Transmission Congestion Contracts (TCCs) Provide Transmission Price Certainty

Transcription

1 Transmission Congestion Contracts (TCCs) Provide Transmission Price Certainty Arthur L. Desell Manager Resource Reliability New York Power Pool 1999 PICA Conference Santa Clara May 20, 1999 Locational Based Marginal Pricing An Introduction What is LBMP? LBMP is the cost to provide the next MW of load at a specific location in the grid. Locational energy price differentials represent the opportunity cost for transmission between specific locations in the grid. LBMP System is bid-based, not cost-based

2 LBMP an Introduction Market Clearing Prices (LBMPs) are calculated day-ahead in the 1st settlement and hourly in the 2nd settlement LBMP is consistent with FERC objectives for open access transmission Comparably situated participants would pay the same rate for grid access (the Transmission Service Charge TSC) Bilateral energy transactions would incur a charge (the Transmission Usage Charge TUC) equal to the difference in LBMPs between the point-of-injection (POI) and pointof-withdrawal (POW) for each MW transacted LBMP an Introduction Transmission Charges Transmission Usage Charge Transmission Service Charge NYISO Transmission Charges NYPA Transmission Adjustment Charge Transmission Customers (Load and Bilateral Transactions)

3 Transmission Usage Charge The Transmission Usage Charge is based on the difference in LBMPs between specific locations in the grid. The difference in LBMPs includes a loss component and a congestion component. The congestion component may fluctuate widely due to the potential volatility of the LBMPs. The Transmission Congestion Contract is the mechanism used to hedge these price fluctuations. Transmission Congestion Contracts (TCCs) A TCC is a financial contract which hedges price fluctuations between locations in the grid. Physical transmission rights cannot be guaranteed due to changing system conditions. It is desirable to separate the operation of the grid from the financial system of transmission rights. TCCs facilitate bilateral transactions. Price certainty is the primary focus of a transmission customer engaging in a bilateral transaction.

4 Transmission Congestion Contacts (TCCs)- What is a TCC? A financial instrument that serves as a hedge of transmission congestion Assigned in multiples of one MW from a POI to a POW Undirectional Allows the holder to collect (or pay, if negative), the congestion rent with transmitting one MW from the POI to the POW It s an obligation, not an option Settled in the day-ahead market (1st settlement) Financial equivalent of firm transmission rights Transmission Congestion Contracts (TCCs) TCCs don t cancel congestion -- they tend to offset it Congestion rent is paid regardless of the generator, load or transaction you may have in place TCC POIs and POWs may be different from the POIs and POWs of actual bids You don t have to participate in the energy market to own TCCs

5 TCCs and Existing Agreements Transmission Providers are contractually bound to honor existing transmission agreements Parties to existing agreements are said to hold Grandfathered Rights Must continue to pay transmission rates under existing contract The holder does not pay congestion costs The holder has a one time option to chose to convert the rights to Grandfather TCCs TCCs in the Market Place Direct Sale Centralized TCC Auction Secondary Market

6 Direct Sale of TCCs Sale conducted by a Transmission Provider Non-discriminatory and auditable Carried out in compliance with FERC requirements and restrictions Negotiations visible to all Market Participants Information made equally available to all buyers Purchaser may become a Primary Holder, if all creditworthiness requirements are met Centralized TCC Auction Allows Primary Holders to release the system transfer capability associated with their TCCs into the Auction process All residual system transfer capability is released into the Auction process Provides a means for Market Participants, through their bidding preferences to determine which set of TCCs will be awarded

7 Centralized TCC Auction An Optimum Power Flow is used to determine the set of TCCs awarded Objective function - maximize the value of the bids awarded, subject to the constraint that the set of TCCs awarded is simultaneously feasible Allows for reconfiguration Centralized TCC Auction Phased approach to the End-State Auction Transitional Auction (prior to Day 1) - TCCs sold for a duration beginning day 1 of the ISO through April 30, 2000 Initial Auction (April 2001) - A portion of the system transfer capability will be sold for each TCC duration TCC durations allowed - 5 year, 4 year, 3 year, 2 year, 1 year, 6 month

8 Centralized TCC Auction End-State Auction - TCCs may be purchased in increments of 6 months up to five years in duration The set of TCCs awarded will be based on the results of ten simultaneous power flows Reconfiguration Auctions - held monthly Allows market participants to reconfigure TCCs Makes unused system transfer capability available