OCTOBER 7-8, 2014 | NEPOOL MARKETS COMMITTEE
FCM Sloped Demand Curve:
Conforming changes for FCA10
Design changes for FCA10 to implement
capacity zone demand curves
Matt Brewster
MARKET DEVELOPMENT
413.540.4547 | MBREWSTER@ISO-NE.COM
Design changes for FCA10 (and beyond) to
implement capacity zone demand curves
• Includes conforming design changes necessary to implement
capacity zone demand curves
• Changes to become effective beginning with FCA10
– Rules for conduct of the FCA
– Eliminating zonal administrative pricing rules
• Overview of tariff redlines
slide 3
slide 7
slide 12
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FORWARD CAPACITY AUCTION
Conforming changes to FCA starting price and descending
clock auction (DCA)
FCA starting price for capacity zones
• An import-constrained capacity zone may have a separate Net
CONE if estimated to be ≥ 115% of system Net CONE
– Current estimates are < 105% in CT, NEMA/Boston, SEMA/RI
• FCA starting price for a zone with separate Net CONE would
be the zone’s demand curve “cap” price
– e.g., MAX ( 1.6 x zone Net CONE, zone Gross CONE )
• Separate DCA rounds may be conducted for capacity zones
with a unique FCA starting price
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FCA starting price for capacity zones (cont.)
• New capacity zones may be identified in year prior to FCA (§III.12.3)
– Net CONE study will evaluate potential cost differences across region
– If a new import-constrained capacity zone were formed, estimated costs
for subarea would be used to determine zone’s Net CONE
– New zone Net CONE filed for instant FCA if ≥115% of system Net CONE
• April 28th Order accepting Capacity Zones process asked if local Net
CONE estimate should be determinant of capacity zones (ER12-953, P 43)
– ISO recommends Net CONE not be a factor in determining zones
– Zones based on transmission studies (current process) identify areas with
need for additional supply, based on low capacity levels, and then model
the zone in the FCM to establish needed price signals
– Zones based on expectation of higher cost of supply would inefficiently
support costly resources when transmission limits don’t prevent more
cost-effective resources outside the area from serving local requirements
5
Revise DCA application of LSR and MCL
• DCA round closing conditions
– Capacity zone closing conditions evaluate whether zone supply is less
than or equal to quantity of demand specified by the capacity zone
demand curve (rather than ≤ LSR, or ≤ MCL)
– System-Wide Demand Curve is adjusted for purposes of evaluating
system excess supply in auction rounds after an import-constrained
zone has closed (FCA won’t purchase extra supply outside zone to
cover unmet demand)
• Update references to LSR and MCL, as appropriate, where
capacity quantities are determined by zone demand curves
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ADMINISTRATIVE PRICING RULES
Elimination of capacity zone administrative pricing
Capacity zone administrative pricing rules
• Remove remaining administrative pricing rules applicable to
capacity zones:
– Inadequate Supply (IS),
– Insufficient Competition (IC), and
– the Capacity Carry Forward Rule
• System IS and IC rules were removed with implementation of
the system-wide demand curve for FCA9
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Remove Inadequate Supply and Insufficient
Competition pricing rules
• Administrative provisions were intended to mitigate supplier
market power
• Sloped demand curves dampen price volatility and mitigate
the exercise of market power by adjusting demand to price
• Administrative triggers and pre-defined prices will not
necessarily track with market fundamentals
9
Remove Capacity Carry Forward Rule
• Originally implemented to prevent price suppression in subsequent
auction after clearing excess capacity with a non-rationable (lumpy)
resource needed to meet zone requirement
– Excess may negate need for new entry in next year
• Zone and system demand curves more effectively limit the
magnitude of price suppression
– Non-zero demand value at levels above LSR in import zones
– Import zone price not less than rest-of-pool (based on system curve)
• Demand curves decrease the likelihood of clearing excess MW
– Example on next slide
– When the auction must purchase 100% of LSR (vertical demand) a 300MW
resource may be accepted to satisfy 1MW need
– With sloped demand curves, the auction evaluates the relative gain or loss
of clearing excess MW to satisfy demand and may not accept excess MW
– Sloped demand curves will decrease excess MW which will further limit
price suppressing effect of lumpy resources
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Capacity Carry Forward Rule Example:
Sloped demand curves decrease the likelihood of
clearing excess MW
•
Single capacity zone sloped demand curve,
and two ‘lumpy’ priced offers [A] and [B]
•
Not possible to clear at exact intersection of
supply and demand (due to lumpy offers)
- Lumpy offers must clear all or nothing
•
Auction maximizes social surplus; optimum
will be achieved by either:
Alternative 2
[P2, Q2]
Alternative 1
[P1, Q1]
Alternative (1) is to clear the lumpy marginal
offer [B]. Yields a lower price [P1] and more
capacity [Q1]. Surplus loss of clearing [B] is caused by excess MW procured at price above
demand (represented by red triangle)
Alternative (2) is to not clear offer [B]. Yields a higher price [P2] and less cleared capacity
[Q2]. Surplus loss of not clearing [B] is caused by foregoing capacity offered at prices below
demand price (represented by green triangle)
•
Offer [B] clears if the green triangle is larger than the red triangle
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TARIFF REDLINES
Overview of tariff revisions for capacity zone demand curves
Overview of tariff revisions for capacity zone
demand curves
The posted tariff revisions include all necessary redlines to implement the
ISO’s proposed capacity zone demand curves and conforming changes.
Note: the tariff document also includes the revisions for demand curve
related changes to Reconfiguration Auctions and CSO Bilaterals (WMPP #64)
Topic
Slide
Forward Capacity Auction (FCA)
#14
Administrative Pricing Rules
#15
Related cleanup items
#16
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Forward Capacity Auction
Tariff Section(s) Description of Revisions
I.2.2
New defined term “Capacity Zone Demand Curve”
III.13.2.2
Capacity Zone Demand Curves for import-constrained and exportconstrained capacity zones
III.13.2.3
Separate auction rounds may be conducted if capacity zones have
unique FCA starting price
III.13.2.3.3
i) Replace reference to MCL with export zone demand curve and
clarify inclusion of import capacity in the system supply curve
ii) Replace references to LSR and MCL where capacity quantities are
determined by Capacity Zone Demand Curves
iii) Describe how System Wide Demand Curve quantity is adjusted
when import-constrained zone price separation occurs
III.13.2.4
Separate CONE and Net CONE values set capacity zone FCA starting
price if 115% of the system Net CONE
III.13.2.7.4
Zone LSR constraint no longer applicable for clearing algorithm
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Administrative Pricing Rules
Tariff Section(s) Description of Revisions
III.13.2.5.2.5,
III.13.2.5.2.7
Remove reference to application of administrative pricing rules
III.13.2.7.9
Remove Capacity Carry Forward Rule. Not necessary to sunset
because settlement provisions were recently updated to define
applicable rates for the commitment period that this rule applied.
III.13.2.8
Inadequate Supply and Insufficient Competition rules sunset with
CCP10. Provisions preserved in the event either rule is applied in
FCA9 and defined rates are necessary for market settlement.
15
Related cleanup items
Tariff Section(s) Description of Revisions
I.2.2
Remove alternative pricing relate definitions (APR-1, -2, -3)
III.13.2.5.2.5
Reinstated provision that de-list bids are not rejected solely on basis
of Net ICR (inadvertently deleted with system-wide demand curve)
III.13.7.2.1.1
Address inadvertently omitted update of settlement provision
related to the FCA clearing price lock-in (extended with system-wide
demand curve)
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SUMMARY AND SCHEDULE
Recap and next steps
Summary and schedule
• Summary
– Design changes for FCA10 include rules for conduct of FCA and
removing administrative pricing rules
– Proposed tariff revisions have been posted with October MC materials
• Schedule
– November – additional discussion (design and tariff)
– December – MC vote
– January 2015 – filing with FERC
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