Title: 2004 State of CAISO Markets Federal Energy Regulatory Commission Meeting May 4, 2005 Anjali Sheffrin
12004 State of CAISO Markets Federal Energy
Regulatory Commission MeetingMay 4, 2005Anjali
Sheffrin, Ph.D.Director of Market Analysis
2Outline
- Market Performance
- Stable costs to serve load
- Demand and supply fundamentals
- Market competition and revenue sources to sustain
new entry - Key Market Issues Reviewed
- New real-time market software installed in Oct
2004 - Rising real-time congestion costs in southern
California - Ancillary Services market bid insufficiency
- Summer 2005 Outlook
3 Overview of Control Area
- 11 million households served in PGE, SCE, and
SDGE and some municipal utilities - 2004 Peak Load of 45,597 MW
- 43,460 MW of available generation capacity at
peak after derates for hydro and outages - 9,116 MW net imports on peak hour
- California ISO Markets
- Real-time balancing
- Day Ahead and Hour Ahead Reserves
- (Reg-Up, Reg- Dn, Spin, Non-spin)
- Day Ahead zonal congestion management
- No Day Ahead Energy Market
COI
Pac DC
NP15
SF
SP15
Path 15
ZP26
Mead
Market
Place
McCullough
LA4
LA2
Eldorado
Path 26
Lugo
Vincent
Mohave
Sylmar
AZ3
Palo
Devers
Verde
N.Gila
Imperial Valley
Miguel
Mexico
4Third year of stable market performance Total
Cost 12.8 billion in 2004, v. 11.4 billion in
2003 Increase in costs affected by natural gas
pricesWholesale Energy and Ancillary Service
Costs, 1998-2004
52004 All-in price of wholesale energy 53.46/MWh
ISO Market Costs
6Competitive Market Outcomes in 2004
Price-to-cost markups for short term energy 5.2
in SP15 4.9 in NP15 Short-Term Markup Indices
SP15
7Real-time Energy Prices Rise in Q4 of 2004
2002-2004 Wtd. Average Monthly Real-time Energy
PricesPeak Hours
82004 Monthly Average Ancillary Service Prices
9Demand Supply Fundamentals
- 2004 load growth increased around 3.7 from
2003 levels due to economic growth - 2004 net generation additions slowed to lowest
level in past three years but expected to pick
up in 2005 - 2004 net imports increased 5 with sharp increase
in Southwest imports
10Major paths with Day Ahead interzonal congestion
costs2004 Interzonal Congestion Revenues on
Selected Paths
11Net generation additions slowed considerably in
2004 compared to previous three years
2001-2005 Generating Capacity Additions and
Retirements
12Transmission constraints result in large regional
differences in reserve marginsNP 15 and SP 15
Reserve Margins during southern Calif peak on
Sept 10, 2004
13High RSI levels in 2004 indicate a healthy market
with suppliers pivotal in fewer than 22 hours in
the yearHourly Residual Supplier Index 1999-2004
Residual Supply Index Total Supply Largest
Supplier Demand
14Revenue contribution from ISO markets for a new
typical combined cycle generation unit fell 4
percent in 2004, combustion turbine unit profits
increased 24 percentNet Revenue Analysis, 2002
through 2004
Net revenue analysis based on units selling
solely into ISO imbalance energy and ancillary
service markets including of starts.
Typically, a significant portion of fixed cost
recovery would covered by a long-term bilateral
contract.
15Key Market Issues
- New Real-time Market Software Installed in Oct
2004 - Real-time Market Application (RTMA) - Rising intra-zonal congestion costs in southern
California - Chronic Ancillary Services market bid
insufficiency - Summer 2005 Outlook
161. Market Redesign Phase 1B Real-time Market
Application
- Automated real-time dispatch to insure feasible
instructions in real-time market - Automatically balances electricity requirements
in 5 min dispatch intervals, single Market
Clearing Price - Dispatches units for ramping up to 2 hours in
advance - Dispatch instructions considers specific
generation unit capabilities - Economic dispatch clears transaction to allow
additional flexibility to exchange costly energy
dispatch for less expensive energy - Uninstructed deviation penalties shown but not
applied - Recent concern with inter-tie bidding resulting
from incentives from settlement rule of bid or
better
171. New Real-time Market Software
InstalledOctober 2004
- Automated real-time dispatch to insure feasible
instructions in real-time market - Better Operator Control resulting in fewer CPS
violations - Reduced need for Regulation Service
- Elimination of declined dispatch instructions
- Some benefits from illustrating potential impact
of uninstructed deviations penalties - More price volatility
- Software tuning and enhancement continues to
incorporate better unit information and known
load and generation deviations
182. Real-time Intra-zonal Congestion
- Annual real-time congestion costs increased from
151 million in 2003 to 426 million in 2004 - Results from sustained derates for transmission
upgrades - More efficient, cheaper generation available from
southwest scheduled in forward markets to meet
southern California load may not be feasible in
real-time - Zonal congestion management market does not
account for intrazonal congestion and allows
infeasible forward schedules resulting in
significant real-time congestion - Transmission enhancements and new LMP market
design are long term solutions to address
real-time congestion costs
193. Ancillary Services Market Bid Insufficiency
- The frequency of insufficient AS market bids to
meet reserve requirements has increased over the
past year - First became problematic in 2002 when a
significant amount of capacity signed up as
condition 2 RMR and no longer able to participate
in AS markets - Exacerbated in 2004 by locational procurement of
AS and increased amount of capacity committed by
ISO - 2004 market changes implemented to mitigate
severity of AS market bid insufficiency - Amendment 60 provided that ISO committed units
could sell into the AS market and retain their
commitment payments- July 11 - ISO commitment timeline moved forward so that
committed units could participate in DA AS
marketsincreased market capacity by 12 percent
early Sept
204. 2005 Summer Outlook
- ISO 2005 Summer Assessment
- 13 reserve margin (without interruptible load)
to meet demand for expected 1-in-2 or average
conditionssouthern California margins are thin - Challenges for southern California for 1-in-10
or high load condition - 2005 State Preparedness Plan
- Summer peak-hour simulation to assess how much
market is going to rely on ISO redispatch in
real-time