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Proposals for FCM: Delist Bids

Proposals for FCM: Delist Bids. Pete Fuller NEPOOL Markets Committee October 10/11, 2012. Today’s Discussion. Continue discussion from September MC Two proposals: Standby Payment for resources with delist bids rejected for reliability

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Proposals for FCM: Delist Bids

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  1. Proposals for FCM: Delist Bids Pete Fuller NEPOOL Markets Committee October 10/11, 2012

  2. Today’s Discussion • Continue discussion from September MC • Two proposals: • Standby Payment for resources with delist bids rejected for reliability • New types of existing resource offers (delist bids) to facilitate repowering and enhance risk management tools for existing FCM resources • Non-Priced Permanent Delist Request • Priced Retirement Request

  3. Qualifier • NRG continues to believe FCM is deeply flawed as it is currently structured and administered: • Mitigation of existing resources should provide an opportunity for the marginal capacity resource to recover all of its annual fixed costs • A demand curve that recognizes the incremental value of additional capacity is essential, especially in the absence of a supply curve based on long-run costs • Reliability reviews of existing resource offers (delist bids) should be eliminated; all constraints that are to be enforced in the auction should be specified in the auction requirements

  4. Standby Payment for Delist Bids Rejected for Reliability

  5. Proposal • Establish a ‘Standby Payment’ for an existing resource offer (delist bid) rejected for reliability equal to 10% of its annual FCM payment (based on its delist price) • In the event ISO later accepts a delist bid initially rejected for reliability, a Cancellation Payment, equal to the Standby Payment, would also be paid • Resource owner may also file at FERC for recovery if actual prudently-incurred incremental expenses to ensure availability for the relevant CCP exceed 20% (eg, a major overhaul that would not have been done if the resource was certain to delist) • As under current rules, ISO may not accept a rejected delist bid after June 1 one year prior to the relevant CCP

  6. Details • Under the proposal: • 10% Standby Payment would accrue as soon as ISO rejects a delist bid for reliability reasons • 10% Cancellation Payment would accrue upon notice from ISO reversing the reliability determination and accepting the delist bid • Total payment for a resource held for reliability through the Capacity Commitment Period would be 110% of its delist bid price • Total payment for a resource held for reliability and then released would be 20% of its delist bid price • Payment might need to occur in the relevant CCP rather than at the time of delist bid rejection or acceptance

  7. Other Considerations • Costs of being held for reliability subject to later release include: • Uncertainty in budgeting and planning for the Capacity Commitment Period and intervening periods: staffing, major maintenance, capital investment • Loss of opportunity to seek transactions to acquire capacity obligations (if delist bid is ultimately accepted) • Loss of opportunity to seek transactions to shed capacity obligations for intervening CCPs • 10%/20% is a nominal premium for incurring the opportunity costs and uncertainty

  8. Next Steps • Continued consultation with ISO and stakeholders • Develop and circulate market rule language • Further Markets Committee discussions • Vote at a future MC and PC • Rule changes should be effective prior to the start of Existing Resource Qualification for FCA8

  9. Changes to Available Existing Resource Offer (Delist Bid) Types

  10. FCM Offering Options for Existing Resources * Should also consider continuation of CNRC rights – beyond the scope of this proposal

  11. Gaps in the Current Structure • For any resource seeking to exit the market in its current configuration and retain maximum potential to repower in a new configuration: • If a Permanent Delist Bid is rejected for reliability, the resource is paid its bid price • PDBs reflect only a fraction of short-run cash costs, ensuring a financial loss • Low PDB price also increases likelihood of taking on a market-priced CSO, which may also be at a financial loss • Unconditional exit can only be secured with a Non-Price Retirement Request, which ensures termination of all interconnection rights • If NPRR is rejected for reliability, option to seek cost of service is wholly ineffective (as shown at Salem Harbor)

  12. Summary • Why a Non-Price Permanent Delist Request? • Allow resource owners to position candidate repowering resources for development when the market rebounds • Allow resources to avoid risk of providing reliability service at a loss • Why a Priced Retirement Request? • Allow resource to establish a compensatory rate for potential reliability service in advance of the auction • Available to any existing resource

  13. Next Steps • Continued consultation with ISO and stakeholders • Develop and circulate market rule language • Further Markets Committee discussions • Vote at a future MC and PC • Rule changes should be effective prior to the start of Existing Resource Qualification for FCA8

  14. Thanks for your consideration.

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