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Date

Proration of Real Time Emergency Generation

Ad Hoc DR Proposal

Presented by Janette Kessler Dudley

October 2008

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Background

• 875 MWs of Real Time Emergency Generation (EG) remained in FCA 1 when the auction stopped;

• The Market Rule clearly states that no more than 600 MWs of Real Time EG can count towards meeting the ICR;

• Project Sponsors were well aware that pro-ration of these Resources would take place; however, many Project Sponsors believed that they would be allowed to pro-rate these Resources by MWs as well as price

• ISO-NE has stated that Project Sponsors may not prorate Real Time EG by MWs, only by price

• Several DR Providers have exchanged e-mails with Customer Service questioning this interpretation of the Market Rule

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Market Rule

The relevant Market Rule reads as follows:

• III.13.2.7.3. Capacity Clearing Price Collar. (b) The Capacity Clearing Price shall not fall below 0.6 times CONE. Where the Capacity Clearing Price reaches 0.6 times CONE, offers shall be prorated such that no more than the Installed Capacity Requirement is procured in the Forward Capacity Auction, as follows: the total payment to all listed capacity resources during the associated Capacity Commitment Period shall be equal to 0.6 times CONE times the Installed Capacity Requirement applicable in the Forward Capacity Auction. Payments to individual listed resources shall be prorated based on the total number of MWs of capacity clearing in the Forward Capacity Auction (receiving a Capacity Supply Obligation for the associated Capacity Commitment Period). Suppliers may instead prorate their bid MWs of participation in the Forward Capacity Market by partially de-listing one or more resources (e.g., proration may be done by reducing, through bilateral contracts, the capacity of one resource by the amount equal to the entire prorated amount of the Market Participant).

• III.13.7.2.5.2. Monthly Capacity Payments for Real-Time Emergency Generation Resources. For Real-Time Emergency Generation Resources, monthly payments shall be calculated as the product of the resource’s Capacity Supply Obligation multiplied by the Capacity Clearing Price (as adjusted pursuant to Section III.13.2.7.3(b), if applicable) for the relevant Capacity Commitment Period or the reconfiguration auction clearing price, as appropriate. If the sum of the Capacity Supply Obligations of Real-Time Emergency Generation Resources exceeds 600 MW, the effective Capacity Clearing Price paid to all Real-Time Emergency Generation Resources shall be adjusted by the ratio of 600 MW divided by the total of the final Capacity Supply Obligations of Real-Time Emergency Generation Resources. The acceptance of a Real-Time Emergency Generation Resource Static De-list Bid, Dynamic De-list Bid, or Permanent De-list Bid shall be based on the effective Capacity Clearing Price as described in Section III.13.2.7. Real-Time Emergency Generation Resources shall be subject to Demand Resource Performance Penalties and Demand Resource Performance Incentives as described in Section III.13.7.2.7.5.

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ISO-NE Interpretation of MR1

The official ISO-NE interpretation of Market Rule 1 is as follows:

“RTEG may get to pro-rate megawatts, but that would only be the case if less than the 600 MW limit cleared. If 600 or more MW of RTEG clears (as in this case) the rule says that we calculate an Effective Capacity Clearing Price for RTEG, which is calculated as the capacity clearing price times 600 MW divided by the total of the final RTEG capacity supply obligation. That is their version of pro-ration which occurs whenever more than 600 MWs of RTEG clears”

Customer Service 7/31/08

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Ramifications of ISO-NE Interpretation

The ramifications of ISO-NE’s interpretation of this rule include the following:

1. Real Time EG Resource Sponsors will only receive $2.92/kW in FCA1

2. ISO-NE will have over-procured by 275 MWs in FCA 1(the excess of RTEG over the 600 MW limit)

3. When calling an OP4 Action 12 event, the control room will have the option of calling the full 875 MWs of Real Time EG, even though the intent of the Market Rule was to limit the participation of these assets to 600 MWs

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Case 1 Assumptions

Case 1 Assumptions:

Auction stops at floor (.6 CONE); excess capacity exists

ICR = 30,000

MWs cleared = 35,000

Clearing price w/ MW pro-ration: $4.50/kW

Clearing price with price pro-ration: $3.86/kW

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Examples from ISO-NE Interpretation (Case 1)

Example 1:• RTEG = 599 MWs

Results:

1. RTEG does not pro-rate based on RTEG cap

2. All resources (including RTEG) must pro-rate based on either price or MWs due to excess capacity.

3. If RTEG pro-rates based on MWs, RTEG Capacity Clearing Price = $4.5/kW

Example 2:• RTEG = 601 MWs

Results:

1. RTEG must pro-rate based on price due to 600 MW cap. Pro-ration factor = 600/601;

2. RTEG must also pro-rate based on price due to excess capacity. Pro-ration factor = 85.7% Since RTEG must pro-rate based on price, RTEG Capacity Clearing Price equals $3.85/kW

3. All other resources (except RTEG) can pro-rate based on either price or MWs due to excess capacity.

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DR Provider Interpretation of MR1

DR Provider interpretation of Market Rule 1 is as follows:

Real Time EG may pro-rate by price or megawatts if any of the following situations occur:

1. More than 600 MWs of RTEG remain in the auction when the auction stops; (in which case, the resource sponsor has the option to pro-rate by MWs or by price); or

2. The Capacity Clearing Price is equal to .6 CONE (In which case the Capacity Clearing Price Collar will be in effect and ALL resources will have the option to pro-rate by MWs or by price)

3. If both 1 & 2 occur, RTEG must pro-rate (by MWs or price) twice: one to meet the RTEG cap, and two to meet the Capacity Clearing Price Collar.

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Examples from DR Provider Interpretation of MR1 (Case 1)

Example 1:• RTEG = 599 MWs

Results:1. RTEG does not pro-rate based on RTEG cap

2. All resources (including RTEG) must pro-rate based on either price or MWs due to excess capacity.

3. If RTEG pro-rates based on MWs, RTEG Capacity Clearing Price = $4.5/kW

Example 2:• RTEG = 601 MWs

Results:

1. RTEG may pro-rate based on price or MWs due to 600 MW cap. Pro-ration factor = 600/601;

2. RTEG and all other resources may also pro-rate based on price or MWs due to excess capacity. Pro-ration factor = 85.7%

3. If RTEG pro-rates based on MWs, RTEG Capacity Clearing Price equals: $4.5/kW

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Case 2 Assumptions

Case 2 Assumptions:

Auction stops above floor; no excess capacity exists

ICR = 30,000

MWs cleared = 30,000

Clearing price w/ MW pro-ration: $4.50/kW

Clearing price with price pro-ration: $4.50/kW

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Examples from DR Provider Interpretation of MR1 (Case 2)

Example 3:• RTEG = 500 MWs

Results:1. RTEG not pro-rated due to 600 MW cap;

2. No resources (including RTEG) pro-rated due to excess capacity.

Example 4:• RTEG = 875 MWs

Results:1. RTEG may pro-rate based on either price or MWs due to 600 MW cap. Pro-ration factor =

600/875;

2. No resources (including RTEG) pro-rated due to excess capacity.

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Conclusion

This ad hoc proposal requests that the Markets Committee provide guidance to ISO-NE on the correct interpretation of this section of Market Rule 1.