The First FCA: Observations & Thoughts

1. The First FCA: Observations & Thoughts Tom Kaslow April 11, 2008 Electric Restructuring Roundtable

2. Forward Capacity Market Objectives • Implement a capacity market with a defined capacity product. • Provide market signals that encourage new entry where and when needed. • Implement a market that will stabilize and equilibrate around the cost of new entry. Electric Restructuring Roundtable

3. First FCA Observations • Significant qualified supply offered into FCA1. • Existing capacity exceeded ICR & LSR requirements. • Auction cleared at the floor, but only one data point. • ISO filing identifies conflicting standards. • Installed Capacity Requirement/Local Sourcing Requirement plan into OP4 • Transmission Security Analysis plans to avoid OP4 Electric Restructuring Roundtable

4. What might be over the horizon? • Will any of the hardwired FCM mechanisms create problems? One possible scenario for FCA2. Electric Restructuring Roundtable

5. What might be over the horizon? • FCM will get what it signals. Will it be what we need? • Could displacement of flexible resources with less predictable energy sources (intermittent resources) or resources with less access outside of OP4 lead to increased frequency of OP4 events? • Is there a desirable upper bound on OP4? • What are the economic, reliability and environmental considerations of higher OP4 frequency? Electric Restructuring Roundtable

6. Conclusion • New England has a lot riding on FCM. • Subsequent FCA results will be important. • Need to consider acceptability of possible future outcomes. • Frequent OP4. • Early sustained surplus might lead to prices spikes later. Electric Restructuring Roundtable