BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON
FCM PI Impact AssessmentAdditional Data and NRG Alternative Analysis
Analysis GroupAugust 2013 (Revised August 16, 2013)
Page 2
FCM PI vs. FCM Status Quo (and alternatives)
March 1 Meeting
Overview of impact analysis and role of Analysis Group
Potential additional scope items
April 10 Meeting
Proposed analytic approach
Key elements of scenarios
Expected sources of data and assumptions
June 4 Meeting
Model construct and status
Scenarios and assumptions, data sources, examples of outputs
Feedback on inputs
July 10 Meeting
Core results
Generator options for mitigating gas shortages
Incorporating PI Risk Factors into FCA Bids
Overview
Page 3
Today
Additional information/observations in response to July discussion
Results of NRG proposal impacts
Overview
Page 4
Observations
FCM PI has the potential to create multiple benefits
Improvements in reliability
Reduction in production cost, with some reductions likely flowing to customers in reduced energy prices
FCM PI creates incentives that can make New England less dependent on natural gas-only resources, which in turn can increase reliability during periods of tight winter gas supply
Quantity of new dual-fuel capability increases with increased expectations of constrained gas shortage hours
Note: dual-fuel numbers are a proxy for solutions that firm up supply during gas-constrained times; to the extent there are solutions lower in cost than dual-fuel additions, the same incentives and results would apply (albeit at lower cost)
Page 5
Observations
Other changes in the resource mix support higher performing resources overall – PI leads to:
Increase in demand response resources and combined cycle (in certain scenarios)
Reduction in older oil-fired resources
Increased expectations for environmental compliance costs lead to roughly equivalent retirements of at-risk capacity in both the PI and non-PI cases
Though retirement of at-risk capacity is slightly higher in the PI case
Overall, PI leads to resource mix with higher average performance characteristics Improves reliability and expected system performance; clears more
resources that are flexible (DR, CC) PI lowers expected reserve deficiency hours (b/c with PI additional non-
cleared capacity remains in service) PI can lower production costs – cleared resources on average have better
heat rates, lower marginal energy costs Can lower energy prices as well as NCPC
Page 6
Resource Mix Impact: Historical
Historical Reserve Shortage Levels :
•Results reflect current over-supply of resources:
• PI results in:• More DR/Imports• Fewer oil-fired resources
•PI shifts mix of retirements toward lower-performing (low ‘A’) resources •Participation of other resource types is generally unaffected by PI with few scarcity hours
Page 7
Resource Mix Impact: Near-Term Equilibrium
Equilibrium Reserve Shortage Levels:
• PI results in:• More resources across many
resource types• Fewer oil-fired resources• More resources in aggregate
•PI shifts the resource mix toward higher performing (high ‘A’) resources across all resource types
•Resource shifts reflect both number of hours and system conditions during reserve shortages
Page 8
Resource Mix Impact: Gas Dependency
6,688
18,947
10,121
18,904
8,893
5,590
1,106
3,488
976
3,530
0
5,000
10,000
15,000
20,000
25,000
PI Gas and Dual Fuel Oil PI Non-Gas Non-PI Gas and Dual Fuel Oil Non-PI Non-Gas
Tota
l Cpa
city
(MW
)
Dual Fuel Capacity Cleared and Delisted
Delisted MW
Total MW Cleared w/ DF
Total MW Cleared w/o DF
Historical with 3 Hours Winter Reserve Shortage Hours
Page 9
Resource Mix Impact: Gas Dependency
Historical with 6 Hours Winter Reserve Shortage Hours
3,672
19,247
10,121
18,90411,910
5,590
1,106
3,188
976
3,530
0
5,000
10,000
15,000
20,000
25,000
PI Gas and Dual Fuel Oil PI Non-Gas Non-PI Gas and Dual Fuel Oil Non-PI Non-Gas
Tota
l Cpa
city
(MW
)
Dual Fuel Capacity Cleared and Delisted
Delisted MW
Total MW Cleared w/ DF
Total MW Cleared w/o DF
Page 10
Resource Mix Impact: Historical, Gas Shortages
Historical with Gas Shortages:
• Compared to the Historical scenario, gas shortage hours increase delist of oil-only units
•Same quantity clears with or without PI for most resource types•Expected gas shortages increases DR that clears with PI
Page 11
NRG has proposed an alternative to FCM PI
ISO-NE has asked that AG evaluate an alternative with the following three components:
Incremental increase in RCPF’s by $5,000 per MWh
Elimination of the Peak Energy Rent adjustment
Implementation of an EFOR-based mechanism
NRG Alternative
Page 12
Impact of proposed $5,000 RCPF is modeled within the FCM PI Impact Assessment model
Increase in energy market payments reflecting higher RCPF
Number of reserve shortage hours remains fixed between comparable FCM PI scenario – that is, assumes there are no resources with energy markets offers > energy market bid + $500 / MWh (current RCPF)
FCM offers are adjusted to reflect decrease in Going Forward Costs (due to higher energy market net revenues)
Lowers FCM clearing prices
Several impacts of $5,000 RCPF proposal are evaluated
Change in net payments by load
In principle, the net impact of energy and FCM market changes could be positive or negative
Variation in revenues to resources given uncertainty in reserve shortage hours
NRG Alternative: $5,000/MWh RCPF
Page 13
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
FCM
Bid
($/k
W-m
onth
)
Cumulative MW
Supply under FCM PI
Supply under NRG Proposal
ICR (34,500MW)
Impacts of NRG Alternative: $5,000/MWh RCPFFCM Clearing Price and Payments to Suppliers
With FCM PI
With NRG Alternative
Difference
FCA Clearing Price $3.83 $0.00 ($3.83)
FCM Payments($ billion) $1.59 $0.00 ($1.59)
Additional RCPF Payments ($ billion) $0.00 $1.59 $1.59
Total Payments to Suppliers ($ billion) $1.59 $1.59 $0.00
Note: Results for NRG Alternative do not reflect adjustments for the elimination of PER at current RCPFs.
Near-term Equilibrium Scenario
Page 14
Impacts of NRG Alternative: $5,000/MWh RCPFPayments to Suppliers Under FCM PI and NRG Proposal
Expected H
• Total payments are similar under PI and NRG Alternative when actual reserve shortage hours are similar to expected hours
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
DR/Import CC Gas GT Gas ST Gas Nuclear Coal Oil Hydro Wind Other
Tota
l Pay
men
ts (m
illio
ns o
f $)
PI Payments NRG Payments
Note: "Other" Includes CELT 2013 Gen Type ID/Primary Fuel Type pairs "ST BLQ," "GT LFG," "ST MSW," "PV SUN," "ST TDF," and "ST WDS."
Page 15
Impacts of NRG Alternative: $5,000/MWh RCPFPayments to Suppliers Under FCM PI and NRG Proposal
Lower HHigher H
• Actual payments can diverge from expectations when actual reserve shortage hours differs from expectations
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
DR/Import CC Gas GT Gas ST Gas Nuclear Coal Oil Hydro Wind Other
Tota
l Pay
men
ts (m
illio
ns o
f $)
PI Payments NRG Payments
Note: "Other" Includes CELT 2013 Gen Type ID/Primary Fuel Type pairs "ST BLQ," "GT LFG," "ST MSW," "PV SUN," "ST TDF," and "ST WDS."
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
DR/Import CC Gas GT Gas ST Gas Nuclear Coal Oil Hydro Wind Other
Tota
l Pay
men
ts (m
illio
ns o
f $)
PI Payments NRG Payments
Note: "Other" Includes CELT 2013 Gen Type ID/Primary Fuel Type pairs "ST BLQ," "GT LFG," "ST MSW," "PV SUN," "ST TDF," and "ST WDS."
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High Performance (A=90-100%) Average Performance (A=60-70%) Low Performance (A=10-20%)
FCM
PI
NRG
Pro
posa
lImpacts of NRG Alternative: $5,000/MWh RCPFIllustrative Unit Payments under Varying Performance and H
Page 17
If the PER deduction was not eliminated under the NRG proposal, then the PER would result in:
Significant PER deduction payments by suppliers to loads when the RCPF sets the RT LMP; and
A positive FCM clearing price that reflects suppliers expectations and risk factors associated with these PER deduction payments.
Because retaining the PER deduction with the high RCPF is not part of NRG’s proposal, we have not evaluated this scenario
NRG Alternative: Elimination of PER
Page 18
NRG Alternative: Eliminate PER
Monthly PER Adjustments, 2010 to 2012 ($)
• PER has been low since the increase in PER threshold
Source: ISO-NE Internal Market Monitor, 2012 Annual Markets Report, May 15, 2013.
Page 19
EFORp proposal has several important attributes
Performance is based on availability, rather than output
Availability measured during particular high demand periods (e.g., top peak load hours, reserve shortages)
Payments flow between generators based on each unit’s availability relative to a pre-determined benchmark
Benchmark based on unit-specific historical availability is evaluated (in principle, class-specific or other benchmark could be used)
“Deviations” in Actual versus Benchmark availability (adjusting for aggregate fleet availability) result in payments/charges equal to:
Payment/charge = MW Deviation * FCM Price * Marginal Multiplier
NRG Alternative: EFOR-based Mechanism
Page 20
Analysis of EFOR-based mechanism
Under the EFOR-based mechanism, offers will reflect expectations about availability relative to the predetermined benchmark
With expectations set at historical performance, bids are not adjusted from FCM offers (i.e., based on GFC)
With uncertainty about future availability, resources may add a risk premium to offers – we have not evaluated these risk premiums
Conclusion: EFOR-based mechanism with unit-specific benchmarks would not be expected to result in any meaningful change in FCM payments (compared to current FCM)
Combining NRG’s proposed EFOR-based mechanism with a $5000 RCPF increase in the energy market would still result in FCA clearing price of “zero”
NRG Alternative: EFOR-based Mechanism
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Paul J. HibbardAnalysis Group111 Huntington Avenue, 10th Floor Boston, MA [email protected]
Todd Schatzki, Ph.d.Analysis Group111 Huntington Avenue, 10th Floor Boston, MA [email protected]
