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2009 State of the Market Report

Competitive Assessment

difference between a unit’s output that is economic at the prevailing clearing price and the amount that is actually produced by the unit. In essence, the output gap shows the quantity of generation that a supplier may be withholding from the market by submitting offers above competitive levels. Therefore, the output gap for any unit would generally equal:

- Qiprod

Qi

econ

Qi

prod

Qi

econ

when greater than zero, where:

= =

Economic level of output for unit i; and Actual production of unit i.

To estimate Qiecon, the economic level of output for a particular unit, it is necessary to look at all parts of the unit’s three-part reference level: startup cost reference, no-load cost reference, and incremental energy cost reference. These costs jointly determine whether a unit would have been economic at the clearing price for at least the unit’s minimum run time.

We employ a three-stage process to determine the economic output level for a unit in a particular hour. In the first stage, we examine whether the unit would have been economic for commitment on that day if it had offered its true marginal costs. In other words, we examine whether the unit would have recovered its actual startup, no-load, and incremental costs running at the dispatch point dictated by the prevailing LMP (constrained by its EcoMin and EcoMax) for its minimum run time. If a unit was economic for commitment, we then identify the set of contiguous hours during which the unit was economic to dispatch. Finally, we determine the economic level of incremental output in hours when the unit was economic to run. In hours when the unit was not economic to run and on days when the unit was not economic for commitment, the economic level of output was considered to be zero. To reflect the timeframe in which commitment decisions are actually made, this assessment is based upon day-ahead market outcomes for non- quick-start units and based upon real-time market outcomes for quick-start units.

Because our benchmarks for units’ marginal costs are inherently imperfect, we add a threshold to the resources’ reference level to determine Qiecon. This ensures that we will identify only significant departures from competitive conduct. The thresholds used are based on the thresholds defined in the tariff for BCAs and NCAs. The thresholds are described in more detail below.

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