Subject: CAISO Communication: A/S Soft Price Cap Implementation effective trade date 5/29/01
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Wed, 18 Jul 2001 11:28:37 -0700 (PDT)

SC Settlement Contacts:
IMPORTANT NOTICE
Statement File Specification (V13.1)

A new software release will be deployed to the Settlement System today.  

This software to integrate the A/S Soft Price Cap scheme into the
settlements system and eliminate manual work.  This release will take effect
with trade date 5/29/01. 

Please refer to the Market Communication concerning Statement File
Specification (V13.1) - "Soft Price Cap for Ancillary Services" dated July
10, 2001.

A more detail explanation of the changes is described in the attached
document.

Soft Price Cap for Ancillary Services 

Problem Description
Last December, ISO implemented the Soft Price Cap scheme that established a
soft price cap for both energy and Ancillary Services (A/S).  Bids above the
soft cap, if accepted, would be paid as bid (subject to review and refund),
but would not be able to set the Market Clearing Price (MCP).  The soft cap
was set to $250 initially and then changed to $150 in January.  In the
subsequent FERC Orders dated 4/25 and 6/19, FERC has established new price
mitigation schemes.  However, the underlying mechanism of the soft price cap
scheme has remained the very much similar.  The only difference is that the
soft cap becomes a more dynamic number under the more recent schemes.
The soft price cap for energy is processed automatically by ISO's Settlement
System.  For A/S, a manual process is being used.  When an A/S bid at above
the mitigated price cap is accepted, it receives two payments: one at MCP
and another that accounts for the difference between the bid price and MCP.
Currently, this surplus payment is calculated manually and appears as a
manual adjustment in the SC's statement file.  The corresponding allocation
of such surplus payments to the market also appears as manual adjustments in
the other SCs' statement files.  The manual process is labor intensive, more
prone to error and creates a large number of manual adjustments that are
difficult to track.

Proposed Solution

ISO plans to automate A/S Soft Price Cap scheme.  Once automated, the
accepted A/S bids will receive only one payment whose price is the higher of
the bid price and Market Clearing Price.  No manual adjustments will be
needed.  The entire payment will appear in the Day Ahead Ancillary Services
Due SC payments (charge types 1, 2, 4, 5 and 6) or Hour Ahead Ancillary
Services Due SC payments (charge types 51, 52, 54, 55 and 56).

The Ancillary Services cost allocation (charge types 111,112,114,115 and
116) will be calculated using a weighed average prices for the service
instead of the MCPs.

Settlement Calculations

For Day Ahead (DA) A/S Due SC payments, the price will be given by:
Price = max (Bid Price, DA Zonal MCP of given service)

Similarly, for Hour Ahead (HA) A/S Due SC payments,
Price = max (Bid Price, HA Zonal MCP of given service)

For A/S Cost Allocation, the unit price of A/S obligation is currently
determined as follows:
Allocation Price = (DAQ*DAMCP + HAQ*HAMCP) / (DAQ + HAQ)
where
DAQ = DA procurement target in the subject DA Region
HAQ = Incremental HA procurement target in the zones that make up the DA
region
DAMCP = MCP of the subject service in the DA region
HAMCP = Weighted average MCP of the subject service in the zones that make
up the DA region

Under the new scheme, the MCP terms in the above equation will be replaced
by average procurement costs.  Thus,
Allocation Price = (DAQ*DAP + HAQ*HAP) / (DAQ + HAQ)
where
DAP = Average procurement price of the subject service in the DA region
HAP = Average procurement price of the subject service in the zones that
make up the DA region

Settlement Statements

There is no change to the settlement files structure.  The meaning of
several fields in the Ancillary Services Detail File have been modified
slightly.  These changes are explained in the latest  ISO Settlement
Statement Files Specification - Version 13.1.

Implementation Timelines

The change described above will take place in the Settlement Statements
beginning with trade date 5/29/2001, on which the FERC price mitigation
scheme (as described in the FERC 4/25 Order) took effect.

Questions and Comments
Please direct your questions and comments to Mr. C. P. Ng via email
([email-masked]).

Client Relations Communication
[email-masked]