Market Rule 1 Amendment: Timing of FCA Bids and Offers

1. Market Rule 1 Amendment:Timing of FCA Bids and Offers Pete Fuller NEPOOL Markets Committee October 10, 2012

2. 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

3. NRG’s Original Proposal • In November & December 2011, NRG presented a proposal for Non-Binding Static Delist Bids, in which the MMU-approved price would be the upper limit on the resource’s participation in the descending clock auction • With this proposal: • Static delist bid prices could be no higher than under current rules • Resource owners with approved static delist bid prices could lower their prices in the DCA • All bids and offers from new and existing capacity would become binding within the DCA • ISO did not support, based on an asserted need to pre-analyze static delist bids for reliability impacts, in the price order approved by the MMU

4. Proposed Amendment • In conjunction with ISO’s proposal to allow modification of delist bids within seven days after the Qualification Determination Notification, NRG proposes that all bids and offers, from new as well as existing resources, become binding at that time* * NRG continues to support a construct in which all bids and offers (including delist bids below the reviewed and approved ‘reference’ price) can be entered during the descending clock auction. However, ISO has taken the position that static delist bids must become binding months prior to the auction. Given that structure, NRG proposes that all bids and offers should become binding at that time.

5. Proposal • All new and existing resources submit their prices no later than 7 days after QDNs are issued • Under ISO’s proposal, any existing resource offers (delist bids) submitted in advance for Market Monitor review may elect the MMU-approved price or lower, up to seven days after the QDN (or may challenge at FERC following the Informational Filing) • In the interest of comparability, all resources participating in the auction to transact the same product should be subject to the same deadlines for pricing • The fully-specified supply curve in advance of the auction will also enable more efficient auction clearing and less uncertainty in reliability reviews

6. Details • The auction would no longer have a live, ‘descending clock’ element, since the supply curve would be fully specified in advance • ‘Dynamic’ delist bids would continue to exist but would be entered with the same deadline at which other delist bids and new resource offers become binding • The distinction between ‘Dynamic’ and ‘Static’ delist bids would primarily be the allowable price levels • No change proposed to the allowable price elements of a Static or Permanent Delist Bid, or MMU’s standard of review • Permanent or Static delist bid prices rejected by MMU could be challenged at FERC as a protest to the Informational Filing, as provided under current rules

7. More Details • Proposed market rule changes are in III.13.1.2.3.1.1.2 (ISO’s proposed language to implement Static Delist Bid flexibility) and III.13.2 (Annual Forward Capacity Auction) • Eliminate details of the descending clock, including ‘rounds’ • Add the deadlines for submittal of bids/offers in III.13.2.3.2(g) • Eliminate ex post review of Dynamic Delist Bid prices at FERC in III.13.2.5.2.5.1(a)(i)

8. Timeline (based on FCA8 dates) • June 3 – Static and Permanent Delist Bids due • September 27 – Qualification Determination Notifications, including MMU determinations on PDB and SDB prices • October 4 – election deadline to accept or modify MMU-approved PDB and SDB (7 days after QDN) • Under the proposal, all Dynamic Delist Bids and New Resource Offers would be due at this time • October 6 – Non-Price Retirement Requests due • November 5 – FERC Informational Filing • November 20 – deadline for challenges to MMU qualification determinations • January 20 – deadline for FERC order on Informational Filing • February 3 to 7 – Forward Capacity Auction

9. Why Make This Change? • The four-month difference in offer deadlines for existing resources and new resources is inappropriately discriminatory • Offer prices may be influenced by external events occurring between October and February: • Fuel price movements • Environmental or other regulatory changes • Natural or man-made disaster (eg, Fukushima) • All resources competing to serve as capacity in a given Capacity Commitment Period should have access to the same set of external facts when they commit to a price • With dynamic delist bids limited to $1/kW-month or less, the descending clock is no longer needed

10. Thanks for your consideration.