September 1, 2014

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Southwest Power Pool to Finalize New Integrated Marketplace

The Southwest Power Pool’s (SPP) deadline for revising its tariff to add day-ahead and real-time energy to its Integrated Marketplace is this Friday, February 15.  Federal Energy Regulatory Commission (FERC) granted conditional acceptance of SPP’s revised tariff in October, contingent upon SPP submitting various complying revisions.

The Integrated Marketplace is a change of course from the Energy Imbalance Service (EIS) market that SPP launched in 2007. The EIS market has served as a real-time platform for generators to sell excess energy and for load servers to purchase that energy. EIS reduced dependence on bilateral contracts, and enabled competition between generators to provide the lowest-priced energy, using locational imbalance pricing. The new Integrated Marketplace revamps the EIS by creating a day-ahead market along with a real-time energy and operating reserve market. To reduce energy and transaction costs, the new marketplace will consolidate 16 balancing authorities into a single SPP-operated balancing authority. The Integrated Marketplace will also utilize locational-marginal pricing and will include virtual transactions, auction revenue rights, and a market for transmission congestion rights.

The new day-ahead market will allow generators to submit offers to sell energy and operating reserves, and load-servers to submit bids to purchase energy. After the day-ahead submissions, SPP will clear the offers and bids via security-constrained unit commitment and security-constrained economic dispatch algorithms. The end product will be a financially binding schedule that matches sale offers with demand bids and satisfies operating reserve requirements. For day-of energy sales, settlement will be based on the differences between quantities cleared in the Real-Time Balancing Market and the day-ahead market clearing.

The Integrated Marketplace will also bring virtual bidding to the SPP. For a fee and subject to meeting credit requirements, market participants can enter into transactions that essentially short the price of the day-ahead market. Should those virtual transactions clear, the market participant will be obligated to purchase or sell the energy at the real-time locational marginal price, at a profit or loss. The benefit of virtual transactions is that they allow for convergence of day-ahead and real-time prices, allowing a more accurate reflection of the true value and price of the energy. Market participants will be limited to a single offer or bid per hour at each settlement location for each asset owner it represents.

An additional feature of the Integrated Marketplace is its incorporation of auction revenue rights (ARR) and the related transmission congestion rights (TCR) auction. ARRs are awarded to market participants based on firm transmission rights on the SPP grid. ARR holders can choose to retain their rights and receive a share of the revenue generated in the TCR auction, or ARR holders can convert their ARRs to TCRs. TCRs are tradable and TCR holders are entitled to revenue streams or charges based on the cost of congestion in the hourly day-ahead market associated with the TCRs.

In its October 18 order in Docket No ER12-1179, FERC addressed a number of issues raised in protests to SPP’s proposed Tariff Revisions, conditionally approving the Integrated Marketplace, subject to SPP submitting a compliance filing incorporating specific changes to the Tariff. The required revisions include:

(a)    clarification of forecasting procedures for Variable Energy Resources, including wind energy;

(b)   establishment of procedures to prevent manipulation — such as purposeful withholding or manipulation of load-forecasting — of the marketplace’s limited must-offer requirement in the day-ahead market;

(c)    revision of the definitions for ancillary services in the marketplace;

(d)   modification of the ARR process to plan for ties among winning bids and other scenarios; and

(e)    modification of the ARR allocation procedures.

SPP provides services to areas located within Arkansas, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, Oklahoma and Texas. SPP expects for its Integrated Marketplace to be ready for operation on March 1, 2014. SPP’s compliance filing will be open for comments for at least 30 days.

© 2014 McDermott Will & Emery

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