Post on 28-Jul-2018
ISO-NE PUBLIC
Disclaimer for Customer Training: ISO New England (ISO) provides training to enhance participant and stakeholder understanding. Not all issues and requirements are addressed by the training. Consult the effective Transmission, Markets and Services Tariff and the relevant Market Manuals, Operating Procedures and Planning Procedures for detailed information. In case of a discrepancy between training provided by ISO and the Tariff or Procedures, the meaning of the Tariff and Procedures shall govern.
ISO-NE PUBLIC
Forward Capacity Market (FCM 101)
Northampton, MA
Resource Adequacy – Technical Studies
Abimael Santana
Market Monitoring and Compliance
Matthew Fioretti
Delisting
October 23-26, 2017
1
ISO-NE PUBLIC
• Recognize the various types of delist bids available in the Forward Capacity Market (FCM)
• State the submittal requirements for the various delist bid types
• List the requirements for submitting a supporting cost workbook to the Internal Market Monitor (IMM)
Objectives
2
ISO-NE PUBLIC
Topics
3
• Definitions and Types
• Deadlines
• Retirement Delist Bids and Reliability Reviews
• Cost Review of Delist Bids
ISO-NE PUBLIC
What is a Delist Bid?
5
• Delisted capacity opts out of FCM for entire commitment period (or forever if it is a permanent/retirement delist bid)
• If an existing capacity resource does not submit a static, export, administrative export, or permanent/retirement delist bid in FCA qualification process, resource is entered into FCA
Existing capacity that wants to leave or not participate in Forward Capacity Auction
ISO-NE PUBLIC
Delist Bids Submitted at Qualification
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Due by Existing Capacity Retirement Deadline
Priced Retirement Model for FCA #12 was published to ISO website in early 2017
Permanent Retirement
Option to permanently remove capacity from the capacity market for the entire capacity commitment period
(Cost justification required)
Option to permanently remove capacity from all markets for the entire capacity commitment period
(Cost justification required)
MR III.13.1.2.3.1.
ISO-NE PUBLIC
Delist Bids Submitted at Qualification
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Due by Existing Capacity Qualification Deadline
Cost workbook for FCA #12 was published to ISO website in early 2017
Export Administrative Export Option to remove capacity from capacity market to export capacity for entire capacity commitment period
(Cost justification required)
Option to remove capacity from capacity market if an export delist bid has been entered and has cleared in a prior FCA
Static (General) Static (Ambient Air) Option to remove capacity from capacity market at or above the dynamic delist bid threshold price during a single capacity commitment period
(Cost justification required)
Option to remove capacity from capacity market for up to the megawatt amount that may not be physically available due to the difference between summer qualified capacity at 90 degrees and expected rating of resource at 100 degrees
MR III.13.1.2.3.1.
ISO-NE PUBLIC
Delist Bid Submitted During Auction
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Dynamic Delist Bid
Option to remove capacity from capacity market at prices below dynamic delist bid threshold during a single capacity commitment period
MR1. Section III.13.2.3.2 (d)
ISO-NE PUBLIC
Time and Price Thresholds
Delist Bids Submittal Characteristics
9
*The price threshold associated with 2021-2022 Capacity Commitment Period
All delist bids are subject to a reliability review in accordance with MR1, Section III.13.2.5.2.5 and Planning Procedure 10 (PP-10) – Section 7
Delist Bid Category Internal Market Monitor (IMM)
Approval Price Threshold Time of Submission
Permanent and Retirement Bids at or above $0.00/kW-month
At Existing Capacity Retirement Deadline
Static Bids at or above $5.50*/kW-month
At Existing Capacity Qualification Deadline
Export (including Administrative)
Bids at or above $5.50*/kW-month
At Existing Capacity Qualification Deadline
Dynamic No market monitor review required During auction cycle
ISO-NE PUBLIC
ISO-NE PUBLIC
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Delist Bid Submittal Deadlines At existing capacity retirement deadline • Permanent and retirement delist bids
must be submitted via Forward Capacity Tracking System (FCTS) Must include cost justification
At existing capacity qualification deadline • Static, export, and administrative export
delist bids must be submitted via FCTS Must include cost justification
No later than three business days after ISO issues qualification determination notifications (QDN) • Name of each lead market participant
submitting delist bids as well as number and type of delist bids are published
No later than seven days after ISO issues qualification determination notifications • Static delist bids may: Lower price of any price-quantity pair Withdraw any price-quantity pair
During auction • Dynamic delist bids submitted via
auction software No cost justification
After auction • No later than 15 calendar days after the
auction is conducted, ISO posts delist bid information to the ISO website
ISO-NE PUBLIC
Retirement Delist Bids
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• Specify a price at or below which resource would retire all or part of its capacity from all New England markets
• Subject to IMM review
• Submitted: ‒ As part of existing capacity retirement package ‒ For commercial capacity ‒ Using FCTS
• May not be withdrawn once submitted
MR III.13.1.2.3.1.5.
ISO-NE PUBLIC
Reliability Reviews
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The ISO shall review each Retirement De-List Bid, Permanent De-List Bid, Static De-List Bid, Export Bid, Administrative Export De-List Bid, and Dynamic De-List Bid entered into the Forward Capacity Auction to determine whether the capacity associated with that de-list bid is needed for reliability reasons (…). The capacity shall be deemed needed for reliability reasons if the absence of the capacity would result in the violation of any NERC or NPCC criteria or ISO New England System Rules. De-list bids shall only be rejected pursuant to this Section III.13.2.5.2.5 for the sole purpose of addressing a local reliability issue, and shall not be rejected solely on the basis that acceptance of the de-list bid may result in the procurement of less capacity than the Installed Capacity Requirement (net of HQICCs) or the Local Sourcing Requirement for a Capacity Zone.
MR1. Section III.13.2.5.2.5
ISO-NE PUBLIC
Reliability Reviews, continued
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For all denied delist bids: • Resource that has a delist bid rejected for reliability reasons shall
be compensated and given a capacity supply obligation for the relevant capacity commitment period
• If reliability need is met through a reconfiguration auction or other means, resource shall be delisted or retired as of the first day of subsequent capacity commitment period
ISO-NE PUBLIC
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Cost Review of Delist Bids
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Associate Market Analyst Market Compliance Internal Market Monitoring
Matthew Fioretti
ISO-NE PUBLIC
• Reproduce delist bid formulation under existing rules
• List requirements for submitting a cost workbook to the Internal Market Monitor including the common costs allocation process
• Identify submittal deadlines for the various delist bid types
Objectives
25
ISO-NE PUBLIC
Topics
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• Mitigation in FCM
• Retirement and Permanent Delist Bid
• Delist Bid Formulation
• Concepts and High-level Examples ‒ Resource Belonging to a Station with Common Costs
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Constraining the ability of sellers and buyers with the incentive and ability to exercise market power is critical to ensuring that centralized capacity markets achieve resource adequacy at just and reasonable rates.
(Centralized Capacity Market Design Elements, Commission Staff Report, AD13-7-000, August 23, 2013)
FERC view on capacity market mitigation
Link to Report
ISO-NE PUBLIC
Why is Mitigation Necessary in the Capacity Market?
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• Two types of market power mitigation in capacity market ‒ Seller-side market power mitigation for existing resources ‒ Buyer-side market power mitigation for new resources
• Objective is to strike a reasonable balance between under and over mitigation of resources while ensuring the market operates competitively
• IMM has responsibility to ensure FCM is sending appropriate investment signals
ISO-NE PUBLIC
Considerations for Existing Resources
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Seller-Side Power Market Power Mitigation
IMM goal is to restrict resources from leaving market at a cost higher than their going forward costs
• IMM reviews delist bids to verify: ‒ Consistent with resource going forward and opportunity costs ‒ CPP and risk calculations are sound methodologies and reasonable
• IMM only reviews delist bids above a certain threshold ‒ Static and exports reviewed if above dynamic delist threshold
‒ Permanent and retirements reviewed if greater than 20MWs
IMM review
ISO-NE PUBLIC
Considerations for Existing Resources, continued
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Only resources belonging to pivotal supplier are subject to mitigation • Pivotal supplier test:
‒ Calculation performed in January (before start of FCA) to identify if supplier controls enough capacity in the market such that it can unilaterally exercise market power and profitably set price at a non-competitive level
• Conducted at system and zonal level • Results made available seven days before auction
‒ Not at Qualification Determination Notification (QDN)
Seller-Side Market Power Mitigation
Suppliers with delist bids will not know if they are pivotal as part of the QDN, meaning they will not know what price will be used in FCA if an IMM determined bid price has been established
ISO-NE PUBLIC
Delist Bid • Mechanism by which an existing capacity
resource may seek a price-based exit from FCA • Represents lowest price at which resource would
be willing to accept a CSO
How does a participant support this cost? • Representing avoidable costs; in other words,
incremental costs to taking on a CSO • Net Going Forward Costs, Opportunity Costs,
CPP Cost and Risk
Considerations for Existing Resources
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Seller-Side Market Power Mitigation
ISO-NE PUBLIC
Considerations for Existing Resources
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Seller-Side Market Power Mitigation
Market Power Concern Sellers of capacity may have ability and incentive to increase prices above competitive levels through economic withholding
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Seller-Side Market Power
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How a Participant Can Benefit from Withholding Capacity
Turbine-A 300 MWHydro-B 200 MWNuclear -C 1,700 MWTotal MW 2,200 MW
ISO-NE PUBLIC
Seller-Side Market Power
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$0
$2
$4
$6
$8
$10
$12
$14
$/kW
-mon
th
Supply and Demand Curves - Forward Capacity Auction Hydro- B cost of talking on a CSO is $8.50/kw-month
Supply Curve FCA Demand Curve
200MW $8.00
ISO-NE PUBLIC
Seller-Side Market Power
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Turbine-A 300 MWHydro-B 200 MWNuclear -C 1,700 MWTotal MW 2,200 MW
FCA Outcome For Participant: Hydro-B will not obtain a CSO Participants total portfolio will be 2,000 MWs
Turbine-A 300 MWHydro-B 0 MWNuclear -C 1,700 MWTotal MW 2,000 MW
FCA clearing price $8kw-month 2,000 MW x $8kw-month = $192 Million
ISO-NE PUBLIC
Seller-Side Market Power
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Turbine-A 300 MWHydro-B 200 MWNuclear -C 1,700 MWTotal MW 2,200 MW
FCA outcome for market: Participant withheld 200 MWs of capacity from the market Increasing the clearing price and cost of the 2,000 MWs
Turbine-A 300 MWHydro-B 0 MWNuclear -C 1,700 MWTotal MW 2,000 MW
• Market Power was exercised • Market was uncompetitive • Social welfare was not maximized
ISO-NE PUBLIC
Seller-Side Market Power
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$0
$2
$4
$6
$8
$10
$12
$14
$/kW
-mon
th
Supply and Demand Curves - Forward Capacity Auction Hydro-B cost of talking on a CSO is $4.50/kw-month
Supply Curve FCA Demand Curve
200MW
$7.00
ISO-NE PUBLIC
Seller-Side Market Power
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Turbine-A 300 MWHydro-B 200 MWNuclear -C 1,700 MWTotal MW 2,200 MW
FCA outcome for participant: Hydro-B will obtain a CSO for 200 MWs Participants total portfolio will be 2,200 MWs
FCA clearing price $7kw-month 2,200 MW x $7kw-month = $184 Million
ISO-NE PUBLIC
Seller-Side Market Power
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Turbine-A 300 MWHydro-B 200 MWNuclear -C 1,700 MWTotal MW 2,200 MW
FCA outcome for market: Hydro-B was priced at its going forward costs Purchased 2,200 MWs at a competitive level
• No market power was exercised • Market was competitive • Social welfare was maximized
ISO-NE PUBLIC
2,000 MW x $8kw-month = $192 Million vs.
2,200 MW x $7kw-month = $184 Million
41
Seller-Side Market Power
Market Power Concern Participant can financially benefit from withholding capacity by misrepresenting their true costs for taking on a CSO
ISO-NE PUBLIC
Overview
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• Retirement and permanent delist bids represent prices at which resource (or portions thereof) will exit FCM
• Review thresholds: ‒ IMM review applies to retirement or permanent delist bids for resources
greater than 20 MW ‒ Initial submission of retirement or permanent delist bids below dynamic
delist bid threshold will not be reviewed • Reviews will occur in subsequent years primarily to determine if resource should
continue to remain on retirement track
• If IMM rejects participant submitted price, participant may select: ‒ Conditional treatment ‒ Unconditional treatment and retire anyway
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How do I determine my bid price?
Important factors to consider: • Analysis should include forecasted capacity clearing price in years 2-5 • Participants may submit more than five years worth of data • Risk (of all types) is represented as an adder to Weighted Average Cost of Capital
(WACC) and must be supported by detailed analysis
Determine resource remaining economic life (Section III.13.1.2.3.2.1.2.C)
Using remaining economic life, determine year one bid price to upcoming FCA (Section III.13.1.2.3.2.1.2.B)
Step 1
Step 2
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Disclaimer
Examples are intended solely for use in explaining how market participants should complete retirement workbook
Following examples use simplifying assumptions regarding prices, revenues, costs, capital investments, and risk calculation that may not be reflective of real-world scenarios
ISO-NE PUBLIC
Example ‒ Determining Bid Price
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• 500 MW oil-fired resource
• Market participant’s expectation of future capacity clearing prices for periods after upcoming FCA
• 15% WACC (including risk adder)
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Bid Calculation
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Columns Label/Formula 2021-2022 2022-2023 2023-2024 2024-2025 2025-2026
Revenues:Energy Revenues A 43,800,000$ 43,800,000$ 43,800,000$ 43,800,000$ 43,800,000$
Clearing Price ($/kw-month) 12.86$ 8.00$ 8.00$ 8.00$ 6.50$ Resulting Revenues B 103,758,000$ 48,000,000$ 48,000,000$ 48,000,000$ 39,000,000$
Total Revenue A+B=C 147,558,000$ 91,800,000$ 91,800,000$ 91,800,000$ 82,800,000$
Total Operating Expenses D 100,000,000$ 100,000,000$ 100,000,000$ 100,000,000$ 100,000,000$
Operating Income C-D=E 47,558,000$ (8,200,000)$ (8,200,000)$ (8,200,000)$ (17,200,000)$ Income Taxes (40%) F 19,023,200$ (3,280,000)$ (3,280,000)$ (3,280,000)$ (6,880,000)$ Net Income E-F=G 28,534,800$ (4,920,000)$ (4,920,000)$ (4,920,000)$ (10,320,000)$ Capital Expenditures H 5,000,000$ 15,000,000$ Net Cash Flow G-H=I 28,534,800$ (9,920,000)$ (19,920,000)$ (4,920,000)$ (10,320,000)$ Cumulative Net Cash Flow J(sum by year) 28,534,800$ 18,614,800$ (1,305,200)$ (6,225,200)$ (16,545,200)$
Net Present Value of Cumulative Cash Flow K 26,244,976$ 27,891,898$ 11,171,058$ (6,752,708)$ (21,139,838)$ Remaining Economic Life
Commitment Period
Determine resource remaining economic life
3 year remaining economic life
Step 1
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Bid Calculation
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Step 2 Using remaining economic life, determine year one bid price to upcoming FCA
Columns Label/Formula 2021-2022 2022-2023 2023-2024 2024-2025 2025-2026
Revenues:Energy Revenues A 43,800,000$ 43,800,000$ 43,800,000$ 43,800,000$ 43,800,000$
Clearing Price ($/kw-month) 7.545$ 8.00$ 8.00$ 8.00$ 6.50$ Resulting Revenues B 85,588,052$ 48,000,000$ 48,000,000$ 48,000,000$ 39,000,000$
Total Revenue A+B=C 129,388,052$ 91,800,000$ 91,800,000$ 91,800,000$ 82,800,000$
Total Operating Expenses D 100,000,000$ 100,000,000$ 100,000,000$ 100,000,000$ 100,000,000$
Operating Income C-D=E 29,388,052$ (8,200,000)$ (8,200,000)$ (8,200,000)$ (17,200,000)$ Income Taxes (40%) F 11,755,221$ (3,280,000)$ (3,280,000)$ (3,280,000)$ (6,880,000)$ Net Income E-F=G 17,632,831$ (4,920,000)$ (4,920,000)$ (4,920,000)$ (10,320,000)$ Capital Expenditures H 5,000,000$ 15,000,000$ Net Cash Flow G-H=I 17,632,831$ (9,920,000)$ (19,920,000)$ (4,920,000)$ (10,320,000)$ Cumulative Net Cash Flow J(sum by year) 17,632,831$ 7,712,831$ (12,207,169)$ (17,127,169)$ (27,447,169)$
Net Present Value of Cumulative Cash Flow K 13,138,494$ 10,614,929.88$ 0$ (35,647,193)$ (59,514,296)$ Remaining Economic Life
Commitment Period
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Review
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Participants are required to provide: • Support for forecasted capacity prices • Supporting documentation for revenue and cost assumptions • Detailed descriptions and support for capital expenditures • Documentation and support for WACC inputs and risk adder
Step 1
Step 2
Remaining economic life of three years Retirement delist bid of $7.545
ISO-NE PUBLIC
What do I do with my bid price?
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• Retirement delist bid submission window ‒ Window opens March 9 and closes March 23, 2018 ‒ IMM suggests consultation in advance of submission ‒ Email: INTMMUFCM@ISO-NE.com
• Bid price, retirement delist model, affidavit, and supporting information entered into FCTS
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Submitting Retirement and Permanent Delist Bids
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• Enter Bid Segments • Upload a Cost Workbook
and Affidavit • Upload Other Supporting
Documentation • Click Submit
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• IMM review period lasts 90 days
• During review, IMM will consult with participants to understand their assumptions and methodologies
• At conclusion of review, IMM will issue a retirement determination notification (RDN) ‒ Result of IMM review (accept or deny participant’s submission) ‒ IMM determined economic life and price pursuant to the Tariff ‒ IMM will apply a mitigation threshold of 10%
What happens after I submit my bid price?
ISO-NE PUBLIC
Post RDN Options
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IMM RDN Determination on Price Participant Action
Accepted None
Denied Conditional Treatment
OR Unconditional Treatment
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Auction Outcomes
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IMM RDN Determination
Participant Action Auction Outcome Capacity Supply
Obligation
Accepted None
Clearing price above IMM/FERC price Yes
Clearing price below IMM/FERC price No
Denied
Conditional
Clearing price above participant price Yes
Clearing price below participant price No
Unconditional Resource retired No
Reliability Review result is not considered above
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Post Auction – What’s Next
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• If resource obtains a capacity supply obligation, must submit a revised retirement model for next FCA
• Participant may request that resource be removed from retirement track but revised analysis must be submitted
• If participant wishes to remove resource from retirement track, IMM will evaluate after consultation
ISO-NE PUBLIC
Static Delist Bid Formulation
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Where: • NGFC is the net going forward costs • GFC is the going forward cost, including opportunity cost • IMR is the infra-marginal rent • InfIndex is the four year expected inflation rate as published by the
Cleveland Federal Reserve Bank • RP is the risk premium • CPP is the expected capacity performance payments • CQsummer is the summer qualified capacity
[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
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What are Going Forward Costs (GFC)?
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• Costs reduced or avoided by not having CSO ‒ Incremental costs of maintaining a constant condition of being ready to respond to
commitment and dispatch orders (labor, maintenance, incremental capital costs, etc.) ‒ GFC may be different if resource is active versus inactive in energy markets
• Do not include variable production or financing costs for sunk capital costs (e.g., $ per start, $/hour or $/MWh production costs, return on equity, and cost of debt)
[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
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IMR
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NGFC = [GFC – IMR] x InfIndex + RP + CPP
(CQsummer, kW) x (12, month)
• Infra-marginal rent (IMR)
• Energy and ancillary service revenues less variable production costs
• Accounts for portion of total avoided costs recovered through energy and ancillary service markets (if resource is inactive)
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Going Forward Costs
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Inactive in the Energy and Ancillary Service Markets
• Participant has a negative outlook on market conditions during CCP • GFC estimate includes all costs avoided from not participating in capacity and
energy and ancillary services markets • Infra-marginal rents (IMR) are deducted from GFC estimate to account for
portion of total avoided costs otherwise recovered through energy and ancillary services markets
Question: Do you expect resource to participate in energy and ancillary services markets during capacity commitment period (CCP)?
Answer: No – resource will be inactive
[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
ISO-NE PUBLIC
Going Forward Costs
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Active in the Energy and Ancillary Service Market
• Participant has a positive outlook of market conditions during CCP • GFC estimate includes all costs avoided if resource were not participating in
capacity market only • That is, costs incurred due to decision to remain in energy and ancillary services
markets are excluded • IMR is set to zero
Question: Do you expect resource to participate in energy and ancillary services markets during capacity commitment period (CCP)?
Answer: Yes – resource will be active
[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
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Going Forward Costs High Level Example
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NGFC = [GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months)
Participating in energy and ancillary services markets?
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Going Forward Costs Election to Participate in ISO New England Markets
66
Estimated 70% of total avoidable costs (cost savings) are due to
decision to not participate in capacity market
Remaining 30% will be incurred
due to the decision to remain active
IMR is foregone due to decision to remain active
in energy and ancillary service markets
NGFC = [GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months)
Participating in energy and ancillary service markets?
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Inflation Index
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• Per Market Rule, most recent reported four-year expected inflation number published by Federal Reserve Bank of Cleveland at beginning of qualification period will be used ‒ IMM specifies this in cost workbook
• InfIndex = (1+i)4
NGFC = [GFC – IMR] x InfIndex + RP + CPP
(CQsummer, kW) x (12, months)
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Risk Premium (RP)
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• Any risks quantified and analytically supported and not already calculated in bid
• Per MR1 Section III.13.1.2.3.2.1.4, risk of a catastrophic event or risk of greater then expected reserve deficiency hours may be included in risk premium value
• Participants are encouraged to submit an affidavit from a Corporate Risk Officer attesting to risk premium accuracy
• For an approved methodology, see attachment B to qualification determination notification (QDN) at end of FERC Information Filing dated November 4, 2014
NGFC = [GFC – IMR] x InfIndex + RP + CPP
(CQsummer, kW) x (12, months)
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Risk Premium (RP), continued
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Market participant used ISO approved methodology and determined risk premium is $500,000 (value will be used later)
NGFC = [GFC – IMR] x InfIndex + RP + CPP
(CQsummer, kW) x (12, months)
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Capacity Performance Payments (CPP) – Inputs
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[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
Performance payment rate (PPR) Currently $3,500/MWh
Balancing ratio (Br) Expected average balancing ratio
Availability (A) Expected average performance per unit of CSO during capacity scarcity condition hour
Capacity scarcity condition hours (H)
Number of expected capacity scarcity condition hours during capacity commitment period
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Capacity Performance Payments (CPP)
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Expected performance payments based on capacity balancing ratio, number of hours of reserve deficiency, and resource’s performance during deficiency
CPP = -CSO x PPR x H x (A-Br)
[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
Br x H x PPR Common value component and/or cost of financial obligation
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CSO (MW) 200
PPR $3,500
H 11.3
A 0.60
Br 0.85
CPP $1,977,500
Capacity Performance Payments (CPP), continued
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In cost workbook, a negative CPP is a gain for resource; numbers below are as they appear in workbook
CPP = -CSO x PPR x H x (A-Br)
[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
$1,977,500 = 200 MW x $3,500 x 11.3 x (0.60 – 0.85) CPP CSO (MW) PPR H A Br
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Pay for Performance – “H” Expectation
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• Requires a resource to have an expectation of short-term and long-term cleared capacity
• Short-term expectations may impact offer materially
Source: Operating Reserve Deficiency Information
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Summary − NGFC
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[GFC – IMR] x InfIndex + RP + CPP (CQsummer, kW) x (12, months) NGFC =
Convert $13,277,500 into ($/kW-month): $13,277,500 / 200 MW / 12,000 = $5.53
200
No Inactive
15,000,000$
5,000,000$
8%
10,800,000$
500,000$
1,977,500$
13,277,500$
5.53$
Risk Premium
CPP
NGFC
NGFC Bid ($/kW-month)
Old Clunker Power- Qualified Capacity (MW)
Participanting in E&AS Markets?
GFC
IMR
Inflation Index
[GFC-IMR] x Infindex
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Preparing a Delist Bid
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Data Provided by IMM or ISO
*Please email your request to intmmufcm@iso-ne.com
Data provided by IMM upon request (from mid April)* ISO revenues ($) Including day-ahead and real-time energy, NCPC, regulation, real-time reserves, and forward reserves
EFORd
Inflation adjustment (%) Four-year inflation rate as published by the Cleveland Federal Reserve Bank
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Preparing a Delist Bid for FCA #12: IMM Guidelines
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Options for using historical values for FCA #12 are the three most recent capacity commitment periods (CCP16/17, CCP15/16, and CP14/15)
CCP16/17 Avg. 2 of (CCP16/17, CCP15/16, CCP14/15)
*Adjustment allowed for future market
conditions in CCP21/22
GFC (non-production costs) Yes
IMR ISO revenues Production costs
Yes Yes
EFORd Yes
*Adjustments to costs must be based on known and measurable conditions, and supported by appropriate documentation
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Resource Belonging to a Station with Common Costs Concepts and High-level Examples
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Station and Asset-Specific Going Forward Costs
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• What are station going forward common costs? ‒ Station is one or more existing generating capacity resources consisting of
one or more assets located within a common property boundary ‒ Costs associated with a station avoided only by clearing of static delist bids
of all existing generating capacity resources at the station ‒ Intent is to capture common costs of resources within a station with
operational and commercial dependencies
• What are asset-specific going forward costs? ‒ Avoidable costs that can be allocated to an individual resource
MR 1. Section III.13.1.2.3.1.6
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Resources at a Station with Common Costs
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Tariff outlines five steps • Most expensive resources are delisted first • Full cost recovery is ensured, and • Ensure a monotonically non-increasing set of bids
Total Station Cost = $250,000 $6.94/kw-month
Example Station
ISO-NE PUBLIC
Total Station Cost = $250,000
Station Common Cost = $40,000
$6.94/kw-month
Resources at a Station with Common Costs
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Step 1: Calculated the Net Risk Adjusted Asset Specific Going Forward Costs (NRAGFC)
NRAGFC = $150,000
NRAGFC= $60,000
$6.25/kw-month
$5.00/kw-month
Example Station
NRAGFC
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Station Common Cost = $40,000
Resources at a Station with Common Costs
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Step 2: Order assets from highest NRAGFC to lowest; this is the preferred delist order
Total Station Cost = $250,000
NRAGFC = $150,000
NRAGFC= $60,000
$6.25/kw-month
$5.00/kw-month
$6.94/kw-month
Example Station
Delist Order
First
Second
NRAGFC
ISO-NE PUBLIC
Total Station Cost = $250,000
Station Common Cost = $40,000
$6.94/kw-month
Resources at a Station with Common Costs
83
Step 3: Calculate residual costs for each asset; this is the remaining costs at station as each assets is delisted
NRAGFC = $150,000
NRAGFC= $60,000
$6.25/kw-month
$5.00/kw-month
Example Station
Residual Costs
$6.94/kw-month
($150,000 + $60,000 + $40,000) / 3MWs = $6.94/kw-month
($60,000 + $40,000) / 1MWs = $8.33/kw-month
$8.33/kw-month
NRAGFC
ISO-NE PUBLIC
Total Station Cost = $250,000 $6.94/kw-month
Resources at a Station with Common Costs
84
Step 3: Calculate residual costs for each asset; this is remaining costs at station as each assets is delisted
$6.25/kw-month
$5.00/kw-month
Example Station
Residual Costs
$6.94/kw-month
$8.33/kw-month
NRAGFC
ISO-NE PUBLIC
$8.33/kw-month
$6.94/kw-month
Resources at a Station with Common Costs
85
Step 4: Calculate composite costs for each asset (the max, of NRAGFC, and residual costs) Example Station
Composite Costs
$6.94/kw-month
$8.33/kw-month
$6.25/kw-month
$5.00/kw-month
Residual Costs NRAGFC
Total Station Cost = $250,000 $6.94/kw-month
ISO-NE PUBLIC
$8.33/kw-month
$6.94/kw-month
Resources at a Station with Common Costs
86
Step 5: Adjusts the set of composite costs to ensure a monotonically non-increasing set of bids Example Station
Composite Costs
$6.94/kw-month
$8.33/kw-month
$6.25/kw-month
$5.00/kw-month
Residual Costs NRAGFC
Is unit B’s composite cost greater than the composite cost of asset with lowest composite ($8.33 > $6.94)
And is unit B’s average asset-specific going forward costs less than its composite costs ($5.00 < $8.33)
ISO-NE PUBLIC
$8.33/kw-month
$6.94/kw-month
Resources at a Station with Common Costs
87
Example Station
Composite Costs
$6.94/kw-month $6.25/kw-month
$5.00/kw-month
Residual Costs NRAGFC
$6.94/kw-month
Set asset B composite cost to that of asset with lowest composite cost (A)
Step 5: Adjusts the set of composite costs to ensure a monotonically non-increasing set of bids
ISO-NE PUBLIC
$8.33/kw-month
$6.94/kw-month
Resources at a Station with Common Costs
88
Step 5: Adjusts the set of composite costs to ensure a monotonically non-increasing set of bids Example Station
Composite Costs
$6.94/kw-month $6.25/kw-month
$5.00/kw-month
Residual Costs NRAGFC
$6.94/kw-month
Per the Tariff, Resource with lowest composite cost , and resource with the adjusted composite cost will be considered a single non-rationable bid for use in FCA, as they have same price
ISO-NE PUBLIC
ISO-NE PUBLIC
Resources at a Station with Common Costs Methodology – Step 1
89
$4.0
$4.2
$4.4
$4.6
$4.8
$5.0
$5.2
C. Moore C. Senor C. Good C. Worthy C. Saw
Average Resource-Specific ($/kW-mo.)
Step 1 Step 1 Step 1 Step 1 Step 1
ISO-NE PUBLIC
Resources at a Station with Common Costs
91
Methodology – Steps 2 through 5
$4.0
$4.2
$4.4
$4.6
$4.8
$5.0
$5.2
C. Good C. Senor C. Saw C. Worthy C. Moore
Average Resource-Specific ($/kW-mo.)
$4.0
$4.2
$4.4
$4.6
$4.8
$5.0
$5.2
C. Good C. Senor C. Saw C. Worthy C. Moore
ISO-NE PUBLIC
IMM FCM Contact Details
92
E-mail Market Monitoring FCA Participant Communications:
intmmufcm@iso-ne.com
ISO-NE PUBLIC
ISO-NE INTERNAL USE ISO-NE PUBLIC
Timeline Submitting FCM Delist Information to Internal Market Monitor
96
ISO-NE PUBLIC
Delist Bid Submittal Deadlines
97
IMM Step Timeline
Review Delist Bids June - September
Issue QDN September 29
Publish results of Pivotal Supplier
Test
Seven days before FCA
Market Participant Step Timeline
Submit Delist Bid Existing Capacity
Qualification Deadline
Delist Bid Finalization
Window
Seven days following
issuance of QDN
ISO-NE PUBLIC
Overview of General Timeline
98
Jan Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb
June IMM initial
screening of submissions
February IMM posts latest
cost workbooks on ISO website
Early July Clarifying
questions issued to participants
June to early Sept Consultation with participants
(email/meetings)
May IMM emails historical
ISO revenue, H, Br., and inflation data to
participant upon request
Early June Existing Capacity
Qualification Deadline Submission of static delist
bids and export bids
End of September IMM issues qualification
determination notifications for delist bids
After QDN static delist bids
finalization period 7 days
ISO-NE PUBLIC
IMM Delist Bid Review Process
99
Submission at existing capacity qualification deadline requires: • Completed workbook • Supporting documentation • Affidavit(s) attesting to accuracy of submission
Consultation: • IMM will email any follow-up clarifying questions to participant • Open invitation for participant to meet with IMM staff to present
and discuss delist submission during June • Sufficient documentation and information must be included with the delist bid
to allow the IMM to make a determination
MR 1. Section III.13.1.2.3.2.1.1
Please email intmmufcm@iso-ne.com
ISO-NE PUBLIC
IMM Delist Bid Review Process Objective
100
Determine whether delist bid is consistent with resource net going forward (NGFC), risk premium and opportunity costs through evaluation of: • Going forward components • Revenue and production costs • Risk premium • Capacity performance payments
ISO-NE PUBLIC
IMM Delist Bid Review Process
101
Accepted or Denied
*Recall the options that denied delist bids have in finalization window and impact the pivotal supplier test will have on what actually goes to auction
Accepted Delist Bid Bid is consistent with net going forward costs (NGFC) as submitted and removed from auction at accepted delist bid (subject to a reliability review)
*Denied Delist Bid Bid is NOT consistent with NGFC as submitted and an alternately determined bid at which resource can leave the auction (subject to a reliability review) will be submitted by IMM based on information initially submitted and subsequently provided in consultation with participant
ISO-NE PUBLIC
Qualification Determination Notification (QDN)
102
• QDN provides a written notification of ISO’s determination ‒ If IMM determination results in denying delist bid, an explanation of deficient
components of the bid is included in QDN
• No later than 90 days prior to first day of auction, ISO will make an informational filing with the Commission ‒ Details of IMM’s determinations regarding offers or bids submitted during
qualification process are filed as a confidential attachment
• QDN for IMM’s review of delist bids can be found via FCTS, in tab labeled Delist Bid Details ‒ Existing resource lead participants notified of their delist bid status
(Accepted/Denied)
Reliability determination is required and final results of determination are performed during auction
ISO-NE PUBLIC
Location of IMM’s Determination of Delist Bids
103
IMM QDN De-List Bid QDN Test PDF Attachment.pdf
Static
ISO-NE PUBLIC
Static Delist Finalization, continued
MR 1. Section III.13.1.2.3.2.1.1.2 & III.13.8.1
105
Actions required if static delist bid is accepted: • No later than seven days after the issuance of the QDN, participant
has option to make one of the following elections in FCTS
ISO-NE PUBLIC
Static Delist Finalization, continued
106
Actions required if static delist bid is denied: • No later than seven days after the issuance of the QDN, participant
has option to make one of the following elections in FCTS
MR 1. Section III.13.1.2.3.2.1.1.2 & III.13.8.1
ISO-NE PUBLIC
Static Delist Finalization, continued
107
Actions required if static delist bid is denied: • If no action is taken, then participant can challenge IMM’s
determination contained in QDN and as part of informational filing
• Participant must file with the Commission no later than 15 days after ISO’s submission of informational filing to the Commission
MR 1. Section III.13.1.2.3.2.1.1.2 & III.13.8.1
ISO-NE PUBLIC
FCA #11 – Pivotal Supplier Test
108
• Calculation performed prior to start of FCA to identify if a supplier controls enough capacity in the market such that it can unilaterally exercise market power and profitably set price at a noncompetitive level
• Conducted at the system level and for all import-constrained capacity zones
• Results made available seven days before the auction (not at QDN)
Suppliers with delist bids will no longer know if they are pivotal as part of QDN; they will not know what price will be used in FCA if an
IMM determined bid price has been established
ISO-NE PUBLIC
Rights and Obligations of Delisted Resources
109
Participation in energy market is voluntary • Day-Ahead Energy Market
‒ May submit offers into the Day-Ahead Energy Market
• Real-Time Energy Market ‒ If delisted generating capacity resource or portion thereof (1) did not submit
an offer into the Day-Ahead Energy Market or (2) was offered into the Day-Ahead Energy Market but did not clear, then in order to participate in the Real-Time Energy Market the resource must self-schedule and be subject to all the associated requirements
‒ ISO may request that a fully or partially delisted generating capacity resource provide energy for reliability purposes in the Real-Time Energy Market • However, the resource shall not be obligated to provide energy and shall not be
subject to any performance or availability penalties for failure to provide energy
MR 1. Section III.13.6.2
ISO-NE PUBLIC
ISO-NE PUBLIC
Going Forward Costs Election to Participate in ISO New England Markets
110
Election is made in FCTS
Select YES or NO
ISO-NE PUBLIC
ISO-NE PUBLIC
Example: Resources at a Station with Common Costs
112
Three MW station consisting of two resources: • Gen A = 2 MW and Gen B = 1 MW • Total avoidable costs of the station is $250k (i.e., avoided costs if
entire station is delisted)
Consider two scenarios: Scenario 1 Scenario 2
• If Gen A is delisted, the cost of operating Gen B only is $100k
• Therefore, the asset-specific cost for Gen A = $150k ($250k minus $100k)
• If Gen B is delisted, the cost of operating Gen A only is $190k
• Therefore the asset-specific cost for Gen B = $60k ($250k minus $190k)
Avoidable station common cost is $40k ($250k - $150k - $60k) = $40k
ISO-NE PUBLIC
ISO-NE PUBLIC
Resources at a Station with Common Costs Methodology
114
Step 1: Calculate average asset-specific going forward costs of each asset at the station $6.25/kW-month for Gen A and $5.00/kW-month for Gen B
ISO-NE PUBLIC
ISO-NE PUBLIC
Resources at a Station with Common Costs, continued Methodology
115 MR 1. Section III.13.1.2.3.1.6
Step 2: Order the assets from highest average asset-specific going forward costs to lowest average asset-specific going forward costs; this is the preferred delist order given that the asset-specific NRAGFC of Gen A is higher than Gen B, Gen A should delist first, then Gen B
ISO-NE PUBLIC
ISO-NE PUBLIC
Resources at a Station with Common Costs, continued Methodology
116 MR 1. Section III.13.1.2.3.1.6
Step 3: Calculate and assign to each asset a station cost that is equal to average cost of assets remaining at the station, including station going forward common costs, assuming the successive delisting of each individual asset in preferred delist order • Assuming no resources are delisted, both Gen A and B require cost recovery of $250,000, or
an average of $6.94/kW-month (on the basis of 3 MW remaining) • If Gen A were delisted, asset-specific costs associated with Gen A of $150,000 are avoided
and Gen B requires cost recovery of remaining (residual) costs of $100,000 or $8.33/kW-month (on the basis of only 1 MW remaining)
ISO-NE PUBLIC
Resources at a Station with Common Costs, continued
117
Step 4: Calculate a set of composite costs equal to maximum of net risk adjusted GFC and average residual cost associated with each asset calculated in Step 1 and Step 3 • For Gen A, the composite cost is max[$6.25, $6.94] = $6.94/kW-month • For Gen B, the composite cost is max[$5.00, $8.33] = $8.33/kW-month
Methodology
MR 1. Section III. 13.1.2.3.1.6.3 (iv)
ISO-NE PUBLIC
Resources at a Station with Common Costs, continued
118
Step 5: Adjust set of composite costs to ensure a monotonically non-increasing set of bids as follows: Any asset with a composite cost greater than the composite cost of the asset with lowest composite cost and average asset-specific going forward costs that are less than its composite costs will have its composite cost set equal to that of the asset with lowest composite cost
Methodology
MR 1. Section III. 13.1.2.3.1.6.3 (iv)
ISO-NE PUBLIC
Resources at a Station with Common Costs
119
Methodology, continued
Table 4: Step 5
Successive delisting of Resources Resource de-listed
Delisted Capacity
(MW)
Residual Capacity
(MW)
Residual Costs
($)
Avg Residual
Costs
($/kW-mo)
Composite Costs
($/kW-mo)
De-List Bid
($/kW-mo)
No Resource De-listed 0 3 $250,000
Gen A De-Listed 2 1 $100,000 $6.94 $6.94 $6.94
Gen B De-Listed 1 0 $40,000 $8.33 $8.33 $6.94
Lowest Composite
Cost
Composite Cost of Gen B set equal to lowest
Composite Cost
Note: In this example, Gen A and Gen B would be considered a non-rationable bid in the auction
MR 1. Section III. 13.1.2.3.1.6.3 (iv)
ISO-NE PUBLIC
ISO-NE PUBLIC
121
FCA clears below the delist bid of resources but ISO retains one of the resources at the station for reliability.
How is the level of compensation determined?
In this scenario: The non-rationable rule in the prior section does not apply.
For example, in this case a single resource can be retained for reliability. If Gen B is retained for reliability it will be paid its asset-specific cost of $5.00/kW-month plus the station common costs of $40,000.
ISO-NE PUBLIC
ISO-NE PUBLIC
122
Decision is made to withdraw a delist bid for a resource (Gen B) during seven-day finalization window. Station common costs of $40,000 would then no longer be avoidable.
In this scenario: The delist bid for the remaining resource would be set equal to its asset-specific cost. For example, the Gen A delist bid would be $6.25/kW-month. For a station comprised of more than two resources, if more than one resource were to remain at the same delist bid price, the non-rationable rule would not apply.
ISO-NE PUBLIC
ISO-NE PUBLIC
123
In this scenario: • If the non-rationable rule applies and delist bids of all resources are reduced
by the same amount, then both resources together would continue to be non-rationable. For example, delist bids for both Gen A and B are reduced by $1/kW-month.
• If delist bids of both resources are reduced by different amounts the non-rationable rule does not apply.
• If any resources are retained for reliability, the level of compensation continues to be calculated on the basis of the asset-specific costs and station common costs as noted in the IMM’s QDN.
Based on new information, a decision is made to reduce a resource delist bid during seven day finalization window How will the delist bid be treated?
ISO-NE PUBLIC
ISO-NE PUBLIC
124
• In this scenario,
IMM approved delist bids for station resources are different; decision is made to reduce bids during finalization window so all resource delist bids are equal. Does this mean that the resources combined will be non-rationable?
No; in order for non-rationable rule to apply, the five steps reviewed in the Resource Belonging to a Station with Common Costs section must be completed and hold true in the IMM’s assessment of delist bids.