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Virtual Bid Rejection Using LIFO

Virtual Bid Rejection Using LIFO. Topics to Be Covered. Effective March 1, 2005 What’s Different How Will It Work Important Information. The Difference. Current Policy

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Virtual Bid Rejection Using LIFO

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  1. Virtual Bid Rejection Using LIFO ISO-NE Public

  2. Topics to Be Covered • Effective March 1, 2005 • What’s Different • How Will It Work • Important Information ISO-NE Public

  3. The Difference • Current Policy • “ISO Rejects All Increment Offers and Decrement Bids When Such Bids Causes the Non-municipal Participant to Be Out of Compliance With the Policy”* • Revised Policy • ISO Will Reject Individual Increment Offers and Decrement Bids on a “Last In, First Out” Basis, Only As Needed to Bring the Non-municipal Participant Into Compliance With the Policy. ISO-NE Public *ATTACHMENT LFinancial Assurance Policy for NEPOOL Members

  4. Current Bid Review/Rejection Process • Auction Closes 12:00 Noon. • Bids are received and reviewed for Financial Assurance Policy compliance. • Bids are accepted if Participant is compliant with the Policy. • All Bids are rejected if Participant is not compliant with the Policy L.* • When rejected, Participant is notified that all bids were rejected and provided with the Financial Assurance calculations showing the Participant’s Credit Test Value with the rejected bids included. ISO-NE Public *When the assigned value of INCs and DECs caused participant to exceed 100% of the Credit Test.

  5. LIFO Bid Review/Rejection Process • Auction Closes 12:00 Noon • Bids are received and reviewed for Financial Assurance Policy compliance. • Bids are accepted if Participant is compliant with the Policy. • If Participant bids cause the Financial Assurance requirement to exceed the 100% of the Credit Test: • Bids are “batched” and ranked according to the time they enter the ISO’s systems. • Bid batches are removed on a last-in-first-out (LIFO) basis incrementally until the participant’s Credit Test Value drops below the 100% threshold. • Only the bids contained in the batches not removed will be accepted. • Participant will be notified that bids have been rejected and provided with the Financial Assurance calculations indicating the Participant’s Credit Test Value with the rejected bids included. ISO-NE Public

  6. How it Will Work - Batching Process • Bid submittals can take either of two forms: • File Upload • Individual Submission • Each submittal method results in different Batching results. • File Upload • XML file submitted on-line. • As the File is uploaded into ISO-NE Markets Database, the bids within the file are time stamped as they are processed. • Time stamps are on one second increments. • It is possible, in fact, likely, that each XML file submittal will span many seconds.* The result of which is a file upload resulting in numerous sequential Buckets/Batches. • All bids with the same time stamp are grouped together. The ISO-NE can not determine the order in which bids were submitted if they were processed within the same second. • Individual Submission • Individual bids manually entered through the ISO user interface (UI) • ISO will treat each bid entered through the UI as an individual Bucket/Batch. ISO-NE Public *Samples from Production indicate processing rates generally range from 10 to 30 bids per second.

  7. LIFO Rejection Example • All bids in “Buckets” 3 & 2 would be rejected as a result of exceeding 100% credit test. • Bids in Bucket 1 would be accepted, as removal of Buckets 2 & 3 results in the participant’s credit test value dropping below the 100% threshold. Participant TADO ISO-NE Public

  8. Important Information • Effective Bid Value • The sum of the dollars associated with the bids contained within a Bucket/Batch will not necessarily equal the “Effective Value” of that Bucket in terms of impact on FA & the participant’s Credit Test Value. • When INCs and DECs are bid for the same date, at the same location, the higher MW sum (INCs or DECs) will be chosen for purposes of calculating FA. The maximum financial exposure results when only one of the Virtual positions (the INC or DEC) clears the Day-Ahead Market. • For all non-offsetting INCs and DECs, we add the MW values together for purposes of calculating financial assurance. • If, for example, a Participant’s bid portfolio includes offsetting INCs & DECs for a location, and the bids are parsed into separate Buckets, only the higher MW quantity bid will have an Effective Value. • If most of the bids binned in Bucket 3 are DECs for the same day & location as offers for INCs that fall in Bucket 4. And the DEC bids are of a higher MW quantity, the “Effective” bid value, i.e., the impact on the collateral requirement, of the offsetting INCs in Bucket 4 is $0.00. • Removal of all INC offers in Bucket 4 results in no change to the Credit Test Result. ISO-NE Public

  9. Effective Bid Value – Example • Bucket 4 consists of INC offers offset by a greater MW qty of DEC bids from Bucket 3. • Sum of offsetting DEC bids is 522MW while INC offers = 318MW. • For purposes of calculating FA requirements, the INC offers are discarded while the DEC bids are multiplied by the $35/MWh proxy price. • The result is an Effective Value for Bucket 4 of $0, thus, rejection of Bucket 4 has no impact on the Credit Test Value Bid Bucket 2 Bid Bucket 3 Offsetting INC / DEC Bids • Same Node, Same Day - Bid Bucket 4 ISO-NE Public

  10. Important Information • Aligning Offsetting INCs/DECs • INCS/DECS should be listed in the order of importance, with the most important bids listed first in the file upload. • As a result of the unpredictable manner in which the bids are batched, participants should submit offsetting INCs and DECs as pairs to minimize the likelihood of batch rejection of one set of bids while accepting the offsetting bids. ISO-NE Public

  11. Example Bids contained in 1 XML File Upload • Buckets 4 & 5 contain offsetting INCs with an Effective Value of $0. • If 400MW of bids were required to be removed in order to satisfy Credit Test Threshold, Buckets 3, 4 and 5 would be rejected. • Leaving only DECs from Buckets 1 & 2 to be accepted. Bucket 1 Accepted Example – Aligning Offsetting INCs/DECs Bucket 2 Accepted Bucket 3 Rejected Bucket 4 Rejected Bucket 5 Rejected ISO-NE Public

  12. Same Bid portfolio from previous example. • Only difference is the Participant “paired” offsetting INCs & DECs in the file upload. • While the same # of bids are binned into each Bucket, in this case, Bucket 5 contains 2 DEC bids with a combined Effective Value necessary to meet the Credit Test Threshold. • Therefore, only Bucket 5 is rejected. Bucket 1 Accepted Suggested Approach – Aligning Offsetting INC/DEC Bids Bucket 2 Accepted Bucket 3 Accepted Bucket 4 Accepted Bucket 5 Rejected ISO-NE Public

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