New York, New England and PJM Electricity Markets Overview: New York, New England and PJM Electricity Markets Overview Prepared for: Regional Greenhouse Gas Initiative Workshop November 30, 2004


Goals of This Presentation : Goals of This Presentation Provide an overview of the various wholesale electricity market elements that relate to RGGI design issues Identify reliability requirements and operational issues pertinent to the RGGI process


Slide3: * = Peak Load in Megawatts IMO 25,414 MW* Hydro Quebec 35,137 MW* ISO - New England 25,348 MW* NYISO 30,983 MW* PJM / PJM West 107,820 MW* 1325 MW 1500 MW 1500 MW 1000 MW 1050 MW 975 MW 2375 MW 2625 MW


Slide4: New York’s Electrical System 10,775 miles of High Voltage Transmission 360+ individual generating units. Installed Capacity 35,000+ MW


Slide5: PJM - Backbone Transmission Systems ( with expansions)


New England’s Electric Power System: New England’s Electric Power System 350+ Generators 8,000+ miles of transmission lines 4 Satellite Control Centers Peak load: 25,348 MW on August 14, 2002 Capacity – 31,000 MW


New York’s Energy Supply Mix - 2003: New York’s Energy Supply Mix - 2003


Slide8: PJM’s Energy Supply Mix - 2003


Comparison of NE, NY, & PJM Electric Power System: Comparison of NE, NY, & PJM Electric Power System


Market Overview : Market Overview Two Settlement System Day-Ahead Market Real-Time Market Locational Marginal Pricing Nodal congestion management pricing system Includes marginal losses Locational pricing for Energy and Reserves


Buying Power in New York: Bilateral (forward) Contracts 50% Real Time <5% NYISO Day-Ahead Market 45 – 50% Bilateral Contracts outside the NYISO 50% NYISO Day-Ahead Market 45 - 50% NYISO Real-Time Market <5% 100% Buying Power in New York


NYISO Market Overview  : NYISO Market Overview Bid- and Offer-Based Markets Co-optimized Energy, Regulation and Reserves Multi-part supplier offers Load bids, including firm and price-sensitive components Hourly variation in offers Voluntary – bilaterals & self-supply accommodated Other Markets Installed Capacity Transmission Congestion Contracts


Generation Bids: Generation Bids Generator Modes Minimum Run Time & Minimum Down Time Maximum Stops per - Day Start-up Notification Time Curve Start-up Cost Curve Minimum Generation $ Incremental Operating $ Operating Limits


Day-Ahead Energy Market: Day-Ahead Energy Market Security Constrained Unit Commitment (SCUC) scheduling software simultaneously co-optimizes energy and ancillary services for least cost solution Hourly Locational Marginal Prices (LMP) Issues binding forward contracts to Suppliers and Loads Bilateral transaction scheduling accommodated concurrently with supply and load bids Deviations settled against Real-Time Market Installed capacity suppliers required to bid in


LMP Example: LMP Example  = $6000 paid to congestion contract holders


New York's Two-Settlement Process: Day-Ahead Market (15-minute Process) Gen Real-Time Market SCUC Forward Contracts RTC RTD Bids by 5 a.m. Day before Schedules Actual Conditions Bids by 75 min before hour SCUC = Security Constrained Unit Commitment RTC = Real-Time Commitment RTD = Real-Time Dispatch Basepoints Supplemental Resource Evaluation New York's Two-Settlement Process


Bid Production Cost Guarantee (BPCG): Bid Production Cost Guarantee (BPCG) Bid “Costs”... Start Min Gen Energy less penalties LMP Generator Offer Must be retrieved through... … or gen’s made whole All based on entire day! ^ 6 23 12 HB: 8 $25 $40 $20


Ancillary Service Markets : Ancillary Service Markets Market-Based Services Regulation 10-Minute Spinning Reserve Total 10-Minute Reserve 30-Minute Reserve Cost-Based Services Scheduling, Control and Dispatch Voltage Support Black Start


Operating Reserve: Operating Reserve Backup Generation available in the event of: Loss of any major Generating Unit Loss of transmission Significant “dragging”of the Pool Control Error Three Markets 10 Minute Spinning Reserve 10 Minute Non-Synchronized Reserve 30 Minute Reserve: non-sync & spinning Locational Requirements: Long Island East of Central East Entire Control Area


Regulation Service: Regulation Service Necessary for continuous balancing of load and generation – maintain 60 Hz frequency Performed on a 6-second basis through automatic generation control (AGC) North American Electric Reliability Council (NERC) reliability requirement – tracked via CPS2 index Full two-settlement for regulation Regulation service will be scheduled and settled, nominally on a 5-minute basis Single, statewide price


Long Term Capacity Markets: Long Term Capacity Markets Installed Capacity (ICAP) Requirements are set in advance for the upcoming Capability Year by the New York State Reliability Council. Load-serving entities (LSEs) meet their ICAP requirements by: Self-Supply Bilateral Transactions with Suppliers Capability Period Auctions (6-month strip) Monthly Auctions (for balance of Capability Period) Deficiency/Spot Market Auction (1-month)


Slide23: Clarifying Questions?


Market Monitoring and Performance : Market Monitoring and Performance Daily Monitoring Mitigation (Economic Withholding) Reference prices Mitigation reporting ICAP bidding compliance Daily market analysis/reports Price validation Physical withholding screening Load bidding Economic and Long Range Analysis Tool development/maintenance and daily processing (e.g. SCUC, PROBE) Special reports (FERC, PSC, NYISO, etc) Transactions Monitoring VT monitoring Portfolio analysis/tracking Price validation audit Weekly Report ICAP auction monitoring TCC auction monitoring Market design/requirements Performance tracking


Market Experience - Sample Day : Market Experience - Sample Day


Slide27: Source: Summer 2004 Review of the New York Electricity Markets – David B. Patton, Ph.D., Independent Market Advisor


Current Key Issues - Regional Market Initiatives: Current Key Issues - Regional Market Initiatives Energy Markets Elimination of pancaked through and out charges throughout the Northeast region Improve the efficiency of inter-market energy trading – Coordinate energy dispatches between ISOs and move toward single area LMP dispatch efficiency and financial versus physical transactions (VRD-like concept) Reduce risks for inter-market energy trading – Cross-border congestion hedges Establish greater consistency of bidding protocols – Single point regional transaction entry Coordination and compatibility of billing and settlements for regional trading Capacity Markets Regional ICAP trading improvements - greater market rules compatibility Renewable resource valuation methods


RGGI Reliability Considerations: RGGI Reliability Considerations Supplemental commitments are often required to meet NOx requirements in NYC Certain units on 115, 138 and 230 kV networks provide voltage support on underlying network (Western NY, Long Island) 11 of 66 Transmission Owner Applications of New York State Reliability Council Reliability Rules directly address the need for specific thermal units to meet reactive power support and local power system requirements Dual-fuel units (gas/oil) are important during peak winter demand periods Operating range flexibility is important


Slide30: Note: August 2003 blackout hours excluded. Source: Summer 2004 Review of the New York Electricity Markets – David B. Patton, Ph.D., Independent Market Advisor


Wind Power Reliability Considerations: Wind Power Reliability Considerations Operational Issues: Reactive power demands increase with increasing MW output (acts as an induction generator) Dynamic response to power system faults Potential regulation impact Mitigation Strategies: Voltage regulation at the Point-of-Interconnection, with a guaranteed power factor range. Low voltage ride-through. A specified level of monitoring, metering, and event recording. Power curtailment capability.


Slide32: Current Market Rules for Intermittents In New York, intermittents existing as of 11/19/1999 and 500 MW of new resources are: paid for all energy produced regardless of their Day-Ahead schedule (Imbalance Charges) excused from paying penalties for generating at less than their basepoints (Under-Generation Penalties) Wind and solar resources are paid for their capacity in a valuation based on historic capacity factors, adjusted for maintenance Rule Changes Contemplated: Adjust the manner in which intermittents are balanced against their Day-Ahead Schedules, Including Real-Time Payments for Delivered Energy Adjust the Method Used to Measure the Capacity Value of All Generation Including correlation of resource availability with system peak hours Adjust the exemption from Regulation Penalties How will the 500 MW “Exemptions” be applied?


RGGI Design and Electricity Market Intersection: RGGI Design and Electricity Market Intersection Allocation of allowances If allowances must be purchased by suppliers, will the total cost be reflected in energy market offers? If so, will the clearing price be such that the units are committed? If allowance costs are not fully reflected in energy offers, will capacity prices increase? What if costs are not recovered? Will we be faced with retirements of baseload units otherwise needed for reliability?


RGGI Design and Electricity Market Intersection: RGGI Design and Electricity Market Intersection Cap size Regional, state-by-state allocations Possible impacts are similar to those associated with handling of allowances, i.e., too tight a cap may result in units needed for reliability being uneconomic Caps should be designed in a manner that shapes future performance without creating immediate financial problems for suppliers – this will have a ripple effect on new construction Phased-in caps can signal new construction in a market-friendly manner


RGGI Design and Electricity Market Intersection: RGGI Design and Electricity Market Intersection Temporal Flexibility Borrowing Would be necessary in situations where reliability may otherwise be jeopardized (similar arrangement for NOx in 6 NYCRR 237-6.5f)


RGGI Design and Electricity Market Intersection: RGGI Design and Electricity Market Intersection Leakage Uncertainty of supply from Ontario (~5 years out) What is the impact on PJM commitment if only portions of the control area are subject to RGGI? How will new coal facilities outside the RGGI region impact the overall program effectiveness?


RGGI Design and Electricity Market Intersection: RGGI Design and Electricity Market Intersection Implementation Timing / Phase-In Consider predicted installed reserve margin Need to keep in mind other scheduled and proposed regulations, the timing and cost of which create significant supplier uncertainty: NY’s revised NOx (NYCRR 237) and SOx (NYCRR 238) rulemakings Potential mercury rules Water permits (outages for fish protection, etc.)


RGGI Design and Electricity Market Intersection: Concluding thoughts on cap-and-trade system Needs to be flexible Should be in a form that can be widely adopted in other regions, countries, etc. Should, to the extent possible, adopt standard approaches in use elsewhere Design should drive market solutions RGGI Design and Electricity Market Intersection