February 7, 2016|Westborough, Ma - PowerPoint Presentation

1. February 7, 2016|Westborough, MaBen Ewing & Gregg BradleyOffer caps in markets operated by RTOs and ISOsFERC Order 831 Compliance1

2. 2FERC Order 831 ComplianceWMPP ID:111Proposed Effective Date: TBDOrder 831 requires changes to the Energy Offer CapInternal, physical supply offers must be capped at the greater of: $1,000/MWhResource’s verified cost-based offerVerified offers must be capped at $2,000/MWh for the purpose of calculating market clearing pricesCosts that cannot be verified prior to market clearing, but which can be verified after-the-fact, must be eligible for NCPCWe discuss this topic for the first time today

3. Background3Today, energy markets have a hard cap of $1,000/MWh.No incremental energy offers greater than $1,000/MWh are accepted January 21, 2016: FERC issued NOPR proposing changes to offer caps in energy markets operated by RTOs/ISOsNovember 17, 2016: FERC issued final rule Order 831, modifying how ISOs/RTOs handle offer caps in energy marketsCompliance filing is due May 4, 2017

4. 4Order 831 Requirements - Application of Offer CapA resource’s incremental energy offer must be capped at the higher of $1,000/MWh or that resource’s verified cost-based incremental energy offerISO must impose a hard cap of $2,000/MWh on all verified cost-based energy offers when calculating market clearing pricesAll resources, regardless of type, are eligible to submit cost-based incremental energy offers in excess of $1,000/MWh

5. 5Order 831 Requirements - Cost VerificationOnly verified costs in the range from $1,000/MWh to $2,000/MWh shall be used for market clearing and price calculation Verification requirement does not apply to virtual or external transactionsINCs/DECs and Imports/Exports (except CTS transactions) may all offer up to the $2,000/MWh hard capA resource must be eligible for NCPC payments if:It has a verified cost-based incremental energy offer above the $2,000/MWh hard capIt has incremental energy costs above $1,000/MWh which cannot be verified prior to market clearing, but which are verified after-the-fact

6. 6Overview of Order 831 requirements as compared with current market constructCurrent Energy Offer Cap – All resourcesOrder 831 Caps – Generation and Demand ResponseOrder 831 Caps – Virtuals and Non-CTS External TxMarket Clearing$1,000/MWh$1,000/MWh, or higher if verified ex-ante$2,000/MWhPricing$1,000/MWh$1,000/MWh, or higher if verified ex-anteLimited by $2,000/MWh hard cap$2,000/MWhNCPC$1,000/MWh(ex-post cost recovery for higher costs through III.A.15)$1,000/MWh, or higher if verified ex-ante(allowance for ex-post verification of higher costs which can’t be verified ex-ante)$2,000/MWh

7. Proposal is broken into two major components7IMM verification of costs submitted above $1,000/MWhEx-ante cost verificationEx-post cost verificationUse of verified costs in the clearing, pricing, and NCPCDay-Ahead Market (DAM)Real-Time Market (RTM)

8. IMM Cost Verification 8Gregg Bradley

9. Cost Verification Proposal Overview9IMM will use a resource’s cost-based Reference Level to verify, ex-ante, any incremental energy offers greater than $1,000/MWhCost-based Reference Levels are determined pursuant to Section III.A.7.5 of the TariffIncremental energy offers greater than $1,000/MWh that cannot be verified ex-ante have the opportunity to recover actual costs via NCPC IMM will perform ex-post cost verification for NCPC purposes

10. Proposed Design Details – Cost Verification10Ex-Ante Verification of Incremental Offers > $1,000Incremental energy offers greater than $1,000/MWh will be compared to the resource’s cost-based Reference Level to verify the offer is a “cost based incremental energy offer”Participants are encouraged to continue to consult with the IMM prior to submitting an offer (pursuant to Section III.A.3.1) and utilize Fuel Price Adjustments (pursuant to Section III.A.3.4) to ensure the resource’s cost-based Reference Level reflects expected physical and market conditions

11. Proposed Design Details – Cost Verification11Ex-Ante Verification of Incremental Offers > $1,000IMM will calculate an “energy offer cap” (EOC) supply offer, reflecting verification and capping of incremental energy costs greater than $1,000/MWhThe “EOC supply offer” will be used for commitment and dispatch by day-ahead and real-time processes (slides 19-20)The “EOC supply offer” will be subject to energy market mitigation pursuant to Section III.A.5 of the Tariff

12. Proposed Design Details – Cost Verification 12“EOC supply offer” calculationIncremental energy block:Start-up and No-Load:“EOC supply offer” = Submitted Supply OfferNo change in current practice for Start-up and No-loadSubmitted Offer BlockCost-Based Reference LevelEOC supply offer set to:Submitted ≤ $1,000N/ASubmittedSubmitted > $1,000Reference ≤ $1,000$1,000Submitted > $1,000Reference > $1,000MIN (Cost-based Ref Level, Submitted)

13. Proposed Design Details – Cost Verification 13“EOC supply offer” examplesSubmitted Supply OfferCost-Based Reference LevelEOC supply offerExample 1 Incremental Energy$950 $800 $950 Startup$20,000 $17,000 $20,000 No Load$500 $400 $500 Example 2 Incremental Energy$1,200 $800 $1,000 Startup$20,000 $17,000 $20,000 No Load$500 $400 $500 Example 3 Incremental Energy$1,500 $1,200 $1,200 Startup$20,000 $17,000 $20,000 No Load$500 $400 $500

14. Proposed Design Details – Cost Verification 14Ex-Post Cost VerificationIncremental energy costs greater than $1,000/MWh will be capped through the “EOC supply offer” if costs cannot be verified prior to clearingIf submitted costs > $1,000/MWh can be verified after-the-fact, actual costs will be eligible for use in NCPC calculationsEx-post verification for additional cost recovery will be based on the IMM’s review of actual fuel costs, variable operations and maintenance costs, and other costs for the applicable operating dayIMM will provide, in writing, an explanation of the ex-post cost verification analysisIf the Participant does not agree with the cost recovery amount, Section III.A.15 allows the Participant to file a Section 205 filing with FERC The initial request, as well as the IMM analysis, will be required to be sent to FERC for review

15. Day-Ahead and Real-Time Clearing, Pricing and, Settlement Under Order 83115Ben Ewing

16. Proposal Overview: DAM/RTM16New caps will be established for different types of offers per Order 831 requirementsFor offer types subject to verification, only ex-ante verified costs will be used when calculating clearing prices at levels between $1,000/MWh and $2,000/MWhAll ex-ante verified offers will be limited by hard cap of $2,000/MWh for purposes of calculating clearing prices

17. Proposed Design Details17Order 831 requires different caps for different offer typesGenerator and Demand Response incremental energy offers are “capped” by IMM cost verification (“EOC supply offer”)eMarket cap of $1,000/MWh will be removedVirtuals and non-CTS external transactions are capped at $2,000/MWhCTS spread bid cap remains at $1,000/MWhCTS spread bid cap explicitly exempted from Order 831CTS transactions offered at the cap of $1,000/MWh will clear if price difference exceeds $1,000/MWhPrice sensitive demand bids are capped at $2,000/MWhNot explicit in Order 831Approach is consistent with current treatment of price sensitive demand

18. Proposed Design Details18Order 831 requires different caps for different offer typesOffer TypeCurrent Cap ($/MWh)New Cap for Market Clearing and NCPC ($/MWh)New Cap for Pricing($/MWh)Supply Offers Generation$1,000Determined by IMM verificationMin(IMM verification, $2000) Demand Response$1,000 INC$1,000$2,000$2,000 Non-CTS Imports$1,000$2,000$2,000 CTS Imports$1,000$1,000n/aDemand Bids Fixednonenonen/a Price Sensitive$1,000$2,000$2,000 DARD/ARD$1,000$2,000$2,000 DEC$1,000$2,000$2,000 Non-CTS Exports$1,000$2,000$2,000 CTS Exports$1,000$1,000n/a

19. Proposed Design Details - Day-Ahead Market19DAM will use the “EOC supply offer” for commitment, dispatch, and pricingPricing is subject to $2,000/MWh hard capDAM must be modified to have separate dispatch and pricing “runs,” similar the new Fast Start Pricing approach in real-timeMust accommodate merit-order dispatch for multiple resources with verified costs greater than $2,000/MWh, while capping such offers at $2,000 for price calculation purposesNo changes to DA NCPC design are proposedDA NCPC will use costs from “EOC supply offer”

20. Proposed Design Details - Real-Time Market20RTM will use “EOC supply offer” for commitment, dispatch, and pricingPricing is subject to $2,000/MWh hard capAdditional capping may be applied to Rapid Response Pricing Assets (RRPAs) during the RT pricing runRRPA adjusted offers (which include amortized Start-Up and No-Load fees) exceeding $1,000/MWh must be verified before being used in clearing price calculationsCost-based Reference Levels will be used for this verification and may cap RRPA adjusted offers within the $1,000/MWh to $2,000/MWh rangeDetailed walk-through in addendum (slides 24-28)No changes to RT NCPC design are proposedRT NCPC will use costs from “EOC supply offer”

21. 21ConclusionOffers greater than $1,000/MWh are subject to verificationOnly verified offers are used in calculating clearing prices at levels greater than $1,000/MWhVerified offers are capped at $2,000/MWh for the purpose of calculating market clearing pricesSubmitted costs greater than $1,000/MWh that cannot be verified prior to market clearing, but which can be verified after-the-fact, are eligible for NCPCProposed effective date: TBD

22. Stakeholder Schedule22Stakeholder Committee and DateScheduled Project MilestoneMarkets CommitteeFebruary 7, 2017Initial discussionMarkets CommitteeMarch 7, 2017Discussion of tariff language and voteParticipants CommitteeApril 7, 2017VoteCompliance filing is due May 4, 2017

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24. AddendumRapid Response Pricing Asset Adjusted Offer Capping for Pricing24

25. RRPA Adjusted Offer Capping for Pricing25Under Fast Start (FS) Pricing, amortized Start-Up and No-Load fees are included with the incremental energy costs of Rapid Response Pricing Assets (RRPAs) when calculating pricesWithin Minimum Run Time (MRT): RRPA adjusted offer = Incremental Energy + Start-Up / (EcoMax x MRT) + No-Load / EcoMaxAfter MRT: RRPA adjusted offer = Incremental Energy + No-Load / EcoMaxOrder 831 requires verification of costs used for calculating clearing prices in the $1,000/MWh and $2,000/MWh rangeInclusion of amortized start-up and no-load could result in RRPA adjusted offers in this range

26. 26To perform such verification, RRPAs’ price-setting ability through an adjusted offer will be limited by the adjusted offer from cost-based Reference LevelsCost-based Reference Level incremental energy, start-up, and no-load represent verified costsCapping only applies to RRPA adjusted offers > $1,000/MWhRRPA adjusted offer capping logic is the same as that used in “EOC supply offer” creationRRPA adjusted offer capping has no effect on cost recovery, only on offers used for calculating clearing pricesAll costs from “EOC supply offer” will be considered for NCPCRRPA Adjusted Offer Capping for Pricing

27. 27RRPAs will be allowed to set price up to the lesser of:RRPA adjusted offer cap$2,000/MWh hard capRRPA Adjusted Offer Capping for PricingAdjusted Offer from “EOC supply offer”Cost-Based Reference Level RRPA Adjusted OfferRRPA Adjusted Offer CapEOC Adjusted Offer ≤ $1,000N/AN/AEOC Adjusted Offer > $1,000Ref Level Adjusted Offer ≤ $1,000$1,000EOC Adjusted Offer > $1,000Ref Level Adjusted Offer > $1,000MIN (Ref Level Adjusted Offer, EOC Adjusted Offer)

28. Example: RRPA Adjusted Offer Capping28EcoMax = 5 MW, MRT = 1 hrRRPA adjusted offer used in price calculation will be limited to:$1,180/MWh if within MRTLimited by reference level adjusted offer, which exceeds $1,000/MWh$1,000/MWh if MRT has endedLimited by “soft cap” of $1,000, as ref level adjusted offer falls below $1,000/MWh but adjusted offer from “EOC supply offer” exceeds $1,000/MWhSubmitted Supply OfferCost-Based Reference LevelEOC Supply Offer Incremental Energy$900$800$900 Startup$2,000 $1,500 $2,000 No Load$600 $400 $600 Adjusted Offer (within MRT)$1,180$1,420 Adjusted Offer (after MRT)$880$1,020