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Proposal for Performance Incentives

Proposal for Performance Incentives. Michelle C. Gardner NextEra Energy Resources. Markets Committee October 29, 2013. NextEra is sponsoring a package of amendments needed to improve Performance Incentives. A Three-Part Package. No Phase-In of the Performance Payment Rate

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Proposal for Performance Incentives

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  1. Proposal for Performance Incentives Michelle C. Gardner NextEra Energy Resources Markets Committee October 29, 2013

  2. NextEra is sponsoring a package of amendments needed to improve Performance Incentives A Three-Part Package • No Phase-In of the Performance Payment Rate • $5,455 starting with FCA-9 • Revisions to Monthly Stop Loss • “Minimum Hour Rule” • Transmission Exemption • Full outages

  3. Changing the PPR will significantly alter investment incentives and the system’s resource mix PPR Should Remain at $5,455 with No Phase-In • PPR set at $5,455 for FCA-9 with no further changes • PPR and LMP together need to provide the right incentives to deliver energy and reserves during scarcity conditions (ISO-NE Memo, September 4, 2013) • If PPR is too low, ISO-NE concludes that the following can occur (ISO-NE Memo, September 4, 2013): • Resources with poor performance may clear in the FCA, displacing competing resources with substantially better performance • The market produces a worse-performing resource mix, which lowers the amount of energy and reserves the ISO can expect to obtain during tight system conditions when reliability is at heightened risk; and • Perversely, with a lower PPR, suppliers find poor performance can be more profitable than better performance

  4. Stop Loss (and exemption) should limit risk – not PPR Revisions to Monthly Stop Loss • Create a “Minimum Hour Rule” to provide greater management of risk during low capacity clearing prices • For the capacity clearing price: • At or below $4/kW-month, the monthly stop-loss is $10/kW minus the capacity clearing price • Between $4/kW-month and $6/kW-month, the monthly stop-loss is 1.5 times the capacity clearing price • At or above $6/kW-month, the monthly stop-loss is $15/kW minus the capacity clearing price • NextEra supports ISO-NE’s Annual Stop Loss Construct, provided NextEra’s monthly stop loss limits are adopted

  5. Revisions to Monthly Stop LossPPR at $5,455 with Balancing Ratio at 0.75 for 100 MW Unit ISO-NE’s proposed monthly stop loss places unreasonable economic risk on capacity suppliers, particularly when capacity clearing prices are low

  6. The stop loss alone does not mitigate potentially catastrophic transmission outage risk Transmission Exemption • If a Capacity Resource cannot be committed because of a Transmission Outage, it will be excused from paying any PI penalties during the term of the Transmission Outage • PI is intended to provide incentives for capacity suppliers to have their resources operating during periods of greatest needs. Since transmission outages are beyond the control of capacity suppliers, it is unclear what reliability benefit could occur by charging PI payments when transmission outages keep a Capacity Resource off-line • Exemption from PI payments applies during a Capacity Shortage Condition if that resource was not committed solely as a result of a transmission outage or transmission de-rating • Exemption does not apply when transmission congestion on the intact transmission system results in a resource not being committed or dispatched

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