Auction For Quick-Start Capability

1. Auction For Quick-Start Capability Mario DePillis 10/10/01 NEPOOL Markets Committee

2. Outline • Basics: offers, requirements, fulfilling requirements • Clearing the auction • Payments to resources and charges to Participants • Details • Outstanding issues

3. Basics: The Initial Offer • Portfolio offers (MW, $/MW). • 3 month supply period. • No resources identified. • Load can enter offer. • Offers of self-supply in MW noted.

4. Basics: The Product • The product: QS Capability. • 10 or 30 minute off-line reserve capability. • Financially reserved capability. • Qualifying blocks. • All Settlement Resources Examined. • Entitlements, Self Supply, Bilateral Trades.

5. Basics: Reserving Capability • Physical vs. Financial • Physical reservation segregates resources, increases costs. • Physical reservation would require new vendor software for both commitment and dispatch.

6. Basics: Financial Reservation • Financial reservation is energy blocks above fixed floor. • Financial reservation an energy opportunity cost. • Financial reservation provided by those with lowest opportunity cost. • Financial reservation does not require change in vendor software.

7. Basics: Meeting Supply Requirement • Supply measured after-the-fact. • Settlement only accounting. • Measured over all Settlement Resources. • No day-ahead notice or designation of resources. • Excess QS 10 Cap substituted for QS 30 Cap to meet requirement.

8. Basics: Self-Supply • Will it be allowed? Yes. • Principles: • Same timing as central supply. • Same requirements on bids, delivery as central supply. • Same penalties for non-delivery.

9. Basics: Self-Supply • Possibility 1: Give notice of MW self-supply by auction deadline. • Possibility 2: Partial self-supply through supply offer. • Possibility 3: Financial self-supply, $0 supply offer.

10. Basics: FEQSR Units • “Financial Equivalent Quick-Start Resource” • Allows substitution of spin for non-spin. • Treated same as on-line quick-starts such as hydro. • Required to have zero energy uplift for the day. • Day-ahead notice not required.

11. Basics: Bilateral Trades • Will it be allowed? Yes. • Essential for short-term adjustments. • Scheduled outage? Buy QS Capability bilaterally. • Lost auction? Sell QS Capability bilaterally. • No load? Accept QS Capability Obligations.

12. Basics: Bilateral Trades • Two types of trades: obligations and resources. • System contracts transfer obligations. • Unit Contracts transfer resources.

13. Clearing: Auction Purchase Amount • Estimated real-time Requirements • Less self-supply. • Less any existing contracts. • Less TMOR Load Response Program (Type 6, Class 1). • Less reductions in requirements due to inter-control area coordination. • Less non-economic purchases.

14. Clearing: Evaluation and Auction Prices • 10 Minute Resources may meet 30 minute Purchase Requirement. • Offer of 10 minute is also offer of 30 minute. • Explicit price cascading.

15. Payments and Charges: Monthly Process • Monthly billing. • Hourly settlement. • Hourly payments, penalties, charges.

16. Payments and Charges: Obligations • Charges based on obligations • The Participant's allocated share of TMNSR (TMOR) hourly requirement. • System contracts transfer obligations. • Old system contracts now for QS Cap Obligations.

17. Payments and Charges: Dispatchable Contracts • Reserve prices disappear. • Dispatchable contracts based on reserve price disappear. • Could calculate hourly QS Capability “price.” • What is desirable?

18. Payments and Charges: Energy and TMSR • No penalty or payment reduction if called for energy. • Energy at energy offer price. • Still eligible to set ECP. • MW of QS Capability paid reduced by MW of TMSR designation. • No penalty for TMSR designation.

19. Payments and Charges: Hourly Payment • Delivery measured on aggregate portfolio level. • Surplus QS 10 cap resources applied to QS 30 cap requirement. • (Requirement x CPQS) -(TMSR MW x CPQS) -(Shortfall x Penalty)

20. Details: Financial Reservation • Financial reservation through energy price band. • Goals: • High probability that resource will be available to produce energy when called. • Energy price band • Limit on start-up and no-load

21. Details: Energy Price Band • Upper band at Min[Energy Bid Cap, $1000] • Lower price band at 98% of last 12 months • 98% reasonable expectation that it will not be used for energy except for OP-4 or contingencies. 175 hours during a year. • Auction to auction 98% point will not be same. • Other Approaches?

22. Details: Ceiling on Start-Up and No-Load Reasonable Expense -- as a percentage of operating cost at LOL Percentage to be determines

23. Outstanding Issue: Replacement Reserves • Some replacement reserves should be included • Definition of Replacement Reserves: On-line up to HOL and off-line <30 minute. • Options: • % TMOR in replacement reserve. • Average MWs when units were committed for surplus. • Other Options?

24. Outstanding Issue: Limits On Forward Purchases • At least two possibilities: • Amount of Forward purchase limited by cost of substitute service economic alternative. • Working with Unit Commitment software to estimate costs of adding TMNSR and TMOR tby committing additional units • Amount of Forward Purchase limited by amount offered at less than deficiency charge

25. Outstanding Issue: Penalties • Penalty for QS Capability less than Requirement MW. • Causes: unit outage, failure to bid within requirements, ramp rate reduced from MRP 14 audit.

26. Outstanding Issue: Penalties • Possibility 1: is to base on economic limit of purchase in auction. • Possibility 2: multiple of energy clearing price. • Other Approaches and recommendations