Decision on Eliminating Convergence Bidding at the Interties Greg - - PowerPoint PPT Presentation

Decision on Eliminating Convergence Bidding at the Interties

Greg Cook Director, Market & Infrastructure Policy Board of Governors Meeting General Session August 25-26, 2011

Convergence bidding implemented in February to provide market efficiency benefits.

• Minimize differences between day-ahead and real-time

prices – Lower costs due to more efficient day-ahead commitment – Improve grid operations

• Mitigate supplier market power
• Provide suppliers the ability to hedge against generator
• utages

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Convergence bidding on the interties is not driving the intended market efficiencies.

• The structure of the real-time market provides incentives for

inefficient convergence bidding on interties. – Intertie convergence bids cleared at hour ahead scheduling process prices – Internal convergence bids cleared at real-time dispatch prices – Hour ahead scheduling process prices systematically lower than day-ahead and real-time prices

• Results in incentives for virtual supply bids on the interties that

diverge day-ahead and real-time prices and increase uplift costs.

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Convergence bidding on the interties is undermining the market efficiency benefits of the convergence bidding design.

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Price

R T

• 1. RT > DA, virtual demand is expected
• 2. HASP < DA, INTERTIE virtual supply is expected
• 3. HASP < RTD, 1 and 2 balanced is profitable

R T D H A S P

• 1. RT > DA, INTERNAL virtual demand is expected

D A

DA: Day Ahead RT: Real Time HASP: Hour Ahead Scheduling Process RTD: Real Time Dispatch

Virtual Supply Virtual Demand Off Peak - 10 day moving average

• 1. RT > DA, INTERNAL virtual demand is expected
• 2. HASP < DA, INTERTIE virtual supply is expected

$0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 FEB MAR APR MAY JUN Offset (Millions)

Real Time Imbalance Energy Offset (Total)

SC Balanced Virtual Residual Virtual All Others

Hour ahead scheduling process prices consistently lower than day-ahead and real-time prices.

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Off Peak Average Price

$- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 Feb Mar Apr May Jun Jul IFM HASP RTD

There is high virtual demand at the internal nodes and high virtual supply at the interties.

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Virtual Supply Virtual Demand

Off Peak 10 Day Moving Average

Several alternatives were considered to resolve stakeholder concerns with convergence bidding on the interties:

Slide 7

Real-time imbalance energy offset

• Prohibit balanced virtual positions
• Settle imports and exports at real-time price
• Align virtual bid liquidation and settlement
• Settlement rule to return revenue from balanced positions

Intertie price inconsistencies

• Price the two intertie constraints
• Pay as-bid
• Pay as-bid or better

Some stakeholders argue that convergence bidding on the interties provides market benefits.

• Lower cost to import renewables by enabling transmission

to be procured after hour ahead scheduling process

– Strategy not being used – Day-ahead physical schedule provides the same benefit

• Virtual supply on interties reduces day-ahead prices which

benefits load serving entities

• Hedging against outages of physical imports

– This hedge seldom used – Hour ahead scheduling process prices have little price volatility risk

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Stakeholders are sharply divided on the proposal.

• Strong support from load serving entities
• Strong opposition from marketers
• Agreement that two settlement timeframes for real-time

market must be resolved

• Disagreement on whether convergence bidding should be

removed while real-time market issues are resolved

Slide 9

Management requests Board approval to remove convergence bidding from interties.

• Convergence bidding on the interties should be eliminated

until real-time market design issues are resolved

• Limited benefits of convergence bidding on the interties

exceeded by costs due to real-time market issues

• Eliminates issue of prices inconsistent with bids on interties
• Comprehensive market redesign stakeholder initiative

underway to address ISO market issues

Slide 10