0. The Midwest ISO Market Design Roberto F. Paliza, Ph.D.
Federal Energy Regulatory Commission
Electricity Market Design and Structure Conference
January 22-23, 2002

1. Topics The Midwest ISO The Midwest Market Market Design Process
Design Framework
Common Design Elements
Unique Design Features
Implementation Challenges

2. Midwest ISO Statistics
25 Transmission-Owning Members
35 Non-Transmission Owning Members
MISO Service Territory
81,000 MW Peak Load
74,000 miles of transmission
More than 8 million customers
15 states and 1 Canadian province
3 states with retail access
Detroit ITC approved under Appendix I and TransLink awaiting approval

3. Midwest ISO Operations
Day-1
Security coordination
Outage coordination
Tariff administration
Congestion management
Energy imbalance
Billing and settlements
Market monitoring
Day-2
Implementation of a single market in the Midwest
LMP and Financial Transmission Rights

4. Proposed Midwest Market
Includes MISO, SPP, and Alliance
TransCos: Detroit ITC, TransLink,…..
Midwest Market Statistics
Over 200,000 MW of generation capacity
Includes 23 states and 1 Canadian province
6 states with retail access
Approximately 200,000 miles of transmission
Serving over 30 million customers
The largest market in the US

5. Operational Characteristics
Electrically intertwined systems with heavy interdependencies in some regions
Covers MAIN, MAPP, SPP and most of ECAR reliability councils and associated reserve sharing agreements
Over 40 control areas responsible for the dispatch and regulation of their systems
Currently there are four security coordinators and several tariff administrators
Coordination issues will be addressed by the implementation of one RTO in the Midwest and a single market

6. Proposed Midwest Market

7. Market Design Process Stakeholder driven process
Focused group composed of stakeholders and staff responsible for the design
High level design is completed
Working on the detailed design
Implementation alternatives are being studied in parallel with the design
Staged approach to achieve ultimate goal

8. MISO Design Framework Bid-based security constrained dispatch
Locational Marginal Pricing for imbalances and congestion
Financial transmission rights based on PTP and FGR (options and obligations)
Real-time and day-ahead markets
Works within a multi-control area structure
Existing reserves groups will transition to a MISO-wide market
Existing control area regulation will transition to a MISO-wide market

9. MISO Market Operations
RTO Functions
Market Inputs
Market Support
Generator Bids
Cover
Imbalances
Ensure Reliability
Bid based
Security-
Constrained
Dispatch
Real-Time
Balancing
Load Bids
Buy and Sell
In Spot Market
Buy Through
Congestion
Bilateral
Schedules
Congestion
Redispatch
Calculate
Nodal
Prices
Hedge
Congestion
Self Schedules
Transmission
Rights
RTO Market Settlements
At Nodal Prices
Market-Driven
Decisions
$$$

10. Common Design Elements
The MISO Market Design includes the core elements of the emerging standard market design:

11. Common Design Elements

12. Common Design Elements

13. Transmission Rights Allocation
Initial allocation of transmission rights
Grandfathered rights (non-OATT) have the choice to convert or keep them as they are until expiration
Existing OATT contracts will be converted to PTP
Transition to a full auction of transmission rights after a transition period
Transition period needs to be determined
Develop methodology to ensure that allocated transmission rights are simultaneously feasible

14. Types of Transmission Rights
Financial Transmission rights are defined in terms of Point-to-Point (PTP) and Flowgate (FGR) rights:
PTP and FGR can be options as well as obligations.
Flowgate is a transmission element or a set of elements which represent transmission operational constraints (thermal, voltage, or stability)
Flowgates (FGRs) can be defined as having:
Monitored elements only
Monitored and contingency elements

15. Obligations vs Options
Transmission rights can be options or obligations. Settlement of these financial rights depend on the direction of congestion. For example for A-B right:
A B A B
$20 $70 $70 $20
Obligation: Obligation:
Holder receives $ Holder pays $50 ______________________________________________
Option: Option:
Holder receives $50 Holder receives/pays $0

16. Flowgate Right Characteristics
FGRs as proposed for implementation by MISO have the following characteristics:
FGRs can be options or obligations
The flowgate right holder is hedged for congestion only on the specified constraint
The flowgate right holder decides how many flowgate rights will be necessary to hedge its transactions

17. Multi-Control Area Structure
The Midwest region includes over 40 control areas in which a variety of important functions are performed by the control area operator
The design accommodates existing control areas (does not require CA consolidation)
The design includes a phase-in approach to move towards centrally coordinated markets
Dispatch is centrally coordinated first, followed by reserves and regulation

19. Operating Reserves
The Midwest includes portions of four existing reserve sharing agreements: ECAR, MAIN, MAPP, and SPP
These agreements are similar but each has its own characteristics and implementation
During a transition period, MISO will coordinate existing reserve groups and reserve activation
After the transition period, a MISO-wide reserves market will be established
To properly maintain reliability in the Midwest region, reserve zones may have to be defined

20. Resource Adequacy
Alternatives for assuring long-term resource adequacy
ICAP markets
Pricing mechanism
Load shedding responsibility
Preliminary assessment of above methods led to primary reliance on the pricing mechanism (supported by load shedding rules) but more investigation is required
High price/bid caps
Demand is price-sensitive

21. Resource Adequacy Ensure short-term resource adequacy
All generation is “visible” to the MISO
Price will rise until generation meets load
MISO does not propose that control areas share responsibility for load shedding in all circumstances
If load shedding is required as a result of inadequate day-ahead resource commitment, distribution companies that lack resources to meet their loads will bear more of the load shedding

22. Market Power Mitigation
Market power concerns in load pockets have been brought to the attention of the MISO
These market power concerns will be addressed as part of the Market Design by the Independent Market Monitor (IMM), MISO, and stakeholders
Proposed mitigation mechanisms will be filed with FERC and, if approved, incorporated in the implementation of the congestion management system
Any exercise of market power in the Midwest will be monitored and identified on an ongoing basis by the IMM

23. MISO-TransCo Coordination
MISO-TransCo coordination process is under development:
Avoid the creation of internal seams (single market)
Provide appropriate incentives for transmission expansion
Some of the TransCo functions may include:
Transmission ownership and maintenance
Physical operation of transmission system
Work with MISO on transmission planning
Transmission expansion
Collect payments for transmission service provided under MISO tariff

24. Inter-RTO Coordination
The establishment of large RTOs employing real-time redispatch across broad regions will require changes in inter-regional coordination mechanisms
FERC Standard Market Design will reduce seams issues but will not eliminate them
In addition to the standard market design, there is a need for coordination mechanisms that would address issues such as:
Impact of loop flow and compensation
Impact of real-time redispatch
Transmission rights across RTO boundaries
MISO-PJM Letter of Intent

25. Implementation Challenges
The scale of MISO operations requires a careful evaluation of implementation alternatives
Combination with SPP and Alliance will help greatly in resolving seams issues in the Midwest
The key challenge for MISO is to successfully implement the “Single Market” in the Midwest:
Establishment of real-time and day-ahead markets
Allocation of financial transmission rights
Coordination of these markets by MISO
Implementation risks and cost will be managed by staging the implementation and establishing cooperating agreements with other RTOs

26. Questions/Comments