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What Is Multi-Settlement?
ISO New England administers and oversees the commodity market for buying and selling electricity within the six-state region. The ISO settlement process is used to determine the charges to be paid to or by a market participant to satisfy its financial obligations. The process measures the amount of energy purchased and sold through the energy market and arrives at each market participant's payment.
The term "multi-settlement" applies to the energy market under SMD. The energy market consists of "day-ahead" and "real-time" markets for electricity, each producing its own separate and unique financial settlement. Multi-settlement means that charges for demand and payments to supply in the electricity marketplace can occur in either the day-ahead or real-time markets, producing two settlements for every operating hour.
The day-ahead energy market produces financially binding schedules for the production and consumption of electricity one day before the operating day. The real-time market reconciles any differences between the amounts of energy scheduled day-ahead and the real-time load, market participant re-offers, hourly self-schedules, self-curtailments and any changes in general, real-time system conditions.
The Day-Ahead Market
As its name suggests, the day-ahead energy market (DAM) occurs the day before the operating day. Generation, demand, external contracts, and increment and decrement bids that clear in the day-ahead market settle at prices determined by the DAM.
One day ahead of actual dispatch, participants submit supply offers and demand bids for energy. These bids are applied to each hour of the day and for each pricing location on the system as defined under locational marginal pricing (see LMP handout). Also, increment offers and decrement bids (virtual supply offers and demand bids) can be submitted, which indicate prices at which supply or demand are willing to increase or decrease their injection or withdrawal on the system. These 'incs' and 'decs' are tools market participants can use to hedge their positions in the DAM.
From these offers and bids, the ISO constructs aggregate supply and demand curves for each location. The intersection of these curves identifies the market-clearing price at each location for every hour. Supply offers below and demand bids above the identified price "clear," or are scheduled. Offers and bids that clear are entered into a pricing software system along with binding transmission constraints to produce the locational marginal prices for all locations.
The quantities and prices that clear in the DAM are financially, not physically, binding. Generators and offers scheduled in the day-ahead settlement are paid the day-ahead LMP for the megawatts accepted. Scheduled suppliers must produce the committed quantity during real-time or buy power from the real-time marketplace to replace what was not produced.
Likewise, wholesale buyers of electricity and virtual demand whose bids to buy clear in the DAM settlement pay for and lock in their right to consume the cleared quantity at the day-ahead LMP. Electricity use in real-time that exceeds the day-ahead purchase is paid for at the real-time LMP.
