Cold Snap Report
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Final Report on Electricity Supply Conditions in New England During the January 14 - 16, 2004 “Cold Snap” ISO New England Inc. Market Monitoring Department October 12, 2004 FOREWORD The Final Report on Electricity Supply Conditions in New England during the January 14 - 16, 2004 “Cold Snap” includes revisions and clarifications based on further review of the Cold Snap following the publication of an Interim Report in May 2004. A separate Management Response to the Final Report provides action steps to address each of the recommendations in the Final Report. ISO New England acknowledges the significant progress of the region’s stakeholders to improve power system reliability for winter 2004/2005 and beyond. i Final Report on Electricity Supply Conditions in New England During the January 14-16, 2004 “Cold Snap” TABLE OF CONTENTS PAGE I. EXECUTIVE SUMMARY ....................................................................................................... 1 II. INTRODUCTION: BACKGROUND INFORMATION ON THE NEW ENGLAND BULK POWER SYSTEM, GAS SYSTEM, AND SUMMARY OF JANUARY 2004 COLD SNAP EVENTS ............................................................................................................................... 7 III. SUMMARY OF EVENTS ...................................................................................................... 16 A. Overview of Weather and Gas Issues ................................................................... 16 1. Weather..................................................................................................... 16 2. Fuel Mix.................................................................................................... 19 B. Day-by-Day Narrative........................................................................................... 21 1. January 7-9................................................................................................ 21 2. Real-Time January 13, Day-Ahead Forecast for January 14.................... 22 3. January 14 ................................................................................................. 24 4. January 15 ................................................................................................. 29 5. January 16 ................................................................................................. 34 C. Timing of Events in the Gas Market..................................................................... 37 IV. ANALYSIS OF THE EVENT ................................................................................................. 41 A. Background and Scope.......................................................................................... 42 1. Basis of the Analysis................................................................................. 42 2. Focus on Gas-Fired Units ......................................................................... 43 3. Power and Fuel Price Data........................................................................ 46 B. Pricing of Supply Offers by Gas-Fired Generation............................................... 50 1. Effects of Gas Price Volatility .................................................................. 50 2. Hourly LMPs versus Variable Costs......................................................... 57 3. Gas and Power Markets Trading and Scheduling Timelines.................... 59 4. Economic Outages, Gas Unit Availability, and Gas-Fired Unit Contracting Practices ................................................................................ 66 5. Gas Arbitrage............................................................................................ 72 6. Conclusions............................................................................................... 74 C. Potential for the Exercise of Market Power .......................................................... 74 1. Purpose of the Analysis ............................................................................ 74 ii 2. Resource Concentration............................................................................ 75 3. Residual Supply Index .............................................................................. 76 4. Competitive Benchmark Analysis ............................................................ 78 5. Forward Contracting ................................................................................. 81 6. Conclusions............................................................................................... 83 D. Analysis of Market Conduct ................................................................................. 83 1. Economic Withholding Analysis .............................................................. 83 2. Physical Withholding Analysis................................................................. 89 3. Economic Outages: Conduct of Generating Units.................................. 101 4. Economic Outages: ISO Scheduling....................................................... 107 E. Market Monitoring Activity................................................................................ 108 1. Overview................................................................................................. 108 2. Congestion Mitigation Activity Results.................................................. 110 3. Evaluation of General Market Power Mitigation.................................... 111 4. Evaluation of Operating Reserve Mitigation for Units Running Out of Merit ................................................................................................... 112 F. Other Market Analysis ........................................................................................ 114 1. Load Behavior During the Report Period ............................................... 114 2. Day-Ahead Market Clearing................................................................... 120 3. Review of Demand Response During the Report Period........................ 122 4. Evaluation of Price Setting Eligibility and Out of Merit Operation During the Report Period........................................................................ 125 5. OP4 Price Setters .................................................................................... 138 V. CONCLUSIONS AND RECOMMENDATIONS FOR ACTION ................................................ 140 VI. APPENDIX A - FUNDAMENTALS OF NEW ENGLAND POWER SYSTEM OPERATIONS ................................................................................................................... 154 A. The Electric Power Grid...................................................................................... 154 B. North American Reliability Requirements.......................................................... 154 C. Operating Procedures and Guidelines................................................................. 155 D. Operating Reserves ............................................................................................. 156 E. NEPOOL Operating Procedure No. 4 (OP4) ...................................................... 157 F. Public Notifications............................................................................................. 157 G. Overview of the New England Electricity Markets ............................................ 158 1. Energy Markets....................................................................................... 158 2. Installed Capacity.................................................................................... 160 iii 3. Obligation to Run.................................................................................... 160 4. Economic Outages .................................................................................. 161 H. Overview of the New England Natural Gas Markets.......................................... 162 1. Regional Gas Supply............................................................................... 162 2. Regional Interstate Gas Transportation .................................................. 164 3. Gas Contracting Practices....................................................................... 165 4. Interaction of Gas and Electric Contracting............................................ 167 5. Highlights of Prior New England Gas Studies ....................................... 171 VII. APPENDIX B - 1994 SEVERE WEATHER EVENT IN PJM............................................... 174 VIII. APPENDIX C - GAS ARBITRAGE AND THE EFFECT OF PRICE UNCERTAINTY............... 177 A. Gas Arbitrage ...................................................................................................... 177 B. Calculating the Supply Offer Price for a Gas-Fired Unit.................................... 180 C. Conclusions......................................................................................................... 183 IX. APPENDIX D - DEMAND RESPONSE................................................................................ 185 X. APPENDIX E - DETAILED TIMELINE OF GAS EVENTS, JANUARY 7 –17, 2004 ............. 188 iv LIST OF TABLES PAGE TABLE 1 - SEASONAL CLAIMED CAPABILITY BY UNIT FUEL TYPE, JANUARY 2004 ................. 20 TABLE 2 - OVERVIEW OF SYSTEM CONDITIONS FOR JANUARY 7-9, 2004 ................................. 21 TABLE 3 - DAY-AHEAD PROJECTIONS OF SYSTEM CONDITIONS FOR JANUARY 14, 2004 ........ 23 TABLE 4 - UPDATED PROJECTIONS OF SYSTEM CONDITIONS FOR JANUARY 14, 2004 ............. 24 TABLE 5 - ACTUAL SYSTEM CONDITIONS FOR JANUARY 14, 2004