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Wholesale Market Design: Theory Versus Practice

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Richard Brooks's picture
Co-Founder and Lead Software Engineer Reliable Energy Analytics LLC

Dick Brooks is the inventor of patent 11,374,961: METHODS FOR VERIFICATION OF SOFTWARE OBJECT AUTHENTICITY AND INTEGRITY and the Software Assurance Guardian™ (SAG ™) Point Man™ (SAG-PM™) software...

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  • Feb 11, 2022
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"In theory there is no difference between theory and practice - in practice there is" (Yogi Berra)

Yogi may never be seen as a deep thinker like Plato, Socrates and many others, but his conclusion is spot on in my experience, having worked as a software engineer to develop software solutions to satisfy market designs produced by market committees. Let me assure you the theoretical market designs that come out of committee do not easily translate into real working market systems, i.e. clearing engines.

If you want to know the theory behind a market design, talk to the economists, regulators and attorneys that produced the design in a markets committee. If you want to know what’s actually implemented to “try to” meet these market designs, talk to the software engineers that developed the market systems.

You will come away with a full understanding of Yogi’s statement, as it pertains to wholesale electric markets.

Let me explain.

I worked as a software architect on ISO New England’s Forward Capacity Market (FCM) clearing engine (MCE). I didn’t plan to do this job, but the contractor that was hired by ISO-NE to develop the FCM MCE indicated they were unable to produce the software and ISO-NE would have to produce the FCM MCE, 6 months before go-live. ISO-NE’s CTO, Eugene Litvinov, was tapped by Senior Management to produce the FCM MCE software.  The external contractor was spot on, the theoretical market design for FCM was not implementable in any software language that lacks a MagicHappensHere() function. Eugene assembled a team of 6 people to solve the problem, I served as software architect and was honored to be part of this team of incredibly talented people. I think I was the only team member that didn’t have a Phd. I’ll cut to the chase – we did indeed develop the FCM MCE within the 6 months available, barely in time for the first auction – and it worked.

I cannot elaborate on the details of the MCE solution that the team ultimately produced, but let me assure you the “30,000 foot” market design concept was incomplete, and the MCE software development team had to fill-in the holes to make FCM work. The test harness and use cases that were developed to validate MCE results proved invaluable.

The next time you want to understand how a wholesale market system operates, theoretically, talk to the economists, attorneys and regulators that produced the “30,000 foot view” in committee, but if you want to know how a market system really works in practice, talk to the software engineers that actually coded up the solution. Theory and Practice really are different, as Yogi stated.

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