Industry 101 | Market Settlement: Settlements Actors

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5.1 SETTLEMENTS ACTOR

In the 1990s, many in the United States pushed for utility market reform, suggesting that moving to a deregulated market would increase market transparency, drastically reduce the likelihood of power over- or under-generation, drive down prices due to increased competition, and empower consumers to make informed decisions about their power needs.

Instead of the vertically-integrated and heavily-regulated utility market that has long been the standard in the U.S., deregulated markets require the participating utilities to divest in their generation and transmission operations, allowing them to only focus on distribution and billing. Grid operators put electric generation on the market, which is then bought by retail companies and sold to end users as electricity.

The result of this deregulation is a large number of functionally separate market players, all of whom represent portions of the energy industry that would generally be handled by a single utility in a standard regulated market. A portion of the players needed to maintain a deregulated market are described below, but more may be present in a given independent system operator setup, based on the regional and federal mandates applicable to that market.

 

5.1.1 INDEPENDENT SYSTEM OPERATOR

As stated previously, an independent system operator (ISO) is a regulatory organization, created on the recommendation of FERC Order 888, intended to provide oversight to utilities and transactional transparency and non-discriminatory transmission access to customers that are served by the utilities the ISO governs. Regional Transmission Organization (RTO), introduced by FERC in Order 2000, is often used interchangeably with ISO; they generally have the same goals.

In a deregulated utility market, the ISO is the central repository for information about the current and future state of the electric grid: how much power has been and will be generated by grid operators, the current market price at which retailers may sell power to consumers, and the load that consumers are currently using or forecasted to use in the future. Essentially, the ISO is the heart of the industry, taking in information from many different sources, rerouting it to the affected participants, and ensuring that everything is working as a synchronous whole.

 

5.1.2 MARKET PARTICIPANT

Market participants (MPs) are those who actively engage in transmission, energy, and/or operating reserve markets overseen by the ISO. Market participants submit bids to purchase or supply transmission, energy, and/or operating reserve to the grid, using data gleaned from agents either working for the market participants or contracted on their behalf and in compliance with the rules and regulations set out by FERC and the specific ISO. The market participant accepts financial responsibility for the transactions they submit and legal responsibility for any data they, or an agent on their behalf, submits to the ISO. Their participation in the bidding and offering process directly includes MPs in the settlement and settlement invoicing process.

Market participants often include generators, retailers, transmission operators, and transmission customers.

 

 

5.1.3 ASSET OWNER

An asset owner (AO) is one who is responsible for assets that directly or indirectly impact the grid’s operations, including physical assets like power lines and meters, but also virtual assets like software, services, and people.

Market participants represent the asset owner’s interests in the energy market, and settlements are generated per asset owner. The division of how a specific company wants to represent itself to or settle with the ISO will define the scope of the asset owner.

 

5.1.4 AGENTS

Four agency relationships are available to all participants in the MISO system:

 

5.1.4.1 MDMA

Meter Data Management Agents (MDMAs) collect, validate, and store customer usage data as part of, or on behalf of, a market participant. This data is delivered to the ISO in a pre-defined format and is used to determine the actual volume of generation or consumption used when the ISO does settlement calculations.

 

5.1.4.2 SCHEDULING AGENT

The market participant who schedules the applicable transactions sent to the ISO is known as a scheduling agent (SA) or scheduling coordinator (SC).

Even though the scheduling agent should ensure that the participant’s bids comply with the timeliness and integrity standards set forth by the ISO, the participant is the one with a legal, financial, and operational relationship with the ISO. If any discrepancies occur, the ISO contacts the participant directly, not any agents who acted on their behalf.

 

5.1.4.3 SETTLEMENT AGENT

Market Settlement Agent

A market settlement agent (MSA) deals with responding to the settlement invoices that the ISO sends to a market participant. Again, they may be within the market participant’s organization or a contractor who acts on the participant’s behalf.

As with the scheduling agent, the market participant assumes legal, financial, and operational responsibility for any decisions the market settlement agent delivers to the ISO on the participant’s behalf.

Transmission Settlement Agent

In the transmission market, a transmission settlement agent (TSA) acts in the same manner as an MSA does in the energy market.

 

5.1.4.4 BILLING AGENT

A market participant may designate a billing agent as the one who accepts invoices and makes payments on behalf of the participant; this agent may be internal or external to the participant’s organization.

Similar to previous agent roles, the market participant assumes contractual obligations to the ISO on behalf of any decisions made by the billing agent.

 

5.1.5 LOCAL BALANCING AUTHORITY

A Local Balancing Authority (LBA) provides timely hourly or half-hourly NAI data[1] to the ISO to support market settlements.

The most visible purpose of an ISO/RTO to consumers is its use as a central clearinghouse for grid transactions between its utilities, including transmission rights and day-ahead or spot market purchases of transmission and/or generation. These transactions are known as settlements, since the ISO is the medium through which goods, services, and payments are reconciled – similar to a financial institution. Deregulated markets can have both market settlements and transmission settlements, which are used to keep the grid’s supply and demand in sync from a consumer and operational standpoint.

[1] Net Actual Interchange (NAI) – the algebraic sum of all metered interchange over all interconnections between two physically adjacent balancing authority areas.

 

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Here is a list of relevant reading material our expert identified as sources for additional information:

www.eesi.org/files/070913_Jay_Caspary.pdf
www.ferc.gov/industries/electric/indus-act/rto.asp
www.energysmart.enernoc.com/regulated-and-deregulated-energy-markets-explained/
www.linkedin.com/pulse/how-energy-settlements-work-diptarka-sensarma
www.misoenergy.org/MarketsOperations/TransmissionSettlements/Pages/TransmissionSettlementsFAQ.aspx
www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/Training%20Materials/100%20Level%20Training/Level%20100%20-%20Transmission%20Settlements.pdf
www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/Training%20Materials/MP%20100/Market%20Settlements%20Overview%20Training.pdf
www.nerc.com/files/glossary_of_terms.pdf