Analysis of Strategic Operational Decision Risks and Financial Risks Posed by New RTO Market

Client Problem:

Our client is a large municipal utility located in the MISO footprint. With the launch of the new RTO market came new risks, new ways to manage risk, and new opportunities that were unavailable in the previous bilateral market.

Our client needed a way to identify and evaluate the new risks and opportunities created by the new realities of the market. These valuations would then be used to make strategic operational decisions for the benefit of the utility and its customers.

TEA® Solution:

The Energy Authority® provided a multi-phased analysis that began with building a Base Case and included a model representing the individual member system as well as a model that represented the new market rules.

Next, TEA included an evaluation of our client's Strategic Decision Risks, including the important question: "When is it economically beneficial to give up operational control in this new market?"

The third step was to evaluate the new marketable products that were available to our client, including Financial Bilateral Transactions and Designated Network Resource Capacity—both of which are very different products from what was available in the previous market.

Finally, TEA calculated the impacts these new options could have on our client's Expected Cash Flow and Cash Flow at Risk.

As a result, The Energy Authority was able to help our client identify the challenges and opportunities of the new market, and to quantify their potential impact. We were able to increase our client's awareness of the new realities of the RTO market, and to identify how operational changes would enable them to take advantage of the new opportunities.

Putting this information in action, our client is now considering selling capacity to the market this summer rather than purchasing it.