ISO-NE Market Changes for Subhourly Settlements, Real-Time Fast-Start Pricing and DARD Pumps Take Effect

March 1, 2017 marked the completion of three key ISO New England projects aimed at improving pricing in the region's wholesale electricity markets. Accurate and transparent pricing is integral to competition because it motivates and compensates market participants to make sound business decisions, including investments in resources needed to operate the power system reliably and efficiently.

The three market projects included:

* Changing the interval at which the ISO settles the real-time energy and reserves markets from every hour to every five minutes

* Incentivizing quick responses to dispatch instructions by improving real-time energy market pricing logic

* Encouraging pump storage hydro-generating resources to move to economic bidding and away from self-scheduling options.

"These changes, undertaken in collaboration with stakeholders, represent major changes to the region's wholesale electricity markets as ISO New England looks to increase market flexibility and maintain system reliability," said Vamsi Chadalavada, ISO New England's executive vice president and chief operating officer. "As the region's electricity industry continues to evolve, we look forward to working with stakeholders to ensure our markets continue to run efficiently. I thank everyone across ISO New England who helped in this true team effort to design and implement these projects."

More details about the individual market changes are available below.

Subhourly settlements

As administrator of the region's wholesale electricity markets, ISO New England oversees the financial settlement of all market transactions. Prior to March 1, 2017, the ISO settled real-time markets hourly, even though real-time market prices are calculated every five minutes. This meant that resources were compensated based on an average of real-time prices over the hour, and some resources, particularly those that are flexible and respond quickly to system conditions, lacked the necessary financial incentives to respond quickly to price fluctuations within the hour.

On July 26, 2016, the Federal Energy Regulatory Commission (FERC) accepted a joint proposal from ISO New England and the New England Power Pool (NEPOOL) to change the settlement interval to every five minutes. The change is aimed at providing resources with the financial incentive to respond to real-time ISO dispatch instructions.

More information about the change, including training materials for market participants and technical documentation, can be found on the Subhourly Real-Time Settlement Key Project webpage.

Real-time fast-start pricing

To provide an incentive for a quick response to ISO dispatch instructions, changes were made to improve real-time energy market pricing by allowing market participants with fast-start generators, demand-response resources, flexible, do not exceed (DNE) dispatchable generators, and certain dispatchable-asset-related demand resources to set price more frequently. Changes included:

* Improving the pricing algorithm for fast-start units

* Expanding requirements for resources to submit economic offers and respond to real-time dispatch instructions, consistent with their economic offers as system conditions change throughout the operating day

More information about the change, including training materials for market participants and technical documentation, can be found on the Real-Time Fast-Start Pricing Project webpage.

Market enhancements for dispatchable-asset-related demand (DARD) pumps

Pumped hydro facilities, which pump water into a reservoir for storage, then release the water to create electricity when needed, have been part of New England's electricity markets since the 1970s, and the region's two facilities can supply almost 2,000 megawatts of capacity within 10 minutes. In an effort to encourage these facilities to move to economic bidding and away from self-scheduling options, the ISO has introduced new modeling practices and bidding parameters for dispatchable-asset-related demand (DARD) resources. These bidding parameters include the ability to specify a maximum daily consumption limit and maximum number of daily starts for use in the day-ahead market schedule and to view the minimum-run time and minimum-down time values in order to optimize real-time dispatch solutions. Day-ahead and Real-time Net Commitment Period Compensation (NCPC) settlements were modified to include NCPC payment calculations for DARD pumps, including NCPC dispatch lost opportunity cost.

More information about the change, including training materials for market participants and technical documentation, can be found on the Market Enhancements for DARD Pumps Project webpage (https://www.iso-ne.com/participate/support/customer-readiness-outlook/market-enhancements-dard-pumps-project).

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