Wholesale Markets

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The Federal Energy Regulatory Commission (FERC) is an independent government agency organized as part of the Department of Energy (DOE) and tasked with protecting the public and energy customers, ensuring that regulated energy companies are acting within the law.

The responsibilities of FERC (relevant to the Trading Agent Competition (electricity trading) – hereinafter the “Competition”) include: (Source: http://www.ferc.gov/students/whatisferc/whatisferc.htm )
 * regulating the interstate transmission of electricity
 * regulating the wholesale sale of electricity as distinct from the regulation of retail sales the responsibility for which falls to the states,
 * monitoring and investigating Energy Markets

For a complete history of FERC beginning circa 1920 as the Federal Power Commision which evolved into the FERC around 1977, please visit http://www.ferc.gov/students/whatisferc/history.htm

For the purposes of the discussion on wholesale electricity markets, the relevant portion of FERC's history is reproduced below:

“ On October 17, 2008, FERC issued Order No. 719 which finalized regulations relating to the operation and competitiveness of organized wholesale electric markets (including, day-ahead and real-time electricity markets) operated by regional transmission organizations (RTO)s and independent system operators (ISO)s by, among other things, -requiring the RTOs and ISOs to improve demand response and market pricing during periods of operating reserve shortage, - requiring the RTOs and ISOs to implement electronic market systems that permit participants to enter into long term electricity contracts; - by strengthening the role of market monitors by requiring the RTOs and ISOs to provide the monitors with access to relevant market data and - by requiring the RTOs and ISOs to take steps to increase their responsiveness to customers.

Wholesale Competition in Regions with Organized Electric Markets, 125 FERC Rep. ¶ 61,071 (2008) (Order No. 719 or Final Rule).

(http://www.ferc.gov/whats-new/comm-meet/2008/101608/E-1.pdf ) Last accessed October 21, 2010

In the context of the Competition, information on pp. 7-8 may be of interest because it broadly addresses market design, price signals and long-term contracts. In the conceptual space of Order 719, a Broker would be called an "Aggregator of Retail Customers" or ARC.

Note: Organized market regions are areas of the country in which a RTO or ISO operates dayahead and/or real-time energy markets. The following RTOs and ISOs have organized markets in the US:


 * PJM Interconnection, L.L.C. (PJM),


 * New York Independent System Operator, Inc. (NYISO),


 * Midwest Independent Transmission System Operator, Inc. (Midwest ISO or MISO),


 * ISO New England, Inc. (ISO New England or ISO-NE),


 * California Independent Service Operator Corp. (CAISO), and


 * Southwest Power Pool, Inc. (SPP).


 * (Electric Reliability Council of Texas (ERCOT): Note - The transmission grid that the ERCOT independent system operator administers is located solely within the state of Texas and is not synchronously interconnected to the rest of the United States. The transmission of electric energy occurring wholly within ERCOT is not subject to the Commission's jurisdiction under sections 203, 205, or 206 of the Federal Power Act )

For ease of explanation of the role of an ISO, it is instructive to refer to the following Independent System Operator Agreement prepared on the basis of the filings made by the NYISO to the FERC (up until 2007). http://www.nyiso.com/public/webdocs/documents/regulatory/agreements/nyiso_agreement/iso_agreement.pdf (last accessed October 21, 2010).

Pages 1-36 (at the very least) of this document contain definitions of some of the most commonly used terms in the electricity wholesale markets. The definitions are also insightful as far as the operation of a typical ISO is concerned. Page 50 enumerates the formal duties of a ISO (representative of the duties of similarly situated US ISOs).

More information will follow in the days ahead… including, without limitation, abstracted form of the information from the formal FERC/RTO/ISO sites circumscribed and adapted to the particular market design and implementational needs of the Competition. (Addition of new material to this page is stayed while the mechanics of the new game design crystallize. The new game design does not admit the DAM or the RTM in the sense of FERC and the NA ISOs. Any new material added to this page will be designed to further explicate the new game paradigm in the context of the NA ISOs)

(Nov 18, 2010)

''At the last meetup, there was a suggestion to arrive at a computationally simple forumla to compute the market clearing price. Here is one suggestion''

1. Sources (generators/suppliers/resources) submit “Offer” curves by a specific timeline. Each such Offer “curve” is typified by a set of monotonically increasing (quantity, price) pairs that consititue “points” on a Offer curve. Each of these points is an offer by a Source (sj) that represents the energy that it is willing to supply (Qsj) MWh at each specified price per unit energy (Psj) $/MWh on a specific trading date (Td) for a specific time duration ending at hour (HH) on that day. An Offer curve Osj(Qsj, Psj): Source identifier (sj)

Date (D): (MM/DD/YYYY)

Hour ending: (HH)

Offer bids: n : (Qsj1, Psj1), (Qsj2, Psj2), … (Qsjn, Psjn)

2, The ISO (or Wholesale Market operator/ distribution utility/ trading platform) creates a “Supply” curve S(P) for a time interval by aggregating the Offer curves from all Sources that have submitted bids valid for that time interval by summing the supply available at each price per unit energy (horizontal summing of energy quantities (MWh along the X-axis) at each price level ($/MWh along the Y-axis)).

Example: S(Q, P1) = ((Qsj + Qsk + … + Qsu), P1) (where u is the total number of Offer curves)

,,,

S(Q, Pm) = ((Qsj + Qsk + … + Qsu), Pm) (where m is the maximum of the number of (quantity, price) pairs from amongst the u Offer curves).

Please note: Each of the Pr (r = 1, m) are based on information available to the Suppliers prior to the operation of the market clearing operation. The market clearing price will have no effect on the Offer curves (and by extension, the aggregate Supply curve) in the execution periods for which the Offer curves are valid. However, the suppliers can alter the Offer curves in the next contracting/negotiation cycle based on the clearing prices in the preceding execution periods.

(pardon the long-form of the math expressions. The math module on my wordprocessor is not working. I will upload the math expressions soon)

3. Sinks (load serving entities/consumers) submit “Demand” curves by a specific timeline. Each such Demand curve is typified by a set of monotonically decreasing (quantity, price) pairs that constitute “points' on the Demand curve. Each of these points is a bid by a Sink (Dj) that represents the energy that it is willing to purchase (Qdj) MWh at each specified price per unit energy (Pdj) #/MWh on specific trading date (Td) for a specific time duration ending at hour (HH) on that day. The ISO creates an aggregate Demand curve using the separate Demand curves by horizontal summing of energy quantities (MWh along the X-axis) at each price level ($/MWh along the Y-axis). However, the ISO computes a load forecast based on dynamic conditions extant in each time interval of the execution phase. This load forecast is aggregated with the demand curve to arrive at the aggregated energy demand (MWh) level D(P). The market clearing price is the price on the Supply curve at which the Supply curve intersects the aggregage demand curve. Or S(P) = D(P). All suppliers receive the marginal clearing price for their supply.

4. Assuming the Demand is reponsive to the price, the clearing price p(n) will precipitate a demand response (demand curve will shift) associated with a new clearing price p(n+1) in the next or upcoming time interval and this process will continue until a new contracting period begins (and a new Supply curve must be computed) What is this new price estimate?

dp/dt = k (D(P) – S(P)) p(n+1) – (pn) = k (D(Pn) – S(Pn)) where k is a constant that characterizes the demand response and can be figured from the data obtained from the market intelligence service (MIS); n is the current time interval and n+1 is the next time interval for which a price p(n+1) is to be estimated.
 * one suggestion is to use the well worn economic formula that states the the price evolution in time is a function of the excess demand (D(P) – S(P))