market rule and procedure changes in response to summer 2001 period in new england

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Market Rule and Procedure Changes in Response to Summer 2001

Period in New England

ISO New England Inc.NEPOOL Markets Committee

January 15-16, 2002

Agenda Item #5

1/15&16/02 MC Mtg.

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Background

During Summer 2001, ISO-NE experienced several

days of high loads, setting successive peaks. Prices during some of those days, Particularly 8/9/01,

appeared inconsistent with the level of load. ISO-NE Board asked David Patton, its Market Advisor,

to review these events and produce a report. This report produced a number of recommendations. The ISO has developed a number of market rule

changes to implement those recommendations.

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Key Patton Report Recommendations

1. Implement SMD as soon as possible.– Provide option to self-schedule resources after the commitment

process once the multi-settlement process under SMD is

implemented

2. Seek improvements in transaction rules and

procedures between NYISO and ISO-NE

3. Modify ECP eligibility rules for peaking units and units

committed during reserve shortages

4. Reserve Market Changes- Include real-time replacement reserves in reserve

markets

- Include Opportunity Cost payments for reserves

5. Seek improvements in ISO-NE’s internal procedures

for managing transmission congestion.

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Schedule

Rule changes will be presented at January

15 - 16, 2002 NEPOOL Markets Committee

meeting. A tentative meeting has also

been set for 1/29/02 to discuss these

changes. ISO-NE will present final rule changes to

NPC at February 8, 2002 meeting. ISO-NE will finalize rules to enable filings of

rule changes in February 2002.

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Seek Improvements in Transaction Rules

Objective:

Address major seams issue with New York Identify and implement solutions that

would facilitate efficient trading with

adjacent markets prior to next summer. In-Day trading is area needing

improvement.

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Current Rules and Procedures for Short

Notice

External Transactions (SNTs)

ISO-NE does not accept in-day transactions

(Short Notice Transactions) if they will cause

commitment or de-commitment of resources SNTs are transactions submitted up until 90

minutes prior to the hour in which they are

scheduled to flow. Transaction can be terminated hourly by the

participant.

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Proposed Changes to Short Notice External

Transactions SNTs will no longer be terminated if they affect

Unit Commitment To enable this change, SNTs, once submitted,

cannot be withdrawn by the Participant ISO-NE will not use replacement reserve or

operating reserve to support SNTs Current rule permitting internal resources to

self-schedule to support SNTs after the trading

deadline remains

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External Dispatchable Transactions limited to

100 MW blocks at single energy bid price – Reduces large swings in RTMP and inter-control

area schedules based on acceptance and non

acceptance of large block loads on an all or

nothing basis – Externals not eligible to set RTMP will be eligible

for uplift

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Short Notice External Transactions (SNT) - Issues

Out-Service: Rationing of available Out-Service under Tariff may

restrict SNTs Elimination of Out-Service charge for hourly SNTs is

being considered Because ISO-NE still has a single settlement system,

concern about possibility of generation sellers using

SNTs to increase price in New England. A mitigation measure that would restrict an entity from

engaging in those practices from submitting SNTs will

be included in the rules.

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Modify ECP Eligibility Rules

Patton Recommendations:

Allow all units committed intra-day and dispatched

at LOL in reserve shortage situations to contribute

to setting energy clearing prices Allow peaking generators (generally gas turbines)

to set the energy clearing price when they are

dispatched for reasons other than congestion relief

or voltage support and are the source of

incremental energy

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The response to these two recommendations will be

consolidated. They will be addressed by changes in

the eligibility of peaking units to set the ECP for the

following reasons:

Few units with more than 1-hour minimum run or minimum

down time are committed intra-day Since these events are most likely in OP4, units with long

start times would already have been called upon and would

be operating above LOL. Consequently, peaking units are the units committed intra-

day in capacity tight situations.

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Proposed Treatment of Peaking Units and

External

Dispatchable Transactions

Market Design Principle:– If the unit or external transaction is the

incremental source of energy or is needed to

avoid a reserve shortage condition, then unit

or transaction is eligible to set 5 minute RTMP Definition of a reserve shortage situation will

be when the ISO is short of Operating

Reserve, as measured by the EMS system.

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• These proposals would change the eligibility tests currently in place that

require that an external contract set a floor price any time it is dispatched.

They will also allow peaking units running at LOL to set the ECP

in certain conditions. • Under these proposals, External Contracts and Peaking Units that are at LOL

will be treated differently in normal conditions than in reserve shortage

conditions. In normal conditions, the external contract or peaking unit

at LOL will set the floor price when it is the incremental source of energy

on the system• In reserve shortage conditions, they will eligible to set a floor price

at all times. The floor price will be evaluated every five minutes.

Changes to Current Rules - Summary


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Peaking Units and External Dispatchable

Transactions

Peaking Unit Definition – Minimum run time < 1 hour– Minimum down time < 1 hour– Startup notification < 30 minutes– Dispatchable via Remote Intelligence

Gateways (RIGS) Objective is to allow flexible energy to set

RTMP Peaking Units will be “flagged” as eligible

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A. A set of peaking units and external transactions are on-

line at this instant in time. The reliability and economic

tests will be applied to these resources to determine the

eligibility to set the next 5 minute RTMP.

B. The EMS system has determined that at this specific

time interval, there is 210 MW of capacity on-line and

available within 10 minutes in excess of the energy and

spinning reserve requirements.

C. The RTMP from the previous 5 minute SPD execution is

$160.00, and the peaking units or external transactions

were not eligible to set the RTMP.

D. The characteristics of the peaking units and external

transactions are as follows:


I. Eligibility Test - Initial Conditions

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Peakers/ETLabel Cum LOL/Block Energy $P1 10 10 200ET1 110 100 190ETP2 140 30 185P3 170 30 180P4 190 20 179P5 205 15 179P6 225 20 175ET2 325 100 170ETP7 350 25 165

The above table shows the following information:

1. LOL is the LOL of the peaking resource and Block is the MW block size of

the external transaction

2. Energy $ is the energy bid price of the block of energy being evaluated

3. The Label is an arbitrary assignment for discussion purposes


Peakers/ET

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The above table shows the following information:

1. Size is the block size of energy above the last R/T SPD DDP that is

available within 5 minutes

2. Energy $ is the corresponding energy price of the MW block. If

there are multiple energy prices from a resource available in 5

minutes, each will be evaluated independently. (See OL2a/b)

3. The Label is an arbitrary assignment for discussion purposes

On-Line Energy

Energy$ Size Cum Label400 50 360 OL9174 100 310 OL8173 30 210 OL7171 30 180 OL6170 50 150 OL5166 20 100 OL2b165 15 80 OL4164 25 65 OL3163 20 40 OL2a161 20 20 OL1


On-Line Energy

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A. As stated, there are two separate tests to be

performed to determine the eligibility status of peakers

and external transactions to set the RTMP. These tests

will be performed prior to each execution of R/T SPD,

and the eligibility status will apply to the next

execution of R/T SPD.

B. The “Reliability Test” seeks to answer the question “Is

this resource needed to create or preserve reserve

while meeting the energy requirements of the

system?”


II. Evaluation Tests

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C. The “Energy Test” seeks to answer the question “Is

there less expensive on-line energy available within

5 minutes that can be replace the energy associated

with the peaker or external transaction, and, if so,

then the energy associated with the peaker or

external transaction is not needed at this point in

time and therefore should not be eligible to set the

RTMP?”

D. The two tests will be performed independently and

the results combined to determine which, if any,

peakers or external transactions will be eligible to

set the RTMP for the next execution of R/T SPD.


II. Evaluation Tests - (continued)

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A. The criteria to be used to evaluate resources for the

Reliability Test will be the amount of excess 10

minute spinning reserve on the system as determined

by the ISO EMS system. For the purposes of this

discussion, that amount is defined to be 210 MW.

B. The Reliability Test will determine which of the

eligible resources could otherwise be de-committed

and not cause the spinning reserve criteria to be

violated. Using the eligible list of resources from I.D.

above, resources P1 and P5 (total MW of these

resources is 205MW) could be decommitted without

violating the criteria.


III. Reliability Test

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C. Therefore, the Reliability Test would designate

resource P6 through P7 as necessary to meet criteria

and these resources (absent the Energy Test) would be

eligible to set the RTMP is the next R/T SPD execution.


III. Reliability Test - (continued)

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A. As stated above, the criteria for the Energy Test is “Is

there on-line energy available in 5 minutes that is less

expensive than the energy associated with the peakers

and external transactions?”

B. Using this criteria, the peakers and external transactions

are placed into an energy stack by MW block from most

expensive to least expensive. Likewise, the on-line

energy available is placed into an energy stack by MW

block from least expensive to most expensive.

C. Functionally, the Energy Test will start with the most

expensive peaker or external transaction block and

determine if this block of energy can be replaced by a

less expensive block of energy from an on-line unit.


IV. Energy Test

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D. From the examples above, the 10 MW block of energy at $200 from unit P1

can be replaced by 10 MW block of energy at $161 from the 20 MW block of

unit OL1.

E. The 100 MW block of energy at $190 from ET1 can be replaced by 10 MW

from OL1 (at $161), 20 MW from OL2a (at $163), 25 MW from OL3 ($164),

15MW from OL4 (at $165), 20 MW from OL2b (at $166), and 10 MW from OL5

(at $170).

F. Continuing with this evaluation, the energy from P2 can be replaced with the

energy from OL5, P3 can be replaced from OL5 and OL6, P4 can be replaced

from OL6 and OL7, P5 can be replaced from OL7, and P6 can be replaced

from OL7 and OL8.

G. The energy from ET2 has an energy price of $170. Based on the energy price

bands of the remaining on-line resources (OL8 and OL9), the energy from ET2

is more economic than additional on-line energy, therefore, ET2 would be

eligible to set the RTMP for the next execution.


IV. Energy Test - (continued)

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A. The final analysis is to combine the results of the Reliability and

Energy test in order to determine the most restrictive set of

peakers and/or external transactions that should be eligible to set

the RTMP for the next execution.

B. From III.C. above, the Reliability Test has indicated that resources

P6, ET2 and P7 are required resources.

C. From IV.G, above, the Energy Test has indicated that resources

ET2 and P7 have more economic energy bands than the remaining

on-line energy bands, therefore, these resources should be eligible

to set the RTMP in the next R/T SPD execution.

D. The final analysis would “flag” resources P6, ET2 and P7 as eligible

to set the RTMP in the next execution of R/T SPD, and presuming

no other changes in system demand, resource availability and/or

energy pricing occurred, the Final RTMP would be computed as

$175 and would be set by peaker P6 operating at LOL.


V. Final Analysis

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Peaking Units and External Dispatchable

Transactions

Other Rules– Evaluation completed prior to each R/T SPD

execution– All eligible resources evaluated– No eligible resources “skipped”– Tie Breaker - Largest MW block at energy bid

price– Time horizon for replacement energy is 5

minutes

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The more restrictive definition was developed because

the loss of 10 minute reserve is a better measure of true

scarcity. Entering OP-4 because of loss of 30 minute reserve is an

NPCC requirement, not a NERC requirement. NPCC allows

some flexibility in operating without 30 minute reserve. Since this reliability requirement is not as hard and fast as

the ten-minute reserve requirement, it is not appropriate

to abandon incremental energy pricing upon a shortage

of thirty minute reserve.

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Reserve Market Reform

Patton Recommendation:

If replacement reserves in the real-time are

required to meet the NERC reliability

requirements, ISO should adjust its reserve

requirements to allow the ISO to procure these

reserves in the reserves markets, and

compensate suppliers accordingly

Provide for payment of opportunity costs to

generators designated for reserves

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1. Increase the amount of reserves cleared in

the TMOR Market by the real-time

supplemental reserve requirement

2. Revise pricing and payment in the reserve

market to be consistent with New York’s

Reserve Markets

3. Require units to bid their low operating limits

at their physical low operating limit, with an

allowance for economic efficiency and

emission characteristics

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1. Replacement Reserves in TMOR

Requirement

Replacement Reserves (RR) defined as 1/2

second largest contingency RR will be added to existing 30 minute

requirement for purposes of real-time

designation and market clearing RR will not be in capacity analysis for

purposes of declaring OP4 conditions

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1. Replacement Reserves in TMOR Requirement

Example: Existing Conditions

– Largest Contingency = 1400MW– 2nd Contingency = 1150 MW

Today– TMSR Requirement = 1/2 LSC = 700 MW– TMNSR Requirement = 1/2 LSC = 700 MW– TMOR Requirement = 1/2 2nd Contingency = 575 MW

Proposed– TMSR Requirement = 1/2 LSC = 700 MW– TMNSR Requirement = 1/2 LSC = 700 MW– TMOR requirement = 2nd Contingency = 1150 MW

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2. Revised Pricing/Payment in the Reserve

Market

A. Floor Price for Reserves will be $ 0.00

B. Hourly Reserve Prices will be capped at

Hourly Energy Price

C. Final Reserve Prices will be cascaded at

5 minute dispatch

D. TMNSR and TMOR Reserve Availability

Bids will be capped at $ 2.52

E. 5 Minute Reserve Clearing Prices will

include opportunity costs

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Market

A. Reserve Floor Price of $0.00

Proposal is a clarification of existing Rules Today when in excess generation, and

hourly ECP is negative, reserve prices are

administered to $0.00 Proposal would clarify intent and set floor

price for reserves at $ 0.00

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Market

B. Hourly Reserve Prices capped at Hourly ECP

Restatement of existing “Interim Bid Cap

Rule” No change is being proposed

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Market

C. Reserve Clearing Prices to be Cascaded

Reserve Clearing Prices at 5 minute

dispatch will be cascaded such that:– TMSRCP > TMNSRCP > TMORCP

Cascading will occur after Reserve Clearing

Prices determined

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Market

D. TMNSR and TMOR Availability Bids to be

Capped

TMNSR and TMOR availability bids will be

capped at $ 2.52 $ 2.52 is the same as the NYISO cap

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2. Revised Pricing/Payment in the Reserve Market

Revision to TMSR Clearing Price

Resources will be designated for TMSR by R/T

SPD based on existing Market Rules Once the TMSR designations are complete, the

TMSRCP will be determined based on:– Maximum [Final RTMP minus Dispatch RTMP;

BidPriceCleared],• Where Final RTMP is the final RTMP as determined by R/T

SPD from the maximum of the dispatch RTMP and the

external floor price,• BidPriceCleared is the sum of the TMSR Bid Price plus the

TMSR OC as determined by R/T SPD

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Example #1 (As today)– Final RTMP (Floor Price) 45.66– Dispatch RTMP 45.66– TMSRCP (R/T SPD today) 0.55– TMSRCP (proposed) 0.55

Example #2 (Final > Dispatch)– Final RTMP 44.97– Dispatch RTMP 43.87– TMSRCP (R/T SPD today) 0.55– TMSRCP (proposed) 1.10

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Market


Example #3 (TMSR OC)– Final RTMP (Floor Price) 87.32– Dispatch RTMP 52.30– TMSRCP (R/T SPD today) 39.12

• TMSR Bid (1.10, unit backed down to 49.30 [87.32-

49.30=38.02]

– TMSRCP (proposed) 39.12

No change in TMSR CP calculation

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Revision to TMNSR and TMOR Clearing Price

Resources will be designated for TMNSR/TMOR

based on existing Market Rules Once the TMNSR/TMOR designations are

complete, the Clearing Prices will be

determined based on:– Maximum [Bid plus Opportunity Costs] of

designated resources– This OC is not the same as OC for TMSR

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Market

Revision to TMNSR and TMOR Clearing Price

Opportunity Costs defined:– On-line resource:

Final RTMP minus Energy Bid Price for the next

MW above DDP

– Off-line resource: Final RTMP minus [(Startup Costs/[max(min run,

1hour)]/LOL) + No Load Costs/LOL + Energy Bid

Price at LOL]

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Revision to TMNSR and TMOR Clearing Price Example # 1 (On-line Resource designated in

TMNSR)– Final RTMP 65.45– Unit HOL/LOL 100/30– Energy Bid 30@ $25.00, 40@ $50.00, 30@ $80.00– Energy DDP 70 MW– Designated TMNSR 10 MW (MRR=1MW/min)– TMNSR Bid $1.50/MW

OC = $65.45 minus $80.00 = -$15.45 -> No OC TMNSR CP = $1.50 (Bid) No Change in Clearing Price calculation from today

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Revision to TMNSR and TMOR Clearing Price Example #2 (Off-line Resource designated for TMNSR)

– Final RTMP 65.45– Unit HOL/LOL 15/10– Energy Bid $60.00/MW– Startup and NoLoad Costs $500 and $25– TMNSR Bid $1.10/MW– Min Run 1 hour

OC = Final RTMP minus [S/U+NL+Energy] OC = $65.45 minus [$500/10 + $25/10 + $60] = -

$47.05 TMNSR CP = $1.10

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Revision to TMNSR and TMOR Clearing Price Example #3 (Off-line Resource designated for

TMNSR)– Final RTMP 65.45– Unit HOL/LOL 15/10– Energy Bid $60.00/MW– Startup and NoLoad Costs $0 and $0– TMNSR Bid $1.10/MW

OC = Final RTMP minus [S/U+NL+Energy] OC = $65.45 minus [$0 + $0 + $60] = $5.45 TMNSR CP = $1.10 + $5.45 = $6.55

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3. Bidding Physical LOL

Bidding physical LOLs for resources promotes

additional operational dispatch flexibility,

increases available reserves and may reduce

uplift Units will be required to bid LOLs at their

physical low operating limits, with an

allowance for economic efficiency and

emission characteristics ISO’s Market Monitoring and Mitigation group

will identify “audit” requirements

market rule and procedure changes in response to summer 2001 period in new england

Documents

reserve market changes

schedule rule changes

transaction rules objective

number of market rule

final rule changes

filings of rule changes

reserve markets

procedure changes