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ENERGY CENTERState Utility Forecasting Group (SUFG)Introduction toElectricity MarketsNational Conference of State LegislaturesElectricity Markets and State Challenges WorkshopDouglas J. GothamDirector, State Utility Forecasting GroupJune 27, 2018
ENERGY CENTERState Utility Forecasting Group (SUFG)State Utility Forecasting Group Independent research and analysisgroup at Purdue University Established by Indiana GeneralAssembly in 1985 Performs economic and policy analysis,provides assistance to statepolicymakers2
ENERGY CENTERState Utility Forecasting Group (SUFG)Market Structures Does the utility operate within awholesale market operated by aregional transmission organization(RTO) or independent system operator(ISO)? Is it a traditional vertically-integratedutility or is it under retail choice (akaderegulation)?3
ENERGY CENTERState Utility Forecasting Group (SUFG)RTOs/ISOs4Source: Federal Energy Regulatory Commission
ENERGY CENTERState Utility Forecasting Group (SUFG)Short-term Energy w/o RTO Utilities dispatch their own resources tominimize the cost of meeting the load They may enter into contracts to buy orsell with other entities They perform both unit commitment (fornext day or two) and economic dispatch(now)5
ENERGY CENTERState Utility Forecasting Group (SUFG)Short-term Energy w/ RTO Suppliers make offers to sell specificamounts of energy at specific prices Load is also bid at specific prices andquantities Market operator determines the leastcost method of supplying the loadsubject to transmission limitations6
ENERGY CENTERState Utility Forecasting Group (SUFG)Locational Marginal Price (LMP) LMP represents the marginal cost ofsupplying the last increment of energy to aspecific location in the network Loads pay the LMP for all energy consumedat their point in the network and suppliers arepaid the LMP for all energy supplied at theirnetwork point LMPs differ across the network due totransmission limitations (congestion) andlosses7
ENERGY CENTERState Utility Forecasting Group (SUFG)MISO LMP Contour Map6/19 3:30 pm6/20 11:50 am8
ENERGY CENTERState Utility Forecasting Group (SUFG)Day-ahead & Real-time Markets RTOs operate a day-ahead market based onexpected load and generator availability– settles hourly Also operate a real-time market to balancedeviations from the day-ahead market– load and/or generator availability may be differentthan expected– settles every five minutes Both day-ahead and real-time marketsdetermine LMPs at which the market clears9
ENERGY CENTERState Utility Forecasting Group (SUFG)Long-term Planning w/Vertically Integrated Utilities Generally under state purview and often donethrough Integrated Resource Planning (IRP) IRPs are long-term (10-20 years) studies todetermine the appropriate expected mix offuture resources (both supply-side anddemand-side) Generally done every 2-3 years Consider various factors like cost and risk10
ENERGY CENTERState Utility Forecasting Group (SUFG)Long-term Planning w/ RetailChoice Usually less state overview Some states may have long-term filingrequirements but most do not requireIRPs Suppliers may be subject to RTOcapacity requirements11
ENERGY CENTERState Utility Forecasting Group (SUFG)RTO Capacity Markets Some RTOs have capacity markets thatoperate 1-3 years in advance to ensuresufficient resources in the future Load-serving entities must havesufficient resources available to meettheir highest level of demand (aka peakdemand) plus a reserve margin forunexpected contingencies12
ENERGY CENTERState Utility Forecasting Group (SUFG)RTO Capacity Markets Capacity prices also serve as anindicator as to when new resources maybe needed Entities in both restructured andtraditional states are subject to theirRTOs’ capacity requirements13
ENERGY CENTERState Utility Forecasting Group (SUFG)Further Information Doug Gotham– 765-494-0851– gotham@purdue.edu https://www.purdue.edu/discoverypark/sufg/14
Electricity Markets and State Challenges Workshop Douglas J. Gotham Director, State Utility Forecasting Group June 27, 2018. ENERGY CENTER State Utility Forecasting Group (SUFG) State Utility Forecasting Group Independent research
