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Proposal For Improvement to the Current ICAP Market. Markets Committee October 12, 2004 Ken Bekman Con Edison Energy. The Problem. Section 8.5.1 (a) (iii) of Market Rule 1
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Proposal For Improvement to the Current ICAP Market Markets Committee October 12, 2004 Ken Bekman Con Edison Energy
The Problem Section 8.5.1 (a) (iii) of Market Rule 1 In the event that a Participant has Unforced Capacity that is not bid into the Deficiency Auction in Accordance with Section 8.5.1 (a) (iii) above, the ISO shall enter an offer of $0.00/kW-month for the excess UCAP held by the Participant;
What is Installed Capacity? • The energy source. • Ensures reliable operation of the Power System. • Because a surplus is required to maintain reliability we enjoy: • Lower energy prices. • Reduced volatility. • Only a broken market values this service at ZERO. • ZERO is not a just or reasonable outcome. • We can make a simple fix NOW!
The Effect in New England • Those that follow the rule and actually make offers are penalized. • No incentive to bid. • No incentive to offer (zero is the result). • No incentive to hedge your obligation. • Market bias toward zero. • There is no market……….
What Do Other Pools Do? • New York • No obligation to offer (except divested units in NYC). • Deficiency Auction utilizing the Demand Curve. • PJM • No obligation to offer. • Daily auction and if there is insufficient capacity the deficient party pays deficiency charge for the entire period. Working Forward Capacity Markets exist in both PJM and NY.
The Repair • In the event that a Participant has Unforced Capacity that is not bid into the Deficiency Auction in Accordance with Section 8.5.1 (a) (ii)above,the ISO shall enter an offer of the highest submitted offer plus $.01/ mW-month for the excess UCAP held by the Participant;
The Effect of the Repair • Those that fail to offer do not distort the market. • Those that offer are not penalized. • The market will clear based on real offers and real bids. • Thus there would be an incentive for wider participation by both buyers and sellers.
Next Steps • Change Section Section 8.5.1 (a) (iii) of the Market Rule. • Change Section 4.5 and 4.12 of Manual 20. • Resolution for these changes at the November 9th Markets Committee meeting for presentation to the Participants on December 3.