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April 9, 2019 | Marlborough, ma

April 9, 2019 | Marlborough, ma. Ben Ewing. (413) 535-4361 | bewing@iso-ne.com. Offer caps in markets operated by RTOs and ISOs. FERC Order 831 Implementation Modification. FERC Order 831 Implementation Modification. WMPP ID: 111. Proposed Effective Date: March 1, 2020.

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April 9, 2019 | Marlborough, ma

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  1. April 9, 2019 | Marlborough, ma Ben Ewing (413) 535-4361 | bewing@iso-ne.com Offer caps in markets operated by RTOs and ISOs FERC Order 831 Implementation Modification

  2. FERC Order 831 Implementation Modification WMPP ID: 111 Proposed Effective Date: March 1, 2020 The ISO proposes a narrow change to its implementation of the Energy Offer Cap modifications of FERC Order 831 • In order to implement as soon as possible, the ISO proposes to modify one aspect of the original design • Proposed change simplifies the offer capping approach for the Day Ahead Energy Market (DAM) • Proposed change is expected to have little practical impact on market outcomes • Change will allow ISO to implement for March 1, 2020 We discuss this proposed change for the second time today

  3. Proposal Summary Goal: Allow implementation of Order 831 price formation improvements as soon as possible (March 2020) Proposal: Cap verified offers in the DAM at $2,000/MWh for dispatch and pricing • Simplification of the originally filed design, requiring no changes to current DAM clearing process • Compliant with Order 831 • DA commitment and NCPC will use full verified offer Outcomes: • Verified offers up to $2,000/MWh will be considered in pricing calculations, the desired outcome of Order 831 • DA NCPC could increase in unlikely circumstances (see slide 12) The originally filed approach can be pursued when the DAM has separate dispatch and pricing processes

  4. Summary of Proposed Tariff Changes

  5. Conclusion Proposed change to the DAM is compliant with the Order 831 and simplifies the implementation of these changes with little impact to market outcomes Simplified implementation will allow the ISO to meet a March 1, 2020 effective date

  6. Stakeholder Schedule

  7. Appendix March 2019 MC Materials

  8. Order 831 Background Today, energy markets have an offer cap of $1,000/MWh. • No incremental energy offers greater than $1,000/MWh are accepted Order 831 requires changes to current offer cap • All resources, regardless of type, are eligible to submit cost-based incremental energy offers in excess of $1,000/MWh • A resource’s incremental energy offer must be capped at the higher of $1,000/MWh or that resource’s verified cost-based incremental energy offer • ISO must impose a cap of $2,000/MWh on all verified cost-based energy offers when calculating market clearing prices

  9. Original Order 831 DAM approach • In its compliance filing, the ISO proposed to separate dispatch and pricing processes in the DAM • Resources with verified offers greater than $2,000/MWh would be properly considered for economic commitment and dispatch • These offers would then be capped at $2,000/MWh for pricing • This approach is robust, but complex • Pursuing this approach would require further implementation delays • FERC has clarified that “Order No. 831 did not require cost-based incremental energy offers above $2,000/MWh to be used to determine economic merit-order dispatch.” • Response to NYISO rehearing request (Docket #RM16-5-001)

  10. Proposed Order 831 DAM approach Corrected, modifications in red • Proposed approach maintains the current DAM clearing process • Verified offers which exceed $2,000/MWh will be capped at $2,000/MWh for commitment, dispatch and pricing • Verified offers exceeding $2,000/MWh will be considered in commitment decisions and NCPC calculations • Simplification will allow the ISO to meet a March 2020 implementation date, avoiding further delay • Future software enhancements are likely to include separate dispatch and pricing processes in the DAM • The ISO could then revisit the DAM capping approach

  11. Proposed change is unlikely to impact market outcomes Modified and corrected to include more context on NCPC • Cost-based DA offers greater than $2,000/MWh are unlikely • In past 10 years, highest observed DA gas price is $107/MMBtu • This price is too low to justify a DA offer greater than $2,000/MWh at any heat rate in New England’s gas fleet • Unlikely circumstances could produce an inefficient DA clearing under this proposal. Example: • Unit A’s verified cost: 20 MW @ $2,150/MWh • Unit B’s verified cost: 20 MW @ $2,250/MWh • 30 MW of demand remain to be satisfied • Efficient outcome would clear all of Unit A before clearing Unit B • Unit A NCPC = 20 MWh x ($2,150/MWh - $2,000/MWh) = $3,000 • Unit B NCPC = 10 MWh x ($2,250/MWh - $2,000/MWh) = $2,500 • Total DA NCPC = $5,500 • Under proposal, DAM would view each as a $2,000 unit, clearing pro-rata • Unit A NCPC = 15 MWh x ($2,150/MWh - $2,000/MWh) = $2,250 • Unit B NCPC = 15 MWh x ($2,250/MWh - $2,000/MWh) = $3,750 • Total DA NCPC = $6,000

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