Highly Effective GENCO Habit #6: Post-Analysis

Patric McGarry
Senior Director

Not so long ago, post-analysis work in RTO/ISO markets was a forensic activity performed days “after-the-fact” designed essentially to:

  1. Highlight bad data;
  2. Reconcile RTO/ISO statements;
  3. Pay bills

After that, let the back office correct any errors and sweep up any front office messes to meet the obligatory, end-of-month financial milestones.

The advent of high-powered software and access to deep information stores, along with big data validation and analytics that takes minutes – not days, has changed the ballgame.

Say goodbye to traditional energy accounting.  We’ll miss you (not).

GENCO portfolio managers can now use a triumvirate of weapons that include predictive analytics and “data storytelling” to quickly develop bottom-line enhancing insights.  The third arrow in the quiver is
post-analysis (PA), which is the subject of this sixth post in PCI’s blog series, “7 Habits of Highly Effective GENCOs”.  Here, we discuss three important PA activities that can help optimize GENCO market participation and improve bottom lines, as well as customer relationships.

I. Quantifying P&L Leakages

In a perfect world:

  • All load forecasts are one hundred percent accurate;
  • All generators perform exactly as expected in the real time market;
  • The Real Time (RT) market mirrors the Day Ahead (DA) “black box”. There is no change to (a) the revenues awarded to generators or (b) charges attributed to load.

We don’t live in a perfect world.

GENCOs must collect and compare credits and charges to compute DART profit and loss.  Those most successfully doing this tend to perform valuable exercises such as:

a.) Shadow settlement prior to the RT market to find P&L leaks and hidden revenues.

b.) Settlement data analytics to adjust bidding strategies and reap all market benefits.

Let’s reference some of the findings in this detailed study on Battery Energy Storage (BES) in frequency regulation markets and their relative profitability in providing such services.

Rethinking Price-Taking

The researchers determined that a majority of BES-owning participants prefer to be “price takers” and as such, typically submit a zero offer to the Day Ahead market, which is a strategy that oftentimes leads to lower regulation prices and reduced profitability.  Further, most price-takers do not consider battery degradation costs in their P&L which does not help in analytical precision or obtaining a 360° view of the operational/financial landscape.

Optimizing and post-analyzing ESRs will be increasingly crucial to improve overall portfolio bidding strategies.

The study solved the problems incurred with the price-taking strategy by proposing optimal control and optimal bidding policies based on an accurate battery aging model.  The proposed bidding strategy considered the optimal control policy to maximize market profits, and it did so while satisfying market performance requirements.

System Shocks & Peak Shaving

As markets evolve, so do operating and bidding strategies that are increasingly fed by robust post-analytics that can help refine and clarify how to employ revenue-maximizing techniques like peak shaving. 

About the same numbers of hours in a typical work week largely determine a significant portion of a consumer’s annual energy invoice.  Just as financial markets are materially impacted only a few out of the 365 days in year, analysis generally shows that most RTO markets experience major system incidents (due to extreme weather or critical generation/transmission events) over roughly 40-hours annually. 

System shocks during these few hours/days produce major financial ripple effects for consumer who can use peak shaving to amass even notable costs-savings.  Sometimes, the savings can be greater than (for example) deploying a battery resource during times of market stress.

Assessing P&L Leakages

Strategy aside, the financial impact of P&L leakage is no small matter. For instance, in SPP, the average market participant experiences anywhere from $100,000 to $1,000,000 in leakage each month.  For all market participants, the ongoing assessment and identification of P&L leakage root causes is one of the most important outcomes in the post-analysis process.

Typical PA objectives should include:

  • After-the-fact transaction costing
  • Identifying lost opportunity costs associated with outages or derates
  • Finding operational efficiency costs (optimal versus actual)
  • Calculating client-specific Key Performance Indicators (KPIs)

Ultimately, the goal of the PA workflow is to reveal operational inefficiencies that can be improved in order to maximize future market performance.

II. Post-Analyzing Transmission Billing

During the past decade, transmission costs in RTO/ISO markets have been growing much faster than inflation, sometimes at double-digit rates.  As transmission owners invest in T&D infrastructure upgrades due to aging, retirements, new gas and renewable generation coming online, and changes in demand, transmission rates have gone up about as fast as an Internet company stock in the late-1990s.

On average, transmission represents about 20% of a total bill for any energy market participant, which is why accepting these invoices at face value is not advisable.  As most everyone knows, the ISO/RTO calculation of invoices does not always infallibly assign the correct billing determinants and, what you pay can vary wildly based on the disconnects in this processing.

Here again, be your own best advocate by leveraging targeted post-analytics to discover short to long-term trends and (if need be) challenge the cost-benefit assumptions surrounding any planned transmission projects.  Best practices in assessing transmission billing also include allocating RTO/ISO charges to separate customer accounts; a good example being a wind facility owned by multiple parties.

ISO/RTO calculation of invoices does not always infallibly assign the correct billing determinants and, what you pay can vary wildly based on the disconnects in this processing.

Invoice Run-ups: FERC Sees ‘Em

Skyrocketing transmission bills have the attention of regulators and ratepayers. RTO market design staff know current calculation methodologies/models are suspect.  Recently, a Brattle Group study advocated that new transmission development projects should be subject to strong competitive bidding rules, and in fact, trends in transmission billing have caused FERC to consider reopening and updating its Order 1000

Originally released in 2011, Order 1000 was intended to expand the transmission system based in large measure on the growth in demand for renewable power.  At the time, it updated policies around transmission planning, cost allocation and competitive bidding, but has generated underwhelming results.  Enhancing it and putting more teeth in its enforcement will be crucial for the market going forward. 

Clearly, post-analysis of transmission billing data is driving big policy decisions at the state and federal level.  PA has helped focus the spotlight on transmission-related ratepayer overcharges and established the need to rethink what has been an adherence to some arcane computational and decision-making methods.

Increasingly, data talks and all else walks.

III. Meter Data Management Post-Analysis

During the past five years, utilities spent many millions of dollars installing advanced metering infrastructure (AMI) systems. They made these investments with the expectation of getting more for their money than simply being able to automate monthly billing determinants.  For example, AMI tracks patterns in consumer energy usage and can provide actionable insight for utilities. 

Smart technologies generate vast amounts of data that present new post-analysis challenges and opportunities to gain deeper insights to achieve operational efficiencies.

MDM impacts the entire GENCO enterprise. Effectively managed, in part with comprehensive post-analytics, it can yield enormous upstream and downstream benefits for customers and partners, as well as market operators and regulators. 

Predictive Analytics & Better Understanding Your Customer

Data management and validation, while crucial, are now highly automated – almost commoditized tasks designed more and more to stoke the powerful algorithms used to predict the future (while correcting past mistakes to improve future performance).   The sophisticated engines driving today’s PA tools provide a GENCO with value-based predictive analytics that enhance:

  • Revenue assurance
  • Customer engagement (to better explain usage and billing)
  • Reliability, voltage analysis
  • VAR optimization
  • Transformer load management
  • Initiation of system maintenance or repairs
  • Events analysis
  • Water loss analysis
  • Line loss analysis
  • Theft and fraud detection

Meter data post-analysis allows you to more confidently capitalize on technology changes and better understanding evolving customer expectations core to ensuring thriving GENCO operations.

In tandem with behavioral economics, machine learning, and artificial intelligence, advances in meter data management and post-analytics have disrupted the energy industry in ways that are still being revealed.

If you’re not already a data junkie, you soon will be.

Conclusion

Post-analysis means many things to many energy market participants. However, it’s clear that what was once a mundane back office chore has now become a critical function.  For decades, PA was often thought about in the context of merely a data scrubbing exercise assigned to a junior person who would painstakingly correct invoice calculation errors and generate a customer bill that (hopefully) was not too out-of-whack.

Not so much anymore. 

Today, senior executives across industries internationally rely heavily on data science and tools like post-analysis to deploy strategies meant to achieve everything from ensuring survival to over-performance in both turbulent and halcyon business climates.

Data engineers and scientists now occupy some of the most important roles inside any company, and the GENCO is no exception. Their work drives the GPS used to propel their organizations toward and down the most optimal operational path. 

Baseball Gets It Right Again

Finally, since we are in World Series mode, here’s a brief example illustrating how PA helped the Houston Astros transform Gerritt Cole into one of the best pitchers in baseball. 

In 2018, the Astros analytics team examined the pattern and results of Cole’s pitches in prior years and concluded that he should increase the use of his four seamed fastball while also attacking the upper end of the strike zone far more frequently.  A one-hour conversation with Cole resulted in what is (to-date) a 19-0 winning streak; the longest for any pitcher since 1888.  With his performance helping his team to the 2019 World Series, Cole is now poised to command a $200,000,000 free agent contract.  Not bad.

Hail to the Data Kings.

PCI actively encourages GENCOs seize control of their future by providing them with post-analysis solutions and expertise for assessing performance relative to Profit & Loss, Transmission Systems and Energy Accounting.  Our software tools automate and streamline data validation and provide insights to improve decision-making, market behaviors and financial performance.