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What are settlement statements?

In the organized North American power markets, independent system operators “ISOs” and regional transmission operators “RTOs” (such as AESO, CAISO, ERCOT, IESO, ISO-NE, MISO, NYISO, PJM, SPP, etc.). transact with their market participants in a two-part billing process. First, settlement statements are issued by the ISO after the operating date. The settlement statements contain the payments and charges for each individual market participant’s activity in the ISO through charge types.

Each charge type represents each type of transaction in the market (for example, separate charge types for Day-Ahead energy, Real-time energy, each type of ancillary service, administrative charges, distributions and allocations to the market, etc.). The charge type usually includes a quantity, price, and amount for each time interval (5-minute, hourly, etc.). Additional billing determinant files or settlement reports are published as supplemental files with the settlement statement publication. These supplemental files include the low-level variable values that are needed to enable the market participant to verify the ISO’s calculation of their charge types in the settlement statement.

The second part of the billing process includes the ISO publishing an invoice, which includes a summation of settlement statement amounts. After a few days, depending upon the sign of the net invoice amount, the market participant will either submit a payment to the ISO or receive a payment from an ISO.

Why are settlements important?

It is important that market participants verify the accuracy of the amounts in their settlement statements. The reason for this is that a market participant has a certain number of days to dispute the settlement statements. If the market participant does not dispute the discrepancies on their settlement statements within the ISO’s allotted dispute window, then they will often forfeit their opportunity to recover the settlement statement amounts in question. Thus, it is imperative that the market participant verify the accuracy of their settlement statements before the dispute window is closed.

Shadow Settlements

A shadow settlement is the process of a market participant verifying the accuracy of their settlement statements, using the charge type formulas published by the ISO. Generally, a market participant will either license vendor software for their shadow settlement system or will use in-house built systems. The shadow settlement system independently calculates the charge type amounts, and the settlement analyst then compares them to the settlement statements.

Shadow settlements benefit the market participant by automatically flagging differences between the shadow settlement calculation and the ISO’s settlement files. When the settlement analyst believes that material financial discrepancies between the shadow settlement calculation and the ISO settlement statements are due to an error in the ISO’s settlement statements, then the market participant generally disputes the errors on their settlement statements with the ISO. If the ISO determines that they have made an error, they will then approve the dispute and issue a correction to the next settlement statement re-publication for the operating date. Thus, shadow settlements benefit market participants by both automating the verification of their settlement statements, as well as the identification of settlement statement disputes, possibly leading to recovery of payments due to the market participant, which may have otherwise not been caught without a shadow settlement system.

For more information about the SettleCore shadow settlement system for market participants of the ISOs and RTOs, click here:

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