NEPOOL Manual 6 Financial Transmission Rights Technical Review Session Session Content

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NEPOOL Manual 6Financial Transmission Rights
Technical Review Session Session Content

• January 23, 2002
• Douglas James, ISO New England

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Financial Transmission Rights Manual

• Introduction
• Section 1 - Financial Transmission Rights
  Overview
• Section 2 - Reserved
• Section 3 - FTR Auction
• Section 4 - FTR Secondary Market
• Section 5 - FTRs Market Settlements
• Section 6 - FTR Auction Example
• Section 7 - FTR Auction Revenue Settlement
• Section 8 - Incremental ARRs
• Section 9 - ARR Allocation Example (under
  development)

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FTR Technical Session Content

• Part 1 - FTRs and the FTR Auction (Doug James)
• Introduction to Manual 6, Financial Transmission
  Rights
• Section 1 - FTR Overview
• Section 3 - FTR Auction
• Part 2 - FTR Auction Example (John Lally)
• Introduction to FTR Auction, 5-Bus Model
  Participants
• Annual and Monthly Auction Examples
• Constrained Day-Ahead Energy Market Example
• Settlement of FTRs
• Part 3 - Secondary Trading Settlements (Doug
  James)
• Section 4 - FTR Secondary Market
• Section 5 - FTRs Market Settlements
• Sections 7,8 9 - FTR Auction Revenue
  Settlement, Incremental ARRs ARR Example

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NEPOOL Manual 6Financial Transmission Rights
Technical Review Session Part 1 - FTRs and the
FTR Auction

• January 23, 2002
• Douglas James, ISO New England

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Introduction

• About This Manual
• Target Users
• References
• NEPOOL Manual for Billing
• NEPOOL Manual for Agreement Accounting
• NEPOOL Manual for Definitions and Abbreviations
• FTR Auction Users Guide
• NEPOOL Open Access Transmission Tariff Schedule
  14 - FTRs
• Schedule 15 - ARRs
• What Youll Find In This Manual

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Section 1 FTR Overview

• Overview section provides brief overview of FTR
  concepts
• Definition and purpose
• Valuation
• Requirements to participate
• Actions who does what

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Definition and Purpose

• Definition and purpose of FTRs
• Financial instrument to manage congestion risk
• Entitles holder to share of Congestion Charges
  that arise during periods of congestion
• Settled hourly against differences in Congestion
  Compo- nent of Day Ahead Energy Market LMPs
  (Section 5)
• Defined in MW from point of receipt to point of
  delivery
• Unidirectional
• Acquisition and Disposal
• Created/Sold in ISO administered FTR Auction
  (Section 3)
• Traded in Secondary Market (Section 4)

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FTR Valuation, Participation

• Valuation of FTRs
• Benefit when FTR designation is in same direction
  as congested flow
• CC of DA LMP higher at point of delivery
• Liability when FTR designation is opposite
  congested flow
• Any actual deliveries opposing the congested flow
  would receive congestion credit offsetting such
  liability
• Requirements to participate
• FTR Auction, Registered secondary trading
• Eligibility requirements to be established
• Criteria based on financial assurance
• Unregistered secondary trading
• No requirements, settle with registered holder

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Actions

• Actions who does what
• ISO Bidder/Holder
• Provide registration Register
• Initiate, conduct auction Submit bids/offers
• Post auction results
• Maintain record of FTRs Manage FTR portfolio
• Provide secondary market in eFTR post, accept,
  confirm,reject quotes
• Include FTRs in monthly
• settlements
• Determine FTR Auction
• settlement

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Section 2 - Reserved

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Section 3 - FTR Auction

• Overview
• eFTR the Market User Interface
• Simultaneous Feasibility Test (SFT)
• Determining Winning Quotes
• Auction Timeline
• Auction Business Rules

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FTR Auction Overview

• Auction opportunity to acquire and sell FTRs
• only way to create an FTR (may later subdivide)
• Long and short term auctions
• 2 six month auctions 10 then 25 of capability
• then annual for five years 50 of capability
• monthly remainder of transmission capability
• On-peak and off-peak auctions
• On-peak period weekday hours ending 0800 - 2300
• Off-peak period weekday hours ending 2400 -
  0700, weekends, NERC holidays

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FTR Auction Overview (Continued)

• FTR Characteristics
• Available between any Locations for which LMP is
  calculated and posted Hub, Load Zone, Node,
  External Node
• Designated as injections/withdrawals from
  Locations within and external to NEPOOL
• Magnitude to nearest 0.1 MW
• Provides hedge for deliveries consistent with FTR
• Do not hedge against losses
• FTR Auction is a Reconfiguration Auction
• enables purchase of FTRs that are different from
  those offered for sale in the auction

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eFTR

• eFTR Internet based provides user interface
  with FTR Auction and related functions
• FTR bids/offers submitted, validated, entered
• Observe auction results, manage FTR portfolios
• Other subsystems determine, record highest
  valued bid-based feasible set of FTRs
• establish base case for auction
• iterate between evaluating quotes and SFT
• determine FTR clearing prices
• record results for posting on MUI
• bridge to settlement and billing subsystems

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Simultaneous Feasibility Test (SFT)

• Preserves economic value of awarded FTRs
• must collect sufficient Congestion Charges to
  cover FTR credits (revenue adequacy)
• requires transmission system to support awarded
  set of FTRs during normal conditions
• Power Flow quotes modeled as generation and load
  at injection/withdrawal Locations
• model expected network topology for period
• thermal ratings, interface limits
• loop flows from other Control Areas
• normal conditions and single contingency events
• market feasibility test not a reliability
  analysis

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Determining Winning Quotes

• Winning Quotes
• Set of simultaneously feasible FTRs with highest
  total value
• determined by bid and offer prices
• Steps
• download bids/offers from database
• solve linear programming problem (LP)
• check simultaneous feasibility (SFT)
• iterate LP/SFT
• upload results

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Auction Timeline

• ISO initiates, directs, oversees FTR Auction
• Annual (initially, semi-annual) auction
• six business day quoting window ends first day of
  month before FTRs are effective
• results posted within six business days (intended
  to be before monthly auction window opens)
• Monthly auction
• five business day quoting window opens 15
  business days before start of auction month
• results posted within four business days

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FTR Auction Timeline
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Auction Business Rules

• Bids and Offers
• Must be Eligible FTR Bidder to buy/FTR Holder to
  sell
• To sell, must own for entire auction period
  duration
• Rejected quotes may be resubmitted in quoting
  period
• Bids are for purchases up to the specified
  quantity (no minimum quantity may be specified)
• Offers are for sales up to the specified
  quantity (no minimum) may specify a reservation
  price
• Outstanding FTRs modeled as fixed injections
• Awarded FTRs may be acquired from FTR Holders in
  secondary market registered/unregistered FTRs

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Questions?
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NEPOOL Manual 6Financial Transmission Rights
Technical Review Session Part 2 - FTR Auction
Example

• January 23, 2002
• John Lally, ISO New England

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NEPOOL Manual 6Financial Transmission Rights
Technical Review Session Part 3 - Secondary
Trading and Settlement

• January 23, 2002
• Douglas James, ISO New England

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Section 4 FTR Secondary Market

• Overview
• eFTR Secondary Trading Center
• FTR Secondary Trading Business Rules

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FTR Secondary Markets Overview

• FTRs are originally awarded in the NEPOOL FTR
  Auctions
• FTRs may be freely traded on the secondary market
• NEPOOL FTR secondary trading market facilitates
  trade of existing FTRs between FTR Holders
• Allows trading of existing FTRs only
• Transfer of ownership is automatically registered
  with the ISO for FTR trades made through eFTR
• FTRs can be traded independently of eFTR, however
  they can only be registered to the ISO via eFTR
• FTRs cannot be reconfigured in the secondary
  market may be subdivided in time and quantity

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eFTR Secondary Trading Center

• FTR Holders can buy and sell FTRs directly with
  other FTR Holders through the Secondary Trading
  Center
• eFTR Secondary Trading Center allows users to
• View FTR Postings
• Post FTRs for Resale
• Buy and Sell FTRs
• The NEPOOL FTR Auction Users Guide will have
  detailed instructions for participating in the
  secondary market (Guide is currently under
  development)

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Secondary Trading Business Rules

• An FTR can be split into multiple FTRs
• They may have different MW amounts, start and end
  times than the original FTR
• However, an FTR cannot be reconfigured into FTRs
  with a larger MW value, earlier start time, later
  end time, or different from/to Locations
• FTR MW values can be split in 0.1 MW increments
• Deadline for all FTR trades for the Operating Day
  is the end of the previous Operating Day
• Once per day, updated FTR information reflecting
  the previous days trades is sent from the eFTR
  database to ISO NEs settlement systems

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Section 5 - FTRs Mkt Settlements

• Transmission Congestion Credit Target Allocations
  
• Transmission Congestion Credit Calculation
• Excess Transmission Congestion Revenues
  Distribution

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Tsm Congestion Credit Target Allocations

• Monthly Transmission Congestion Credit Target
  Allocations calculated with Hourly Positive and
  Negative FTR Target allocations summed separately
  for each FTR Holder
• Positive FTR Target Allocations are compensated
  as Transmission Congestion Credits
• Negative FTR Target Allocations are added to the
  Congestion Revenue for the month FTR Holder is
  charged this amount
• Congestion Revenue available for a month is equal
  to
• Total Congestion Charges collected in the month,
  plus
• FTR Negative Target Allocations for the month,
  plus
• Any Congestion Revenue Excess from previous month

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Transmission Congestion Credits

• The ISO compares the total of all monthly
  Positive FTR Target Allocations to the total
  Transmission Congestion Revenues Available
• If total Positive FTR Target Allocation is lt
  Transmission Congestion Revenue,
• FTR Holders receive Tsm Congestion Credit equal
  to Positive FTR Target Allocation
• If total Positive FTR Target Allocation is gt Tsm
  Congestion Revenue,
• FTR Holders receive shares of the Monthly Tsm
  Congestion revenues in proportion to their
  Positive Target Allocations

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Excess Tsm Congestion Revenues

• If there is any Excess Transmission Congestion
  Revenue remaining at year end, then
• Stage One Excess Transmission Congestion Revenue
  allocated in proportion to, but not greater than,
  any unpaid monthly Transmission Congestion Credit
  Target Allocations
• Stage Two Any remaining Transmission Congestion
  Revenue is distributed pro-rata to entities who
  paid Transmission Congestion Charges in that
  calendar year

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Sections 7,8,9-Auction Revenue Distribution

• Today
• ARR Overview
• Incremental ARR Overview
• Future Technical Session
• ARR Details
• Incremental ARR Details
• ARR Example

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Section 7 - ARR Overview

• FTR Auction revenues are distributed to
• Sellers of FTRs in the Auction
• Certain entities paying for new transmission
  upgrades (holders of Incremental ARRs)
• Entities that pay Congestion Charges (ARRs are
  awarded through the 4-step process described in
  Schedule 14 of NOATT)

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Section 7 - ARR Overview (Contd)

• FTR Auction revenues are settled monthly
• Monthly Auctions in second month following the
  auction, using data for the month in which the
  auctioned FTRs are effective
• Six-Month/Annual Auctions as for the monthly
  auctions, in monthly increments (for each year of
  annual auctions)
• Auction revenues are collected and distributed
  concurrently with that second months settlement

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Section 8- Incremental ARR Overview

• IncARRs and Eligibility for Awards
• Awarded for new transmission upgrades that make
  additional FTRs possible
• Upgrades paid by RNS rate do not qualify
• Share costs, share IncARRs proportionately
• IncARRs continue with cost support/upgrade life
• In MW, unidirectional, from Location/to Location
• A claim on auction revenue, not an FTR
• Multi-step process offering customer choice

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Questions?