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SMD

Welcome to. SMD. FTR/ARR OVERVIEW. Today’s Presentation. FTRs What are they? What are they worth? How do I get them? FTR Auction startup. Today’s Presentation. ARRs What are they? Who gets them? How are they allocated? How are they valued? ARR settlement timeline Incremental ARRs.

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  1. Welcome to . . . SMD FTR/ARR OVERVIEW

  2. Today’s Presentation • FTRs • What are they? • What are they worth? • How do I get them? • FTR Auction startup

  3. Today’s Presentation • ARRs • What are they? • Who gets them? • How are they allocated? • How are they valued? • ARR settlement timeline • Incremental ARRs

  4. Financial Transmission Rights (FTRs)

  5. What are FTRs? • Financial instrument that entitles the holder to receive a credit or be assessed a charge based on differences in Day-Ahead (DA) Congestion Components of Locational Marginal Prices (LMPs)

  6. FTR Characteristics • Financial entitlement, not physical right • Independent of energy delivery • Settled hourly against differences in Congestion Component of Day-Ahead Energy Market LMPs • Begin and end date • On-Peak or Off-Peak

  7. FTR Characteristics • Identified from source to sink in MWs • Unidirectional • Location to location P T R S Q

  8. Losses Energy Congestion What is an LMP? LMP Cost to serve the next MW of load at a specific location, using the lowest production cost of all available generation, while observing all transmission limits

  9. LMP Congestion Component in a constrained system Thermal Limit 240 MW P T $0.50 $20.00 R $11.15 S Q $13.55 $5.00 Zone 1 $14.90

  10. Congestion Component of LMP Total Load Congestion Component Charges $$$ Zone Congestion Component $ Total Load MWs Total Generation Congestion Component Payments $ Specific Node Congestion Component $ Total Generation MWs Total Generation CC Payments $ Congestion Revenue $$ Total Load CC Charges $$$

  11. Congestion Revenue Fund

  12. How FTR Holders are compensated T P $20.00 $0.50 R $11.15 S Q $13.55 $5.00 Zone 1 $14.90

  13. Things to consider.... Congestion ? FTR ? Consideration • Cost of FTR purchase price • Cost of FTR purchase price • Possible to receive Congestion Credit • Possible to incur Congestion Charge • Not eligible for Congestion Credits

  14. FTR Auction Secondary Market Acquisition of FTRs OR

  15. How can I acquire an FTR? • FTR Auction • Centralized market • Annual and monthly auctions • Method of distributing existing FTR capability • Customers bid for or offer to sell FTRs • Secondary market • Holders can sell all or part of an FTR via registered bilateral trading

  16. FTR and Auction Update • Registration • Financial Assurance • Market Trials • MT1 (August): monthly auction • MT2 (September): Long term followed by monthly auction • Initial Auction • Nov 8 opening of initial monthly auction window for Dec 1 start-up

  17. Auction Startup • First, initial monthly auctions • offer full system capacity • Then, initial long-term auctions • Introduce long-term auctions within 7 months of SMD Effective Date; term > 1 month, < 1 year • Post 30-day notice in advance of initial auction • Include schedule and percent of system offered • Coordinate with neighboring Control Areas • Followed by annual and monthly auctions • 50% of system annually, balance monthly • Within 2 years of SMD Effective Date, evaluate offering FTRs with term > 1 year (1 yr increments)

  18. SMD Effective Date & Auction Scenarios

  19. Auction Time Line • Long-term auction • 5 business day quoting period • opens 5 business days before first day of month preceding period FTRs are effective • results posted within 6 business days (intended to be before monthly auction window opens) • Monthly auction • 5 business day quoting period • opens 15 business days before start of auction month • results posted within 4 business days

  20. Month Preceding the period for which FTRs are being Auctioned Long Term Post Long Term Post Monthly Auction Auction Results Auction Results Opens within 6 BD within 4 BD Midnight Long Term Monthly Auction Auction th th th 5 BD prior Last BD 15 BD 10 BD Last BD Beginning of End of Long Term Monthly Monthly Preceding Preceding Auction Auction Auction Month Month Closes Opens Closes ~ 12 Noon Midnight 12 Noon Beginning of Auctioned Period Beginning 5 business days Beginning fifteen days before the first business day prior to the start of of the month preceding the the auction month period in which the FTRs are to be effective. FTR Auction Timeline

  21. Auction Business Rules Manual 6, Page 3-8 • Non-Participant one-time registration fee of $500 • Bids and Offers: • Bids: may not specify a negative price • Financial Assurance requirement must be met

  22. Questions?

  23. Auction Revenue Rights (ARRs)

  24. ARR Definition & Eligible Entities • ARRs represent shares of revenues generated by sale of FTRs in a specific auction and characterized by: • an injection Node/External Node • a withdrawal Node • a MW quantity • ARRs are allocated to entities exposed to paying the cost of congestion in NEPOOL: • Transmission Customers • Congestion Paying Entities • Parties to Excepted Transactions, NEMA Contracts

  25. ARR Overview • FTR Auction revenues are distributed to: • Sellers of FTRs in the Auction • Certain entities paying for new transmission upgrades (holders of Incremental ARRs as described in Manual 6, section 8) • Entities that pay Congestion Charges (ARRs are awarded through the 4-step process described in Schedule 15 of NOATT)

  26. ARR Allocation: 4-Stage Process • Stage 1 - ARRs (MW) are initially assigned based on: • Excepted Transactions (Attachments G & G2 of NOATT) • Load ratio share of NEPOOL generators and tie sources • Stage 2 - Remove negatively valued ARRs, run SFT • Eliminate initially assigned ARRs having negative values in associated FTR Auction • Reduce remaining ARRs to achieve simultaneous feasibility; these are Stage 2 ARRs

  27. ARR Allocation: 4-Stage Process Stage 3 & 4 reallocate ARRs to NEMA LSEs • Stage 3 • Replace NEMA Stage 2 ARRs with initial assignment of NEMA Contracts • Eliminate initially assigned NEMA Contract ARRs having negative values in associated FTR Auction • Reduce remaining NEMA Contract ARRs to achieve simultaneous feasibility, resulting in Stage 3 ARRs • Stage 4 • Stage 2 and Stage 3 awards are tested for simultaneous feasibility, with only NEMA Stage 2 ARR awards reduced; these are Stage 4 awards

  28. ARR Settlement Timeline Auction revenues are settled on a monthly basis • Monthly Auctions: • Auction revenues are collected and distributed in second month after the auction • ARR quantities and values are calculated using data for the month in which the auctioned FTRs are effective • Long-term Auctions: • Monthly share of revenue (by number of days in a month) collected and distributed as for the monthly auctions.

  29. FTR Auction & ARR Timeline Month Preceding the period for which FTRs are being Auctioned th Bill goes out by the 15 Long Term Post Long Term Post Monthly Bill FTR Auction Bids Auction Distribute Auction Revenues Auction Results Auction Results Opens within 6 BD within 4 BD Midnight Long Term Monthly Auctioned FTRs Effective Auction Auction th th th End of 5 BD prior Last BD 15 BD 10 BD Last BD Auctioned Beginning of End of Month Long Term Monthly Monthly Preceding Preceding - or - Auction Auction Auction All data needed to settle is Month Month st 1 Month for Closes Opens Closes rd available by the 3 BD ~ Long Term 12 Noon Midnight 12 Noon after end of month FTRs Beginning of Settle FTRs Auctioned Allocate ARR Revenue Period Beginning 5 business days Beginning fifteen days before the first business day prior to the start of of the month preceding the the auction month period in which the FTRs are to be effective.

  30. Section 8 - Incremental ARRs (IncARRs) • Schedule 15 provides few specifics • In keeping with SMD, looked to PJM while respecting differences in OATTs • Design principles: • Conform to NEPOOL OATT and existing processes governing transmission upgrades • Measure incremental value of upgrade fairly using mature tools • Offer choices to customers • Provide reasonably enduring results • Correlate with related PJM practices

  31. Section 8- Incremental ARR Overview • IncARRs and Eligibility for Awards • Awarded for new transmission upgrades that make additional FTRs possible • Upgrades paid by RNS rate do not qualify • Share costs, share IncARRs proportionately • IncARRs continue with cost support/upgrade life • In MW, unidirectional, from Node to Node • A claim on auction revenue, not an FTR • Multi-step process offering customer choice • Initially, will offer Interim IncARRs on auction by auction basis (until first annual auction)

  32. ARR Information • Manual 6 Technical Session was held April 26, 2002 • Next Technical session early June • Send comments/questions on ARRs or IncARRs or on Manual 6 by May 20, 2002 to: djames@iso-ne.com

  33. ARR Information • SMD Customer Training scheduled for July,2002: • Intro to eFTR software • ARR session

  34. Still have questions? • ISO on the web: • www.iso-ne.com What’s New • Email: • cstedu@iso-ne.com • CST Helpline: • 413-540-4220

  35. Questions?

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