IEEE Power & Energy Magazine - January/February 2021 - 36

price is less than or equal to the aggregate amount of SFPFC
energy demanded.
The wholesale market operator would also run a clearinghouse to manage the counterparty risk associated with
these contracts. All U.S. wholesale market operators currently do this for all participants in their energy and ancillary services markets. In several U.S. markets, the market
operator also provides counterparty risk management services for long-term financial transmission rights, which
is not significantly different from performing this function
for SFPFCs.
SFPFC auctions would be run on an annual basis for
deliveries, starting two, three, and four years in the future.
In a steady state, auctions for incremental amounts of each
annual contract would also be needed so that the aggregate share of demand covered by each annual SFPFC could
increase over time. The eventual 100% coverage of demand
occurs through a final true-up auction that takes place after
Mechanics of the Standardized Forward
the realized values for hourly demand for the delivery period
Contract Procurement Process
The SFPFCs would be purchased through auctions several are known.
Consider the following two examples of how the true-up
years in advance of delivery to allow new entrants to compete to supply this energy. Because the aggregate hourly auction would work. Assume for simplicity, the monthly load
values of these SFPFC obligations are allocated to retail- shares of the four retailers remain unchanged. Suppose that
ers based on their actual share of system demand during the initial 1,000 MWh SFPFC in the previous example sold
the month, this mechanism can easily accommodate retail at US$50/MWh. However, suppose that the actual demand
competition. If one retailer loses the load and another gains turned out to be 10% higher in every period as depicted in
it during the month, the share of the aggregate hourly value Figure 4, and the additional 100 MWh purchased in the trueof SFPFCs allocated to the first retailer falls and the share up auction sold at US$80/MWh. If each firm sold 10% more
SFPFC energy in the true-up auction, this would yield the
allocated to the second retailer rises.
The wholesale market operator would run the auctions hourly obligations for each supplier indicated in Figure 5. The
with oversight by the relevant regulator. One advantage of hourly obligations for the four retailers are presented in Figthe design of the SFPFC products is that a simple auction ure 6. These would clear against the average cost of purmechanism can be used to purchase each annual product. chases from the original auction and true-up auction of
A multiround auction could be run where suppliers submit US$52.73. If the realized hourly demands are 10% lower
the total amount of annual SFPFC energy they would like as demonstrated in Figure 7, the true-up auction would buy
to sell for a given delivery period at the price for the cur- back 100 MWh of SFPFC energy. If all suppliers bought
rent round. At each round of the auction, the price would back 10% of their initial sales at US$20/MWh, the resultdecrease until the amount suppliers are willing to sell at that ing hourly obligations would be those in Figure 8. The
10% smaller hourly obligations of
the four retailers are provided in
System Demand
Figure 9, and these would clear
440 MWh
against the average cost of the initial auction purchase minus the reve400
330 MWh
nues from the true-up auction sales
300
for the required 900 MWh of the
220 MWh
obligations of US$53.33.
200
As depicted in Figures 6 and 9,
110 MWh
each
purchase or sale of the same
100
annual SFPFC product is allocated
to retailers according to their load
Time
Period 1
Period 2
Period 3
Period 4
shares during the delivery month.
If three different size purchases
Daily Demand
a re made for the same annual
110 + 220 + 440 + 330 = 1,100 MWh
SFPFC product at different prices,
then each retailer is allocated
figure 4. Hourly system demands (10% higher).
Energy (MWh)

allocated 200 MWh, Retailer 3 is allocated 300 MWh, and
Retailer 4 is allocated 400 MWh. The obligations of each
retailer are then allocated to the individual hours using the
same hourly system demand shares used to allocate the
SFPFC energy sales of suppliers to the 4 h. This allocation
process implies Retailer 1 holds 10 MWh in hour one, 20 MWh
in hour two, 40 MWh in hour three, and 30 MWh in hour
four. Repeating this same allocation process for the other
three retailers yields the remaining three hourly allocations
displayed in Figure 3. Similar to the case of the suppliers,
the sum of allocations across the four retailers for each
hour equals the total hourly system demand. For period 3,
Retailer 1's holding is 40 MWh, Retailer 2's is 80 MWh,
Retailer 3's is 120 MWh, and Retailer 4's is 160 MWh. The
sum of these four magnitudes is equal to 400 MWh, which
is the system demand in hour three.

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january/february 2021

IEEE Power & Energy Magazine - January/February 2021

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