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Winter 2013/14 Firm Fuel RFP

Winter 2013/14 Firm Fuel RFP. Statement of the Problem.

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Winter 2013/14 Firm Fuel RFP

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  1. Winter 2013/14 Firm Fuel RFP

  2. Statement of the Problem The unpredictable frequency, magnitude and duration of high “spot” (gas scarcity) delivered natural gas prices in New England coupled with the existing market rules for establishing the reference price for market offers and LMPs not reflecting the true cost to deliver energy, especially during scarcity, make it unprofitable for generators to maintain the level of alternate fuel inventories (oil and/or LNG) that the ISO deems necessary for reliability. Presentation Title

  3. Objectives of the Firm Fuel Procurement • Objectives of the Firm Fuel Procurement • Meet the ISO’s reliability needs at the lowest cost • Permit the energy market to reflect the scarcity situations by having the value of the premium product reflected in the LMPs instead of out of market commitments • Minimize out of market payments Presentation Title

  4. How to meet these objectives • “All source” procurement: oil units, dual fuel, and LNG compete against each other • Bidders must agree to meet the ISO’s reasonable supply requirements, in return for a fixed payment and the right to offer up to an adjusted reference price under natural gas scarcity conditions • Bidders offer a capacity amount in MWs and a fixed payment required to provide the service • ISO accepts offers in ascending order until required MWs of supply are met as established by the ISO • All winning bidders are paid the market clearing price • Significant penalties for failure to perform, 75% of clearing price for failure to run because of lack of fuel for the first instance, an additional 75% for the second failure capped at 200% of the clearing price. • Alternate reference price equals reference price plus $75/MWH. This represents the opportunity costs of saving fuel to cover penalty exposure. • Alternate reference price triggered during any offer period (DAM and RAA) where AGT/HH basis differential exceeds $10. • ISO can call on firm fuel units at anytime during a triggered event Presentation Title

  5. Advantages • Easily implementable within the ISO proposed construct. • Permits more market participants to participate – minimizing total costs • Alternate reference price provide opportunity to recover the costs of maintaining fuel inventories in the energy market • Limits LMP suppression and uplift, while accurately reflecting the value of the firm fuel. • Alternate reference price provision allows bidders to offer at a lower lump sum charge, reducing out of market charges • Can be implemented for next winter – no software/systems changes required • Eliminates the discussion about reference fuel inventory levels Presentation Title

  6. Reasonable Needs • Total required MWs calibrated to historical experience • No required minimum inventory, inventory levels will be driven by generator’s exposure to non-performance penalties. Presentation Title

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