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Summary of NCPC Redesign for Offer Flexibility

This document provides a complete summary of the proposed NCPC credit design, outlining design details and common concepts for the Day-Ahead NCPC and Real-Time NCPC calculations. It also covers commitment and dispatch decisions and effective offers. Updated as of October 8, 2013.

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Summary of NCPC Redesign for Offer Flexibility

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  1. October 8, 2013 | NEPOOL markets committee ISO New England - market development Complete Summary of NCPC Redesign for Out-of-Merit Operation to Address Offer Flexibility – as of 10/08/2013 NCPC Payments

  2. Preface This document is a complete summary of the proposed NCPC credit design, as of October 8, 2013. Changes to the design from what was presented at the July 10, 2013 meeting , and the date the change was presented, are indicated as: • “New Slide” • “Updated Slide” Minor changes to text are shown in red. Deleted text is shown in light orange with a wavy underline. New Slide – mm/dd/yy Updated – mm/dd/yy

  3. NCPC DESIGN DETAILS Detailed overview of the proposed design for Offer Flexibility

  4. NCPC Detailed Design presentation overview • Common Concepts • Commitment Decisions • Dispatch Decisions • Effective Offers • Best Alternative Framework • NCPC Settlement Periods • Day-Ahead NCPC Settlement (DA NCPC) • Real-Time NCPC Settlement (RT NCPC) • Real-Time Commitment NCPC Credits • Real-Time Dispatch NCPC Credits

  5. Day-Ahead and Real-Time COMMON DESIGN DETAILS Common design elements for both the Day-Ahead NCPC (DA NCPC) and Real-Time NCPC (RT NCPC) Credit Calculations

  6. Commitment Decisions • Occur when the ISO or a participant makes a decision to commit a resource to operate for some period of time • Commitment Decisions have several properties that are considered in the NCPC evaluation • Who made the decision – ISO or participant (Commitment Driver) • Reason for the decision – links to cost allocation (Decision Reason) • Offer in place at the time of the decision (Effective Offer) • Time at which the decision occurred (Decision Time) • Duration of the commitment decision (Decision Interval)

  7. Commitment Decision Occurrences • Commitment Decisions occur throughout the resource scheduling processes. Examples of Commitment Decisions include: • Day-ahead schedule • Real-time schedule (additions to day-ahead) • Real-time fast-start dispatch • Real-time audit demonstration • Participant self-schedule request • Day-Ahead schedules create real-time Commitment Decisions for all resources except for fast-start resources • Commitment Decisions may continue into a subsequent day

  8. New and Modified Commitment Decisions • New Commitment Decisions that create additional schedules do not alter previous Commitment Decisions • For example a day-ahead schedule for HE8-HE10 is not changed by the creation of an additional scheduled in real-time for HE11-HE14 • Commitment Decisions may be canceled prior to the start or terminated ahead of the scheduled end time

  9. Dispatch Decisions • Occur when ISO makes a decision to dispatch a resource above its EcoMin limit • Dispatch Decisions have several properties that are considered in the NCPC evaluation • Dispatch decisions are made by the ISO (Dispatch Driver) • Reason for the decision – links to cost allocation (Decision Reason) • Offer in place at the time of the decision (Effective Offer) • Time at which the decision occurred (Decision Time) • Duration of the dispatch decision (Decision Interval)

  10. Dispatch Decision Occurrences • Dispatch Decisions occur in the day-ahead market (cleared energy schedules) and throughout real time. Examples of Dispatch Decisions include: • Day-ahead schedule above EcoMin limit • Real-time dispatch • Real-time audit request • Real-time manual dispatch (for reliability constraint) • For the purposes of NCPC, Dispatch Decisions are considered to occur with an hourly duration (consistent with the minimum settlement granularity)

  11. Effective Offers for Commitment Decisions Updated – 8/9/13 • When a Commitment Decision occurs, the Commitment Cost of the Supply Offer in place at the time is “locked in” for purposes of NCPC for the duration of the commitment • Commitment Costs include the Start-Up Fee, No Load Fee, Energy Cost at the EcoMin limit • Start-Up Fee is from the offer for the commitment “release for dispatch”start hour • Commitment Cost are locked with each Commitment Decision • Resources with multiple Commitment Decisions through the day may have different Effective Offer costs evaluated by NCPC • Effective Offers for Commitment Decisions that span multiple days are used in settlement for subsequent days

  12. Effective Offers for Commitment Decisions including future Operating Days New Slide – 10/08/13 • The Effective Offer for Resources completing Minimum Run Time in a subsequent day: • For commitments in the DA market or RAA, the Supply Offer in place for HE24 of Day 1 (at time of commitment) establishes commitment costs for minimum run time hours in Day 2 • For commitments made during the operating day (Day 1), the Supply Offer in place for Day 2 (at time of commitment) establishes commitment costs for minimum run time hours in Day 2 • For Resources committed prior to the DA market, the Commitment Costs are established by the Supply Offer in place for the future day (at the time of the commitment)

  13. Effective Offers for Dispatch Decisions • When a Dispatch Decision occurs, the Dispatch Cost of the Supply Offer in place at the time is “locked in” for purposes of NCPC for the duration of the decision (for NCPC considered to occur hourly) • Dispatch Cost is the Energy Cost above the EcoMin limit • The Dispatch Cost is the final offered value used for the day-ahead clearing or real-time dispatch

  14. Effective Offers after a Reoffer or Mitigation Updated – 8/9/13 • Commitment Costs used in the NCPC settlements will be based upon the lesser of the original Effective Offer at the time of commitment or a participant’s final re-offer • For resources that are mitigated, the Commitment and Dispatch Costs used in NCPC settlement will be based upon the mitigated Supply Offer

  15. Effective Offers and changes to EcoMin limit • If the EcoMin limit is redeclared to a different level than was offered at the time of the Commitment Decision, the Commitment Cost is modified as follows: • an increase of EcoMin causes the Energy cost at the commitment EcoMin limit to be applied as the cost of energy between commitment EcoMin and the higher redeclared EcoMin • for reductions to the EcoMin the energy cost at the lower EcoMin level will be used to determine Commitment Cost • During a Minimum Generation Emergency event, the EcoMin is set to the Emergency minimum limit and the Commitment Cost rule for a reduction of EcoMin limit is applied • Dispatch Cost applies to the energy above EcoMin or the Emergency limit

  16. Example of Commitment Cost with higher redeclared EcoMin limit Commitment Cost energy offer EcoMin limit = 90 MW Marginal cost at EcoMin limit = $14/MWh Offer requested offer slope EcoMin limit redeclared to 110 MW Marginal cost at commitment EcoMin limit ($14/MWh) extended up to higher EcoMin limit 90 90 110 Commitment Cost for energy at EcoMin limit is shaded area under the curve

  17. Effective Offers and Self-Scheduling – Day-Ahead Updated – 9/10/13 • For purposes of NCPC credit evaluation, a self-schedule request by a participant in DA is considered to be an offer of: • Start-Up Fee = $0/start • No Load Fee = $0/hour • Energy cost up to EcoMin @ floor price ($-150/MWh) • Energy cost above EcoMin @ prices in energy offer

  18. New Slide – 9/10/13 Effective Offers and Self-Scheduling – Real-Time • In RT, resources are only committed by the ISO for reliability, not economics. • An offline resource that needs/wants to run in RT cannot get online by simply lowering its offer price to its RT cost • A RT self-schedule is the only way to ensure commitment in RT • Valuing EcoMin energy at $-150 is a significant penalty in this situation • For NCPC purposes, a RT self-schedule will be evaluated as follows: • Energy cost up to EcoMin @ $0/MWh • Revenues for energy up to EcoMin excluded from calculation of RT Commitment NCPC credit

  19. Effective Offers and Self-Scheduling Updated – 9/10/13 • When a participant submits an intra-hour request to dispatch at a specific output level: • energy cost up to the requested level is an energy offer at the floor price for the entire hour • Startup Cost = $0 (no impact unless this was a startup hour) • No Load Cost = $0

  20. Best Alternative determinations for NCPC • DA NCPC: • For a resource cleared to deliver energy at a price below its offered cost, the best alternative is to not participate in the day-ahead market • RT NCPC: • For a resource committed to operate over a period, the best alternative is to remain online for the hours when profit is maximized • For a resource dispatched above EcoMin limit to a level where incremental energy cost is greater than the real-time LMP, the best alternative is to operate at a feasible economic level

  21. NCPC Credit Calculations are formulated based on actual revenues and Best Alternative • NCPC credit determinations are formulated to identify the payment necessary to make a resource no worse off for following ISO instruction (therefore willing to follow) • NCPC credit = Max[0, (Best Alternative Cash Flow) - (ISO Instruction Cash Flow)] where Cash Flow = revenue - cost • Both the DA NCPC and RT NCPC Credit calculations apply this approach

  22. NCPC Settlement Periods Updated – 8/9/13 • For DA NCPC and RT Commitment NCPC, each discrete period of contiguous scheduled hours are evaluated separately (i.e., NCPC Settlement Period) • May include one or more Commitment Decisions • For RT Dispatch NCPC, each hour is evaluated separately • No transfer of profit/loss between NCPC Settlement Periods • A Settlement Period ends at the earlier of a) the last hour of a commitment in which energy is produced/consumed (including shutdown ramp) or b) the end of the operating day • NCPC Settlement Periods are truncated at operating day boundaries • Commitment Decisions may continue into next day • Separate NCPC Settlement Period begins with the start of next day

  23. New Slide – 9/10/13 NCPC Settlement Periods – Fast-Start Resources Updated – 10/08/13 • For Fast Start resources, the credits for DA NCPC, RT Commitment NCPC, and RT Dispatch NCPC are evaluated separately for each hour • No transfer of profit/loss between hours • Separate Settlement Periods are established if contiguous Commitment Decisions reflect a change in the resource’s designation to or from a Fast Start Generator

  24. DAY-AHEAD NCPC CREDIT DESIGN Credit design for Generators scheduled out-of-merit in the day-ahead market

  25. Eligible Resources for Day-Ahead NCPC • All generators scheduled in the day-ahead market are eligible for DA NCPC credits • Requires the resource to submit Supply Offers into the day-ahead market

  26. Effective Offers for Day-Ahead NCPC • Energy costs at EcoMin limit are the Supply Offers submitted to the day-ahead market for Commitment Decisions that originate in day-ahead • For resources scheduled in the day-ahead market for the purpose of completing a prior day’s commitment, the energy costs at EcoMin limit are determined using Supply Offers captured at the time of the Commitment Decision • Dispatch Costs (i.e., energy costs above EcoMin limit) are the Supply Offers submitted into the day-ahead market

  27. NCPC Settlement Period for Day-Ahead NCPC • Each contiguous period of committed hours (i.e., day-ahead cleared schedule) is evaluated separately for DA NCPC credit • May include one or more Commitment Decisions

  28. New Slide – 8/9/13 Self-Schedule Offers in Day-Ahead Must Respect Inter-temporal Offer Parameters • When a Day-Ahead Self Schedule is for less than the Min Run Time, or violates the Min Down Time, the Day-Ahead Market will clear additional hours economically, as needed to create a feasible schedule. • The NCPC Credit will evaluate the minimum required number of additional hours as self-scheduled, starting with contiguous hours prior to the self-schedule, and continuing with hours following the self-schedule, as needed. • All hours in between two self-schedule hours that violate the Min Down Time will be evaluated as self-scheduled. • If, as a result, the first hour of the DA schedule is now evaluated as self-scheduled, the resource will not be eligible for the Startup Fee. • In the current rules, entire day is considered self-scheduled.

  29. Day-Ahead NCPC Credit Determination Updated – 9/10/13 • Eligible Quantity: total day-ahead scheduled output • Hourly cost: the Eligible Quantity cost determined using Effective Offers for commitment and dispatch cost • Hourly revenue: (Eligible Quantity x DA LMP) • Startup and No Load will be considered in DA Credit • Startup cost amortized over the commitment period • NCPC credit = MAX [0, ∑(Hourly Cost) - ∑(Hourly Revenue)] • summation includes all hours in the Settlement Period • Best alternative is to break-even ($0)

  30. Real-time NCPC CREDIT design Credit design for Generators committed and/or dispatched out-of-merit in the real-time market

  31. Eligible Resources for Real-Time NCPC Updated – 9/10/13 • All resources that are online and operating in response to ISO commitment or dispatch (up and down) instructions • Requires the resource to have a Supply Offer in the real-time market and to be able to respond to ISO dispatch instructions

  32. Effective Offers for Real-Time NCPC • Commitment Costs are based upon the offers in place at the time of the commitment (whether the commitment occurred in day-ahead or real-time) • Energy cost at EcoMin, Start-Up Fee, and No Load Fee are used for determination of RT NCPC Credit • Dispatch Costs are based upon the energy offers submitted to the real-time market and used to determine resource’s dispatch (DDP)

  33. New Slide – 10/08/13 Excluded offer costs for operation during audits • RT NCPC credits do not evaluate a resource’s Start-Up fees, No-Load fees, energy cost, or energy revenue during: • a Market Participant requested audit • an ISO-initiated audit when both the following are true: • the Resource had a summer or winter Seasonal Claimed Capability equal to 0 MW at the beginning of the current Capability Demonstration Year, and • the ISO Initiated Claimed Capability Audit is the first Claimed Capability Audit that the Resource performs during that Capability Demonstration Year. • Exclusion of these costs is consistent with the redesign principles and the existing tariff provisions

  34. Economic Dispatch Point for Real-Time NCPC • NCPC credit determinations for commitment and dispatch best alternatives use a common concept for the loading level at which a resource would be “economically” dispatched • The economic energy dispatch point (EDP) between the resource’s EcoMin limit and DDP based on the hour’s Dispatch Costs and the real-time LMP • The economic dispatch point is set equal to the DDP for upward and downward ramp constrained resources • DDP reflects the feasible change to output in response to price for a ramp-limited resource

  35. Example of the Economic Dispatch Point DDP = 140 MW Marginal offer cost at DDP = $19/MWh EcoMin limit = 70 MW EDP = 110 MW RT LMP = $16/MWh Range of possible EDP values Based on the energy offer for dispatch and the RT LMP, the resource would be economically dispatched at 110 MW; therefore EDP = 110 MW Unit is not ramp constrained

  36. New Slide – 9/10/13 RT Commitment NCPC Credit Determination • RT Commitment NCPC credits are determined in two parts, calculated separately: • A credit for the Min Run Time (MRT) hours • A credit for the post-MRT hours • The credit for the MRT hours ensures a resource is no worse off for starting at the ISO requested commitment start time versus a delayed start • A resource that is unprofitable in the early hours could otherwise improve its financial position by delaying its start time • The credit for the post-MRT hours ensures a resource is no worse off for continuing to operate until de-committed by the ISO.

  37. Updated – 9/10/13 RT Commitment NCPC Credit Determination During Min Run Time (“Claw-Forward” Credit) • Eligible quantity: hourly energy amount for cost and revenue = MIN (revenue metering, economic dispatch point) • Hourly cost: Energy Cost + Start-up fee + No Load fee • eligible quantity energy cost is determined using the Effective Offers for Commitment and Dispatch Costs • portion of Start-Up fee from Effective Offer equal to one hour’s share of the fee amortized over Commitment Decision duration • No-Load fee from the Effective Offer • Hourly revenue: (Eligible Quantity x RT LMP) • Credit for the MRT hours: Max[ 0, (total hourly cost – total hourly revenue)for the MRT period ]

  38. RT Commitment NCPC Credit Determination Following Min Run Time Updated – 9/10/13 • Eligible quantity: hourly energy amount for cost and revenue = MIN (revenue metering, economic dispatch point) • Hourly cost: Energy Cost + Start-up fee + No Load fee • eligible quantity energy cost is determined using the Effective Offers for Commitment and Dispatch Costs • portion of Start-Up fee from Effective Offer equal to one hour’s share of the fee amortized over Commitment Decision duration • No-Load fee from the Effective Offer • Hourly revenue: (Eligible Quantity x RT LMP) • Best alternative is to break-even ($0) or shutdown at max cumulative profit (>$0) • Hourly profit = Hourly Revenue – Hourly Cost • NCPC credit = MAX [0, Maximum Profit] – Final Profit over the period after MRT • Maximum Profit = maximum total profit (sum of hourly profits for the post-MRT hours) possible by choosing to shutdown at any hour after minimum run time has expired • Final Profit = sum of hourly profits over the post-MRT Period

  39. Updated – 8/9/13 Hours Evaluated for RT Commitment NCPC • Cost and revenues are calculated for each hour of a commitment Decision Interval • When the resource is ramping from an offline state to its EcoMin limit, energy cost is not calculated because these costs are included in the Start-Up fee; however, revenues are included to offset the costs included in the Start-Up fee • Hourly cost is not calculated explicitly • Hourly revenue = (revenue metering x RT LMP) • Similarly, shutdown costs are permitted in the Startup Fee • Therefore, revenues after release for shutdown are included • During periods after the resource is released for shutdown, neither hourly cost or revenue are included in the NCPC credit determination

  40. Application of Start-Up Fee for RT Commitment NCPC Credits Updated – 8/9/13 • Late Start • Start-Up fee is included in the costs if the resource releases for dispatch not more than 30 minutes earlier or later than the scheduled commitment start • Early Start (similar to current treatment) • If accepted by the Control Room as “pool-scheduled”, the eligible amount is 100% of Min(Early Startup Fee, Original Commitment Startup Fee) • Otherwise, resource must self-schedule: Startup Fee is not eligible • The appropriate Start-Up fee for cold/intermediate/hot status is included based on status at the time of the start • Start-Up fee is apportioned over the number of hours in the Commitment Decision duration • the Start-Up fee is amortized through the end of the commitment in which minimum run time expires • the amortization period is not extended if a new commitment is added after the time when minimum run time expires • Start-Up fee may be applied across Settlement Periods in two operating days

  41. Updated – 8/9/13 Application of the Start-Up Fee for Resources released for dispatch before or after start time • When a resource is released for dispatch more than 30 minutes later than the scheduled commitment start, the Start-Up fee will be reduced in proportion to the number of minutes later than planned the actual release occurs (discounting 30 minute grace period) • Example: when 54 minutes late to release for a 2 hour commitment the Start-up fee reduction equals (54-30)/120 = 0.2 • When a resource releases for dispatch more than 30 minutes earlier than requested by the ISO, the Start-Up fee will not be included in NCPC

  42. Application of the Start-Up Fee for Resources that shutdown ahead of the end time Updated – 8/9/13 • When the ISO requests or approves a participant request to shutdown ahead of the end of the Commitment Decision duration, the total Start-Up fee will be considered for NCPC • Resources that trip (or are otherwise forced to shutdown due to operational problems) will be considered for only the portion of the Start-Up fee apportioned to the hours when the resource was online • A trip caused by a network equipment failure unrelated to plant operation will not disqualify consideration of the full Startup Fee in the credit determination (current treatment) • If the ISO requests that a resource restart following a trip, the additional Start-Up fee will be apportioned to the hours of the Commitment Decision

  43. Updated – 9/10/13 Settlement Period for RT Commitment NCPC • Each contiguous block of committed hours (i.e., real-time online operation between times of startup and shutdown) is evaluated separately for RT Commitment NCPC credit • May include one or more commitment decisions • Hourly profit = Hourly Revenue – Hourly Cost • NCPC credit = MAX [0, Maximum Profit] – Final Profit ] • Maximum Profit = maximum total profit (sum of hourly profits) possible by choosing to shutdown at any hour after minimum run time has expired • Final Profit = sum of hourly profits over the Settlement Period The above text was relocated to the earlier slide describing Post-MRT RT Commitment NCPC Credit

  44. RT Dispatch NCPC Credit Determination • Eligible quantity: hourly energy amount for cost and revenue when DDP > economic dispatch point (EDP) • Eligible Cost Quantity = MIN (revenue metering, DDP) - EDP • Eligible Revenue Quantity = revenue metering – EDP • Hourly cost: cost of Eligible Cost Quantity determined with Effective Offers for Commitment and Dispatch Cost • Hourly revenue: (Eligible Revenue Quantity x RT LMP) • Revenue earned by operating above the DDP will offset cost • Resource’s best alternative is to operate at economic dispatch point (revenue >= cost)

  45. Updated – 8/9/13 Settlement Period for RT Dispatch NCPC Credits • Each hour is evaluated separately for RT Dispatch NCPC Credit • NCPC Dispatch Credit = MAX (0, Hourly Cost – Hourly Revenue) • When the dispatch Hourly Revenue exceeds Hourly Cost, the additional profit that the resource earned by exceeding the DDP will be used to increase revenuereduce cost in the RT Commitment NCPC determination

  46. Regulation Opportunity Cost in RT NCPC • Regulation resources will already have been compensated for out-of-merit operation while regulating • The hourly regulation out-of-merit cost compensation is included in revenues for the RT Dispatch NCPC credit determination to avoid double-compensation

  47. Hourly NCPC Credit DESIGN Calculation of hourly DA NCPC Credits and RT NCPC Credits for the purpose of cost allocation

  48. DA NCPC and RT NCPC Hourly Credit • Credits are apportioned to hours in the NCPC Settlement Period: • to those hours where Hourly Cost > Hourly Revenue (negative profit) • in proportion to each hour’s negative profit divided by the sum of the negative profits for all hours in the Settlement Period • NCPC Settlement Period duration: • one or more hours for DA NCPC and RT Commitment NCPC • one hour for RT Dispatch NCPC • The Commitment Reason or Dispatch Reason corresponding to each hour will determine NCPC cost allocation type • The credit will be apportioned evenly in hours with multiple reasons

  49. Other NCPC Credits Complete summary of NCPC Redesign for Offer Flexibility conforming changes to other NCPC credit types.

  50. ISO proposes to modify some other types of NCPC Credit for Offer Flexibility

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