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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Williams III, Bill </O=ENRON/OU=NA/CN=RECIPIENTS/CN=BWILLIA5< X-To: Comnes, Alan </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Acomnes< X-cc: X-bcc: X-Folder: \ExMerge - Williams III, Bill\Sent Items X-Origin: WILLIAMS-W3 X-FileName: Alan, I have a few questions regarding the emminent implementation of the new target pricing mechanism. 1. Does uninstructed energy still get paid (if not, we cannot hedge financials) 2. The CISO Table 1. lists an unintended consequence as " Target price may be manipulated due to no obligation to deliver" Why is there no obligation to deliver? 3. Is there still a load deviation penalty? Or would that be considered seperately? Thanks for the help. Bill -----Original Message----- From: Comnes, Alan Sent: Wednesday, October 24, 2001 5:23 PM To: Belden, Tim; Mallory, Chris; Williams III, Bill Cc: Mara, Susan Subject: FW: CAISO Notice - Implementation of Revised Target Price Methodology All: Note that the plan to clear overlapping incs and decs is NOT the immediate change. In the short run, CAISO will imput supplemental bids at cost based on heat rates, gas prices, etc. (Read the bottom half of this first). I am attaching an other CAISO document on this topic. If you want a briefing on these changes, please let me know. Other than the imposition of penalties, I think we are generally supportive of the L-T fix, which will be made via a tariff change (i.e., we will have an opportunity to comment). GAC -----Original Message----- From: CRCommunications [mailto:CRCommunications@caiso.com] Sent: Wednesday, October 24, 2001 4:57 PM To: ISO Market Participants; SC Settlements Contacts Subject: CAISO Notice - Implementation of Revised Target Price Methodology MARKET NOTICE October 24, 2001 Implementation of Revised Target Price Methodology ISO Market Participants: SC Settlements Contacts: Effective Monday, October 29, 2001 the California Independent System Operator Corporation ("ISO") will revise its methodology for calculating the Target Price ("TP"). Provided below is a background on TP, a brief description of the ISO's current thinking about a long-range solution and potential implementation schedule, and the ISO's current short-range TP methodology to be implemented on October 29, 2001. Background The ISO operates a Real-Time Market for Imbalance Energy ("IE") based on bids submitted by Market Participants seeking to sell incremental and/or decremental Imbalance Energy. In many cases, bids have a "price overlap," which occurs when some Scheduling Coordinators ("SCs") are willing to buy real-time energy (i.e., they have submitted decremental IE bids to reduce their generator output) at prices higher than the prices at which other SCs are willing to sell real-time energy (i.e., they have submitted incremental IE bids to increase their generator output). In March 1998, the ISO instituted the TP to eliminate the price overlap described above. The TP is a calculated price between the highest decremental bid and the lowest incremental bid. All incremental bids above the TP are adjusted down to the TP and all decremental bids below the TP are adjusted up to it. Though designed to resolve the price overlap, there are certain difficulties with the TP as it was implemented. The major problem was that the ISO cannot "clear the overlap," i.e., accept all overlapping bids and require the bidders to actually buy and sell at these prices. SCs can, and do, use the inability of the ISO to clear the price overlap to manipulate the TP by submitting unrealistically high offers to buy and unrealistically low offers to sell, knowing that the ISO can not require the bidders to fulfill their bids. In April 2000, the ISO sought to eliminate this gaming opportunity by changing the formula f74or calculating the TP. As a result, there were many hours when the TP -- and the published price for Real Time Energy transactions - was zero. Thus, while the revised methodology reduced gaming opportunities, it also produced unrealistic real-time prices that distorted incentives for SCs to bid into the ISO's Real-Time Market. Long-Range Solution After extensive internal review and discussion with Stakeholders, the ISO has concluded that the best solution is to accept overlapping bids, thus entirely eliminating the need for the TP. At its September 20, 2001 meeting, the ISO Governing Board approved this concept. This long-range solution will require an ISO Tariff and certain computer software changes and will not be implemented until approximately Summer, 2002. Detailed below is the ISO's interim, short-term TP methodology that will become effective three business days after this Market Notice, on October 29, 2001. Short-Range Solution Also described in the ISO staff memorandum presented at the September 20, 2001 ISO Governing Board meeting and as discussed at the October 3, 2001 and 11, 2001 Market Issues Forum meetings, the ISO will implement an interim solution to address some of the difficulties with the current methodology until the ISO can implement the longer-range solution. Thus, by this Market Notice, Market Participants are noticed that the ISO will implement the TP methodology described herein effective Monday, October 29. The revised methodology is similar to the original TP methodology, but features several important enhancements to limit gaming opportunities by incorporation of Federal Energy Regulatory Commission ("FERC") orders for price mitigation, limiting the ability of Participating Generators and Participating Loads to set the TP, and permitting only feasible bids to be eligible to set the TP. Under the original TP methodology, as established in March 1998, a TP replaced all bid prices within the incremental - decremental price overlap. The TP was calculated as the market-clearing price ("MCP") that would result if the overlapping incremental and decremental bids were matched with one another and Dispatched in merit order through BEEP. Graphically, this Target Price can be calculated as the intersection between the incremental supply curve and the mirror image of the decremental supply curve over the price axis, as shown in Figure 1. <<...OLE_Obj...<< Figure 1. Price overlap elimination by Target Price The interim, or short-range, TP methodology differs from the original TP methodology in the following ways: * Only bids from Generating Units under Participating Generator Agreements ("PGA") or Loads with Participating Load Agreements ("PLA") will be eligible to set the TP. This restriction is needed to ensure compliance with FERC requirements that only participating resources are eligible to set the MCP. When the ISO does not Dispatch Imbalance Energy, the TP will become the MCP. Thus, only Generators with PGAs and Loads under PLAs will be eligible to set the TP. For this reason, inter-tie transactions will not be eligible to set the TP. * Only capacity that can be Dispatched within 10 minutes will be eligible to set the TP. This requirement ensures that the TP can only be set by Generating Units that actually can be Dispatched to meet California's Load. This capacity will be based on the total of all Energy and Capacity products and services bids submitted by each Generating Unit. For example, a Generating Unit with a 1MW/minute ramp rate can only increase or decrease its output by 10 MW within a 10-minute interval, regardless of the combination of Ancillary Services capacity and Supplemental Energy bids it has submitted Thus, its qualifying capacity would be 10 MW. Priority in allocating bids to the qualifying capacity will be based first on lowest bid price, and then on increasing qualities of service. Although only qualifying capacity will be considered in the TP calculation, all bids within the price overlap will be adjusted to the resulting TP. * As a final adjustment, the TP will not be higher than the lowest available gas-fired resource proxy price, as calculated for the corresponding hour, unless such a proxy price is below the bottom of the price overlap. In any such case, the TP will be set to the lowest incremental Energy bid. The Target Price will also not exceed the applicable Price Cap. This provision will ensure that bids dispatched under the TP will conform to the FERC's requirements on market mitigation pricing. The short-term TP methodology will use the following equation: TP? = max{0, min{TP, LPP, PRC }, LIP} (1) where: TP? is the adjusted Target Price; TP is the Target Price that clears the price overlap; LPP is the lowest proxy price (applicable to gas-fired resources) LIP is the lowest incremental price. PRC is the applicable Price Cap. Please direct questions regarding the TP methodology and this Market Notice to Greg Ford at gford@caiso.com <mailto:gford@caiso.com< or Telephone: (916) 351-2144. Client Relations Communications CRCommunications@caiso.com <mailto:CRCommunications@caiso.com<
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