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					               IMO Market Evolution Program
                 Day Ahead Market Project


Settlements Topics for the Day Ahead Market
Presentation to the Commerical Reconciliation Sub-Committee

                      Monday, July 12, 2004




                               Public                     1
Today’s Meeting - Objectives


 PART 1: Provide an introduction to the DAM Project
         – Review Progress to date
         – Current Scheduling Objectives
         – Overview of major Day Ahead Market Features

 PART 2: A survey of the issues related to Commercial Reconciliation

 PART 3: Detailed Design Topic
         – Timing and outputs from the “DAM first settlement” process
         – Invite your feedback



                                 Public                          2
Terminology Review:
 • The IMO makes a clear distinction between three different activities - each serving
   a specific need of the market:



       “Settlement”                  “Invoicing”                     “Payments”

 • Present detailed break-     • Formal presentation of         • Effect the transfer of
   down of all calculations      overall amounts owing to         funds between market
                                 and from the market              participant and the IMO
 • Confirm all settlement
                                 participants for the billing
   data used
                                 period
 • Allow market participants
   to raise disagreements
   and address them
                                         Relatively low impact from the DAM
 • Apply adjustments



                                              Public                                   3
Settlements          DAM Strawman - Settlements Design Topics
                       Includes….

                       Treatment of          Production
  Physical                                                                                Scheduling of
                                                Cost               Funding of
Transactions             PASS 2                                                            settlement
                                             Guarantees            DAM FTRs
 for energy              imports                                                             events
                                              (Loads)

   Virtual                DAM                Production                                    Continuation
                                               Cost                   N.O.D.
Transactions            Operating                                    Process                of current
                                             Guarantees
 for energy             Reserve             (Generators)                                    practices

PCGs and the                                                       Uplifts related
 current Gen.                                                                               Uplifts related
                       DAM CMSC              DAM FTRs                 to PCGs                 to PCGs
     Cost                                                                                    (bid load)
                                                                 (forecast load)
  Guarantee
                         Second              Allocation               Load                    DAM
                        Settlement                                  Forecast
 DAM PBCs                CMSC                bases for              Accuracy               Operating
                        balancing           DAM Uplifts              Uplift               Reserve Uplift

    Other,               Business                                                            Net DAM
                        Protection          DAM CMSC                 PASS 2
  regulated                                                                                  Balancing
                       Plan Rebate            uplift               Import uplift
   charges               (BPPR)                                                              Allocation



                                           Legend:
                                      Settlement            Externally-
                Logistical                of                                         Allocation
                                      individual            regulated                  Issues
                 Issues                            Public                                              4
                                         MPs                  Issues
  Continuation      Strawman objectives for Settlement:
   of current
   practices        • Timely and accurate settlement statements
                    • Availability of data for market participant reconciliation
                    • Continuation of timely availability of revenue meter data and
                      prices/schedules


 Scheduling of      The “Two Settlement Process”:
  settlement
    events
                    • Like many Day Ahead Markets around the region, DAM
                      settlement activities are divided into 2 major sub-processes as
 Current Market       follows:
  Current Market
Rules Reference:
 Rules Reference:      • First Settlement: First stage of settlement activities reflecting the
                         DAM positions of individual market participants
 Ch. 9, sections
  Ch. 9, sections      • Second Settlement: Second stage of settlement activities involving
   6.2 and 6.3
    6.2 and 6.3          integration with events in the real-time market settlement cycle

                    • Settlement amounts for individual market participants related to
                      energy and operating reserve will make use of both stages of
                      the settlement process
                    • Allocation of common costs through uplift amounts will take
                      place in the second settlement process only.
                                        Public                                5
                       Notices of Disagreement
      N.O.D.           • Settlement Objectives (current and future):
     Process
                         • Provide assurance to the IMO-administered markets that
                           final settlement statements are indeed, “final”
  Current Market
   Current Market
 Rules Reference:
                         • Existing exceptions to the above rule:
  Rules Reference:
Ch. 9, sections 6.6
 Ch. 9, sections 6.6        • current rules allow for N.O.D. Processing up to 15
      and 6.8
       and 6.8                business days past the issuance of the final settlement
                              statement for complex situations
                            • N.O.Ds can be escalated to the dispute resolution
                              process
                       • Scope (current and future):
                         • Accuracy and completeness of the settlement calculations
                         • Ensure correct data was used
                       • Out-of-Scope (current and future):
                         • Calculation of prices




                                           Public                              6
     Physical            Physical Transactions (Energy and Operating Reserve)
   Transactions
    for energy

                         Objectives:
       DAM
     Operating               1) Continue to support trading of energy and operating
     Reserve                   reserve in the real-time market
                             2) Reconcile DAM positions with real-time activity
  Current Market
   Current Market            3) Support physical bilateral contracts submitted into both
 Rules References:
  Rules References:            the DAM and real-time market
       Energy:
        Energy:
                         Settlement Process:
Ch. 9, sections 3.3.1
 Ch. 9, sections 3.3.1   • Physical transactions for energy and operating reserve will
       to 3.3.2
        to 3.3.2           make use of both stages of the two settlement system:
  (to be amended)
   (to be amended)
                             • First Settlement: Energy and Operating reserve DAM
Operating Reserve:             positions valued at DAM prices.
 Operating Reserve:
 Ch. 9, section 3.4
  Ch. 9, section 3.4         • Second Settlement: Energy and Operating reserve
 (to be amended)
  (to be amended)              DAM positions reconciled with actual activity in the real-
                               time market.




                                             Public                                 7
      Virtual           Virtual Transactions (Energy Only)
   Transactions
    for energy
                        • From a settlements standpoint, virtual transactions will settle
                          in a manner identical to the original Energy Forward Market
                          concept (although their usage in the DAM Calculation Engine
  Current Market
   Current Market         is very different)
 Rules Reference:
  Rules Reference:
                        • DAM virtual transactions act as a one-day forward contract on
Ch. 9, section 3.2.1      the real-time market Hourly Ontario Energy Price (HOEPh)
 Ch. 9, section 3.2.1
 (to be amended)
  (to be amended)       • Not directly connected to actual performance of a physical
                          facility in the real-time spot market
                        • Virtual transactions only apply to the uniform Ontario price
                          (i.e. no specific intertie associations for virtual transactions)




                                              Public                                   8
                            DAM Financial Transmission Rights:
      DAM FTRs
                            • DAM FTRs will entirely replace real-time transmission rights,
                              subject to any applicable transition period.
    Current Market
     Current Market
                            • Same pay-out structure as current FTRs:
   Rules Reference:
    Rules Reference:           • Payments to market participants if congestion between the
 Ch. 9, section 3.6.1
                                 intertie zone and Ontario is in the same direction as the FTR
  Ch. 9, section 3.6.1
  (to be amended)
   (to be amended)             • No obligation to pay the IMO if the congestion is in the
                                 opposite direction


                            Funding of DAM FTRs:
      Funding of
      DAM FTRs              • Under uniform pricing, congestion rents are only yielded by
                              intertie transactions between an intertie zone and Ontario
    Current Market
     Current Market         • Same challenge as today’s real-time market: Number of FTRs
   Rules Reference:
    Rules Reference:          auctioned by the IMO needs to be balanced with the congestion
                              rents actually collected by the IMO
Ch. 9, sections 3.6.2 to
 Ch. 9, sections 3.6.2 to
         3.6.4
          3.6.4             • New challenge: Congestion rents impacted by the reconciliation
   (to be amended)
    (to be amended)           of intertie transactions between the DAM and real-time market
                            • Solution: New formulation of the “Transmission Charge
                              Reduction Fund” (Ch. 9, section 3.6.2)
                                                 Public                                 9
                                  DAM CMSC - The IMO Approach...
                             Divide the CMSC issue into three parts:
                           Part 1: a system of DAM CMSC settlement
     DAM CMSC
                           amounts that are structurally consistent with their
                           real-time counterparts
   Current Market
    Current Market
  Rules Reference:
   Rules Reference:
  real-time CMSC:
   real-time CMSC:
  Ch. 9, section 3.5
   Ch. 9, section 3.5


       Second              Part 2: a second-settlement reconciliation between
      Settlement
       CMSC
                           DAM and real-time conditions to ensure that DAM
      balancing            CMSC settlement amounts are only retained by a
                           market participant under the appropriate conditions
    Current Market
     Current Market
   Rules Reference:
    Rules Reference:
        None.
         None.
(new sections required)
 (new sections required)

                           Part 3: a cost recovery mechanism consistent with
     DAM CMSC
       uplift              current practices
                                         Public                             10
                                Second
                               Settlement       DAM CMSC           Real-time
             DAM CMSC           CMSC              uplift            CMSC
                               balancing

Consistency with current practices:
      A market participant deviating from its market schedule at the request
      of the IMO is entitled to a, “…settlement credit equal to the change in
      implied operating profits resulting from such response…..”
                                  IMO Market Rules, Chapter 9, section 3.5.1
                                        (preamble to the current CMSC rules)

• DAM CMSC is a reflection of current real-time market principles:
    • unconstrained, uniform pricing
    • constrained scheduling
    • horizontal equity across all market participants with regards to physical
      constraints on the IMO-controlled grid
• The DAM design does NOT attempt to reinterpret the economic underpinning of
  CMSC.
• Real-time CMSC will continue to be a part of the Settlement Process
• Current issues related to real-time CMSC have relevance in the DAM as well.11
                                         Public
      Production           Production Cost Guarantees - Overview
        Cost
      Guarantees           • Eligibility:
     (Generators)
     Production
                                • Generators and Imports (committed to minimum levels)
        Cost                    • Price Responsive Loads (committed load reduction
     Guarantees
      (Loads)                     events)

    Current Market
                           • Settlement Objectives:
     Current Market
   Rules Reference:
    Rules Reference:            • Ensure combined DAM position for each facility does not
        None.
         None.                    yield a loss over the trading day.
(new sections required)
 (new sections required)   • Settlement Functions
                                1) Compare DAM revenues for energy and operating
                                  reserve to offered costs and ensure no loss is incurred
                                2) Ensure generators are at committed, minimum
                                  generation levels in real-time market
    PCGs and the           PCGs and the current, “Generation Cost Guarantee”
     current Gen.           Program in the IMO “Market Rules”:
         Cost
      Guarantee            • Strawman Proposal:
   Current Market
    Current Market              • Facilities receiving a PCG in the DAM will NOT be
  Rules Reference:
   Rules Reference:               eligible to receive a Generation Cost Guarantee the
                                  following day in the real-time market.
Ch. 9, sections 4.7B.1
 Ch. 9, sections 4.7B.1                        Public                                12

  (to be amended)
   (to be amended)
                           Treatment of PASS 2 Imports
     Treatment of
       PASS 2              • What are they?
       imports                 • Import transactions committed in PASS 2 of the DAM
                                 Calculation Engine that did not clear the market in PASS
       PASS 2
                                 3 (constrained) or PASS 5 (unconstrained)
     Import uplift             • Because they are committed to meet forecast load, there
                                 are no offsetting DAM transactions seen by the
    Current Market               settlement process
     Current Market
   Rules Reference:
    Rules Reference:       • Settlement Objectives:
        None.
         None.
(new sections required)        • Ensure these import transactions are settled using the
 (new sections required)         DAM price
                               • Maintain financial neutrality of the IMO-administered
                                 market
                               • Fairly allocate any surplus or deficit created by these
                                 transactions between the DAM and real-time market.
                               • Fair allocation of energy settlement costs requires
                                 separate treatment from any PCGs related to these
                                 same transactions.




                                               Public                                13
                           DAM Physical Bilateral Contracts
      DAM PBCs
                           • Strawman Proposal:
    Current Market
     Current Market            • Will be added alongside existing real-time PBC’s
   Rules Reference:
    Rules Reference:           • Works the same way as real-time PBC’s - except they
        None.
         None.                   are valued at DAM prices
(new sections required)
 (new sections required)
                               • Different data submission timelines will be required.




                                               Public                                14
      Allocation            Two types of allocation bases for uplift charges:
      bases for
     DAM Uplifts
                            1) “Same as today”: (i.e., same as most uplift charges in the
    Current Market             real-time market): All real-time market loads and exports
     Current Market
   Rules Reference:
    Rules Reference:
 Ch. 9, sections 3.9.1
  Ch. 9, sections 3.9.1
                            2) “NEW” allocation base: loads and exports that did NOT
(selected hourly uplift
 (selected hourly uplift       participate in the DAM and virtual transactions to sell energy
   components - -to
    components to
  be amended. New
   be amended. New
sections also required)
 sections also required)
                                                                        DAM CMSC
                                                                          uplift
              Uplifts related
                to PCGs
                                                                                 Load
             (forecast load)                             Uplifts related
                                                           to PCGs             Forecast
                                                          (bid load)           Accuracy
      “NEW” allocation base                                                     Uplift

                                                           Net DAM               DAM
                                                           Balancing          Operating
                                                           Allocation        Reserve Uplift
                          PASS 2
                        Import uplift                             “Same as today”

           Surplus: “Same as today”
         Deficit: “NEW” allocation base
                                                Public                                        15
Thank You




   Public   16

				
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