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Ancillary Services Market, Day-Ahead Load Response and Special Case Nodal Pricing
Implementation
Vamsi ChadalavadaFERC Technical Conference
March 4, 2005
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Primary considerations in delivering market enhancements
– To implement identified market enhancements as
early as possible
– To balance the urgent and competing stakeholder
priorities
– To minimize overall implementation costs
– To maximize the compelling synergies across multiple
market enhancements
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Primary considerations in delivering market enhancements
– To minimize further delays downstream in various
other important initiatives identified by the ISO and
stakeholders
– This presentation focuses on Ancillary Services
Market, Day-Ahead Load Response and Special Case
Nodal Pricing
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Ancillary Services Market high level scope
– Regulation market redesign
– External transactions setting price
– Day-ahead re-offer period changes
– Reserve markets
• Forward reserve market
• Real-time joint optimization of energy and reserves
– Direct demand participation in reserve and real-time
energy markets
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Day-ahead Load Response high level scope
– Designed for demand resources that can offer load
reductions concurrent with the day-ahead wholesale
electricity market
– The Day-Ahead Load Response Program contributes
to greater market efficiency by allowing the demand
resource to specify the wholesale electricity price at
which it is willing to curtail load
– The demand resource has greater control over its
load reduction because it knows a day in advance
when and for how long its load reduction will be
scheduled
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Special Case Nodal Pricing high level scope
– Permit qualifying customers to settle at nodal prices
– Allows for either a dispatchable or non-dispatchable
option
– Special Case Nodal Pricing will better integrate
demand response directly into wholesale markets
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Original planned implementation sequence
– ISO proposed Day-Ahead Load Response (‘sequential’
methodology) scheduled for implementation in June 2005
– Ancillary Services Market scheduled for implementation in
October 2005
– Special Case Nodal Pricing scheduled for implementation
in October 2005
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Rationale for original planned implementation sequence
– Implement market enhancements as early as
possible
– Comply with commission directives
– Leverage the significant synergies across multiple
elements such as the Reserve market design, direct
demand participation in the reserve and real-time
energy markets, dispatchable special case nodal
pricing
– Address the dependencies for certain market
enhancements
– Recognize the benefits of a ‘system release’
methodology
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Identified synergies that result in efficiency gains
– Many of the elements of the proposed enhancements
primarily involve modifications in exactly the same
software systems and business processes
• Scheduling, Pricing and Dispatch Functions
• Unit Dispatch System
• Settlements and Financial Systems
• Security Constrained Reliability Assessment
• Electronic Dispatch
• Data Modeling
• User Interface and Web Publishing Systems
• Archiving, Performance Monitoring and Analysis
Systems
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Infrastructure dependency
– A fundamental improvement is the introduction of a generic
asset class called ‘asset related demand (ARD)’ that is
integrated in a similar manner as supply across all
• Software systems
• Databases
• Markets and
• Business processes
– Field improvements required in the area of modeling and
metering
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Requirement for certain market enhancements
– Asset Related Demand is needed for the implementation of
• Direct demand participation in reserves and real-time
energy market
• Dispatchable Special Case Nodal Pricing
• ‘Integrated’ Day-Ahead Load Response
– This infrastructure improvement is part of the Ancillary
Services Market project
– Therefore, it is not feasible to implement these market
enhancements until the infrastructure improvement is in
place
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Benefits of a software system release methodology
– Package functionality into a single software system
release
• Significant efficiency gains in terms of software
development, testing and training
• Significant savings in development costs
– Multiple releases (or a ‘release for each market
enhancement’) create the need for additional system
infrastructure and human resources thereby driving
costs and more importantly, delaying the delivery of
market enhancements
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An illustration of the benefits of ‘release methodology’
Ancillary Services
Market* as one release
Ancillary Services
Market* as three releases
Schedule Fall 2005 Fall 2007
Budget $15M $27-$31M
* Identical Functionality
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Why do most market enhancements take so long?
Large Projects Medium Projects
Stakeholder process and
Regulatory approval12-15 months 5-9 months
Project Implementation 15-18 months 9 months
Total Duration 27-33 months 14-18 months
• Examples of large projects include Ancillary Services Market,
Hourly bidding; Examples of medium projects include
Regulation market design; Pricing for external nodes
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Why is the project Implementation phase so long?
Large Projects Medium Projects
Functional Design 10 weeks 6 weeks
Development 24 weeks 10 weeks
Internal Controls, Audits 8 weeks 4 weeks
Testing* 16 weeks 10 weeks
Training** 10 weeks 6 weeks
Total 68 weeks 36 weeks
* unit test, integration test and business end-user test
** 6 shifts of control operators, forecast office and market
administration, business owners and support personnel;
assumes 6 weeks of overlap with testing
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Stakeholder Feedback
– Stakeholder feedback regarding original proposal and
schedule
• Correlation between Ancillary Services Market and
LICAP; Complexity of the Ancillary Services
Market design
• Heavy demand on time due to LICAP and RTO
• Detailed market impact analysis
• High pace of market design enhancements
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Stakeholder Process Improvements
– Based on stakeholder feedback, the ISO will
• Work with NEPOOL in implementing a ‘design
sheet’ (decision tree) approach
• Publish a series of white papers and examples
during the conceptual design
• Provide a market impact analysis as part of the
market design proposal
• Vote on the conceptual design, prior to voting on
the detailed design
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Stakeholder Process Improvements
– The ISO and NEPOOL have adopted this revised
format for further discussion on the Ancillary Services
Market
– The ISO believes that this revised format has resulted
in significant progress being made
– The ISO believes that this experience will help build a
strong foundation for discussions on future market
enhancements
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Revised Implementation Sequence
– The ISO evaluated and presented alternate proposals
for the implementation of Ancillary Services Market,
Special Case Nodal Pricing and Day-ahead Load
Response
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Revised Implementation Sequence
– Approved by ~96% at the February NEPOOL Participants
committee
• Implement Ancillary Services Market as two phases
• Phase 1 scheduled for implementation in October 2005 (filing
by March 2005 and approval by May 2005) will include
Regulation market redesign, Day-ahead re-offer period
changes and External transactions setting price
• Phase 2 scheduled for implementation no earlier than June
2006 (filing by Sept. 2005 and approval by Nov. 2005) will
include the Reserve market design, Direct demand
participation in reserve and real-time energy markets and
Special Case Nodal Pricing
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Revised Implementation Sequence
– Approved by ~77% at the February NEPOOL
Participants committee
• Implement the ISO proposed ‘Sequential’ Day-
Ahead Load response program for June 1 2005
and replace it with the ‘Integrated’ Day-Ahead load
Response program following the implementation of
Ancillary Services Market
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Revised implementation sequence considerations
• FERC decisions on market design proposals and revised
implementation sequence
• Outcome of the LICAP hearings
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Conclusion
• The ISO is striving to achieve the optimal balance between
responsiveness and efficiency (human resource
allocations and monetary expenditures)
• It is the ISO’s twin mission to ensure reliability and fair and
efficient wholesale markets
• The ISO looks forward to working with its stakeholders in
implementing these identified market enhancements