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ISO New England . Carol Chessmore Feiran Huang University of Texas at Arlington EE 5379: Fundamentals of Power and Energy Trading Dr. Ricson Chai Fall 2008. Introduction. Market Description Service Area Statistics and History Market Type LMP, FTRs, and ARRs Pricing Seams

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iso new england

ISO New England

Carol Chessmore

Feiran Huang

University of Texas at Arlington

EE 5379: Fundamentals of Power and Energy Trading

Dr. Ricson Chai

Fall 2008

  • Market Description
    • Service Area
    • Statistics and History
    • Market Type
    • LMP, FTRs, and ARRs
    • Pricing
    • Seams
  • Operations
    • Operations Structure
    • Action During Capacity Deficiency
    • Transmission Outage Plans
    • Emergency Plan
    • Regulatory Agencies
service area
Service Area
  • 300 market participants
  • 8 pricing zones and a hub
  • Summer peaking system
    • Typical Peak Summer Demand: 19,000 MW to 24,000 MW
    • Typical Peak Winter Demand: 18,000 MW to 20,000 MW
    • Typical Fall and Spring Demand: 15,000 MW to 18,000 MW
    • Record Demand: 28,130 MW
  • 13 interconnections to New York and Canada
  • Part of the Eastern Interconnection
generation types in new england iso
Generation Types in New England ISO

2007 Generation in the ISO-NE 2007 Generation in ERCOT

Source: ISO-NE Source: ERCOT

generation by state
Generation by State

Source: ISO-NE

brief history of new england market
Brief History of New England Market
  • 1999 - Single energy clearing price market
  • March 2000 - Congestion Management (CMS) and Multi-Settlement Systems (MSS) added
    • CMS: Locational prices of electricity
    • MSS: Day Ahead and Real Time markets
  • March 2001 - Began use of Standard Market Design (SMD)
    • Used a PJM model
    • Worked with New York to standardize rules
available trading markets
Available Trading Markets
  • Bilateral Transactions
    • Between wholesale buyers and sellers
    • Long term contract for set time frame
    • Set prices
    • 75% of transactions
  • Day Ahead Market (DAM)
    • Short term forward market
    • Used to manage risk of increases in real time prices
  • Real Time Market (RTM)
    • Spot market
    • Used for transactions not covered by bilateral transactions or DAM
    • Most risk since prices can change rapidly
  • Forward Capacity Market
    • Started in February 2008
forward capacity market
Forward Capacity Market
  • Economic incentive for investment in new and existing capacity resources
    • Demand Resources
    • Generation Resources
  • Auction
    • Forecasted requirements for 3 years in advance
    • Qualification process to prove they have their proposed capacity
  • Pay-for-Performance
    • Reduces payments to units not available during high demand
  • Peak Energy Rent
    • Reduces capacity costs for everyone when they reach a certain peak level
    • Theory: capacity market compensates for fixed costs while energy market compensates for variable costs
    • Prevents over-collection between the energy market and the capacity market during high demand
locational marginal price
Locational Marginal Price
  • LMP is “cost of congestion”
    • Value of locating new generation
    • Value of upgrading transmission
    • Value of reducing consumption
  • 3 costs
    • Energy (from least expensive unit)
    • Congestion (from more expensive unit)
    • Loss
  • Price calculated at 3 locations
    • Node (900 nodes)
    • Zone (8 zones)
    • Hub (1 hub)
  • Node
    • Not all Physical nodes have Pricing Nodes
    • Some Pricing Nodes are public and some are private
  • Zones
    • Load weighted average of the nodes in the zone
    • Zone LMP is public
  • Hub
    • Located in an area with low congestion
    • Price is average of the zone prices
    • Provides a stable reflection of the overall price
  • Eventually transition to full nodal market
uses of lmps
Uses of LMPs
  • LMPs used to calculate Charges or Credits for market services
    • Energy Market Energy
      • Energy Component
    • Transmission
      • Congestion Component
    • Transmission Losses
      • Loss Component
    • Net Commitment Period Compensation (NCPC)
    • Emergency Energy
    • Forward Reserves
    • Data Reconciliation
    • Inadvertent Energy Accounting
pricing using lmp
Pricing using LMP
  • Calculated hourly for the Day Ahead Market
  • Calculated every 5 minutes for the Real Time Market
  • Real-Time Market
    • Participants with Generators are paid with Generator Node LMP
    • Participants with Asset Related Demands are charged based on the Load Node LMP
    • Participants with load other than Asset Related Demands are charged based on Zonal LMP
  • Day Ahead Market
    • Generators paid with Generator Node LMP
    • Participants with Increment Offers are paid with LMP at which the location cleared
    • Participants with Decrement Offers or Demand Bids are paid with LMP at which the location cleared
  • Rule of Thumb
    • If you are being paid, then use Node LMP
    • If you are being charged, then use Zonal LMP
  • “Congestion Revenue”
    • Zonal LMP (loads charged) > Nodal LMP (generators paid)
    • Congestion revenue = Zonal LMP – Nodal LMP
  • Financial Transmission Rights (FTR)
    • Sold at auction to participants
    • Gives owner the right to receive part of congestion revenue
    • Helps market participants manage their congestion risks
  • Obtained in 3 ways
    • Auction
    • Secondary market
    • Unregistered trades
  • Auction Revenue Rights (ARR)
    • NE ISO collects revenues from auction of FTRs
  • How are ARRs used?
    • Given out as Qualified Upgrade Awards (QUA) to pay for transmission upgrades that increase transfer capacity
    • Given to entities that pay congestion costs
      • Four stage process
      • Based on load served in the area
      • Allows them to recoup some of the congestion costs and some of the costs from acquiring FTRs
demand response
Demand Response
  • General Features
    • Internet Based Communication System (IBCS)
    • Pre-planned actions to reduce load
    • Pre-determined rate paid per kWh
    • Monthly Capacity Payment based on ICAP or Market Price
  • Real-Time Demand Response Program
    • During emergency
    • 2 categories
      • Within 30 min
      • Within 2 hours
  • Real-Time Profiled Response
    • Without interval metering, but with directly controllable loads
    • Reduce load within 30 minutes
  • Real-Time Price Response Program
    • Reduce load when wholesale price forecast exceeds 10 ¢/kWh
  • Day-Ahead Program
    • Started in 2005
    • Supplement to the Real-Time Program
    • Participants in either Real-Time Program
    • Offer electricity reduction bids based on day-ahead wholesale energy market
  • Operations Reserve
    • Can recover from the loss of 2 biggest sources with no interruption
    • Reserve margin of about 1,800 MW
    • Reserve Adequacy Analysis
    • Locational Forward Reserve Market
      • Twice a year auction for reserves
      • Online unused capacity or offline fast start generators
pricing for reserves
Pricing for Reserves
  • Day Ahead Market
    • Operating reserves charges proportionate to DAM load obligations
  • Real Time Market
    • Charges are levied upon participants whose real time load deviates from the day ahead schedule
    • Charges for those whose generators deviate from day ahead schedules and who do not follow real time dispatch instructions
  • Forward Reserve Clearing Prices
  • Real Time Reserve Clearing Price
    • Set to zero unless need to redispatch
    • If need to redispatch, then equal to RCPF
  • Real Time Reserve Penalty Constraints
    • If reserve cannot be met
      • Local TMOR RCPF = $50/MWh
      • System TMOR RCPF = $100/MWh
      • System TMNSR RCPF = $850/MWh
      • System TMSR RCPF = $50/MWh
  • Seams - Barriers that inhibit the economic trade of capacity and energy between neighboring wholesale electricity markets
    • ISO New England
    • New York ISO
    • PJM
    • Ontario
    • Hydro-Quebec
    • New Brunswick Power
  • Result of differences in
    • Market rules
    • Operating and scheduling protocols
  • In July 2002, FERC issued a Notice of Proposed Rulemaking for Standardized Market Design
  • In 2002, Northeastern Independent Market Operators Coordinating Committee was formed
    • Coordination of market design and system planning protocols
    • Sharing of regulation services
    • Sharing of reserves during short-term interruptions
    • Ensure that energy exporting procedures are similar so that trading across borders is easier
operations structure
Operations Structure
  • Departments
    • System Operations
    • Market Operations
    • System Planning
  • Committees
    • Participants Committee & Working Groups
    • Markets Committee & Working Groups
    • Reliability Committee & Working Groups
    • Transmission Committee & Working Groups
    • Other Committees
    • Inactive Committees
procedures and manual
Procedures and Manual
  • Operating Procedures (OP)
    • The procedures inform generators of operating and reliability requirements.
    • Total 21 OP
  • Summary of the Procedures and Manuals
    • Transmission
      • OP2, 6, 7, 11, 12, 13, 16, 17, 19
    • Market
      • OP3, 4, 5, 8, 9, 14, 18, 21, M-06,-11,-35,-36
    • Installed Capacity
      • M-20
    • Accounting and Billing
      • M-27, -28, -29
    • ISO Administrative
      • OP1, 10
action during a capacity deficiency
Action During a Capacity Deficiency
  • Operating Procedure 4
  • 16 point plan
    • Action 1: Power caution
    • Action 2: All contracted 5MW generators come online
    • Action 3-5: Interrupt Real Time Demand with 2 hour or less notification
    • Action 6: Allow depletion of 30 minute reserve
    • Action 7-8: Continue to interrupt Real Time Demand
    • Action 9: Power Watch
    • Action 10: Request all generation contractually available
action during a capacity deficiency23
Action During a Capacity Deficiency
  • Action11: Purchase energy from neighboring markets
  • Action 12:
    • Allow 5% less of normal operating voltage
    • Interrupt demand with 30 minutes or less
    • Inform NY ISO that sharing may be necessary
  • Action 13: Voltage reduction of 5% in 10 minutes
  • Action 14: Request all generation not contractually secured
  • Action 15:
    • Radio and Television Address for voluntary load curtailment
    • Power Warning
  • Action 16: New England State Governors to reinforce appeals for voluntary load curtailment
power capacity information
Power Capacity Information
  • Normal
  • Power Caution
    • Issued to market participants
    • Prepare to implement OP 4
    • No need for public action
  • Power Watch
    • Public action: Reduce AC, shutting off lights, and doing laundry at night instead of peak hours
  • Power Warning
    • Public action: Shut off unnecessary lights, equipment, and appliances
transmission outages
Transmission Outages
  • Operating Procedure 3
  • Outages:
    • Scheduled Outages
    • Long-Term Planned Transmission Outages
    • Short-Term Transmission Outages
    • Unplanned Outage
      • Emergency Outage
      • Forced Outage
      • Overrun Outage
      • Opportunity Outage
transmission outages26
Transmission Outages
  • Operating Procedure 3
  • Categories of Transmission Facilities
    • Category “A”– Highest voltages >= 115kV except 115kV radial circuits and most critical facilities
    • Category “B”– All 115kV radial circuits and all 69kV circuit
    • Local Area – Below 69kV

NOTE: Lists of Category A and B facilities are posted for the public

The outage treatment will be different from category to category

operating reserve
Operating Reserve
  • Operating Procedure 8
    • An additional resource to meet the actual New England control area load
  • Control Area (CA)
    • An electrical power system to which a common Automatic Generation Control (AGC) is applied in order to
    • Match generation and load
    • Maintain interchange with other CA
    • Maintain frequency
operating reserve28
Operating Reserve
  • Ten-Minute Reserve
    • Ten-Minute Non-Spinning Reserve (TMNSR)
    • Ten-Minute Spinning Reserve (TMSR)
  • Thirty-Minute Operating Reserve (TMOR)
    • The same as Ten-Minute Non-Spinning Reserve
    • In 30 minutes
  • Replacement Reserve
    • Reserve other than TMSR, TMNSR, or TMOR
operating reserve29
Operating Reserve
  • First Contingency Loss
    • The largest capacity outage (MW) that would result from the loss of a single element
  • Second Contingency Loss
    • The largest capacity outage (MW) that would result from a single element after allowing for the First Contingency Loss
operating reserve30
Operating Reserve
  • Procedure
    • Real time Operating Reserve Requirement
      • Ten-Minute Reserve >= require to replace the First Contingency Loss
      • Thirty Minute Operating Reserve >= 50% of the Second Contingency Loss
      • Any excess of Ten Minute Reserve can be counted as Thirty Minute Reserve
      • Operating Reserve shall be sustainable for at least one hour from the time of activation
      • The output of the largest generating unit cannot be considered as Operating Reserve
emergency plan
Emergency Plan
  • Operating Procedure No 7
  • Procedure For Low Frequency Condition
    • If the cause is outside of New England CA
      • Increase the synchronized reserve, if needed
      • Make known to external area the available amount capacity
    • When the cause is due to a deficiency in NE CA
      • Request assistance from external area up to the emergency transfer limit of the interconnecting lines
emergency plan32
Emergency Plan
  • Procedure For Low Frequency Condition
    • When frequency reaches 59.90Hz
      • Disconnect any pumped storage resource operating in the pumping mode
      • Order fast-start non-synchronized resource into service
    • When frequency reaches 59.80 Hz
      • Automatic Generation Control will be tripped automatically
      • Direct all resources to maximum limits as maximum response rates, as appropriate
emergency plan33
Emergency Plan
  • When frequency reaches 59.30 Hz
    • Underfrequency relays will provide 10% load relief by the time the frequency reaches 59.00 Hz
  • When frequency reaches 58.80 Hz
    • Underfrequency relays will provide an additional 15% load relief by the time the frequency reaches 58.50 Hz
  • If it continues to decline below 58.50 Hz
    • Order manual load shedding (50% of the NE CA’s load can be shed manually)
regulation market
Regulation Market
  • FERC
    • Federal Guidelines
    • Prevents anti-competitive behavior
  • ISO New England's Market Monitoring and Mitigation Unit
    • Interacts with FERC's Office of Market Oversight and Investigation
    • Tries to suggest ways that SMD can be improved to prevent problems
  • Multiple PUCs: One PUC for each state
  • Multiple Energy Councils: One for each state
regulatory agencies
Regulatory Agencies
  • New England Power Pool (NEPOOL)
    • Alliance of utility companies
    • Must have capacity
    • Looks at costs, benefits, and accountability
      • Dispatch: Meet demand with lowest fuel cost
      • Settlement: Accountability for dispatch
      • Forwards: Market to optimize generating resources by trading
  • Independent Market Monitoring
    • Evaluates SMD
    • Monitors markets for gaming
  • Market Description
    • Standard Market Design
    • 8 zones and a hub
    • Locational Marginal Price (LMP)
    • Financial Transmission Rights (FTRs)
    • Auction Revenue Rights (ARRs)
    • 3 Markets
      • Real Time
      • Day Ahead
      • Forward Capacity
    • Pricing
    • Seams
  • Operations
    • Committees
    • Plan for Capacity Deficiency
    • Plan for Transmission Outages
    • Emergency Plan
    • Reserves
    • Regulation Market
    • Regulatory Agencies
for more information on iso ne
For More Information on ISO-NE
  • For more information on the ISO-NE, visit
      • News and Issues: Inside Grid & Markets Section
    • Market Operations Manual M-11 (Word doc) for discussion of uses of LMPs and pricing with LMPs
  • To see statistics about the ERCOT system, visit
      • About ERCOT: Media Kit: ERCOT Organization Backgrounder Section
      • ERCOT Quick Facts May 2008 (PDF document)
  • For more information on NEPOOL, visit
  • All pictures, ISO-NE statistics, and the ISO-NE logo were taken from the ISO-NE website