Local Market Power and Constrained-off Watch Zone Mitigation
Circumstances frequently arise on the IESO controlled grid in which a transmission constraint or security limit necessitates the constrained dispatch of a resource. The local nature of the transmission constraint, coupled with a lack of resources competing to provide the required physical service, can give rise to conditions of Local Market Power (LMP). In such cases, market participants may receive excessive Congestion Management Settlement Credit (CMSC) payments.
The market rules provide the IESO with the authority to mitigate the effects of excessive CMSC payments resulting from instances of LMP (or related conditions) by authorizing it to adjust CMSC payments. The adjustment (or 'recalculation') of CMSC is intended to return the profit the market participant would have earned had their resource not been constrained.
In determining whether or not LMP existed at a given time for a given resource, the IESO conducts three screens. Detailed information on these screens is available in section 1.3 of Appendix 7.6 of the market rules and Appendix B and C of Market Manual 2.12.
Generally, these screens are designed to answer the following questions:
- Can the constrained dispatch at the investigated facility be causally linked to a transmission constraint or security limit?
- Are there insufficient resources competing to provide the required physical service in the local area?
- Is the investigated offer/bid price inconsistent with the resource's historical pricing behaviour or the relevant prevailing market price?
The price investigation process is to determine whether the investigated price is consistent with the resource's underlying marginal cost or benefit, depending on the resource type. For energy limited resources, opportunity costs will also be considered.
The price investigation stage provides the market participant with an opportunity to make representations regarding CMSC recalculations, or to propose an alternate settlement price. If the IESO believes the investigated price or alternate price proposed by the market participant is inconsistent with the participant's underlying marginal cost or benefit, the IESO has the authority to recalculate CMSC.
Constrained-off events that occur in a designated Constrained-off Watch Zone (COWZ) are subject to review under the COWZ framework. While similar in objective to the LMP process, COWZ does not require the IESO to establish the existence of LMP in reference to the three screens described above.
A zone is designated as a COWZ when nodal prices in the area diverge regularly from the market clearing price. Such conditions give rise to frequent constrained-off dispatches and provide participants with the opportunity to receive excessive CMSC payments. To mitigate such payments, the IESO developed COWZ, wherein resources found to receive persistent and significant constrained-off CMSC (as defined by the thresholds in Market Manual 2.12) may be subject to a CMSC recalculation. Similar to the CMSC recalculation under LMP, the IESO will recalculate CMSC under COWZ if it believes the investigated offer/bid price is inconsistent with the resource's underlying cost or benefit.
Zones currently designated as a Constrained-off Watch Zone
- Northwest (injections only, aka generators and imports)
Interties currently designated as an Uncontested Export Intertie
- Quebec at Kipiwa (PQHZ)
- Quebec at Outaouais (PQAT)