Understanding Generator Posturing in ISO New England Markets

1. September 24, 2013 | NEPOOL markets committee ISO New England - market development Summary of NCPC Credit for Postured Generators NCPC Payments – Generator Posturing Jon Lowell & Matt Brewster

2. Preface This document presents new material not previously discussed at the Markets Committee. Therefore, every slide is labeled as: New Slide – 09/24/13

3. New Slide – 09/24/13 What is Posturing? • “an action of the ISO to deviate from the jointly optimized security constrained economic dispatch for Energy and Operating Reserves solution for a Resource … for the purpose of maintaining sufficient Operating Reserve (both online and off-line) or for the provision of voltage or VAR • When the ISO postures a resource, the resource incurs an opportunity cost • The posture order prevents the resource from operating at times and at output levels that would have been profitable • The Posturing Credit is intended to make the postured resource financially no worse off for having followed the ISO’s posturing instructions.

4. New Slide – 09/24/13 Posturing for Limited Energy Resources • A Limited Energy Resource is postured to preserve some amount of the available energy for future hours to provide operating reserves, VAR or voltage support in a future hour. • A manual decision is required because the cooptimized energy dispatch only incorporates a 15 minute lookahead. • To meet the “no worse off” NCPC design principle, the posturing credit must compare the resource’s actual revenues to the “best alternative” revenues had the resource not been postured. • The Best Alternative results from using the postured energy in the highest priced hours, subject to the unit’s real-time EcoMax, EcoMin, hourly LEG

5. New Slide – 09/24/13 Posturing for Limited Energy Resources • Since the same “fuel” is used in the actual dispatch and the best alternative proxy dispatch, the cost is the same for both, except… • A postured resource may have energy left unused at the end of the day • The cost of replacing the unused energy the next day is avoided • The Posturing Credit values the energy remaining in storage at the end of the day at the estimated avoided cost to replace the energy the next day: • For Pump Storage Resources, replacement cost = RTLMP for HE1-3 • For other LEG Resources (storage hydro, gas units with LEG), value of unused energy = 0

6. New Slide – 09/24/13 Posturing for Limited Energy Resources • Posture Credit for a Limited Energy Resource: = Max[0, Best Alternative Margin – Actual Margin] = Max[0, (Energy RevenueBA + Remaining Energy MWhValueBA) – (Energy RevenueACTUAL+ Remaining Energy MWhValueACTUAL)] • Energy RevenueBA = Best Alternative Energyh x RTLMPh • Best Alternative Energyh represents the hourly use of available energy that maximizes potential Real-Time revenue • Energy RevenueACTUAL = Actual Energyh x RTLMPh • Evaluated from start of posturing through the end of the Operating Day • Available energy for shared fuel resources divided equally amongst units • For non-Fast Start resources, available energy is dispatched in contiguous hours (no shutdown & restart)

7. New Slide – 09/24/13 Generator with Limited Energy (Fast Start) postured though end of operating day (pumped storage)

8. New Slide – 09/24/13 Generator with Limited Energy (Fast Start) postured temporarily and later dispatched (pumped storage)

9. New Slide – 09/24/13 Posturing for non-Limited Energy Resources • A resource that is not energy-limited is only postured to meet a reliability need that is not fully reflected in the energy & reserve dispatch. • Once again, a manual decision is required • No need to estimate the value of postured energy shifted to future hours, since there is no limit on available energy • Credit is determined separately for each postured hour • A Best Alternative Output (BAO) level is determined for each hour, based on the resource’s energy offer curve, and subject to EcoMin, EcoMax, RTHOL and hourly LEG • If BAO <= Actual energy, then credit = 0

10. New Slide – 09/24/13 Posturing for non-Limited Energy Resources • Hourly Posture Credit for non-Limited Energy Resources: = Max[0, Best Alternative Margin – Actual Margin] = MAX[0, (RTLMP * BAO – Energy Cost at BAO) – (RT LMP * RQM – Energy Cost at RQM)] • Energy cost includes No-Load and Startup Fees • For fast starts postured offline, total Start-Up fee is included each hour • For non-fast starts postured offline, remaining Start-Up fee from the RT Commitment NCPC credit is included in each hour • For resources postured online, SU & NL for BA is same as Actual and can be ignored

11. Fast-Start generator postured offline (without energy restriction) New Slide – 09/24/13

12. Generator postured to reduce energy output (without energy restriction) New Slide – 09/24/13

13. New Slide – 09/24/13 Allocation of Posturing Credits • Total daily posturing credit for a LEG resource is allocated to the “reason” for the posture instruction identified at the time of the posture decision • For example, 1st Contingency, VAR, etc.) • The hourly posturing credit for non-LEG resources is allocated in accordance with the hourly reason for the posture decision, if so identified.