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4.1

4.2Ancillary Services Requirements

The requirements for Ancillary Services (AS) are determined by CAISO in accordance with the applicable WECC Minimum Operating Reliability Criteria (MORC) and NERC reliability standardsguidelines.

AS Bids from resources internal to the CAISO Balancing Authority Area do not compete for the use of the transmission network in the market optimization applications. Rather, AS is procured on a regional basis, where the AS Region is defined as a set of PNodes, including Scheduling Points, on the FNM. The CAISO may set mMinimum and maximum procurement limits are set for each AS Region, for each service, and for each hour, to ensure Local Reliability Criteria are met.

Accordingly, the CAISO establishes minimum AS requirements for the “Expanded System Region,” for each AS type, taking into consideration:

Hydro-thermal Supply resource proportions

Path Contingency deratings

Path Operating Transfer Capability (OTC)

Largest single Contingency (on-line Generating Unit)

CAISO may establish minimum and/or maximum AS procurement limits for each AS Region, taking into consideration one or more of the following factors:

Hydro versus thermal Supply resource proportions

Path Contingency deratings

Path OTCs

Largest single Contingency (on-line Generating Unit or in-service transmission)

Forecasted path flows

Other anticipated local operating conditions for Load and/or Generation pocket AS Regions

The minimum AS limit for the Expanded System Region reflects the quantities of each Ancillary Service required to meet the applicable WECC and NERC requirements reliability standards for the CAISO Balancing Authority Area

The minimum procurement limit for AS in the System Region, which is defined as the Expanded System Region minus the System Resource at Scheduling Points, is set to a proportion of the minimum procurement limits of the Expanded System Region. The current default is 50%, which may be changed based on system conditions and CAISO Operator decision. CAISO posts the percentage of procurement limit from imports.

In addition to the System and Expanded System Regions, the procurement limit(s) for any given AS Regionmay be:

Zero (or infinity for maximum limit) – Indicating that there are no expected limitations, associated with the transmission path(s) adjoining the AS Region to other AS Regions, on the deliverability of AS procured system-wide; or

Non-zero – Such a limit is based on factors that have a direct affect on the system constraint for which the AS Region was intended to manage.

For a given AS Region in a given interval, if the maximum total upward AS limit is set to a value less than the sum of the minimum limits for individual upward AS types, then the maximum total upward AS limit will be relaxed, if necessary, to uphold the minimum procurement limits for individual AS types. Otherwise, the total upward AS limit can bind simultaneous with binding minimum limits for individual upward AS types.

The CAISO considers the following factors when establishing a minimum or maximum limit for each AS sub-Region:

The CAISO Forecasts of CAISO Demand

The location of Demand within the Balancing Authority Area

Information regarding network and resource operating constraints that affect the deliverability of AS into or out of a AS sub-Region

The locational mix of generating resources

Generating resource outages

Historical patterns of transmission and generating resource availability

Regional transmission limitations and constraints

Transmission outages

Available Transfer Capacity

Day-Ahead Schedules or HASP Intertie Schedules

Whether any Ancillary Services provided from System Resources requiring a NERC tag fail to have a NERC tag

Other factors affecting system reliability

The determination of a sub-Regional minimum procurement related to a transmission outage is based on the N-1 OTC of the pathminus the expected N-0 flow on the path, where the expected N-0 flow on the path is determined from previous market solutions for similar conditions. The N-1 OTC of the path is the effective OTC of the path when the single largest Contingency is taken on an element of that path.

For example, consider a path that is comprised of three transmission lines, and which has a normal OTC of 1000 MW. For a particular hour of the next day’s market, the expected flow is 800 MW, which is below the N-0 OTC. However, if the system experiences a loss of one of the lines that comprise this path, the N-1 OTC of the path is de-rated to 500 MW. Therefore, the impact of supplying Energy to CAISO Demand for an N-1 Contingency on this path is 300 MW, since the 800 MW of N-0 flow must be reduced to 500 MW for that Outage.

If the CAISO changes its rules to determine minimum procurement requirements for Regulation Down, Non-Spinning Reserve, Spinning Reserve and Regulation Up, the CAISO will issue a Market Notice to inform Market Participants.

4.3

4.4

4.4.1Ancillary Services Pricing in Event of Supply Insufficiency

In the event that supply is insufficient to meet the minimum reserves procurement requirements in Ancillary Service Region or Sub-region, the scarcity pricing mechanism lets Ancillary Service Marginal Prices in the scarce Region or Sub-region rise automatically to administratively determined values. The mechanism uses a Scarcity Reserve Demand Curve with different pre-determined values at different levels of scarcity. If minimum Ancillary Service requirements of the Expanded System Region and/or Ancillary Service Sub-Regions are not met, the Ancillary Service Shadow Prices corresponding to the supply deficient Ancillary Services in Expanded System Region or Ancillary Service Sub-Region will rise to the Scarcity Reserve Demand Curve Values that reflect the level of shortage. The Ancillary Service Marginal Price of a higher quality reserve will always be higher than or equal to the price of a lower quality reserve in the same Ancillary Service Region or Sub-region. Also, the Ancillary Service Marginal Price of a reserve in a sub-region will always be higher than or equal to the price of the same reserve in the outer sub-region or Expanded System Region. The CAISO will consider the System Region as a Sub-Region for the purposes of Ancillary Service pricing in case of supply insufficiency.

4.4.1.1Scarcity Reserve Demand Curve

The CAISO will use Scarcity Reserve Demand Curves to set the administrative values for Ancillary Service Marginal Prices in supply shortage conditions. The CAISO will use a tiered demand curve for the three upward reserves i.e. Spinning Reserve, Non-Spinning Reserve and Regulation Up Service and a separate tiered demand curve for Regulation Down Service. The CAISO defines Scarcity Reserve Demand Curve Values, as shown in the exhibit below, as percentages of the maximum energy bid price set forth in Tariff Section 39.6.1.1:

Exhibit 4-5: Scarcity Reserve Demand Curve Values

Reserve / Demand Curve Value ($/MWh)
Percent of / Max Energy Bid Price / Max Energy Bid Price
Max Energy Bid Price / = $750/MWh / = $1000/MWh
Expanded System Region / System Region and Sub-Region / Expanded System Region / System Region and Sub-Region / Expanded System Region / System Region and Sub-Region
Regulation Up / 20% / 20% / $150 / $150 / $200 / $200
Spinning / 10% / 10% / $75 / $75 / $100 / $100
Non-Spinning
Shortage > 210 MW / 70% / 70% / $525 / $525 / $700 / $700
Shortage > 70 &
 210 MW / 60% / 60% / $450 / $450 / $600 / $600
Shortage  70 MW / 50% / 50% / $375 / $375 / $500 / $500
Upward Sum / 100% / 100% / $750 / $750 / $1,000 / $1,000
Regulation Down
Shortage > 84 MW / 70% / 70% / $525 / $525 / $700 / $700
Shortage > 32 &
 84 MW / 60% / 60% / $450 / $450 / $600 / $600
Shortage  32 MW / 50% / 50% / $375 / $375 / $500 / $500
4.4.1.2Ancillary Services Sub-Regional Partitions

According to the CAISO tariff, the Scarcity Reserve Demand Curve Value will not be double-counted in the calculation of Ancillary Service Marginal Prices when there is scarcity in a sub-region. For that purpose the CAISO will enact Ancillary Service sub-regional partitions when there is Ancillary Service scarcity in one or more Ancillary Service Sub-Regions.

For example, all internal resources in SP-26 are contained in SP_26_Expanded as well as the CAISO (not CAISO_Expanded) Ancillary Service sub-regions. However, the inter-tie resources in SP_26_Expanded are not part of the CAISO Ancillary Service Sub-Region. Instead, they are part of the CAISO Expanded System Region. This situation creates overlapping (not total nesting) of Ancillary Service Sub-Regions. When scarcity occurs in the scheduling run in SP_26, the CAISO will separate SP_26 from SP_26_Expand to form two partitions: SP_26_Part, which is the geographic footprint of SP_26 Sub-region and SP_26_Expand_Part, which is the part of SP_26_Expand not overlapping with SP_26. The CAISO will also separate SP_26_Part from the CAISO Sub-region to create another partition CAISO_Part, which is the part of CAISO that does not overlap with SP_26.

The CAISO will use non-overlapping Ancillary Service partitions to establish Ancillary Service procurement requirements. The following figure provides an illustration of the partition concept using the SP_26, SP_26_Expanded and CAISO System Regions.

The ISO calculates Ancillary Service Marginal Prices in a Sub-Region as the sum of shadow prices of Ancillary Service procurement requirement constraint in the Sub-Region and the Region in which the Sub-Region nests. To make this calculation explicit to market participants, the CAISO may adjust the calculated Ancillary Service Shadow Prices of the scarce sub-region partitions and publish the adjusted shadow prices on the CAISO OASIS.

The published pricing run adjusted Shadow Prices, adj, for each of the Ancillary Service reserves in the scarce Ancillary Service partition shall be calculated as the maximum of zero, and the difference between the Shadow Price of the Ancillary Service reserve in the scarce partition and the Shadow Price of the same Ancillary Service reserve in the CAISO_Expand constraint, i.e. adjpartition,As = max(0, partition,AS - system,AS). The adjusted Shadow Prices shall be used for the calculation of the resources’ Ancillary Service Marginal Prices. The calculations of the Ancillary Service Marginal Price on a resource level will continue to follow the same calculation rule of summing all Shadow Prices for all Ancillary Service constraints (whether Ancillary Service region/sub-region or Ancillary Service partition) in which the resource is participating. For example, resources in the SP_26 Ancillary Service Sub-Region participate in the SP_26 Ancillary Service Sub-Region, the CAISO System Region, and SP_26_Part Ancillary Service partition, but not in the CAISO_Part Ancillary Service partition constraint nor in SP_26_Expanded_Part Ancillary Service partition constraint.

4.4.1.3Examples of Ancillary Service Marginal Price calculation

This section provides examples of calculating Ancillary Service Marginal Prices in a supply insufficiency situation. For the purpose of these examples, it is assumed that there is only one Ancillary Services Sub-Region which is nested within the Expanded System Region. These examples reflect various scenarios from the shortage of one reserve in the Expanded System Region to shortage of all Ancillary Services in Expanded System Region and Sub-Region. Some of the scenarios are unlikely to occur in actual market operation. They are provided in this document to illustrate how the ISO will calculate Ancillary Service Marginal Prices when a scarcity condition occurs. The Ancillary Service shadow prices in the scarce sub-regions and partitions are adjusted based on the method described in section 4.4.1.2 of this document.

Example 1:

This example demonstrates the calculation of Ancillary Service Marginal Prices for various reserves in case of a shortage in Non-Spinning Reserve greater than 210 MW in the Expanded System Region when the maximum energy bid price is $1,000/MWh. In this example, the Ancillary Service Shadow Price for Non-Spinning Reserve in the Expanded System Region is $700/MWh, determined by the demand curve value with $1000/MWh maximum energy bid price. The Ancillary Service Marginal Prices for all reserves in the Expanded System Region and sub-region are shown in the exhibit below.

Please note that the Ancillary Service Marginal Prices of all three Ancillary Services in the Sub-Region are above the $700/MWh scarcity price in the Expanded System Region. In this example, the Ancillary Service Marginal Prices reflect the opportunity cost of providing energy by the resources in the Sub-Region in addition to the scarcity condition in the Expanded System Region.

Exhibit 4-6: Ancillary Service Marginal Prices in the case of Non-Spinning Reserve shortage in the Expanded System Region

Reserve / Ancillary Service Shadow Price ($/MWh) / Ancillary Service Marginal
Price ($/MWh)
Expanded System Region / Sub-Region / Resources participating in Expanded System Region but not in Sub-Region / Resources participating in Sub-Region
Regulation Up / 700 / 90 / 700 / 790
Spinning / 700 / 50 / 700 / 750
Non-Spinning / 700 / 30 / 700 / 730
Regulation Down / 30 / 30

Example 2:

This example demonstrates the calculation of Ancillary Service Marginal Prices for various reserves in case of a shortage in Non-Spinning Reserve greater than 210 MW in the Ancillary Services Sub-Region when the maximum energy bid price is $1,000/MWh. In this example, the Ancillary Service Shadow Price for Non-Spinning Reserve in the Sub-Region will be $ 700/MWh, determined by the demand curve value with $1000/MWh maximum energy bid price. The Ancillary Service Marginal Prices for all reserves are shown in the exhibit below.

Exhibit 4-7: Ancillary Service Marginal Prices in the case of Non – Spinning Reserve shortage in the Ancillary Services Sub-Region

Reserve / Ancillary Service
Shadow Price ($/MWh) / Ancillary Service
Marginal Price ($/MWh)
Expanded System Region / Sub-Region / Resources participating in Expanded System Region but not in Sub-Region / Resources participating in
Sub-Region
Regulation Up / 150 / 550 / 150 / 700
Spinning / 60 / 640 / 60 / 700
Non-Spinning / 50 / 650 / 50 / 700
Regulation Down / 30 / 30

Example 3:

This example demonstrates the calculation of Ancillary Service Marginal Prices for various reserves in case of a shortage in Regulation-Up Reserve in the Expanded System Region when the maximum energy bid price is $1,000/MWh. In this example, the Ancillary Service Shadow Price for Regulation-Up Reserve in the Expanded System Region will be $200/MWh, determined by the demand curve value with $1000/MWh maximum energy bid price. The Ancillary Service Marginal Prices for all reserves shown in the exhibit below.

Exhibit 4-8: Ancillary Service Marginal Prices in the case of Regulation-Up Reserve shortage in the Expanded System Region

Reserve / Ancillary Service
Shadow Price ($/MWh) / Ancillary Service
Marginal Price ($/MWh)
Expanded System Region / Sub-Region / Resources participating in Expanded System Region but not in Sub-Region / Resources participating in Sub-Region
Regulation Up / 200 / 90 / 200 / 290
Spinning / 60 / 50 / 60 / 110
Non-Spinning / 50 / 30 / 50 / 80
Regulation Down / 30 / 30

Example 4:

This example demonstrates the calculation of Ancillary Service Marginal Prices for various reserves in case of a shortage greater than 210 MW of Non-Spinning Reserve and a shortage in Regulation-Up shortage in the Expanded System Region when the maximum energy bid price is $1,000/MWh. In this example, the Ancillary Service Shadow Price for Regulation-Up in the Expanded System Region will be $200/MWh, determined by the demand curve value with $1000/MWh maximum energy bid price. In this example, the Ancillary Service Shadow Price for Non-Spinning Reserve in the Expanded System Region is $700/MWh, determined by the demand curve value with $1000/MWh maximum energy bid price. The Ancillary Service Marginal Prices for all reserves are shown in the exhibit below.

Exhibit 4-9: Ancillary Service Marginal Prices in the case of Regulation-Up Reserve and Non-Spinning Reserve shortage in the Expanded System Region

Reserve / Ancillary Service
Shadow Price ($/MWh) / Ancillary Service
Marginal Price ($/MWh)
Expanded System Region / Sub-Region / Resources participating in Expanded System Region but not in Sub-Region / Resources participating in Sub-Region
Regulation Up / 900 / 90 / 900 / 990
Spinning / 700 / 50 / 700 / 750
Non-Spinning / 700 / 30 / 700 / 730
Regulation Down / 30 / 30

Example 5:

This example demonstrates the calculation of Ancillary Service Marginal Prices for various reserves in case of a shortage of all Reserves in both Expanded System Region and Sub-Region when the Non-Spinning Reserve shortage in the Expanded System Region is greater than 210 MWs and the Regulation Down shortage is greater than 84 MWs when the maximum energy bid price is $1,000/MWh. In this example, the Ancillary Service Shadow Prices for all reserves are determined by the demand curve values with $1000/MWh maximum energy bid price. The Ancillary Service Marginal Prices for all reserves are shown in the exhibit below.

Exhibit 4-10: Ancillary Service Marginal Prices in the case of shortage of all Reserves in both Expanded System Region and Sub-Region

Reserve / Ancillary Service Shadow Price ($/MWh) / Ancillary Service Marginal Price ($/MWh)
Expanded System Region / Sub-Region / Resources participating in Expanded System Region but not in
Sub-Region / Resources participating in Sub-Region
Regulation Up / 1000 / 0 / 1000 / 1000
Spinning / 800 / 0 / 800 / 800
Non-Spinning / 700 / 0 / 700 / 700
Regulation Down / 700 / 700
4.4.1.4Impact on Energy Price

In a situation of Ancillary Service supply shortage, Ancillary Service shadow prices will be set by the Scarcity Reserve Demand Curve Values. The energy prices may either rise together with the Ancillary Service prices, or may be unaffected by the increase in Ancillary Service prices. If a generating unit backs down its schedule of an Ancillary Service that is scarce in order to provide one additional MW of energy, the price of energy will include the opportunity cost of the scarce capacity, i.e. the shadow price of the Ancillary Service constraint set by the Scarcity Reserve Demand Curve Value, as well as the bid price of the incremental energy.

4.4.1.5Ancillary Service Supply Insufficiency Notification

The ISO will issue a Market Notice to inform Market Participants if a scarcity condition occurs.