Industry Perspectives on FERC Standard Market Design

By Dr. Roberto F. Paliza

Midwest Independent Transmission System Operator, Inc.

IEEESummer MeetingJuly 23, 2002Chicago, IL

2

Overview

• MISO Markets Effort

• FERC SMD

• RTO challenges

• Market Progress

3

MISO Markets Effort

• Market implementation moving forwardLate 2003 is target date

• Combined MISO/SPP market150 GW peak load144,000+ miles of transmission lines20.9 million customers

• Markets include five TransCos within MISOWisconsin ATC, METC, ITC plus

TRANSLink, GridAmerica (not yet operational)

4

Scope (with SPP)150 GW peak load144,000+ miles of transmission lines20.9 million customers

Midwest Markets

5

MISO Markets Effort

• Developing Midwest markets for MISO/SPP footprintProject is underwayWill be operational by the end of 2003

• Market rules under development will be compliant with FERC SMD

Energy marketsAncillary servicesTransmission rightsInter-RTO coordination

• Working with PJM on single market to be implemented by 2005

6

The Single Market

• 213 GW peak load

• 236 GW generating capacity

• 158,000 miles of transmission lines

• 300 members; 33 million customers

• 1.5 million + square miles

7

FERC Standard Market Design

• Goal: Competitive, efficient marketsProvide a level playing field & standard rules of the road andTransparent operation and prices for energy & transmission usage

• Each region’s market must be compatible with SMD (NOPR to be issued on July)

Aspects not fully resolved yet:o Regional differenceso Transitional issueso Markets Coordination

• MISO is committed to implementing the SMDBased on LMP and Financial Transmission RightsWill include balanced market rules Will provide flexibility to market participants

8

SMD Benefits to RTOs

• Enhanced reliabilityBid-based security constrained dispatchSimultaneous balancing of the system and enforcement of constraint limits on a short time interval basisCritical functions are centralized at the RTO level

• Transparency of operations and energy prices Aids in the understanding of the systemIncentives the right behavior

• Scheduling integrated with energy markets

9

SMD Benefits to RTOs

• Market monitoring is performed at regional level• Coordinated transmission expansion planning

In addition to traditional planning function:o Forecast LMPs based on markets simulationo Address congestion issues

• Regional energy and ancillary marketsShort-term marketsAdministered by the RTO

• Mechanisms for inter-SMD coordination remains to be addressed

Implementation of SMD is a first good step

10

SMD Markets

• Day-ahead and Real-time markets VoluntaryBid-based security-constrained dispatch that minimizes cost-as-bid to serve load DAM is financially bindingRTM settles based on deviations from day-ahead market

• Ancillary servicesReserves and regulation

• Financial Transmission RightsPoint-to-point rightsFlowgate rights

• Capacity markets (ICAP) ?

11

MISO Current Challenges

• Inter-RTO coordination before and after implementation of SMD in the Midwest

• Intertwined configuration with ComEd, IP, and AEP as a result of their decisions to join PJM

• Single market will help resolve many issues• Transition to single market will require tight

coordination with PJM

12

MISO Market Effort Progress

• Stakeholder driven• High level design completed• Working on the detailed design and infrastructure• Implementation alternatives are being studied in

parallel with the design• Staged approach to achieve ultimate goal

13

Increment 1 Functionality

Day Ahead Market(Based on scheduled hourly quantities and day-ahead hourly prices)

• Security Constrained Unit Commitment• Security Constrained Economic Dispatch• LMP calculation using generation offers, demand bids, and bilateral

transaction schedules.

Participant Readiness

FTRs(A financial contract that entitles holder to a stream of revenues –or charges - based on the hourly energy price differences across the path)

• Request processing• Simultaneous deliverability feasibility testing• Approval processing

Settlements

&

Billing

Publish

Market

Data

FUNCTIONAL AREAS SUPPORTINGPROCESSES

Real-Time Energy Market(Based on actual hourly quantity deviations from day-ahead schedule hourly quantities and real-time prices)

• Security Constrained Centralized Economic Dispatch• LMP calculation using real-time SE values

Stakeholder

Process

• Communications Plan• Define Membership

Requirements• Manage Customer Registration

• Manage Customer Relations• Manage Training• Perform Market Trials

14

Market Rollout Options

Option 1• Phased Geographic Rollout

Option 2• Full MISO Footprint (Rapid Rollout Approach)

Option 3• Expand From PJM West

15

MISO Staff Recommendation

MISO Staff Recommends proceeding with Option 2 - Implementing the rapid rollout approach across the entire MISO footprint from West to East.

MISO Staff Recommends proceeding with Option 2 - Implementing the rapid rollout approach across the entire MISO footprint from West to East.

16

Program ScheduleCritical Path Schedule

4Q’03Conceptual Design

Market Rule DefinitionDevelop and Release Rev 1Develop and Release Rev 2

ConstructionMarket Model Development

Develop and Release Network Model For DevelopmentDevelop and Release Release Network Model – Int. TestDevelop and Release Network Model – Market Trials

Technology DeploymentSystem Development

RequirementsDesignConfigurationSystem Test

System Integration Test

Testing and ImplementationMarket Trials ExecutionMarket Implementation

Area 1 CutoverArea 2 CutoverArea 3 Cutover

Milestones/Projects 3Q’02 3Q’032Q’031Q’034Q’02

17

Program ScheduleMISO Project Schedule

Market Rules for System Development

System Design Sign-Off

Approve System Test Plan

System Development /Test Complete

Integration Test Complete

Market Trials Complete

Go-Live

4Q’03Startup

Establish & Maintain PMOStakeholder Communications

Conceptual DesignMarket Rule Definition

Detailed DesignBusiness Practice Development & ImplementationRegulatory AffairsSeams Coordination

ConstructionFinancingParticipant Readiness & RegistrationTraining Development & DeliverySystem Operation ReadinessMarket Network Model DevelopmentTransmission Rights ConversionTechnology Deployment

Testing & ImplementationMarket TrialsMarket Implementation

Major Milestones

Milestones/Projects 3Q’02 3Q’032Q’031Q’034Q’02

18

Cutover Approach

ConsProsAlternative Approach

• Possible Market Gaming opportunity between market and non-market zones

• Increased complexity in scheduling rollout across control areas

• Mid Month Settlements • Creates internal footprint “Market

Seams” issues • Complexity of doing business with

market and non-market regions (tariff, tagging, etc)

• Aids in controlling reliability concerns• Market MW-size similar to markets

implemented to date• Incrementally increases the MISO

load under the markets• Allows for a minimum stabilization

period, i.e. new flows, and new constraints

• Reduce risk of market-wide catastrophic failure

“Rapid Rollout” Approach *

• Rapid rollout from West to East

• MISO operators not familiar with unit characteristics across region

• 120,000 MW Market implementation – market magnitude never tried to date

• Reliability concerns• Loss of market confidence in the

event of failure

• Eliminates internal footprint “Market Seams” issues

• Reduces roll out scheduling complexity with control areas

• Equity to participants – everyone starts at the same time

• Just completed footprint-wide market trials – just keep going…

“Big Bang” Approach• Entire footprint implemented

at one time

* MISO Recommended Approach

19

MISO/PJM/SPP Single Market

• To develop a single market for the combined MISO/PJM/SPP region

• Single market may be implemented as a single dispatch across the entire region

One real-time marketOne day-ahead marketOne set of financial transmission rightsOne set of business practices

• Single tariff?

20

Single Market Development

Coordination ActivitiesOwnerDescriptionIncrement

• On Going CoordinationJoint• Fully shared Market and data services between MISO/SPP and PJMIncrement 3

• Align common business rules and practices with PJM

• MISO-PJM Technical Assessment

• Enhanced Market Portal Project

Joint• Addition of the Ancillary Services markets • Security Constrained Unit Commitment to

NewCo market (early in Increment 2)• Enhancements to meet Standard Market

requirements• Enhanced Market Portal

Increment 2 (Shared

Data Services)

• Seam Coordination Project within Market Initiative

MISO/SPPMidwest Market Initiative on NewCo Footprint• Real time Energy Markets based on Location

Marginal Pricing• Financial Transmission Rights allocation and

auction• Day Ahead Energy Market

Increment 1 (Midwest Markets)

21

Single Market Effort

ConceptualDesign

DetailedDesign

Func

tiona

lity

DataExchangeStandards

& ProtocolsEstablished

EnhancedMarketPortal

Implemented

Shared Market ServicesIntegrated with

Shared Data Services

Bulk DataTransfers

Multi-RegionalParticipant Market Interaction

Transparency

2002 2003 2Q03 2004 2Q04 2005 4Q05

Increment #1 Increment #2 Increment #3