Exploring Risk-Based Approaches for ISO/RTO Asset Managers

 

ExploringRisk-Based Approaches for ISO/RTO Asset Managers- codeshoppy

In competitive power markets, the independent system operator (ISO/RTO) manages assets and obligations on behalf of owners  to meet ISO/RTO goals of reliability, equal access, and market efficiency. Merchant generators make unit commitment decisions, transmission operators receive a regulated payment for trans- mission assets operated by the ISO/RTO asset manager. Load is scheduled with the ISO/RTO as either price responsive or price taking. As asset managers, the ISO/RTO can benefit from a menu of approaches introduced to identify, measure and manage risks in power systems under uncertain economic conditions. Since com- petitive markets have introduced new roles for existing participants and new participants to the industry, appetite for these new tools has never been higher. However, applying these new tools has not been without difficulty. In this paper, the authors illustrate three issues facing the ISO/RTO asset manager: 1) planning for reserves in the face of uncertainty; 2) line maintenance which minimizes market disruption; and 3) measuring tradeoffs between investments in reliability and market efficiency. The authors use several ap- proaches and highlight areas for new research using real options, portfolio optimization, and efficiency/reliability tradeoffs in the context of a simple two-bus example. Areas which require more work include the integration of nonpower risks to unit commitment models, applying real options to load variations, using options premiums to compensate out  of merit units, using  real  options  to measure transmission decisions, and performance metrics for monitoring dollars spent on reliability and efficiency tradeoffs.

There are many financial and technical terms in power markets that have vague, different, or conflicting definitions. Elaboration of these terms may be suitable for another project, so we will try to define those concepts related to

 

 

Manuscript received October 1, 2004; revised June 1, 2005. (read more)

A. Roark and R. Masiello are with KEMA Inc., Chalfont, PA 18914 USA.

P. Skantze is with Boston Consulting Group, Bethesda, MD 20814 USA (e-mail: skantze.petter@bcg.com).

Digital Object Identifier 10.1109/JPROC.2005.857485

our paper in the next few paragraphs below. The reader may reference sources cited below for more extended discussions of those topics.

The independent system operator (ISO) [later defined  by the Federal Energy Regulatory Commission as a re- gional transmission operator (RTO)] has been tasked with responsibilities, inter alia, which can be summarized broadly as providing and ensuring competitive markets for power and related services, for managing the transmission system in a reliable and efficient manager, for providing fair and equal access to power markets and related services and con- ducting transactions on behalf of same in a fair and impartial manner. [29, and the references cited therein]. The RTO generally has responsibilities for tariff administration and design, congestion management (related to managing con- flicting transmission flows on the power grid), parallel path flow management, management of ancillary Services (de- fined as services related to the transmission of energy from source to sink), open access same time information system (OASIS) management of requests for transmission services, market monitoring to ensure competition and nondiscrimi- natory access, providing for planning and expansion of the transmission grid, as well as interregional coordination with other operators. The ISO/RTO must hold itself to be inde- pendent of market operations, unbiased in activities as well as promote competition [29]. Note that ISO/RTOs do not own any assets or liabilities, but has the role of coordination of these items across different participants.

The operation of the electric power grid requires the coordination of three groups of industry participants (gen- erators, load serving entities, and transmission providers) which may exist as standalone entities with distinctly dif- ferent objectives, or within vertically integrated utilities. It largely falls upon the ISO to implement rules and incentives ensuring that electricity is provided to customers in a reliable and cost efficient manner.

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