JANUARY 14-15, 2014 | NEPOOL MARKETS COMMITTEE Matthew Brewster MARKET DEVELOPMENT [email protected]@ISO-NE.COM |413.540.4547 Conceptual design.

JANUARY 14-15, 2014 | NEPOOL MARKETS COMMITTEE

Matthew BrewsterMARKET DEVELOPMENT

[email protected] |413.540.4547

Conceptual design proposal for 5-minute settlement of dispatchable resources

Subhourly Real-Time Market Settlements

Conceptual design proposes 5-minute real-time market settlements for dispatchable resources

• The objective of subhourly settlement is improving market incentives for flexible resources

• Proposal is for 5-minute real-time Energy and Reserve market settlement of generators and DARD pumps only– Modifications to NCPC, Regulation, FRM, and FCM for application

of 5-minute data will be evaluated– The proposal does not change the 1-hour settlement of other

market activity (e.g., load, bilateral contracts)

• Implementing subhourly settlement requires that ISO obtain 5-minute energy quantity values for resources

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OBJECTIVEProblem statement and overview of the project objective

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Problem with hourly settlements is compensation can differ from resource performance

• Resource dispatch is determined subhourly (e.g., 5 minute)

• Market prices are established every 5 minutes

• However, the settlements are performed using market prices and quantities averaged* over hourly intervals– As a result, resources will generally be under-compensated relative to the

market value at the time a resource performed (the inverse can also occur where high prices for periods a resource was not performing result in over-compensation)

– For example: for 15 minutes immediately following a contingency event, RT energy LMPs are at the highest prices observed in the market (on average). However, payment for energy provided post-contingency is affected (lowered) by LMP prices in intervals adjacent to this period

• Resources that are undercompensated may require NCPC

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*Energy quantity is determined using megawatt-hour (MWh) per hour meters; “average” is used for convenience of discussion .

Objective of subhourly settlement is to improve market incentives for flexible resources• Resource performance and flexibility in response to dispatch

is an important factor in maintaining system reliability– The Strategic Planning Initiative (SPI) initiated in 2011 identified

subhourly settlement as one of the potential solutions to help improve market incentives for resource performance and flexibility

• Aligning the performance and pricing intervals for settlement can help improve market incentives for resources to respond to current system conditions

• Subhourly settlement better compensates resources by crediting based upon the market value of energy and reserves at the time when these products were provided

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Benefit of subhourly settlement will be most pronounced when system is stressed

• Compensation will be established by coincident market prices– Aligning period of market performance and pricing

• As prices rise (or fall) resources will be compensated based on current real-time market prices for performance

• The improvement of market incentives will be most pronounced at times when the system is stressed– Payments for providing energy post-contingency would be based on

the LMP prices in the dispatch intervals and not lowered by the LMP prices in preceding periods

– Resource performance and flexibility are most valuable at these times

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CONCEPTUAL DESIGN PROPOSALSubhourly real-time settlement conceptual design proposal

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Proposal: 5-minute real-time Energy and Reserve market settlement of generators & DARD pumps

• 5-minute settlement of generators and DARD pumps– Resource dispatch and market pricing interval for real-time Energy

and Reserve market correspond to 5-minute intervals

• 1-hour settlement of all other market activity (no change)– e.g., load assets, charge allocations, bilateral contracts

• Coordinated Transaction Scheduling (CTS) project requires 15-minute settlement interval at the external interface

• Market design principles will not be modified, but must be adapted to apply under subhourly settlement

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Modifications to other market settlements for application of 5-minute data will be evaluated

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• Regulation– Order 755 redesign will be implemented prior to subhourly settlement– Subhourly energy settlement could allow evaluating opportunity cost

at 5-minute intervals (755 design allows subhourly settlement)

• Net Commitment Period Compensation (NCPC)– e.g., resource cost and revenue determinations

• Forward Reserve Market (FRM)– Forward Reserve Obligation Charges (III.10.4)– Failure to Reserve and Failure to Activate penalties (III.9.7)

• Forward Capacity Market (FCM)– Shortage Event Availability Score (III.13.7)

IMPLEMENTATION: ENERGY VALUESSubhourly energy meter reading values are not currently available to ISO

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Implementing subhourly settlement requires ISO obtain resource 5-minute energy quantities

• 5-minute revenue quality meter (“RQM”) values of energy output/consumption are the primary data needed by ISO

• ISO already has the 5-minute market prices, and quantities of reserve and regulation provided by resources

• Two alternatives are being considered by ISO for obtaining 5-minute energy RQM valuesAlternative A) Continue existing process: meter readers report

RQM to ISO at 5-minute intervals Alternative B) Create a new process: ISO estimates 5-minute RQM

using hourly RQM and asset telemetry

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Either updating the meter data infrastructure or creating an estimation process will require effort

• Changes will take time and require work by resource owners, meter readers, and ISO

• Meter data infrastructure supporting settlements includes:– physical plant meters (generator owners)– processes/technology for acquiring and verifying data (meter readers) – processes/technology for receiving meter readings (ISO)

• A new process for ISO to estimate 5-minute quantities includes work to create:– rules for how telemetry establishes “settlement-quality” energy values– new processes/technology to estimate and verify billing values

• Evaluating these alternatives should include contemplation of future market requirements (e.g., subhourly load settlement)

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Referral of this proposal to the MRWG for feedback would be beneficial

• Meter Reader Working Group (MRWG) can provide valuable input on the effort required to develop the systems to report 5-minute RQM values to ISO

– Estimates of time and cost, and other implementation considerations, to provide 5-minute RQM to the ISO for generators, DARD pumps, external tie lines (i.e., alternative A - continuing existing process)

– It may also be beneficial to discuss general implementation considerations of providing 5-minute RQM for all asset types (i.e., also load, non-pump DARD, internal tie lines) to inform future market design proposals for expanding subhourly settlement

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Summary and Schedule• The objective of subhourly settlement is improving market incentives for

flexible resources• Proposal is for 5-minute real-time Energy and Reserve market settlements

of generators and DARD pumps • Implementing subhourly settlement requires that ISO obtain 5-minute

energy quantity values for resources• The project is not a Major Initiative, but ISO will prepare quantitative

analyses

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Q1 2014 Meter Reader discussions

Q3/Q4 2014 File with FERC

2015/2016 Earliest implementation

Anticipated Stakeholder Schedule