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Fast Start Pricing: Improving Price Formation and Performance Incentives

This document discusses the goals, design, and shortcomings of the Fast Start Pricing in NEPOOL markets. It also provides additional information and evidence on the impact of start-up and no-load amortization during recent winters. The anticipated schedule for implementing the Fast Start Pricing is also outlined.

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Fast Start Pricing: Improving Price Formation and Performance Incentives

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  1. june 3, 2015 | NEPOOL markets committee Jonathan Lowell Market development Price Formation When Fast Start Resources Are Committed and Dispatched Fast Start Pricing

  2. Quick Review - Goals of the Fast Start Pricing Design • Improve price formation by reflecting the cost of fast-start deployments through transparent market price signals. • Improve performance incentives for all resources during tight system conditions when reliability risk is heightened. • Address External Market Monitor’s recommendations • Address shortcomings of current Fast Start Pricing: • Shortcoming #1 - Fast Start assets are generally unable to set price after the first dispatch interval, even though committed and dispatched economically • Shortcoming #2 - Relaxing EcoMin values in the dispatch solution distorts the system energy balance

  3. Fast Start Pricing Design in a Nutshell • RT Dispatch solution • Respects physical limits • Determines DDPs • RT Pricing solution • EcoMin values of committed Fast Start resources relaxed to zero • Amortization of commitment costs • No Load cost amortized over EcoMax • Startup cost amortized over EcoMax during Minimum Run Time • Determines energy and reserve prices • Lost opportunity cost payment when a resource is dispatched to a DDP less than its “economic dispatch point”

  4. Additional Information Available! • These documents are posted (or re-posted) for the June MC meeting: • Memo: “Fast-Start Pricing Improvements – Revised Edition” • Detailed explanation of Fast Start Pricing logic, rationale and examples • New Memo: “Amortization of Startup and No Load Costs in the ISO’s Fast Start Pricing Proposal” • Summary of Startup & No Load discussion from May MC meeting supporting the continued inclusion of amortized SU & NL costs n Fast Start Pricing • New Memo:“Fast-Start Resource Pricing – Market Rule 1 Redlines” • Summary of tariff changes to implement Fast-Start Pricing • Powerpoints: • March MC meeting - “Fast Start Pricing” presentation • Includes examples from the memo and discussion of Fast Start Pricing design principles • April MC meeting - “Fast Start Pricing” presentation • Includes impact analysis and simulation results • May MC meeting - “Fast Start Pricing” presentation • Detailed discussion of stakeholder issues identified at the April MC meeting • Analysis of FCM cost reductions related to Fast Start Pricing

  5. Impact of start-up & no load Amortization during recent winters Further Evidence that Winter 2014 was Highly Unusual, and Likely Not Indicative of Future Fast Start Pricing Impacts

  6. Impact of SU/NL Amortization – Winter 2014 was Very Unusual • The FS Units with the highest SU & NL costs were dispatched far more often in 2014 than in the prior or subsequent years • Supports the analysis presented at the May MC meeting suggesting estimates of future FS Pricing impacts should discount January-March 2014 Fast Start Units with Highest Observed SU/NL Adders in 2014

  7. Next steps

  8. Anticipated Schedule • February MC meeting – conceptual overview • March MC meeting • Lost Opportunity Cost discussion • Detailed Examples • April MC meeting • Historical simulation of fast start pricing design impacts • May MC meeting • Review Fast Start Pricing design and impacts • Tariff language review • June MC meeting – request MC vote • Quick review of design • Tariff language review • June PC Summer Meeting – request PC vote • FERC filing – summer 2015 • Implementation targeted for late 2016 or early 2017

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