November 13, 2014 Markets Committee Meeting - PowerPoint Presentation

1. November 13, 2014 Markets Committee MeetingScott HodgdonInternal Market MonitoringNew Import Capacity Resource FCM Market Power Mitigation for FCA 9

2. Summary of Order to Show Cause (September 16, 2014)Tight capacity conditions may allow suppliers who are aware of their pivotal role in the market to exercise market power[The Commissioners] are concerned that the market [power] mitigation provisions…may not protect customers against unjust and unreasonable prices for capacity[The Commission] requires ISO-NE to, within 30 days.., either submit Tariff revisions that provide for the review and potential mitigation of importers’ offers in a manner similar to the manner in which other, existing resources are reviewed and mitigated, or show cause why it should not be required to do so2

3. Current Rules for Existing Resources 3Starting PriceStarting PriceEnding PriceEnding PriceStatic or PermanentDelist Bid PriceMust StayMust ExitMust StayFree to ExitDynamic De-List ThresholdDe-List BidNo De-List Bid

4. Current Rules for New Resources 4Starting PriceEnding PriceNew ResourceOffer Floor Price (OFP)Free to ExitMust Exit

5. FCA Treatment of Import CapacityCurrently, most imports are qualified as New Capacity for treatment in FCAGrandfathered Imports or Imports associated with a long term contract that cleared as New in a prior FCA (and are still under contract) are treated as ExistingMost imports are single year contractsThis is different from how New vs. Existing treatment is determined for Generation and Demand ResourcesAll capacity is New until it has cleared in a prior FCA, after which point it will always be treated as Existing5

6. Current Mitigation Rule for Existing Import Capacity ResourcesAn Existing Import Capacity Resource cannot exit the FCA above the Dynamic De-list Threshold, unless the Participant submits a De-list Bid that is reviewed and approved by the IMM The Existing Import Capacity Resource cannot exit the FCA at prices above the IMM approved De-list Bid and must exit the FCA at the IMM approved De-list Bid priceExisting Import Capacity Resources that do not submit a De-list Bid are free to exit the auction at prices below the Dynamic De-list Bid Threshold6

7. Filed Mitigation Rule for New Import Capacity ResourcesOn October 16, 2014, ISO-NE filed proposed changes to the Tariff where New Import Capacity Resources will be treated as if “existing” for market power mitigation purposesThe Offer Review Trigger Price (ORTP) for New Import Capacity Resources will be set to just above the FCA Starting PriceException: The ORTP for New Import Capacity Resources backed by a single new External Resource and that is associated with an investment in transmission that increases New England’s import capability will be based on the generation technology typeNew Import Capacity Resources wanting to remain in the auction at or below the ORTP must submit resource specific cost information to the IMM for review and approvalApproved price specified as the New Resource Offer Floor Price (OFP)7

8. Filed Mitigation Rule for New Import Capacity Resources (Continued)The IMM will perform a test to determine which New Import Capacity Resources are from pivotal suppliersNew Import Capacity Resources from pivotal suppliers will be required to remain in the FCA at prices at or above the New Resource OFP approved by the IMM and removed from the FCA at prices below the New Resource OFPNew Import Capacity Resource from non-pivotal suppliers will have their New Resource OFP set to zero and may exit the auction at any price at or above that levelException noted in previous slide could lead to cases where the New Resource OFP is above zero8

9. Filed Rules for New Import Capacity Resources *Starting PriceEnding PriceMust StayMust ExitNew Resource Offer Floor PriceStarting PriceNew Resource Offer Floor Price = Ending PriceFree to ExitPivotal SupplierNon-Pivotal Supplier* Does not account for New Import Capacity Resources backed by a single new External Resource and that is associated with an investment in transmission. The treatment of such resources is unaffected by the filed rules.9

10. Pivotal Supplier Test Revised for 10/15 Participants Committee MeetingSince the October 8, 2014 Market Committee meeting, the IMM revised the pivotal supplier test to account for system need and the capacity transfer limit (net of tie benefits)If New Imports are required to meet the system need and the ability to meet the system need decreases after the removal of an import suppliers qualified new import capacity, then the supplier is determined to be pivotal10

11. Pivotal Supplier Test Revised for 10/15 Participants Committee MeetingSystem need is calculated as:1.1 * (the Installed Capacity Requirement (net of HQICCs) minus the total amount of qualified capacity from Existing Generating Capacity Resources and Existing Demand Resources for the Capacity Commitment Period)The ability to meet the system need is calculated as:Minimum of 1) the capacity transfer limit (net of tie benefits) and 2) the total amount of qualified capacity from New Import Capacity Resources and Existing Import Capacity Resources over the interfaceAn example is shown in the next slides11

12. Pivotal Supplier Test ExampleSample System12Interface 1 (I1)Interface 2 (I2)Interface 3 (I3)New England SystemCapacity Transfer Limit (net of tie benefits)I1800 MWI2400 MWI3100 MWInstalled Capacity Requirement(Net of HQICCs)34,000 MWExisting Generation and Demand Resource Qualified MW33,000 MWDifference or “Shortfall”1,000 MWSystem Need (Shortfall * 1.1)1,100 MWValue calculated pursuant to filed Section III.A.21.2.(d)(i)

13. Pivotal Supplier Test ExampleAssumed Qualified MW13Values calculated pursuant to filed Section III.A.21.2.(d)(ii)Values used for comparison pursuant to filed Section III.A.21.2.(d)(iv)

14. Pivotal Supplier Test ExampleParticipant 1 Test14Values calculated pursuant to filed Section III.A.21.2.(d)(iiI)Values used for comparison pursuant to filed Section III.A.21.2.(d)(iv)

15. Pivotal Supplier Test ExampleParticipant 1 TestAfter the removal of Participant 1’s qualified new import capacity, the system need cannot be met 975 MW < 1,100 MWANDAfter the removal of Participant 1’s qualified new import capacity, the ability to meet the system need with import capacity is reduced 975 MW < 1,275 MWParticipant 1 is pivotalWhat about Participant 2?15

16. Pivotal Supplier Test ExampleParticipant 2 Test16Values calculated pursuant to filed Section III.A.21.2.(d)(iiI)Values used for comparison pursuant to filed Section III.A.21.2.(d)(iv)

17. Pivotal Supplier Test ExampleParticipant 2 TestAfter the removal of Participant 2’s qualified new import capacity, the system need can be met 1,250 MW > 1,100 MWParticipant 2 is not pivotal17

18. Resource Cost Information - SummaryOn October 23, the IMM held a WebEx session for suppliers with import capacity resources to review the cost workbook developed by the IMM to collect cost and revenue informationThe cost workbook allows suppliers to provide revenue and cost estimates for two scenariosBase Case: Selling Energy and Capacity into New EnglandNext Best Alternative: e.g. Selling Energy and/or Capacity into another market or selling Energy into New England without a CSOComparing the two scenarios allows for the final proposed New Resource OFP to account for opportunity costsThe required inputs of the cost workbook were reviewed with suppliers and the IMM provided a description of the supporting documentation that would be required with the submittals18

19. Resource Cost Information – Simple ExampleBase Case Scenario assumptions:100 MWs of import capacity delivered by the supplier through the Forward Capacity MarketExpected amount of energy will flow to support this obligation at an expected cost and revenue amountExpectations of Capacity Scarcity Hours, Balancing Ratio, and PerformanceNext Best Alternative Scenario assumptions:Importer sells energy and capacity into the NYISO market at an expected cost and revenue amount19

20. Resource Cost Information – Simple ExampleNew Resource OFP based on comparison of two scenariosBase Case Scenario requires $2.4 million or $2/kW-month in capacity revenue to breakeven (after tax earnings = $0) in the New England marketNext Best Alternative Scenario is expectation of earning $1.32 million or $1.1/kW-month from the New York Capacity and Energy MarketNew Resource OFP = $3.10/kW-month$2/kW-month required to break-even when participating in the New England Capacity Market and an additional $1.1/kW-month required to be as profitable in the New England Capacity Market as it would be in its Next Best Alternative ScenarioMany additional scenarios have been contemplated and each one is unique20

21. ScheduleEventDateTariff SectionDeadline for request to offer at prices below the Offer Review Trigger Price and submission of cost informationNovember 7, 2014III.13.1.3.5.6ISO notification to Market Participants of pivotal supplier status and New Resource Offer Floor PricesDecember 12, 2014III.13.1.3.5.7Informational filing with the Commission of New Resource Offer Floor Price determinationsDecember 16, 2014III.13.8.1(c)Deadline for challenging determinations at the CommissionDecember 23, 2014III.13.8.1(c)Deadline for Commission order on determinationsJanuary 15, 2014III.13.8.1(c)Deadline for withdrawal of New Import Capacity ResourcesJanuary 16, 2014III.13.1.3.5.721