Preliminary Estimate of Efficiency Vermont's ISO-NE Forward Capacity
Market Net Revenue 2006 to 2015
Date: 1/1/2008
Author: Michael J. Wickenden, EEU Contract Administrator
Net revenue estimates (See EVT ISO-NE FCM Net Revenue Estimate 2006
to 2015 1-1-08.xls) are dependent upon assumptions that all experience
uncertainty. The following summarizes the major uncertainties.
Revenue
Estimates of EVT's Forward Capacity Market (FCM) Revenue are primarily
based upon Energy Efficiency Utility (EEU) budget assumptions for 2009
through 2011. The VT Public Service Board authorized EVT to use year
2008 funding ($30,750,000) for years 2009 - 2011 for the purpose of
calculating ISO-NE forward capacity market transition period revenue as
well as for preparing the documentation for participation in ISO-NE's
FCM Auctions (FCMA) #1 and #2. The Board will hold a proceeding in
2008 to formally consider and adopt EEU budgets for 2009 - 2011. If the
Board adopts budgets that are less than $30,750,000, and/or if the Board
directs EVT to pursue significantly different energy efficiency objectives,
the FCM revenue estimates will need to be adjusted downward.
Estimates of EVT's net capacity reductions are based upon EVT's best
estimates of kW reduction per dollar. If conditions were to change that
significantly altered that yield rate, such as new federal or state
efficiency standards or substantive changes to the Vermont's economic
landscape, that yield could decrease resulting in lower revenue
estimates.
EVT's claims of net capacity reductions are subject to a rigorous
measurement and verification process. Although many aspects of this
process have been previously employed, there is no certainty that all
claims will be validated or that ISO-NE will accept VT's findings at full
value. If there are significant reductions from EVT's claims, the resulting
revenue will be lower than estimated.
FCM Auction (FCMA) #1 takes place in early February 2008. It now
appears that there may be more supply than needed. In that case,
decisions will be made that could decrease revenue. Given current
information, I have reduced initial revenue estimates by 10% to reflect
this oversupply. A more precise estimate will be available after the
auction closes in mid-February, 2008.
FCMA #2 will take place in early 2009 resulting in an additional revenue
stream starting in June of 2011. Currently, no attempt has been made
here to include a quantification of that revenue stream. It is evident that
the capacity reductions bid into FCMA #2 will occur over a much shorter
time frame and thus, will be less (given all else is equal) and, because the
expected base price per kW reduction will also be less than that received
in FCMA #1, it is expected that the additional annual revenue will be
significantly less than that being anticipated from FCMA #1.
Costs
Estimates of EVT's and the Department of Public Service's (DPS)
Measurement and Verification (M&V) costs contain a high degree of
variability because several required M&V activities have not been
employed to the degree now required. Consequently, a conservatively
high cost estimate has been used. However, until EVT and the DPS have
more experience with the new requirements, there can be no assurance
that the cost estimates are too high.
FCMA participants are required to post "Financial Assurance" to protect
ISO-NE in case of a participant failing to deliver bid capacity. If EVT was
unable to provide the capacity reductions in 2010 that it bid in FCMA #1,
EVT would forfeit a predetermined amount per kw shortfall. Thus, the
revenue estimate would be lower, due to the kW shortfall, and a
predetermined penalty would be assessed to enable ISO-NE to purchase
kw equal to the shortfall.