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Whither FCM? Restructuring Roundtable Peter D. Fuller December 17, 2010

Whither FCM? Restructuring Roundtable Peter D. Fuller December 17, 2010. FCM Reform Status. FERC is evaluating the briefs filed in the paper hearing. The last briefs were filed on September 29

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Whither FCM? Restructuring Roundtable Peter D. Fuller December 17, 2010

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  1. Whither FCM?Restructuring RoundtablePeter D. FullerDecember 17, 2010

  2. FCM Reform Status • FERC is evaluating the briefs filed in the paper hearing. The last briefs were filed on September 29 • FERC indicated a target for a final order by March 1, 2011 and implementation for FCA5 (June 2011, for delivery 2014/15) • ISO has indicated FCA6 as earliest implementation for many of the pending reforms

  3. Key Supplier Issues in FCM • Pending at FERC Now: • Need to completely address price distortions from out of market entry • Fully addressing ‘OOM’ entry from FCAs 1-3 in the prospective application of Alternative Price Rule • Need to make FCM locational • Monitor all zonal interfaces all the time for potential constraints (and avoid over-mitigation) • Need to re-set the auction price parameter • Floor prices in FCA1-4 have provided no market information on the cost of new entry (“CONE”) • Still pending the stakeholder process • FCM product definition & ‘comparability’ of dispatchable and non-dispatchable generation and demand resources

  4. Sustainable Markets • To Succeed, the Markets Need to Have: • Clear and consistent obligations for all providers of the product • Reliability product definition should be technology-neutral and fully specify both the ‘planning’ and ‘operational’ needs for reliability • Are there in fact multiple products, a la quick-start capability procured in LFRM? • ramp capability, dispatchability, other? • The economic system must be self-contained and internally consistent • No external subsidies • Operational and investment decisions should be consistent with visible market prices

  5. Sustainable Markets (2) • Recognize, and allow market prices to reflect, all reliability constraints • FCM zonal pricing should reflect marginal resource needed to satisfy identified constraints, including those identified through ‘reliability review’, if needed • Energy markets should have no ‘out-of-merit’ dispatch; marginal price to satisfy a constraint should be visible in LMP • Monotonically-increasing supply curve in energy markets • No un-priced “reliability dispatch” of demand resources or other operator actions

  6. When You Come to A Fork … • Centralized Auction-based Market • Challenges in adequately defining the product(s) and specifying the constraints • Challenges in avoiding out-of-market distortions • Is new entry financeable? • Contract-based Market • Allocate responsibility for the reliability product to LDCs or others on behalf of end-use customers • Contract-based system for assembling portfolios of new and existing resources to meet reliability obligations • LDCs, states, etc could address their own policy goals in their approach to the portfolio, provided it meets the reliability product needs of ISO-NE

  7. Where Does the Future Lie? • Recent capacity resource additions are overwhelmingly contract-based, not market-based • Current market price outlooks are not sufficient to support investments to renew the aging fleet or to achieve state and regional environmental and other policy objectives • FCM may be incapable of supporting investment due to the short tenor of the guaranteed price, plus heightened regulatory uncertainty • Long-term contracts for renewables and repowering with efficient new combined cycle plants will advance the regional goals of lower emissions, lower cost, enhanced reliability and regional energy independence* • Can contracts co-exist with FCM? Do we need to look at a contract-based capacity mechanism? * See, New England Governors’ Renewable Energy Blueprint, September 15, 2009

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