From: Wolfe, Ellen
Sent: Friday, July 28, 2006 1:18 PM
To: Convergence Bidding
Cc: Wolfe, Ellen; 'G. Ackerman'
Subject: WPTF Comments on Convergence Bidding

WPTF is pleased to submit the following comments on the Convergence Bidding open issues. Please feel free to contact me if you have question.  Thanks, Ellen

 

WPTF Comments on Convergence Bidding Open Issues

 

First and foremost, Convergence Bidding should remain a high-priority item for release immediately following Release 1 (unless FERC orders its inclusion in Release 1). It should not be traded-off with the broad group of other post Release 1 design changes.

In regards to the design elements of Convergence Bidding (CB):

1.      Explicit vs. implicit bidding.  The ISO seems to recognize that CB is by its nature explicit.  Having virtual bids be explicit allows the ISO to understand what physical energy is expected as opposed to parties’ financial positions.

2.      Spatial Granularity.  CB should be allowed at the HUBs and LAPs. Allowing CB at generating nodes would provide an additional means of price convergence and hedging for generators. The ISO should investigate further what additional costs – if any – would be incurred to implement CB at the generating nodes.

3.      LDFs – The ISO should use the same LDFs in the DA as those used HA/RT to liquidate the CB financial position.

4.      Market Power Mitigation.  Virtual bids should be subject to the price caps but no other market power mitigation, similar to the practice in other ISOs.   Further, the CAISO should take steps to ensure that virtual bids cannot be used to take advantage of gaming opportunities. 

5.      IFM and RUC commitment costs:  Virtual bids should only be allocated commitment costs (either IFM or RUC) to the extent that such bids result in additional commitment beyond what would have occurred due to physical supply and bid-in load in the IFM and due to the load forecast in RUC. In other words, if the ISO would have committed resources in RUC due to underscheduling of load absent the virtual bids, then financial bids in the DA should not be allocated those costs that would have resulted anyway.  Conversely, it is appropriate to allocate RUC costs to supply that creates a reduction in DA commitment below which would have occurred without virtual bids.  WPTF is pleased to work with the ISO to develop a workable mechanism to implement his proposed cost-causation approach.

6.      Collateral requirements.  WPTF supports implementing a collateral mechanism consistent with those in place at other ISO’s.   Further, we support using the 50th percentile as the proxy clearing price for the collateral calculation. 

7.      Allocation of other (non-commitment) uplift costs.  WPTF believes that treatment of uplifts depends on the type of uplift. To the extent the uplift is the result of physical delivery such as nopay allocations, or differences in calculations of prices for example, such uplifts would be doubly allocated if allocated to physical demand (for example) and virtual bids.  This seems inappropriate.  However, transaction based uplifts (e.g., elements of the GMC) seem appropriately applied to virtual bids given that virtual bids create an impact on the ISO’s systems and processes. 

 

 

Ellen Wolfe

WPTF MRTU Consultant

ph  916 791 4533

fax 916 791 4333

ewolfe@resero.com

www.resero.com