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© 2013 Day Pitney LLP Overview and Update on the Ever-Evolving New England Wholesale Capacity Market presentation to Boston Bar Association May 23, 2013 Presented by: Paul N. Belval Sebastian M. Lombardi
Page 2 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market Introduction of Wholesale Electricity Components Sold Overview of New Englands Forward Capacity Market Update on Key Challenges and Evolving Solutions
Page 3 | 5/23/2013 Presentation to Boston Bar Association © 2013 Introduction - Wholesale Power Markets The Markets Energy Capacity Other Ancillary Services
Page 4 | 5/23/2013 Presentation to Boston Bar Association © 2013 Wholesale Electricity Cost Components Source: Wholesale Load Cost Report, ISO New England Inc. (March 2013) Monthly Regional Network Load Cost Report (Jan Total Wholesale Load Cost in 2012: $7,332,216,296
Page 5 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market KEY TERMS Installed Capacity Requirement (ICR) - Amount of capacity needed to reliably serve New England. Forward Capacity Auction (FCA) – A periodic auction held by ISO New England to procure generating capacity or demand reduction capacity to satisfy ICR. Capacity Commitment Period (CCP) – The period from June 1 to May 31 that defines the duration of a capacity obligation procured in the FCA.
Page 6 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market KEY TERMS (cont.) Offer - Amount of capacity for a New Resource that is bid into an FCA. De-list Bid - Amount of capacity from an Existing Resource that is proposed to be withdrawn from an FCA. Capacity Supply Obligation (CSO): MW of capacity obligation assigned to a Resource during all of or a portion of a specific Capacity Commitment Period.
Page 7 | 5/23/2013 Presentation to Boston Bar Association © 2013 Why have Capacity Markets? Ensure adequate resources are available where and when they are needed to keep the lights on Units that operate only during peak demand times would require huge payments in energy market to recover their full costs during few hours of operation Society has been unwilling to allow prices to rise to such levels, even in the small number of hours when high prices would be required Separate and assured revenue stream necessary to keep generators that are required for reliability and available to operate when needed Help to stimulate new generation and demand resources that are desired to meet future needs
Page 8 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market New Englands Forward Capacity Market (FCM): Forward market where ISO New England procures enough capacity to meet reliability needs 3 years in the future ISO New England procures needed capacity through an annual auction
Page 9 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market Installed Capacity Requirement (ICR) ICR is the amount of installed resources (both generating and demand) needed to meet ISO-NEs Resource Adequacy Criterion Calculated outage probability – one day in ten years criterion. To meet this requirement, ISO-NE calculates how much capacity should be needed to meet the expected demand (i.e.. How much electricity is going to be used 3 years from now?) and handle foreseeable uncertainties associated with load or performance of the capacity resources
Page 10 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market What Resources Can Meet the Need? Supply Resources Oil, coal, nuclear, natural gas, intermittent renewable generation Demand Resources Distributed generation, energy efficiency, load management Imports
Page 11 | 5/23/2013 Presentation to Boston Bar Association © 2013 Forward Capacity Market: Qualification Process to Participate in Auction Qualification process begins over a year before the auction New Resources (i.e., Resources that have not cleared in any previous Forward Capacity Auction) Rigorous process to assure that new resources are real To qualify, New Resources must submit sufficient documentation indicating their ability to operate at a specific MW value for the relevant Capacity Commitment Period Must clear as new for one auction
Page 12 | 5/23/2013 Presentation to Boston Bar Association © 2013 Forward Capacity Market: Qualification Process (cont.) Existing Resources (i.e., Resources that have cleared in any previous Forward Capacity Auction) If existing, resource automatically treated as price-takers in the auction based on historical capabilities, unless they exit by delisting. If resource does not want to take on a capacity obligation, must submit permanent or static de-list, or export, bids at qualification time (during auction Existing Resource can submit dynamic de-list bid) - - all such de-list bids are subject to reliability reviews *Minimum project size for all eligible Resources = 100kW
Page 13 | 5/23/2013 Presentation to Boston Bar Association © 2013 Forward Capacity Auction Mechanics Descending clock auction conducted in discrete rounds (held in February) During process, the price in the auction will be lowered and some resources will remove themselves from the auction Existing Resource Will clear if no action taken in auction (Existing Resources are price takers) and will receive a CSO for a one-year commitment period Will not clear if Existing Resource submits de-list bid (varied forms) New Resource Can offer into the auction to receive a CSO for a Capacity Commitment Period of 1-5 years, in one-year increments Will clear if New Resource offers at a price at or below the FCA clearing price Will not clear if New Resource offers at price above FCA clearing price Outcome of Forward Capacity Auction sets the initial Capacity Supply Obligation (CSO) for resources
Page 14 | 5/23/2013 Presentation to Boston Bar Association © 2013 What Does it Mean to be Selected? Every Resource that clears in an FCA receives a Capacity Supply Obligation and a price (or capacity payment) for that obligation. Capacity Payment: Monthly payments to Resources with a Capacity Supply Obligation However, with payment comes all sorts of obligations...
Page 15 | 5/23/2013 Presentation to Boston Bar Association © 2013 Obligations and Penalties in FCM Example of a Resources Obligation: Generating Capacity Resource that has a CSO must offer its obligated capacity into the Day- Ahead Energy Market and Real-Time Energy Market whenever and to the extent the resource is available Penalties Capacity payments reduced by: Penalties assessed when resources are not available in real-time during the most needed hours (Shortage Hours/Events) Peak Energy Rents (PER) PER $ = revenues obtained from reduction in capacity payments when energy prices are extremely high
Page 16 | 5/23/2013 Presentation to Boston Bar Association © 2013 New Rule for Next Forward Capacity Auction Minimum Offer Price Rule (MOPR) Intended to address price suppressing effect of Out-of- Market (OOM) resources Beginning with the next Forward Capacity Auction (FCA #8), New Resources will be assigned an Offer Review Trigger Price Offer Review Trigger Price (ORTP): Default floor on lowest price that a particular resource can offer into the auction
Page 17 | 5/23/2013 Presentation to Boston Bar Association © 2013 FCM Redesign Efforts Under Consideration Key Challenges: What are you paying for versus what you are getting? Scope and definition of obligations? New Englands increased reliance on natural gas Potential Solution: FCM Performance Incentives Pay-for-performance mechanism Over-performing resources would be paid a premium through revenue transfers from under-performing resources
Page 18 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market Is It Worth It and To Whom? Forward Capacity Market provides added revenue for generation and demand side resources But efforts, and therefore costs, of qualifying and clearing are not insignificant (i.e., MOPR makes clearing an FCA more difficult for new renewables, absent state request accepted by FERC) Penalties now add a downside risk Not required to participate in FCM to be in other markets, but once resource clears in one FCA, it is committed for the rest, absent a de-list
Page 19 | 5/23/2013 Presentation to Boston Bar Association © 2013 New England Wholesale Capacity Market Can You Finance It? Challenge of addressing Capacity Resources in a Financial Model Long-lived assets, but annual market redesign More frequent tweaking of Market Rules Revenues are provided on a year-to-year basis – no assurance of revenue long-term Consider as an additional payout for equity, not as cash flow for the bank
Page 20 | 5/23/2013 Presentation to Boston Bar Association © 2013 Questions?
Update on Demand Resource Participation in New Englands Forward Capacity Market Henry Yoshimura Demand Resources Department ISO New England, Inc. Holyoke,
Demand Response: What It Is and Why It’s Important 2007 APPA National Conference San Antonio, Texas June 26, :00 a.m. to Noon Glenn M. Wilson Director.
FEBRUARY 14, 2013 RELIABILITY COMMITTEE MEETING Steve Weaver SYSTEM OPERATIONS In-Day Reserves & Supplemental Procurement.
Brookfield Renewable Energy Group. Focusing on Renewable Power Generation and Transmission Conceptual discussion how to integrate renewable resources under.
NOVEMBER 18, 2013 | WESTBOROUGH, MA Administrative Pricing Rules for Forward Capacity Auction #8.
OCTOBER 8, 2014 Bob Laurita INTERNAL MARKET MONITORING New Import Capacity Resource FCM Market Power Mitigation Order to Show Cause Compliance Filing.
AUGUST 7-9, 2013 | LENOX, MA Andrew Gillespie MARKET DEVELOPMENT (413) Review of Market Rule 1: Section.
SEPTEMBER 12, 2012 | MARKETS COMMITTEE Aleks Mitreski MARKET DEVELOPMENT (413) Hourly Offer and Intraday.
Demand Resource Operable Capacity Analysis – Assumptions for FCA 5.
DECEMBER 17, 2013 | WESTBOROUGH, MA Reliability Committee & Transmission Committee & Markets Committee Capacity Zone Modeling Al McBride MANAGER, AREA.
Summary of Proposed Market Rules For Transition Period Price-Responsive Demand and Active Demand Resources in the Forward Capacity Market Henry Yoshimura,
S PIEGEL & M C D IARMID New England’s Forward Capacity Market: How Did We Get Here and Where Are We Going? Scott H. Strauss APPA Legal Seminar Cambridge,
Making the Wholesale Market Work for Retail Customers: Connecticut Municipal System Experiences November 11, 2007 Anaheim, California Presented by: Brian.
Distributed Generation/Demand Resources in ISO New England’s Wholesale Markets 2nd Annual Distributed Energy Conference - Building Resilient Communities.
Al McBride MANAGER, AREA TRANSMISSION PLANNING Existing Import Interfaces: Transmission Transfer Capabilities and The Calculation of Tie Benefits DECEMBER.
DRAFT Installed Capacity Requirement (ICR) and Related Values for the 2014/15 Forward Capacity Auction (FCA5) Maria Agustin.
© 2013 McNees Wallace & Nurick LLC October 17, 2013 Robert A. Weishaar, Jr. ON SITE ENERGY – INTERPLAY WITH PJM DEMAND RESPONSE PROGRAMS Harrisburg, PA.
PJM© Demand Response in PJM 2009 NASUCA Mid-Year Meeting June 30, 2009 Boston, MA Panel: Price Responsive Demand – A Long-Term Bargain.
03/11/2013 MARKETS COMMITTEE Aleks Mitreski MARKET DEVELOPMENT (413) Overview of Market Rule revisions.
Standard Market Design (SMD) in New England Federal Energy Regulation Commission Conference on Standard Market Design January 22, 2002 David LaPlante Vice.
1 New England Demand Response Resources: Present Observations and Future Challenges Henry Yoshimura Demand Resources Department ISO New England, Inc. Holyoke,
Demand Response in MISO Markets NASUCA Panel on DR November 12, 2012.
A Primer on Electric Utilities, Deregulation, and Restructuring of U.S. Electricity Markets W.M. Warwick July 2000 Revised May 2002.
New England Developments in Demand Response and Smart Grid 2010 National Town Meeting on Demand Response and Smart Grid Henry Yoshimura, Director, Demand.
Winter 2013/2014 Reliability Solution Including LNG MWHs N. Jonathan Peress Conservation Law Foundation Greg Lander Skipping Stone NEPOOL Markets & Reliability.
Allocation of capacities between Portugal and Spain Madrid 30 th April 2013.
National Grids Involvement in New Englands Forward Capacity Market Helping to Bring Demand Resources into the Supply Mix Tim Roughan Director, Distributed.
Achieving Price-Responsive Demand in New England Henry Yoshimura Director, Demand Resource Strategy ISO New England National Town Meeting on Demand Response.
Better Align Capacity Markets with Policy/Planning Objectives James Daly, VP Energy Supply Restructuring Roundtable Sept 21, 2012.
MAY 10, 2012 | NEPOOL MARKETS COMMITTEE WESTBOROUGH, MA Andrew Gillespie PRINCIPAL ANALYST | MARKET DEVELOPMENT Proposal Static De-List Bid Changes.
Enhancing Capacity Markets to Improve Resource Performance and Investment Pay For Performance: New England’s Capacity Market OPSI 10 TH ANNUAL MEETING.
Utility Regulation March 10, 2011 Raj Addepalli Deputy Director, Electric, Office of Electric,Gas and Water New York State Department of Public Service.
Chicago Advanced Energy Demand Response & CSP Evolution Kellen Bollettino Comverge Inc. 10/23/14.
Highlights of the 2003 New York ISO State of the Market Report David B. Patton, Ph.D. Potomac Economics Independent Market Advisor April 14, 2004.
PJM©2013www.pjm.com Resource Adequacy in PJM Adam Keech Director, Market Operations PJM.
2003 State of the Market Report ERCOT Wholesale Electricity Markets.
Ancillary Services Update NEPOOL Markets Committee October 14, 2003 Jim Milligan ISO-NE Markets Development.
Dynamic Pricing - Potential and Issues Joe Wharton and Ahmad Faruqui Kansas Corporation Commission Workshop on Energy Efficiency March 25, 2008.
Overview of CAISO Stakeholder Process for FERC Order 764 Compliance Implementation of 15 minute scheduling and settlement Jim Price, CAISO Presentation.
1 Review of the Reserves and OpCap Markets: New Englands Experience in the First Four Months Peter Cramton Professor of Economics, University of Maryland.
Overview of LMP Markets Features of ISOs / RTOs David Withrow Senior Market Economist Fall 2007 Meeting of the NARUC Staff Subcommittee on Accounting and.
Overview of the Capacity Markets in the United States 2008 APEX Conference in Sydney, Australia October 13-14, 2008 Hung-po Chao Director, Market Strategy.
Financing new electricity supply in the UK market with carbon abatement constraints Keith Palmer 08 March 2006 AFG.
Demand Response: Keeping the Power Flowing in Southwest Connecticut Presented by: Henry Yoshimura Manager, Demand Response ISO New England September 30,
ISO New England Demand Resource Measurement & Verification Standards Manual Overview April 11, 2007 NAESB Development of DSM/EE Business Practices Washington,
Electric Generation Reliability Remarks Before the Pennsylvania Public Utility Commission 2011 Summer Reliability Assessment Meeting June.
1CPEAC/EHC CONFERENCE – 8 March 2009 Alberta & Oil: Where it has been and where it is heading for? Peter Yang, M.Sc., P.Eng. Manager, SAGD Specialist Group.
NAESB Coordinate Interchange Version 1 Standard Revision 1, Draft 1 January, 2005.
1 Capacity mechanisms - IFIEC position June 12 th 2012.
Proposal For Improvement to the Current ICAP Market Markets Committee October 12, 2004 Ken Bekman Con Edison Energy.
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