413 5404488 dcookeisonecom Overview of Current Cost Allocation and Introduction to Proposed Changes Design Changes to the Allocation of Forward Capacity Costs 2 Project Title ID: 911727
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Slide1
March 6, 2018
Deborah Cooke
(413) 540-4488 | dcooke@iso-ne.com
Overview of Current Cost Allocation and Introduction to Proposed Changes
Design Changes to
the Allocation of
Forward Capacity Costs
Slide22
Project Title:
Allocation of Forward Capacity
Costs
WMPP ID: 112
Proposed Effective Date: June 1, 2020 (Capacity Commitment Period 11)
The allocation of costs to Capacity
Zones were reviewed
in light of the Marginal-Reliability Impact (MRI) based demand curves
The current method to allocate Forward Capacity Market costs is opaque
Current method is not transparent:
all
FCM costs are reflected in a zonal blended (average) price, which can result in non-intuitive charges
For example, charge rates in an export-constrained zone can exceed the charge rates in import-constrained zones and/or Rest-of-Pool
Slide33
The cost allocation changes will be discussed in segments
The figure below is a road map for the discussions Three areas identified for
conforming changes and/or improvementsToday’s discussion focuses on the first two:
Overview of current cost allocation
How a participant’s share of capacity costs is determined
Net Regional Clearing Price approach, including discussion of Capacity Transfer Rights
Introduction of the “marginal value” cost allocation approach
Slide44
Current cost allocation method –
Net Regional Clearing Price
A single monthly charge rate – the Net Regional Clearing Price (NRCP) – is calculated and used for cost allocationThe NRCP reflects all costs associated with capacity transactions within each Capacity Zone
Costs incurred in a Capacity Zone are allocated to load in that zone
In each zone: the NRCP equals total
payments
to resources, divided by total CSOCapacity Transfer Rights (CTRs) are used to account for the imbalance between zones
Slide55
The basics: What is the capacity charge?
Four
components:
Part of today’s discussion will focus
on two
components
Capacity ChargesMarket Participant AllocatorCharge Rate (Net Regional Clearing Price)Residual CTR FundThe export credit/charges is not coveredNo changes are proposed
Slide6Market Participant
Cost Allocation
Brief review of how a Market Participant’s share of capacity costs is
determinedNo changes to this methodology are proposed, but proposing to clarify the terminology currently used and the specific data to be used in this
calculation (inputs)
6
Slide77
The Capacity
Requirement is used in allocating capacity costs
Based
upon
peak load contribution values in previous calendar years
Calculated at both the Capacity Zone and Market Participant level, using similar formulas
Capacity
Requirement in a Capacity Zone (MW) =
Pool
CSO (MW)
x Capacity
Zone Peak
Contribution
CCP-2
(
MW)
÷ Pool
Peak
Contribution
CCP-2
(
MW)
Capacity Requirement for a Market Participant (MW) =
Capacity Requirement
in a Capacity
Zone
(MW)
x Customer Average Peak Contribution
CCP-1
(MW)
÷ Capacity Zone Peak Contribution
CCP-1
(MW)
Capacity
Requirement, adjusted for self-supply, HQICCs, and Capacity Load Obligation Bilaterals (“Capacity Load Obligation”) is
multiplied by the Net Regional Clearing Price to determine capacity
charges
Slide88
Simple examples demonstrate the Capacity Zone calculations
Example 1:
Example 2:
Capacity Requirement (CR) = CSO (MW) x Zonal Peak
Load (MW)
÷ System Peak
Load (MW)Capacity Zone
CSO
Peak Load
Calculation
Capacity Requirement
MW
MW
MW
Zone
1
2,000
2,300
6,000
x 2,300
÷ 5,100
2,706
Zone
2
1,000
600
6,000
x 600
÷ 5,100
706Zone 33,0002,2006,000 x 2,200 ÷ 5,1002,588Totals6,0005,1006,000
Capacity Zone
CSO
Peak Load
Calculation
Capacity Requirement
MW
MW
MW
ROP
6,000
5,100
6,000
x 5,100
÷ 5,100
6,000
Slide99
No changes to these calculations are proposed, but ….
The zonal and participant Capacity Requirement calculations use the peak contribution values from different periods
Zonal – uses the values from the calendar year
two years
prior to the commitment period (“CCP-2”)
Participant – uses values from the calendar year immediately preceding the commitment period (“CCP-1”)
Original intent: consistency with the inputs used to calculate the ICR used in the third and final annual reconfiguration auction for the commitment period
Inconsistent input that adds complexity without a clear benefit
Recommendation: Use the peak contribution value from the calendar year immediately preceding the commitment period
CCP-1 in all cases
Slide1010
“Capacity Requirement
” term is confusing
What’s the problem with this term?
Used to represent both Capacity Zone values and participant values, which may be confusing
Often misinterpreted to mean “Installed Capacity Requirement” but no relation
Misnomer - Not really a “requirement
”
Proposed name:
Zonal Capacity Obligation
Capacity Zone value (i.e., the obligation at the zonal level)
Participant value will be share of Zonal Capacity Obligation
Capacity Requirement will be used in this presentation while discussing how the present design works
Slide11Review the Net Regional Clearing Price (NRCP)
approach
Review the basic concept behind the Net Regional Clearing Price approach (the ‘average cost’ approach)
Examine the workings of residual Capacity Transfer Rights (CTRs) and why this accounting tool is needed when there are different capacity
zones
Show how the
Net Regional Clearing Price becomes a ‘blended’ rate when it includes other costs
(for example, the outcome of an annual reconfiguration auction)Finally, present an example that demonstrates the shortcomings of a blended, average cost approach to FCM cost allocation11
Slide1212
What and how is load charged for capacity?
Capacity charges are the zonal Capacity Requirement (soon to be called the Zonal Capacity Obligation) multiplied by the Net Regional Clearing Price
The Net Regional Clearing Price is the average cost of capacity in a Capacity Zone
For each Capacity Zone
:
Slide1313
Net
Regional Clearing Price can be influenced by a number of factors
Various CSO trading activities Forward Capacity Auction, annual and monthly reconfiguration auctions (additions and reductions in the amount of capacity in each zone)
Other compensation rules
(
will be covered in more detail at the next meeting)
Self-supply obligationsSeasonal capacity variances of Intermittent Power Resources Specifically allocated Capacity Transfer RightsPayments to Interconnection Rights Holders of HQICCsAdjustments resulting from administrative actions Resource terminations (partial or full)
Slide1414
Example: Net Regional Clearing Price calculations
Very simple, single zone exampleOnly the Forward Capacity Auction clearing is included
The NRCP is calculated as total payments divided by the total Capacity Supply Obligation (CSO) in the zoneAs our example only has one zone, the Net Regional Clearing Price equals the Capacity Clearing Price
Capacity Zone
Capacity Supply Obligation
Capacity Clearing Price
Total Payments
Net Regional Clearing Price
MW
$/kW-mo.
$K-mo.
$/kW-mo.
Rest of Pool
6,000
$8.000
$48,000
$8.000
Total Payments ($/mo.) = CSO (MW) x Capacity Clearing Price ($/kW-mo.)
Net Regional Clearing Price ($/kW-mo.) = Total Payments ÷
CSO (MW)
Slide1515
The NRCP equals total payments divided by total CSO
The NRCP is multiplied by the zonal Capacity Requirement (CR) to determine total charges
As there were no additional trading activities or impacts from special compensation rules, the NRCP equals the Capacity Clearing Price
Capacity Zone
CSO
NRCP
Peak Load
CR
Capacity Charge
MW
$/kW-mo.
MW
MW
$K-mo.
Rest of Pool
6,000
$8.000
5,100
6,000
$48,000
Capacity Requirement (CR) = CSO (MW) x Zonal Peak
Load
(MW) ÷ System Peak Load (MW)
Capacity Charge = NRCP ($/kW-mo.)] x CR (MW)
Slide1616
Let’s add some complexity to our example:
Multiple Capacity ZonesAssume three capacity zones: import constrained (ICCZ), export constrained (ECCZ) and Rest of Pool (ROP)
As
in our previous example
the
NRCP
equals the Capacity Clearing Price in each zoneCapacity ZoneCSO
Capacity Clearing Price
Total Payments
NRCP
MW
$/kW-mo.
$K-mo.
$/kW-mo.
ICCZ
2,000
$12
$24,000
$12
ECCZ
1,000
$6
$6,000
$6
ROP
3,000
$8
$24,000
$8
Total
6,000
$54,000
Slide1717
NRCP is used to calculate capacity charges for each Capacity Zone
But
… note that total charges collected from load in a month exceed
the total payments to resources
Charges of $57,412,000 exceed payments of $54,000,000 by $3,412,000
Why is there a difference and how
is it distributed? Capacity Zone
NRCP
Peak Load
CR
Capacity Charge
$/kW-mo.
MW
MW
$K-mo.
ICCZ
$12
2,300
2,706
$32,472
ECCZ
$6
600
706
$4,236
ROP
$8
2,200
2,588
$20,704Totals5,1006,000$57,412
Slide1818
Some zonal capacity requirements were met by capacity resources outside a specific Capacity Zone
In our example, 1,000 MW of capacity was purchased in
ECCZ, but the zonal Capacity Requirement was only 706 MW Capacity Transfer Rights compensate for these differencesExport constrained zones
:
Allocated
to all load outside of the
export constrained zone; the difference in capacity zone NRCPs multiplied by the difference in the CSO and Capacity Load Obligation (CLO) in the export constrained zoneImport constrained zones: Allocated to load inside of the import constrained zone; the difference in capacity zone NRCPs multiplied by the difference in the CLO and CSO in the import constrained zone
CLO is
the Capacity Requirement (CR) adjusted for self-supply, HQICCs, and Capacity Load Obligation Bilaterals.
For
this presentation,
CLO
and Capacity Requirement are equal
.
Slide19The sum of the Capacity Transfer Rights equals
the
difference between payments and charges
of
$
3,412,000!
19
Calculating the
Capacity Transfer Rights for each
interface
Capacity Transfer Rights, Import Interface =
(NRCP
ICCZ
– NRCP
ROP
)
x
(
CSO
–
CLO)
Capacity Transfer Rights,
Export
Interface =
(
NRCP
ROP
– NRCP
ROP
) x (CLO – CSO) InterfaceNRCPNRCPΔCLOCSOCLO/CSO ΔCapacity Transfer Rights$/kW-mo.$/kW-mo.MWMWMW$K-mo.Import$12$42,706
2,000
(706)
($2,824)
Export
$6
$2
706
1,000
(294)
($588)
Totals
6,000
3,000
($3,412)
Slide2020
The Capacity Transfer Rights are then allocated to each Capacity Zone
Export Constrained Zone CTRs = $588,000Allocated to load on the import side of the export constrained zone
interface, pro rata based on CLOImport Constrained Zone CTRs = $2,824,000This is allocated to load in
the import
zone
Capacity Zone
CRCapacity Zone Share of Export CTR
Capacity Zone Share of Import CTRs
Total Capacity
Zone CTR
MW
$K-mo.
$K-mo.
$K-mo.
ICCZ
2,706
($301)
($2,824)
($3,125)
ROP
2,588
($287)
($287)
Totals
5,294
($588)
($2,824)
($3,412)
Import Constrained Zone share of ECCZ Capacity Transfer Rights = CTRs
ECCZ x CRICCZ ÷ (CRICCZ + CRROP)Rest of Pool share of ECCZ Capacity Transfer Rights = CTRsECCZ x CRROP ÷ (CRICCZ + CRROP)
Slide2121
Capacity Charges at-a-glance
Capacity Zone
NRCP
Peak Load
CR
Capacity Charge
Residual CTR Allocation
Total Charges
Effective Charge Rate
$/kW-mo.
MW
MW
$K-mo.
$K-mo.
$K-mo.
$/kW-mo.
Inputs
Calculations
ICCZ
$12
2,300
2,706
$32,472
($3,125)
$29,347
$10.845
ECCZ
$6
600
706
$4,236
$4,236
$ 6.000
ROP
$8
2,200
2,588
$20,704
($287)
$20,417
$ 7.889
Totals
5,100
6,000
$57,412
($3,412)
$54,000
Total Charges = Capacity Charge ($/mo.) + Residual CTR Allocation ($/mo.)
Slide22Remember that the
NRCP reflects all Forward Capacity Market transactions
Activity from annual and monthly reconfiguration auctions, with multiple zones and different clearing prices, results in variances that must be allocated
Example Inputs
22
Let’s add one more layer of complexity –
An annual reconfiguration auction
Capacity Zone
ARA CSO
Transactions
ARA Clearing Price
ARA
Credits / Charges
MW
$/kW-mo.
$K-mo.
ICCZ
(500)
$13
($6,500)
ECCZ
0
$8
$0
ROP
500
$8
$4,000
Totals
0
($2,500)
Slide2323
The NRCP reflects all Forward Capacity Market transactions
The NRCP incorporates the reconfiguration auction variance
Capacity Zone
FCA CSO
Credits
ARA Credits / Charges
Total Credits
Zonal CSO
NRCP
CR
Gross CR Charges
Residual CTR Allocation
Total Charges
$K-mo.
$K-mo.
$K-mo.
MW
$/kW-mo.
MW
$K-mo.
$K-mo.
$K-mo.
Inputs
Calculations
ICCZ
$24,000
($6,500)
$17,500
1,500
$11.667
2,706
$31,570
($4,723)
$26,847
ECCZ
$6,000
$0
$6,000
1,000
$6.000
706
$4,236
-
$4,236
ROP
$24,000
$4,000
$28,000
3,500
$8.000
2,588
$20,704
($287)
$20,417
Totals
$54,000
($2,500)
$51,500
6,000
6,000
$56,510
($5,010)
$51,500
Total Credits = FCA CSO Credits
($) +
ARA Credits/Charges ($)
Gross CR Charges ($K) = CR (MW) x NRCP ($/kW-mo.)
Total Charges ($) = Gross CR Charge ($) + Residual CTR Allocation ($)
Slide2424
Observations
Overall cost of capacity decreased by $
2,500From $54,000 to
$51,500
Suppliers in ICCZ
pay to
shed supply obligations This is reflected in lower costs and therefore lower NRCPs in ICCZ and ROP The CTR fund at the import interface increased significantly (from $3,125 to $4,723) – why?Due to decreased CSO in the ICCZ, the average price (NRCP before CTRs) went up while the zonal Capacity Requirement did not change, so CTRS must be used to “offset” the higher NRCP
Slide25Note that the NRCP includes credits/charges associated with the annual reconfiguration auction in this example
NRCP can also include other credits/charges
25
Comparison of NRCP with and without reconfiguration auction results
Capacity Zone
CR
FCA
FCA and ARA
Difference in NRCPs
NRCP
Effective Charge Rate (w/CTRs)
NRCP
Effective
Charge Rate (w/CTRs)
MW
$/kW-mo.
$/kW-mo.
$/kW-mo.
$/kW-mo.
$/kW-mo.
ICCZ
2,706
$12.000
$10.845
$11.667
$9.921
$0.924
ECCZ
706
$6.000
$ 6.000
$6.000
$ 6.000
$0
ROP
2,588
$8.000
$ 7.889
$8.000
$ 7.889
$0
Slide2626
The NRCP may have unintended consequences
As shown in the annual reconfiguration auction example, costs incurred in one zone are fully allocated to that Capacity Zone
Reflected in the NRCP What happens when no capacity is purchased in the export-constrained zone?
Extreme example (and highly unlikely to occur), but serves to illustrate NRCP limitations
Capacity is provided from outside the zone
Change from basic example: Rest of Pool
CSO increases and CSO in the ECCZ is reduced to 0
Slide2727
No CSO in Export Constrained Zone –
Interesting Results!!
Capacity Zone
CSO
FCA CSO
Credits
CR
NRCP
Gross CR Charge
Residual CTR Allocation
Total Charges
MW
$K-mo.
MW
$/kW-mo.
$K-mo.
$K-mo
.
$K-mo
.
Inputs
Calculations
ICCZ
2,000
$24,000
2,706
$12
$32,472
$63
$32,535
ECCZ
0
$0
706
$0
$0
$0
ROP
4,000
$32,000
2,588
$
8
$20,704
$2,761
$23,465
Totals
6,000
$56,000
6,000
$53,176
$2,824
$56,000
Export Interface CTRs Calculation = (NRCP
ROP
– NRCP
ECCZ
) x |CSO – CLO|
= ($8 - $0) x |0 – 706) = $5,648,000
Allocated
to ICCZ and ROP pro-rata based on CLO; ICCZ also includes CTRs of ($2,824) for the import interface
Slide2828
What happened?
No charges to load in the export constrained zone
Where is the capacity associated with the ECCZ’s zonal requirement?Using NRCP, only costs incurred in a zone are allocated to that zone
This
holds true for charges associated with annual and monthly reconfiguration
auctions
Why are CTR values positive?Charges collected based on NRCP reflect the $0 NRCP in ECCZCSO credits > NRCP charge collectionsRemember, Capacity Transfer Rights are financial (balancing) instruments
Slide29What has been reviewed so far?
NRCP is the average price of capacity in a zone
Incorporates many different FCM components and pricing rulesDoes not incorporate the marginal value of capacity May not always allocate costs appropriately or intuitively
Up next - an alternative cost allocation method
29
Slide30Introduction OF a ‘marginal value’
cost allocation approach
Demonstrate
how the ‘marginal value’ approach works with an exampleUpdate the example to include the same annual reconfiguration auction example to
show how
other market
activities will be included in this new
approachShow how this approach ‘fixes’ the shortcomings of using a blended, average cost approach30
Slide3131
Introduction
As we’ve just discussed, the NRCP cost allocation method does not reflect the marginal value of capacity
Allocation is mainly based on “silos” – costs incurred in one zone are allocated to that zone
With the move to the MRI-based demand curves, which reflect the marginal value of capacity in each zone’s clearing price, this design weakness may become more conspicuous
Is there a different allocation method that better aligns with the MRI approach?
Yes.
Slide32Capacity clearing prices reflect the reliability provided by purchased capacity in each zone
The auction will clear capacity in a constrained zone based on the incremental value of capacity inside the zone, and will meet the resource adequacy objective by determining the most cost efficient mix of capacity from the various zones
A MW in a constrained zone may be worth more or less than a MW outside the constrained zoneThe
slope of the zonal MRI demand curves is not constantThe marginal cost allocation method reflects the marginal reliability benefit of capacity Uses the clearing price to allocate auction costs to each Capacity Zone
The cost allocation should reflect the zonal and overall
(
i.e., system) impact of purchased capacity on resource
adequacy32
Slide33Our simple example demonstrates the reliability allocation proposal
Before going through the details of the formula a simple example will provide context
Same example/inputs as the multi-zone NRCP exampleThree zones: Rest of Pool, import constrained and export constrained
Auction Clearing Data:33
Capacity Zone
CSO
Capacity Clearing Price
CSO Credits
MW
$kW-mo.
$K-mo.
ICCZ
2,000
$12
$24,000
ECCZ
1,000
$6
$6,000
ROP
3,000
$8
$24,000
Totals
6,000
$54,000
Slide3434
Marginal Value Method (FCA Results)
Simple Example
Capacity Zone
CSO
Credits
CR
Capacity Clearing Price
Reliability
Peak Load
Allocator
Reliability
Peak Load
Share
FCA
Capacity Zone Costs
FCA Charge Rate
$K/mo.
MW
$/kW-mo.
$K/mo
.
%
$K/mo.
$kW-mo.
Inputs
Calculations
ICCZ
$24,000
2,706
$12
32,471
57%
$30,541
$11.287
ECCZ
$6,000
706
$6
4,235
7%
$3,984
$5.643
ROP
$24,000
2,588
$8
20,706
36%
$19,475
$7.525
Total
$54,000
6,000
57,412
100%
$54,000
Reliability Peak Load Allocator ($K/mo.) = CR (MW) x Capacity Clearing Price ($/kW-mo.)] ÷ 1000
Reliability Peak Load Share (%) =
Reliability Peak Load
Allocator
zone
÷ Total
Reliability Peak Load
Allocator (MW)
FCA Capacity Zone Costs =
Reliability Peak Load Share (%)
x Total CSO Credits ($K/mo.)
FCA Charge Rate = FCA Capacity Zone Costs ($)
÷
CR (MW)
Slide35The relative charge rates in each zone are equal to the relative credit rates in each zone
For example, capacity purchased in the ICCZ is paid 150% more than capacity in rest-of-pool, and the load charge in the ICCZ is 150% higher than the charge rate in ROP
But
wait – why
are the charge rates less than the supply prices,
in all zones???
Capacity
Zone
Total Supply Price
% of Rest of Pool Price
FCA Charge Rate
% of Rest of Pool Charge Rate
$kW-mo.
%
$kW-mo.
%
ICCZ
$12.000
150%
$11.287
150%
ECCZ
$6.000
75%
$5.643
75%
ROP
$8.000
100%
$7.525
100%35
Slide36The charge rates reflect the reliability impact of capacity
in
all
zones
The zonal capacity requirement isn’t equal to the CSO in each zone (e.g., ICCZ has a CR of 2,706 MW and CSO of 2,000 MW)
Capacity
zone charge
rates are not calculated using how CSO is procured in each zone, rather the cost allocation is based on the value of capacity in each zone as reflected in each zone’s total clearing priceThis approach proportionally adjusts the rate in all zones so the relative charge rates are directly proportional to the marginal reliability value in each zone (as reflected by the clearing prices)And the settlement balances without CTRs! 36
Slide3737
How does the marginal value approach work for annual reconfiguration auctions? The same way …
Capacity
Zone
CR
ARA CSO Transactions
ARA Clearing
Price
ARA
Credits / Charges
Reliability
Peak Load
Allocator
Reliability
Peak Load
Share
ARA
Capacity
Zone Costs
ARA
Charge Rate
MW
MW
$kW-mo.
$K-mo.
$K/mo
.
%
$K-mo.
$kW-mo.InputsCalculationsICCZ
2,706
(500)
$13
($6,500)
35,176
57%
($1,429)
($0.528)
ECCZ
706
0
$8
5,647
9%
($230)
($0.325)
ROP
2,588
500
$8
$4,000
20,706
34%
($841)
($0.325)
Total
6,000
0
($2,500)
61,529
100%
($2,500)
Reliability Peak Load Allocator ($K/mo.) = CR (MW) x Capacity Clearing Price ($/kW-mo.)] ÷ 1000
Reliability Peak Load Share (%) = Reliability Peak Load Allocator
zone
÷ Total Reliability Peak Load Allocator (MW)
ARA Capacity Zone Costs = Reliability Peak Load Share (%) x Total ARA Credits/Charges
ARA Charge Rate =
ARA Capacity Zone
Costs ($)
÷
CR (MW)
Slide3838
Marginal Value Approach
Effective Charge Rate
Effective Charge Rate ($/kW-mo.) = FCA Charge Rate + ARA Charge Rate
The same calculations are applied to the reconfiguration auction results
A separate charge rate is calculated
Capacity
Zone
CR
FCA
Capacity Zone Costs
FCA
Charge
Rate
ARA
Capacity Zone Costs
ARA
Charge
Rate
Effective Charge Rate
MW
$K-mo.
$kW-mo.
$K-mo.
$kW/mo.
$kW/mo
.
ICCZ
2,706
$30,541
$11.287
($1,429)
($0.528)
$10.759
ECCZ
706
$3,984
$5.643
($230)
($0.325)
$5.318
ROP
2,588
$19,475
$7.525
($841)
($0.325)
$7.200
6,000
$54,000
($2,500)
Slide3939
Effective Capacity Charge Rate - Comparison
Capacity
Zone
Capacity Requirement
Capacity Requirement
Charges
Effective Charge
Rate
Average
(NRCP)
Method
Marginal Method
Difference
Average
(NRCP)
Method
Marginal Method
Difference
MW
$K-mo.
$K-mo.
$K-mo.
$/kW-mo.
$/kW-mo.
$/kW-mo.
ICCZ
2,706
$26,847
$29,112
($2,264)
$9.921
$10.759
($0.837)
ECCZ
706
$4,236
$3,754
$481
$6.000
$5.318
$0.682
ROP
2,588
$20,416
$18,634
$1,783
$7.889
$7.200
$0.689
6,000
$51,500
$51,500
$0
Slide4040
And what if, in the FCA, no CSO is purchased in the export constrained zone?
Better Results…
Capacity Zone
FCA CSO
Credits
CR
Capacity Clearing
Price
Reliability
Peak Load
Allocator
Reliability
Peak Load
Share
FCA
Capacity Zone Costs
FCA
Charge
Rate
$K-mo.
MW
$/kW-mo.
$K-mo.
%
$K-mo.
$/kW-mo.
Inputs
CalculationsICCZ
$24,000
2,706
$12
32,471
55%
$30,912
$11.424
ECCZ
$0
706
$8
*
5,647
10%
$5,376
$7.616
ROP
$32,000
2,588
$8
20,706
35%
$19,712
$7.616
Total
$56,000
6,000
58,824
100%
$56,000
* The congestion price for the ECCZ is zero, and the Capacity Clearing Price is the same as Rest of Pool
Reliability Peak Load Allocator ($K/mo.) = CR (MW) x Capacity Clearing Price ($/kW-mo.)] ÷ 1000
Reliability Peak Load Share (%) = Reliability Peak Load Allocator
zone
÷ Total Reliability Peak Load Allocator (MW
)
CR Charge =
Reliability Peak Load Share (%)
x Total CSO Credits ($K/mo.)
FCA
Charge Rate =
FCA
Capacity Zone Costs ($) ÷ CR (MW
)
Slide4141
No CSO in the export constrained zone: Comparing the NRCP to the marginal value approach
Load
in all zones pay a share of the capacity
costs
Rest of Pool and ECCZ have the same charge rate
In the absence of a separate clearing price, the ECCZ is priced at the system clearing
priceIn the NRCP approach, the export constrained zone charge rate was $0In the marginal value approach the export constrained zone charge rate is a function of the clearing price – even if nothing “clears” in that zone
Slide42Reflects FCA results only – no other trading activity has yet occurred (i.e., annual reconfiguration auction)
42
How does the marginal approach compare to the NRCP method for recent Forward Capacity Auctions?
FCA 11
FCA 12
Capacity Zone
CR
Effective Charge Rate
Difference
CR
Effective Charge Rate
Difference
NRCP
Method
Marginal Value Method
NRCP
Method
Marginal Value Method
MW
$/kW-mo.
$/kW-mo.
$/kW-mo.
MW
$/kW-mo.
$/kW-mo.
$/kW-mo.
SENE
15,090
$6.177
$6.103
($0.074)
14,677
$5.634
$5.537
($0.097)
NNE
7,271
$5.261
$5.329
$0.068
7,072
$4.608
$4.661
$0.053
ROP
14,432
$5.592
$5.638
$0.046
14,037
$4.966
$5.045
$0.079
36,793
35,786
Slide43Net Regional Clearing Price – the average price of capacity in a zone
Does not incorporate the marginal value of capacityMay not always allocate costs appropriately or intuitively
An alternate, “marginal value” approach addresses the shortcomings of using a blended, average cost approach
43Conclusion
Slide4444
Summary and next steps
Three general areas were identified where the cost allocation process might be improvedReviewed the first two sections today
Recommended change to terminology (Capacity Requirement) and input to calculation (data from two years prior to the commitment period)Introduced alternative method that better allocates costs to capacity zones and aligns with the marginal reliability impact (MR) demand curves concepts
Slide45Stakeholder Committee and
Date
Scheduled Project Milestone
Markets Committee
March 6, 2018
Initial
meeting: Overview of current allocation; discussion of issues and proposed solutions for allocating costs to Capacity ZonesMarkets CommitteeApril 2018Second meeting: Issues and proposed solutions to address zonal topology changes; improvements to the transparency of Forward Capacity Market charges
Markets Committee
May 2018
Third
meeting: Review proposed Tariff language
Budget
& Finance Committee
May 2018
Conforming change
to Section VII.C. of the Financial Assurance Policy
Markets Committee
June 2018
Vote
Participants Committee
June 2018
Vote
45
Proposed Stakeholder Schedule
Slide4646
Deborah Cooke
(413) 540-4488 | dcooke@iso-ne.com
Slide4747
Acronyms Used in this Presentation
CLO = Capacity Load ObligationCSO = Capacity Supply Obligation
CTRs = Capacity Transfer RightsECCZ = Export Constrained Capacity ZoneFCM = Forward Capacity MarketICCZ = Import Constrained Capacity Zone
MRI = Marginal Reliability Impact
NRCP = Net Regional Clearing Price
ROP = Rest of Pool