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February 27, 2014 | NEPOOL Markets Committee

February 27, 2014 | NEPOOL Markets Committee. Matt Brewster. Market Development mbrewster@iso-ne.com | 413.540.4547. Conforming market design changes needed for FCA9 (to be filed April 1, 2014). System Sloped Demand Curve: FCA9 conforming change items.

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February 27, 2014 | NEPOOL Markets Committee

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  1. February 27, 2014 | NEPOOL Markets Committee Matt Brewster Market Developmentmbrewster@iso-ne.com | 413.540.4547 Conforming market design changes needed for FCA9 (to be filed April 1, 2014) System Sloped Demand Curve: FCA9 conforming change items

  2. First set of conforming changes: items needed to conduct FCA-9 with system sloped demand curve The last slide of this presentation describes the expected timeline for addressing other conforming change items for the sloped demand curve design

  3. Forward Capacity Auction Conforming changes to FCA Starting Price, descending clock auction (DCA), and market clearing engine (MCE)

  4. FCA Starting Price set at the “cap” price on the system sloped demand curve • The FCA Starting Price will be set at the system sloped demand curve “cap” price (III.13.2.4) • With Brattle’s proposed curve cap is MIN (2x Net Cone, Gross CONE) • Consistent with maximum price demand is willing pay (as represented in the auction by the sloped demand curve) • Applies for all capacity zones • Represents future dollar value • Eliminate use of De-List Bids at FCA Starting Price to withdraw qualified capacity (“QC”) • Today, de-list bids at the starting price are used to withdraw capacity that cannot be provided through the commitment period • ISO will replace use of these de-list bids by revising the FCA Qualified Capacity for a resource prior to the auction • Addresses FCA9 software development requirement

  5. Modifications to descending clock auction and market clearing engine rules • Descending Clock Auction (“DCA”) • Amount of capacity purchased in the FCA will be established by the sloped demand curve, rather than “100% of Net ICR” (§III.13.2.2) • DCA round closing conditions will evaluate whether total supply is less than the quantity of demand specified by the sloped demand curve during the round, rather than “less than Net ICR” (§III.13.2.3.3) • Market Clearing Engine (“MCE”) • Remove Tie-Breaking Rules subsection (a). No longer applicable under the current optimization objective function to maximize social surplus and not needed with sloped demand curve “Where the provisions…for clearing the Forward Capacity Auction…result in a tie…the auctioneer shall apply the following rules…to determine clearing: • The auctioneer shall clear the resources in such a manner as to maximize the total amount of capacity procured.” (§III.13.2.7.7) • Clean-up item for FCA9 software development

  6. Administrative Pricing Rules Conforming changes to system-wide and import-constrained capacity zone administrative pricing rules

  7. Administrative pricing rules: system-wide • System-wide Inadequate Supply (§III.13.2.8.1.2) • Remove in entirety • System sloped demand curve mitigates against price spikes more efficiently • System-wide Insufficient Competition (§III.13.2.8.2) • Remove in entirety • System sloped demand curve mitigates against exercise of market power more efficiently January 24 Order requires ISO to file a sloped demand curve in order to eliminate administrative pricing rules

  8. Administrative pricing rules: import-constrained capacity zones • Not changing: • Trigger conditions • New capacity payment rate under Inadequate Supply or Insufficient Competition • Replace administrative rates with Net CONE: • For Inadequate Supply and Insufficient Competition, Net CONE replaces $7.025/kW-month • For Capacity Carry Forward Rule, Net CONE replaces ORTP of a combustion turbine • Administrative rate for existing capacity in import zone will be at least the price paid to existing in Rest-of-Pool capacity zone • Rest-of-Pool price set by the system sloped demand curve more accurately reflects the value of existing capacity system-wide Tariff sections: Inadequate Supply (§III.13.2.8.1.1); Insufficient Competition (§III.13.2.8.1.1); Capacity Carry-Forward Rule (§III.13.2.7.9)

  9. Summary and schedule • Summary: • Conforming changes for FCA9 include: rules related to conduct of the FCA (starting price, auction rounds, clearing rules) and administrative pricing rules • After review, ISO identified no conforming changes are needed for provisions related to Self-Supply FCA Resource Eligibility, Capacity Rationing Rule, Treatment of Real-Time Emergency Generation Resources, or Reporting and Price Finality • Schedule: • Detailed proposal for these conforming change items and the Tariff redlines will be presented at the March 12-13 MC meeting

  10. Future steps on other conforming change items • Conforming changes related to the calculation of Capacity Requirements (§III.12) to establish the demand curve quantity parameters will begin at the March 17th RC meeting • Discussion of conforming changes for capacity zone sloped demand curves are likely to start 1 to 2 months after the April 1st system demand curve filing • Discussion of conforming changes to rules pertaining to post-FCA functions of the FCM (e.g., reconfiguration auctions) are likely to start after capacity zone sloped demand curve changes

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