Title: Transmission Rights cant live with em cant live without em
1Transmission Rightscant live with em cant
live without em
- Richard ONeill
- Chief Economic Advisor
- Federal Energy Regulation Commission
- richard.oneill_at_ferc.gov
- Workshop on Congestion Revenue Rights
- PUC of Texas
- Austin, TX
- September 5, 2003
2- Transitioning from planning and dispatch to
auction and market power mitigation models
3issues
- Types of rights
- point-to-point or flowgate both
- Obligations or options both
- Deratable rights
- Who caused the deration? Nature or Homo Sapiens
- get the incentives right
- Myth of the perfect hedge
- Preassigned or auctions both
- Auctions are not yet refined enough
4Why have tx rights and centralized auctions?
- Why have tx rights? Hedge locational prices
- Why have centralized auctions?
- Deal with externalities market power, network
effects - Transactions costs of bilateral markets are too
high - Choice imperfect regulation v. imperfect markets
5A market design that works
- Pre-day-ahead markets
- for transmission rights CRT/TCC/TRCs/FGRs
- for generation capacity/reserves (ICAP)
- market power mitigation via options contracts
- day-ahead market for reliability(valium
substitute) - simultaneous nodal market-clearing auctions for
energy, ancillary services and congestion - allow multi-part bidding
- higher of market or bid cost recovery
- allow self scheduling
- allow price limit bids on ancillary and
congestion - Real-time balancing myopic market
- markets are nodal-based LMP with fish protection
6Congestion Management using LMP
- Locational Marginal Pricing, or nodal pricing,
calculates a spot price for node in the system - without congestion (assuming no losses in LMP),
Uniform system price - prices differ when there is congestion
- Congestion price for an energy transaction is the
difference between energy price at Point of
injection (POI) and Point of withdrawal (POW) - congestion price for a flow gate is shadow price
of the flow gate (FMP)
7Lessons Learned Simplified Zonal Pricing
fails
- PJM (1997) single zone CMS creates incentives
for arbitrage between bilateral and spot market
results in administrative intervention - California (1998 on) fixed zones experience
increasing intrazonal congestion and new zones - New England (1999 to 2002) single zone CMS
unable to properly assign rising congestion costs - You cant fool mother nature!!!!!
8ISO New England, Daily Congestion Costs (Total
), May 1999 to January 2001
(These are "mitigated" costs i.e., adjusted to
account for local market power)
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0.00
5/1/1999
6/1/1999
7/1/1999
8/1/1999
9/1/1999
1/1/2000
2/1/2000
3/1/2000
4/1/2000
5/1/2000
6/1/2000
7/1/2000
8/1/2000
9/1/2000
1/1/2001
10/1/1999
11/1/1999
12/1/1999
10/1/2000
11/1/2000
12/1/2000
9Is transmission undersupplied?
- historically weak interconnections
- to prevent entry into IOU markets
- will greenfield transmission be built?
- Will new transmission technologies help ancillary
services? yes - DC subnetworks AC/DC converters
- FACTS/WAMS
- capacitors
10Transmission issues
- merchant v. system expansion both
- Private or public good hybrid
- transmission property rights weak or strong
- Rate making rate design and revenue requirements
- Return on equity
- Accelerated depreciation
- Performance incentives
- Unbundling and Paying for reliability Demand
curve for reserves - Market design and mitigation
- FTRs and load pocket market power
- Over-mitigation causes weak tx signals
11Transmission rights are underdeveloped
- Dispatchable tx
- beyond normal limits
- Network configuration
- Phase angle regulators
- Rights
- Weak no withholding of capacity
- Strong bidding rules
- Stronger withholding
- dormant secondary markets
- reliability markets pay for tx reserves
- market-based rates for Tx
12Transmission Rights Market Design Issues
- physical versus financial
- When markets clear physical financial
- When markets dont clear need financial rules
- Convexity required revenue adequacy
- point-to-point versus flow-based
- products
- obligations, options and hybrids
- Contingent rights
- initial allocation
- frequency of primary auction and products offered
- secondary market
- incentives for transmission expansion
- congestion risk management by RTO (sometimes
called PTDF insurance)
13Point-to-Point Transmission Rights
- Essentially the same design implemented in PJM
(1998) and New York (1999) planned for New
England (2002) - Differences in initial allocation schemes
- Specification of Right
- Financial right
- Point of injection (POI) and withdrawal (POW)
- Quantity at POI, POW (MW)
- Bid price (/MW)
- Obligation and options (in PJM)
14Point-to-Point Transmission Rights Advantages and
Disadvantages
- perfect hedge congestion costs
- independently of topology and network
interactions - Not easy to trade if system is nonlinear
- only be properly reconfigured in centralized
auction - ? Effect on transmission investment
- Modifications and Developments
- Define zones and hubs allow tx rights between
them - Hub-to-hub or zone-to-zone rights could be more
liquid in secondary market
15Flowgate Transmission Rights
- Proposed by a number of newly forming RTOs
- market experience inter-zonal transmission
rights in California ? - Specification of Right
- Physical or financial right
- Identify transmission element(s) on which to
define right line(s), transformer, etc.
(flowgate) - Use PTDFs to calculate quantity required on
transmission element(s) (MW) - Bid price (/MW)
- Option
16Flowgate Transmission Rights Advantages and
Disadvantages
- May lead to more liquid secondary market
- May be more effective incentive for
transmission expansion - -/? Number of active (binding) flowgates will
be larger than anticipated - - Active flowgates will change over time
- -/? May require RTO uplift (subsidy) to maintain
liquidity of market - -/? some proposals require RTO to guarantee
flowgates for up to one year
17Merchant expansion
- Public good Eminent domain and environment
- Test contestability or no withholding
- Operation under control of RTO/ISO
- open breaker option
- system is no worse off
- TX property rights without withholding
- FTR and Flowgate rights
- Choice seems to be DC subnetworks
18Transmission rate design and revenue requirement
- Transco/Gridco does revenue requirement
- Cost-based traditional v. PBR
- Incentive compatible
- Benchmarking (EU) percent availability
- RTO does rate design
- Total revenue requirements via access charge
- TX rights auctions for forward rights
- Congestion fees
- system expansion must go thru planning process
- transmission property rights via RTO auction
19TX rights auctions
- Joint TX and generation auctions
- San Fran nomogram
- Hedging phase shifter settings
- Point(s) to Point(s) FTR/TCC/FCR/CRT
- perfect hedge except losses
- If constraint set is nonlinear, no options
contracts - Flowgate rights elements or combinations
- Option v. obligation contracts
- Approximations
- Linear PTP decomposable
- Nonlinear PTP not decomposable no PTP option
20A Rule for Flowgate Rights in a Joint Auction
- RTO provides data on all transmission constraints
and historical patterns of congestion to
transmission users - Transmission users identify flowgates to hedge
and bid for portfolios of financial flow-based
rights - RTO charges all transmission users, including
holders of flow-based rights, actual congestion
cost based on LMP (no subsidy)
21Augmenting the Transmission Rights Market
- Two-settlement system settling tx rights
day-ahead - Congestion bidding Bilateral transaction can
specify maximum willingness-to-pay for
congestioneffectively a spot point-to-point
right
22Summary Do Both
- Efficient congestion management and tradable
transmission rights crucial too in market design - zonal pricing has failed
- LMP is theoretically and empirically sound
- RTO should not be in the business of subsidies
- Two paradigms for transmission rights are the
point-to-point right and the flow-based right - increasing transmission customer choice
23Wholestic Market Design AGORAPHOBIA
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