Enhancements Issue Paper/Straw Proposal Stakeholder Web Conference - - PowerPoint PPT Presentation

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Enhancements Issue Paper/Straw Proposal Stakeholder Web Conference - - PowerPoint PPT Presentation

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Local Market Power Mitigation Enhancements Issue Paper/Straw Proposal Stakeholder Web Conference September 19, 2018 1:00 pm 4:00 pm Market Design Policy ISO Public Agenda Time Topic Presenter 1:00 1:05 Welcome and Introductions

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ISO Public

Local Market Power Mitigation Enhancements

Stakeholder Web Conference September 19, 2018 1:00 pm – 4:00 pm Market Design Policy

Issue Paper/Straw Proposal

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ISO Public

Agenda

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Time Topic Presenter 1:00 – 1:05 Welcome and Introductions Kristina Osborne 1:05 - 1:20 Issues Identified Don Tretheway 1:20 – 1:30 Principles Don Tretheway 1:30 – 3:50 Proposals

  • Mitigation Framework

Enhancements Danielle Tavel/Elliott Nethercutt

  • EIM use-limited default energy

bid Brittany Dean

  • Reference level adjustments

Brittany Dean

  • Gas price indices

Brittany Dean 3:50 – 4:00 EIM Governing Body Classification, Next Steps Kristina Osborne

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CAISO Policy Initiative Stakeholder Process

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POLICY AND PLAN DEVELOPMENT

Issue Paper Stakeholder Input

We are here

Straw Proposal Draft Final Proposal

Mar 2019 ISO Board Mar 2019 EIM GB

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Work accomplished prior to issue/straw proposal

  • EIM offer rules workshop

– April 30, 2018

(http://www.caiso.com/Pages/documentsbygroup.aspx?GroupID =3509B16A-3A9F-4F34-B370-914AF5C85A49)

– July 19, 2018

(http://www.caiso.com/Pages/documentsbygroup.aspx?GroupID =330E5E16-D226-4C3D-9B39-738FC19E7A55)

  • MSC meeting

– August 3, 2018

(http://www.caiso.com/Pages/documentsbygroup.aspx?GroupID =CC691BB1-1D0D-4EF1-8AC8-6AAA79169155)

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ISSUES IDENTIFIED

Local Market Power Mitigation Enhancements

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Issues Identified (1 of 2)

  • Real-time market power mitigation process

– Flow reversal: mitigation results cause EIM BAAs to change from importing to exporting

  • Competitive LMP addresses broader market issue

– Economic displacement: additional exports dispatched because of lowered mitigated price

  • EIM specific issue
  • Default energy bid for EIM use-limited resources

– Existing default energy bids may not accurately reflect

  • pportunity costs for EIM use-limited resources

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Issues Identified (2 of 2)

  • Reference level adjustments

– Real-time gas volatility not always captured in reference level adjustment process

  • Broader market issue

– Reference level adjustment process needed for new EIM use-limited default energy bid

  • Gas Price Indices

– Tariff cleanup of listed gas price index publishers – Broader market issue

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PRINCIPLES

Local Market Power Mitigation Enhancements

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Market design principles for market power mitigation, default energy bids, and reference level adjustments (1 of 3)

  • Supply should not be forced to sell power below its bid price

if it cannot exert market power. Supply bids should be mitigated to marginal costs to the extent supply has market power

  • EIM is a voluntary market and each balancing authority area

should have sufficient supply to meet its own load and reliability responsibilities. In cases of mitigation involving EIM transfers to another balancing authority area, supply should not be forced to sell energy at a mitigated price beyond what is needed to resolve market power. The use of mitigated bids should not result in additional economic displacement of

  • ther supply.
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Market design principles for market power mitigation, default energy bids, and reference level adjustments (2 of 3)

  • The competitive locational marginal in each interval should

accurately reflect market conditions in each interval.

  • The marginal costs used to calculate default energy bids for

use-limited resources should include opportunity costs for future market sales. These calculated default energy bids should have access to similar reference level adjustment process that is available to thermal resources.

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Market design principles for market power mitigation, default energy bids, and reference level adjustments (3 of 3)

  • Gas prices used to calculate reference levels should account

for real-time gas prices volatility so that the CAISO efficiently dispatches supply, resulting in accurate market prices that minimize the need for after-the-fact cost recovery.

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PROPOSALS

Local Market Power Mitigation Enhancements

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Summary of proposals

  • Mitigation framework enhancements

– Prevention of flow reversal (i.e. changes to competitive LMP) – Prevention of economic displacement between mitigated BAAs

  • EIM use-limited default energy bid
  • Reference level adjustments

– Gas resources – EIM use-limited resources

  • Gas price indices
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Mitigation framework enhancements: Prevention of Flow Reversal

  • Flow reversal: mitigation results cause EIM BAAs to

change from importing to exporting at mitigated bid price

– MPM is triggered when import constraint is binding – To protect native imbalances from market power offer prices are replaced with mitigated bids – These mitigated bids are not solely used to serve native imbalance which can result in a decrease in imports and even changing directions to an export – Import constraint is no longer binding, which triggered mitigation in the first place – Selling to other BAAs only because mitigated bids were used in market

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CAISO proposes to calculate the competitive locational marginal price for each market run

  • This addresses flow reversal because if the import BAA’s

bids are mitigated to the higher of the competitive LMP

  • r DEB, it will not be economic to serve load outside of

the import BAA

  • Current rules prevent accurate use of the competitive

locational marginal price, so:

– Eliminate the balance of the hour mitigation rules in fifteen- minute market for more accurate unit commitment – Eliminate rule that if mitigated in FMM, mitigated in RTD – Eliminate the rule that if mitigated in the first or second 5- minute interval that the remaining 5-minute interval(s) in the given 15-minute interval is mitigated

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Competitive locational marginal price adder

  • To alleviate concerns that dispatch order changes could
  • ccur, the CAISO is proposing implementing a nominal

parameter to the mitigated bid calculation

  • Ensures price separation between competitive and

noncompetitive areas

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Following examples illustrate implementation results of incorporating this rule into the mitigation framework

  • Current:

– Competitive LMP can only decrease if previously mitigated – Mitigated bid = MAX (DEB, Competitive LMP)

  • Proposed:

– Competitive LMP will be recalculated in each market interval – Mitigated bid = MAX (DEB, Competitive LMP + $0.xx parameter)

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Example A: Single BAA importing - MPM Run (1 of 2)

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$70 Competitive LMP 500 MW Limit 500 MW

BAA 1 Gen A 500 MW Bid $80 DEB $20 Gen B 400 MW Bid $0 DEB $0 Gen C 200 MW Bid $100 DEB $80 Load 1000 MW

100 MW 400 MW 0 MW $80

Unmitigated price: $80

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Example A: Single BAA importing - Market Run (2 of 2)

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$70 Competitive LMP 500 MW Limit 500 MW

BAA 1 Gen A 500 MW Bid $80 DEB $20 Gen B 400 MW Bid $0 DEB $0 Gen C 200 MW Bid $100 DEB $80 Load 1000 MW

100 MW 400 MW 0 MW

$71

Mitigated price: $71

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Example B: Single BAA importing - MPM Run (1 of 2)

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$23 Competitive LMP 500 MW Limit 500 MW

BAA 1 Gen A 400 MW Bid $80 DEB $20 Gen B 400 MW Bid $70 DEB $30 Gen C 200 MW Bid $100 DEB $80 Load 1000 MW

100 MW 400 MW 0 MW $80

Unmitigated price: $80

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Example B: Single BAA importing - Market Run (2 of 2)

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$23 Competitive LMP 500 MW Limit 500 MW

BAA 1 Gen A 400 MW Bid $80 DEB $20 Gen B 400 MW Bid $70 DEB $30 Gen C 200 MW Bid $100 DEB $80 Load 1000 MW

400 MW 100 MW 0 MW $30

Mitigated price: $30

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Mitigation framework enhancements: Economic displacement prevented between mitigated BAAs

  • If two or more EIM BAAs become an import constrained

bubble mitigation is triggered

– Economic displacement using mitigated bids may occur between two BAAs within a constrained bubble

  • Mitigated bids result in exports that increase, imports

that decrease beyond quantities necessary to prevent the exercise of market power within the bubble

  • The CAISO proposes limiting transfers between EIM

BAA to the scheduled quantity prior to mitigation within the bubble

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Example C: BAA 2 importing with binding constraint - MPM Run (1 of 2)

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Example C: BAA 2 importing with binding constraint – Market Run (2 of 2)

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Example D: BAA 1 Net Scheduled Interchange is importing – MPM Run (1 of 3)

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Example D: Gen C is dispatched down 200 MW to serve BAA 2s load (problematic) – Market Run (2 of 3)

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Example D: Proposed rule: Set BAA’s Net Scheduled Interchange at pre-mitigation schedule (3 of 3)

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$70 Competitive LMP 500 MW Limit 500 MW 1000 MW Limit

BAA 1 BAA 2 Gen A 500 MW Bid $80 DEB $20 Gen B 500 MW Bid $0 DEB $0 Gen C 200 MW Bid $100 DEB $60 Load 1000 MW

500 MW 500 MW 0 MW

Gen D 500 MW Bid $90 DEB $80 Gen E 200 MW Bid $10 DEB $10 Gen F 300 MW Bid $110 DEB $90 Load 1000 MW

300 MW 200 MW 0 MW $80 $71 500 MW

Mitigated Price: $71 Mitigated Price: $80

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Issue remains for EIM entities when market mitigates

  • ffers to default energy bid
  • Default energy bids can still be used to serve load
  • utside the resource’s BAA, but in more limited

circumstances previous changes

  • Existing opportunity cost methodology for default energy

bids do not consider: – Bilateral prices outside of the EIM – Short-term limitations within the day

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EIM use-limited default energy bid proposal

  • Two components represent short-and long-term limitations:

– DA Peak Index – Day-ahead (DA) peak price at a

specific trading hub

– MA Index – Month-ahead (MA) price at a trading hub for the successive month m after the current month – N – The number of months of storage capability that the use-limited resource has available

  • MAX used to reflect opportunity cost of generating energy

today, at the highest price that energy could be sold in the future

  • Peak hourly electricity prices published by ICE

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EIM use-limited default energy bid adder

  • CAISO proposes 110% adder to default energy

calculation for the following reasons: – Mitigation only occurs if uncompetitive

  • Dynamic competitive assessment

– CAISO analysis showed 110% would still preserve a use-limited resource use for highest value in summer months – Proposed reference level adjustment process allows updates when real-time electricity prices spike

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Commitment Costs and Default Energy Bid Enhancements policy established reference level adjustment process

  • CAISO reference levels based on published price

information may not always be accurate

– Suppliers request a before-the-market adjustment to reference level

  • Supplier’s actual costs must be more than CAISO

calculated reference level

– Retain sufficient justification supporting the need for a reference level adjustment request

  • Bidding up to a supplier’s reasonableness threshold is

not a safe harbor and reference level adjustment requests must be based on actual costs

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Reference level adjustments – gas resources proposal

  • Recent gas market events, CAISO reconsidered

treatment of real-time gas price volatility in reference level adjustment process

  • A supplier may request a manual consultation if

reference level request exceeds the automated reasonableness threshold

  • CAISO to review requested amount, documentation, and
  • bserved same-day gas trading information available on

trading platform

– Approve reference level adjustment if requested amount appears to reflect current costs – May automatically adjust reasonableness threshold for gas region if costs apply to other resources

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Reference level adjustments – EIM use-limited resources proposal

  • Day-ahead price index may not reflect actual real-time

electricity prices for short-term limitations

– Adjustments to reference level may be made to the day- ahead energy component of equation

  • Resources must demonstrate the sale of real-time

energy prices is greater than day-ahead index prices

– Real-time ICE trading information or bilateral offers to buy electricity

  • Reasonableness threshold amount to be determined

based on analysis examining the historical variation of index prices and hourly bilateral prices

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Gas Price Indices

  • S&P Global Platts contains information about

Intercontinental Exchange (ICE) trades through their daily and monthly North America natural gas indices

– CAISO proposes to remove references to ICE in tariff

  • Modify requirement of two gas indices to determine a

blended gas price used in markets

– CAISO proposed to allow as few as one index

  • Current practice of updating every weekday morning gas

price for day-head market to remain unchanged

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NEXT STEPS

Local Market Power Mitigation Enhancements

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EIM Governing Body Classification

  • The following proposals fall within the EIM Governing

Body’s primary approval authority:

– Freeze transfer quantities from mitigation schedule run between EIM BAAs areas – EIM use-limited resources default energy bid

  • The following proposals fall within the EIM Governing

Body’s advisory role:

– Recalculation of competitive locational marginal price – Reference level adjustment process – Gas price indices

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Proposed Initiative Schedule

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Milestone Date

Post Issue Paper/Straw Proposal September 13, 2018 Stakeholder Call September 19, 2018 Market Surveillance Committee Meeting September 28, 2018 Stakeholder Written Comments Due October 3, 2018 Stakeholder Working Group Meeting October 10, 2018 Stakeholder Written Comments Due October 17, 2018 Post 2nd Revised Straw Proposal October 31, 2018 Stakeholder Call November 8, 2018 Stakeholder Written Comments Due November 29, 2018 Post Draft Final Proposal December 21, 2018 Stakeholder Call January 3, 2019 Stakeholder Written Comments Due January 10, 2019 EIM Governing Body Meeting March 12, 2019 Board of Governors Meeting March 27-28, 2019

Please email your comments on the issue paper and straw proposal to initiativecomments@caiso.com by close of business October 3, 2018.