1 SMD and Efficiency Programs Standard Market Design (SMD) –Implemented March, 2003 –Major feature, locational assignment of costs and locational price signals –Location of load and generation can affect total revenues to generators and total costs to customers –Goal is to improve system-wide efficiency, and hence lower costs, through response of both load and generation to locational price signals

2 SMD and Efficiency Programs NE control area contains about 900 separate, geographically dispersed pricing points called Nodes. A unique Locational Marginal Price (LMP) is established at each Node LMP at each Node has three components –Energy –Losses –Congestion Energy component is the same at each Node but congestion and loss components can, and often do, vary Hence LMP can be different at each Node –Referred to as geographic price separation or geographic basis

3 SMD and Efficiency Programs Each generator in the ISO NE Control Area (CA) delivers its output to a specific Node Each generator sells all of its output to the ISO at the posted LMP for its delivery Node Generators will be paid more or less for the same volume of output depending on their location or Node

4 SMD and efficiency Programs Load Zones are aggregations of Nodes Each Node is grouped into one of eight Load Zones Load Zones cover broader geographical areas VT is designated as a single Load Zone All Load within a Zone pays the same Zonal LMP for energy

5 SMD and Efficiency Programs Vermont Load Zone comprises about 70 Nodes 26 of these Nodes are designated as Pricing Nodes Vermont Zonal LMP is calculated as the weighted average of LMP’s at the 26 Pricing Nodes Thus LMP at Pricing Nodes directly affects Zonal LMP Power flows at non-pricing nodes can indirectly affect Zonal LMP via impacts on the LMP at the Pricing Nodes

6 SMD and Efficiency Programs Graph on next slide shows average prices at each of the 25 Pricing Nodes contained in VT Load Zone Prices reflect average hourly LMP over entire SMD period starting in March, 2003 Data show persistent price separation across Zonal Pricing Nodes

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8 SMD and Efficiency Programs Pricing Nodes are assigned weights based on load share Contribution of Pricing Node LMP to Load Zone LMP depends on both the Node weight and the Node LMP Focusing Efficiency measures at high LMP Pricing Nodes can affect Load Zone LMP in two ways –Can reduce load share at the Node and hence the weighted contribution of the Node to Zonal LMP –Can reduce LMP at the Price Node

9 SMD and Efficiency Programs Benefits of lowering the LMP at the Load Zone redound to all Vermont electricity consumers Thus, can create geographically disperse benefit by targeting efficiency programs to high LMP Pricing Node areas Prior graph indicates widest price separation of about $2.00 per Mwh May not seem like much, but if average Zonal LMP could be reduced by $.25 per Mwh, Vermont electricity consumers would realize annual benefit of over $1 Million

10 SMD and Efficiency Programs Real benefits can be derived from clever response of both load and generation to locational price signals Targeted efficiency can have an impact It is difficult to understand and model causal chain between changes in load or generation at specific Pricing Nodes and ultimate impact on Load Zone LMP But we do know that –Pricing Nodes in VT exhibit different prices due to congestion and losses – Changes in amounts of load or generation settled at Nodes can affect Nodal prices and/or weights –Changes in Nodal prices and/or weights will affect the Zonal price paid by all VT load –Along with Zonal price impacts, location decisions can affect the level of T&D deferral benefits

11 SMD and Efficiency Further analysis will be needed to confidently estimate the Zonal price benefits that might result from geographically targeting specific efficiency measures Structured analysis on impacts of locational decisions can be conducted to help inform and guide the design of efficiency programs CV is conducting on-going analysis of SMD dynamics to improve its resource decision making and is interested in sharing information and analysis with other parties

12 Nodal Identification 2437LD.BARRE_VT LD.SO_HERO LD.BERLINVT LD.STJHNSBY LD.IRASBURG LD.HIGHGATE LD.STALBANS LD.E_FAIRFX LD.ESSEX LD.EAST_AVE LD.QUEENCTY LD.QUEENCTY LD.NEW_HAVN LD.MIDLEBRY LD.BLISVILL LD.N_RUTLND LD.ASCUTNEY LD.FLORNCE LD.WINDSOR LD.HARTFDVT LD.CHELSEAV LD.MIDDLESX LD.BENINGTN LD.BENINGTN LD.COLD_RV 115