Transcript Zonal Demand Curve

JANUARY 12-13, 2016 | NEPOOL MARKETS COMMITTEE| MILFORD MA
FCM Zonal Demand Curves
Chris Geissler
ECONOMIST
MARKET DEVELOPMENT
[email protected] | 413.535.4367
ISO-NE PUBLIC
FCM Zonal Demand Curves
WMPP ID:
63
Proposed Effective Date: FCA 11
• ISO is proposing new zonal demand curves for the FCA
– Improve locational price signals in the FCM
– Better reflect incremental reliability impact of capacity than existing
(fixed) zonal requirements
– Derived using a methodology that satisfies three core design principles
– Robust to zonal configuration changes
– Comply with FERC Order requiring zonal curves for FCA 11
• This meeting:
– Discuss stakeholder and filing schedule in light of Dec. 28 FERC Order
– Robustness of proposed curves to upward-sloping supply curves and
year-over-year variation
– New results on price volatility
– Proposed elimination of administrative pricing rules for zones
ISO-NE PUBLIC
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Agenda For Today
• December 28 FERC Order
– Requires ISO to file sloped zonal demand curves by March 31, 2016
• Updated Local Sourcing approach
– Modifications to the transfer capability assumptions for importconstrained zonal demand curves
• New sensitivity analyses
– Results using new simulation models with stepped upward-sloping
supply curves that model entry and exit
• Price volatility analysis
– Comparison of volatility between ISO’s proposal and current system
demand curve and zonal requirements
• Administrative pricing rules
– ISO proposes to discontinue several administrative pricing rules in
import-constrained zones
ISO-NE PUBLIC
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Additional Materials Available
• ISO memo titled ‘Administrative pricing rules under the
proposed demand curve design for FCA 11’
– Discusses ISO’s decision to discontinue administrative pricing
provisions as part of proposal
• FCM Simulator Excel file
– Allows market participants to see market clearing prices and under a
range of demand curves, supply conditions, and zonal configurations
• ISO technical memo on FCM Demand Curve Methodology
(Dec 7, 2015)
ISO-NE PUBLIC
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Updated 1/22/16
Updates to This Presentation
• Updated the historical supply model (Model 3) results for FCA
10 zonal configuration
– Includes performance results with and without NNE export zone
• Clarified explanations in two sections:
– Edits to ‘Updated Local Sourcing Approach’ section
– New figures to explain ‘New Sensitivity Analysis’ results
• Appendices now include additional results requested by
stakeholders:
– Indicative demand curves and model results for FCA 9 zones including
Maine export zone that was tested but not included
– Updated results for hybrid (‘bolt-on’) approach
– Requested cost-to-load impact analysis by load zone
ISO-NE PUBLIC
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DECEMBER 28 FERC ORDER
Requires ISO to file sloped zonal demand curves
by March 31, 2016
ISO-NE PUBLIC
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December 28 FERC Order
• FERC Order requires “ISO-NE to submit Tariff revisions by
March 31, 2016 providing for zonal sloped demand curves to
be implemented beginning in FCA 11” (p. 16)
• Previous project schedule had the ISO filing shortly after the
April PC
• To adhere to the Order, the schedule needs to be modified to
meet the March 31st deadline set by FERC (next)
ISO-NE PUBLIC
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Potential Project Schedule 2016 (1 of 3)
Tentative 2016 MC Schedule
Jan. 2016
Administrative pricing rules; further quantitative and
qualitative results for ISO’s and stakeholders’ proposals
Feb. 2016
Continued discussion and results; Tariff language;
potential amendments raised
March 2016
Continued discussion and results; final Tariff language
(ISO proposal and amendments); Markets Committee
vote
Potential for additional MC meetings within each month as needed
ISO-NE PUBLIC
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Updated Committee Schedule (2 of 3)
Tentative 2016 RC Schedule
Jan. 2016
Discussion of reliability outcomes and zonal capacity
transfer capability assumptions under ISO proposal
Feb. 2016
Continued discussion; Tariff language
March 2016
Reliability Committee vote
ISO-NE PUBLIC
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Potential Project Schedule (3 of 3)
Tentative Filing Schedule
Late March 2016
March 31
PC vote (additional meeting)
FERC filing. Tent. effective date June 2016.
Implementation February 2017
ISO-NE PUBLIC
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Committee Discussions To-Date
2015 Schedule
Oct. MC
Overview of ISO’s revised approach
Nov. MC
Details of ISO’s method; assumptions and computed
demand curves for FCA 10 zones; process and timing for
annual updates
Dec. MC
ISO’s results for other zonal possibilities (e.g., FCA10
zones with an added export zone); initial results for
alternate, stakeholder approaches
ISO-NE PUBLIC
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Updated Section
UPDATED LOCAL SOURCING APPROACH
Modifications to the capacity transfer capability assumption
used to derive import-constrained zonal demand curves
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ISO is Modifying its Local Sourcing Approach
Ahead Next:
• Initial transfer capability assumptions and stakeholder
concerns
• Updated methodology uses a revised transfer capability
assumption
• New transfer capability assumption produces a sensible
demand curve for SENE
• Results with FCA 10 inputs and new SENE demand curve
• Additional discussion on reliability benefits and outcomes
begin at January Reliability Committee meeting
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Previous Import Limit Assumptions
• ISO’s initial design presented in Nov./Dec. calculated zonal
MRI curves assuming the N-1-1 import limit into importconstrained zones
– N-1-1 is an input to the TSA calculation
– Existing LRA calculation uses N-1 import limit
– Existing import zone requirement is higher of TSA, LRA
• Stakeholders voiced concerns that using the N-1-1 import
limit assumption would be inappropriate in the context of
zonal demand curves
• ISO testing of other scenarios identified that using N-1-1 could
produce zonal curves well to the ‘right’ of TSA at all possible
prices
• Not this project’s intent to raise overall zonal reliability
requirements
ISO-NE PUBLIC
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Updated Local Sourcing Approach
• ISO’s updated capacity transfer capability assumption builds
on the current methodology used to generate the Local
Sourcing Requirement based on both the TSA and LRA values
– “For each import-constrained Capacity Zone, the Local Sourcing Requirement shall be
the amount needed to satisfy the higher of: (i) the Local Resource Adequacy
Requirement as determined pursuant to Section III.12.2.1.1; or (ii) the Transmission
Security Analysis Requirement as determined pursuant to Section III.12.2.1.2.”
• MRI calculations now assume capacity transfer capability is:
(N-1 limit) – max(TSA-LRA,0)
– Starts with N-1 limit, but includes adjustment based on difference
between TSA and LRA to account for second contingency
• Yields zonal curves that are ‘between’ what would be
obtained using true (N-1) and (N-1-1) import limit values
– Shifts import-constrained zonal demand curves to the left relative to
previous assumption
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Example: SENE Capacity Transfer Capability
FCA 10 Input Parameters:
• N-1-1 Import Limit = 4,600 MW
• N-1 Import Limit
= 5,700 MW
• Local Resource Adequacy (LRA)
= 9,584 MW
• Transmission Security Adequacy (TSA) = 10,028 MW
Revised capacity transfer capability assumption for SENE zonal
MRI calculations is:
5,700 MW – max(10,028 TSA - 9,584 LRA, 0) = 5,256 MW
• This implies a lower (‘left-shifted’) zonal demand curve than
using the N-1-1 import limit value (see next).
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Indicative SENE (Congestion Pricing) Demand Curve
Notes: LRA = 9,584 MW, TSA = 10,028 MW for SENE in FCA 10.
ISO-NE PUBLIC
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Curve Observations for SENE
• N-1-1 import limit leads to a congestion price of $8.50 at LSR
• The illustration shows N-1 import limit paying a congestion
price of $0.06 at LSR
• ISO proposal falls in between extremes – pays a congestion
price of approximately $0.80 at LSR under the conditions
illustrated
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ISO Proposal (1 of 4) – System-Level Results
Reliability Results
Sys tem
LOLE
Zonal Configuration:
SENE (import), NNE (export) and Rest Of System 1
Sys tem
1-da y-i n
(events/yr)
Total Market Payments
Avg.
Cl ea red
Freq.
Sys tem
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
Avera ge
Avera ge
of
Bottom
20%
Avera ge
of Top
20%
(MW)
(MW)
(% of draws)
($mil/yr)
($mil/yr)
($mil/yr)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
34,151
-
-
$4,430
-
-
0.071
14.1
34,712
-
-
$2,915
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
34,314
-
-
$3,932
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
34,012
-
-
$4,897
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
34,151
-
-
$4,559
-
-
0.086
11.7
34554
255
0.0%
$3,162
$2,350
$4,164
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
34,151
-
-
$3,544
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
34,151
-
-
$5,316
-
-
0.100
10.0
34,389
-
-
$4,715
-
-
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
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ISO Proposal (2 of 4) – SENE Import Zone Results
Reliability Results
Sys tem
LOLE
Zonal Configuration:
SENE (import), NNE (export) and Rest Of System 1
Sys tem
1-da y-i n
(events/yr)
SENE Clearing Price
Avg.
Cl ea red
Freq.
SENE
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Frequency
Pri ce
of Pri ce
a t Ca p
Std. Dev
Sepa ra tion
($/kW-m) ($/kW-m) (% of draws) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
10,840
-
-
$10.81
-
-
-
0.071
14.1
10,840
-
-
$7.00
-
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
10,840
-
-
$9.55
-
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
10,840
-
-
$12.00
-
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
9,950
-
-
$11.89
-
-
-
0.086
11.7
11069
468
0.0%
$8.11
$1.70
0.0%
41.1%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
10,840
-
-
$8.65
-
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
10,840
-
-
$12.97
-
-
-
0.100
10.0
9,816
-
-
$12.97
-
-
-
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
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ISO Proposal (3 of 4) – NNE Export Zone Results
Reliability Results
Sys tem
LOLE
Zonal Configuration:
SENE (import), NNE (export) and Rest Of System 1
NNE Clearing Price
Avg. NNE Cl ea red
Freq.
Sys tem
Cl ea red Ca pa ci ty Bel ow 11-da y-i n
Ca pa ci ty Std. Dev
i n-5
(events/yr)
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Frequency
Pri ce
of Pri ce
a t Ca p
Std. Dev
Sepa ra tion
($/kW-m) ($/kW-m) (% of draws) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
8,440
-
-
$10.81
-
-
-
0.071
14.1
8,440
-
-
$7.00
-
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
8,440
-
-
$9.55
-
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
8,440
-
-
$12.00
-
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
8,440
-
-
$10.81
-
-
-
0.086
11.7
8805
218
0.0%
$6.36
$2.15
0.0%
94.8%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
8,440
-
-
$8.65
-
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
8,440
-
-
$12.97
-
-
-
0.100
10.0
8,440
-
-
$10.81
-
-
-
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
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ISO Proposal (4 of 4) – Rest-of-System Results
Reliability Results
Sys tem
LOLE
Zonal Configuration:
SENE (import), NNE (export) and Rest Of System 1
Sys tem
1-da y-i n
(events/yr)
ROS Clearing Price
Avg. ROS Cl ea red
Freq.
Cl ea red Ca pa ci ty Bel ow 1Ca pa ci ty Std. Dev
i n-5
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Pri ce
a t Ca p
Std. Dev
($/kW-m) ($/kW-m) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
14,871
-
-
$10.81
-
-
0.071
14.1
15,432
-
-
$7.00
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
15,034
-
-
$9.55
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
14,732
-
-
$12.00
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
15,761
-
-
$10.81
-
-
0.086
11.7
14680
408
0.0%
$8.07
$1.66
0.0%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values 6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
14,871
-
-
$8.65
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
14,871
-
-
$12.97
-
-
0.100
10.0
16,134
-
-
$10.81
-
-
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
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Summary of Results
• Forward-looking supply models produce similar results with
updated SENE zonal demand curves
• Base case model meets 1-day-in-10 criteria (as design intends)
– When clearing prices are lower than estimated Net CONE, estimated
reliability (LOLE) is above criteria
– When clearing prices are higher than estimated Net CONE, estimated
reliability (LOLE) is below criteria
• When there is price separation between ROP and the importconstrained zone, less capacity is cleared in the import zone,
and more cleared in rest-of-system
ISO-NE PUBLIC
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Updated Methodology Produces Sensible
Curves
• Capacity transfer capability assumptions for importconstrained zones incorporate the “higher of” logic of existing
TSA and LRA rules, accounting for 2nd contingency calculations
• Less conservative than previous N-1-1 import limit
assumption, leading the zonal curves to be shifted to the left
• In SENE, produces a modest but positive congestion price at
the LSR MW value
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NEW SENSITIVITY ANALYSIS
Results using new simulation models with stepped upward
sloping supply curves that model entry and exit
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Stepped Supply Curve Model
Ahead Next:
• Outline stepped supply curve model and its assumptions
• Model uses numerous simulated supply curves that are:
– Stepped and upward sloping
– Allow independent entry and exit in each simulation
• Analyze performance of demand curves under this supply
model relative to ‘base case’ supply model
– Do average prices and reliability vary significantly?
• Compare price volatility of proposed curves to existing system
curve and zonal requirements
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Stakeholder Requests for Additional Supply
Models
• In earlier presentations, the ISO evaluated the performance of
the proposed curves using two types of supply models
1.
2.
‘Forward looking supply’ models that assume flat supply at a range
of prices
‘Historic supply’ models that generate simulated supply curves from
recent FCAs, where supply curves were steep
• Stakeholders requested that the ISO also evaluate supply
curves that:
– Are upward sloping, but not as steep as the historical data
– Vary year-over-year as suppliers enter and exit the market
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Stepped Supply Model - Overview
• Supply curve uses step function
rather than having a constant
slope
– Available at http://www.isone.com/marketsoperations/markets/forwardcapacity-market
$14.00
$12.00
$10.00
Price
• ‘Supply block’ quantities and
locations are randomly sampled
from qualified capacity for FCA 10
$16.00
$8.00
$6.00
$4.00
$2.00
.$0
28000
• Offer prices are modeled to yield
an (assumed) overall average
supply curve slope
ISO-NE PUBLIC
30000
32000
34000
36000
Supply Curve (Total Capacity)
38000
40000
A simulated system supply curve
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Stepped Supply Model - Simulations
• Model includes year-over-year variation by allowing new
resources to enter the market, and existing resources to exit
• Entry and exit are randomly determined independently in
each simulation
• Create variation in supply curve that allows for price and
quantity volatility
• Simulated supply curves are calibrated so that on average,
they pass through NICR at Net CONE
– Brattle’s simulation models (in prior demand curve work) were
calibrated so that on average, they yield 1-in-10 reliability at Net CONE
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Stepped Supply Model – Entry and Exit
• When a new resource (A) enters,
supply curve shifts right by additional
capacity at offered price
– Cleared capacity increases from Q1 to Q2
– Clearing price decreases from P1 to P2
• When an existing resource (B) exits,
supply curve shifts left by removed
capacity at its offer price
– Cleared capacity decreases from Q1 to Q3
– Clearing price increases from P1 to P3
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Stepped Supply Model – Model Parameters
• 1000 simulations for each scenario
• Two scenarios for average slope of supply curves:
– ‘Modest Slope’ – with each additional 100 MWs of capacity supply
offered, price increases by $0.30 in ROP, $0.45 in SENE (on average)
– ‘Steep Slope’ with each additional 100 MWs of capacity supply
offered, price increases by $0.50 in ROP, $0.75 in SENE (on average)
• Entry and exit in each simulation
– Assume between 0 and 10 entrants with equal probability
– Assume between 0 and 10 resources exit with equal probability
• Entry and exits randomly drawn
– If resource A is 1 MW and resource B is 600 MWs, each is equally likely
to enter or exit
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New Slide
Stepped Supply Model Simulated Supply Curves
$16.00
$14.00
$12.00
Example:
10 (out of 1,000)
simulated supply curves,
Moderate Slope scenario
Price
$10.00
$8.00
$6.00
$4.00
$2.00
.$0
32000
33000
34000
35000
36000
Supply Curve (Total Capacity)
ISO-NE PUBLIC
37000
38000
32
Stepped Supply Model Does Not Simulate
Multiple Years as Sequential ‘Paths’
• Each simulation is independent
– Start with same stepped supply curve, then randomly determine
entry/exit
• Modeling over multiple years is complex
• Requires conditional probabilities of entry and exit that are
dependent on current ‘state of the world’ (supply curve in
previous simulation)
• Due to its complexity, time constraints, and limited additional
information it provides, ISO is not planning to develop a multiyear supply model
ISO-NE PUBLIC
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Stepped Supply Model Results
• Assume FCA 10 zonal configuration and demand parameters
• Evaluate the performance of the demand curves against the
new supply curves in two ways:
1. How do average prices and reliability change relative to the
base case supply model where the market always clears at a
price of Net CONE?
2. How does price volatility compare between current rules and
the ISO’s proposed curves under this supply model?
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System Results (1 of 3)
Reliability Results
Sys tem
LOLE
Zonal Configuration:
SENE (import) and Rest Of System
1
Sys tem
1-da y-i n
(events/yr)
Total Market Payments
Avg.
Cl ea red
Freq.
Sys tem
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
Avera ge
Avera ge
of
Bottom
20%
Avera ge
of Top
20%
(MW)
(MW)
(% of draws)
($mil/yr)
($mil/yr)
($mil/yr)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
34,151
-
-
$4,431
-
-
0.071
14.0
34,712
-
-
$2,916
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
34,314
-
-
$3,932
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
34,012
-
-
$4,898
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
34,151
-
-
$4,559
-
-
0.077
12.9
34,596
280
0.0%
$3,254
$2,366
$4,283
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values 6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
34,151
-
-
$3,544
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
34,151
-
-
$5,316
-
-
0.100
10.0
34,389
-
-
$4,716
-
-
Model 6a (Modest Slope)7
0.102
9.8
34,127
75
0.0%
$4,517
$4,306
$4,927
Model 6b (Steep Slope)8
0.103
9.7
34,113
119
0.0%
$4,571
$4,273
$5,240
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
(C) Stepped Supply Model
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
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SENE Results (2 of 3)
Reliability Results
Zonal Configuration:
SENE (import) and Rest Of System 1
Sys tem
LOLE
Sys tem
1-da y-i n
(events/yr)
SENE Clearing Price
Avg.
Cl ea red
Freq.
SENE
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Frequency
Pri ce
of Pri ce
a t Ca p
Std. Dev
Sepa ra tion
($/kW-m) ($/kW-m) (% of draws) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
10,840
-
-
$10.81
-
-
-
0.071
14.0
10,840
-
-
$7.00
-
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
10,840
-
-
$9.55
-
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
10,840
-
-
$12.00
-
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
9,950
-
-
$11.89
-
-
-
0.077
12.9
11,053
463
0.0%
$7.88
$1.81
0.0%
41.7%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values 6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
10,840
-
-
$8.65
-
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
10,840
-
-
$12.97
-
-
-
0.100
10.0
9,816
-
-
$12.97
-
-
-
0.102
9.8
10,807
164
0.0%
$11.04
$0.66
0.0%
68.8%
0.103
9.7
10,809
151
0.0%
$11.18
$1.11
0.0%
70.6%
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
(C) Stepped Supply Model
Model 6a (Modest Slope)7
Model 6b (Steep Slope)
8
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
36
Rest-of-System Results (3 of 3)
Reliability Results
Sys tem
LOLE
Zonal Configuration:
1
SENE (import) and Rest Of System
Sys tem
1-da y-i n
(events/yr)
ROS Clearing Price
Avg. ROS Cl ea red
Freq.
Cl ea red Ca pa ci ty Bel ow 1Ca pa ci ty Std. Dev
i n-5
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Pri ce
a t Ca p
Std. Dev
($/kW-m) ($/kW-m) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
23,311
-
-
$10.81
-
-
0.071
14.0
23,872
-
-
$7.00
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
23,474
-
-
$9.55
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
23,172
-
-
$12.00
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
24,201
-
-
$10.81
-
-
0.077
12.9
23,543
418
0.0%
$7.84
$1.77
0.0%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
23,311
-
-
$8.65
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
23,311
-
-
$12.97
-
-
0.100
10.0
24,574
-
-
$10.81
-
-
0.102
9.8
23,320
177
0.0%
$11.03
$0.64
0.0%
0.103
9.7
23,304
187
0.0%
$11.17
$1.09
0.0%
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
(C) Stepped Supply Model
Model 6a (Modest Slope)7
Model 6b (Steep Slope)
8
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
37
Key Observations from Results
• With the stepped supply curve analyses, averages prices
remain in the range of Net CONE
• Average reliability is slightly lower in stepped supply-curve
simulation analyses, but remains quite close to the 1-in-10
criteria
• Low reliability outcomes and high clearing prices occur
infrequently
ISO-NE PUBLIC
38
PRICE VOLATILITY ANALYSIS
Comparison of volatility between ISO’s proposal and current
system demand curve and zonal requirements
ISO-NE PUBLIC
39
Price Volatility of Proposed Demand Curves
Ahead Next:
• ISO’s forward looking supply models yield no price volatility
• In previous Markets Committee meetings, stakeholders
requested additional ISO analysis on price volatility
• Use stepped supply model to compare price volatility under
ISO’s proposed demand curves to that with current rules
• Price volatility is modest and similar under each set of
demand curves
ISO-NE PUBLIC
40
Volatility Analysis Variables
• Consider the volatility of three variables under ISO’s proposal
and current system curve with vertical zonal requirements
– Clearing price
– Cleared quantity
– Total market payments
Standard Deviations
Modest Average Slope Scenario
Total Cleared
Total
Clearing Price Quantity
Payments
ISO Proposal
Status Quo
Difference
Steep Average Slope Scenario
Total Cleared
Total
Clearing Price Quantity
Payments
($/kW-m)
(MW)
($mil/yr)
($/kW-m)
(MW)
($mil/yr)
$0.65
$0.59
$0.06
75
136
-61
$254
$224
$31
$1.10
$0.98
$0.11
119
226
-108
$429
$369
$60
ISO-NE PUBLIC
41
Volatility is Comparable Between ISO Proposal
and Current Rules
• Price volatility is conventionally measured by the standard
deviation of prices
• Standard deviation of prices is comparable between current
rules and ISO proposal
– $0.65 vs $0.59 with modest-slope stepped supply
– $1.10 vs $0.98 with steep-slope stepped supply
• Quantity volatility is much smaller under the ISO proposal
– Flatter demand curves tend to produce greater quantity volatility
– Higher quantity volatility under status quo demand curve may yield
more uncertainty for a new entrant about whether it would clear
ISO-NE PUBLIC
42
Clearing Rules Help Decrease Price Volatility
• ISO’s proposal substitutes capacity between zones in the
clearing process
– When FCA clears more in the ROP zone, it will tend to clear less in an
import constrained zone
– In the simulations, we do observe a negative correlation between
quantity cleared in ROP and SENE
• Consider a simulation where a large, low-price resource
enters in ROP zone:
– Shifts ROP supply curve to the right, increasing cleared quantity in the
ROP and decreasing system price
– This shifts the zonal demand curve ‘down’, since the zonal demand
curve specifies a congestion price ‘adder’ to the system price
– This decreases the cleared quantity in the import zone as well
– The reduction in cleared quantity in the import zone partially offsets
the change in the system price
– Implies that the system price still falls, but by less because zonal and
system clearing is interdependent – reducing system price volatility
ISO-NE PUBLIC
43
Summary: Price Volatility is Comparable with
the ISO’s Proposed Curves and Existing Rules
• Produces modest price volatility that is comparable to current
system curve and fixed zonal requirements
• Price volatility concerns are partially mitigated by interaction
between zones in how market is cleared
• Volatility is tempered as the stepped supply curve becomes
flatter
ISO-NE PUBLIC
44
ADMINISTRATIVE PRICING RULES
ISO proposes to discontinue several existing administrative
pricing rules in import-constrained zones
ISO-NE PUBLIC
45
Elimination of Administrative Pricing Provisions
Ahead Next:
• Overview of current provisions
• FERC Order and recent history
• Existing administrative pricing provisions are inconsistent with
the ISO’s proposal and sound market fundamentals
• Sloped demand curves and mitigation better address the
concerns that originally led to administrative pricing rules
ISO-NE PUBLIC
46
Administrative Pricing Rules
• ISO has three administrative pricing rules in the FCA:
1. Inadequate Supply (IS): pays existing capacity an administratively
determined price when there is not sufficient supply to meet the
capacity requirement (III.13.2.8.1)
2. Insufficient Competition (IC): pays existing capacity an
administratively determined price when there is not sufficient
existing supply to meet the capacity requirement and there is
limited new capacity (III.13.2.8.2)
3. Capacity Carry Forward Rule: pays all capacity an administratively
determined price when a non-rationable entrant cleared in a
recent auction which causes total existing capacity to exceed the
Local Sourcing Requirement (III.13.2.7.9)
ISO-NE PUBLIC
47
January 24, 2014 FERC Order
• FERC Order stated “we find that the Tariff’s current
administrative pricing for existing resources in situations of
Inadequate Supply and Insufficient Competition are unjust
and unreasonable” (p. 28)
• The administrative pricing rules were eliminated at the system
level coincident with introduction a system sloped demand
curve for FCA 9
• Existing administrative pricing rules were retained in importconstrained zones, where the auction continued to procure
fixed requirements
• Coincident with sloped demand curves in constrained zones,
the ISO proposes to eliminate the remaining administrative
pricing rules
ISO-NE PUBLIC
48
Existing Administrative Pricing Provisions are
Inconsistent with ISO Proposal
• ISO’s proposed design pays capacity in each zone based on its
marginal reliability impact
• When paying existing less than entrants (as under IS and IC),
this property cannot hold for both new and existing resources
• Instead, existing resources get paid less than if they were paid
based on their marginal reliability impact
• Sends wrong price signal:
– E.g. Higher prices paid to existing capacity in Import Zone A when the
marginal reliability impact of capacity is higher in Import Zone B
– Can discourage entry and encourage exit in areas where capacity is
most needed
ISO-NE PUBLIC
49
Other Concerns with Existing Administrative
Pricing Provisions
• Introduce distortions that encourage participants to bid
inconsistently with their true valuation to:
– Ensure that trigger conditions are met/not met
– Exploit expected price difference for existing capacity between
primary auction and reconfiguration auctions
• Require subjective design elements that are difficult to defend
based on economic fundamentals including:
– Trigger conditions (when to pay different prices)
– Pricing schedule (what to pay different ‘types’ of resources)
• Entrants will submit higher priced supply offers because they
expect to receive lower capacity payments in future years
(when IS or IC condition is triggered)
ISO-NE PUBLIC
50
Sloped Demand Curves and Mitigation Provide
Protection Against Non-Competitive Outcomes
• Sloped zonal curves decrease the potential price impacts
associated with withholding capacity or lumpy new entry
– Reduces potential payoff associated with such behavior
• Mitigation process more directly addresses concerns with
non-competitive outcomes
– Prevent existing supply from withholding capacity or submitting
inflated delist bids into the auction
– Process now includes imports, and pending FERC approval, may
include Non-Price Retirement Requests (NPRR) beginning in FCA 11
– Minimum Offer Price Rule (MOPR) addresses buyer-side market power
concerns
ISO-NE PUBLIC
51
ISO Proposal Discontinues Existing
Administrative Pricing Rules
• Current rules are not compatible with ISO’s proposed design
• Provisions use subjective criteria that are not consistent with
sound market fundamentals
• Create perverse incentives and may increase long-run costs to
consumers
• Sloped demand curves and market mitigation better address
concerns with non-competitive auctions
ISO-NE PUBLIC
52
Chris Geissler
(413) 535-4367 | [email protected]
ISO-NE PUBLIC
53
APPENDIX 1
Results table footnotes
ISO-NE PUBLIC
Results table footnotes with FCA 10 zones plus
indicative NNE export-constrained zone
1.
These results model one import zone in southeast New England ("SENE") and one export zone in
northern New England (“NNE”). NICR is 34,151 MW, SENE LSR is 10,028 MW, and NNE MCL is
8,830 (see August PSPC materials at http://www.iso-ne.com/staticassets/documents/2015/08/pspc_082715_a3.2_2019_20_fca_icr_resuts.pdf).
2.
Models 1 and 2 assume market participants submit bids consistent with the full Pay for
Performance design, so supply offers are at Net CONE. No random bids are simulated for Models
1 or 2.
3.
Demand curves derived for the Model 1 Base Case assume the FCA 10 estimated
("administrative") Net CONE value of $10.81 per kw-month
4.
Model 2 Sensitivity Cases use the same demand curves as in the Model 1 Base Case, and report
performance results for the FCA if bid/offer prices are above/below est. Net CONE.
5.
Model 3 uses the same demand curves as in the Model 1 Base Case, but evaluates performance
and payments by simulating 1000 hypothetical supply curves using supply bid/offers from the
three most recent Forward Capacity Auctions (FCA7 - FCA9)
6.
Results in (B) use the same assumptions as in the Model 1 Base Case, except the demand curves
are derived using the estimated ("administrative") Net CONE values shown.
7.
Model 6a assumes a slope of 0.003 in Rest-of-Pool and a slope of 0.0045 in SENE. It randomly
allows up to 10 resources to enter and exit and runs 1000 simulations.
8.
Model 6b assumes a slope of 0.005 in Rest-of-Pool and a slope of 0.0075 in SENE. It randomly
allows up to 10 resources to enter and exit and runs 1000 simulations.
ISO-NE PUBLIC
55
New Slide
APPENDIX 2: FCA 9 ZONAL DEMAND CURVES
AND RESULTS
Assessing the ISO’s proposal with smaller constrained zones
ISO-NE PUBLIC
56
New Slide
Demand Curves in Smaller Constrained Zones
• Stakeholders requested additional information on shape of
curves in smaller zones
• Indicative demand curves for Connecticut, NEMA and SEMA
import constrained zones
• Results tables for a system with these zones
• Posted an Excel file with the curve data for each zone
ISO-NE PUBLIC
57
New Slide
Demand Curve Assumptions
• Estimated Net CONE is $10.81
• FCA 9 input assumptions
• Net ICR = 34,189
• CT LSR = 7,331 (TSA)
• NEMA LSR = 3,572 (TSA)
• SEMA LSR = 7,479 (LRA)
• For more information see http://www.iso-ne.com/staticassets/documents/2014/08/201819_fca_icr_values_pspc_08282014.pdf
ISO-NE PUBLIC
58
Indicative System Demand Curve
New Slide
Using FCA 9 Inputs
Notes: NICR = 34,189 MW for FCA 9.
ISO-NE PUBLIC
59
New Slide
Indicative Connecticut (Congestion Pricing) Demand Curve
Using FCA 9 Inputs
Capacity Quantities and Slopes at Selected Prices
Congestion Price
$1.00 $2.00 $5.00 $10.00
MW Quantity
7,157 6,969 6,721 6,514
Slope (per 100 MW)
-$0.35 -$0.77 -$1.75 -$3.16
ISO-NE PUBLIC
Notes: LSR = 7,331 MW for CT in FCA 9.
60
New Slide
Indicative NEMA (Congestion Pricing) Demand Curve
Using FCA 9 Inputs
Capacity Quantities and Slopes at Selected Prices
Congestion Price
$1.00 $2.00 $5.00 $10.00
MW Quantity
3,411 3,296 3,130 2,984
Slope (per 100 MW)
-$0.59 -$1.19 -$2.60 -$4.39
ISO-NE PUBLIC
Notes: LSR = 3,572 MW for NEMA in FCA 9.
61
New Slide
Indicative SEMA/RI (Congestion Pricing) Demand Curve
Using FCA 9 Inputs
Capacity Quantities and Slopes at Selected Prices
Congestion Price
$1.00 $2.00 $5.00 $10.00
MW Quantity
7,398 7,376 7,029 6,859
Slope (per 100 MW)
-$0.41 -$0.90 -$2.18 -$3.92
ISO-NE PUBLIC
Notes: LSR = 7,479 MW for SEMA/RI in FCA 9.
62
New Slide
Observations for Indicative Curves in Smaller
Import Zones
• Shape is similar to SENE import zone curve presented earlier
• Price at LSR varies slightly between zones, ranges from $0.42
to $0.73
• Design produces reasonable curves across a range of importconstrained zones of different ‘sizes’
ISO-NE PUBLIC
63
New Slide
ISO Proposal (1 of 5) – System-Level Results
Reliability Results
Zonal Configuration:
CT (import), NEMA (import), SEMA/RI (import) and Rest Of System 1
Sys tem
LOLE
Sys tem
1-da y-i n
(events/yr)
Total Market Payments
Avg.
Cl ea red
Freq.
Sys tem
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
Avera ge
Avera ge
of
Bottom
20%
Avera ge
of Top
20%
(MW)
(MW)
(% of draws)
($mil/yr)
($mil/yr)
($mil/yr)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
34,189
-
-
$4,438
-
-
0.071
14.1
34,731
-
-
$2,921
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.090
11.1
34,347
-
-
$3,939
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
34,054
-
-
$4,907
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.129
7.8
34,189
-
-
$4,533
-
-
0.104
9.6
34616
272
0.1%
$3,462
$2,396
$4,616
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
34,189
-
-
$3,548
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
34,189
-
-
$5,322
-
-
0.100
10.0
34,847
-
-
$4,982
-
-
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
64
New Slide
ISO Proposal (2 of 5) – CT Import Zone Results
Reliability Results
Zonal Configuration:
CT (import), NEMA (import), SEMA/RI (import) and Rest Of System 1
Sys tem
LOLE
Sys tem
1-da y-i n
(events/yr)
CT Clearing Price
Avg.
Cl ea red
Freq.
SENE
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Frequency
Pri ce
of Pri ce
a t Ca p
Std. Dev
Sepa ra tion
($/kW-m) ($/kW-m) (% of draws) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
7,810
-
-
$10.83
-
-
-
0.071
14.1
7,810
-
-
$7.02
-
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.090
11.1
7,810
-
-
$9.57
-
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
7,810
-
-
$12.02
-
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.129
7.8
7,135
-
-
$10.83
-
-
-
0.104
9.6
9,289
300
0.1%
$7.86
$1.75
0.0%
0.0%
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
7,810
-
-
$8.65
-
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
7,810
-
-
$12.97
-
-
-
0.100
10.0
7,090
-
-
$12.97
-
-
-
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
65
New Slide
ISO Proposal (3 of 5) – NEMA Import Zone Results
Reliability Results
Zonal Configuration:
CT (import), NEMA (import), SEMA/RI (import) and Rest Of System 1
Sys tem
LOLE
Sys tem
1-da y-i n
(events/yr)
NEMA Clearing Price
Avg.
Cl ea red
Freq.
SENE
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Frequency
Pri ce
of Pri ce
a t Ca p
Std. Dev
Sepa ra tion
($/kW-m) ($/kW-m) (% of draws) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
4,050
-
-
$10.82
-
-
-
0.071
14.1
4,050
-
-
$7.01
-
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.090
11.1
4,050
-
-
$9.56
-
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
4,050
-
-
$12.01
-
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.129
7.8
3,398
-
-
$10.82
-
-
-
0.104
9.6
3,592
297
0.1%
$9.35
$2.96
0.0%
100.0%
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
4,050
-
-
$8.65
-
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
4,050
-
-
$12.97
-
-
-
0.100
10.0
3,371
-
-
$12.97
-
-
-
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
ISO-NE PUBLIC
66
New Slide
ISO Proposal (4 of 5) – SEMA/RI Import Zone Results
Reliability Results
Sys tem
LOLE
Zonal Configuration:
CT (import), NEMA (import), SEMA/RI (import) and Rest Of System 1
Sys tem
1-da y-i n
(events/yr)
SEMA/RI Clearing Price
Avg.
Cl ea red
Freq.
SENE
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Frequency
Pri ce
of Pri ce
a t Ca p
Std. Dev
Sepa ra tion
($/kW-m) ($/kW-m) (% of draws) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
10,840
-
-
$10.81
-
-
-
0.071
14.1
10,840
-
-
$7.00
-
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.091
11.0
10,840
-
-
$9.55
-
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
10,840
-
-
$12.00
-
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.109
9.2
9,950
-
-
$11.89
-
-
-
0.104
9.6
7,481
359
0.1%
$9.55
$3.07
1.6%
86.6%
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
7,900
-
-
$8.65
-
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
7,900
-
-
$12.97
-
-
-
0.100
10.0
7,340
-
-
$12.97
-
-
-
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values 6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
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New Slide
ISO Proposal (5 of 5) – Rest-of-System Results
Reliability Results
Sys tem
LOLE
Zonal Configuration:
SENE (import), NNE (export) and Rest Of System 1
Sys tem
1-da y-i n
(events/yr)
ROS Clearing Price
Avg. ROS Cl ea red
Freq.
Cl ea red Ca pa ci ty Bel ow 1Ca pa ci ty Std. Dev
i n-5
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Pri ce
a t Ca p
Std. Dev
($/kW-m) ($/kW-m) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.100
10.0
14,429
-
-
$10.81
-
-
0.071
14.1
14,971
-
-
$7.00
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.090
11.1
14,587
-
-
$9.55
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.110
9.1
14,294
-
-
$12.00
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.129
7.8
16,277
-
-
$10.81
-
-
0.104
9.6
14,253
464
0.1%
$7.86
$1.75
0.0%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values 6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.100
10.0
14,429
-
-
$8.65
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.100
10.0
14,429
-
-
$12.97
-
-
0.100
10.0
17,046
-
-
$10.81
-
-
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
Footnotes are included in Appendix 1.
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New Slide
Observations from Results Tables
• Satisfy reliability criteria in base case
• Performance in forward-looking models is comparable to that
with FCA 10 zones
• When capacity is more expensive in import-constrained
zones, substitute from zones to rest-of-system
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New Slide – 1/22/16
Indicative Demand Curve for Maine Export Zone
• Stakeholders have requested additional information on what
a demand curve may look like if Maine were to return as an
export-constrained zone
• Provide curve using indicative FCA 9 MCL value of 3,913 MWs
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New Slide – 1/22/16
Indicative Demand Curve for Maine Export Zone
Using FCA 9 Inputs
Capacity Quantities and Slopes at Selected Prices
Notes: Indicative MCL = 3,913 MW for Maine in FCA 9.
Congestion Price
-$1.00 -$2.00 -$5.00 -$10.00
MW Quantity
4,007 4,150 4,460 4,844
Slope (per 100 MW)
-$0.60 -$0.79 -$1.13 -$1.50
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New Slide
APPENDIX 3: UPDATED ‘HYBRID METHOD’
RESULTS
Assessing the performance of the ISO’s proposed zonal
demand curves with the existing system curve
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New Slide
Hybrid Method (1 of 3) – System-Level Results
Reliability Results
Preliminary Results
Sys tem
LOLE
Zonal Configuration:
SENE (import) and Rest Of System
1
Sys tem
1-da y-i n
(events/yr)
Total Market Payments
Avg.
Cl ea red
Freq.
Sys tem
Ca pa ci ty Bel ow 1Cl ea red
Std. Dev
i n-5
Ca pa ci ty
Avera ge
Avera ge
of
Bottom
20%
Avera ge
of Top
20%
(MW)
(MW)
(% of draws)
($mil/yr)
($mil/yr)
($mil/yr)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.077
13.0
34,567
-
-
$4,484
-
-
0.071
14.1
34,712
-
-
$2,915
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.064
15.5
34,857
-
-
$3,995
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.092
10.9
34,294
-
-
$4,938
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.085
11.8
34,567
-
-
$4,613
-
-
0.061
16.4
34,985
382
0.0%
$3,773
$3,018
$4,744
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values 6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.077
13.0
34,567
-
-
$3,587
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.077
13.0
34,567
-
-
$5,381
-
-
0.094
10.7
34,567
-
-
$4,737
-
-
0.089
11.2
34,347
137
0.0%
$4,851
$4,531
$5,123
0.094
10.6
34,266
221
0.0%
$4,983
$4,513
$5,493
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
(C) Stepped Supply Model
Model 6a (Modest Slope) 7
Model 6b (Steep Slope)
8
Footnotes are included in Appendix 1.
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New Slide
Hybrid Method (2 of 3) – SENE Import Zone Results
Reliability Results
Preliminary Results
Sys tem
LOLE
Zonal Configuration:
SENE (import) and Rest Of System 1
SENE Clearing Price
Avg.
Cl ea red
Freq.
Sys tem
SENE
Ca pa ci ty Bel ow 11-da y-i n Cl ea red
Std. Dev
i n-5
Ca pa ci ty
(events/yr)
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Frequency
Pri ce
of Pri ce
a t Ca p
Std. Dev
Sepa ra tion
($/kW-m) ($/kW-m) (% of draws) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.077
13.0
10,840
-
-
$10.81
-
-
-
0.071
14.1
10,840
-
-
$7.00
-
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.064
15.5
10,840
-
-
$9.55
-
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.092
10.9
10,840
-
-
$12.00
-
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.085
11.8
9,950
-
-
$11.89
-
-
-
0.061
16.4
11,096
478
0.0%
$9.03
$1.70
0.0%
39.6%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.077
13.0
10,840
-
-
$8.65
-
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.077
13.0
10,840
-
-
$12.97
-
-
-
0.094
10.7
9,765
-
-
$12.97
-
-
-
Model 6a (Modest Slope) 7
0.089
11.2
10,894
183
0.0%
$11.78
$0.60
0.0%
64.4%
Model 6b (Steep Slope)8
0.094
10.6
10,867
181
0.0%
$12.13
$0.98
0.0%
79.0%
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
(C) Stepped Supply Model
Footnotes are included in Appendix 1.
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New Slide
Hybrid Method (3 of 3) – Rest-of-System Results
Reliability Results
Preliminary Results
Sys tem
LOLE
Zonal Configuration:
1
SENE (import) and Rest Of System
Sys tem
1-da y-i n
(events/yr)
ROS Clearing Price
Avg. ROS Cl ea red
Freq.
Cl ea red Ca pa ci ty Bel ow 1Ca pa ci ty Std. Dev
i n-5
(MW)
(MW)
(% of draws)
Avera ge
Cl ea ri ng
Frequency
Pri ce
a t Ca p
Std. Dev
($/kW-m) ($/kW-m) (% of draws)
(A) Zones and Est. Net CONE at FCA10 Values
Forward-Looking (Full PFP-based) Supply Models2
Model 1 (Base Case): All Capacity Bids/Offers at Est. Net CONE 3
Model 2 (Sensitivity Cases): Marginal Offer Priced Above/Below Net CONE 4
(2a) Marginal Offer at $ 7.00 / kw-mo.
0.077
13.0
23,727
-
-
$10.81
-
-
0.071
14.1
23,872
-
-
$7.00
-
-
(2b) Marginal Offer at $ 9.55 / kw-mo.
0.064
15.5
24,017
-
-
$9.55
-
-
(2c) Marginal Offer at $12.00 / kw-mo.
0.092
10.9
23,454
-
-
$12.00
-
-
(2d) Marginal Offer in Import Zone 10% Above Est. Net CONE
0.085
11.8
24,618
-
-
$10.81
-
-
0.061
16.4
23,889
448
0.0%
$8.99
$1.66
0.0%
Historic (FCA7/8/9-based) Supply Model
Model 3: Historic Supply-based Simulated Bidding 5
(B) Additional Sensitivity Cases: Alternative Net CONE Values
6
Model 4: All Capacity Bids/Offers at Alternative Hypothetical Net CONE Values:
(4a) If Est. Net CONE is revised to 20% below FCA10 Value
0.077
13.0
23,727
-
-
$8.65
-
-
(4b) If Est. Net CONE is revised to 20% above FCA10 Value
0.077
13.0
23,727
-
-
$12.97
-
-
0.094
10.7
24,803
-
-
$10.81
-
-
0.089
11.2
23,453
205
0.0%
$11.77
$0.60
0.0%
0.094
10.6
23,399
220
0.0%
$12.12
$0.96
0.0%
Model 5: Different Zonal Est. Net CONE Values Scenario
(5a) Import Zone Est. Net CONE revised to 20% above FCA10 Value
(C) Stepped Supply Model
Model 6a (Modest Slope) 7
Model 6b (Steep Slope)
8
Footnotes are included in Appendix 1.
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New Slide
APPENDIX 4: COST IMPACT BY LOAD ZONE
Estimating the cost impact of the ISO’s proposal across zones
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New Slide
Cost Impact by Load Zone: Model and Results
In this Appendix:
• Stakeholders requested additional analysis showing how
costs-to-load (i.e., payments) are impacted by the ISO’s
proposal, across a range of clearing prices
• Modeling assumptions
• Results across a range of prices for ISO’s proposed curves and
status quo (existing system curve and fixed zonal
requirements)
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New Slide
Modeling Approach -- Overview
• Employed (an approximate version of) the existing FCA Cost
Allocation rules to assess cost-to-load by load zone
• Main simplifications include:
– Omitted cost adjustments for multi-year lock-ins at prior FCA prices
– Omitted certain specifically-allocated CTRs (difficult to model in time)
– Assume uniform price paid in each capacity zone
• Peak load in each load zone based on five year average
• Estimated total FCA payments by load zone under a range of
clearing conditions under both ISO’s proposal, and status quo
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New Slide
Modeling Scenarios and Assumptions
• Case 1, Low Price Separation: System clears at $10.81, SENE
clears at $11.81, NNE clears at $9.81
• Case 2, Medium Price Separation: System clears at $10.81,
SENE clears at $12.81, NNE clears at $8.81
• Case 3, High Price Separation: System clears at $10.81, SENE
clears at $15.81, NNE clears at $5.81
• For each case, show payments by load zone under (a) ISO
proposal and (b) status quo
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Case 1: Low Price Separation
New Slide
System at Net CONE, SENE + $1, NNE - $1
ISO-NE PUBLIC
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Case 2: Medium Price Separation
New Slide
System at Net CONE, SENE + $2, NNE - $2
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Case 3: High Price Separation
New Slide
System at Net CONE, SENE + $5, NNE - $5
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New Slide
Observations from Analysis
• Costs to consumers in all load zones decrease with ISO
proposal across all three cases
• Occurs because status quo tends to procure more system and
SENE capacity
• In Case 3, the higher payments under status quo include:
– $34 million in NEMA
– $23 million in CT
– $106 million for the system
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