments on the reports would be due 30 days after the reports were filed, but in a March 7, 2016 Notice of Filing, established April 6, 2016 as the deadline. Herein, please find the Comments of Southern California Edison Company (SCE on the RTO/ISO reports two of the price formation issues addressed, specifically pricing of fast-start resources and commitments to manage multiple contingencies. I. Pricing of Fast-Start Resources As explained in the Report submitted by the California Independent System Operator (CAISO, the current design of the CAISO market allows resources with a limited operating range to set the locational marginal price (LMP through the Constrained Output Generator 1 Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators, 153 FERC 61,221 (2015 (Order Directing Reports. 2 Specifically, (1 pricing of fast-start resources; (2 commitments to manage multiple contingencies; (3 look-ahead modeling; (4 uplift allocation; and (5 transparency. 1

2 (COG pricing mechanism. Because this pricing mechanism exists, an extended pricing mechanism such as the extended LMP used by the Midcontinent Independent System Operator (MISO should generally be avoided, as it can potentially lead to, or exacerbate, system-wide over-generation conditions. However, it is important to note that in the CAISO s market, resources generally are not penalized for excess or deficient energy, and as such these resources can chase prices in real-time when prices are above their dispatch signal, which could exacerbate an over-generation condition. II. Commitments to Manage Multiple Contingencies SCE does not support the CAISO s proposal to constrain its market optimization to address N-1-1 contingencies. As described in the PJM Report, typically when an operator dispatches the system to control for N-1 contingencies, rather than multiple contingencies, multiple contingencies should not be incorporated into the day-ahead or real-time market models, because it would create a divergence between dispatch instructions and pricing. This should be generally the case under normal conditions. Under specific system conditions, such as, for example, an attack on the grid or extreme weather conditions, or in few special cases described in ISO/RTOs Reports, multiple contingencies may need to be accounted for. Further, these conditions may occur only in real-time, and only for a limited time frame. When N-1-1 contingencies, which are a form of multiple contingencies, must be accounted for under specific system conditions, it is preferable that they be managed through local reserve products rather than multiple contingency constraints. By procuring a local reserve in targeted areas, resources in those areas can address N-1-1 events and restore the reserves lost as a result of the contingencies. These reserves can be co-optimized with energy, subsequently priced and procured through the markets. This approach would be beneficial, because it would provide market signals to, for instance, build fast-starting units that can satisfy the needs (to have local resources that can address 30 minute restoration, and may be able to lower costs by satisfying the requirements while offline. 2

3 Since most ISO/RTOs co-optimize energy, operating reserves, and regulation, the cost of solving for multiple contingencies through reserves is already included in the clearing prices. The calculation of clearing prices for each of these products incorporates resource lost opportunity cost, thus fairly compensating resources for each product in the majority of intervals. As described in the NYISO Report, the NYISO has found locational reserve regions to be an effective means of managing multiple contingencies. Further, the NYISO Report states that: When managing multiple contingencies there is often a limited period of time for the NYISO s operators to restore the system to normal operating conditions following the occurrence of the first contingency. This time element can best be modeled in current market platforms using a locational reserve requirement. Alternatively, the multiple contingencies can be modeled directly as the simultaneous loss of several transmission or generation elements. This modeling method has costly side effects. The modeling must immediately account for reduction in transmission capability which results in inefficient use of the transmission system and result in higher total production costs due to the dispatch of less efficient generation. This effectively requires the ISO or RTO to maintain costly transmission level reserves by holding back usable transmission and generation ramp capability in order to be able to immediately react to the multiple contingency event, should it occur. By securing for multiple contingencies in its market evaluations the NYISO provides power suppliers with commitment and dispatch instructions relating to these conditions in the same manner as securing for the single event contingencies; there is no out-of-the-ordinary communication required. 3 Although costly side effects on transmission use as described above seem to refer, to a large extent, to modeling N-2 contingencies, they also apply to N-1-1 contingencies. This is because a limit (e.g., N-1 System Operating Limit, which is typically lower than a normal limit of the transmission system would have to be used in order to model N-1-1 contingency constraints. Further, under the CAISO s proposal, significant complexities would likely be imposed to the existing market construct. For instance, it can add complexities to the LMP price 3 Report of the New York Independent System Operator at p

4 formation that makes price discovery difficult. It may create challenges to the existing design of revenue sufficiency and require material changes to the current congestion revenue rights products and processes. Moreover, recovering from an N-1-1 event is only a real-time requirement based on actual conditions when a specific event occurs. In contracts, when enforcing N-1-1 recovery in the day-ahead market, a day-ahead solution may represent false precision, in that the solution may not solve for actual physical need of a real-time N-1-1 contingency due to the impacts of virtual transactions and uncertainties in load/renewables forecasts embedded in the day-ahead solution, as well as other system changes such as outages that can take place after the day-ahead market closes. Therefore, in managing N-1-1 contingencies, using locational reserve products (as is being done or contemplated in MISO, PJM and NYISO is generally preferable to incorporating multiple contingency constraints as proposed by the CAISO. Respectfully submitted, ANNA VALDBERG ERIN K. MOORE /s/ Erin K. Moore By: Erin K. Moore Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: ( Facsimile: ( erin.moore@sce.com Dated: April 6,

5 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY ON RTO/ISO REPORTS ON PRICE FORMATION ISSUES upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Rosemead, California, this 6 th day of April, /s/ Vicki Carr-Donerson Vicki Carr-Donerson, Case Analyst SOUTHERN CALIFORNIA EDISON CO Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770