A presentation on the benefits of wholesale electric market settlement systems. This is geared towards wholesale settlement operated by a market or system operator, such as an Independent System Operator (ISO), Regional Transmission Operator (RTO - also called a Transmission Operator) or Balancing Market Operator

1. WHOLESALE ELECTRIC
SETTLEMENT - HOW IT WORKS AND
WHY IT HELPS
Alan G. Isemonger
www.energymarketexpertise.com
2017

2. Importance for the Utility Industry
• A robust and transparent settlement system enhances
institutional accountability, makes payment discipline
easier to enforce, and can result in more robust revenue
streams
• New and modern infrastructure, such as power plants and
transmission lines, must be paired with modern business
processes to capture and monetize the increase in
efficiency, and load served
• Benefits the host country institutions
• Benefits the IPPs who have a reliable revenue stream
• Robust revenue stream for loan repayment
• Easier reporting on sources of dysfunction – transparency is an
antiseptic

3. Requirements for Settlement System
• An unbundled system with functional separation between
significant responsibilities – Generation – Transmission -
Distribution
• i.e. not a vertically integrated utility
• Settlement system used by an entity identified as the
Balancing Market Operator (BMO), a government entity
• Work with the System Operator to capture instructions
• Work with Transmission entity to ensure adequate metering
• Work with Distribution companies and Independent Power
Producers to ensure effective and accurate settlement

4. Settlement Principles
• Agency
• Run a settlements system not a payment department
• Accountability – capture System Operator instructions
and construct a performance expectation
• Transparency – if in doubt publish to web
• Reproducibility – billing determinants,
configuration guides, almost open-source
settlement

5. IT Architecture
• A database underpins the settlement system
• Different schemas for different data classes
• Application server sits on top of database
• Algorithms run in custom applications to populate statements and
invoices

6. Buy or Build
• Electricity markets are insufficiently standardized
for any off-the-shelf (shrink-wrapped) product
• Design determines the settlement
• Every settlement system is built using modular
methods and customized
• Degree of customization varies depending on
fluidity of design

7. Dependencies and Integration Points
• Physical metering system determines the sophistication and
granularity of the settlement
• Minimum requirement - meters at all injection and withdrawal points
• Instruction set integration
• BMO/SO at various times instructs units to change output etc.
• Instructions recorded and converted into expected energy
• Metering integration
• Revenue quality meters at all injection and takeout points measure the
behavior of both load and generation
• Estimated meter data is sometimes used for the initial settlement
statement
• Financial Clearing
• Integration with Finance department to record payments and payouts
• Settlement statements are incremental generally so they account for
monies already paid for any trade date

8. Four Business Processes
•Settlement Statements
•Billing period determination
•Invoicing
•Market Clearing

9. Business Processes
• Settlement Statements
• Simplest artifact of the system - trade date based
• Include public data (such as prices) and private data, such as generation or
consumption
• Underlying the settlement statement are the charge codes, configuration files
and billing determinants
• Process is completely transparent and reproducible by outside vendors
• Billing Period Determination
• consolidates the settlement statements into invoice ready numbers.
• Invoicing
• Invoices are generally generated mid-week for the previous week
• Monthly invoices are also generated for some administrative charges that work
on monthly data
• Settlements calendar provides detail
• Financial Clearing
• Payments are received or disbursed, generally by wire
• Bulk of the payments should clear within 14 days of the operating day

10. Iterative Processing
• Settlement is iterative
• T +7/T+14/T+55/T+105
• Each day is resettled up to four times, sometimes more
• Reruns are common and the system should be built for them
• Sunset dates should also be considered after three or five years
• Settlement statements take account of the payments
already made
• Amounts are based on the difference from the last amount
paid
• The iteration is essentially a true-up process

11. Mid-West ISO Work Flow

12. Things to Remember
• Dispute Process – pay first, dispute later
• Estimated vs. Actual meter data
• Transparency and Reproducibility
• Versioning is key – nothing is deleted
• Auditing should be easy
• Iteration of the system is a native functionality

13. Questions