18 October 2007 – 165 days to MRTU market launch on March 31, 2008

 

In This Issue

Executive Corner with Chuck King, VP Market Development & Program Management

Are You on Track for MRTU?

Market Simulation Returns

CRR Allocations - How are they Going?

Chuck King, VP Market Development & Program Management

Executive Corner
Chuck King, Vice President Market Development & Program Management

Greetings!  This month’s issue of Homestretch finds us all one major step closer to market launch with the successful kick-off of Market Simulation-Release 3 late last month.  For the first time, participants can see both the Day-Ahead and Real-Time Markets functioning in tandem and consistent with expected operation following GO LIVE next March.  This is truly an exciting experience as we see the major market elements come together as one system from bid-to-bill.

The California ISO Market Redesign & Technology Upgrade (MRTU) Team has worked extremely hard to learn from the experiences of the second market simulation and take the steps necessary to ensure that all market participants have a meaningful simulation experience.  Long days, nights and weekends have been devoted to thorough end-to-end testing, charge code validation and a myriad of additional application testing prior to initiating the latest round of market simulation.  At this stage of the software development cycle, we still anticipate encountering a few variances with new systems (after all, that’s what testing is for).  At the same time, we are working diligently to minimize your staff’s time in debugging the new ISO systems, which allows them to focus on testing your new systems.

While the majority of the energy and ancillary service markets are either in simulation, or some stage of testing, there is one important aspect of the market that is already well into production.  The allocation process for Congestion Revenue Rights (CRRs), the all-important financial hedging mechanism for locational costs associated with transmission bottlenecks, completed its Tier 1 Allocation process and posted results on September 26th.  More than 30 CRR candidates participated in the Tier One Allocation, which distributed rights for the last three quarters of 2008 – following the MRTU launch on March 31.  A total of 100,494 megawatts were requested and the ISO was able to award more than 98 percent of the CRR nominations received.  How did your company fare?  One of the articles that follows is a question and answer interview with one of our engineers about the CRR Allocation process.  It may give you some insight about CRRs and their important role in the MRTU market structure.

When it comes to market readiness, the California ISO not only monitors its own progress, but also works directly with your teams to track the industry’s collective progress toward readiness.  It’s all about people, process and technology – and all must come together to ensure a successful market launch!  Earlier this year, the MRTU Readiness Team conducted detailed Readiness Assessments with each Scheduling Coordinator (SC) and over the summer a second assessment was completed.  The results of this second readiness assessment have been analyzed and distilled into specific feedback and suggested action plans to each individual organization.  An article follows detailing the aggregate results of the industry’s readiness for next year’s MRTU launch.  Overall, things are as expected – many things have been accomplished and much remains to be completed.  The last round of readiness assessments will be conducted in December and we encourage all market participants to fully leverage this important service provided by the ISO.

Whether you are focused on the CRR allocation process, market simulation or other readiness activities please remember that we are here to help and work with you every step of the way to market launch.  Please do not hesitate to reach out and let us know how we can all be successful in this historic journey to the new California energy markets.

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MRTU Readiness Snapshot

  
 

The following are brief summaries of recent readiness milestones, as the California ISO and market participants work together to prepare for next year’s launch of the Market Redesign & Technology Upgrade (MRTU):

  • In late September, the Federal Energy Regulatory Commission (FERC) hosted a technical conference about MRTU Business Practice Manuals (BPMs) to discuss the distribution of content between the ISO tariff and these new business resources.  The meeting – attended by the ISO and 20 participant representatives – was a valuable exchange that clarified what rates, terms and conditions should be included in the tariff.  Next steps include a FERC filing on November 15 with proposed tariff changes and an updated posting of revised BPM drafts, which can be found on the ISO website at:  http://www.caiso.com/17ba/17baa8bc1ce20.html.
  • Last month’s MRTU Implementation Workshop was expanded to include a special settlements session to prepare for a charge code walk-though the following day.  Participants found these sessions very helpful and requested more of them – so we’re planning to do just that.  We recognize that the new settlements system is complex and want to make sure that market participants understand how to validate their financial transactions within the new MRTU systems.  Look for another session on settlements charge codes in late October.

MRTU readiness activities are designed to address the People, Process and Technology requirements for conducting business within the new MRTU markets. A monthly “dashboard” Status Report is filed with the Federal Energy Regulatory Commission (FERC) and is available on the ISO website. The ISO Calendar also provides MRTU meeting and implementation details.

 

Are You on Track for MRTU?

In a short six months, the launch of the new MRTU energy markets will be upon us and it’s imperative that both the ISO and those who participate in the markets are ready for the historic change.  The ISO has established a comprehensive readiness program to evaluate and track progress of the industry’s preparation efforts.

People, process and technology are the focuses of that readiness program and a series of assessments have been conducted to determine SC status and provide personalized action plans with suggested next steps.  Two action plans have been provided this year – one in January and the other in September.  They contain a summary of the ISO’s assessment of each SC’s readiness, based on their answers to a series of 34 questions.  Representatives from the SC organization rank their status regarding specific implementation requirements stating whether the activity is:  complete, more than 50% complete, less than 50% complete, not started or not applicable.  More than 80 SCs were assessed in the follow up assessment late this summer and were provided with a status of “On Track” or “Behind Schedule.”  Results summarizing how many organizations are on track, in relation to the ISO’s expectations for this point and time are:

24% of SCs are on track with their TECHNOLOGY initiatives. While this may seem low, it is worth noting that the last assessment was administered during a hiatus of system testing and market simulation activities. Integrated Market Simulation Release 3 with the full MRTU bid-to-bill testing environment was introduced on September 24th, providing both the ISO and market participants with the testing opportunities needed for further system development. All of the follow up action plans encourage full participation in market simulation to ensure SC systems are fully operational and able to interact with ISO systems.
35% of SCs are on track with their PROCESS initiatives. The finalization of internal processes is closely connected with the testing and operation of MRTU systems.  Again, full participation in market simulation is encouraged to further develop systems which in turn will enable internal processes to be completed.
48% of SCs are on track with their PEOPLE initiatives. Staff training is the biggest issue here and action plans therefore emphasize the training resources and course delivery schedule offered by the ISO. Many of the available MRTU training resources are available on DVD and in computer-based training modules. These self-administered materials can be found at: http://www.caiso.com/docs/2005/10/07/200510071157559066.html

The ISO wants to do what we can to help organizations get ready for MRTU. SCs have requested more information about Master File data entries, the settlements process and inter-SC trades. These subjects and more will be addressed in special trainings and monthly implementation workshops in coming months.

What’s next?  A final assessment of SC readiness will be completed in December and the results will be used to guide the ISO and its Board of Governors in approval of the FERC certification to be filed January 31, 2008.  Several additional touch points are also planned to maintain close coordination that will help ensure a successful MRTU launch.  A list of additional readiness activities was provided in the initial issue of Homestretch.  For more information, consult caiso.com at:  http://www.caiso.com/18ae/18ae96b71f1a0.html.

Market Simulation Returns

On September 24, market participants and the ISO resumed simulation activities for the new MRTU markets.  It’s called IMS-R3 which is short for “Integrated Market Simulation Release Three.”

“While there are areas that need attention, overall we’re very pleased with the system performance experienced during the first weeks of IMS-R3,” said Mark Rothleder, ISO Principal Market Developer.  “SCs representing more than 86 percent of the generating capacity on the grid are participating and we’ve seen system availability of 96 percent during the hours the market simulation environment was supported.”  

This phase of simulation is similar to previous testing phases, but with two important enhancements:

  • First, we have added the Real-Time Market. That means that in addition to testing their ability to submit bids and retrieve market results, market participants are also receiving dispatch instructions for generating units.
  • Second, starting October 1st participants began receiving full settlement statements – with charges from both the Day-Ahead and the Real-Time Markets – that they can validate with information available through public and private sources. 

“This phase of simulation is a key milestone because it integrates the forward and real-time market activities,” said Rothleder.  “There are a few functions yet to be added, but the primary MRTU design features are available for testing.”

The addition of settlement statements is a critical feature that allows scheduling coordinators to validate the flow of dollars associated with their market bids.  The complete settlement system includes more than 121 individual charge codes to track the finances associated with specific market activities.  For the both the Day-Ahead and Real-Time Markets, charge codes are available for the following market products: energy, congestion, transmission losses, spinning and non-spinning reserves, regulation up, regulation down, inter-SC trades and the Grid Management Charge for inter-SC trades.

The ISO continues to test additional charge codes and will add them to IMS as they become available.  In addition, the ISO held a training session in late September to walk through the process for validating settlement statements and to point participants to the sources for information they need to validate their statements.

There have also been a few challenges associated with IMS-R3.  The ISO was able to resolve a couple of urgent issues that affected users’ access to the system fairly quickly, but some high-priority matters concerning system performance, the quality of market data and the availability of market results still need to be addressed.

“These issues demonstrate the need for robust market testing,” said Rothleder.  “If we can address them in a simulated environment where real megawatts and dollars are not at risk, the transition to the new market will be much smoother and participants can learn to use their tools effectively to advance their own business objectives.”

Market simulation activities will continue though the end of this year and into mid-February of 2008.  These exercises include both structured and semi-structured bidding based on specific scenarios outlined by the ISO and market participants. 

  • Structured testing allows for more consistency over the test results and facilitates the shake-out process to help detect bugs or variances in the new functionality for that simulation. 
  • Semi-structured testing allows market participants to vary their bid structures and strategies based on the defined scenario for the day (i.e. summer peak, fall, high hydro, low hydro, etc.).  This allows participants to get a true feel for how the entire market will work, while at the same time testing their respective systems. 

Additional market functionality will be added to the market simulation environment in early November with a final bundle to be added in mid-December.  For each update, the schedule calls for periods of both structured and semi-structured testing to ensure the new functionality performs properly and that market participants may test the impact on their respective systems.  Additional information about IMS-R3 is available on the ISO web site at: http://www.caiso.com/1bd7/1bd7ebbc72fc0.html

CRR Allocations – How are they Going?

Congestion Revenue Rights (CRRs) were the first feature of MRTU to GO LIVE, with the Tier 1 Allocation conducted from August 3 to September 14 and the Tier 2 Allocation which ran from October 5-16.  We spoke with ISO Market Design Specialist and Subject Matter Expert for CRRs Jim McClain for some feedback on how the process has worked to date.

Homestretch: The whole CRR concept is new to California, how are they being received?
McClain: The CRR Allocation Process is oriented toward Load Serving Entities (LSEs) that are looking to provide their customers with rate stability. CRRs offer an opportunity to hedge the risk associated with the congestion component of locational marginal prices. Through the allocation process, market participants have an opportunity to pursue CRRs where they expect congestion to occur.
Homestretch: Did participants get the CRR allocations they wanted?
McClain: With both the Tier 1 and 2 allocation processes behind us, I believe most participants received a high percentage of what they requested. They will have another opportunity to secure more annual CRRs in the Tier 3 process in November. At that time, LSE participants will need to evaluate their results from the CRR allocation and decide whether or not to participate in the annual auction scheduled in December of 2007, to “fill in any cracks” within their congestion plan. The monthly allocation and auction processes will then follow in early 2008.
Homestretch: Has the CRR allocation process work as expected?
McClain: From the ISO perspective, the CRR system is working very well and from the feedback received from market participants, they seem to feel the process worked about as well as possible. We have heard that participants felt that the CRR Dry Run (Market Simulation) was very helpful in setting expectations and learning how to work with the user interface.
ISO Were any surprises encountered during the allocation process?
McClain: We understand some participants were surprised with lower than expected results due to the disaggregation of trading hub nominations.  The stakeholder process determined that to avoid limited allocations the trading hub was broken down so that any binding transmission constraints would not reduce the entire nominations. Parts of nominations were lost due to the software process of truncating after the first decimal place. With total nominations reduced due to the truncation, some of their total awards were less than expected.  While this was discussed in stakeholder forums, this was the first time participants saw the results of the process.
Homestretch: What challenges did participants and the ISO face during the allocation process?
McClain: Overall, the CRR market feature can be fairly complex. I think most participants had to perform quite a bit of analysis to understand the potential impacts of congestion on their customers and to develop strategies to acquire the CRRs they need to manage their potential risks.
Homestretch: What advantages do CRRs afford market participants in contrast to Firm Transmission Rights (FTRs) which are a part of the current market design?
McClain: FTRs, the main hedging tool for congestion costs in the current market structure, have their benefits but are some what limited in how much congestion can be hedged.  One of the main advantages of CRRs is that they are more closely associated with congestion costs and the transactions that incur these charges.  CRRs can provide a hedge in the Day-Ahead settlement of these congestion charges. Another big difference is FTRs are only auctioned and not allocated to LSEs.
Homestretch: Is there anything the ISO will do next time to make the CRR allocation and auction process more efficient?
McClain: The goal of the ISO is to be as transparent as possible with the information used by participants in the process – both the technical specifics about the grid and the allocation instructions. The more information we can provide up front will minimize the uncertainties and surprises encountered and market participants can set their expectations appropriately. This makes the process more stable and predictable, and in the end, more useful.

The allocation and auction for annual rights continues through mid-December. For more information about CRRs, please visit the ISO web site at: http://www.caiso.com/1bb4/1bb4745611d10.html..

Contact Us

Email boxes are available to receive MRTU questions regarding:

Other MRTU questions can be addressed to:

MRTUImplementation@caiso.com
or
Your California ISO Account Manager or Client Representative