Moving toward seamless energy markets: Evidence from the northeast

Electricity Journal

Volumn 14, Issue 6, 2001, Pages 35-46

  Bailey, Michael ^a   Eaton, Christopher ^b  

^a Deloitte/Touche's Global E M G   (United States)

^b Deloitte Touche Tohmatsu   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0035402420     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(01)00213-5     Document Type: Article

References (43)

1. 1. For example, the Mid-Atlantic region, California, the New England region, and New York in the United States, and Alberta in Canada, have all established bid/offer-or auction-based wholesale electricity markets within the past five years. Several other jurisdictions are in various stages of the wholesale energy market design and implementation process.
2. 2. U.S. Federal Energy Regulatory Commission (FERC), Investigation of Bulk Power Markets - Northeast Region, Washington, DC, Nov. 1, 2000.
3. 3. FERC, Regional Transmission Organizations, Order No. 2000, FERC Docket No. RM99-2-000, Washington, DC, Dec. 20, 1999. With Order 2000, FERC encouraged electric utilities under its jurisdiction to participate in an RTO. It outlined four minimum RTO characteristics (independence, scope and regional configuration, operational authority, and short-term reliability) and eight minimum RTO functions (tariff administration and design, congestion management, parallel path flow, ancillary services, open-access transmission administration, market monitoring, planning and expansion, and interregional coordination). It also specified an open architecture requirement and filing and implementation timelines.
4. 4. Supra note 2 and note 3.
5. 5. North American Electric Reliability Council (NERC), 2000 Summer Assessment: Reliability of the Bulk Electricity Supply in North America, Princeton, NJ, May 2000.
6. 6. Richard Stavros, Transmission 2000: Can ISOs Iron Out the Seams? Pub. Util. Fortnightly, May 1, 2000, at 24-33; and ISO-MOU Business Practices Working Group (BPWG), Draft Seams Issues Matrix, Jan. 4, 2001.
7. 6. Richard Stavros, Transmission 2000: Can ISOs Iron Out the Seams? Pub. Util. Fortnightly, May 1, 2000, at 24-33; and ISO-MOU Business Practices Working Group (BPWG), Draft Seams Issues Matrix, Jan. 4, 2001.
8. 7. Supra note 2, at 85.
9. 8. John P. Buechler, Scott M. Harvey, Susan L. Pope, and Robert M. Thompson, Feasibility Study for a Combined Day-Ahead Market in the Northeast, Jan. 19, 2001, at 179-80; and supra note 2, at 85-90.
10. 9. John P. Buechler et al., supra note 8.
11. 10. The Ontario market is not scheduled to begin operating until the fall of 2001 at the earliest. Even upon commencement of market operations, transmission capacity management will only involve the interties. For the purposes of this article, Ontario transmission capacity may be treated as a NYISO intertie point. See BPWG, supra note 6.
12. 11. ISO New England, Preliminary Report of ISO New England Inc. Regarding "Standard Market Design," March 29, 2001.
13. 12. To move energy from ISO-NE to PJM, for example, would require the market participant to successfully reserve transmission capacity out of ISO-NE, through the NYISO and into PJM. This would be a relatively straightforward process if transmission reservation procedures and tools were the same, or if a single entity managed transmission capacity across the markets; however, market participants must wait to offer energy into the NYISO at the NYISO/ISO-NE interface and bid to take energy out of the NYISO at the NYISO/PJM interface in the day-ahead market. Even if market participants are successful with their bid and offer strategy in the day-ahead market of the NYISO, scheduled flows may be curtailed during the NYISO's hourly balancing market evaluation (BME). As a result, market participants wishing to move energy across the Northeast may be forced into open physical exposures (i.e., unmatched transactions between PJM, ISO-NE, and NYISO) resulting from the lack of firm forward transmission service in the NYISO.
14. 13. The concept of a "transaction" is often confusing in the energy sector. For the purposes of discussing seams issues, it is helpful to distinguish between auction and bilateral transactions. Offers and bids into the ISOs are auction-related transactions with physical implications (i.e., they may lead to physical schedules and/or real-time dispatch). Bilateral transactions, on the other hand, are generally financial agreements which may or may not be linked to auction outcomes.
15. 14. PJM and ISO-NE support a 12:00 PM deadline for the submission of most bids and offers, whereas NYISO requires all next-day auction-related transactions to be submitted by 5:00 PM. The deadline in the NYISO market effectively means that participants must submit their bids and offers up to 36 hours prior to commencement of the dispatch day, a window during which many parameters in the market may change. Likewise, the windows for submitting last-minute, or "short-notice," transactions to the markets are different, with PJM offering the most flexibility with a 30-minute cutoff versus 90 minutes for the NYISO and ISO-NE.
16. 15. Supra note 2, at 70.
17. 16. BPWG, supra note 6.
18. 17. Severe problems have been encountered with New York's BME scheduling process in the past. For instance, PJM has reported examples of up to 1,700 MW of supply from the NYISO cut with only 15 minutes' notice and has considered discontinuing day-ahead transactions with the NYISO. See supra note 2, at 70-71.
19. 18. For example, software problems with BME and a difference in modeling constraints have led to circumstances in which the real-time price did not reflect the assumptions used in the BME model. Hence, market participants were exposed to financial price risk because the day-ahead commitments were being cut by the BME and settled in real-time. The implementation of EGA "B" has mitigated these effects somewhat in that the BME clearing bid/offer at an external bus can set the real-time price in times of constraints. See supra note 2, at 70-71; Mike Cadwalader, Inter-Control Area Scheduling White Paper, document prepared for the NYISO Scheduling & Pricing Working Group, Dec. 14, 2000; Scott Harvey and Andrew Hartshorn, Inter-Regional Transaction Scheduling by the New York ISO, white paper, Jan. 2, 2001; and Scott Englander, Scheduling External Transactions: Alternatives to Current NYISO Practice, presentation to NYISO Market Structure Working Group, Dec.18, 2000.
20. 18. For example, software problems with BME and a difference in modeling constraints have led to circumstances in which the real-time price did not reflect the assumptions used in the BME model. Hence, market participants were exposed to financial price risk because the day-ahead commitments were being cut by the BME and settled in real-time. The implementation of EGA "B" has mitigated these effects somewhat in that the BME clearing bid/offer at an external bus can set the real-time price in times of constraints. See supra note 2, at 70-71; Mike Cadwalader, Inter-Control Area Scheduling White Paper, document prepared for the NYISO Scheduling & Pricing Working Group, Dec. 14, 2000; Scott Harvey and Andrew Hartshorn, Inter-Regional Transaction Scheduling by the New York ISO, white paper, Jan. 2, 2001; and Scott Englander, Scheduling External Transactions: Alternatives to Current NYISO Practice, presentation to NYISO Market Structure Working Group, Dec.18, 2000.
21. 18. For example, software problems with BME and a difference in modeling constraints have led to circumstances in which the real-time price did not reflect the assumptions used in the BME model. Hence, market participants were exposed to financial price risk because the day-ahead commitments were being cut by the BME and settled in real-time. The implementation of EGA "B" has mitigated these effects somewhat in that the BME clearing bid/offer at an external bus can set the real-time price in times of constraints. See supra note 2, at 70-71; Mike Cadwalader, Inter-Control Area Scheduling White Paper, document prepared for the NYISO Scheduling & Pricing Working Group, Dec. 14, 2000; Scott Harvey and Andrew Hartshorn, Inter-Regional Transaction Scheduling by the New York ISO, white paper, Jan. 2, 2001; and Scott Englander, Scheduling External Transactions: Alternatives to Current NYISO Practice, presentation to NYISO Market Structure Working Group, Dec.18, 2000.
22. 18. For example, software problems with BME and a difference in modeling constraints have led to circumstances in which the real-time price did not reflect the assumptions used in the BME model. Hence, market participants were exposed to financial price risk because the day-ahead commitments were being cut by the BME and settled in real-time. The implementation of EGA "B" has mitigated these effects somewhat in that the BME clearing bid/offer at an external bus can set the real-time price in times of constraints. See supra note 2, at 70-71; Mike Cadwalader, Inter-Control Area Scheduling White Paper, document prepared for the NYISO Scheduling & Pricing Working Group, Dec. 14, 2000; Scott Harvey and Andrew Hartshorn, Inter-Regional Transaction Scheduling by the New York ISO, white paper, Jan. 2, 2001; and Scott Englander, Scheduling External Transactions: Alternatives to Current NYISO Practice, presentation to NYISO Market Structure Working Group, Dec.18, 2000.
23. 19. Scott Harvey, Pre-Scheduling of External Transactions in New York, presentation to the NYISO Market Structures Working Group, April 6, 2001.
24. 20. Ontario currently has no limit on the magnitude of change, but has only a single ramp period per hour. Similarly, the NYISO and ISO-NE offer a single ramp period during the 10 minutes across the top of the hour, but the ramp limits are 600 and 700 MW, respectively. PJM currently allows ramping for schedule changes four times per hour with a 500 MW limit for each ramping period. See BPWG, supra note 6, at 4.
25. 21. A detailed review of each market's unit commitment and scheduling approach has been documented elsewhere. See John P. Buechler et al., supra note 8, at 16-88 for a market-by-market review.
26. 22. An example of how differences in the unit commitment procedures and tools of two ISOs can create a seams issue is the current difference between how PJM and the NYISO model the PJM/NYISO interface. PJM currently uses two separate buses, PJM East and PJM West, and market participants must specify which bus an interregional transaction is assigned to during the scheduling process. The NYISO, on the other side of the seam, models the interface as a single bus in its unit commitment tool.
27. 23. See John P. Buechler et al., supra note 8, at 97-98 for a discussion of interregional congestion hedging mechanisms.
28. 24. NERC, Reliability Assessment 1999-2008: The Reliability of Bulk Power Systems in North America, Princeton, NJ, May 2000; and supra note 2, at 9-12.
29. 25. To illustrate the difficulty and length of the siting process, a recent NYISO study indicated there were approximately 74 projects proposed to be built in New York State, but only one was likely to be completed in the next three to four years. See New York State Board on Electric Generation Siting and the Environment, NYISO Board Policy Statement on "Market Protective Mechanisms," Oct. 19, 2000.
30. 26. Supra note 2, at 53-55.
31. 27. ISO-NE, NYISO, PJM, and IMO, Memorandum of Understanding Among the New England, New York, and PJM Independent System Operators [and the Ontario Independent Electricity Market Operator] Concerning Interregional Coordination Activities, Aug. 9, 1999 (amended Dec. 16, 1999), available at http://www.isomou.com.
32. 28. Refer to NYISO et al., Order No. 2000 Compliance Filing, Docket No. RT01-95-000, Jan. 16, 2001, Attachment III.
33. 29. PJM et al., Order No. 2000 Compliance Filing, Docket No. RT01-2-000, Oct. 11, 2000.
34. 30. New England Transmission Owners and ISO-NE, Joint Petition for Declaratory Order to Form the New England Regional Transmission Organization, Docket No. RT01-86-000, Jan. 16, 2001; and supra note 28.
35. 31. New England Power Pool Executive Committee, Congestion Management System and Multi-Settlement System Proposals, Docket No. ER99-2335-000, March 30, 1999.
36. 32. Supra note 30.
37. 33. ISO-NE, Comments of ISO New England Inc. with Respect to Motion for Technical Conference, Docket No. RM99-2-000, Mar. 29, 2001.
38. 34. Some might contend that PJM's westward expansion, PJM West, could also qualify as such a model. This initiative may provide valuable insight into seams issues; however, under our analytical framework, regional market expansion is better analyzed along the "configuration/ transition" axis and is therefore beyond the scope of this article.
39. 35. Supra note 28, Exhibit 2.
40. 36. New England Transmission Owners and ISO-NE, supra note 30.
41. 37. Id.
42. 38. Supra note 2, at 52.
43. 39. Supra note 2.