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Massachusetts Restructuring Roundtable Standard Market Design: The First Month

Massachusetts Restructuring Roundtable Standard Market Design: The First Month. Mark Karl Manager, Markets Development ISO New England Inc. March 28, 2003. Overview of Presentation. Wholesale Markets: The New England Story Standard Market Design (SMD) Overview Market Cutover

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Massachusetts Restructuring Roundtable Standard Market Design: The First Month

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  1. Massachusetts Restructuring RoundtableStandard Market Design:The First Month Mark Karl Manager, Markets Development ISO New England Inc. March 28, 2003

  2. Overview of Presentation • Wholesale Markets: The New England Story • Standard Market Design (SMD) Overview • Market Cutover • Market enhancements

  3. Building Blocks: The New England Wholesale Market Story • Foundation of healthy markets • Single, region-wide reliability andeconomic dispatch since 1971 • Open-Access Transmission Tariffin place: 1997 • Foundation built by NEPOOL beginning 1971 • Regional regulatory infrastructure • 5 out of 6 states with restructuredretail markets • Highest level of divestiture in U.S. • Highly diverse marketplace with many competing interests • Wholesale market opened: May 1999

  4. Benefits Brought by Wholesale Markets • Generation investment risk shifted away from consumers • New entry: Supply picture strong • 6,000 MW of new (gas) generation added • 3,500 MW under construction • 30,000+ MW of total capacity; 25,348 MW peak demand • Proper correlation of price with supply and demand • Studies have shown markets workably competitive • Significant bilateral contracting • Over 200+ wholesale market participants

  5. Evolution: Interim Markets to SMD • “Interim” markets had recognized deficiencies • One clearing price for entire region and • No day-ahead market • Those deficiencies had negative impacts on market • Significant bidding risk for generators and risks for load • Inability to adjust positions within the day • Management of real time congestion difficult because market signals not used • Inability to hedge against energy and congestion uplift

  6. SMD Development Timeline 2001 2002 2003 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter Mkt Rules Development & Filings Post Production Hardware Acquisition & Installation Development - Settlements Systems Development - Market Operations (CMS/MSS systems) Testing - Planning and Product Testing Testing - Integration & Performance Testing Market Trials Production Cutover & Data Conversion Program & Life Cycle Management  Business Process/Procedures/Training  Participant Training Go Live3/1/03

  7. New England Standard Market Design • New England’s SMD is based on PJM’s market design • Market Rules • Software • Business Practices • Enhanced by ISO New England in several areas • Benefits of adoption: • Proven design should reduce market risk • Use of existing software reduced development costs and risks

  8. SMD Essential Features • Locational Marginal Pricing (LMP) • LMP is designed to reveal the price of producing power in 8 new pricing zones • Enhanced risk management tools • Bilateral contracts • Day-Ahead Market (DAM) • Financial Transmission Rights (FTRs) • Auction Revenue Rights (ARRs) • Market Monitoring and Mitigation

  9. New England Enhancements • Overall design improvements • Losses included in LMPs • FTR auction approach makes FTRs available to all in wholesale markets • Hydro units can offer energy at a price to manage release of stored water; does not address contractual issues or seasonal allocation • Comprehensive business process documentation developed and manuals and business process documentation are public • Integrated four separate transmission tariffs • Created new settlement model; potential industry standard

  10. Conceptual Change in Wholesale Electricity Pricing for Load H H November 1971 – February 2003 March 2003 2004-05

  11. SMD Cutover • Standard Market Design (SMD) cut-over was virtually seamless. • Energy prices were consistent with the cost of fuel • Higher fuel costs in the first few weeks created higher energy prices • Recently, energy prices have decreased consistent with the downward trend of fuel prices. • Software and business systems have generally worked well. • Limited number of hardware and software issues resulted in interruption of data flow

  12. Natural Gas Prices are a Key Determinant of Electricity Price Gas prices for Massachusetts delivery as per “Gas Daily” Electricity prices are “Energy Clearing Price” based before March 1; LMP-based after March 1.

  13. System Operations • Cutover went smoothly. • No reliability issues since going live. • NERC Control Performance within criteria. • RAA and real-time software and business processes are functioning as designed. • Conditions experienced in Real-time so far: • Congestion • Minimum generation emergency • Major generation contingencies • Excess ramping curtailments • Emergency sales

  14. Day Ahead Energy Market Review • Day Ahead Energy Market has experienced fairly regular congestion since the beginning, but it has amounted to relatively low dollar values • Maine Zone (individual lines) • Boston Interface • SW Connecticut Interface • NW Vermont Interface • Maine New Hampshire Interface • New England - Norwalk Stamford Interface

  15. Real Time Energy Market Review • Real Time Energy Market has experienced very little congestion • Mostly on interfaces • On-peak congestion: • Boston Interface • SW Connecticut and Connecticut Interface • Off-peak congestion: • Maine (transmission line export constraint) • New England - Norwalk Stamford Interface

  16. Day Ahead Market LMPs

  17. Real-Time Market LMPs

  18. Price Convergence - HUB

  19. March FTR Auction 27 eligible bidders 711 bids 209 off peak 548 off peak 28,683 MW $4,839,684 511 bids cleared 200 off peak 311 on peak 17,907 MW $1,055,271 $48,231 off peak $1,007,040 on peak April FTR Auction 36 eligible bidders 714 bids 277 off peak 437 on peak 30,484 MW $3,562,052 515 bids cleared 210 off peak 305 on peak 20,575 MW $629,080 $8,144 off peak $620,935 on peak FTR Review - March & April 2003

  20. Going Forward: SMD Enhancements • SMD implementation, by necessity, relegated certain market improvements post-implementation • Survey of market participants conducted • Job 1: Maintain integrity of SMD • Price formation initiatives • Seams reduction • Resource adequacy initiatives

  21. Craig A. Kazin: See last bullet. Other Enhancements • Full nodal pricing for loads • Qualified upgrade award calculation • Pricing eligibility • Scarcity pricing • Operating reserve markets • Enhancements to web site data

  22. Capacity Market Improvements • Regional resource adequacy requirement • Locational resource adequacy requirement • Partial de-listing of capacity resources

  23. Questions?

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