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2014 – 2015 Winter Reliability Program UI Amendments NEPOOL Markets Committee June 10, 2014

2014 – 2015 Winter Reliability Program UI Amendments NEPOOL Markets Committee June 10, 2014. Summary of Amendments. Four separate amendments Change excess LNG rate to $8.00/ MMBtu Allow ISO the ability to say “no” to compensation eligibility for late season oil refills

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2014 – 2015 Winter Reliability Program UI Amendments NEPOOL Markets Committee June 10, 2014

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  1. 2014 – 2015 Winter Reliability Program UI Amendments NEPOOL Markets Committee June 10, 2014

  2. Summary of Amendments • Four separate amendments • Change excess LNG rate to $8.00/MMBtu • Allow ISO the ability to say “no” to compensation eligibility for late season oil refills • Establish September 5, 2014 deadline for participants to provide notice of participation • Extend program date for unused inventory to March 15

  3. Rationale for LNG Price (1) Graph from Peter Brandien’s 4/1/14 presentation at FERC on Cold Weather Operations

  4. Rationale for LNG Price (2) • $3/MMBtu is not sufficient • Based on less volatile oil prices • $8.00/MMBtu is based on a put option calculation • Gas specific (not substituting oil price & volatility) • Specific inputs: • $25 for strike; $30 for underlying forward price • $30 forward recognizes that there will likely be a number of $30+ days during a typical winter • Dec ’13 – Feb ’14 citygate price volatility of 200.24% • 90 day time to expiry • There are many reasonable combinations of assumptions/inputs; all result in values above $3 • Most result in prices well over $10 • $8.00 was the lowest result from reasonable cases

  5. Late Season Refills • The oil inventory program allows generators to add inventory late in the season if they provide “notice” to ISO by February 1, 2015 • This allows for compensation for inventory that may not be needed • The program needs to be minimally invasive into the market and needs to be managed to minimize consumer costs • ISO needs to have the ability to say “no” to compensation eligibility for any late season refills • UI would be amenable to ISO setting a specific triggering event to rejection of compensation eligibility • E.g. if aggregate inventory on February 1 ≥ X, late season refills will not qualify for program compensation

  6. Notification Deadline • If the program nets limited participation, further action may be necessary • ISO and NEPOOL need as much time as possible to deal with a participation shortfall • Section II.K.2 allows participants to notify ISO of their participation by October 1, 2014 • Under 60 day timeline, expect a FERC order close to September 1 • Proposing September 5, 2014 deadline to maximize the amount of time to address alternatives • Also change date for ISO’s conditional acceptance in III.K.4(b) to September 20

  7. Extend Program Date • Incurred oil burn in March 2014 • Based on March 2014 burn, savings would be approx. $7.0M

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