Scarcity Pricing Informational FERC Filing

Transcription

1 Scarcity Pricing Informational FERC Filing Dr. Nicole Bouchez Principal Economist, Market Design New York Independent System Operator Market Issues Working Group (MIWG) October 8, 2013

2 FERC Requirement ER July Order, p. 28 The NYISO is required to submit an informational report by October 31, 2013, containing : 1. a comprehensive evaluation of both how well the revised scarcity pricing mechanism achieved its objectives, including that of providing locational price signals that indicate the existence of scarcity conditions, and the existence of any undesirable effects on market outcomes during the summer of 2013; and 2. a description of the steps that would need to be taken, and the resources required, to implement a real-time scarcity pricing optimization engine, including a real-time dispatch that minimizes the joint social costs of providing energy and Operating Reserves, allows prices for energy and Operating Reserves to clear the market, and establishes operating locational reserve requirements that are sufficiently granular to recognize important transmission constraints. 2

3 FERC Report The NYISO is presenting what is expected to be included in the report so that stakeholders can provide feedback and comments: At this meeting; By contacting 3

4 The comprehensive evaluation In its May 9, 2013 filing, the NYISO stated: the NYISO committed to provide a comprehensive evaluation and proposal regarding shortage pricing by the 2nd quarter of The NYISO has further discussed this commitment and can now say that it will include an evaluation, stakeholder review, assessment and prioritization of the following issues: (i) the locations for which reserves are procured; (ii) the reserves (type and amount) procured for those locations; (iii) the reserve demand curve MW and value set points; and (iv) the implementation and triggering of scarcity pricing. The project to complete a Comprehensive Evaluation is included in the 2014 Proposed Project Budget and the 2014 Proposed Project Candidates presented to the BPWG; the project is expected to proceed. 4

5 Objectives of Scarcity Pricing: How well did the revised scarcity pricing mechanism achieve its objectives, including providing locational price signals indicating the existence of scarcity conditions? Objectives Trying to produce consistent price signals for all resources More granular/locational energy prices when but for the EDRP/SCR call we would have been short More accurate in the measurement of the impact of the EDRP/SCR call when setting prices 5

6 Description of July events: What SCR / EDRP resources were requested: During the week of July 15th, 2013, NYISO activated demand-side resources participating in NYISO s EDRP and SCR programs on five days. Date Activated Hours Zones Activated MWs* July 15 th 13:00-18:00 G-K July 16th 13:00-18:00 G-K July 17 th 13:00-18:00 G-K July 18 th 12:00-18:00 G-K July 18 th 13:00-18:00 A-F July 19 th 12:00-18:00 G-K July 19 th 13:00-18:00 A-F * MW in ICAP values 6

7 Description of Scarcity Pricing in July Scarcity Pricing impacted prices on all five days when SCR/EDRP resources were called. Scarcity pricing is active when the Available Reserves in the activated zones and/or reserve area are less than the called EDRP/SCR MWs. This is known as the but for test. Scarcity pricing impacts both Energy and Ancillary service pricing. The table on the next slide shows the percentage of real-time intervals, across all zones in which EDRP/SCR was activated, that passed the but for test. 7

8 Summary of pricing outcomes A significant majority of intervals in days when EDRP/SCR was called passed the LBMP and Ancillary but for test*: The NYISO will also be including more detailed pricing outcome information from the August 6 MIWG Scarcity Outcomes presentation (including the updated information currently posted for that meeting). *Notes: The LBMP but for test compares the available reserves in the activated EDRP/SCR zones against the total called EDRP/SCR MWs. The ancillary but for test compares the available reserves in the reserve region (e.g. EAST, NYCA) against the total called EDRP/SCR MWs. 8

9 Summary of pricing outcomes Additional Observations Of those intervals that passed the but for test, there were still some instances each day where the original RTD LBMPs were higher than the calculated scarcity LBMPs, and thus, the original RTD LBMPs prevailed. On 7/18 and 7/19, Zone E was activated (along with all NYCA Zones). Since the NYISO Reference Bus is in Zone E and had its LBMP set by scarcity pricing, the congestion component of all other LBMPs are affected, even for those LBMPs that were higher than the scarcity price. See Section of the MST for more details. The LBMP and Ancillary but for tests both passed consistently in nearly all intervals. Only one interval (7/16 17:35) passed the LBMP but for test for activated zones while at the same time the operating reserve region associated with those activated zones failed its Ancillary Services but for test. 9

10 Did scarcity pricing mechanism achieve its objectives? Scarcity pricing provided locational price signals indicating the existence of scarcity conditions. Did we maximize the use of the transmission system when setting scarcity prices? An examination of the constraints into SENY confirmed that, in many hours when scarcity prices were set, the use of the transmission system was maximized. 10

11 Were there any undesirable market outcomes? When looking at and analyzing the market outcomes in order to report on them, the NYISO separated the impact of the Enhanced Scarcity Pricing rules from other market and operational events. The NYISO will be reporting on the impact of Scarcity Pricing rules on : DAMAP Payments to internal generators Balancing Market Residuals (BMR) Proxy Bus prices and market signals The NYISO finds that there were possible undesirable impacts on proxy bus pricing and, to a limited extent, DAMAP payments. The NYISO did not find any undesirable outcomes in BMRs, despite the large over collection of Balancing Market Energy Residuals (BMERs) on July 18 and

12 DAMAP In the filings associated with the Enhanced Scarcity pricing docket, there was concern that the after-the-fact scarcity pricing rules would lead to additional DAMAP payments for generators because the scheduling decisions will not observe the after-thefact scarcity price when optimizing the dispatch. The NYTOs were concerned that the proposed mechanism will cause Generators to incur [ ] losses and to therefore be eligible for DAMAPs. The NYISO did find some evidence of this but it was limited in scope: Across all the exclusive SENY EDRP/SCR hours, the NYISO has identified approximately $300k of DAMAP awarded that can be attributed to units buying out of a scarcity-priced reserve product in order to provide non-scarcity-priced energy. This DAMAP occurred over 10 hours during the heat wave week As a point of comparison, total DAMAP accrued in July 2013 was $6.7M 12

13 Balancing Market Residuals For the five day period the BMR totals $1.4M shortfall. Limiting the BMR to RT hours for which EDRP/SCR was activated in this five day period the BMR totals $2.1M shortfall with components of: BMER $2.9M surplus, BMCR $4.9M shortfall, and BMLR $0.1M shortfall. 13

14 Balancing Market Residuals (2) The Balancing Market positions that lead to Energy and Congestion residuals did not result directly from the scarcity pricing logic. The high RT prices resulting from scarcity pricing amplified the Energy and Congestion market residuals. Large BMCR on 7/15 and 7/16 can be attributed to: Difference in SENY imports between DA and RT. This difference is balanced at RT SENY LBMPs. Scarcity pricing applied to SENY on these days is reflected in large congestion LBMP, which amplifies the resulting BMCR. Large BMER surplus on 7/18 and 7/19 can be attributed to: The NYISO has found that some existing DAM-RT settlements were amplified by the high RT energy component of LBMP and resulted in BMER New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 14

15 Proxy Bus prices The Enhanced Scarcity Pricing rules do not apply at the proxy busses. This means that, especially when EDRP/SCR is called NYCA wide (as it was on July 18 and 19), there can be a large difference between the real time prices at the proxy busses and internal NYCA prices. 15

16 Proxy Bus prices (2) The NYISO is concerned that this is inefficient because it may not send the right signal to schedule transaction with our neighboring control areas and because it can distort the balancing market accounts. For example, when a DAM scheduled import does not flow in RT it balances at the interface price but that energy would then be replaced by internal generation paid the much higher price (and vice versa for exports). This issue will be included in the 2014 comprehensive evaluation. 16

17 Reserve Requirements: FERC s July Order also requires that the NYISO provide a description of the steps that would need to be taken, and the resources required, to implement a real-time scarcity pricing optimization engine, including a real-time dispatch that [ ] establishes operating locational reserve requirements that are sufficiently granular to recognize important transmission constraints. Establishing reserve requirements is a separate process. Once established, the optimization solves for the reserve requirement. The need for redesigned locational requirements is one of the questions that needs to be resolved prior to deciding the feasibility and desirability of putting scarcity in the RT optimization engine. 17

18 Putting scarcity in the RT optimization engine First, we need to determine if including scarcity pricing in the dispatch is feasible. This will require resolving a number of questions. Only once these questions are answered will it be possible to determine what resources would be necessary to implement scarcity pricing in the dispatch. Some of the questions that need to be resolved: How can we price as if the EDRP/SCR resources had not provided the relief while still running the grid based on actual load? Will we need to create a new product or should we use an existing product as a proxy for the EDRP/SCR impact? Will a new product have zonal requirements and/or super zonal requirements? Will the new product interact with exiting reserve products? We have to resolve how to treat the ideal (pricing) and the physical (basepoints)dispatch If we modify the physical dispatch: will the product be settled or not? If settled, would that result in paying for the EDRP/SCR relief twice? Are the benefits of bringing scarcity into the optimization worth the cost? After the addition of Real Time Demand Response, will we need scarcity pricing? 18

19 Steps that would need to be taken Initial Design and Analysis The NYISO would review possible designs and their implementation feasibility to determine the recommended approach(s). Analysis on possible impacts to the NYISO markets, software and computer hardware may also be needed prior to determining a recommended approach or approaches. Concept Design and Approval The NYISO would work with stakeholders to develop the Enhanced Scarcity Pricing concept design. This would be done in a number of Market Issues Working Group ( MIWG ) meetings; votes would then be taken at the Business Issues Committee ( BIC ) meeting, as well as at the Management Committee meeting ( MC ). Stakeholder Tariff Revision and Approval Tariff revisions may be necessary. This process generally happens in lockstep with the Concept Design Approval. The stakeholder tariff development and approval process would begin at the working group committee level with NYISO-prepared draft tariff sheets and would culminate in a vote by the Management Committee. Both the Concept Design and tariff revisions would have to be approved by the NYISO Board of Directors prior to filing with the Commission. 19

20 Steps that would need to be taken (2) Detailed Market Design As needed, the NYISO would continue to work with stakeholders on the details of Enhanced Scarcity Pricing. Software Specifications The NYISO s co-optimization software occurs within Ranger. Changing the software implementation of Enhanced Scarcity Pricing rules within Ranger would require changes to Ranger as well as to downstream systems. The NYISO would complete a functional requirement specification document ( FRS ) describing any necessary changes in Ranger, downstream systems, and other software. The requirements would be based on output from the market design discussions with stakeholders and would implement the necessary tariff changes. The FRS specifies software applications and provides a detailed list of business needs that a new design would be required to support. Software Requirements, or Use Case Development, Begins The NYISO would develop Use Cases, which describe any necessary software changes, based on the Software Specifications. Working from these Use Cases, software developers would write the Software Design Specification ( SDS ) necessary for a software re-design. 20

21 Steps that would need to be taken (3) Development Working off the SDS, developers would implement any changes needed for the software implementation of Enhanced Scarcity Pricing rules. This could include changes to modules within RTD, as well as the databases supporting this application and downstream applications. Testing Before declaring that any needed software development is complete, the NYISO would conduct extensive software testing. Quality assurance testing will be required of all processes impacted by any change to the software implementation of Enhanced Scarcity Pricing rules. Manual Revisions Revisions would be needed to any manuals impacted by any changes to the software. These changes would be provided to Market Participants for review and approval. Separately revisions would be made to any in house documentation. 21

22 Resources required The types of resources required: The NYISO s co-optimization software within Ranger was constructed by ABB, a software vendor. Changing the software implementation of Enhanced Scarcity Pricing rules to take place within Ranger would require changes to Ranger as well as to downstream systems that rely on Ranger. This would therefore require a combination of NYISO labor and non-nyiso professional fees in all stages of the project with the exception of Stakeholder Tariff Revision and Approval and Manual Revisions which are generally performed with NYISO labor. Given the number of important questions that will need to be answered and the uncertainty about the design/ method, the complexity and the feasibility of the implementation, the NYISO is able to provide only a high-level explanation of the resources required for each of the steps needed. 22

23 Next Steps The NYISO appreciates stakeholders feedback and/or comments Provided at this meeting Provided in writing to The NYISO expects to file its report on or before October 31,

24 The New York Independent System Operator (NYISO) is a not-for-profit corporation responsible for operating the state s bulk electricity grid, administering New York s competitive wholesale electricity markets, conducting comprehensive long-term planning for the state s electric power system, and advancing the technological infrastructure of the electric system serving the Empire State New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 24