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NEPOOL Manual 6 Financial Transmission Rights Technical Review Session Session Content

NEPOOL Manual 6 Financial Transmission Rights Technical Review Session Session Content. January 23, 2002 Douglas James, ISO New England. Financial Transmission Rights Manual. Introduction Section 1 - Financial Transmission Rights Overview Section 2 - Reserved Section 3 - FTR Auction

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NEPOOL Manual 6 Financial Transmission Rights Technical Review Session Session Content

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  1. NEPOOL Manual 6Financial Transmission RightsTechnical Review Session Session Content January 23, 2002 Douglas James, ISO New England

  2. Financial Transmission Rights Manual • Introduction • Section 1 - Financial Transmission Rights Overview • Section 2 - Reserved • Section 3 - FTR Auction • Section 4 - FTR Secondary Market • Section 5 - FTRs & Market Settlements • Section 6 - FTR Auction Example • Section 7 - FTR Auction Revenue Settlement • Section 8 - Incremental ARRs • Section 9 - ARR Allocation Example (under development)

  3. FTR Technical Session Content • Part 1 - FTRs and the FTR Auction (Doug James) • Introduction to Manual 6, Financial Transmission Rights • Section 1 - FTR Overview • Section 3 - FTR Auction • Part 2 - FTR Auction Example (John Lally) • Introduction to FTR Auction, 5-Bus Model & Participants • Annual and Monthly Auction Examples • Constrained Day-Ahead Energy Market Example • Settlement of FTRs • Part 3 - Secondary Trading & Settlements (Doug James) • Section 4 - FTR Secondary Market • Section 5 - FTRs & Market Settlements • Sections 7,8 & 9 - FTR Auction Revenue Settlement, Incremental ARRs & ARR Example

  4. NEPOOL Manual 6Financial Transmission RightsTechnical Review Session Part 1 - FTRs and the FTR Auction January 23, 2002 Douglas James, ISO New England

  5. Introduction • About This Manual • Target Users • References • NEPOOL Manual for Billing • NEPOOL Manual for Agreement Accounting • NEPOOL Manual for Definitions and Abbreviations • FTR Auction Users Guide • NEPOOL Open Access Transmission Tariff: Schedule 14 - FTRs Schedule 15 - ARRs • What You’ll Find In This Manual

  6. Section 1 – FTR Overview • Overview section provides brief overview of FTR concepts • Definition and purpose • Valuation • Requirements to participate • Actions: who does what

  7. Definition and Purpose • Definition and purpose of FTRs • Financial instrument to manage congestion risk • Entitles holder to share of Congestion Charges that arise during periods of congestion • Settled hourly against differences in Congestion Compo- nent of Day Ahead Energy Market LMPs (Section 5) • Defined in MW from point of receipt to point of delivery • Unidirectional • Acquisition and Disposal • Created/Sold in ISO administered FTR Auction (Section 3) • Traded in Secondary Market (Section 4)

  8. FTR Valuation, Participation • Valuation of FTRs • Benefit when FTR designation is in same direction as congested flow • CC of DA LMP higher at point of delivery • Liability when FTR designation is opposite congested flow • Any actual deliveries opposing the congested flow would receive congestion credit offsetting such liability • Requirements to participate • FTR Auction, Registered secondary trading • Eligibility requirements to be established • Criteria based on financial assurance • Unregistered secondary trading • No requirements, settle with registered holder

  9. Actions • Actions: who does what: ISOBidder/Holder Provide registration Register Initiate, conduct auction Submit bids/offers Post auction results Maintain record of FTRs Manage FTR portfolio Provide secondary market in eFTR: post, accept, confirm,reject quotes Include FTRs in monthly settlements Determine FTR Auction settlement

  10. Section 2 - Reserved

  11. Section 3 - FTR Auction • Overview • eFTR: the Market User Interface • Simultaneous Feasibility Test (SFT) • Determining Winning Quotes • Auction Timeline • Auction Business Rules

  12. FTR Auction Overview • Auction: opportunity to acquire and sell FTRs • only way to create an FTR (may later subdivide) • Long and short term auctions • 2 six month auctions; 10 then 25 % of capability • then annual for five years; 50% of capability • monthly; remainder of transmission capability • On-peak and off-peak auctions • On-peak period: weekday hours ending 0800 - 2300 • Off-peak period: weekday hours ending 2400 - 0700, weekends, NERC holidays

  13. FTR Auction Overview (Continued) • FTR Characteristics • Available between any Locations for which LMP is calculated and posted: Hub, Load Zone, Node, External Node • Designated as injections/withdrawals from Locations within and external to NEPOOL • Magnitude to nearest 0.1 MW • Provides hedge for deliveries consistent with FTR • Do not hedge against losses • FTR Auction is a Reconfiguration Auction • enables purchase of FTRs that are different from those offered for sale in the auction

  14. eFTR • eFTR: Internet based; provides user interface with FTR Auction and related functions • FTR bids/offers submitted, validated, entered • Observe auction results, manage FTR portfolios • Other subsystems: determine, record highest valued bid-based feasible set of FTRs • establish base case for auction • iterate between evaluating quotes and SFT • determine FTR clearing prices • record results for posting on MUI • bridge to settlement and billing subsystems

  15. Simultaneous Feasibility Test (SFT) • Preserves economic value of awarded FTRs • must collect sufficient Congestion Charges to cover FTR credits (revenue adequacy) • requires transmission system to support awarded set of FTRs during normal conditions • Power Flow: quotes modeled as generation and load at injection/withdrawal Locations • model expected network topology for period • thermal ratings, interface limits • loop flows from other Control Areas • normal conditions and single contingency events • market feasibility test; not a reliability analysis

  16. Determining Winning Quotes • Winning Quotes: • Set of simultaneously feasible FTRs with highest total value • determined by bid and offer prices • Steps: • download bids/offers from database • solve linear programming problem (LP) • check simultaneous feasibility (SFT) • iterate LP/SFT • upload results

  17. Auction Timeline • ISO initiates, directs, oversees FTR Auction • Annual (initially, semi-annual) auction • six business day quoting window ends first day of month before FTRs are effective • results posted within six business days (intended to be before monthly auction window opens) • Monthly auction • five business day quoting window opens 15 business days before start of auction month • results posted within four business days

  18. FTR Auction Timeline

  19. Auction Business Rules • Bids and Offers: • Must be Eligible FTR Bidder to buy/FTR Holder to sell • To sell, must own for entire auction period duration • Rejected quotes may be resubmitted in quoting period • Bids: are for purchases up to the specified quantity (no minimum quantity may be specified) • Offers: are for sales up to the specified quantity (no minimum); may specify a reservation price • Outstanding FTRs modeled as fixed injections • Awarded FTRs may be acquired from FTR Holders in secondary market: registered/unregistered FTRs

  20. Questions?

  21. NEPOOL Manual 6Financial Transmission RightsTechnical Review Session Part 2 - FTR Auction Example January 23, 2002 John Lally, ISO New England

  22. NEPOOL Manual 6Financial Transmission RightsTechnical Review Session Part 3 - Secondary Trading and Settlement January 23, 2002 Douglas James, ISO New England

  23. Section 4 – FTR Secondary Market • Overview • eFTR Secondary Trading Center • FTR Secondary Trading Business Rules

  24. FTRSecondary MarketsOverview • FTRs are originally awarded in the NEPOOL FTR Auctions • FTRs may be freely traded on the secondary market • NEPOOL FTR secondary trading market facilitates trade of existing FTRs between FTR Holders • Allows trading of existing FTRs only • Transfer of ownership is automatically registered with the ISO for FTR trades made through eFTR • FTRs can be traded independently of eFTR, however they can only be registered to the ISO via eFTR • FTRs cannot be reconfigured in the secondary market; may be subdivided in time and quantity

  25. eFTR Secondary Trading Center • FTR Holders can buy and sell FTRs directly with other FTR Holders through the Secondary Trading Center • eFTR Secondary Trading Center allows users to: • View FTR Postings • Post FTRs for Resale • Buy and Sell FTRs • The NEPOOL FTR Auction User’s Guide will have detailed instructions for participating in the secondary market (Guide is currently under development)

  26. Secondary Trading Business Rules • An FTR can be split into multiple FTRs: • They may have different MW amounts, start and end times than the original FTR • However, an FTR cannot be reconfigured into FTRs with a larger MW value, earlier start time, later end time, or different from/to Locations • FTR MW values can be split in 0.1 MW increments • Deadline for all FTR trades for the Operating Day is the end of the previous Operating Day • Once per day, updated FTR information reflecting the previous day’s trades is sent from the eFTR database to ISO NE’s settlement systems

  27. Section 5 - FTRs & Mkt Settlements • Transmission Congestion Credit Target Allocations • Transmission Congestion Credit Calculation • Excess Transmission Congestion Revenues Distribution

  28. Tsm Congestion Credit Target Allocations • Monthly Transmission Congestion Credit Target Allocations calculated with Hourly Positive and Negative FTR Target allocations summed separately for each FTR Holder • Positive FTR Target Allocations are compensated as Transmission Congestion Credits • Negative FTR Target Allocations are added to the Congestion Revenue for the month; FTR Holder is charged this amount • Congestion Revenue available for a month is equal to: • Total Congestion Charges collected in the month, plus • FTR Negative Target Allocations for the month, plus • Any Congestion Revenue Excess from previous month

  29. Transmission Congestion Credits • The ISO compares the total of all monthly Positive FTR Target Allocations to the total Transmission Congestion Revenues Available • If total Positive FTR Target Allocation is <= Transmission Congestion Revenue, • FTR Holders receive Tsm Congestion Credit equal to Positive FTR Target Allocation • If total Positive FTR Target Allocation is > Tsm Congestion Revenue, • FTR Holders receive shares of the Monthly Tsm Congestion revenues in proportion to their Positive Target Allocations

  30. Excess Tsm Congestion Revenues • If there is any Excess Transmission Congestion Revenue remaining at year end, then: • Stage One: Excess Transmission Congestion Revenue allocated in proportion to, but not greater than, any unpaid monthly Transmission Congestion Credit Target Allocations • Stage Two: Any remaining Transmission Congestion Revenue is distributed pro-rata to entities who paid Transmission Congestion Charges in that calendar year

  31. Sections 7,8,9-Auction Revenue Distribution • Today • ARR Overview • Incremental ARR Overview • Future Technical Session • ARR Details • Incremental ARR Details • ARR Example

  32. Section 7 - ARROverview • FTR Auction revenues are distributed to: • Sellers of FTRs in the Auction • Certain entities paying for new transmission upgrades (holders of Incremental ARRs) • Entities that pay Congestion Charges (ARRs are awarded through the 4-step process described in Schedule 14 of NOATT)

  33. Section 7 - ARROverview (Cont’d) • FTR Auction revenues are settled monthly • Monthly Auctions: in second month following the auction, using data for the month in which the auctioned FTRs are effective • Six-Month/Annual Auctions: as for the monthly auctions, in monthly increments (for each year of annual auctions) • Auction revenues are collected and distributed concurrently with that second month’s settlement

  34. Section 8- Incremental ARR Overview • IncARRs and Eligibility for Awards • Awarded for new transmission upgrades that make additional FTRs possible • Upgrades paid by RNS rate do not qualify • Share costs, share IncARRs proportionately • IncARRs continue with cost support/upgrade life • In MW, unidirectional, from Location/to Location • A claim on auction revenue, not an FTR • Multi-step process offering customer choice

  35. Questions?

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