Transcript Old Dominion Involvement in PJM

OPSI Panel:
LMP Pricing Improvements
Direct Energy, LLC
Scarp (David Scarpignato)
443-824-3114
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7/20/2015
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LMP vs. Uplift
• Why? : Competition in the hope of:
– Market Efficiency
– Transparency
– Transfer generation risks to private investors rather than ratepayers
• Need for Competitive Retail Provider if Wholesale Deregulated
– Compete for cheapest Supply rather than cronyism or self-dealing
– Sophisticated risk hedging strategies to deal with volatility and cash flow
• Uplift Hinders Markets and Competition at Retail Level
– Competitive retail providers depend on competitive wholesale markets
– Competitive retail providers are harmed by out-of-market (Uplift)
• Uplift is unhedgeable and harms the competitive LSE business model
• Severe out-of-market costs could eliminate retail competitors
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Out-of-Market/LMP Costs on Extreme Days
• “Free Market” price formation (LMP) seems to fall apart under
"Extreme" days
• Interchange Volatility
– Need to know what interchange will be to dispatch correctly
• 8,000 MW unexpected interchange plummeted PJM prices (polar vortex)
and created uplift
• Wrong internal commitments (DR and generation) if anticipate incorrect
interchange
– Need to encourage forward interchange scheduling on Extreme
days
• Limit real-time interchange transactions since internal commitment
decisions already made
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Generation Failures on Extreme Days
• Creates need for excess commitments
• Need to capture out-of market excess commitments
– Price through carrying excess reserves
– Reserves are joint-optimized with LMP
• Send market signal to those causing need for excess
commitment (generators that fail to start)
– About 32,000 MW of generators failed on January 7th
(22% of resources)
– Charging load fails to signal generators to perform better
• Excess Reserves (Commitments) should be charged to deviations
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Solutions to Reactive Uplift
• Units brought on for (voltage support) are paid
as uplift
• Need to build transmission to fix chronic
operational issues regarding voltage.
– A $50,000 capacitor bank makes more sense than
paying a generator $1,000,000 a in uplift
– Single generator with market power to solve
reactive problem areas is poor construct
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MVA Rather Than MW Based LMP
• Paying of units for constrained economic dispatch, REGARDLESS of
constraint belongs in LMP
– LMP is supposed to be a “constrained economic dispatch” and not “THERMALLY
constrained economic dispatch”
• Need to include reactive (MVAR) in addition to real power (MW) as part of
LMP
– When unit brought on for reactive (voltage support) it is currently paid as uplift
• Do Constrained Economic Dispatch using MVA instead of MW.
– Computing power is greater today
– EMS systems are advanced and can even do optimized MVAR flow
– Cost-capping for resource concentration associated with reactive issues - in
additions to today's based on thermal
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