UNIT 2

ELECTRIC UTILITY MARKETS IN THE UNITED STATES

ByDr.K.ELANGO

North America

AfricaSouth America

Pool Scheduling SystemsMajor ISO Systems

AsiaEurope

Power Markets

Australasia

Power Markets: North America

(EMS)

North American Wholesale Electricity Markets ISO / RTO Landscape

Source: Report to Congress on Competition In Wholesale and Retail Markets for Electric Energy (2006)

Overview of Market CharacteristicsComparison of

ISO / RTO Markets

ISO New England and Peers Large Multi-State Large Single-StateLimited Feature

   

ISO New England NYISO PJMMidwest

ISO CAISO ERCOT SPP

Energy Markets

Wholesale MarketsY Y Y Y Y Y Y

Retail MarketsN N N N N Y N

LMPY Y Y Y N N N

Real Time MarketY Y Y Y Y Y Y

Day Ahead Market

Y Y Y YProposed

for '09Proposed

for '09 NFTR Auctions

Y Y Y Y Y Y NFTR Options

N N Y N N N NRenewable Energy Tracking

Y N N N N Y NFutures Market

N N Y N N N NMarginal Losses

Y Y Y Y N N NVirtual Bidding

Y Y Y Y N N N

Ancillary Services Market

Demand Response

Y Y Y N N Y NRegulation

Y Y YProposed

for ‘08 Y Y NOperating Reserves

Y Y YProposed

for ‘08 Y Y NCapacity

Y Y Y N N N N

California Markets

• Even though it offers many common entities, restructuring in California is viewed as being totally different from other restructuring proposals in other countries or even those in the United States.

California Markets

• ISO • Generation• Power Exchange• Scheduling Coordinator• Utility Distribution Companies (UDCs)• Retailers and Customers• Day-ahead and Hour-Ahead Markets• Block forwards Market• Transmission Congestion Contracts(TCCs)

ISO

• The ISO, concerned with the reliability of the transmission grid, balances the operation of transmission grid in real-time.

• The real-time market is operated by the ISO which uses ancillary services bids and supplemental energy bids submitted through PX and SCs.

• The ISO also determines the real-time market price after the fact based on actual metered data.

• The ISO guarantees a non-discriminatory open access to transmission for all users, manages the reliability of transmissions system, acquires ancillary services as required, approves day-ahead and hour ahead schedules, maintains the real-time balancing of load and

Generation

• Non-investor-owned and independent power producers could either bid their power into the PX or schedule it through another SC.

• Generating companies could bid ancillary services through the PX or another SC into the ISO.

Power Exchange

• The PX represents the energy spot market where day-ahead and hour-ahead market clearing prices are determined.

• The PX is a non-profit corporation that is open to all suppliers, provides an efficient and competitive auction and facilitates short-term pool electricity transactions.

• The PX performs competitive trading in the forward day ahead and hour a head markets (auctions).

• In these auctions, participants of the PX submit demand and generation bids based on prices and quantities, and the PX determines the MCP.

• PX submits ancillary service bids to the ISO for maintaining the system reliability, adjustment bids and supplemental energy bids, which are used by the ISO to match loads and resources on a real-time basis.

• PX acts as an SC • PX facilitates delivery of energy from the ISO

grid to participating entities, whether it is produced in or outside California.

Scheduling Coordinator

• A new dimension to competition in power markets by arranging trading between generators and customers.

• SC plays as intermediary between the ISO, retailers and customers.

• The ISO runs the information thorough a computer program to check for transmission congestions. If no congestion exists, the ISO will send an approval signal to the SC, otherwise, the SC will be advised to sell, buy or trade power to resolve the situation.

• SC plays a critical role in restructured power systems

• SCs are the only market players for generation dispatch and responsible for means that congestion is resolved.

• This is different from restructuring proposals in New York, PJM and New England where the ISO resolves congestion.

• SCs powerful in this model is the fact that only SCs would schedule power in the ISO controlled system.

• The ISO is not allowed to adjust individual schedules of SCs’ participants, only SCs have this power, with one exception in the case of extreme emergency.

• Major Differences between SC and PX.• PX is seen as an SC, it has a limited role and

trading functionality as compared to other SCs.• In the day-ahead market, SC participants could

trade energy for reducing congestion and lowering power costs, while PX traders cannot respond to congestion through bids or trades. This may lead market participants to avoid the PX to prevent possible curtailments in the future.

• Interaction between the ISO and SCs in Congestion Management

• Transmission system is at peak, lines in the ISO controlled area could be congested especially when inter-state trading exists.

• The ISO has different procedures for inter-zonal and intra-zonal congestion, and SCs have a major role in these procedures. To manage transmission congestion, changes in generation and loads are required, and these changes are implemented by the ISO based on the data passed by SCs to the ISO.

• Different SCs interact with the ISO by representing their participants in day-ahead, hour-ahead and real-time markets.

• Interaction between the ISO and SCs in Ancillary Services

• SC could submit schedules and bids for ancillary services and bids to provide power in the real-time market.

Utility Distribution Companies (UDCs)

• UDCs provide distribution services to all electric customers and retailers within their service territories.

• Retailers may market and purchase power for retail customers and serve as demand aggregators for retail loads.

• Customers : commercial, industrial, residential, agricultural

Markets

• Day-Ahead Market• Hour-Ahead Market• Real-time (Balancing) Market.• Block forwards Market

Day-ahead market

• participants would bid supply and demand for the next day’s 24 hours. This market starts at 6:00 a.m. and closes at 1:00 p.m. of the day ahead of the trading day.

• When the market closes, the ISO announces the final day-ahead schedules.

• payment settlements would be based on schedules provided within three days after each trading day.

Hour-ahead market

• Participants perform a similar bidding process as the day-ahead market, where the hour-ahead market begins two hours before the hour of operation.

• This market provides a means for participants to buy and sell so as to adjust their day-ahead commitments based on information closer to the transaction hour schedules for minimizing real-time imbalances.

• In this market, bids are unit specific and MCP is determined the same way as the day-ahead market. Once the market is closed, the PX would declare the price and traded quantities to participants.

Block Forwards Market

• CalPX’s market participants were asking the CalPX to offer forward contracts to include on-peak blocks of energy at fixed prices.

• Block Forwards contracts which would improve the overall efficiency of the Califonia’s electricity market.

• The efficiency would be improved by offering longer term trading instruments to help market participants, especially large purchasers, hedge hourly price risk by reducing their exposure to potential price volatilities during peak demand periods.

• The market offers monthly on-peak electricity contracts for delivery beginning in July and for the following five months.

• Each forward block consists of 16 on-peak hours, from 6 a.m. to 10 p.m. daily, for each day of a month, excluding Sundays and certain holidays.

• Contracts are available for each of the following six months, which includes much of the summer when electrical demand and prices are highest and most volatile in California.

• The contract is an excellent instrument to hedge against hourly price variations for purchases and sales in the day-ahead market.

• Block Forwards Market will provide flexibility to buyers and sellers to lock in prices months in advance of the actual delivery date.

• Each Block Forwards contract represents a megawatt of electricity delivered over 16 on-peak hours for each day of the month, except for Sundays and certain holidays,

Transmission Congestion Contracts (TCCs).

• Transmission Congestion Contracts (TCCs) were proposed to deal with congestion in a transmission grid.

• The contract networks approach is proposed that would redistribute congestion rentals to TCC holders which in turn would create additional incentives for the expansion of transmission system.

• TCC can be traded and granted to new investors in a grid. When the possibility of congestion increases, these contracts would become more valuable, which in turn could motivate an efficient expansion of transmission capacity.