NEMSEC cheat sheet

Power balance constraint: at every instant, generation plus net imports must equal load plus losses; frequency deviation is the physical signal of imbalance (about 0.01 Hz/MW-scale sensitivity depending on system inertia).

Three physical markets by timescale: energy (day-ahead and real-time), capacity/reserves (spinning, non-spinning, regulation), and ancillary services (voltage support, black start, inertia).

Merit order stacks units by marginal cost; the clearing unit sets the marginal price, so infra-marginal units earn inframarginal rent (price minus own marginal cost).

DC power flow approximation: flow on a line is proportional to the phase-angle difference divided by reactance; loop flows mean transactions do not follow contract paths.

Congestion rent arises where the system price differs across a constraint; in nodal markets it is the shadow price of the binding constraint times the flow.

Transmission losses make locational prices differ even without congestion; loss factors are typically small (a few percent) relative to congestion.

Demand is highly inelastic in the short run (elasticity commonly near -0.05 to -0.2), which produces steep scarcity pricing at peak and high price volatility.

Variable renewable output shifts the residual load curve; net load = load minus wind and solar, and its ramp rate sets the need for flexible capacity.

Day-ahead market clears a security-constrained unit commitment and economic dispatch; real-time market clears dispatch against actual conditions and settles deviations.

Uniform-price clearing: all accepted supply is paid the marginal clearing price; pay-as-bid auctions generally raise average procurement cost under uncertainty.

Scarcity pricing: when reserves are short, an operating-reserve demand curve or administratively set scarcity adder raises energy prices toward value of lost load.

Nodal (LMP) design decomposes price into energy, congestion, and loss components; zonal design uses a single price plus separate congestion or capacity mechanisms.

Co-optimization of energy and reserves clears both simultaneously so that opportunity cost of reserving capacity is reflected in prices.

Capacity markets or strategic reserves remunerate firm capacity; they are needed when energy-only scarcity rents are capped below cost of new entry.

Market power mitigation in clearing uses conduct-and-impact tests: offer caps apply when a supplier is pivotal or its offer exceeds a reference (e.g., cost-based) level and raises price.

Settlement of day-ahead versus real-time: a participant pays day-ahead price for scheduled quantity and pays real-time price for the deviation, so two-settlement exposure is unavoidable.

Regulatory toolkit spans market rules (tariffs, market codes), licenses, price caps, reporting obligations, and enforcement penalties; REMIT-type regimes prohibit market manipulation and insider trading in wholesale energy products.

REMIT-style prohibited conduct: entering transactions that give false or misleading signals, and trading on inside information (non-public information likely to affect wholesale prices).

Transparency obligations typically require publication of fundamental data (availability, capacity, outages) to the market within defined deadlines.

Unbundling rules separate transmission system operation from competitive generation and supply to prevent cross-subsidy and information leakage.

Compliance program elements: policies, training, pre-trade controls, surveillance, escalation, and record retention (often 5 years or more for transaction records).

Cross-border trading requires registration, notification of counterparties and contracts to the regulator, and adherence to local balancing and nomination rules.

Licensing conditions often include fit-and-proper tests for senior staff and financial standing requirements for market participants.

Abuse typologies: physical withholding, economic withholding (offering above competitive level), wash trades, pre-arranged trading, marking the close, spoofing, and layering.

Spoofing detection signals: large orders cancelled within a short window, order-to-trade ratio, and orders placed on the opposite side of the subsequent trade.

Conduct-and-impact test: is the participant pivotal or does it have market share above a threshold, and did its conduct move price above a competitive benchmark?

Withholding indicators: capacity unavailable at times of high price without a documented physical cause; compare offered availability to declared capability.

Price-cost margin and residual supply index (RSI) are common screens; an RSI below about 1.2-1.5 suggests pivotal status.

Surveillance data sources: order and trade records, bid-offer logs, outage reports, telemetry, and intermarket data for cross-market manipulation.

Benford's law and statistical outlier screening are supporting tools; they generate leads, not findings, and require case-level evidence.

Allegation handling: preserve evidence, document the analysis chain, and distinguish market-rule breaches (exchange/ISO) from statutory fraud or manipulation (regulator).

Nomination and scheduling deadlines: day-ahead gate closure, then intraday adjustments, then real-time balancing; each market has its own gate-closure rule and cut-off.

Settlement cycle: preliminary settlement, dispute window, final settlement, and invoicing; imbalance charges are usually based on the real-time price or a dual-price system penalizing deviations.

Dual pricing: parties short of their schedule pay a higher imbalance price than parties long, creating an incentive to balance; single pricing uses one price for both.

Volume x price x time is the basic settlement formula; unit conversion matters (MWh vs MW, and 15-minute vs hourly settlement periods).

Counterparty and credit exposure: mark-to-market plus potential future exposure, margined through initial margin and variation margin or letters of credit.

Physical versus financial positions must be reconciled; a financial hedge settles against the same index used for physical delivery to be an effective hedge.

Reconciliation controls: match trade capture to confirmations, then to nominations, then to metered volumes; breaks above tolerance are escalated before invoicing.

Value at Risk (VaR) = loss threshold at a confidence level over a horizon; expected shortfall (CVaR) is the average loss beyond VaR and is more sensitive to fat tails.

Price risk, volume risk, and basis risk are distinct; basis risk arises when the hedge index differs from the delivery point or period.

Position limits, stop-loss triggers, and delegated authority matrices are the core pre-trade and intraday controls.

Segregation of duties: the trader who executes cannot also confirm, settle, or approve the trade; independent middle-office validation is required.

Mark-to-market requires an independent price curve; illiquid or bespoke contracts need model-based valuation with documented assumptions and model validation.

Stress testing complements VaR: apply historical and hypothetical shocks (e.g., a multi-day price spike, a cold snap, a fuel-price shock) to portfolio cash flow.

Collateral management: monitor margin calls, haircuts, and counterparty credit ratings; concentration limits cap exposure to a single counterparty.

Critical infrastructure frameworks (NIST CSF, IEC 62443, ISO 27001) map controls to identify, protect, detect, respond, and recover functions.

OT/IT segmentation: trading systems, market interfaces, and operational technology must be separated by zones and conduits; remote access requires multi-factor authentication.

Data integrity controls: hash or digital signature on trade and metering records, immutable audit logs, and time synchronization so events can be sequenced.

Market-facing interfaces (submission APIs, EDI, SFTP) need authentication, encryption in transit, and replay protection; spoofed submissions can distort prices.

Insider threat and access control: least privilege, periodic access recertification, and logging of privileged actions on settlement and pricing systems.

Incident response for market participants includes regulatory notification timelines, evidence preservation, and business continuity for trade capture and settlement.

Supply chain risk: third-party software and vendors of market systems require security assessment, patching discipline, and contractual security clauses.

Metering and telemetry integrity underpin settlement; tampering or clock drift can create false volumes and mispriced imbalance charges.