Capacity Market Zones and Related
MR1 and Tariff Changes
Pete Fuller
NEPOOL Markets Committee/Reliability Committee/Transmission Committee
December, 2013
Today’s Discussion
 Proposal for complying with FERC Orders to
‘model all zones all the time’
 Proposed changes to:
 Attachment K, Sec 3.1 (TC)
 MR1, Section 12 (RC)
 MR1, Section 13.5.1 (MC)
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Qualifier
 As currently structured and administered, FCM is
deeply flawed:
 Mitigation policies should provide the marginal
existing resource a reasonable opportunity to
recover all of its annual fixed costs
 A demand curve that recognizes the
incremental value of additional capacity is
essential, especially in the absence of a supply
curve based on long-run costs
 Reliability reviews of existing resource offers
(delist bids) should be eliminated; all
constraints that are to be enforced through
planning or operability criteria should be
specified in the auction requirements
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FERC Proceedings on Capacity Zones
 In the April 13, 2011 Order on Paper Hearing,
FERC approved:
 “ISO-NE’s proposal to use the eight energy load zones as initial
capacity zones. …we see no reason to further delay the
modeling of all zones all the time.” (P.272)
 “ISO-NE’s proposal to develop any future zones through ISONE’s system planning stakeholder process.” (P.283)
 “ISO-NE’s proposal to allow static and dynamic de-list bids from
all resources to establish zonal prices.” (P.290)
 “ISO-NE’s approach of reviewing … rejected de-list bids in the
zonal development process for subsequent FCAs to determine if
additional zones are needed” (P.292)
 “changes to the clearing mechanism used in ISO-NE’s
descending clock auction structure [similar to a locational
marginal pricing (LMP) clearing mechanism … recognizing bidirectional and mesh network constraints]” (P.293, 297)
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 In the 1/19/12 Order on Rehearing, FERC
approved and affirmed:
– “we maintain that ISO-NE’s proposal to model all zones all the
time is appropriate” (P.107)
– “We are … not persuaded by arguments that modeling zones is
inappropriate in instances in which small zones may develop in
highly congested urban and suburban areas.” (P.108)
– With respect to the treatment of rejected delist bids, “[t]he
better solution is to establish more zones. While ISO-NE has
stated that it would be burdensome to model additional zones
in the current auction in which a de-list bid is rejected, ISO-NE
has indicated that it is amenable to developing additional
zones for subsequent FCAs.” (P.109)
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 In the 2/12/13 Order on the Compliance Filing,
FERC found:
– “We deny ISO-NE’s request to waive the Commission’s prior
directive that ISO-NE model eight zones for FCA 8” (P.117)
– “this does not preclude ISO-NE from making an additional
filing providing adequate support for the modeling of
fewer than eight zones in FCA 8” (P.117)
– “We recognize that the reduction in constraints to which Mr.
Rourke refers may justify future zonal modeling with fewer
than eight zones. Alternatively, binding constraints and local
reliability problems that prove intractable, or that are not
present now but arise in the future, may dictate an even
larger number of zones.” (P.122)
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 Summing it all up in the 5/31/13 Order, the FERC
noted:
 “As relevant here, the FCM design incorporates locational
pricing, in which capacity zones are modeled in order to permit
zonal price separation when binding constraints arise.” (P.3)
 “The Commission remains concerned, however, that despite
having addressed zonal issues since 2010, ISO-NE has not
developed an adequate process for determining the appropriate
number of, and boundaries of, capacity zones in the New
England region over time as conditions change.” (P.35)
 “we will require ISO-NE to consider during that process: (1) the
appropriate level of zonal modeling going forward; (2) the
appropriate rules to govern intra- and inter-zonal transactions;
and (3) whether objective criteria by which zones may
automatically be created in response to rejected delist bids,
generation retirements or other changes in system conditions
would be appropriate in New England, or if not, why not.”
(P.35)
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Comparison
1) “The appropriate level of zonal modeling going
forward”
ISO Proposal
NRG Proposal
Develop interfaces defining the
boundaries of zones through
PAC/planning process, considering
NPRR, PDB and rejected SDB and
DDB, from the most recent FCA
Develop interfaces defining the
boundaries of zones through
PAC/planning process, considering all
NPRR, PDB, SDB and DDB, submitted
in all previous FCAs, plus ‘at risk’
resources
“trigger” for modeling zones in each
FCA
Model all zones all the time
No change to auction clearing
methodology
Explicitly plan for bi-directional and
mesh network constraints
2) “appropriate rules to govern intra- and interzonal transactions”
ISO Proposal
No change proposed
NRG Proposal
Eliminate restriction limiting capacity
transactions to within the same zone
(13.5.1(f))
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Comparison
3) “Automatic creation of zones in response to
rejected delist bids, retirements or other
changes”
ISO Proposal
Develop interfaces defining the
boundaries of zones through
PAC/planning process
NRG Proposal
Rejected delist bid in FCA(n) requires
definition of a zonal interface in
FCA(n+1); or detailed explanation
why an interface would harm the
market
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Roadmap
 The key purpose of modeling zones is to reflect
binding constraints ‘when they arise’
 The constraints must all be modeled in order to show up
as binding within an auction
 The goal of defining capacity zones should be to
identify the interfaces that might bind if the
generation/DR mix changes
 SEMA is a case in point. Recently, ISO was suggesting
SEMA as export-constrained. A large retirement can
change everything.
 Bilateral trading of capacity lowers suppliers’ risk,
leading to lower overall costs in the market
 Reconfiguration auctions would continue to be available
after the bilateral trading period
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NRG Proposal
 Zones for FCA9:
 Model eight load zone interfaces, plus any others developed
through the planning process, ‘all the time’
 Designate zones as import or export based on the balance of
existing resources vs. TSA, including all delists/retirements (or
MCL, including new resources likely to qualify)
 Zones for FCA10 and beyond:
 Refresh the list of interfaces through the planning process
 Model all zones all the time
 As soon as possible, revise the auction to handle bidirectional and mesh network constraints
 Capacity Bilaterals:
 Along with modeling all zones all the time, eliminate restriction
on bilateral trades between zones (III.13.5.1(f))
 Add ‘Capacity Zone interface limits’ to criteria ISO must honor
in their reliability review of capacity bilaterals
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Proposed Tariff Language
 Accompanying tariff language for:
 Attachment K, Section 3.1
 Market Rule 1, Section 12.4 and new Section 12.4A
 Market Rule 1, Section 13.5.1 and Section 13.5.1.1.3
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Comments and suggestions are welcome prior to
the Committee votes.
Thanks for your consideration.
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