/
March 6, 2018   Deborah Cooke March 6, 2018   Deborah Cooke

March 6, 2018 Deborah Cooke - PowerPoint Presentation

joyce
joyce . @joyce
Follow
343 views
Uploaded On 2022-05-18

March 6, 2018 Deborah Cooke - PPT Presentation

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

zone capacity nrcp 000 capacity zone 000 nrcp charge load clearing price cso peak total rate 706 costs reliability

Share:

Link:

Embed:

Download Presentation from below link

Download Presentation The PPT/PDF document "March 6, 2018 Deborah Cooke" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.


Presentation Transcript

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

Slide2

2

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

Slide3

3

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

Slide4

4

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

Slide5

5

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

Slide6

Market 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

Slide7

7

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

Slide8

8

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

Slide9

9

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

Slide10

10

“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

Slide11

Review 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

Slide12

12

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

:

Slide13

13

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)

Slide14

14

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)

Slide15

15

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)

Slide16

16

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

Slide17

17

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

Slide18

18

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

.

Slide19

The 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)

Slide20

20

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)

Slide21

21

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.)

Slide22

Remember 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)

Slide23

23

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 ($)

Slide24

24

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

Slide25

Note 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

Slide26

26

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

Slide27

27

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

Slide28

28

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

Slide29

What 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

Slide30

Introduction 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

Slide31

31

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.

Slide32

Capacity 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

Slide33

Our 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

Slide34

34

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)

Slide35

The 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

Slide36

The 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

Slide37

37

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)

Slide38

38

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)

Slide39

39

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

Slide40

40

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

)

Slide41

41

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

Slide42

Reflects 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

Slide43

Net 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

Slide44

44

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

Slide45

Stakeholder 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

Slide46

46

Deborah Cooke

(413) 540-4488 | dcooke@iso-ne.com

Slide47

47

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