October 7-8, 2014 | NEPOOL MARKETS COMMITTEE - PowerPoint Presentation

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October 7-8, 2014 | NEPOOL MARKETS COMMITTEE

Matt Brewster

Market Development413.540.4547 | Mbrewster@iso-ne.com

ISO’s proposed zone sloped demand curves and overview of simulation model updatesfor evaluating zone curves

FCM Sloped Demand Curve:

Capacity Zone demand curves

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Topics

Background slide 3

Proposed zonal sloped demand curvesOverview of design slide 5Key issues considered slide 6Import-constrained capacity zones slide 8

Export-constrained capacity zones slide 11Simulation model updates slide 14

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Slide3

Background

January 24th

Order required ISO file a sloped demand curve by April 1st to implement for FCA9Short time required deferring capacity zone demand curvesSystem-wide demand curve was approved on May 30

thISO is committed to developing capacity zone demand curves for FCA10 May 30th Order encouraged ISO & NEPOOL to achieve this goal

Stakeholder discussions of zonal demand curves began on June 11

th

ISO anticipates filing in mid-January, 2015

Scope of the capacity zone demand curves project also includes conforming changes to the Forward Capacity Auction and removing the zonal administrative pricing rules

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Slide4

proposed zonal demand curves

For import- and export-constrained zones

Slide5

Overview of proposed zonal demand curves

Sloped demand curves for import- and export-constrained capacity zones for FCA10 and after

Replaces fixed demand constraints (LSR and MCL)Fixed demand requirements have proven problematicZonal curve cap-to-foot widths are proportional to system-wide demand curve (1x system ratio)No change to Net CONE values

Separate Net CONE for import zones if ≥115% of system Net CONECurrent estimates for CT, NEMA, and SEMA/RI are <105%

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Key issues considered by the ISO

ISO considered trade-offs among multiple factors to assess zonal alternatives, including interactions with the system demand curve

Simulations indicate a range of reasonable curves to address combination of reliability and pricing objectivesTrade-offs exist because objectives are inter-related and curves that perform well on one dimension will be poor on another (e.g., achieving low zonal price volatility raises zone purchases and costs)

Import-constrained zones key considerationsAddress upward price volatility (system curve helps address downward spikes)Balance zonal and system reliability (affected by zone curve widths)Cap quantity consistent with minimum requirementsLimit cost of purchasing considerably more than LSR

Export-constrained zones key considerations

Address downward price volatility (system curve helps address upward spikes)

Prevent system reliability degradation of significantly exceeding MCL

Recognize cost benefits of abundant low-price supply

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Key considerations (cont.)

Balancing zonal and system reliability is one of the most evident trade-offs across the range of feasible zonal curves

Primarily affected by width of zonal curves (cap and foot)Due to changing the share of the total system demand which is allocated to capacity zones

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Objective

Narrow

Zone Curves

Wide Zone Curves

Price volatility

Higher zone volatility

Lower system volatility

Lower zone

volatility

Higher system volatility

Reliability

Less likely to

achieve zone minimum requirements

More likely to achieve NICR system-wide

More likely

to

achiev

e zone minimum requirements

Less like to achieve NICR system-wide

Cost

Less zone excess

Lower costs

More zone excess

Higher costs

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Import-constrained zone sloped demand curves

Cap

Price: MAX (1.6x Net CONE, CONE)

Quantity: MAX (TSA, LRA at 1-in-5)FootPrice: $0/kW-monthQuantity: Cap x System cap-to-foot ratio

Zone’s

TTC

not included in Cap or Foot

Simplifies definition and follows ISO-NE convention for capacity requirements

Produces slightly narrower curves

FCA7 System cap-to-foot ratio

Cap

System

= 32,053 MW

Foot

System

= 35,605 MW

Cap-to-Foot ratio = (35,605/32,053) = 111%

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Note: FCA7 ICR values at

http://www.iso-ne.com/static-assets/documents/markets/othrmkts_data/fcm/doc/summary_of_icr_values_expanded.xls

NEMA/Boston Zone Proposed Curve

Price (% of Net CONE)

MW

Note: curve depicted based upon FCA7 ICR values

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Import-constrained zone curves

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Cap

Foot

Curve Definition

Price

1.6x Net CONE

$0

Quantity

Max (TSA,

LRA at 1-in-5 LOLE)

1x System

Curve Ratio

Quantities based on FCA7

Local ICAP (no TTC)

7,489

8,319

Slope

Cap to Foot

Change in Price ($/kW-month)

$17.7

Change in Quantity (MW)

830

 

Slope ($/kW-month per 100 MW)

$

2.1

 

 

Cap

Foot

Curve Definition

Price

1.6x Net CONE

$0

QuantityMax (TSA,LRA at 1-in-5 LOLE)1x SystemCurve RatioQuantities based on FCA7Local ICAP (no TTC)3,2093,565SlopeCap to FootChange in Price ($/kW-month)$17.7Change in Quantity (MW)356 Slope ($/kW-month per 100 MW)$5.0

Connecticut Zone Proposed Curve

NEMA/Boston Zone Proposed Curve

MW

MW

Notes: minimum demand curve cap price is 1x CONE; slopes based on Net CONE of $11.08; and foot set by System demand curve cap to ratio of 111% (based on FCA7)

Price (% of Net CONE)

Price (% of Net CONE)

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Import-constrained zone simulation results

Simulations demonstrate proposed curves can be expected to achieve balance of objectives for import zones

Compared to current use of vertical demand within zones:Some decrease in long-run price volatility20% (NEMA) and 25% (CT) reductions in the frequency below LSR

Increased excess above LSR (but by small fraction of zone LSR) 10

Note:

both runs

presented above apply the ISO-NE

pr

oposed 1x system

r

atio curve in Maine and the approved System-wide sloped demand curve.

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Export-constrained zone sloped demand curves

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Maine Export Zone Proposed Curve

Cap

Price: MAX (1.6x Net CONE, CONE)

Quantity:

MCL x

System

cap-to-NICR ratio

Foot

Price: $0/kW-month

Quantity: MCL

x

System

cap

-to-foot ratio

Curve is oriented around the probabilistic

MCL

requirement in same manner as System curve

FCA7 System demand curve ratios

NICR = 32,968 MW

Cap

System

= 32,053 MW

Foot

System

= 35,605 MW

Cap-to-NICR ratio = (32,053/32,968) = 97%

Cap-to-foot ratio = (35,605/32,053) = 111%

Note: FCA7 ICR values at

http://www.iso-ne.com/static-assets/documents/markets/othrmkts_data/fcm/doc/summary_of_icr_values_expanded.xls

Export zone cap-to-foot ratio is the same as the System-wide curve cap-to-foot ratio

Price (% of Net CONE)

MW

Note: curve depicted based upon FCA7 ICR values

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Maine export-constrained zone curve and simulation results

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Note: both runs presented above

apply the ISO’s p

roposed 1x curve in import-constrained zones and the approved System-wide sloped demand curve.

Simulations demonstrate proposed curve can be expected to achieve balance of objectives for export zones

Compared to

current use of MCL

Reduced zone

price volatility

Clear more capacity in export zone (still below MCL on average)

Slight increase in S

ystem

LOLE

 

 

Cap

Foot

Curve Definition

Price

1.6x Net CONE

$0

Quantity

MCL x System cap-to-NICR ratio

MCL x System NICR-to-foot ratio

Quantities based on FCA7

Local ICAP (no

TTC

)

3,606

4,006

Slope

Cap to Foot

Change in Price ($/kW-month)

$17.7

Change in Quantity (MW)

400

 Slope ($/kW-month per 100 MW)$4.4Maine Export Zone Proposed CurveNotes: minimum demand curve cap price is 1x CONE; slopes based on Net CONE of $11.08; cap and foot set by System demand curve ratios of 97% and 108%, respectively (based on FCA7)

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System-wide simulation results

Proposed capacity zone demand curves appear to strike a good balance between zonal and system objectives

Simulation results demonstrate trade-offs among objectivesSystem price volatility and reliability indices worsen somewhat when modeling zonal demand curvesWider zonal curves would exaggerate these outcomes, narrow curves would have lesser impact (Brattle materials demonstrate a range)

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Note: both

ru

ns presented above apply the approved System-wide sloped demand curve; the “All Vertical” case

applies f

ixed LSR and MCL demand for capacity zones

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SIMULATION MODEL updates

Overview of simulation model updates for evaluating capacity zone sloped demand curves

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Overview of simulation model updates for evaluating capacity zone sloped demand curves

Two related aspects of the simulation model were updated to reflect ISO’s auction clearing rules and LOLE metrics

Cleared supply with import-constrained zone price separationCalculation of an additional system-wide LOLE metric

Changes were identified during the ISO’s detailed assessment of the candidate zonal demand curvesUpdated simulation results show small changes consistent with expectations of adjusted modelUpdated results are described in October MC material from BrattleSimulations use modified model beginning with October MC

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Modification (1) cleared supply with import-constrained zone price separation

Prior simulation model applied an auction clearing rule which differs from the FCA when zone price separation occurs

e.g., import-constrained Zone A price of $12/kW-mo and rest-of-pool Zone price of $11/kW-moOccurrence of price separation means import zone (Zone A) cannot satisfy its full share of system demand

At lower prices Zone A demand increasesImport zone price separation occurs in 10-30% of draws (depending on curve)16

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Modification (1) explanation continued

Prior simulation model had assumed the FCA would purchase additional supply

outside Zone A to satisfy the unmet portion of system-wide demand not met within Zone AHowever, FCA will not clear this additional supply because:Import zone demand is a share of the system demand that must be met within the zone (consistent with ICR studies)

Additional supply outside Zone A cannot satisfy Zone A requirementPurchasing required Zone A capacity in reconfiguration auctions could lead to excess procurement for the systemAuction outcome for import-constrained zones are identical with prior and revised model regardless of price separation; and identical in all zones when no price separation occurs

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Modification (1) illustrations of FCA outcome

The four examples that follow demonstrate the FCA clearing when import-constrained zone price separation occurs

Each demonstrates the same mechanics under different configurations of import zone and system demandExample 1: Zone and System vertical demand (FCA8 and prior)Example 2: Zone vertical and System sloped demand (FCA9)

Examples 3 & 4: Zone and System sloped demand (FCA10 and beyond)All examples include two capacity zones for simplicityImport-constrained Zone ARest-of-Pool Zone B

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Modification (1)

Example 1: Zone and System vertical demand

FCA8 and priorImport Zone A, Rest-of-Pool (

ROP) Zone BThe Zone A unmet demand quantity (red) is constant at lower pricesFCA does not purchase Zone A unmet demand from ROP resourcesExtra ROP

supply cannot serve Zone A capacity requirement

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ROP Cleared Supply

Zone A

Cleared

Supply

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Modification (1)

Example 2: Zone vertical and System sloped

FCA9Import Zone A, ROP Zone B

Same observations as example 1Sum of Zone A and ROP cleared MW plus Zone A unmet demand (red) correspond to system-wide demand curve price applicable in ROP

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ROP Cleared Supply

Zone A

Cleared

Supply

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Modification (1)

Example 3: Zone and System sloped demand

FCA10 and beyondImport Zone A, ROP Zone B

Same observations as examples 1 and 2, except Zone A demand now is price-dependent (sloped curve)The amount of Zone A unmet demand (red) depends on the ROP clearing priceIf Zone A and

ROP

have the same clearing price, there is no Zone A unmet demand

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ROP Cleared Supply

Zone A

Cleared

Supply

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Modification (1)

Example 4: Zone and System sloped demand, using long-run average clearing prices

FCA10 and beyondImport Zone A, ROP

Zone BSame observations as examples 1, 2, and 3Example with Zone A and ROP prices at simulation long-run average values ($12.2/kW-mo and $11.1/kW-mo, respectively)With ISO proposed curves, unmet import zone demand is <50MW per zone at long-run average prices

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ROP Cleared Supply

Zone A

Cleared

Supply

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Modification (2) calculation of system-wide LOLE metrics

Metric previously labeled as “system LOLE” is more accurately described as an

unconstrained system LOLEReflects LOLE absent import-constrained zones similar to the modeling of Net ICR without transmission constraintsNPCC reliability criteria incorporate subarea LOLE in the determination of system LOLE

If import zone capacity is below LRA requirement, the zone’s LOLE is worse than 1-in-10 and will be the dominant factor in system LOLEThe zone is the “weakest link” in the systemFor example: with a capacity zone at 1-in-5 (0.200) LOLE the system will be close to 1-in-5 LOLE regardless of whether supply is adequate to meet all other requirements

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Modification (2) explanation continued

Metric previously labeled as “system LOLE” will now be labeled “Unconstrained System LOLE”

Measure of system LOLE based on total supply relative to Net ICR*New “Constrained System LOLE” metric reflects NPCC methodMeasure of system LOLE with transmission constraints

Demonstrates whether all zones have met their requirementImport zone LOLE calculation was modified slightly to be consistent with system LOLE changeUnconstrained System LOLE provides additional information for comparing the candidate zonal demand curvesShows effect of inter-zonal price separation events (driven primarily by zone demand curve shape) on achieving Net ICR

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*Brattle adjusts the “Unconstrained System LOLE” to reflect lower reliability of export-constrained zone capacity above MCL

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Recap of simulation model updates

Modification (1) for import zone price separation

FCA treats unmet demand equivalently with vertical or sloped demandAbsent price separation there is no unmet demand (70-90% of draws)

Modification (2) for system-wide LOLE metricsNPCC reliability criteria requires accounting for “weakest link”New “Constrained System LOLE” reflects NPCC guidelinesThe modeling changes represent closely related conceptsFCA won’t clear extra supply outside zone to cover unmet demand

Extra supply outside zone has very limited impact on achieving zone or system minimum reliability criteria

Revised simulation model applied for analysis of zonal sloped demand curves beginning with October MC materials

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Summary and schedule

Recap and next steps

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Summary and schedule

SummaryThere are a range of reasonable zonal curves based on Brattle analysis

ISO proposed zonal curves reflect balance of reliability and pricing objectives at zonal and system level ISO requested two modifications to the Brattle simulation model for the analysis of capacity zone demand curvesSchedule

November – additional discussion (design and tariff) December – MC voteJanuary 2015 – filing with FERC

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