Intertie Optimization FAQs and Implementation Principles

As the PJM market monitor notes, the intertie optimization would simply use the RTOs/ISOs’ existing market engines and treat “seams between balancing authorities as constraints, similar to other constraints within an LMP market.”11 The RTOs/ISOs existing LMP- and congestion-revenue- based settlement processes would then be applied to capture the value of intertie optimization for their market part. [...] In its simplest form, the intertie and available import/export schedules could be represented as (1) a gen-tie that reflects the contract path limit of their interface; and (2) a proxy unit that reflect the available marginal generation on the other side of the intertie in the neighboring region. [...] For example, if the intertie LMP of the exporting RTO/ISO were $30/MWh and the intertie LMP of the importing RTO/ISO were $50/MWh, the “transfer revenue” from the $20/MWh price difference would be credited back to the transmission providers (e.g., split equally between the transmission owners of the exporting and importing regions). [...] The RTO/ISO customers who are paying for the transmission facilities utilized by intertie optimization would benefit from (1) receiving the market value of the associated intertie transactions (based on the LMP-based intertie transaction settlements credited to transmission providers as discussed earlier); and, generally, (2) the more efficient generation dispatch and convergence of market prices. [...] For example, as is already the case in the Western EIM and proposed EDAM, the value of the intertie transactions (i.e., the real-time or day-ahead congestion revenues associated with an intertie’s LMP difference) would be allocated to those who make the transmission available for intertie optimization.