JULY 11-13, 2012 | NEPOOL MARKETS COMMITTEE

STOWE, VT

Andrew GillespiePRINCIPAL ANALYST | MARKET DEVELOPMENT

2nd Presentation

FCA #7 Modifications - Inadequate Supply & Insufficient Competition

SCOPE

Scope

• With the ‘hardwiring’ of zones, the affect on the system-wide provisions may require design changes– Consequently, the ISO will not be proposing any changes or

clarifications to the system-wide Inadequate Supply or Insufficient Competition provisions at this time

• There are a few general clarifications that the ISO would like to include in this package– Rationing election regarding Administrative Export De-Lists Bids– De-List combination limitations in the dynamic de-list bid range– Clarification that administrative pricing under Inadequate Supply or

Insufficient Competition does not override a multi-year election for recently cleared new resource, or the price prorating of Real-Time Emergency Generation resources

INADEQUATE SUPPLY & INSUFFICIENT COMPETITION PROVISIONS

Introduction

Background

• The Inadequate Supply and Insufficient Competition provisions specified in Section III.13.2.8 are a result of the June 16, 2006 Settlement Agreement

• The objective of this proposal is to ensure that these provisions and the actions to be taken under these conditions are completely, adequately and appropriately specified in the tariff

• These provisions apply to all FCAs (FCA #7 and future FCAs)– The use of CONE will remain for FCA #7– A replacement for CONE for FCA #8 and subsequent FCAs is proposed

in other ISO proposals

Overview

• At the start of the primary auction (FCA), conditions are assessed on both a zonal and system-wide basis

• Inadequate Supply occurs if there is not enough new and existing capacity to meet the system-wide Installed Capacity Requirement (ICR), or the Local Sourcing Requirement (LSR) in an import-constrained zone

• Insufficient Competition occurs if there is enough new and existing capacity to meet ICR or LSR (in an import-constrained zone), but the ‘surplus’ does not meet specific thresholds

• Under these conditions, certain pricing rules are to be applied

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IMPORT-CONSTRAINED ZONESInadequate Supply and Insufficient Competition Design Summary

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Inadequate Supply – Import-Constrained Zone

At the beginning of the auction, there will be Inadequate Supply in a zone if:

• The amount of existing capacity is less than the LSR amount, and - Tariff clarification recommended (see Calculation Guidelines slide)

• There is not enough new capacity offered to satisfy the LSR amount

In this case, the following will apply:

• All new offers will be accepted and paid a rate equal to the starting price

• All existing resources will be paid a rate equal to 1.1 x CONE– Any approved de-list above 1.1 x CONE will be deemed to have cleared (subject to

a reliability review) and will not receive a Capacity Supply Obligation – see sections III.13.2.5.2.5 & III.13.2.5.2.7

• Any penalty assessed in this zone during the commitment period will be assessed at a rate equal to 1.1. x CONE – Tariff clarification recommended

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Insufficient Competition – Import-Constrained Zone

At the beginning of the auction, there will be Insufficient Competition in a zone if:

•The amount of existing capacity is less than the LSR amount, and - Tariff clarification recommended (see Calculation Guidelines slide)

•There is enough new capacity offered to satisfy the LSR amount, but the amount is either:

– Less than 300MW (including generators and demand resources only)• The ISO is deferring a review of this threshold

– The amount of new capacity offered is less than twice the amount of new needed to satisfy the LSR amount

– The new capacity offered by a participant is deemed pivotal

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Insufficient Competition – Import-Constrained Zone, continued

If there is Insufficient Competition in a zone, the following will apply:

•All new offers that clear will be paid a rate equal to the clearing price

•All existing resources will be paid a rate equal to the lower of either the clearing price or 1.1 x CONE

– Any approved de-list above 1.1 x CONE but less than the clearing price will be deemed to have cleared (subject to a reliability review) and will not receive a Capacity Supply Obligation – see sections III.13.2.5.2.5 & III.13.2.5.2.7

•Any penalty assessed in this zone during the commitment period will be assessed at a rate equal to the lower of either the clearing price or 1.1. x CONE – Tariff clarification recommended

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SYSTEM-WIDE Inadequate Supply and Insufficient Competition Design Summary

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System-wide

• With the ‘hardwiring’ of zones, the affect on these provisions may require design changes– Zones are now ‘hardwired’ whereas before only if there was price

separation in the primary auction (FCA) would there be a separate capacity zone going forward

– In this context, the Inadequate Supply and Insufficient Competition provisions refer to the ROP capacity zone, and may not be suitable for import-constrained zones with adequate supply (zones without price separation)

• Consequently, the ISO will not be proposing any changes or clarifications to the system-wide provisions at this time

CALCULATION GUIDELINES

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Guidelines

• All amounts shall be determined at the auction starting price– Tariff clarification on this point recommended for Insufficient

Competition provisions

• Capacity associated with administrative de-list bids will not be included as existing capacity– Tariff clarification recommended to the provision describing the

determination of New Capacity Required (Section III.13.2.4)

Examples:– Administrative Export De-List Bids– Static De-List Bids for reductions due to ambient air conditions

PREVIOUS QUESTIONS

Questions & Answers

• When will participants know if these provisions are being used?– The auctioneer will notify participants, as applicable, during the

auction.

• Wasn’t the pivotal supplier test deleted with other FCM reforms?– Yes. The FCM Pivotal Supplier test [Section III.13.2.3.3] which dealt

with existing capacity was deleted with January 31, 2012 FCM filing.– However, the pivotal supplier reference for these provisions relates to

new offers [Section III.13.2.8.2(b)(iii)], and was unaffected.

SCHEDULE

Tentative Schedule of Meetings and Events

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