JUNE 5, 2013 | NEPOOL MARKETS COMMITTEE

Additional explanation of design proposal and planned Major Initiative Impact Analysis

NCPC Payments

Matt BrewsterMARKET DEVELOPMENT

MBREWSTER@ISO-NE.COM413.540.4547

Christopher ParentMARKET DEVELOPMENT

CPARENT@ISO-NE.COM413.540.4599

NCPC CREDIT DESIGN COMPARISONSide-by-side existing NCPC credit design and proposed redesign for the Energy Market Offer Flexibility changes

Out-of-Merit NCPC Credits overview: existing and proposed designs

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Design Element Existing Design Offer Flexibility Design

Day-Ahead NCPC Total as-bid cost (energy, startup, no load) for resources scheduled in the day-ahead market is compensated through NCPC when DA revenue is not sufficient

As-bid cost of energy for resources scheduled in the day-ahead market is compensated through NCPC when DA Revenue is not sufficient

Real-Time NCPC As-bid cost for additional energy, startup, or no load during RT operation is compensated through NCPC when incremental RT revenue is not sufficient (additions to DA)

Total as-bid cost (energy, startup, no load) for resources operating during real-time is compensated through NCPC when the RT revenue is not sufficient (independent of DA)

Accounting Period Full operating day evaluated as a single period to compare resource cost and revenue

Periods within the operating day are evaluated separately to compare cost and revenue

Out-of-Merit NCPC Credits overview (continued)

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Design Element Existing Design Offer Flexibility Design

Cost Occurrence Assume fixed costs paid DA will be incurred to operate in RT

Costs considered when incurred to follow ISO instructions

Offers Used to Calculate Cost

DA offer applied in DA NCPC and RT offer applied for RT NCPC

Offers in effect at the time that Commitment and Dispatch decisions are instructed

Credit Formulation Additional payment required for resource to break-even for following ISO instruction

Additional payment required for resource to be no worse off for following ISO instruction (relative to best alternative)

Hourly NCPC Credit Single, daily NCPC credit apportioned to hours of operation using ratio of hourly Load Obligation to total Load Obligation

Multi-hour period NCPC credit (sub-daily) apportioned to hours within the period using ratio of each hour’s losses to total losses

HOURLY NCPC CREDITNew design material describing the allocation of DA and RT NCPC credits to hours

NCPC credits for multi-hour periods are apportioned to individual hours with net losses• DA and RT NCPC credits for out-of-merit resources will be

determined over periods of one or more hours– Periods are comprised of decision intervals

• The single NCPC credit for each period is determined using resource profits and losses accrued over the duration – Examples previously provided:

• April 2013 MC presentation beginning at slide 12• May 2013 MC presentation on slides 8, 12, and 13

• The hourly NCPC credit is assigned the ISO’s “reason” for operating the resource out-of-merit during the hour

• Reasons correspond to defined cost allocators for NCPC (e.g., 1st contingency, 2nd contingency, VAR, SCR)

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Example of multi-hour NCPC credit division among individual hours in the period

• Total losses of ($160) occurred over two hours• Hourly NCPC credit is apportioned based on each hour’s

contribution to total losses• NCPC costs are allocated in accordance with the reason for out-of-

merit operation7

MAJOR INITIATIVE IMPACT ANALYSISFinalized assumptions and Committee-requested changes

The NCPC project is a Major Initiative and requires the ISO prepare an Impact Analysis• A quantitative impact analysis will compare historical credits

for out-of-merit operation to credits calculated under the proposed design by applying new settlement rules to energy market outcomes

• Study period: 2010-2012• Self-Schedules interpreted as offer at current offer floor

($0/MWh)• RT Decision Intervals modeled using available data• Credits totaled by month, DA/RT, and commitment reasons• Final analysis results will be presented at the July MC

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MC members suggested alternative methods

• ISO proposed a supporting analysis with credits calculated under the assumption each decision interval was 1 hour long– Demonstrate “upper-bound” of credit change for sub-daily periods

• Based on feedback, this study will be modified:– First decision interval following a startup includes all hours of the

resource’s minimum run time– Each hour after minimum run time expires will be a single hour

decision interval– This is consistent with the proposed credit design and will provide a

more realistic upper-bound estimate

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Decision Interval AMin Run Time = 3 Hours

Interval B1 hour

Interval C1 hour

Interval D1 hour

MC members suggested additional analyses

• MC members requested an alternate analysis where DA NCPC considers as-bid cost for Startup and No Load– Similar to existing design for DA NCPC

• Assumptions for this alternate analysis:– DA NCPC will consider the scheduled costs for Startup and No Load to

determine credit– RT NCPC will consider only Startup and No Load costs for additional

operation in real-time

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Project Schedule

• July MC– NCPC Credits design – refinements and additional details– Impact Analysis results

• August – tariff language

• September – MC vote

• October – PC vote

• October/November – FERC filing

• Q4 2014 – NCPC credit design becomes effective coincident with the Energy Market Offer Flexibility rules

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