Market Pricing Issues Integrated Proposal

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Market Pricing Issues
Integrated Proposal
John MacKenzie and Darren Finkbeiner
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Goals of Consultation

• MOSC review and feedback on proposed integrated
  approach
• Identification of issues (incl. implementation)
  that need to be addressed as we move forward

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Background

• Market Pricing Issues
• Disconnect between Pre-dispatch prices and
  Real-time prices
• Counter-intuitive prices in times of shortage
• Size, content and variability of uplift

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Background

• Significant Contributing Factors
• Sensitivity to changes from forecast to Real-time
• Manual use of out of market sources of
  operating reserve
• Pre-dispatch and Real-time price determinations

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Background

• The contributing factors also
• distort the economic signals of the market, which
  detracts from efficient operation of IMO markets
• minimize ability of Market Participants to
  respond to price causing the IMO to use out of
  market control actions, which jeopardizes
  reliability of IMO grid

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The Integrated Approach

• Initiatives that address the pricing issues are
  to be implemented in four stages
• Each stage is comprised of one or more
  initiatives
• End state objective
• Provide understandable market prices, efficient
  operation of IMO-administered Markets and
  reliable operation of IMO-controlled Grid.

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Initiative Characteristics

• Each initiative will improve one or more of the
  following
• Pricing Issues ? Understandable/Rational Pricing
• Market Efficiency
• Reliability

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Stage One

• Includes Initiatives that are already underway
• Removal of the 4/2 hour Restrictions
• Enhanced Market Information
• Hour Ahead Dispatchable Load (HADL)
• These initiatives will assist in
• Addressing Pricing Issues
• Improving market transparency and efficiency
• Reducing failed intertie transactions
• Improving competition on the interties
• Improving transparency in demand forecast
• Improving reliability through increased price
  responsiveness (provide non-dispatchable loads
  with market mechanism to respond to price)

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Stage Two

• Includes Initiatives currently under development
• Reduction of Failed Intertie Transactions
• Bring Available Spare Generation On-line in
  shoulder periods
• These initiatives will assist in
• Addressing Pricing Issues
• Providing the shock absorber required in the
  market to reduce use of out of market OR
• Realizing expected benefits from new supply
• Improving reliability

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Additional Benefits of Stage Two

• Necessary to reduce frequency of use of out of
  market sources of operating reserve
• more efficient price signals
• minimize impact of offering out of market
  sources into the market
• Make market/system more robust, reliable and
  efficient in addressing changes between
  pre-dispatch and real-time

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Reducing Failed Intertie Transactions

• Current frequency and magnitude of failures is
  not acceptable
• High priority for the IMO, NYISO and MISO
• Stakeholder discussions are taking place to
  develop enhanced processes and systems to reduce
  frequency and magnitude of failed transactions
  between the IMO and other jurisdictions

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Spare Generation On-Line

• Goal to get available spare generation on-line in
  shoulder periods
• Guarantee recovery of start-up, speed no load and
  minimum generation costs, and minimum run-time
• Voluntary - consistent with rest of market
  commitments
• Guarantee of these costs and having spare
  generation on-line is comparable and consistent
  with neighbouring markets/jurisdictions
• Program is a natural progression towards a Day
  Ahead Market (Market Evolution Program)

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Stage Three

• Increase in market supply of 2000 MW
• Average HOEP could be lower by 9, if market
  conditions remain the same (increased exports
  would moderate this impact)
• Reduce the maximum requirement for imports to
  about 2500 MW resulting in more competition on
  the interties
• Increases frequency and breadth of shoulder
  periods which increases frequency with which the
  market could benefit from having spare generation
  on-line

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Stage Four

• Offer out of market sources of Operating
  Reserve into the market in a transparent manner
• This initiative will assist in
• Addressing Pricing Issues
• Improving market transparency
• Improving reliability through improved rational
  price signals
• Enhancing market credibility
• Initiative could have upward pressure on average
  HOEP with upper bound of 2, if market
  conditions remain the same (mitigated by impact
  of other initiatives)

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Out of Market Operating Reserve

• Prices set to a level that would lead to the use
  of out of market sources at roughly the same
  frequency as they were used during the first year
  of the market.
• Publish pricing strategy and review periodically
  and modify as required to keep use at an
  acceptable level.
• Energy offer price set at 2000 to minimize
  impact on energy market prices

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Out of Market Resource Offers and Prices
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Net Impacts of All Initiatives

• Reduce frequency of need for out of market
  control actions
• Improve market efficiency, transparency
• Improve reliability of IMO-controlled grid
• Improve price signals
• Downward pressure on HOEP and Operating Reserve
  prices
• Downward pressure on uplift

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Requirements and Schedule for Implementation

• Reduction in failed transactions (June)
• Increased supply of at least 1600 MW (June/July)
• Bring Available Spare Generation On-line
  (mid-summer)
• Offer out of market sources of Operating
  Reserve in the market at specific prices
  (mid-summer)

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Other Considerations

• Market Evolution Program Initiatives
• Day-Ahead Market
• Multi Interval Optimization
• Changes in MP behaviour in response to initiatives

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Discussion Question

• What are the risks or issues in proceeding with
  the integrated proposal as presented today?

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Next Steps

• June 5th - Update IMO Board on integrated
  proposal and stakeholder feedback to date
• June 11th - report to the MAC
• June 18th - Special MOSC to consult on procedure
  and rule changes resulting from proposal
• ongoing consultation with the Technical Panel