Market-to-Market Coordination in Energy Imbalance Market

1. Market-to-Market Coordination in Energy Imbalance Market Potential Approaches to Market-to-Market Coordination, for Discussion Purposes WECC Seams Issues Subcommittee Meeting Nov. 15-16, 2010 Jim Price CAISO Market & Infrastructure Development

2. Topics for discussion • Discussion at August SIS meeting reviewed role of market-to-market coordination as design feature of Energy Imbalance Service • Review of other ISOs’ market-to-market coordination: • Eastern ISOs’ “Broader Regional Markets” initiative: reduce uplift costs and lower total system operating costs …”, addressing: • Parallel Flow Visualization • Buy-Through of Congestion • Congestion Management / Market-to-Market Coordination • Interface Pricing Revisions • Interregional Transaction Coordination • Installation and Operation of Michigan/Ontario phase shifters (PARs) • Southwest Power Pool – Midwest ISO coordination • Straw proposal to leverage existing functionality of new CAISO market for external-to-internal market integration and dynamic transfers, and extend to reciprocal management of flowgates

3. Clear, functional market-to-market coordination needs to be in Energy Imbalance Service design • Historical experience with inter-market seams issues, e.g.: • Circuitous scheduling around Lake Erie, among NYISO, PJM, MISO, and Ontario’s IESO, allowed market participants to avoid congestion costs (benefit from price differences) while contributing to congestion. • Result: NYISO, PJM, MISO, IESO “Broader Regional Markets” initiative • PJM / MISO Joint Operating Agreement established Reciprocal Coordinated Flowgates for resolving congestion by coordinating dispatch, but disputes led to complaint to FERC over seams issue. • SPP / MISO Congestion Management Process is more limited in scope, but establishes coordination processes. • Market-to-market coordination may establish the necessary data sharing needs to support market operation in both markets. • Existing or readily-implemented mechanisms may be adequate as foundation for CAISO-to-EIM coordination

4. Eastern ISOs’ “Broader Regional Markets” Initiative (Review) (1 of 3) • “Parallel flow visualization” tool: NERC initiative for generation-to-load flow calculations, to exchange transmission system information, assemble necessary real-time data, calculate regional power flow impacts, and provide common and consistent information • WECC west-wide model may support similar functionality • Buy-through of congestion: congestion and redispatch charges based on physical flow, instead of contract path, and choice to curtail instead of paying for redispatch • Example: Ontario to MISO to PJM schedule would pay for congestion due to flows through New York. • Provides more accurate prices for regional trading, congestion cost recovery, and economic-based alternative to transmission loading relief (TLR) procedures. • Details (e.g., “up to” bid to limit congestion cost exposure) to be resolved. Congestion risk management issues include transparency of congestion costs, financial congestion hedges, day-ahead market, and virtual bidding

5. Eastern ISOs’ “Broader Regional Markets” Initiative (Review) (2 of 3) • Congestion management coordination: generation in neighboring areas available to address pre-determined, jointly solved constraints. • Increases collaboration between system operators to use collective assets to manage multiple systems’ constraints, reduce congestion costs to consumers, and provide more consistent pricing across markets. • Method includes agreement on baseline of allowable usage of each others’ transmission networks, and data sharing for constraint management. Detailed design will analyze data from Parallel Flow Visualization tool. • Interface pricing revisions: compatible interface proxy bus prices to efficiently transfer power within the four ISO/RTO regions • Aligns prices between markets to reflect the value of moving energy between regions. • Proposal requires predicting when the phase shifters will conform power flows to schedules around Lake Erie, to incorporate necessary assumptions into day-ahead and hour-ahead markets.

6. Eastern ISOs’ “Broader Regional Markets” Initiative (Review) (3 of 3) • Interregional transaction coordination: Phased proposal to reduce interchange schedule changes from one hour to as little as five minutes • Reduce total system operating costs, and improve price consistency and transmission utilization, as transaction schedules more quickly adjust to market-to-market pricing patterns. • Also, schedule reserves and regulation between regions. • Joint Initiatives in WECC is taking steps in this direction. • Installation and Operation of Michigan/Ontario PARs: completion and activation of phase shifters Michigan-Ontario border, to reduce unscheduled flows and use of TLR to counteract the congestion caused by unscheduled flows. • WECC has existing Coordinated Operation of Phase Shifters.

7. Market-to-Market Coordination in Southwest Power Pool and Midwest ISO (1 of 2) • “Congestion Management Process”: CMP enhances the pre-existing Interchange Distribution Calculator (IDC) to resolve how SPP’s and MISO’s different congestion management methodologies interact, by recognizing and controlling parallel flows external to their own footprints. A brief summary is: • Operators observe limits on coordinated external flowgates. Market-based system operators determine their “firm market flows” on coordinated flowgates and limit their firm market flows to no more than a calculated firm flow limit. • In real-time, market-based operators calculate, monitor, and post to IDC actual and one-hour ahead projected flows, consisting of firm and additional non-firm market flow, for both internal and external coordinated flowgates. • Market-based operators provide their marginal units to IDC, so IDC can compute the effects of all tagged transactions regardless of the size of the market area. Tagged transactions maintain a physical nature, and include transactions into, out, and through of the market, and tagged grandfathered transactions within the market (including self-schedules).

8. Market-to-Market Coordination in Southwest Power Pool and Midwest ISO (2 of 2) • Continuing the brief summary: • The tagged transactions are considered physical because if they are curtailed, expectation in SPP’s and MISO’s CMP is that physical adjustments of generation will increase at the transaction’s sink and decease at the source. • When a TLR 3a request or higher is called on a coordinated flowgate, and the market operator’s actual/hour ahead projected flows exceed firm flow limits, market operators redispatch to meet relief obligations consistent with non-market entities’ response to their Network and Native Load relief obligations. • Distinctions in context between SPP/MISO CMP, and CAISO / WECC: • Firm market flows in CMP include long-term contracts, and CMP distinguishes non-firm flows, whereas transmission sold by CAISO is hourly firm. • Loads in CAISO depend more on imports from other parts of WECC. Imports to CAISO use transmission for which entities sell their transmission rights through external BAAs to CAISO market participants. • Despite differences, proposed CAISO-to-EIM coordination uses analogies to the SPP-MISO coordination.

9. Existing Functionality of New CAISO Market for External-to-Internal Market Integration(Review – foundation for straw proposal)

10. Existing functionality of new CAISO market for external-to-internal market integration • Full Network Model for CAISO market includes external network topology. Adding models of external sources and sinks will improve CAISO’s congestion management, ensure appropriate unit commitment, and can create opportunities for market participation by external resources. • Following recent stakeholder process on dynamic transfers, resource-specific dynamic resources will be modeled and priced at own locations. • CAISO is exploring opportunities for using data available from WECC. • With sufficient data to model external facilities and resources, CAISO has the capability to implement alternative methodologies for modeling external areas: • The FNM can model external transmission systems, generators and loads. • CAISO State Estimator observes operating conditions throughout the WECC, and provides the pertinent data to the market systems for maintaining reliability during market operations.

11. Mechanics of CAISO market functionality for external-to-internal market integration • Net Interchange values for external areas would allow modeling of inter-area transactions. • Values can be schedules at the CAISO boundary, and as net or gross schedules at other boundaries between Balancing Authority Areas. • Entities with control of external generation or demand may participate in CAISO markets on a resource-specific basis. As appropriate, scheduling may reflect an aggregation of resources rather than scheduling all resources individually. • External generation or demand may schedule dynamic transfers with or wheelingschedules through the CAISO Balancing Authority Area. • External load and generation patterns in the CAISO’s day-ahead market can be scaled using distribution factors to meet the demand and net-interchange values among external Balancing Authority Areas. • CAISO market optimization does not adjust its values for external generation and load that are not scheduled in CAISO market.

12. Pricing in CAISO markets with modeling of external-to-internal market integration • The CAISO may monitor external transmission constraints, but does not enforce such constraints in the CAISO market. • CAISO enforces operating limits of internal transmission facilities in the day-ahead and real-time markets, scheduling limits on interties with adjacent Balancing Authorities, and operating limits of interties when available data on external sources and sinks allow modeled flows to match actual flows. • Losses within external transmission systems are excluded from CAISO loss sensitivity calculations and LMPs. • If the CAISO were to calculate MW losses in external systems, they would be distinguished from CAISO system losses to enable the CAISO to dispatch CAISO resources based solely upon conditions within the CAISO system. • In cases where impact on CAISO meets criteria to create an Integrated Balancing Authority Area (IBAA) but data exchange does not enable CAISO to verify operation of the resources to implement interchange transactions, CAISO tariff establishes default pricing rule to reflect the value of interchange transactions with the IBAA.

13. When less detailed data are available, CAISO can implement a simplified modeling approach • Can use a reduced network model derived from WECC models • If external resources do not participate on a resource-specific basis, establish areas that model generation and loads as aggregations at central points in the high voltage transmission network. • Assume day-ahead schedules have source or sink at these aggregations. • If state estimator solution of specific resources is available in the real-time market, view the actual locations of external supply and demand, and model only incremental dispatch at assumed aggregations. • If lack of real-time operational data precludes basing the CAISO’s real-time market solution on a state estimator solution, estimate pseudo-injections to produce flows at the CAISO boundary that match the flows that are observed by the CAISO. • Calculated pseudo-injections only approximate conditions in external network, and are likely to be less accurate for future Dispatch Intervals than if a State Estimator solution were available.

14. Potential Approaches to Market-to-Market Coordination, for Discussion Purposes

15. Straw Proposal for CAISO – EIM Coordination • Straw proposal addresses (1) routine market dispatch and (2) mutual assistance for congestion management • Focus is coordination between CAISO and EIM (and Alberta?) – ECC would apply throughout WECC, and is not a market • Each market would recognize constraints that it would not otherwise enforce • Routine market dispatch would build on new CAISO market’s existing functionality for external-to-internal market integration, plus new functionality resulting from CAISO’s dynamic transfers stakeholder process • CAISO will add external sources and sinks to market network model, to accurately model flows within CAISO • External resources may participate in CAISO market as dynamic transfers, including aggregations and partial resources • CAISO is extending dynamic transfers to export of supply resources • CAISO sees dynamic transfers as supporting intra-hour scheduling

16. Mutual Assistance for Congestion Management Extends the Current Processes • Mutual assistance builds on accepted principles • WECC has established procedures for path ratings, and market operators should use similar process for additional coordinated flowgates. • Enforcement responsibilities apply to flow contributions of 10+%, like UFMP • Proposed mutual assistance for congestion management simplifies CMP, given CAISO’s hourly firm transmission, to the following steps: • Participating market operators model full WECC network, define external constraints in their models, and prepare to enforce constraints in step 4 • Exchange load & generation forecasts and other data at granularity no larger than UFMP zones or equivalent, for accurate flow modeling • When a market operator forecasts real-time congestion, other market operators determine their own firm market flows on the coordinated flowgate • Each market operator then enforces the coordinated flowgate to prevent further increases of its flow, allowing real-time redispatch to reduce flow • Each market operator sends updated schedules and dispatch to ECC