Price Formation. Eric Ciccoretti Attorney-Advisor Office of Energy Policy and Innovation Federal Energy Regulatory Commission June 13, 2017

Transcription

1 Price Formation Eric Ciccoretti Attorney-Advisor Office of Energy Policy and Innovation Federal Energy Regulatory Commission June 13, 2017 The views and opinions presented are mine alone and do not reflect the views of the Commission or any Commissioner.

2 Price Formation Actions 2014 Notice and Staff Analytical Papers, AD January 2015 Price Formation Goals September Settlements, Shortage Pricing and roadmap, RM15-24 November 2015, Order Directing Reports, AD14-14 January 2016, Offer Cap NOPR, RM16-5 June 2016, Settlement and Shortage Pricing Final Rule, RM15-24, Order 825 November 2016, Offer Cap Final Rule, RM16-5, Order 831 December 2016, Fast-Start NOPR, RM17-3 January 2017, Uplift Allocation and Transparency NOPR, RM17-2 2

3 Commission s Price Formation Goals (1) Maximize market surplus for consumers and suppliers; (2) Provide correct incentives for market participants to: follow commitment and dispatch instructions, make efficient investments in facilities and equipment, and maintain reliability; (3) Provide transparency so that market participants understand how prices reflect: the actual marginal cost of serving load and the operational constraints of reliably operating the system; (4) Ensure that all suppliers have an opportunity to recover their costs. 3

4 Price Formation Proceedings Settlement Intervals and Shortage Pricing, Order No. 825 (June 2016) Offer Caps, Order No. 831 (Nov. 2016) Fast-Start Pricing, NOPR (Dec. 2016) Uplift Allocation and Transparency, NOPR (Jan. 2017) 4

5 Settlement Intervals Misalignment between dispatch intervals and settlement intervals. Real-Time Settlement: hourly integrated prices. Dispatch instructions: five-minute intervals. 5

6 Settlement Intervals, Order 825 Energy Transactions: Settle energy transactions in real-time markets at the same interval as it dispatches energy. Operating Reserves: Settle at the same time interval that it prices operating reserves. Intertie Transactions: Settle at the same time interval that it schedules intertie transactions. 6

7 Shortage Pricing Triggers, Order 825 Trigger shortage pricing for any interval in which a shortage of energy or operating reserves occurs. 7

8 Offer Caps Previously RTO/ISOs generally had a $1,000/MWh energy offer cap. Energy is one component of LMBPs. If resource is not mitigated, bid however much you like up to $1,000/MWh. Marginal costs rose above $1,000/MWh several times. Avoid LMBPs below the marginal cost of production. 8

9 Offer Caps Under Order 831 Each resource s incremental energy offer at the higher of $1,000/MWh or that resource s verified cost-based incremental energy offer Cap to $2,000/MWh for calculating LMPs. MMU or RTO/ISO must verify check that offers are reasonable reflection of actual costs ahead of time. No verification, no LMP 9

10 Fast-Start Pricing NOPR When fast-start resources are not eligible to set the price. 10

11 Fast Start Pricing The next dispatchable MW sets LMP Unit A B C Block 1 MW $/MW $ $70 50 $200 Block 2 MW $/MW $ $90 Block 3 MW $/MWh $ $150 11

12 Fast-Start Pricing NOPR Define as eligible for fast-start pricing a resource that: 1. Can start-up within 10 minutes 2. Has a Minimum run-time of 1 hr or less 3. Submits economic energy offers. For setting the clearing price, incorporate a fast-start resource s commitment costs, i.e., start-up costs and noload costs. 12

13 Uplift Allocation Any shortfalls are uplifted to the market Disproportionate - payments have been highly concentrated geographically and by market participant Uplift amounts are closely related to price divergences between day-ahead and real-time markets Uplift costs tend to be volatile and varied across RTOs/ISOs Cost allocation may differ from cost causation and mute investment signals Rule would require that if you allocate uplift costs to deviations, must do so consistent with cost causation 13

14 Uplift Allocation NOPR 1. Categorize real-time uplift costs allocated to deviations as either: System-wide Capacity or Congestion Management 2. Distinguish between Helping and Harming deviations. 3. Do not allocate uplift for resource responding to real-time dispatch. 4. Hourly settlement 14

15 Uplift Allocation NOPR This proposal would apply only to real-time uplift cost allocation to deviations. This NOPR does not apply to other methods used by RTOs/ISOs to allocate uplift costs. If an RTO/ISO does not currently allocate realtime uplift costs to deviations, this NOPR does not impose a requirement on those RTOs/ISOs to allocate real-time uplift costs to deviations. NOPR at P 4. 15

16 Transparency NOPR proposes reporting on: Uplift Operator-Initiated Commitments Transmission Constraint Penalty Factors 16

17 Transparency For uplift, each RTO/ISO would: 1. Report uplift payments on a monthly basis by day and by category (e.g., day-ahead, real-time, voltage & local reliability, or other) and transmission zone 2. Report total uplift payments for each resource on a monthly basis only Both reports required within 20 days of the end of each month For operator-initiated commitments, each RTO/ISO would: 1. report each commitment on the website as soon as practicable, but within 4 hours of the commitment. 17

18 Transparency For Transmission Constraint Penalty Factors, each RTO/ISO list in its tariff: the transmission constraint penalty factors, the circumstances under which they can set LMPs, and the procedure by which they can be temporarily changed. 18

19 Price Formation Actions 2014 Notice and Staff Analytical Papers, AD January 2015 Price Formation Goals September Settlements, Shortage Pricing and roadmap, RM15-24 November 2015, Order Directing Reports, AD14-14 January 2016, Offer Cap NOPR, RM16-5 June 2016, Settlement and Shortage Pricing Final Rule, RM15-24, Order 825 November 2016, Offer Cap Final Rule, RM16-5, Order 831 December 2016, Fast-Start NOPR, RM17-3 January 2017, Uplift Allocation and Transparency NOPR, RM

20 Other Initiatives Electric Storage Participation in RTOs & ISOs, RM16-23, NOPR (Nov. 17, 2016) (Comments submitted on Feb. 13, 2017) Reform of Generator Interconnection Procedures and Agreements, NOPR, RM17-8, NOPR (Dec. 15, 2016) (Comments Submitted on April 13, 2017) 20