Pay for Performance Regulation. Draft Final Proposal Addendum

Transcription

1 Pay for Performance Regulaton Draft Fnal Proposal Addendum February 22, 2012

2 Pay for Performance Regulaton Draft Fnal Proposal Table of Contents 1 Introducton Plan for Stakeholder Engagement Addendum to Draft Fnal Proposal Overvew of FERC Order ISO s Current Regulaton Desgn Regulaton Capacty Payment Includes Opportunty Costs Payment of Net Energy when Provdng Regulaton Inter-temporal Opportunty Costs Mleage Payment Accuracy Adjustment Market Based Mleage Prce Mleage Multpler and Requrement Optmzaton Regulaton Capacty and Mleage wth Two Constrants Bddng Rules for Mleage Mleage Performance Adjustments Under Response Adjustment Response Accuracy to AGC Set Pont Adjustment Examples Treatment of Real-Tme Awards Other Desgn Elements Mleage Cost Allocaton to Ancllary Servce Oblgatons Mssng Accuracy Data Dsqualfcaton of Mleage Payments Mnmum Performance Threshold for Regulaton Certfcaton Ramp Certfcaton for Regulaton Bd Cost Recovery Data Release Grd Management Charge Market Power Mtgaton Conduct Revew after 1 Year Operaton Experence Next Steps...17 CAISO/M&ID/D. Tretheway Page 2 February 22, 2012

3 1 Introducton On October 20, 2011, the Federal Energy Regulatory Commsson adopted a fnal rule to remedy what FERC ndentfes as undue dscrmnaton n the procurement of frequency regulaton n the organzed wholesale electrc markets and ensure that provders of frequency regulaton receve just and reasonable and not unduly dscrmnatory or preferental rates. The fnal rule requres a two part payment for frequency regulaton: (1) a payment for regulaton capacty and (2) a payment for performance of the resource n response to a regulaton sgnal. Ths draft fnal proposal outlnes the market desgn to comply wth FERC s drecton, ncludng the development of a mleage payment based upon the automatc generaton control (AGC) set ponts gven to a resource and an accuracy adjustment based on the resource s actual response to these AGC set ponts. FERC s order adoptng the fnal rule requres a complance flng wth proposed tarff language by Aprl 30, 2012, and mplementaton n October Plan for Stakeholder Engagement Item Post Draft Fnal Proposal Addendum February 22, 2012 Stakeholder Comments Due February 27, 2012 Board Meetng March 22, 2012 Date 3 Addendum to Draft Fnal Proposal Based upon the stakeholder call, clarfed the calculaton of the resource-specfc mleage multpler. The resource-specfc mleage multpler wll be used to determnng the maxmum mleage a resources could be awarded. The resource-specfc mleage multpler s based upon hstorcal accuracy and the certfed ramp capablty; Corrected Draft Fnal Proposal to state that mleage market clearng prce wll result from the shadow prce of constrant 3. 4 Overvew of FERC Order 755 On October 20, 2011, FERC adopted a fnal rule to remedy what FERC dentfed as undue dscrmnaton n the procurement of frequency regulaton n the organzed wholesale electrc markets and ensure that provders of frequency regulaton receve just and reasonable and not unduly dscrmnatory or preferental rates. 1 The order fnds that current compensaton methods for regulaton servce n organzed markets fal to acknowledge the nherently greater amount of frequency regulaton servce beng provded by faster-rampng resources and that some Regonal Transmsson Operator (RTO) and Independent System Operator (ISO) practces result n economcally neffcent dspatch of frequency regulaton resources. The rule requres RTOs and ISOs to compensate frequency regulaton resources based on the actual servce provded, ncludng a capacty payment that ncludes the margnal unt s 1 Frequency Regulaton Compensaton n the Organzed Wholesale Power Markets 137 FERC 61,064 (October 2010). CAISO/M&ID/D. Tretheway Page 3 February 22, 2012

4 opportunty costs and a payment for performance that reflects the quantty of frequency regulaton servce provded by a resource when the resource s accurately followng a dspatch sgnal. Specfcally, the rule adds a defnton at 18 C.F.R. 35.2(g) for frequency regulaton to read as follows: The term frequency regulaton as used n ths part wll mean the capablty to nject or wthdraw real power by resources capable of respondng approprately to a system operator s automatc generator control sgnal n order to correct for actual or expected Area Control Error needs. The rule also adds a new paragraph at 18 C.F.R (g)(3) to read as follows: Each Commsson approved ndependent system operator or regonal transmsson organzaton that has a tarff that provdes for the compensaton of frequency regulaton servce must provde such compensaton based on the actual servce provded, ncludng payment that ncludes the margnal unt s opportunty costs and a capacty payment for performance that reflects the quantty of frequency regulaton servce provded by a resource when the resource s accurately followng the dspatch sgnal. The rule requres that the compensaton method nclude specfc components. For purposes of capacty payments, ISO and RTOs must allow a resource to submt verfable nter-temporal opportunty costs as part of ts offer to sell regulaton. The rule also requres a payment for performance based on resource bds that reflect the cost of provdng the servce as opposed to an admnstratve prce. The rule requres ISOs and RTOs to use two part bddng (capacty and performance) but does not specfy how system operators should use bds n the market-clearng algorthm. Whle the rule does not requre changes to settlng the net energy njected (or wthdrawn) as a result of provdng regulaton n ISO and RTO markets, the rule does requre ISOs and RTOs to account for the accuracy of a resource s response to a dspatch sgnal when compensatng the resource. The rule does not mandate a specfc methodology for ths requrement. 5 ISO s Current Regulaton Desgn The ISO uses regulaton for system balancng to manage the dfferences between generatng unts responses to dspatch nstructons and actual load wthn a 5-mnute perod. The ISO procures regulaton up and regulaton down as separate products. In the day-ahead market, the ISO procures 100 percent of forecasted regulaton needs n hourly ntervals. 2 If addtonal regulaton requrements arse n real-tme, the ISO procures ncremental regulaton up and regulaton down durng real-tme unt commtment n 15 mnute ntervals. 3 The regulaton sgnal sent to resources s ntended to maxmze the avalable ramp wthn awarded regulaton capacty such that the ISO can respond to future varablty and uncertanty. The ISO currently sends smultaneous regulaton up and regulaton down sgnals to resources n order to maxmze future avalable rampng capablty. The objectve of the ISO s Automatc Generaton Control (AGC) s to send regulaton sgnals to resources to mantan ACE wthn the Balancng Area ACE Lmt (BAAL), whch s nfluenced by the system s actual frequency and error n net nterchange. It s not to mantan Area Control Error (ACE) constantly at zero or any other gven pont. AGC wll mantan unts at ther dspatch operatng target whenever ACE s 2 3 ISO tarff secton Id. See also ISO tarff secton CAISO/M&ID/D. Tretheway Page 4 February 22, 2012

5 wthn the acceptable MW range. The ISO consders a resource s ramp rate n determnng the regulaton dspatch to send to ndvdual resources. As a result, AGC set ponts are feasble based upon resource ramp lmtatons. Because load and load forecast uncertanty largely drve the ncremental need for regulaton, the same regulaton requrement s not actually needed n each hour of the day. To further mprove the effcency of regulaton procurement, the ISO procures regulaton on a varable bass by hour. An hourly varable regulaton forecastng tool calculates the concdental 10-mnute peak requrement for regulaton separately n the up and down drecton for each hour based on changes n the demand forecast, generaton self-schedule changes, and hourly nterte fluctuaton. 4 In connecton wth ts efforts to examne system needs arsng from the ntegraton of a large volume of varable energy resources, the ISO has forecast a substantal ncrease n hourly regulaton requrements n partcular hours Regulaton Capacty Payment Includes Opportunty Costs The ISO currently co-optmzes energy and ancllary servces when determnng regulaton capacty awards and market clearng prces. 6 The market clearng prce for regulaton capacty ncludes opportunty costs that can result from the margnal resource not recevng an energy award n the day-ahead market n the same hour or n another hour as a result of nter-temporal constrants wthn the day. In real-tme unt commtment, the ISO procures ncremental regulaton capacty (ths procurement can also reflect energy opportunty costs). Whle the energy schedules resultng from real-tme unt commtment are not fnancally bndng, the ISO does consder known energy requrements when settng the market clearng prce for regulaton capacty. The ISO does not ntend to modfy ts current approach for calculatng opportunty costs for regulaton capacty as part of ths ntatve to comply wth Order Payment of Net Energy when Provdng Regulaton The ISO currently pays resources respondng to a regulaton up dspatch at the real-tme Resource-Specfc Settlement Interval (10 mnute) locatonal margnal prce for the energy the resource provdes. In addton, when a resource responds to a regulaton down dspatch the resource s charged the real-tme Resource-Specfc Settlement Interval (10 mnute) locatonal margnal prce. For determnng mbalance energy and devatons, regulaton energy s deemed delvered. The ISO does not ntend to modfy ts current approach for nettng energy settlements from dspatches of regulaton up and regulaton down capacty as part of ths ntatve to comply wth Order 755. In ts comments, Powerex hghlghts that the ISO s current approach for nettng energy does not recognze the energy bd of the resource. Powerex beleves the settlement for net energy dspatched should be the hgher of the real-tme LMP or ts bd and the settlement for net energy See ISO techncal bulletn dated December 30, See generally, Integraton of Renewable Resources: Operatonal Requrement and generaton Fleet Requrement at 20 Percent RPS, August OperatonalRequrementsandGeneratonFleetCapabltyAt20PercRPS.pdf ISO tarff secton CAISO/M&ID/D. Tretheway Page 5 February 22, 2012

6 consumed should be the lower of the real-tme LMP or ts bd. Powerex beleves that resources should never be penalzed for provdng a servce to the ISO and respondng to ISO dspatches. Whle there may be nstances n whch a resource wth a regulaton award receves a locatonal margnal prce for regulaton energy at a prce below ts energy bd ths ssue s beyond the scope of ths ntatve. The ISO beleves market partcpants can mtgate ths rsk through other means, ncludng through the prcng of ther regulaton capacty bds. It would also be napproprate to settle energy provded through regulaton based on energy bds because energy bds are not used for determnng ts regulaton dspatch. Furthermore, energy bds do not have to be submtted for resources to cover awarded regulaton. 5.3 Inter-temporal Opportunty Costs FERC Order 755 requres RTOs and ISOs to allow resources to nclude nter-temporal opportunty costs n a resource s offer to sell frequency regulaton servce, wth the requrement that the costs be verfable. The order does not requre the ISO to calculate nter-temporal opportunty costs for resources. The ISO proposes to create a separate bd component to reflect nter-temporal opportunty costs. Schedulng coordnators wll have the burden to justfy nter-temporal opportunty costs contaned wthn a resource s bd. PG&E requested that the ISO defer the ncluson of nter-temporal opportunty costs because they may ntroduce sgnfcant complexty wth lmted benefts and potental gamng opportuntes. The ISO s not proposng to mplement the calculaton of nter-temporal 7 opportunty costs or mplement addtonal market constrants wthn the market optmzaton. These are not requred by FERC Order 755. Instead to comply wth FERC s rule, the ISO wll allow schedulng coordnators to nclude any nter-temporal opportunty costs n ther regulaton bds. If a schedulng coordnator elects to nclude nter-temporal opportunty costs ts regulaton capacty bd, t must be able to demonstrate ts nter-temporal opportunty costs. The capacty bd must stll be below the bd cap of $ Mleage Payment The ISO s current market desgn does not nclude a mleage payment for dspatches of regulaton up and regulaton down capacty. The ISO has descrbed ts proposal for a mleage payment based on the margnal unt s mleage bd n Secton 6 of ths draft fnal proposal. 5.5 Accuracy Adjustment The ISO s current market desgn does not nclude an accuracy adjustment for dspatches of regulaton up and regulaton down capacty. The ISO has descrbed ts proposal for an accuracy adjustment contemplated by Order 755 n Secton 7 of ths draft fnal proposal. The ISO s proposed accuracy adjustment wll assess a resource s accuracy n respondng to AGC set ponts. The accuracy adjustment wll mpact mleage payments for a resource that receves a dspatch of regulaton up or regulaton down. 7 The opportunty cost bd component s ntended to address nter-temporal opportunty costs that are beyond what can be addressed wthn the market optmzaton horzon. For example n the dayahead market, nter-temporal opportunty wthn the 24 hour horzon s already consdered wthout a bd adder. However, nter-temporal opportunty cost from one season to another season cannot be explctly consdered wthn the market optmzaton horzon and can be ncorporated nto the resources opportunty cost bd component. CAISO/M&ID/D. Tretheway Page 6 February 22, 2012

7 6 Market Based Mleage Prce Ths secton outlnes how the ISO wll determne a unform clearng prce for mleage. For purposes of ths proposal, the ISO consders mleage as the absolute change n AGC set ponts between 4 second ntervals. FERC Order 755 requres the ISO to have a unform market clearng prce for mleage based on the mleage bds submtted. Under ths proposal, the ISO s market software wll co-optmze energy, ancllary servces and mleage to determne awards and market clearng prces based on the margnal unt s bd. Mleage wll be settled based upon nstructed mleage reduced by the accuracy adjustment at the mleage clearng prce. Whle the optmzaton s makng awards of mleage, there s no settlement for awarded mleage or scheduled mleage. The settlement only arses for actual response to the AGC sgnal. 6.1 Mleage Multpler and Requrement For purposes of ths proposal, the mleage multpler s the amount of expected mleage from 1 MW of regulaton capacty. Several stakeholders requested the ISO calculate a more dynamc mleage multpler n comments on the straw proposal. In response to these concerns, the ISO proposes to calculate an hourly mleage multpler from the actual mleage of the pror week for each hour. The ISO wll calculate the hourly mleage multpler by summng the total mleage from all resources over the week for a gven hour and dvdng by the regulaton capacty procured for the week n that hour. In Table 1 below, the mleage multpler that wll be used for HE 08 from Sunday through Saturday of the upcomng week would be The ISO also ntends to analyze, as part of the revew outlned n Secton 9, f other hstorcal methods of calculatng the mleage multpler have a hgher correlaton to actual mleage use. Table 1 Example of calculaton of mleage multpler for HE 08 HE 08 Frday Saturday Sunday Monday Tuesday Wednesday Thursday Total Capacty Resource A Mleage Resource B Mleage Resource C Mleage Total Mleage Mleage Multpler The ISO wll use the mleage multpler to calculate the expected mleage from ts regulaton capacty procurement target. For example, f the regulaton capacty procurement target for HE08 s 350MW, the mleage procurement target would be 1263 (350 x 3.61). The expected mleage wll be a varable that determnes the mleage requrement. In addton to the expected mleage, the average actual mleage from the pror week wll be a varable whch determnes the mleage procurement target. For HE08 above, the average hourly mleage s 1328 (9300 dvded by 7) wth no operator adjustment. The ISO may adjust the average requrement based on operatonal needs. The ISO wll also calculate an hourly resource specfc mleage multpler. A thrd varable to determne the mleage requrement wll be the product resource specfc mleage multpler and the resource bd-n regulaton capacty. The mleage procurement target wll be set at the mnmum of these three values as shown n the optmzaton formulaton n Secton 6.2. Wth the thrd varable a mleage scarcty stuaton can be avoded. Wth the proposal, mleage requrement wll not drve regulaton capacty procurement. CAISO/M&ID/D. Tretheway Page 7 February 22, 2012

8 If ncremental regulaton s procured durng real-tme unt commtment, the ISO wll use the same system wde mleage multpler as t used to award regulaton n the day-ahead market to calculate the expected mleage. In addton, the ISO wll use the same average mleage value as adjusted for operatonal needs. 6.2 Optmzaton Regulaton Capacty and Mleage wth Two Constrants In the straw proposal, the ISO proposed to set separate constrants for mleage and regulaton capacty n the market optmzaton. At the tme of the straw proposal, the ISO beleved that the two constrant approach could not be mplemented. Ths was because the prevous approach the ISO consdered appled both the capacty and mleage constrant to each resource, resultng n the market optmzaton not beng able to smultaneously determne a prce for regulaton capacty and mleage. The proposal follows two gudng prncples: (1) mnmze the mpact to the current regulaton capacty market desgn, ncludng cascadng to lower qualty operatng reserves and (2) determne a unform clearng prce for mleage that takes n to consderaton expected mleage even though only actual mleage wll be compensated. In the revsed straw proposal, combnng both mleage and capacty bds n to a sngle prce would result n expected mleage beng ncluded n the regulaton capacty prce at whch regulaton capacty only would cascade to spnnng or non-spnnng reserves. In the approach outlned n ths draft fnal proposal, the ISO has further refned the proposed optmzaton formulaton to elmnate the applcaton of the two constrants to each resource. Ths allows a resource to be awarded regulaton capacty, whle potentally not beng awarded mleage that s n proporton (by a rato of m as shown below) to the awarded regulaton capacty. In the case a resource receves a mleage award below ts mleage bd, the ISO s proposng to mantan the bd cost recovery rules from the revsed straw proposal that apply to both regulaton capacty and actual mleage. Fgure 1 shows the formulaton of the optmzaton usng a regulaton capacty constrant and an expected mleage constrant. CAISO/M&ID/D. Tretheway Page 8 February 22, 2012

9 Fgure 1 - Optmzaton Formulaton mn s. t. and other constrants where BCP, BCC Req Req m, m ( BCP Reg Reg 0 Reg Reg, Req Mle, t1 Reg Reg Mle Req m Reg Reg, Mle mn( Req Mle Mle 0 BCC BMP Mle Req Mle, t1 0 ) cost of energy and other AS Req, m Req bd prce and bd n MWfor regulaton capacty regulaton capacty and mleage awards Spn j Reg Spn j Reg BMP bd prce for regulaton mleage regulaton and spn requrements regulaton mleage requrement average from pror week Spn systemand rescource specfc mleage multpler Reg, m BCC ) The regulaton capacty prce wll be determned by the shadow prce from constrant 1 and the mleage clearng prce wll be determned by the shadow prce from constrant 3. The thrd constrant seeks to avod mleage scarcty and mnmze nstances where mleage requrements can drve ncreased regulaton capacty procurement above the regulaton capacty requrement. The constrant s necessary to meet the frst gudng prncple. The use of an nequalty for constrants 5 and 6, provde a lnkage between an ndvdual resource s mleage awards and capacty awards, but allows prce formaton for mleage and capacty consstent wth the second gudng prncple. As llustrated by the constrants above, a resource wll receve a mleage award that s at least as much as ts capacty award (5), but no more than the product of ts resource-specfc mleage multpler and capacty award (4). The awards are not fnancally bndng snce resources wll be pad based upon actual mleage resultng from the AGC sgnal, but the awards are used to determne a unform mleage prce. In Table 2, the ISO llustrates the soluton of the optmzaton formulas outlned above. CAISO/M&ID/D. Tretheway Page 9 February 22, 2012

10 Table 2 An Example of Energy, Regulaton, and Mleage Co-Optmzaton Model wth Soluton Energy, Regulaton, and Mleage Co-Optmzaton Model Mleage Multpler - m m1 m2 m Varables Reg1 Reg2 Reg3 Spn1 Mle1 Mle2 Mle3 SlackReg E1 E2 E3 Mleage Requrement t-1 m*cap m *BdCap Varable Values Coef Objectve Coef*Value Shadow Constrant Coeffcents*Varable LHS >= RHS Prce Reg Requrement >= a Spnnng Requrement >= b Mleage Requrement >= c Energy Balance >= d Reg1 vs Mle1 -max >= 0 0 e Reg2 vs Mle2 - max >= f Reg3 vs Mle3 - max >= g Reg1 vs Mle1 -mn >= 0 0 h Reg2 vs Mle2 - mn >= 0 0 j Reg3 vs Mle3 - mn >= 0 0 k Total Capacty <= l Total Capacty <= m Total Capacty <= n Max Reg <= o Max Reg <= Max Reg <= 40 0 Max Spn <= Varables (MW) Reg1 Reg2 Reg3 Spn1 Mle1 Mle2 Mle3 SlackReg E1 E2 E Shadow Prce ($/MWh) a b c d e f g l m n o Clearng Prce ($/MWh) Reg Spnnng Mleage Energy Solve! The ISO wll use an ndvdual resource s hstorcal accuracy and certfed ramp capablty to determne the resource-specfc expected mleage. A resource wll not submt a mleage MW, but only a mleage bd. The resource-specfc mleage multpler s used by the ISO to calculate the maxmum mleage that a resource can be awarded for use n constrant 4 above. Mleage awards are not fnancally bndng. Resources are only compensated based upon nstructed mleage less accuracy adjustments. The resource-specfc expected mleage quantty that s dependent on the resource s operatonal characterstcs s calculated as follows: Table 3 - An Example of Calculaton of Resource-Specfc Mleage Multpler A1 System wde mleage multpler based upon pror week A2 System wde accuracy based upon pror week 90% 90% 90% 90% 90% 90% A3 # of mnutes to reach certfed capacty (nteger only, 1 to 10) A4 Hstorcal Resource Accuracy (%) 100% 100% 50% 50% 90% 90% A5 Certfed regulaton capacty (MW) A6 Resource specfc mleage multpler = A1*(10/A3)*(A4/A2) Maxmum mleage that can be awarded = A5*A Key Terms 10/A3 = Relatve Movement between fast & slow resources A4/A2 = Relatve Accuracy of Resource & System The relatve ramp capablty allows faster resources to be awarded addtonal mleage. Snce all regulaton capacty s certfed usng a 10 mnute ramp, the relatve ramp capablty allows a resource that can reach ts full certfed capacty sooner to be awarded addtonal mleage. In the example above, assume a resource can reach 20 MW n 4 seconds and a second resource CAISO/M&ID/D. Tretheway Page 10 February 22, 2012

11 can reach ts certfed capacty n 9.5 mnutes, the faster resource can be awarded ten tmes the slower resource. The relatve accuracy, of a resource and the system accuracy from the pror week, allows more accurate resources to be awarded more mleage than less accurate resources. As llustrated above, when both the fast resource and the slow resource have better accuracy than the system accuracy from the pror week, both resources have a resource-specfc mleage multpler greater than the system wde mleage multpler. In the Draft Fnal Proposal, the ISO ncluded an addtonal term n the calculaton of the resource-specfc mleage multpler that further reduced the resource-specfc mleage multpler f the resource dd not bd ts full certfed capacty. Ths term was necessary when the ISO had proposed a sngle constrant based upon the combned bds of regulaton capacty and regulaton mleage. The term s not needed when we have separate constrants for both mleage and capacty. The ISO wll calculate the hstorcal accuracy monthly, based on a thrty day smple average of 15 mnute accuracy measurements. The ISO wll use the monthly accuracy value for each ndvdual resource durng the calendar month for all market ntervals n whch the resource submts a regulaton capacty bd. In the event that no mleage occurs n a ffteen mnute nterval, the ISO wll not nclude the 15 mnute nterval n calculatng the resource s hstorcal accuracy. In the event that a resource has not provded regulaton over the past thrty days, the ISO wll use the ISO s system wde accuracy as the ntal adjustment factor. The ISO wll calculate separate hstorcal accuracy for both regulaton up and regulaton down. The same hstorcal accuracy wll be used for the measurement of the mnmum performance threshold outlned n Secton Bddng Rules for Mleage Resources must submt separate mleage bds for regulaton up and regulaton down. Schedulng coordnators may not submt a mleage quantty. Instead, the calculated mleage multpler wll be used for all resources and appled to the regulaton capacty offered. If a resource does not submt a mleage bd when submttng a regulaton capacty bd, the ISO wll generate a default mleage bd of $0.00 for the resource. The mnmum bd for mleage s $0.00 whch s consstent wth the mnmum bd for regulaton capacty (negatve bds are not allowed). The ISO s proposng a maxmum mleage bd prce of $ The ISO s current maxmum ancllary servce bd prce s $ For purposes of establshng the maxmum mleage bd prce, the ISO assumed a mleage multpler of 5 and dvded the current $ regulaton capacty maxmum bd prce accordngly. In addton, snce mleage and capacty wll be prced at the shadow prce of the ndvdual constrants, the ISO proposes a scarcty prce for mleage of $ The ISO wll reassess the level of the maxmum mleage bd prce and scarcty prce as part of the revew t ntends to conduct as dscussed n Secton 9. 7 Mleage Performance Adjustments Under ths proposal, the ISO defnes mleage as the absolute change n AGC set ponts between 4 second ntervals. Accuracy s the absolute value of actual telemetry compared to the AGC set pont n a gven regulaton nterval. Thus, the ISO wll consder postve and negatve devatons equally n assessng the accuracy of the resource s response to AGC. The accuracy 8 ISO tarff secton CAISO/M&ID/D. Tretheway Page 11 February 22, 2012

12 adjustment wll be determned for each 15 mnute nterval. For each 15 mnute nterval, the ISO wll reduce the resource s mleage n the 15 mnute nterval by the sum of under response adjustments to determne the quantty of actual mleage. The ISO wll calculate the accuracy adjustment as the sum of AGC set ponts less the 15 mnute sum of devatons from the AGC set pont, and then dvde that sum by the sum of the AGC set ponts. Ths percentage value s the accuracy of the resource s performance as compared to AGC set ponts. The ISO wll apply ths percentage to reduce any mleage payment for the 15 mnute nterval. Several stakeholders have requested clarfcaton regardng data latency and the tmeframe for recevng AGC sgnals, acknowledgng recept, and actual telemetry. As Fgure 1 llustrates, the roundtrp duraton s eght seconds from when the ISO sends the AGC sgnal and when the ISO receves actual telemetry data from the resource. 9 For purposes of calculatng accuracy adjustments, the ISO wll compare the AGC sgnal sent at pont A to the telemetry data receved from pont C. Fgure 2 - Tmng of Telemetry Data for Resources A B C The ISO posted a spreadsheet on the webste wth the straw proposal for ths ntatve that provded actual hourly data and the calculaton of the under response adjustment and accuracy adjustment. In order to algn day-ahead and real-tme regulaton settlement, the ISO s proposes to calculate mleage and accuracy for each 15 mnute nterval. 7.1 Under Response Adjustment Snce a resource s mleage s based on changes n AGC set ponts, the ISO s proposng to adjust the mleage when the resource under-responds n the pror nterval when the drecton of the AGC sgnal changes. In Fgure 2 below, the resource under responds to the AGC set pont n nterval 5. Because the drecton of the regulaton sgnal changed, the approprate mleage s 9 Addtonal nformaton s avalable n the Drect Telemetry Busness Practce Manual at CAISO/M&ID/D. Tretheway Page 12 February 22, 2012

13 represented by bar A, snce the resource s movement towards the AGC set pont n nterval 6 was acheved as a result of under respondng to the AGC set pont n nterval 5. If mleage was calculated smply as the delta between AGC set ponts as llustrated by bar B, the resource would receve an overpayment for mleage. Under ths proposal, the resource wll not receve mleage compensaton that results from devatng from the pror nterval s AGC set pont. Fgure 3 Example of Under Response and need to adjust mleage calculaton 7.2 Response Accuracy to AGC Set Pont Adjustment The ISO proposes to measure the accuracy of a resource s response to AGC as the absolute value of the dfference between the AGC set pont and actual telemetry for each 4 second regulaton nterval. On a 15 mnute bass, the ISO wll sum a resource s AGC set ponts for each 4 second regulaton nterval. The ISO wll then sum the total devatons from the AGC set pont for each 4 second regulaton nterval. The sum of AGC set ponts less the sum of total devatons bounded by zero wll then be dvded by the sum of AGC set ponts. The resultng performance percentage wll reflect the accuracy of the resource n respondng to AGC set ponts for the ffteen mnute nterval. The accuracy percentage value can range from 0 to 100 percent. The accuracy percentage s then appled to the mleage payments based upon the actual mleage tmes the mleage margnal clearng prce. The mleage payments wll be reduced based on the resource s accuracy n respondng to AGC. The ISO s not proposng a dead band by whch a resource would be consdered to have met the AGC set pont. For example a 5% bandwdth, would assume that f a resource was wthn 95% or 105% of the AGC set pont, the resource would be assumed to be 100% accurate. The ISO beleves calculatng the actual devatons wthout a dead band wll provde better market transparency, whch resources can more effcently ncorporate wthn ther mleage bds over tme. 7.3 Examples The followng two tables llustrate the calculaton of the under-response adjustment, accuracy adjustment, and actual mleage. Snce the accuracy adjustment s 90%, f the mleage prce CAISO/M&ID/D. Tretheway Page 13 February 22, 2012

14 was $0.50, the resource would be pad at $0.45 for ts actual mleage (nstructed mleage less under-response adjustment) of 88 MW mleage. Table 4 - Regulaton Up Range Regulaton Interval (4 Seconds) Total AGC Set Pont (MW) Mleage Expected Under-Response Adjustment Actual Mleage Actual Telemetry Devaton Accuracy Adjustment 90% Table 5 - Regulaton Down Range Regulaton Interval (4 Seconds) Total AGC Set Pont (MW) Mleage Expected Under-Response Adjustment Actual Mleage Actual Telemetry Devaton Accuracy Adjustment 90% Snce the ISO procures separate capacty for regulaton up and regulaton down, the mleage and accuracy calculatons are dstnct for each drecton. There can be nstances where a resource has been awarded both regulaton up and regulaton down and receves an AGC set pont whch moves the resource from the regulaton up range to the regulaton down range. For example, assume a resource s AGC set pont was 25 MW n nterval 1 and negatve 10 MW n nterval 2, the resource would receve mleage of 25 MW at the regulaton up mleage prce and 10 MW at the regulaton down mleage prce. If the resource s actual telemetry n nterval 2 was 3 MW, the calculaton of the accuracy adjustment for the regulaton up devaton would be 3 MW and the regulaton down devaton would be 10 MW. If the resource s actual telemetry n nterval 2 was negatve 4 MW, the regulaton up devaton would be 0 MW and the regulaton down devaton would be 6 MW. 7.4 Treatment of Real-Tme Awards The ISO procures ncremental regulaton n the real-tme market durng real-tme unt commtment. Regulaton procured n the real-tme market s for 15 mnute ntervals. Snce both the regulaton capacty and mleage prces can dffer between day-ahead and real-tme, a method s needed to establsh a sngle mleage prce for the 15 mnute nterval. If a resource s awarded ncremental regulaton n the real-tme market, the mleage prce for that 15 mnute nterval wll be the weghted average prce of both the day-ahead and real-tme mleage clearng prce. For example, f a resource was awarded 80 MW of regulaton n the day-ahead market wth a mleage clearng prce of $1.00 and awarded 20 MW of regulaton n the real-tme market wth a mleage clearng prce of $2.00, the mleage prce for the resource n the 15 mnute nterval for whch t was awarded regulaton n the real-tme market would be $1.20. If the resource was not awarded ncremental regulaton capacty the mleage prce for the resource would reman at $1.00. If the resource dd not have a day-ahead award, the mleage prce for the resource s based solely on the real-tme mleage clearng prce, or $2.00. CAISO/M&ID/D. Tretheway Page 14 February 22, 2012

15 8 Other Desgn Elements 8.1 Mleage Cost Allocaton to Ancllary Servce Oblgatons Smlar to regulaton capacty, mleage payments made to resources wll be allocated to regulaton up and regulaton down ancllary servce oblgatons. 10 Mleage n the regulaton up range wll be allocated to regulaton up ancllary servce oblgatons. Mleage n the regulaton down range wll be allocated to regulaton down ancllary servce oblgatons. The reducton n mleage payments resultng from the accuracy adjustments wll reduce allocated regulaton costs. SCE requested that the ISO address potental changes n the cost allocaton of regulaton through ths ntatve. The ISO, however, ntends to examne gudng prncples for cost allocaton n a separate ntatve. The ISO ntends to apply any adopted gudng prncples on cost allocaton to the flexble rampng product n the frst nstance. The second phase of ths the cost allocaton ntatve wll examne the applcaton of any adopted gudng prncples across all ISO products, ncludng regulaton. 8.2 Mssng Accuracy Data In the event of lost accuracy data, the ISO wll use the smple average of the resource s prevous ten 15 mnute accuracy percentages for the perods of mssng data for settlement purposes. The ISO wll not nclude the 15 mnute ntervals wth mssng accuracy data to calculate the resource s hstorcal accuracy n order to determne ts adjusted regulaton cost or to assess the mnmum performance threshold. It should be noted that a resource whch stops respondng to AGC set ponts wll be subject to rescsson of capacty payments for regulaton and dsqualfcaton for purposes of any mleage payments. 8.3 Dsqualfcaton of Mleage Payments If a resource s dsqualfed to provde regulaton capacty, the ISO wll also dsqualfy any mleage payments for the perod the resource s dsqualfed to provde regulaton capacty. In the event that a partal dsqualfcaton occurs, the mleage payment for the same perod shall be dsqualfed accordngly for the product of the dsqualfed regulaton capacty, the mleage multpler and the mleage prce. 8.4 Mnmum Performance Threshold for Regulaton Certfcaton Snce the ISO s now collectng accuracy nformaton for resources provdng regulaton, the ISO proposes to establsh a mnmum performance threshold. If a resource volates the mnmum performance threshold, the resource wll have nnety days to re-certfy to provde regulaton. If the resource does not re-certfy wthn the nnety days, the ISO wll change the Master Fle to reflect that the resource s no longer certfed to provde regulaton. The mnmum performance threshold wll ntally be set at 50% accuracy for both regulaton up and regulaton down. If a resource has a smple average of 15 mnute nterval measured accuracy of less than 50% n any calendar month, the resource must re-certfy wthn nnety days. The ISO wll provde wrtten notce to the schedulng coordnator f a resource falls below the mnmum performance threshold. In the event a resource falls below the mnmum 10 A Schedulng Coordnator's hourly oblgaton for Regulaton Down and Regulaton Up s calculated pursuant to Secton and , respectvely. CAISO/M&ID/D. Tretheway Page 15 February 22, 2012

16 performance threshold for one regulaton servce (e.g. regulaton down), the resource wll only be requred to re-certfy to provde that regulaton servce (n ths example, regulaton down). The mnmum performance threshold may change as the ISO gans more experence once the ISO mplements pay for performance regulaton. The ISO wll revew potental changes after one year of operatonal data and wll propose any changes f needed as part of the study outlned n Secton Ramp Certfcaton for Regulaton Currently the ISO tarff Appendx K Part A1.1.2 determnes the maxmum regulaton capacty that a resource may offer as the amount reached wthn a perod that may range from a mnmum of 10 mnutes to a maxmum of 30 mnutes, as such perod may be specfed by the ISO. The ISO proposes to standardze the duraton of the rampng nterval to 10 mnutes. Regulaton up wll contnue to cascade to spnnng reserves and non-spnnng reserves when the expected cost of regulaton up s economc to do so. Usng the 10 mnute ramp, the certfcaton process wll use the same ramp measurement nterval for regulaton, spnnng reserves and non-spnnng reserves. 8.6 Bd Cost Recovery Mleage revenue for nstructed AGC sgnals wll be ncluded n bd cost recovery (BCR) n the same manner as regulaton capacty s ncluded n BCR calculatons. The mleage accuracy adjustments wll not be ncluded n BCR. Otherwse, a poor performng resource could be elgble for bd cost recovery because ts mleage revenue was reduced because of ts poor performance. The followng are the formulas for BCR revenue and BCR cost: BCR Revenue = Capacty Prce x Award + Mleage Prce x Instructed Mleage BCR Cost = Capacty Bd x Award + Mleage Bd x Instructed Mleage In addton, f a resource was awarded regulaton n the day-ahead market and awarded addtonal regulaton n real-tme unt commtment, the mleage revenue wll be segmented between day-ahead BCR and real-tme BCR based upon the relatve weghts of the regulaton capacty awards. For example a resource has nstructed mleage of 500 and receved an 80 MW day-ahead award and an ncremental 20 MW n real-tme unt commtment, then the resource s day-ahead BCR nstructed mleage would be 400 and real-tme BCR nstructed mleage would be 100. As dscussed n Secton 7.4, the mleage prce wll be the weghted average prce for the ffteen mnute nterval. 8.7 Data Release The ISO wll publsh on OASIS the mleage prce, mleage multpler and actual mleage. 8.8 Grd Management Charge Pursuant to ISO tarff secton , mleage bds wll be subject to the $0.005 bd segment fee. 11 The ISO prevously proposed that the market servces charge be appled to awarded mleage. Snce the awarded mleage s not settled, but the actual mleage s settled, the ISO does beleve t s approprate to apply the market servce charge to mleage. All resources wll 11 Regulaton capacty s only allowed one bd segment. See, ISO tarff secton Mleage bds wll also only nclude one bd segment. CAISO/M&ID/D. Tretheway Page 16 February 22, 2012

17 stll be subject to the market servces charge for regulaton capacty whch s currently $0.0851per MW. 8.9 Market Power Mtgaton FERC Order 755 requres RTOs and ISOs ether to submt tarff provsons for market power mtgaton methods approprate to ther redesgned frequency regulaton markets or explan how ther current mtgaton methods are suffcent to address market power concerns. Snce the mleage award s co-optmzed wth regulaton capacty and energy, the ISO beleves current market power mtgaton method s suffcent to address market power concerns. 9 Conduct Revew after 1 Year Operaton Experence The ISO proposes to conduct an operatonal revew based on one year of data after pay for performance regulaton reaches producton. Snce many desgn elements of ths proposal are based upon hstorcal data, the ISO beleves t s prudent to evaluate the desgn and determne f any modfcatons are necessary. One year of operatonal data wll be used to evaluate the ISO s desgn, ncludng, but not lmted to, the approprateness of the mnmum performance threshold level, the hstorcal data used to calculate the mleage multpler, whether the regulaton capacty procurement target should reflect hstorcal accuracy of resources, the level of the mleage maxmum bd prce and mleage scarcty prce, and the change n resource partcpaton n regulaton under the new compensaton mechansm. 10 Next Steps The ISO plans to dscuss the draft fnal proposal wth stakeholders durng a conference call on February 15. The ISO requests comments from stakeholders on the proposed market desgn descrbed n ths draft fnal proposal.. The ISO specfcally requests stakeholder comments on any concerns wth delayng mplementaton of ths market enhancement untl the sprng of Based on current market enhancements scheduled to go nto producton n the fall of 2012 and the market system changes necessary to desgn, test and mplement a performance payment for regulaton pursuant to Order 755, the ISO currently ntends to request authorty to mplement a performance payment for regulaton n the sprng of Stakeholders should submt wrtten comments by February 27 to PFPRegulaton@caso.com CAISO/M&ID/D. Tretheway Page 17 February 22, 2012