Winter Readiness Issue
Statement
- Energy Offer Cap Evaluation
Purpose and Key Takeaways
• Purpose
• MISO’s evaluation of $1,000/MWh energy offer cap
• Present short-term resolution
• Discuss long-term plan and next steps
• Key Takeaways
• Need to develop methods to handle costs over $1,000/MWh
• Need to develop long-term resolution to evaluate both
incremental energy offer cap and Value of Lost Load
• Short-term resolution tackles operating costs over $1,000/MWh
• Existing make whole payment settlement process still applies to
recover cost.
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Background
• January 2014 request to increase the incremental
energy offer cap due to the elevated natural gas price
caused by the harsh winter weather.
• MISO is using lessons learned to prepare for future
extreme weather events.
• Increasing reliance on natural gas generation.
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MISO Incremental Energy Offer Cap Evaluation
---Gas prices & incremental energy offer
Approximately,
Marginal cost
=heat rate× gas price
When natural gas price is high
enough, the marginal cost to
run a CT could be over
$1,000/MWh
Example:
For gas-fired generators with
heat rate at 15MMBtu/MWh,
when natural gas price is
higher than $70/MMBtu, the
marginal cost of producing
energy will be above
$1,000/MWh offer cap.
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MISO Offer Cap Evaluation
--Heat rate distribution of MISO gas-fired generations
Heat Rate
Total
Group(MMBtu/MWh) Capacity(MW)
Heat Rate<7.5
15,784
7.5<=Heat Rate<10
17,817
10<=Heat Rate<12.5
28,912
12.5<=Heat Rate<15
5,696
15<=Heat Rate<17.5
629
Heat Rate>=17.5
156
• Based on the current GT generation fleet, there is several hundred
MW capacity with cost over $1,000/MWh when Natural Gas price
is at $65/MMBtu
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MISO Offer Cap Evaluation
--Gas Price at Chicago CityGates and Henry Hub 2004-2014
• Daily average gas prices have been well below $20/MMBtu
during the last decade ( except for several days during early 2014)
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MISO Offer Cap Evaluation
--Intra-day Gas price at Hubs in Midwest region on Jan 28, 2014
• On Jan 28th, 2014, intra-day spot prices spiked to $85/MMBtu for some hubs;
Price variations among hubs were huge, i.e., intra-day highs varied from $5 to
$85/MMBtu.
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MISO Offer Cap Evaluation
--The energy offer during the high gas price days
• Offer Cap constrained several generator offers during the high gas price days, while its
impact to the market was minimal:
• Less than 1,000MWs ( from at most four gas units) were offered above $999/MWh
• Those units were not on-line
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Summary of MISO’s Observation
• No urgent need to change $1,000/MWh energy offer cap.
• Gas price spikes over $60/MMBtu occur rarely.
• Less than 1000MW of gas-fired generation will be impacted by the
current energy offer cap (based on heat rate distribution, assuming spot
natural gas prices are higher than $65/MMBtu)
• Impact to MISO’s gas-fired generation is minimal for high gas price day
(e.g., January 28, 2014).
• Generators can represent excess costs through other offer parameters
(no load).
• MISO has developed short-term plans and is evaluating a longterm resolution.
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Goal of Short-term Resolution
•
•
•
•
Develop a minimum impacted approach to the market process
Make full use of the current three part offers
Achieve economic unit commitment
Only applies when generation incremental energy cost is over
$1,000 /MWh
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Short-term Resolution
• Keep the current $1,000/MWh incremental energy offer cap
• Market Participants to submit incremental energy offer including a
block with $1000/MWh
• Any incremental energy costs > $1,000/MWh can be submitted in noload cost offer and recovered through RSG payments.
• This will help to make merit order unit commitment decisions
• MISO is proposing to require that such offers in excess of $1000 be
cost justified, the IMM may validate
‒ For capacity commitments, MISO to seek FERC authority to limit RSG to costs,
to be validated by IMM based on its cost-based reference levels.
‒ FERC filing to stipulate that “cost based” reference levels will be used and
make whole payment may be adjusted after the fact in these cases.
• The effective period will continue through April of 2015
• FERC filing is necessary for new cost-based limitation
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Long-term Plan
• MISO plans to collaborate with other RTO/ISOs on long term
resolutions
• The goal in the long term is for the costs in excess of $1000 to
be reflected in MISO’s market prices.
• Further investigation is needed for long-term plan
‒ How would the revised energy cap be established?
‒ Should it be indexed to fuel prices to allow it to rise as fuel
prices rise?
‒ MISO is also evaluating its assumed Value of Lost Load
(VOLL currently at $3,500/MWh) and its relationship to
the offer cap.
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Next Steps
• Stakeholder feedback on short-term resolution by December
4, 2014 to Li Zhang ([email protected])
– If needed, MISO can schedule a conference call on December 5 to
discuss this topic.
• Plan to submit filing to FERC mid-December 2014
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