Hybrid GT Pricing Improvements

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Hybrid GT Pricing Improvements Ethan Avallone

September 28, 2016 KCC 2000-2016 New York

2 Agenda Proposal Background Analysis of Proposal Proposed Tariff Revisions Next Steps Appendices Appendix I: Current Hybrid GT Pricing Logic Appendix II: Unadjusted Price Impact Appendix III: Analysis Approach for Estimating Real-Time LBMP Impact Appendix IV: Analysis Approach for Estimating Lost Opportunity Cost (LOC) and Uplift Impact New York Independent System Operator, Inc. All Rights Reserved. 2

4 Objectives Modify the Hybrid GT Pricing logic to model GTs as dispatchable in the pricing pass, while continuing to exclude certain Out of Merit (OOM) types from the pricing pass; see Appendix I for additional details regarding the current Hybrid GT Pricing logic Improve price transparency The bids of resources serving load should be considered when setting prices Otherwise, Bid Production Cost Guarantee (BPCG) payments may be made to resources when LBMPs do not cover their bid cost, thus masking the price signal o However, there is a potential that DAMAP may be higher for units (non-gts) dispatched in the physical pass if GTs are modeled as dispatchable in the pricing pass Improve alignment of prices and schedules for GTs In some instances, GTs may receive LBMPs below their bid under the current design However, modeling all GTs as dispatchable in the pricing pass may result in increased lost opportunity cost for other dispatchable resources New York Independent System Operator, Inc. All Rights Reserved. 4

5 OOM Types Ineligible to set Price Currently, certain OOM types disqualify resources from setting price; this proposal will maintain this practice These include OOM due to: Transmission Owner (TO) Reliability Generator Request ISO Voltage Support TO Voltage Support Testing New York Independent System Operator, Inc. All Rights Reserved. 5

7 MMU Recommendation In the 2015 and past State of the Market reports, Potomac has recommended allowing GTs to be eligible to set price in the final pricing pass (i.e., the second ideal pass) In instances when GTs are not eligible to set price in the second ideal pass due to the current logic, Potomac is concerned that LBMPs may not fully reflect the cost of the marginal resources scheduled to satisfy load and manage congestion Price signals should incent efficient long term investment decisions for resources located near load centers New York Independent System Operator, Inc. All Rights Reserved. 7

8 Background When Hybrid GT Pricing was first implemented in 2001: Units were committed on an hourly basis The 5-minute dispatch did not include look-ahead functionality Frequent manual commitments were necessary under the technology that existed in 2001 Each of the above factors made it more likely that committed resources would be in their min run time and uneconomic The NYISO s 15-minute RTC, featuring a roughly 2.5 hour look ahead, along with the roughly 1 hour look-ahead in RTD have alleviated much of these concerns This suggests it may be appropriate for the NYISO to modify the Hybrid GT Pricing logic to model GTs as dispatchable in the pricing pass, meaning that the NYISO would settle on prices from the first ideal pass For further detail on the current Hybrid GT Pricing logic, please see Appendix I New York Independent System Operator, Inc. All Rights Reserved. 8

10 Expectations Real-Time LBMPs, reserve and regulation clearing prices are expected to slightly increase on average as a result of the proposed modification to the current Hybrid GT Pricing logic GTs that are currently effectively block-loaded at the bottom of the supply curve will instead be included within the supply curve The physical dispatch is not impacted by this proposal, thus total production cost is not expected to change New York Independent System Operator, Inc. All Rights Reserved. 10

11 Price Delta of Sampled Days The change in average real-time zonal LBMPs ranged from an increase of $0.21 to $0.74 per MWh for the rerun days The average change in clearing prices between the base case and rerun scenario for Regulation Capacity and Operating Reserves ranged from an increase of $0.01 to $0.24 per MWh The above data was not adjusted to consider the frequency of block-loaded ideal energy MW Such an adjustment would indicate much less of a yearly price impact For further information, please see Appendix II New York Independent System Operator, Inc. All Rights Reserved. 11

12 Estimated LBMP Impact The NYISO estimates that the proposal could increase Real- Time LBMPs by $0.10 per MWh on average throughout the year Note that this impact calculation is based on rerun days between February 11, 2016 and June 15, 2016 This estimated impact is based on the rerun days from the market software, as well as historical data on the frequency of block-loaded ideal energy MW Rerun data intervals with block-loaded ideal energy MW were used to weight the LBMP impact with the frequency of ideal energy MW from the historical dataset The majority of intervals contain no block-loaded ideal energy MW For a more complete description of the analysis, please see Appendix III New York Independent System Operator, Inc. All Rights Reserved. 12

13 Impact on LOC and Potential Uplift Key considerations: The NYISO is not proposing any changes to the treatment of lost opportunity cost (LOC) with this proposal Changes to uplift and LOC are driven by price differences Energy schedules do not change as a direct result of this proposal New York Independent System Operator, Inc. All Rights Reserved. 13

14 Impact on LOC and Potential Uplift The 5-minute level data for LOC and potential uplift was averaged at the generator, date, and hour level For each generator, for each date and hour there was a column for average LOC and a column for average potential uplift These values were summed to establish the table at right The reduction in potential uplift supports the NYISO s proposal to modify the Hybrid GT Pricing logic to model GTs as dispatchable in the pricing pass, while continuing Date Increase in LOC Decrease in Potential Uplift 2/14/2016 $14,890 $31,759 2/20/2016 $135 $1,562 2/21/2016 $122 $1,677 3/2/2016 $407 $1,774 3/22/2016 $4,757 $8,611 4/1/2016 $598 $3,138 4/4/2016 $18,794 $40,140 4/13/2016 $9,438 $10,223 6/2/2016 $(569) $11,664 6/7/2016 $23,850 $71,833 6/15/2016 $9,522 $16,842 Total $81,943 $199,223 to exclude certain OOM units New York Independent System Operator, Inc. All Rights Reserved. 14

16 Proposed Tariff Revisions Market Administration and Control Area Services Tariff (MST) Section 17.1 Section (The Second Pass) Specify the NYISO will use prices from the Second Pass (i.e., the first ideal pass) Section (The Third Pass) Delete existing language in this section and specify that the third RTD pass is reserved for future use Minor revision to update certain cross-references: Section 17.1: update cross-reference from to Section : update cross-reference from to New York Independent System Operator, Inc. All Rights Reserved. 16

17 Proposed Tariff Revisions MST Section 15.4 At Section , update for consistency with proposed revisions to MST Sections and Revise reference from third RTD pass to second RTD pass Update cross-reference from to MST Section 4.4 Minor revision at Section to update crossreference from to New York Independent System Operator, Inc. All Rights Reserved. 17

19 Timeline September MC Seek approval of proposed modifications to current Hybrid GT Pricing logic Seek to implement in Q The limited changes to the market software and lack of impact to other NYISO processes make a Q implementation feasible New York Independent System Operator, Inc. All Rights Reserved. 19

21 Current Hybrid GT Pricing Logic First Ideal Pass Non-GTs are always treated flexibly (e.g. Steam Generator) GTs that are online are always treated as fully flexible from 0MW to UOL in the first ideal pass Second Ideal Pass Block-loaded GTs are treated as fixed at UOL and therefore have no incremental cost; these are GTs that were dispatched to zero in the first ideal pass These block-loaded GTs shift the supply curve in the second ideal pass which may result in a different price being calculated between the first ideal and second ideal passes New York Independent System Operator, Inc. All Rights Reserved. 21

22 Price Setting in SCUC, RTC, RTD The Hybrid GT Pricing logic is only included in RTD SCUC and RTC both set prices by modeling GTs as dispatchable Modeling GTs as dispatchable in the pricing pass in RTD, while continuing to exclude certain OOM resources, would provide for greater consistency with the pricing methodology used in SCUC and RTC Certain Out of Merit (OOM) types are excluded from the pricing pass These include OOM due to: TO Reliability Generator Request ISO Voltage Support TO Voltage Support Testing New York Independent System Operator, Inc. All Rights Reserved. 22

24 Price Impact of Sampled Days Note that the data below has not been adjusted to consider the frequency of block-loaded ideal energy MW Such an adjustment would indicate much less of a price delta Average LBMP - Average LBMP Delta from Load Zone Base Case -Rerun Case Base Case CAPITL $27.98 $28.61 $0.63 CENTRL $21.65 $22.02 $0.37 DUNWOD $27.40 $28.01 $0.61 GENESE $20.15 $20.50 $0.35 HUD VL $27.28 $27.88 $0.60 LONGIL $33.40 $34.14 $0.74 MHK VL $21.20 $21.59 $0.38 MILLWD $27.46 $28.07 $0.61 N.Y.C. $32.13 $32.74 $0.61 NORTH $14.32 $14.53 $0.21 WEST $29.58 $29.92 $ New York Independent System Operator, Inc. All Rights Reserved. 24

25 Price Impact of Sampled Days Note that the data below has not been adjusted to consider the frequency of block-loaded ideal energy MW Such an adjustment would indicate much less of a price delta Locational Reserve Region NYCA EAST SENY Average Clearing Average Clearing Delta from Product Price - Base Case Price - Rerun Case Base Case 30 $0.15 $0.16 $ $0.15 $0.16 $0.01 SPIN $2.00 $2.12 $0.12 REGULATION $11.68 $11.86 $ $0.15 $0.16 $ $1.12 $1.15 $0.03 SPIN $4.03 $4.27 $ $0.15 $0.16 $ $1.12 $1.15 $0.03 SPIN $4.03 $4.27 $ New York Independent System Operator, Inc. All Rights Reserved. 25

27 Assessment Methodology A historical dataset was used to choose market days to rerun in order to assess the impacts of modifying the current Hybrid GT Pricing logic Market days were chosen for reruns to assess the impacts of modifying the current Hybrid GT Pricing logic by considering the number of ideal energy MW of units considered blockloaded in the pricing pass A higher number of units identified as block-loaded in the pricing pass was associated with more ideal energy MW, which indicates a potential impact on pricing outcomes New York Independent System Operator, Inc. All Rights Reserved. 27

28 Assessment Methodology The data range included February 11, 2016 to June 15, 2016 This range was selected because it included the most up to date market software environment available The following dates were rerun and included within the analysis to establish the estimated impact to Real-Time LBMPs 2/14/2016, 2/20/2016, 2/21/2016, 3/2/2016, 3/22/2016, 4/1/2016, 4/4/2016, 4/13/2016, 6/2/2016, 6/7/2016, 6/15/2016 These dates were chosen to offer varying amounts of ideal energy MW within the day associated with GTs that were block-loaded in the pricing pass (i.e., not eligible to set price) New York Independent System Operator, Inc. All Rights Reserved. 28

29 Assessment Methodology Data analyzed included: Normal RTD runs 10-minute and 30-minute units Only units that were on Only OOM types eligible to set price Only units with an energy schedule in either the base case or rerun case Units that were ISO-Committed Resources within minimum run time Logic for identifying block-loaded GTs under current pricing logic Essentially, if LBMP was less than the resource s first Incremental Energy Bid cost; and UOL was equal to the ideal energy schedule of the resource, then The unit was considered block-loaded in the pricing pass (i.e., not eligible to set price) New York Independent System Operator, Inc. All Rights Reserved. 29

30 Frequency of Block-loaded Ideal Energy MW The amount of scheduled MW from the second ideal pass (i.e., ideal MW) for block-loaded units drives price differences between the current Hybrid GT Pricing logic and the proposal The table at right displays the frequency of each sum of ideal MW range considering all data between 2/11/2016 and 6/15/2016 Bins (Sum of Blockloaded Unit Ideal MW) Frequency Percent Frequency % % % % % % % % % % % % % % % New York Independent System Operator, Inc. All Rights Reserved. 30

31 Estimated LBMP Impact The NYISO calculated the weighted average Real-Time LBMP impact considering the average Real-Time LBMP impact for each bin in the rerun cases The weighted average Real-Time LBMP impact resulting from the analysis is an increase to Real-Time LBMPs of $0.10 per MWh throughout the year Similar impacts to Day-Ahead LBMPs are expected Using this same approach while considering historical and rerun data from individual months yields an LBMP impact range from $0.04 per MWh (March rerun days and historical days from 3/1/2016 to 3/31/2016) to $0.18 per MWh (February rerun days and historical days from 2/11/2016 to 2/29/2016) Bins (Sum of Blockloaded Unit Ideal MW) Frequency Percent Frequency Average LBMP Impact Weighted Average LBMP Impact % $0.00 $ % $0.77 $ % $1.04 $ % $1.85 $ % $2.16 $ % $5.47 $ % $5.69 $ % $5.93 $ % $2.41 $ % $10.25 $ % $4.86 $ % $5.54 $ % $3.24 $ % $3.55 $ % N/A* $0.000 *N/A indicates that there were no observations in this range in the rerun data New York Independent System Operator, Inc. All Rights Reserved. 31

33 Assessment Methodology Data analyzed: Normal RTD runs 10-minute and 30-minute units Only units that were on Units that were ISO-Committed Only units with an energy schedule in either the base case or rerun case Resources within minimum run time Excluded wind Logic for identifying block-loaded GTs under current pricing logic Essentially, if LBMP was less than the resource s first Incremental Energy Bid cost; and UOL was equal to the ideal energy schedule of the resource, then The unit was considered block-loaded in the pricing pass (i.e., not eligible to set price) New York Independent System Operator, Inc. All Rights Reserved. 33

34 This proposal is expected to result in an overall increase in LBMPs at times when GTs are uneconomic and within min run time Lost Opportunity Cost An increase in LBMPs may reduce uplift However, this increase in LBMPs may also increase resource lost opportunity lost LOC is defined here as the foregone profit a dispatchable resource could have earned if it was dispatched to provide Energy consistent with its bids New York Independent System Operator, Inc. All Rights Reserved. 34

35 Uplift The proposal to modify the current Hybrid GT Pricing logic is expected to result in an overall decrease in uplift, specifically BPCG payments, at times when GTs are uneconomic and within min run time Uplift is defined here as the negative net income that results when a resource s schedule is inconsistent with LBMP A reduction in BPCG payments, a form of uplift, is expected, since GTs currently ineligible to set price will now set price more often under this proposal New York Independent System Operator, Inc. All Rights Reserved. 35

37 Potential Uplift in One Hour Potential Uplift = (Energy MW-Bid MW C )*(LBMP-Bid $ 4 ) Bid $ 4 Potential Uplift Energy MW 3 LBMP 2 1 A B C D Bid MW New York Independent System Operator, Inc. All Rights Reserved. 37

38 The Mission of the New York Independent System Operator, in collaboration with its stakeholders, is to serve the public interest and provide benefit to consumers by: Maintaining and enhancing regional reliability Operating open, fair and competitive wholesale electricity markets Planning the power system for the future Providing factual information to policy makers, stakeholders and investors in the power system New York Independent System Operator, Inc. All Rights Reserved. 38