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Revised NU Demand Curve

Revised NU Demand Curve. For MC Review March 12, 2014. Background.

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Revised NU Demand Curve

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  1. Revised NU Demand Curve For MC Review March 12, 2014

  2. Background • At the February 27 MC meeting, NU offered a demand curve that had a cap at 1.5x Net CONE, a straight slope with no kink starting at a MW value corresponding to 1 day in 5 years and an x-axis intercept at 1 day in 100 years (21.5% reserve margin). • That curve was very close statically to the Initial Candidate Curve prepared by the Brattle Group. However, its long term average LOLE was 0.107 days/yr where the target is 0.100 meaning it is slightly less reliable than target. • In an attempt to improve the reliability of the curve, NU requested Brattle to analyze a curve with a cap of 1.6x Net CONE keeping the other two parameters the same. The result was a curve with a long term average LOLE of 0.095 – slightly more reliable than the target of 0.100

  3. Background (continued) • One more time • Given the results of the analysis for NU’s two curves, NU asked Brattle to do one more analysis on a curve that was capped at 1.5x Net CONE and tune the x-axis intercept to achieve the target reliability of 0.100 • The result of that analysis was a curve that intersected the x-axis at a reserve margin of 22.4% (109.2% of NICR) compared with the Initial Candidate Curve and the previous NU curve having reserve margins at the toe of 21.5% (108.3% of NICR) - an increase of 0.9%.

  4. Northeast Utilities Updated Curve = NU-31.5x Cap, Right-Shifted Toe, Tuned to 1-in-10

  5. The NU Demand Curve Meets Important Design Principles • Meets the reliability objective of 1 day in 10 years • Flatter curve reduces price volatility when supply is tight (near or below NICR) • Reduces the incentives for exercising market power for both buyer and seller • A straight curve without a kink simplifies the curve’s development (and updates). • Is within a reasonable price cap range of 1.5 – 2.25 x Net CONE (suggested by Brattle) • A price cap of 2.0x Net CONE is not in line with other capacity markets in the region that are using a demand curve. A price cap of 1.5x Net CONE is in line with the other capacity markets in the region.

  6. APPENDIX

  7. Curves for EvaluationNortheast Utilities Submitted Curve = NU-1

  8. Northeast Utilities Updated Curve = NU-2

  9. Northeast Utilities Updated Curve = NU-31.5x Cap, Right-Shifted Toe, Tuned to 1-in-10

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