Single Schedule Market - High-Level Design

The culmination of 18 months of consultation, the Single Schedule Market High-Level Design addresses the rationale behind the move to a single schedule market, and summarizes the key concepts and decisions that provide a framework for aligning pricing and dispatch in Ontario’s electricity markets. Collectively the decisions included in this document – starting with the replacement of uniform pricing for market participants with pricing that reflects the true cost of producing and consuming electricity at a given location – will help resolve existing inefficiencies, reduce the complexity associated with out-of-market payments and pave the way for other cost-savings initiatives, including the day-ahead market.

To manage the scope and complexity of the single schedule market initiative, the IESO separated the project into 19 design elements that fall into one of four categories:

Price Formation
Price Formation focuses on aligning locational energy prices with dispatch instructions by accounting for congestion and losses on the system. Core to the design of the SSM, the adoption of locational marginal prices (LMPs) for suppliers, traders and dispatchable loads will encourage offers that reflect their short-run marginal costs, resulting in efficient dispatch and reducing the long-run cost of operating the system.

Market Power Mitigation
Market Power Mitigation is used to address instances where lack of competition in an area enables market participants to exercise their “market power” by either economically or physically withholding energy from the market to increase price. With the alignment of price and dispatch under the SSM, the high-level design recommends an approach that mitigates market power “before the fact” – by adjusting offer prices to their respective, pre-determined reference levels ahead of dispatch – to prevent offers that “fail” the market power test from affecting dispatch schedules and market prices.

Load Pricing
Load Pricing deals with pricing for loads: the large consumers that are market participants and typically directly-connected to the IESO-controlled grid. Based on an examination of best practices in other jurisdictions, the high-level design recommends non-dispatchable loads use zonal pricing – a weighted average of nodal prices within each of the province’s 10 electricity zones – to increase the efficiency of energy consumption decisions and reduce costs. Under the new pricing scheme, these loads can select their preferred choice of pricing granularity (nodal or zonal) for a minimum period of one year. To encourage efficient bids, support dispatch outcomes and limit out-of-market payments, nodal pricing is recommended for dispatchable loads.

Settlement Topics
While the move to an SSM will create efficiencies by dramatically reducing the need for out-of-market payments associated with congestion and losses, even in an SSM, LMPs can’t always reflect the cost of balancing the system. Settlement Topics addresses situations when offer prices do not align with dispatch, requiring resources to be dispatched out-of-merit to maintain system reliability. Make-whole and uplift recovery payments apply to circumstances where resources are either “dispatched-up” to produce more energy than is economic at the LMP and incur an operating cost loss or “dispatched-down” to produce less energy than is economic, and incur an opportunity cost.