Convergence Bidding Overview. Jenny Pedersen Julianne Riessen Client Training Team

Transcription

1 Convergence Bidding Overview Jenny Pedersen Julianne Riessen Client Training Team

2 Agenda Introductions Defining Convergence Bidding Project Participating in the Markets Registration and Affiliations Eligible Bidding Locations and Internal Position Limits Defining Relationships Bidding in the ISO Markets and Understanding the Credit Policy Day-Ahead Market Positions and Liquidating in the Real-Time Market 2

3 Agenda Settlement Implications Fees and New Charge Codes IFM Tier 1 and RUC Tier 1 Allocations HASP Settlement Reversal Make Whole Payment Price Corrections CRR Settlement Rule Compliance 3

4 Introductions ISO Introduction Class Introductions Name Company What you do (Title) How long you ve done it 4

5 Ground Rules Objectives and Schedule Informal Atmosphere Materials Ask Questions Breaks and Lunch Facilities exits, restrooms, smoking Please silence cell phones Schedule is flexible and subject to change 5

6 Disclaimer All values used in this presentation are for illustrative purposes only and do not represent actual values used for establishing market awards, LMPs or any other payment or charge. Actual LMPs will be based on actual bids from Scheduling Coordinators and will be determined by the Market Software. The terms Virtual and Convergence are interchangeable throughout this presentation and basically mean the same thing. 6

7 Convergence Bidding Overview Defining Convergence (Virtual) Bidding Project

8 Defining Convergence (Virtual) Bidding Project Module Objective By the end of this section, you will be able to: Describe the purpose of virtual bidding Describe what a virtual demand bid is and how it differs from a virtual supply bid List the Day-Ahead Market process that uses virtual bids 8

9 Defining Convergence (Virtual) Bids Financial positions taken in the Day-Ahead Market and liquidated in the Real-Time Market Virtual Demand Bid to buy at Day-Ahead price and offer to sell at Real-Time price Looks like price sensitive demand Virtual Supply Bid to sell at Day-Ahead price and buy at real-time price Looks like a dispatchable supply resource 9

10 Defining Convergence (Virtual) Bids Supported in Day-Ahead Market only Bid to buy (Virtual Demand) is charged the Day-Ahead LMP and is considered a long position Bid to sell (Virtual Supply) is paid the Day-Ahead LMP and is considered a short position Virtual Supply offers and Virtual Demand bids may be submitted at any eligible pricing node in CAISO system Does not require any physical generation or load

11 How Convergence Bids Affect the Physical Market Virtual bids are financial instruments in the Day-Ahead Market Virtual bids compete with physical bids and clear the Day-Ahead Market based on economics Virtual bids can set the price Virtual bids can impact how physical supply is committed in the Day-Ahead Market Virtual Awards paid or charged the Day-Ahead LMP and are liquidated at the Real-Time LMP. 11

12 How Convergence Bids Affect the Physical Market No physical energy is delivered or consumed with virtual bids Virtual bids are not backed by physical assets Virtual bids have no link between physical supply or physical demand bids submitted by the same SC 12

13 How Convergence Bids Affect the Physical Market Virtual bids are not physical bids Virtual bids are not used in the Day-Ahead Market processes that use physical bids for grid reliability Market Power Mitigation/Reliability Requirements Determination (MPM-RRD) Residual Unit Commitment (RUC) Virtual bids ARE used in the Integrated Forward Market process Virtual bids impact how physical supply is committed in both the Integrated Forward Market and in the Residual Unit Commitment process 13

14 Participants Engage in Virtual Bidding To: Arbitrage difference between Day-Ahead and Real-Time prices Hedge generator outages Convert Day-Ahead instruments to Real-Time instruments (and vice versa) 14

15 Purpose and Benefits of Convergence Bidding at the Nodal Level Convergence Bidding at the nodal level helps: Mitigate market power Increase market liquidity Lower costs due to more efficient Day-Ahead commitment Minimize the differences between Day-Ahead and Real- Time prices Improve grid operations 15

16 Purpose and Benefits of Convergence Bidding at the Nodal Level Convergence Bidding provides Convergence Bidding Entities (CBEs) a financial mechanism to: Hedge against unit trip in real time Hedge against exposure to Real-Time pricing for load Earn revenues or risk losses between the Day-Ahead and Real-Time prices Convergence bidding operates successfully in all the other US Independent System Operator markets

17 Why Implement Convergence Bidding? FERC requirement Operate consistently with other nodal markets Proven to contribute to market liquidity which helps discipline the market power of physical suppliers 17

18 Convergence Bidding Overview Engaging in Convergence Bidding Hedging Examples Using a Virtual Demand Bid to Hedge Demand

19 Why Engage in Virtual Bidding? Base Example - Demand Jenny is a Load Serving Entity with 1,000 MW of load Today (before Convergence Bidding), Jenny must schedule at least 85% of her actual load into the DAM ( Bright Line Rule for underscheduling of load) 19

20 Why Engage in Virtual Bidding? Base Example - Demand Day-Ahead Schedule Physical Load Schedule (850MW*$100) $ 85,000 Total Day-Ahead Charge (cc6011) $ 85,000 Real-Time Meter = 950MW RT UIE = Meter DA Schedule (Physical) = = 100 UIE Charge = 100MW*$120 (cc6475) $ 12,000 Total Net Settlement (Charge) $ 97,000 * Presented in ISO Settlements format. Positive value = charge; Negative value = payment 20

21 Why Engage in Virtual Bidding? Hedging Example - Demand Jenny wants to use a Virtual Demand Bid to hedge demand and buy at the Day-Ahead price rather than have her load be exposed to the Real-Time price. 21

22 Why Engage in Virtual Bidding? Hedging Example - Demand Day-Ahead Schedule Physical Load Schedule (850MW*$100) $ 85,000 Virtual Demand Award (100MW*$100) 10,000 Total Day-Ahead Charge $ 95,000 Real-Time Meter = 950MW RT UIE = Meter DA Schedule (Physical) = = 100 UIE Charge = 100MW*$120 $ 12,000 RT Liquidation of Virtual Demand Award = 100MW*$120 ( 12,000) Total Settlement (Charge) $ 95,000 * Presented in ISO Settlements format. Positive value = charge; Negative value = payment 22

23 Why Engage in Virtual Bidding? Hedging Example - Demand Before Convergence Bidding After Convergence Bidding Day-Ahead Settlement $85,000 $95,000 RT UIE 12,000 12,000 Virtual Award Liquidation 0 (12,000) Total Settlement (Charge) $97,000 $95,000 Saved $2,000 by buying at the DA Price 23

24 Convergence Bidding Overview Engaging in Convergence Bidding Hedging Examples Using a Virtual Demand Bid to Hedge Supply

25 Why Engage in Virtual Bidding? Hedging Example - Supply Julie is a Merchant Generator who owns a resource with a 400MW Pmax. Today (before Convergence Bidding), Julie often self schedules her resource to the Pmax. Julie s resource has an intermittent maintenance schedule due to a shortage of maintenance personnel. The intermittent maintenance schedule affects when the resource goes out on an outage. Julie s resource went out on a Forced Outage in Real- Time in order to have maintenance performed 25

26 Why Engage in Virtual Bidding? Base Example - Supply Day-Ahead Schedule Physical Supply Schedule (400MW*$50) ($ 20,000) Total Day-Ahead Payment ($ 20,000) Real-Time Meter = 250MW RT UIE = Meter DA Schedule (Physical) = = -150 UIE Charge = -150MW*$65 9,750 Total Net Settlement (Payment) ($ 10,250) * Presented in ISO Settlements format. Positive value = charge; Negative value = payment 26

27 Why Engage in Virtual Bidding? Hedging Example - Supply Julie anticipates that her resource may be going out for maintenance and submits a Virtual Demand bid to hedge her position. If she buys at the Day-Ahead price, she can potentially offset some of her exposure to the Real-Time prices if her resource goes out on a Forced Outage. 27

28 Why Engage in Virtual Bidding? Hedging Example - Supply Day-Ahead Schedule Physical Supply Schedule (400MW*$50) ($ 20,000) Virtual Demand Award (-150MW*$50) 7,500 Total Day-Ahead Payment ($ 12,500) Real-Time Meter = 250MW RT UIE = Meter DA Schedule (Physical) = = -150 UIE Charge = -150MW*$65 9,750 RT Liquidation of Awarded Virtual Bid = 150MW*$65 ( 9,750) Total Settlement (Payment) ($ 12,500) * Presented in ISO Settlements format. Positive value = charge; Negative value = payment 28

29 Why Engage in Virtual Bidding? Hedging Example - Supply Before Convergence Bidding After Convergence Bidding Day-Ahead Settlement $20,000 $12,500 RT UIE 9,750 (9,750) Virtual Award Liquidation 0 9,750 Total Settlement (Charge) $10,250 $12,500 Saved $1,250 by buying at the DA Price 29

30 Defining Convergence Bidding Module Summary Virtual bids are financial position (not physical delivery) at a location (price node) in the Day-Ahead Market Virtual Awards are paid or charged in the Day-Ahead Market and are liquidated in the Real-Time Market Virtual Demand buys in the Day-Ahead and sells back in the Real-Time (long position) Virtual Supply sells in the Day-Ahead and buys back in the Real-Time (short position) Allows participants to hedge prices between the Day- Ahead Market and the Real-Time Market 30

31 Defining Convergence Bidding Module Summary Virtual bids NOT used in the Market Power Mitigation process or in the Residual Unit Commitment process of the Day-Ahead Market Virtual bids ARE used in the Integrated Forward Market process Virtual bids impact how physical supply is committed in both the Integrated Forward Market and in the Residual Unit Commitment process 31

32 Defining Convergence (Virtual) Bidding Project Module Quiz Multiple Choice: The purpose of virtual bids are to: a) Hedge against unit trip in real time b) Hedge against exposure to Real-Time pricing for load c) Earn revenues or risk losses between the Day-Ahead and Real- Time prices d) Mitigating market power e) Increasing market liquidity f) All of the above g) None of the above 32

33 Defining Convergence (Virtual) Bidding Project Module Quiz True or False: 1. A virtual demand bid is a bid to buy in the Day-Ahead Market and sell in the Real-Time Market. TRUE 2. A virtual supply bid is a bid to sell in the Day-Ahead Market and buy back in the Real-Time Market. TRUE 3. Virtual bids are used in both the MPM and IFM processes. FALSE 33

34 Convergence Bidding Overview Participating in the Markets Registering as a Convergence Bidding Entity

35 Module Objectives By the end of this section, you will be able to: Identify the location of the Convergence Bidding Entity forms Identify the forms that are required for a Convergence Bidding Entity Agreement 35

36 Registering as a Convergence Bidding Entity Must register with the ISO as a Convergence Bidding Entity and submit the following with application: Proposed date to start submitting Virtual Bids (no less than 60 Business Days after date application is filed) Affiliate Disclosure Form Name of Scheduling Coordinator and SCIDs that will be used for submission of Virtual Bids on behalf of the Convergence Bidding Entity If becoming a new Scheduling Coordinator, then request for Convergence Bidding Entity is located on the SC Application Forms located on the ISO website at Participation Convergence Bidding Registration 36

37 Locating the Convergence Bidding Registration Information Participation Convergence Bidding Registration 37

38 Registration Form for Convergence Bidding Entity Agreement Company specific information requires: Full LEGAL name of company and LEGAL street address as confirmed by copy of Secretary of State document DUNS No. Primary and alternate contact information Authorized Representative Signature Equivalent to agreement signatory authority 38

39 Affiliate Disclosure Form Company Information should match the information provided on the Registration Form for Convergence Bidding Entity Agreement 39

40 Key Registration Timelines September 1, 2010 Last day to submit CBE materials to guarantee readiness for Market Simulation on October 4, 2010 November 15, 2010 Last day to submit CBE materials for guarantee readiness for Go-Live on February 1, 2011 January 14, 2011 No updates to Master File until February 10,

41 Registration Module Summary Existing SCs must complete a Registration Form for Convergence Bidding Entity Agreement Must submit a copy of the Secretary of State document showing the full legal name and address of the company Must complete and submit an Affiliate Form Must complete and submit a letter for the SC acknowledges the representation of the Convergence Bidding Entity New Convergence Bidding Entities who also want to become a new SCs must go through the existing SC Certification process 41

42 Module Quiz True or False: 1. Convergence Bidding Entity Registration forms can be located on the ISO website under: Participation Convergence Bidding Registration TRUE 2. An existing SC who is completing a Registration Form for Convergence Bidding Entity Agreement does not need to complete an Affiliate Form. FALSE 42

43 Convergence Bidding Overview Participating in the Market Understanding Position Limits

44 Module Objectives By the end of this section, you will be able to: List the eligible bidding locations for virtual bids. Describe what position limits are. Describe how position limits are determined for a generator node. Describe how position limits are determined for an intertie Describe what happens when position limits are exceeded 44

45 Eligible Bidding Locations Defined by the ISO as being: Aligned with physical injection and withdrawal characteristics of the ISO Permitted at aggregated locations Eligible nodes for convergence bids include: Price Node (Pnode) where physical generators schedule and are paid Price Node (Pnode) where generator delivers and are paid, such as a Point of Delivery (POD) Aggregate Pricing Node (APNode) where physical generators schedule and are paid 45

46 Eligible Bidding Locations (continued) Eligible nodes for convergence bids include: Any Price Node (Pnode) where load resides The three Default Load Aggregation Points (DLAPs) The three Trading Hub locations All intertie locations where participants can submit bids Dynamic System Resources and Resource Specific System Resources do not have distinct Pnodes which are eligible for Convergence Bidding Participants may submit a virtual supply or virtual demand bid at any of the eligible locations. 46

47 Defining Position Limits Position limits are limits on the MWh quantities of virtual demand and virtual supply bids that could be submitted by all the SCIDs that represent a given Convergence Bidding Entity. Limits each Convergence Bidding Entity to a percentage of a certain MW amount for a PNode or APNode. Intended to mitigate the potential exercise of market power at a specific node. 47

48 Determining Position Limits at Nodes and Inter-ties Position limits are based on: For Generator Nodes Pmax of the generator resource For Demand Nodes forecast of the maximum MW consumption of the physical demand resources. For nodes associated with both supply and demand based on the larger of the maximum demand and the maximum capacity MW value (Pmax) For Inter-ties based on the Operating Transfer Capability of the intertie. ISO will publish the locational limits for the eligible Pnodes and APNodes 48

49 Position Limits in the ISO Market Position Limits will be imposed for: Internal nodes at 10% Interties at 5% Trading Hubs and Default Load Aggregation Points No limit Schedule for increasing position limits for Internal Nodes: Initial implementation through 8 months after implementation 10% limit Months 9 through 12 50% limit Position limits will no longer apply beginning on the first day of the month as of the first anniversary of the implementation. 49

50 Position Limits in the ISO Market Schedule for increasing position limits for Interties: Initial implementation through 8 months after implementation 5% limit Months 9 through 12 25% limit Months 13 through 16 50% limits Position limits will no longer apply beginning on the first day of the seventeenth month from the implementation 50

51 Position Limits Determined at the Convergence Bidding Entity Level - Example Each CBE through it s SC, may only submit one virtual demand bid and one virtual supply bid per location. Andrew signed a CBE Agreement and uses three SCIDs to submit virtual bids into the market on his behalf. Andrew s CBE SCID 1 SCID 2 SCID 3 51

52 Position Limits Determined at the Convergence Bidding Entity Level - Example Andrew the CBE wants to submit virtual demand bids at a generator Pnode (Beagle Point Plant) Beagle Point Plant has a Pmax of 200MW What is the Position Limit at Beagle Point Plant? 20 MW SIBR will validate the position limits at the CBE level and reject ALL bids when the position limit has been exceeded 52

53 Position Limits Determined at the Convergence Bidding Entity Level - Example Position limit evaluation based on the highest bid segment MW point submitted in the bid curve SC for CBE Submitted Virtual Demand Time Accepted Accepted/Rejected SCID2 15 MW 0630 Accepted 53

54 Position Limits Determined at the Convergence Bidding Entity Level - Example Possibility exists that a later-submitted bid may cause previously approved bid to be rejected if both bids are submitted by a SC on behalf of the same CBE at the same node. SC for CBE Submitted Virtual Demand Time Accepted Accepted/Rejected SCID2 15 MW 0630 Rejected SCID1 10 MW 0645 Rejected Rejected bids may be resubmitted prior to market close 54

55 Eligible Locations and Position Limits Summary Participants may submit a virtual supply or virtual demand bid at any of the eligible locations. Position limits are limits on the MWh quantities of virtual demand and virtual supply bids that could be submitted by all the SCIDs that represent a given Convergence Bidding Entity. Position limits of 10% for internal nodes for the first 8 months Position limits of 5% for interties for the first 8 months Position limits for both internal nodes and interties will increase over time 55

56 Module Quiz Multiple Choice: 1. Eligible Pnodes for convergence bidding are: a) Generator Pnode or Point of Delivery b) Demand Pnode c) Intertie and DLAPs d) Trading Hub e) None of the Above f) All of the Above 2. SIBR will validate position limits and reject bids when: a) Insufficient credit exist for the SC b) Position Limits are exceeded by the CBE c) Multiple SCs bid at the same Pnode 56

57 Module Quiz True or False: 1. Position limits are limits on the MWh quantities of virtual demand and virtual supply bids at nodes. TRUE 2. Position limits for internal pnode begin at 5%. FALSE 3. Position limits for a generator Pnode are based on the generator resource Pmax. TRUE 4. Position limits for an intertie Pnode are based on the net amount of energy flowing over the tie at a particular hour. FALSE 57

58 Convergence Bidding Overview Participating in the Market Defining Participant Relationships Understanding Relationships between Convergence Bidding Entity, Scheduling Coordinators, Congestion Revenue Right (CRR) Holders

59 Defining Market Participants Module Objective By the end of this section, you will be able to: Describe the difference between a Convergence Bidding Entity and a Scheduling Coordinator Describe the reporting requirements of a Convergence Bidding Entity Describe the credit relationship between a Convergence Bidding Entity and a Scheduling Coordinator Describe the position limit relationship between a Convergence Bidding Entity and a Congestion Revenue Rights (CRR) holder 59

60 Defining Market Participants Convergence Bidding Entity participates in Virtual Bidding only, using a certified Scheduling Coordinator Scheduling Coordinators may submit both physical and virtual bids Congestion Revenue Rights holders own Congestion Revenue Rights and may or may not also be engaged in the ISO Markets 60

61 Key Concept: Relationship Matrix Relationships may exist between a Convergence Bidding Entity, a Scheduling Coordinator, and a CRR Holder These relationships affect how the Convergence Bidding Entity does business in the ISO Markets Distinct relationships may affect: Convergence Bidding Entity s position limits Scheduling Coordinator s credit limits Congestion Revenue Right holder s settlement 61

62 Key Concept: Relationship Matrix Relationship Matrix SCID to Parent SC Affects Credit: Same as today All child SCID s roll up to a parent SCID which holds all the credit collateral 62

63 Defining Relationships SCID to Parent SC Parent SC may have more than one SCID (Child SCs) Parent SC establishes the credit collateral Child SCs participate in the market and credit is checked against the Parent SC collateral All market transactions will be batched together upon submission to the market Transactions validated against Credit System to ensure enough collateral exists at the Parent SC level to support the market transaction. Insufficient collateral results in rejected transactions 63

64 Defining Relationships SCID to Parent SC Example All SCID s roll up to a Parent SCID which holds all the credit collateral Every transaction submitted by any one of the Child SCs will be evaluated using the credit of the Parent SC PARENT SCID = JENP Holds all the credit collateral JEN1 JEN2 JEN3 JEN4 JEN5 64

65 Defining Relationships SCID to Parent SC Example Any SC representing more than one Convergence Bidding Entity must notify the ISO of the SCID that will be used for each Convergence Bidding Entity at least 11 Business Days prior to submission of Virtual Bids PARENT SCID = JENP Holds all the credit collateral JEN1 for CBE1 JEN2 for CBE2 JEN3 for CBE3 JEN4 for CBE4 JEN5 for CBE5 65

66 Key Concept: Relationship Matrix Relationship Matrix Convergence Bidding Entity (CBE) to SCID Affects Position Limits A CBE may have multiple SCIDs. Position limits will be evaluated at the CBE level. 66

67 Defining Relationships Convergence Bidding Entity to SCID - Example Convergence Bidding Entity must provide the name of the Scheduling Coordinator and the SCIDs that will be used to submit virtual bids on behalf of the Convergence Bidding Entity Must be submitted at least 11 Business Days prior to submission of a Virtual Bid on behalf of the Convergence Bidding Entity Convergence Bidding Entity Position Limits Apply SCID1 SCID2 SCID3 67

68 Convergence Bidding Entity to SCID - Example If multiple SCIDs are used on behalf of a Convergence Bidding Entity, position limits will be applied at the Convergence Bidding Entity level. When position limits are exceeded, ALL bids will be rejected. SC for CBE Submitted Virtual Demand Position Limit = 20MW Time Accepted Accepted/Rejected SCID2 20 MW 0630 Rejected SCID1 1 MW 0632 Rejected 68

69 Key Concept: Relationship Matrix Signatory of the Convergence Bidding Entity (CBE) Agreement to signatory of the Congestion Revenue Rights (CRR) Agreement Relationship Matrix Affects CRR Settlement Rule All SCID s of a CBE, who is also a CRR holder, will be evaluated in accordance with the CRR settlement rule with all the SCID s represented in the CRR s portfolio. Relationship evaluated at the corporate signatory level of the CBE and CRR Agreements 69

70 Defining Relationships Convergence Bidding Entity to Congestion Revenue Rights Holder CB Participant CBE Agreement Corporate Level CRR Holder CRR Agreement Corporate Level SC1 SC3 SC1 SC3 SC2 SC2 SC4 SC1, SC2, SC3 would all be evaluated on the CRR Settlement Rule because there is a direct relationship between the Convergence Bidding Entity and the CRR Holder 70

71 Defining Market Participants Summary Convergence Bidding Entity participates in Virtual Bidding only and may use more than one Scheduling Coordinator to place bids in the market. The Parent SC holds the credit collateral requirement for all the Child SCIDs A Convergence Bidding Entity may use more than one SCID to participate in the market, but position limits will apply at the Convergence Bidding Entity level A Convergence Bidding Entity who is also a Congestion Revenue Rights Holder will be subject to the Congestion Revenue Rights settlement rule 71

72 Defining Market Participants Summary Convergence Bidding Entities will need to disclose all affiliates at the corporate signatory level for holders of Congestion Revenue Rights Convergence Bidding Entities who are also owners of Congestion Revenue Rights will be evaluated for the CRR Settlement Rule for every SCID used for CRRs and Virtual Bids. Position limits are enforced at the Convergence Bidding Entity Level. 72

73 Defining Market Participants Module Quiz True or False: 1. A Convergence Bidding Entity does not have to disclose any affiliations with a Congestion Revenue Rights (CRR) holder. FALSE 2. A Convergence Bidding Entity may use more than one SCID to bid into the Market. TRUE 3. A Convergence Bidding Entity who also owns CRRs may be affected by the CRR Settlement Rule. TRUE 73

74 Defining Market Participants Module Quiz True or False: 4. A Convergence Bidding Entity is the same as a Scheduling Coordinator. FALSE 5. Position limits are not enforced at the Convergence Bidding Entity level. FALSE 6. Credit collateral is held at the Scheduling Coordinator level. TRUE 74

75 Convergence Bidding Overview Participating in the Markets Bidding Rules and Credit Policy Implications

76 Module Objectives By the end of this section, you will be able to: Identify the basic structure of the energy bid curves for virtual supply and virtual demand. Identify the maximum number of bid segments for virtual bids. Describe the last in, first out methodology as it applies to the credit policy for Scheduling Coordinators who engage in virtual bidding. 76

77 Bidding Rules for Virtual Bids Virtual bids in the Day-Ahead Market must have a price and quantity Virtual bidding provisions apply only to Energy bids. Minimum bid is 1 MW for virtual bid. Virtual supply bids ($/MWh) would be submitted using monotonically increasing bid curve Virtual demand bids ($/MWh) would be submitted using a monotonically decreasing bid curve 77

78 Bidding Rules for Virtual Bids Bid curve begins at zero (0) Maximum of 10 bid segments Virtual bids do not include start-up or minimum load costs Virtual bids are subject to the same energy bid caps as physical bids. Scheduling Coordinator may only have one virtual supply bid and one virtual demand bid accepted for each virtual bidding location. 78

79 Bidding in the ISO Market Example Andrew the CBE has his Scheduling Coordinator SCID1 submit a virtual demand bid at the Default LAP. Valid Bid? Are position limits enforced at the DLAP? When the SC submits the bid in SIBR, the bid will be validated. Validated bid or a batch of bids will be checked against the SC s credit 79

80 Bidding in the ISO Markets Understanding Credit Policy Each market participant required to maintain an aggregate credit limit (unsecured credit and/or posted financial security) Virtual Bid submission triggers credit check to compare if total value of all submitted convergence bids exceed Scheduling Coordinator s Available Credit Limit Available Credit Limit = (Aggregate Credit Limit) (Estimated Aggregated Liability) Total value of submitted virtual bids is sum of products of (absolute value of MW) * (applicable reference price for virtual bid) 80

81 Bidding in the ISO Markets Understanding Credit Policy Andrew the CBE has his Scheduling Coordinator SCID1 submit a virtual demand bid of 200MW at the Default LAP and a virtual supply bid of 100MW at a Generator Pnode. Reference price at the DLAP = $1.00 Reference price at the Generator Pnode = $0.50 Credit exposure = ABS(200) * 1 = $200 = ABS(100) * 0.50 = $50 Total credit exposure to Market = $250 81

82 Bidding in the ISO Markets Understanding Credit Policy For virtual supply bids, reference price is the 95 th percentile value of the difference between Real-Time LMP and Day-Ahead LMP at a given eligible Pnode. For virtual demand bids, reference price is the 95 th percentile value of the difference between Day-Ahead LMP and Real-Time LMP at a given eligible Pnode. Reference prices calculated quarterly for each node using hourly actual LMPs for the same period of the previous year. References prices will be posted on OASIS. 82

83 Bidding in the ISO Markets Understanding Credit Policy If bids pass the credit check, then included in the market clearing process Estimated Aggregate Liability is increased to include ISO s estimate of the total value of the submitted Virtual Bids If bids fail the credit check, then bids are disapproved on a last-in, first-out basis pursuant to the time stamp the ISO assigns to the convergence bids. Bids are submitted in batches and may be submitted all at one time or incrementally. 83

84 Understanding Batches - Last In / First Out Every bid submission or batch of convergence bids (CB) submitted will be evaluated for sufficient credit. If a bid or BATCH of CB s exceed the limit, the bid (or batch of bids) will be disapproved based on last in, first out basis and a notice will be sent to the SC. Which SC is disapproved and which are approved? Parent SCID 100k Credit SC1 20k SC2 30k SC3 15k SC4 35k SC5 20k 06:00 08:43 07:45 05:06 09:35 84

85 Posting Collateral Participants are notified in SIBR when insufficient collateral exists to support the virtual bids. Credit checks will occur for virtual bids As today, if estimated aggregate liability is greater than 90% of their aggregate credit limit, collateral notification sent. As today, if estimated aggregate liability is greater than 100% of aggregate credit limit, then collateral must be posted within 3 business days. Virtual Bids may be resubmitted within the market timelines if collateral requirements are met. 85

86 Adjustment of Estimated Aggregate Liability After the Day-Ahead Market closes (but before the Real- Time Market closes) ISO will recalculate the Estimated Aggregate Liability based on absolute value of the cleared DA MW value * Virtual Bid Reference Price. After the close of the Real-Time Market, ISO will recalculate the total liability and adjust the Estimated Aggregate Liability accordingly. 86

87 Module Summary Virtual bids in the Day-Ahead Market must have a price and quantity Minimum bid is 1 MW for virtual bid. Virtual supply bids have a monotonically increasing bid curve up using up to 10 bid segments. Virtual demand bids have a monotonically decreasing bid curve using up to 10 bid segments. 87

88 Module Summary Bids are submitted in batches and may be submitted at one time or incrementally. Dynamic credit checks will occur for virtual bids If bids fail the credit check, then bids are disapproved on a last-in, first-out basis pursuant to the time stamp the ISO assigns to the convergence bids. Bids may be resubmitted within the market timelines if collateral requirements are met 88

89 Module Quiz True or False: 1. Virtual demand bids may be submitted at a generator node using a monotonically increasing bid curve. FALSE 2. A participant may use up to 10 bid segments in a virtual bid. TRUE 3. Last in, first out refers to the batch of virtual bids submitted and subsequently disapproved due to insufficient available credit. TRUE 89

90 Convergence Bidding Overview Participating in the Market Day-Ahead Market Positions and Liquidating in the Real-Time Market

91 Module Objectives By the end of this section, you will be able to: Describe the purpose of virtual bid aggregation. Describe what process in the Day-Ahead Market uses the virtual supply and virtual demand bids. Describe whether a virtual bid may set the LMP. Describe how the Real-Time price is determined for the liquidation of virtual awards. 91

92 Day-Ahead Market Mechanics Virtual Bid Aggregation Virtual Bid aggregation to alleviate the potentially large number of virtual bids inundating the market software. For each bidding location, all virtual bids submitted for that location are aggregated together to be used in the Day-Ahead Market One multi-segment virtual supply bid / one multi-segment virtual demand bid will be created for each node The aggregated virtual supply bid and the aggregated virtual demand bid for each eligible location are used in the IFM process of the Day-Ahead Market 92

93 Day-Ahead Market Mechanics Virtual Bid Aggregation - Example Andrew the CBE had his SC put in a virtual demand bid at Julie s Beagle Point resource. Julie, the merchant generator tries to hedge for a potential outage, also puts in a virtual demand bid at her Beagle Point resource. Suppose these two virtual demand bids came into the market for the same trade date and trade hour, both bids would be aggregated together to form one aggregated virtual demand bid. 93

94 Day-Ahead Market Mechanics Virtual Bid Aggregation - Example Beagle Point Plant has a Pmax of 200MW Andrew s Bid Julie s Bid Aggregated Bid Curve

95 Day-Ahead Market Processes Virtual Bids are excluded from the MPM-RRD process. Virtual Bids are not eligible to participate in RUC. Virtual bids are only used in the IFM process IFM process clears bid in supply and bid in demand, regardless of whether the bids are virtual or physical Virtual bids have the ability to create or alleviate congestion Virtual bids may cause additional resources to be committed through the RUC process 95

96 Day-Ahead Market Results Day-Ahead Market results still in CMRI and still financially binding. If a Virtual Bid is the marginal resource, it can set the price When a virtual bid is the marginal resource, the aggregated bid curve will be disaggregated and prorated according to total portion of a participant s MW offer divided by the total aggregated MW offer for the cleared volume 96

97 Day-Ahead Market Mechanics Virtual Bid Disaggregation - Example If LMP at Beagle Point Pnode is $75 and only 20MW cleared at that price, then bids will need to be disaggregated Andrew s Bid Julie s Bid Aggregated Bid Curve

98 Day-Ahead Market Mechanics Virtual Bid Disaggregation - Example Andrew offered 15MW at $75 Julie offered 17MW at $75 Only 20 MW cleared at $75 Both Virtual Bid Awards must be determined using a pro-rated value from the marginal segment, in addition to capacity with lower bid costs Total MW offered at $75 = 32MW 20 MW Awarded; 5 of which is pro-rated based on the 17 MW in the marginal bid segment. Andrew gets 5 + (10/17 * 5) = 7.94 MW Julie gets 10 + (7/17 * 5) = MW 98

99 Day-Ahead Positions Andrew s Day-Ahead Position and Settlement Short position Awarded 7.94 $75.00/MW = $ (charge) Julie s Day-Ahead Position and Settlement Short position Awarded $75.00/MW = $ (charge) 99

100 Liquidating Day-Ahead Positions in the Real-Time Market Day-Ahead positions get liquidated in the Real-Time Market. Virtual Demand sells the position back to the market at the Real-Time price. Virtual Supply buys the position back from the market at the Real-Time price. The Real-Time price used to liquidate Virtual Awards is based on a simple average of the twelve 5-minute intervals for the trade hour. Virtual Awards at the inter-ties are liquidated at the HASP LMP. 100

101 Liquidating Day-Ahead Positions in the Real-Time Market - Example Int 1 Prices in the Real-Time Market have been volatile due to unexpected outages and a lightening strike which caused a fire that threatens a major transmission line. Fortunately, fire crews were able to contain the fire quickly. Int 2 Int 3 Int 4 Int 5 Int Int 7 Int 8 Int 9 Int 10 Int 11 Int 12 Real-Time Price to liquidate Virtual Awards = $

102 Liquidating the Day-Ahead Positions - Example Andrew s Day-Ahead Position and Settlement Short position Awarded 7.94 $75.00/MW = $ (charge) Liquidate 7.94 $ = $1, (payment) Net position = $ (payment) Julie s Day-Ahead Position and Settlement Short position Awarded $75.00/MW = $ (charge) Liquidate $ = $1, (payment) Net position = $ (payment) 102

103 Price Corrections from the Day-Ahead Market Price corrections for virtual bids may have an impact to the Estimated Aggregate Liability if additional monies are owed to the market Participant will be made whole due to a price correction from the Day-Ahead LMP. Make Whole Payment and example is further explained in the Settlements section. 103

104 Module Summary Virtual bids are only used in the IFM process IFM process clears bid in supply and bid in demand, regardless of whether the bids are virtual or physical For each bidding location, all virtual bids submitted for that location are aggregated together to be used in the Day-Ahead Market One multi-segment virtual supply bid / one multi-segment virtual demand bid will be created for each node 104

105 Module Summary Virtual Awards are liquidated at the Real-Time price, the simple average of the twelve 5-minute interval prices Virtual Awards at the Interties are liquidated at the HASP price 105

106 Module Quiz True or False: 1. Virtual bid aggregation alleviates the potential for large numbers of virtual bids to inundate the market software. TRUE 2. The MPM-RRD and RUC processes include virtual bids and bids for physical resources. FALSE 3. A virtual bid may not set the Day-Ahead LMP. FALSE 4. The Real-Time price is determined using the weighted average of the six 10-minute intervals. FALSE 106

107 Convergence Bidding Overview Settlement Implications

108 Module Objective By the end of this section, you will be able to: Identify new Charge Codes and changes to existing Charge Codes associated with Convergence Bidding Describe the additional fees associated with participation in convergence bidding 108

109 New charge codes New Charge Codes for Convergence Bidding CC6013 Convergence Bidding Day-Ahead Energy, Congestion & Loss Settlement Equivalent to current charge code 6011 CC Convergence Bidding Real-Time Energy, Congestion & Loss Settlement - Equivalent to current charge code 6475 CC Convergence Bidding HASP Energy, Congestion & Loss Settlement - Equivalent to current charge code 6051 CC6703 Convergence Bidding Daily CRR Adjustment Settlement CC GMC Virtual Award Charge CC GMC Virtual Bid Submission Charge 109

110 Convergence Bidding Overview Settlement Implications IFM Tier 1 and RUC Tier 1

111 Obligation for Virtual Demand to pay IFM Tier 1 Uplift Allocate IFM Tier 1 Uplift to virtual demand when system-wide virtual demand is positive. Obligation for virtual demand is based on how much additional unit commitment was driven by net virtual demand that resulted in IFM clearing above what was needed to satisfy measured demand Allocated to SCs with a positive net virtual demand position 111

112 Obligation for Virtual Supply to pay RUC Tier 1 Uplift Extent CAISO forecast actual load RUC Tier 1 Uplift will be allocated by net virtual supply and underscheduled load Extent CAISO forecast > actual load RUC Tier 1 will be allocated to measured demand by ratio share Allocate RUC Tier 1 Uplift to virtual supply when systemwide net virtual supply is positive Virtual Supply obligation to pay RUC Tier 1 Uplift would be based on pro-rata share of the total obligation as determined by their total net Virtual Supply Awards 112

113 Convergence Bidding Overview Settlement Implications Convergence Bidding Fees

114 Convergence Bidding Fees Participants may use up to 10 bid segments for a virtual bid. A charge of $0.005 per virtual bid segment will be reflected in CC4520, one of the two new GMC charges. Revenues from this fee will be used to offset fees imposed for cleared convergence bids (gross MWh) for the following year A Virtual Award Charge proposed at $0.078 per cleared gross MWh will be applied to CC4533, the second GMC charge code for convergence bidding. 114

115 New charge codes Additional charges associated with Convergence Bidding When participating in Convergence Bidding, there will be charges incurred through the CRR Adjustment Settlement, HASP Reversal Rule and two GMC charge codes as noted. 115

116 New charge codes With the implementation of Convergence Bidding, CC6044 will no longer be necessary and therefore terminated. This charge code was an interim measure developed to mitigate the potential economic incentive for LSEs to under-schedule Load in the Day-Ahead Market. This prevented the exercise of market power when energy prices in the CAISO Energy Markets suggest that it was economic to buy Energy in the Day-Ahead Market as opposed to the Real- Time Market. 116

117 Convergence Bidding Overview Settlement Implications HASP Settlement Reversal Rule

118 HASP Settlement Reversal Rule HASP Settlement Reversal Rule will be implemented upon Convergence Bidding HASP Settlement Rule is being implemented so there is no financial incentive to submit physical bids when virtual bidding exists HASP Settlement Rule applies to physical Intertie schedules and will take back any profit gained from HASP as a result of not tagging the DA Intertie schedule. 118

119 Convergence Bidding Overview Price Corrections and Make Whole Payment

120 Price Corrections If a price correction occurs, participants will be made whole The corrected price will be compared to the virtual bid segment price For Supply: Cleared Bid Segment MW * (Corrected Price Virtual Bid segment price) For Demand: Cleared Bid Segment MW * (Virtual Bid segment price Corrected Price) Make Whole Payment will be paid through CC6013 Convergence Bidding Day Ahead Energy, Congestion & Loss Settlement 120

121 Make Whole Payment - Example Andrew submit a virtual supply bid at a Pnode If the LMP is $10, how much virtual supply cleared? 8MW What will be the settlement result of this virtual supply bid? $10 = $80 Payment 121

122 Make Whole Payment - Example Andrew s Bid Cleared (-1) * $10 = ($80) There was a price correction! Price Correction to price to $15 Actual settlement using the correct price equals (-1)* (8MW*$15) = ($120) Difference of $40.00 will show up as a Make Whole Payment/Adjustment 122

123 Module Quiz Multiple Choice: 1. The following are new charge codes associated with convergence bidding: a) CC CB Day Ahead Energy, Congestion & Loss Settlement b) CC CB Real Time Energy, Congestion & Loss Settlement c) CC CB HASP Energy, Congestion & Loss Settlement d) CC CB Daily CRR Adjustment Settlement e) CC GMC Virtual Award Charge f) CC GMC Virtual Bid Submission Charge g) CC Day Ahead Energy, Congestion & Loss Settlement h) All of the above except (g) 123

124 Module Quiz True or False: 1. There are two new GMC fees to participate in Convergence Bidding. TRUE 2. A fee of $0.005 per bid segment will be applied to all physical bids. FALSE 124

125 Convergence Bidding Overview Congestion Revenue Rights Settlement Rule

126 Module Objective By the end of this section, you will be able to: State what a CRR is Describe the process of the CRR Settlement Rule 126

127 Defining Congestion Revenue Rights (CRRs) CRRs are financial instruments that give the Holder the right to receive or the obligation to pay a share of the total congestion revenue associated with a given Trading Hour of the Day-Ahead Market. CRR Settlement Rule applies only to CRR holders that participate in Convergence Bidding. 127

128 Defining the CRR Settlement Rule CRR settlement rule is put in place to recapture - where warranted the increase in CRR revenues to CRR Holders that are attributable to that Company s Convergence Bidding. 128

129 Defining the CRR Settlement Rule Scheduling Agent CRR & CBE Agreement CBE Agreement SC Agreement SC1 SC2 SC3 The CRR Settlement Rule will affect only those SCID s associated with the CRR holder 129

130 Defining Who is Affected by the CRR Settlement Rule Convergence Bidding Entity JENP CRR Holder JEN1 Convergence Bidding SCID JEN2 Convergence Bidding SCID The CRR Settlement Rule will affect only those SCID s associated with the CRR holder 130

131 CRR Settlement Rule The following criteria will determine if the CRR Settlement Rule should be applied: 1. Did a Virtual Bid have an impact on the constraint and is the CBE also a CRR holder? If yes, proceed to #2. If no, then the CRR Settlement will not apply. 2. Was the directional flow impact greater than 10% of the thermal limit of the line? If yes, proceed to #3. If no, then the CRR Settlement will not apply. 131

132 CRR Settlement Rule 3. Each Convergence Bid that impacted the constraint will be analyzed for an adjustment payment amount by each hour. 4. If it is determined the CRR Portfolio profited from the impact in flow caused by that Company s Convergence Bid, the collective amount will be charged back to the SCID that holds those CRR s. 132

133 CRR Settlement Rule Payment Adjustment Example Jenny is a LSE and engaged in virtual bidding at the Nodal level for HE07 thru HE09. Let s walk through what happens when her virtual bids impact a constraint for all three hours. 133

134 CRR Settlement Rule Payment Adjustment Example Step 1 Jenny CRR Holder Calculate virtual bid impact to the flow of the constraint HE7 HE8 HE9 Jenny s awarded virtual bid 150 MW 90 MW 300 MW Step 2 Was the directional flow impact enough to increase the value of the CRR portfolio Line Constraint Max MW 1,000 MW 1,000 MW 1,000 MW Constraint threshold percentage Flow impact threshold 100 MW 100 MW 100 MW Did virtual award significantly impact Yes No Yes 134

135 CRR Settlement Rule Payment Adjustment Example cont.. Step 3 HE7 HE8 HE9 Price is calculated based on formulas located in the External Business Requirement Specifications DA Price - Constraints impact on the DA value of CRR $5.0 $4.0 $8.0 RT Price - Constraints impact on the RT value of CRR $1.0 $2.0 $1.0 $4.0 $2.0 $7.0 MW quantity of CRR owned by the participant by hour Payment Adjustment if "Yes" in Step 2 $1,200 $600 $2,100 CRR Settlement Rule payment adjustment for HE7 thru HE9 $3,

136 Module Summary CRRs are financial instruments that give the Holder the right to receive or the obligation to pay a share of the total congestion revenue associated with a given Trading Hour of the Day-Ahead Market. CRR Settlement Rule applies only to CRR holders that participate in Convergence Bidding. Convergence bid must impact a constraint and directional flow of the impact must be greater than 10% of the thermal limit of the line. 136

137 Module Quiz True or False: 1. CRR Settlement Rule applies to all Convergence Bidders. FALSE 2. The CRR Settlement Rule is applied to all CRR Holders that impact a constraint. FALSE 3. If the impact to the constraint is less than 10%, the CRR Settlement will not apply. TRUE 4. A Congestion Revenue Right is a financial instrument that give the holder the right to receive or obligation to pay a share of the total congestion revenue for a given trade hour of the DAM. TRUE 137

138 Convergence Bidding Overview Compliance

139 Compliance Department of Market Monitoring will be monitoring the Convergence Bids and CRR Settlement Rule charges CRR Settlement Rule is not applied at the affiliate level, but will be monitored by DMM. Monitoring virtual bidding activity for anomalous market behavior, gaming, or the exercise of market power. ISO has the authority to suspend or to limit the ability to bid at a single Eligible PNode or at ALL Eligible PNodes 139

140 Compliance Ability to suspend or limit virtual bidding pursuant to Tariff Section if virtual bidding: Detrimentally affects System Reliability or grid operations Causes or contributes to unwarranted divergence in prices between the Day-Ahead Market and the HASP or Real-Time Market Causes or contributes to unwarranted divergence in Shadow Prices between the Day-Ahead Market and the HASP or Real- Time Market that contributes to a significant divergence in LMPs at any Eligible PNode and/or Eligible APNode 140

141 Non-Compliance May Result In Suspension from or limitation in participating in the Market. Once participant is suspended, suspension could remain in place for up to 90 days unless FERC directs otherwise or ISO determines it is no longer needed. Financial Impact potential revenues lost for not participating in the market 141

142 Convergence Bidding Overview Bringing It All Together

143 Summary Convergence Bidding Overview Purely financial transaction Buy or sell financial position (not physical delivery) at a location (price node) in the Day-Ahead Market Virtual Demand buys in the Day-Ahead and sells back in the Real-Time (long position) Virtual Supply sells in the Day-Ahead and buys back in the Real-Time (short position) Virtual Awards are liquidated in the Real-Time Market 143

144 Summary Convergence Bidding Overview Virtual bids ARE used in the Integrated Forward Market process Relationships may exist between a Convergence Bidding Entity, a Scheduling Coordinator, and a CRR Holder and will affect how these entities participate in the markets. Participants may submit a Virtual Supply or Virtual Demand Bid at any of the Eligible PNodes or Eligible APNodes, Trading Hubs or Default LAPs. Position limits at PNodes (excluding the Default LAPs and the Trading Hubs) will be enforced when the project is implemented. 144

145 Summary Convergence Bidding Overview Bid segment for virtual bids begin at zero (0) and minimum virtual bid must be 1MW Virtual Supply Bids have a monotonically increasing bid curve up using up to 10 bid segments. Virtual Demand Bids have a monotonically decreasing bid curve using up to 10 bid segments. Virtual Awards are liquidated in Real-Time at the simple average of the twelve 5-minute interval prices Virtual Awards at the Interties are liquidated at the HASP price 145

146 Summary Convergence Bidding Overview New charge codes have been created, including charge codes for additional GMC fees associated with virtual bidding Virtual bids will have a per segment charge for all valid virtual bids accepted into the Market. Virtual bids will be subject to Tier 1 IFM and Tier 1 RUC Cost Allocations DMM will be monitoring for anomalous behavior, gaming, and exercise of market power. 146