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Capacity Demand Curve in ISO-NE Responses to Feb. 27 th Questions and Comments

Capacity Demand Curve in ISO-NE Responses to Feb. 27 th Questions and Comments. ISO New England. Samuel A. Newell Kathleen Spees Ben Housman. March 6th, 2014. Contents. Stakeholder Demand Curves Comparison of Curves Performance Summary Table

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Capacity Demand Curve in ISO-NE Responses to Feb. 27 th Questions and Comments

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  1. Capacity Demand Curve in ISO-NE Responses to Feb. 27th Questions and Comments ISO New England Samuel A. Newell Kathleen Spees Ben Housman March 6th, 2014

  2. Contents • Stakeholder Demand Curves • Comparison of Curves • Performance Summary Table • Responses to Stakeholder Questions and Comments • Customer Cost Impacts • Responses to Wilson Energy Economics Presentation • Appendix: Updated Curves from MA AGO and NU

  3. Stakeholder Demand CurvesComparison of Curves

  4. Stakeholder Demand CurvesPerformance Summary Table Notes: Average prices do not account for potential reductions in the cost of capital supported by more gradual demand curves; Net CONE is assumed constant. • The reported Price * Quantity is the system price multiplied by the system total quantity and does not reflect zonal price differentials.

  5. Responses to Stakeholder Questions and CommentsCustomer Cost Impacts of Net CONE Error • Administrative Net CONE will affect not only reliability but also customer costs by changing the procured quantity (however, this will not change long-run average price, which will be set by the true Net CONE) • With ISO-NE’s recommended curve, over-estimating Net CONE by 25% would increase customer costs by $32mil/yr; underestimating Net CONE by 25% would reduce costs by $53mil/yr • Flatter curves are more susceptible to errors in net CONE, having greater customer cost increases with over-estimated Net CONE and lower reliability with under-estimated Net CONE True Net CONE Customer Cost Increase Customer Cost Decrease Note: Both the flatter and steeper curves are simple, straight-lined curves without a kink to create a slope around NICR that is either flatter or steeper than the recommended curve

  6. Responses to Stakeholders Response to Wilson Critique • Wilson proposes three modeling changes: • Reduce assumed shock sizes to 70% (small impact) • Introduce more supply elasticity (small impact) • Assume more supply will be procured on a short-term basis in the reconfiguration auctions (larger impact) • Impacts on LOLE (see right): • Directionally, all three changes would reduce assumed uncertainties and estimated LOLE (allowing for a left- or down-shifted demand curve) • Wilson implements these modeling changes in a simplified Monte Carlo analysis that further reduces estimated LOLE • Response: • Revisions 1 and 2 are within a reasonable uncertainty range, however we opt not to make these changes which are not as tightly grounded in historical evidence as our current approach (see following slide) • Revision 3 is a speculative change that posits a strong market response that has not been previously observed and does not consider the offsetting impact of load forecast error; we therefore strongly caution against this approach (see following slides) Estimated LOLE with Initial Candidate Curve Source: Wilson, slide 12.

  7. Responses to StakeholdersWilson Revision 1: 70% Shock Sizes • Wilson argued that our supply-demand independence assumption would overstate shocks, and that future shocks would likely be lower • To more fully evaluate this argument, we compared net shocks (supply minus demand) in All FCAs and compared that to the net shocks in our Monte Carlo modeling • Comparison shows that our approach does not overstate shocks Modeled Distribution of Net Supply Shocks (supply shock – NICR shock) Supply (Below Cap) minus NICR in Actual FCAs Note: Total offer quantity sourced from ISO-NE’s website (see FCA Auction Results) while offer quantity below cap was provided directly by ISO-NE. Demand quantity based on NICR for each FCA.

  8. Responses to StakeholdersWilson Revision 3: Add Short-Term Supply • We view the addition of short-term supply as speculative: • Relies on logical arguments, but no historical evidence that additional, previously unoffered short term supply will consistently materialize in a short market • A more comprehensive review of PJM data show supply consistently contracting by 6,000 – 9,000 MW between the base auction and last incremental auction (see below), although these results are only reflective of long-market conditions • Does not consider the offsetting impact of load forecast error • Biggest modeling impact is to eliminate the most problematic low-reliability extremes from results PJM RTO System Wide Clearing Price and Quantity Annual Resource Prices, Quantities in UCAP MW

  9. Appendix • Mass AGO Updated Curve • Northeast Utilities Updated Curve • NextEra Updated Curve

  10. Updated Stakeholder Curves Mass AGO Updated Curve Curve Parameters

  11. Updated Stakeholder CurvesNortheast Utilities Updated Curve Curve Parameters

  12. Updated Stakeholder CurvesNextEra Updated Curve Curve Parameters

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