Pricing Enhancements Issue Paper and Straw Proposal

Transcription

1 Pricing Enhancements Issue Paper and Straw Proposal Guillermo Bautista Alderete, Ph.D. Manager, Market Validation and Quality Analysis July 10, 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 Background The initiative of Administrative Pricing Rules was started on August The ISO is resuming the Administrative Pricing Rules effort. Through its market validation and quality analysis, the ISO has identified three additional areas for pricing enhancements. Page 4

5 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 5

6 Item 1: Administrative Pricing Rules On June 2012, FERC granted the ISO s petition to waive tariff provisions. To avoid future confusion in the event of an emergency or market disruption, FERC believed the ISO should address revision to tariff language through a stakeholder process. FERC declined to decide whether the September 8 southwest power outage constituted a force majeure event. Initiative originally started in August Page 6

7 Item 1: Market Suspension What conditions justify market suspension? Should the ISO have the ability to split the market into regions so that the entire market does not need to be suspended during a regional event? Should convergence bidding be suspended until some period of time after system restoration? What other changes to the ISO s emergency tariff provisions should be considered? Page 7

8 Item 1: Administrative Pricing Should the ISO have the authority to establish an administrative price that is different from the current default value which is the last valid price in the market prior to disruption or suspension? If so, how should the ISO determine the appropriate administrative price? A tier approach? What considerations warrant adjustments to the administrative price rather than returning to the default administrative price? Page 8

9 Item 1: Settlement tariff issues What hold-harmless provisions should be established for tripped load, physical resources and convergence bidders during market suspension or force majeure events? Should the ISO impose penalties on owners, operators and/or scheduling coordinators for failing to respond in a timely way to exceptional dispatches or operating orders in emergency conditions? Page 9

10 Item 2: Priority for schedules protected with existing transmission rights Existing transmission contracts and transmission ownership rights are exempt from any congestion charges. Such rights are validated in the bidding process. There have been some instances where a bid submission error results in the rights losing their priority. The bids are not rejected but rather passed as pricetaker self schedules. Page 10

11 Item 2: Priority for schedules protected with existing transmission rights Warnings and errors are provided during the bid submission process to alert participants. This bid error may result in high congestion in the markets. Prices associated with such congestion are not subject to price corrections. Page 11

12 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. Page 12

13 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. Usually, the base case or one of the contingencies will bind. Page 13

14 Item 3: Compounded pricing of multiple contingencies Each contingency is treated as an independent mathematical constraint, and if binding each one will usually have a shadow price. Market solutions in the penalty region indicate the system exhausted all controls to relieve congestion. Last resort is to use constraint relaxation. There have been instances where a constraint binds concurrently for multiple contingencies. If these constraints are binding in the penalty region, compounded congestion may not provide any further effective relief. Page 14

15 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. All contingencies will have a common slack variable for constraint relaxation purposes. If relaxation occurs, only the most limiting contingency will define the amount of relaxation and will become binding. When no relaxation occurs, the solution will be the same as the one with current methodology. Page 15

16 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 the use of multi-segment bids, typically multi-stepwise bids. Page 16

17 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 in intertie constraints. Page 17

18 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 18

19 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. The enhanced formulation modifies the current mathematical structure of the linear programming security constraint dispatch The linear constraints are expanded with a term that accounts for the shadow price variable, which are now explicit variables. Such terms are also appended into the objective function. The linear programming problem is now casted as a quadratic programming problem. The formulation is therefore convex, which guarantees uniqueness of prices. Page 19

20 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 20

21 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 LMP at the tie= -$29 Shadow price of constraint= - $65.05 Multiplicity of prices LMP at the tie [36.05, -29] $/MWh Shadow price [0, ] $/MWh Proposed formulation - LMP at the tie= $ Shadow price of constraint=$0 Page 21

22 Next Steps Date Tue 7/01/14 Thu 07/10/14 Tue 7/22/14 Wed 9/03/14 Wed 9/10/14 Event Issue Paper and Straw Proposal Posted Stakeholder Call Stakeholder Comments Due Revised Straw Proposal Posted Stakeholder Call Wed 9/24/14 Tue 10/14/14 Tue 10/21/14 Tue 11/04/14 December 2014 Stakeholder Comments Due on Straw Proposal Draft Final Proposal Posted Stakeholder Call Stakeholder Comments Due on Draft Final Proposal BOG Page 22

23 Please send comments to Questions? Contact Guillermo Bautista Alderete Page 23