Price Restatement Period Review Stakeholder Comment Matrix

Price Restatement Period Review
Stakeholder Comment Matrix
The AESO looks forward to receiving stakeholder input on this initiative and requests that comments are provided to [email protected] using
this comment matrix by March 9, 2012. Should you have any questions on this Paper, please contact [email protected] or ph: 403-539-2667.
Stakeholder: Amber Kirby
Organization: Capital Power Corporation
th
Date: March 9 , 2012
Phone: 403-717-4677
E-mail: [email protected]
Paper
Section
Topic
Stakeholder Comment
1
Executive Summary
No comments at this time.
2
Purpose
Capital Power is pleased to offer the following comments on the AESO’s Price Restatement Period
Review. While described in more detail in the sections below, Capital Power’s position is summarized
briefly as follows: Capital Power appreciates the AESO’s efforts in preparing the Discussion Paper and
initiating consultation on this important issue. Capital Power shares the view expressed by the AESO
that improvements in market efficiency could be achieved if the price restatement period is reduced from
the current two hour lead time required, and believes that the efficiency gains would be significant.
Capital Power believes that the closer to real time that market participants can respond to changes in
market fundamentals, the more efficient the outcome is likely to be. However, to the extent that imports
and exports must be treated as Alberta internal generators at the border, ATC allocation rules may limit
the ability to submit restatements closer than T-1 hour. Given these considerations, Capital Power
recommends reducing the price restatement period to T-75 minutes.
3
Terms of Reference
The AESO’s discussion paper states that the AESO is not seeking feedback at this time regarding other
market changes that were implemented as part of the Quick Hits implementation. Capital Power
Page 1
Confidentiality Classification
Paper
Section
Topic
Stakeholder Comment
believes a review of certain of those other changes, including the must-offer obligation, should also be
undertaken by the AESO to evaluate their necessity, effectiveness and appropriateness in the context of
Alberta’s energy only market design.
4
Background
Coherence
and
Policy
Capital Power was an active participant in the DOE’s market design review that culminated in the 2005
DOE document entitled “Alberta’s Electricity Policy Framework: Competitive, Reliable, Sustainable,” and
in the subsequent AESO-led consultations regarding the Quick Hits rule changes that were implemented
in December 2007.
The merit order stabilizers, including the must offer requirement, permitting unlimited voluntary price
restatements before T-2 and allowing only mandatory energy restatements within T-2, have resulted in
some significant shifts in the market. As stated in Section 3.3.4 of the AESO’s paper entitled “Quick Hits
rd
– A Six Month Review” published on July 3 , 2009, permitting unlimited voluntary price restatements
only prior to T-2 was “intended to enhance merit order stability, and reduce intra-hour volatility, the
frequency of short duration dispatches and price chasing”. Prior to the implementation of the Quick Hits
rule changes, market participants were permitted to submit a single locking restatement per day up until
the start of any delivery hour. As the AESO system controller often dispatched units for the start of the
delivery hour at about T-15, locking restatements submitted after T-15 would sometimes require the
AESO to revise the top-of-the-hour dispatches for several units according to the revised merit order.
Capital Power would expect that the system controller has gained valuable experience with the Quick
Hits rule changes since 2007 and submits that, although there are several assessments that must be
completed before issuing top-of-the-hour dispatches at T-15, preventing voluntary price restatements for
a full two hours before the delivery hour may no longer be necessary. The AESO’s willingness to
consider shortening the restatement period confirms this point. As noted in section 5.3.2 of the AESO’s
discussion paper, shortening the price restatement period may have little or no impact on adequacy
assessments, though there may be some implications for dispatching long lead time energy assets.
To be clear, Capital Power recognizes that the ability to submit multiple voluntary price restatements per
day implemented as part of the Quick Hits package of rule changes has enabled great improvements in
market efficiency as internal generators can adjust their offer strategy to respond to intra-day changes to
Page 2
Paper
Section
Topic
Stakeholder Comment
market fundamentals. It was also an important improvement to permit multiple mandatory energy
restatements to reflect changes in the operational characteristics of the plants since it is possible that
multiple submissions will be required in a single day. Prior to the Quick Hits rule changes, market
participants would have to reject dispatches in real time if their offer strategy did not reflect real time
changes to unit capability, such as increases in the unit’s minimum stable generation. Capital Power
supports continuing to permit market participants to submit multiple offer restatements per day.
5
Analysis
No comments at this time.
5.1
Current Market Timeline
No comments at this time.
5.2
Current Restatement
Activity
The AESO comments that the majority of mandatory energy restatements for import and export
transactions that occur between T-20 minutes and T-15 minutes would likely be reduced if the price
restatement period was closer to real time since offers will more accurately reflect market conditions.
Typically import and export offers are reduced between T-20 and T-15 minutes due to insufficient
transmission. These reductions would only be prevented if market participants had confirmed
transmission reservations before entering the initial import and export volumes in ETS. Therefore, these
restatements would only be reduced if the ATC allocation and transmission reservation period occur
before the price restatement period.
5.3
Areas Impacted
Capital Power appreciates the thorough analysis and assessment provided by the AESO of the potential
impacts that changing the price restatement period may have for different aspects of the market.
5.3.1
System Operation
Capital Power would expect that the system controller has gained valuable experience with the Quick
Hits rule changes since 2007 and although there are several assessments that must be completed
before issuing top-of-the-hour dispatches at approximately T-15, preventing voluntary price restatements
for a full two hours before the delivery hour may no longer be necessary.
5.3.2
Adequacy Assessments
Capital Power agrees that aside from dispatching long lead time energy assets, shortening the price
restatement period would not significantly affect the system controller’s ability to conduct adequacy
assessments as changes in supply and demand within T-2 are already being taken into account.
5.3.3
Long Lead Time Energy
Assets
The AESO’s Price Restatement Period Review discussion paper recognizes that some units currently
require more than two hours lead time for startup so the system controller must have a work around for
dispatching these units under the current T-2 rules. The T-2 price restatement period was originally
determined as a balance between allowing for efficient market outcomes while accommodating
operational limitations of a few generating units. To the extent that significant improvements in market
Page 3
Paper
Section
Topic
Stakeholder Comment
efficiency may be gained by shortening the price restatement period, it may be beneficial to implement
similar work-arounds for all long lead time energy assets.
5.3.4
Energy Market Merit Order
Stability
As noted in section 3 above, Capital Power believes a review of other changes introduced as part of the
“merit order stabilizers,” including the must-offer obligation, should also be undertaken by the AESO to
evaluate their necessity, effectiveness and appropriateness in the context of Alberta’s energy only
market design.
5.3.5
Price Forecasting
No comments at this time.
5.3.6
Intertie Scheduling
The current T-2 rule creates seams issues when transacting between Mid-C and Alberta. This makes it
difficult to secure a counterparty before T-2 so the anticipated import or export volume entered at T-2
does not necessarily reflect what will be available from counterparties in Mid-C closer to T-1. Therefore,
the AESO should consider counterparty availability as an acceptable operating reason for decreasing
volumes after the original ETS submission. This issue is explained in more detail below.
Import and export transactions between Alberta and Mid-C are currently accomplished through a
process involving several steps. First, the trader anticipates the volume of power he will be willing and
able to import or export. Second, the trader enters the volume he believes will transact in the AESO’s
electronic trading system (ETS) two hours before the start of the delivery hour (T-2). Third, at the start of
the delivery hour British Columbia Hydro (BCHA) releases any additional non-firm transmission capacity
that has not already been used for the next hour (T-1). Fourth, the trader secures transmission from
British Columbia Hydro (BCHA). Fifth, the trader attempts to secure a counterparty in Mid-C to complete
the transaction. And finally, the trader enters an electronic tag (e-tag) to schedule the physical flows.
There are several seams issues created by the T-2 rule being applied to imports and exports in addition
to those discussed in the AESO’s PRPR discussion paper. Unlike the Alberta market, Mid-C is a bilateral
market where transactions do not settle through a power pool but are arranged as direct transactions
between market participants. Because the Mid-C counterparty must physically generate the power to be
imported into Alberta, if the transmission through BC is curtailed by BCHA, the Mid-C counterparty must
either decrease the output of their generator if possible, or find a last minute buyer within Mid-C to take
the excess generation. Therefore, Mid-C counterparties that do not have flexibility in their generating
capability are reluctant to sell power to Alberta market participants that are using non-firm transmission.
The Alberta market rules further exacerbate the situation by requiring expected import and export
Page 4
Paper
Section
Topic
Stakeholder Comment
volumes to be entered in the AESO’s energy trading system (“ETS”) at T-2 and not allowing these to be
reduced within T-2 without an acceptable operating reason. Mid-C counterparties rarely transact ahead
of T-2, especially when the Alberta counterparty has yet to book BCHA transmission. It can be
challenging to secure a seller before T-2 that is willing to reserve their capacity until T-1 when the
Alberta counterparty is able to buy the hourly non-firm transmission required to complete the transaction.
In cases where counterflow import transmission becomes available late in the hour as a result of exports
being booked by other AB market participants, it will be even more difficult to purchase additional import
transmission and find Mid-C sellers on such short notice. As a result, there will likely be an increased
number of situations where the required transmission is available but the full volume that was entered in
ETS at T-2 could not be imported due to a lack of supply available in Mid-C.
These seams and timing issues, and the underlying market realities, create a significant compliance risk
for market participants, and one that the AESO to date has not fully addressed in respect of the scope of
“acceptable operating reasons.” Another consequence of the seams and timing issues is that the import
and export volumes submitted to the AESO by market participants at T-2 do not provide any certainty
with regard to the volumes that will ultimately flow. In these respects, aside from subjecting imports and
exports to the same administrative requirements as internal generators, it is unclear what practical
purpose is achieved through the submission of only tentative import and export volumes at T-2.
Preventing changes in declared import and export volumes within T-2 also leads to inefficient outcomes
within T-2. If market participants have to declare two hours in advance what they intend to import or
export, then when there are significant changes in supply and demand within the province, power
imported or exported will not be permitted to change in response to the supply shortage or surplus for 3
hours. This results in an inefficient outcome as supply to meet Alberta’s requirements should flow from
the most economic source – be it internal generation or imports - but is unable to be scheduled due to
market rule limitations.
Capital Power agrees with the AESO’s observation in the PRPR Discussion Paper that significant
efficiencies could be gained by allowing market participants to report intended import and export
volumes closer to the start of the delivery hour when they will have a more accurate idea of the
availability of both Mid-C counterparties and transmission and a better idea of the expected supply and
demand balance in Alberta.
Page 5
Paper
Section
Topic
Stakeholder Comment
5.3.7
Wind Power Integration
Capital Power agrees with the challenges identified by the AESO in the PRPR Discussion Paper.
5.3.8
Transmission
Management
Although a potential race to zero is a concern, the current T-2 rule only delays this potential effect. The
broader efficiency benefits that can be gained by reducing the price restatement period outweigh this
potential risk.
5.3.9
Demand Response
Capital Power agrees that changing the price restatement period will not affect real time demand
response activities. However, the potential detrimental effect that other initiatives currently under
consideration may have for the ability for loads (and generators) to respond to market fundamentals in
real time, notably potentially discontinuing the publication of certain market reports and information, are
noted by Capital Power at this time.
5.3.10
Operating Reserves
Capital Power agrees with the AESO’s assessment that shortening the price restatement period would
enable market participants to optimize their assets if operating reserves are substituted closer to real
time.
5.3.11
Dispatch Down Service
Capital Power agrees that the efficiency benefits that would be achieved by reducing the price
restatement period for energy offers would be similar for DDS offers as well.
5.3.12
Supply Surplus
The current market rules enable mandatory energy restatements to be submitted within T-2 provided
there is an acceptable operational reason for doing so. One such reason is an increase in minimum
stable generation that would require a market participant to increase the volume offered by the unit at $0
to reflect the increased minimum stable generation and reduce the likelihood of being dispatched below
operationally feasible levels. However, the AESO does not consider a decrease in minimum stable
generation to be an acceptable operational reason to restate the excess volumes to a price higher than
$0 within T-2. This results in an oversupply of energy being priced at $0 until those excess volumes can
be offered at an increased price through a voluntary price restatement. Reducing the T-2 requirement
would enable offers to more accurately reflect the operational capabilities of the unit closer to real time,
which would be particularly beneficial in supply surplus situations.
6
Considerations
for
a
Revised Price Restatement
Period
Significant improvements in market efficiency could be achieved if the price restatement period is
reduced from the current two hour lead time required. The closer to real time that market participants
can respond to changes in market fundamentals the more efficient the outcome is likely to be. However,
to the extent that imports and exports must be treated as Alberta internal generators at the border, ATC
allocation rules may limit the ability to submit restatements closer than T-1. Therefore, Capital Power
recommends reducing the price restatement period to T-75 minutes.
Constraints
Page 6
Paper
Section
Topic
Stakeholder Comment
The system controller has gained valuable experience with the Quick Hits rule changes since 2007 and
although there are several assessments that must be completed before issuing top-of-the-hour
dispatches at approximately T-15, preventing voluntary price restatements for a full two hours before the
delivery hour may no longer be necessary. Capital Power understands the system controllers’ desire for
some merit order stability in order to assess supply adequacy and reduce the frequency of short term
dispatches. However, these assessments are likely conducted closer to the start of the delivery hour to
take into account several changes to supply and demand that may have occurred within T-2.
6.1
Price restatement period
greater than T-120
Several inefficiencies caused by the T-2 rule have been described in Capital Power’s comments above.
Increasing the lead time to something greater than T-120 minutes would only further exacerbate these
issues. Capital Power would consider increasing the price restatement period a step backwards and
would not support this option.
6.2
Price restatement period
less than T-120 and greater
than or equal to T-60
The current version of the AESO’s ATC Allocation rule as submitted to the AUC on December 5 , 2012
and subsequently objected to by several market participants involves the AESO allocating ATC between
BC and MATL at T-85 minutes based on ETS submissions received at T-2. If this rule is approved by the
AUC as submitted by the AESO intended import and export volumes will be required to be submitted
prior to T-85. In that event, and in order to decrease the price restatement period as much as possible,
the ATC allocation process should be changed to T-70 minutes based on offers submitted at T-75. T-75
would be an improvement over the current T-2 hours requirement and would be expected to provide
several of the efficiency gains identified by the AESO.
th
However, the challenges with declaring intended import and export volumes prior to securing
transmission or a counterparty in neighbouring jurisdictions results in significant compliance risks for
market participants if the AESO continues to enforce a narrow interpretation of the acceptable
operational reason definition. (Our specific concerns regarding counterparty availability were explained
in section 5.3.6 of these comments.) Therefore, although a price restatement period close to T-1 would
be advantageous from a market efficiency perspective, it would require the AESO to acknowledge lack
of available counterparties in Mid-C as an acceptable operational reason for reducing the volume to be
imported or exported before the start of the delivery hour.
6.3
Price restatement period
When hourly non-firm transmission is booked through BC and then subsequently curtailed due to
Page 7
Paper
Section
Topic
Stakeholder Comment
less than T-60 and greater
than or equal To T-20
transmission constraints within BC, market participants are refunded the cost of the transmission
purchased. However, if the transaction is curtailed due to constraints outside of BC, the market
participant is still obligated to pay for the transmission despite it not being used. As hourly non-firm
transmission is released for purchase at T-60minutes, market participants wishing to flow power through
BC will attempt to purchase the required transmission at that time. If the AESO curtailments are issued
after T-60minutes based on offers submitted to the AESO’s ETS, and BC transmission has already been
awarded, Alberta market participants may be forced to pay for BC transmission that they are not able to
use due to Alberta constraints.
Therefore, a price restatement period of less that T-60 would not likely be beneficial for imports and
exports as the risk of paying for unused transmission would outweigh the efficiency gains of declaring
import and export decisions closer to real time.
For internal generators, the closer to real time that offers can be adjusted, the more responsive to
changes in supply and demand market participants can be. However, to the extent that imports and
exports are to be treated as Alberta generators at the border, the ATC allocation requirements would
likely limit the ability to permit a price restatement period of less than T-60.
6.4
Price restatement period
less than T-20
For internal generators, the closer to real time that offers can be adjusted, the more responsive to
changes in supply and demand market participants can be. However, to the extent that imports and
exports are to be treated as Alberta generators at the border, the ATC allocation requirements would
likely limit the ability to permit a price restatement period of less than T-20.
7
Summary and Next Steps
Capital Power appreciates the AESO’s efforts in preparing the Discussion Paper and initiating
consultation on this important issue. Capital Power shares the view expressed by the AESO that
improvements in market efficiency could be achieved if the price restatement period is reduced from the
current two hour lead time required, and believes that the efficiency gains would be significant. The
closer to real time that market participants can respond to changes in market fundamentals, the more
efficient the outcome is likely to be. However, to the extent that imports and exports must be treated as
Alberta internal generators at the border, ATC allocation rules may limit the ability to submit
restatements closer than T-1 hour. Given these considerations, Capital Power recommends reducing the
price restatement period to T-75 minutes.
Page 8
Paper
Section
Topic
Stakeholder Comment
Capital Power will continue to be an active participant in the next stage of the price restatement period
review consultation.
Any other comments
No comments at this time.
Page 9