2 nd stakeholder update: locational capacity demand curves in iso-ne

Copyright © 2014 The Brattle Group, Inc.

PREPARED FOR

PREPARED BY

2nd Stakeholder Update:

Locational Capacity Demand Curves in ISO-NE

Samuel A. NewellKathleen SpeesBen Housman

Ju ly 9 , 2014

ISO New England Markets Committee

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Contents

▀ Introduction▀ Import-Constrained Zones▀ Export-Constrained Zone▀ Next Steps▀ Appendix

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IntroductionObjectives for Today

▀ Propose an initial candidate curve for the importing zones▀ Respond to first set of stakeholder questions on both importing and

exporting zones▀ More fully evaluate options in export-constrained zones (will wait

for stakeholder input before proposing an initial candidate curve in the next meeting)

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IntroductionIndex to Stakeholder Questions

Importing Zone Questions SlidesAre local costs and reliability outcomes reasonable? 10

How does reliability change with quantity? 11

What if true net CONE in zones is lower than in system? 12

How Does a Curve through 1.2x Net CONE at LSR Perform? 13

What are the lessons learned from PJM local curves? 14

How does PJM’s local curve compare? 15

Exporting Zone Questions Slides

How does reliability change with quantity? 20

How does the market clear in export-constrained zones? 21

Are there alternative clearing approaches? 23

How does the curve slope affect price separation? 28

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Contents


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Import-Constrained ZonesRecap: Importing Zone Demand Curve Objectives  Reliability

▀ Maintain or exceed the 0.105 LOLE (1-in-9.5) LOLE local reliability target on a long-term average basis, although LOLE in any one year may fall below that target

▀ Rarely fall into extreme reliability events where ISO-NE may be more likely to intervene, measured as max of TSA or 1-in-5 at the local level

  Prices▀ Reduce susceptibility to the exercise of market power▀ Reduce price volatility impact from small variations in market conditions and

administrative parameters, including lumpy investment decisions, demand forecast changes, and transmission parameters

▀ Limit frequency of outcomes at the administrative cap▀ Rationalize prices according to the incremental reliability value (if possible)

  Robustness▀ Perform well under a range of market conditions, changes in administrative

parameters, and administrative estimation errors▀ Minimize complexity and contentiousness

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Import-Constrained ZonesInitial Candidate Curve

▀ Cap: − Quantity at “minimum acceptable” reliability, defined as

MAX[1-in-5 LOLE, TSA]− Price at 1.6x Net CONE

▀ Foot: − Quantity is 1.5x the ratio above “minimum acceptable”

compared to the system curve, mathematically the quantities are:

▀ Local Net CONE: − Assumed greater than or equal to system Net CONE− Estimate local Net CONE as a separate value only if likely

to be 15% higher than system− Currently estimating <5% higher for CT, NEMA/Boston,

and SEMA/RI

NEMA Initial Candidate Curve

𝐹𝑜𝑜𝑡 𝑧𝑜𝑛𝑒=(1.5×( 𝐹𝑜𝑜𝑡𝑠𝑦𝑠𝑡𝑒𝑚𝐶𝑎𝑝 𝑠𝑦𝑠𝑡𝑒𝑚 −1))×𝐶𝑎𝑝 𝑧𝑜𝑛𝑒+𝐶𝑎𝑝 𝑧𝑜𝑛𝑒

Notes:Footsystem = 35,605Capsystem = 32,053CapNEMA = 8,059CapCT = 10,089𝐹𝑜𝑜𝑡 𝑁𝐸𝑀𝐴=(1.5×( 35,60532,053

−1))×8,059+8,059=9,399

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Import-Constrained ZonesInitial Candidate: Parameter Values by Zone

ConnecticutNEMA

Notes: MW quantities based on FCA7; prices based on a Net CONE of $11.1/kW-m. Foot quantity based on the system demand curve foot-to-cap ratio of 1.1.TTC values were 2,600 MW CT, 4,850 MW NEMA in FCA& from http://iso-ne.com/markets/othrmkts_data/fcm/doc/summary_of_icr_values%20expanded.xls

Cap to Foot

Change in Price ($/kW-m) $17.7Change in Quantity (MW) 1,340Slope ($/kW-m per 100 MW) $1.32

Cap Foot

Curve DefinitionPrice 1.6x Net CONE $0

Quantity Max of 1-in-5 LOLE or TSA

1.5x Wider than System Ratio

Corresponding Quantities in FCA7

Local + Import MW 8,059 9,399

Cap Foot

Curve DefinitionPrice 1.6 Net CONE $0

Quantity Max of 1-in-5 LOLE or TSA

1.5x Wider than System Ratio

Corresponding Quantities in FCA7

Local + Import MW 10,089 11,766

Cap to Foot

Change in Price ($/kW-m) $17.7Change in Quantity (MW) 1,677Slope ($/kW-m per 100 MW) $1.06

http://iso-ne.com/markets/othrmkts_data/fcm/doc/summary_of_icr_values%20expanded.xls

http://iso-ne.com/markets/othrmkts_data/fcm/doc/summary_of_icr_values%20expanded.xls

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Quantity Zonal Load Cost

Average Standard Deviation

Frequency at Cap

Frequency of Price

Separation

Average Excess

(Deficit) Above LSR

Standard Deviation

Frequency Below

LSR

Frequency Below

TSA

Frequency Below 1-in-5

Average LOLE

Average Customer

Costs

Average of Bottom

20%

Average of Top 20%

($/kW-m) ($/kW-m) (% of draws) (% of draws) (MW) (MW) (% of draws) (% of draws) (% of draws) (events/yr) ($mil/year) ($mil/year) ($mil/year)

NEMA/BostonVertical in Zones (System Sloped) $12.2 $4.3 23.9% 18.3% 558 404 20.0% 20.0% 6.5% 0.097 $955 $493 $1,4751x System Shape $12.2 $4.0 16.6% 25.6% 785 404 12.2% 12.2% 6.2% 0.095 $958 $497 $1,4681.5x System Shape (Initial Candidate) $12.2 $3.9 14.1% 28.1% 905 403 9.6% 9.6% 6.2% 0.095 $960 $501 $1,4622x System Shape $12.2 $3.8 11.7% 30.1% 1,050 403 6.8% 6.8% 6.2% 0.095 $962 $506 $1,457

ConnecticutVertical in Zones (System Sloped) $12.2 $4.3 24.7% 20.0% 409 469 22.2% 17.6% 10.5% 0.116 $1,228 $664 $1,8091x System Shape $12.2 $3.9 15.2% 30.1% 594 469 14.9% 11.3% 7.7% 0.107 $1,233 $699 $1,7661.5x System Shape (Initial Candidate) $12.2 $3.7 11.3% 32.7% 770 470 9.9% 7.0% 6.8% 0.102 $1,234 $717 $1,7402x System Shape $12.2 $3.5 8.3% 35.1% 957 470 5.8% 3.5% 6.5% 0.098 $1,237 $743 $1,715

Price

Import-Constrained ZonesInitial Candidate Curve Supports Objectives

▀ Combination of reliability and price objectives points to a range

▀ The candidate curve meets LOLE objective and exceeds TSA and 1-in-5 (drops below minimum acceptable 9.6% of the time in NEMA and 7% in Connecticut)

▀ …through a market that has much less volatility and substantially improved reliability compared to vertical curves

Connecticut

Recommended Range

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Import-Constrained ZonesAre Local Costs and Reliability Outcomes Reasonable?

▀ Customers in import-constrained zones can expect to pay a higher level of capacity payments than customers in the system, even though reliability in an import-constrained zone is no better than the system reliability

− This differential does not reflect an uneven cost allocation for meeting system reliability needs

− Instead it reflects: (a) the greater reliability challenges faced in import-constrained zones, and (b) the higher cost of building in those locations

▀ Higher customer costs are incurred in importing zones under either a vertical or sloped demand curve, although a more right-stretched or right-shifted curve increases the cost differential (by a small amount) because it results in a greater fraction of the need being procured locally at a higher cost

▀ Reliability in importing zones is no better than system reliability by definition:− Even without TSA, import-constrained zones will always have higher LOLE than

the system, since they are vulnerable to both system-wide and local shortages− The TSA establishes a minimum local requirement for transmission security, which

may further increase costs

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NEMA CT NEMA CT1-in-x 1-in-x LOLE LOLE

LRA 1-in-9.5 1-in-9.5 0.105 0.105TSA 1-in-16.4 1-in-8 0.061 0.125Cap 1-in-16.4 1-in-8 0.061 0.125Foot 1-in-42.3 1-in-32.9 0.024 0.030

Import-Constrained ZonesHow Does Reliability Change with Quantity?

▀ LOLE is equal to 0.105 at LRA in both zones (by definition)

▀ But TSA is a different type of reliability, not included in LOLE calculation

▀ Since TSA is the binding requirement in NEMA, the LOLE is much lower there at the LSR than in CT

NEMA/Boston

Connecticut

Acronyms:TTC = Total Transfer Capability (i.e. transmission import/export limit)LSR = Local Sourcing Requirement TSA = Transmission Security AnalysisLRA = Local Resource Adequacy

Local LOLE at Key Quantities

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Import-Constrained ZonesWhat if True Net CONE in Zones is Lower than in System?

▀ We recommend estimating a separate local Net CONE only if it is expected to be ≥ 15% higher than system Net CONE (no separate estimate if it’s lower)

▀ But what would happen if estimated Net CONE is lower in the importing zones than in system, but we model the zone as having Net CONE equal to system? We see two possible cases:− Case 1: Low Net CONE is an Underestimate. It could be that estimated

local net CONE is under-estimated, in which case setting the local curve based on the higher system Net CONE would protect against local shortages

− Case 2: Low Net CONE Attracts Excess Local Supply. If local Net CONE truly is lower than system, then suppliers will see this low-cost opportunity to develop new capacity. In this case, all supply needed to meet the system requirement will be sited in the local zone and the import constraint will not bind (so the zone demand curve will have no effect).

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Frequency at Cap

Frequency of Price

Separation

Average Excess

(Deficit) Above LSR

Standard Deviation

Frequency Below

LSR

Frequency Below

TSA


Average LOLE

Average Customer

Costs

Average of Bottom

20%

Average of Top 20%


NEMA/BostonInitial Candidate Curve (1.5x System) $12.2 $3.9 14.1% 28.1% 905 403 9.6% 9.6% 6.2% 0.095 $960 $501 $1,462LSR at 1.2x Net CONE $12.2 $4.0 15.6% 24.3% 569 404 19.7% 19.7% 6.3% 0.097 $955 $499 $1,459

ConnecticutInitial Candidate Curve (1.5x System) $12.2 $3.7 11.3% 32.7% 770 470 9.9% 7.0% 6.8% 0.102 $1,234 $717 $1,740LSR at 1.2x Net CONE $12.2 $3.9 15.0% 29.5% 432 469 21.4% 17.0% 10.3% 0.115 $1,230 $700 $1,759

Price

Import-Constrained ZonesHow Does a Curve through 1.2x Net CONE at LSR Perform?

Notes: Base case assumes true Net CONE in NEMA/Boston and Connecticut is 10% higher than system.Zonal load costs reflect capacity procurement costs paid by customers in each zone, assuming all zonal CTRs are awarded to local customers.

Connecticut▀ Curve shape same as system:− Cap and foot quantities are the same quantity % below and

above LSR as the system curve is relative to NICR− Slope in absolute MW terms is steeper than system− Does not account for TSA or local 1-in-5 as minimum

acceptable▀ Curve shows slightly greater price volatility, but much

poorer reliability with 17% and 20% below TSA in NEMA and CT respectively

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Import-Constrained ZonesWhat are the Lessons Learned from PJM Local Curves?  Many Lessons Learned Also Apply in ISO-NE:

▀ Shocks to supply and demand are greater relative to zone size, creating more price volatility and reliability concerns

▀ Percentage-based demand curves become very steep in small zones (approaching vertical), leading to higher price volatility (mostly manifesting as price spikes because downside volatility is mitigated by parent zone curves)

▀ Small zones with little development activity and few historical data points are more susceptible to administrative Net CONE errors

  Some Do Not Apply (at Least Not Presently):▀ In multi-level nested zone structure, the most import-constrained zones

are most at risk from a reliability perspective ▀ Transmission parameters (equivalent to ISO-NE’s TTC) in the capacity

market are varying greatly each year, introducing greater price volatility and reliability concerns in the most import-dependent locations

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Frequency at Cap

Frequency of Price

Separation

Average Excess

(Deficit) Above LSR

Standard Deviation

Frequency Below

LSR

Frequency Below

TSA


Average LOLE

Average Customer

Costs

Average of Bottom

20%

Average of Top 20%


NEMA/BostonInitial Candidate Curve (1.5x System) $12.2 $3.9 14.1% 28.1% 905 403 9.6% 9.6% 6.2% 0.095 $960 $501 $1,462PJM VRR $12.2 $3.9 6.2% 25.8% 456 403 25.8% 25.8% 7.2% 0.099 $952 $497 $1,440

ConnecticutInitial Candidate Curve (1.5x System) $12.2 $3.7 11.3% 32.7% 770 470 9.9% 7.0% 6.8% 0.102 $1,234 $717 $1,740PJM VRR $12.2 $3.8 6.2% 28.7% 329 469 26.7% 20.8% 12.0% 0.122 $1,225 $691 $1,713

Price

Import-Constrained ZonesHow Does PJM’s Local Curve Compare?


ConnecticutPJM Local VRR Curve (As Applied to ISO-NE)

▀ PJM applies the same curve to the zones as to the system (as a percentage of the system or local reliability requirement)

▀ Note: PJM has proposed to adopt a flatter, convex, right-shifted shape which is currently under stakeholder review

Performance ▀ Similar price volatility and fewer events at the cap▀ Portion of curve below TSA introduces more severe reliability

events, with 21% and 26% frequency below TSA in CT and NEMA respectively

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Import-Constrained ZonesSummary Comparison of Curves (Connecticut)

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Frequency at Cap

Frequency of Price

Separation

Average Excess

(Deficit) Above LSR

Standard Deviation

Frequency Below

LSR

Frequency Below

TSA


Average LOLE

Average Customer

Costs

Average of Bottom

20%

Average of Top 20%


NEMA/BostonInitial Candidate Curve (1.5x System) $12.2 $3.9 14.1% 28.1% 905 403 9.6% 9.6% 6.2% 0.095 $960 $501 $1,4621x System Shape $12.2 $4.0 16.6% 25.6% 785 404 12.2% 12.2% 6.2% 0.095 $958 $497 $1,4682x System Shape $12.2 $3.8 11.7% 30.1% 1050 403 6.8% 6.8% 6.2% 0.095 $962 $506 $1,457Vertical in Zones and System $12.2 $6.3 54.2% 10.7% 502 398 21.7% 21.7% 15.2% 0.145 $937 $275 $1,639Vertical in Zones (System Sloped) $12.2 $4.3 23.9% 18.3% 558 404 20.0% 20.0% 6.5% 0.097 $955 $493 $1,475Flatter, Curves at 1,500 Width $12.2 $3.8 13.0% 27.4% 976 403 8.2% 8.2% 6.2% 0.095 $962 $505 $1,461Steeper, Cap at 1.75x in Zones $12.2 $4.3 9.5% 23.2% 911 404 9.5% 9.5% 6.2% 0.094 $959 $496 $1,498PJM VRR $12.2 $3.9 6.2% 25.8% 456 403 25.8% 25.8% 7.2% 0.099 $952 $497 $1,440LSR at 1.2x Net CONE $12.2 $4.0 15.6% 24.3% 569 404 19.7% 19.7% 6.3% 0.097 $955 $499 $1,459

ConnecticutInitial Candidate Curve (1.5x System) $12.2 $3.7 11.3% 32.7% 770 470 9.9% 7.0% 6.8% 0.102 $1,234 $717 $1,7401x System Shape $12.2 $3.9 15.2% 30.1% 594 469 14.9% 11.3% 7.7% 0.107 $1,233 $699 $1,7662x System Shape $12.2 $3.5 8.3% 35.1% 957 470 5.8% 3.5% 6.5% 0.098 $1,237 $743 $1,715Vertical in Zones and System $12.2 $6.2 53.0% 12.6% 345 443 22.9% 18.2% 18.6% 0.154 $1,203 $384 $1,848Vertical in Zones (System Sloped) $12.2 $4.3 24.7% 20.0% 409 469 22.2% 17.6% 10.5% 0.116 $1,228 $664 $1,809Flatter, Curves at 1,500 Width $12.2 $3.7 12.3% 30.6% 728 470 11.0% 7.9% 6.9% 0.104 $1,233 $714 $1,747Steeper, Cap at 1.75x in Zones $12.2 $4.1 7.9% 26.7% 721 469 11.1% 7.9% 6.9% 0.103 $1,232 $688 $1,833PJM VRR $12.2 $3.8 6.2% 28.7% 329 469 26.7% 20.8% 12.0% 0.122 $1,225 $691 $1,713LSR at 1.2x Net CONE $12.2 $3.9 15.0% 29.5% 432 469 21.4% 17.0% 10.3% 0.115 $1,230 $700 $1,759

Price

Import-Constrained ZonesSummary Comparison of Curves


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Contents


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Export-Constrained ZoneExporting Zone Demand Curve Objectives  Reliability

▀ Maintain or exceed the 0.1 LOLE (1-in-10) system reliability target on a long-term average basis, although LOLE in any one year may fall below that target (less likely to be a limiting factor in an export-constrained area)

  Prices▀ Rationalize prices according to the incremental reliability value (if possible)▀ Reduce susceptibility to the exercise of market power (buyer side)▀ Reduce price volatility impact from small variations in market conditions and

administrative parameters, including lumpy investment decisions, demand forecast changes, and transmission parameters

  Robustness▀ Perform well under a range of market conditions, changes in administrative

parameters, and administrative estimation errors▀ Minimize complexity and contentiousness

  Exporting zones are unlike importing zones and introduce different complexities that have to be resolved with a balance among these objectives.

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Export-Constrained ZoneHow Does Reliability Change with Quantity?

▀ Beginning with the system LOLE run used to calculate MCL, add or subtract MW from Maine (keeping rest of system supply constant)

▀ At Maine supply quantities substantially below MCL, there is no difference in reliability outcomes or reliability value of supply between Maine and System

▀ Starting about 500 MW below MCL, the contribution of Maine supply to meeting system 0.1 days/ year LOLE criteria diminishes as the export constraint can be expected to bind more frequently

Maine

Reliability at Points on CurveCap MCL Foot

Same as System Curve Quantity in Maine (MW) 3,606 3,709 4,006Maine LOLE (Ev/Yr) 0.008 0.007 0.005Rest of System LOLE (Ev/Yr) 0.107 0.105 0.100

2x Wider CurveQuantity in Maine (MW) 3,503 3,709 4,302Maine LOLE (Ev/Yr) 0.026 0.007 0.003Rest of System LOLE (Ev/Yr) 0.112 0.105 0.100

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Export-Constrained ZoneHow Does the Market Clear in Exporting Zones?

Case 1: Maine is Export-Constrained

System

Maine

Case 2: Maine Clears with System

Infeasible Blocks will not clear, as the quantity exceeds the maximum demand in Maine at high pricesFeasible Blocks

Considered for system need

Feasible Blocks From Maine

Maine PriceLower than System

System Price

Supply curve if all Maine supply could be used for system

SupplyCurve

Some lower-cost Maine supply fails to clear even though it is lower-cost. If it had cleared it would displace some system supply from elsewhere (reducing system reliability)

System

Maine

Infeasible Blocks will not clear, as the quantity exceeds the maximum demand in Maine at high pricesFeasible Blocks

Considered for system need

Feasible Blocks From Maine

Max possible Maine price is higher than

system, so Maine does not price separate

System PriceAnd Maine Price

SupplyCurve

Some feasible Maine supply does not clear at the low system price

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Export-Constrained ZoneIssue with Demand Curve and Current DCA Format▀ Simple example shows quantity uncertainty from demand curve in export-constrained

zone incompatible with descending clock auction (DCA) in its current format▀ Problem can be solved by: (a) not finalizing any zone’s price until all zones clear, (b)

vertical curve in Maine, or (c) not counting any MW from Maine toward system need in excess of MCL

Maine

Visible PortionOf Supply Curve

Supply Curve May Have Any Shape

System

Uncertain MW Available for Export to System

Possible Clearing PricesUnclear whether auctionShould close for system.ME Imports

ME Imports

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Approach1. Vertical Constraint at MCL

2. Sloped Maximum Demand Curve

3. Prorating Payments for Quantities above MCL

4. Discount MW Based on System Reliability Value

Export-Constrained ZoneAre there Alternative Clearing Approaches?

MCL

MCL

MCL

System Price

PayoutRate

MCL

System Price

PayoutRate

▀ In the following slides we describe four alternative approaches to addressing market clearing in export constrained zones

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Export-Constrained Zone: Alternative Approaches1. Vertical Constraint at MCL

Vertical Demand Curve

Curve Parameters

Maine Clearing Price and Quantity

System Price

Slope: $17.7/kW-m Cap to Foot

Cap Foot Difference

Price 1.6x Net CONE $0 $17.7

Quantity MCL MCL -

Corresponding Quantities in FCA7 (MW) 3,709 3,709 0

Approach 1: Vertical Constraint at MCLConcept • Vertical curve at MCL

• Curve design currently used in FCM

Supplier Payments

• Maine Clearing Price

Pros • Simplest • No possibility of procurement above MCL

Cons • Highest price volatility

Implementation Challenges

• None: current design

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Approach 2: Sloped Maximum Demand CurveConcept • Sloped maximum demand curve

• Defines maximum price that can be paid at each quantity

Supplier Payments

• Maine Clearing Price

Pros • Mitigates against bimodal price (modest improvement)

Cons • Degrades system reliability because local supply is treated the same as system supply (increases system LOLE by 0.002 Ev/Yr but problem would worsen with flatter curves that perform better in price volatility)

• Auction could result in no price separation even when the quantity in ME exceeds MCL


• Inconsistent with current DCA. Possible solution: do not close any zone until all zones clear (but offers can be fixed for subsequent rounds)

• Other issues TBD by ISO-NE

Export-Constrained Zone: Alternative Approaches2. Sloped Maximum Demand Curve

Sloped Demand Curve

Curve Parameters


System Price

Cap Foot Difference

Price 1.6x Net CONE $0 $17.7

Quantity -2.78% below MCL 1.1x Cap Quantity -

Corresponding Quantities in FCA7 (MW) 3,606 4,006 400

Slope: $4.4/kW-m per 100 MW

Notes: The sloped demand curve depicted above is based on the same cap-to-foot ratio as the system curve, with the same quantity percentage above and below MCL as the system relative to NICR. By coincidence, this curve passes through MCL at the system price in the example we show; however, the curve has not been designed to pass through MCL at the system price.

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Export-Constrained Zone: Alternative Approaches3. Prorating Payments for Quantities above MCL

Prorating Payments for For Quantities above MCL


System PriceProrated MainePayout Rate

Approach 3: Prorating Quantities above MCLConcept • Maine can clear quantities above MCL, but no

more than MCL counts toward system need• Maine suppliers offering below prorated

payout rate would not clear

Supplier Payments

• Maine Payout Rate = (System Price * MCL) / Maine Cleared Quantity

Pros • Lowest price volatility in Maine (almost same as system)

Cons • Large potential for uneconomic over-supply in Maine


• TBD by ISO-NE

Slope: $0.3/kW-m per 100 MW (steepest slope, assumes system clears at Net CONE)

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Export-Constrained Zone: Alternative Approaches4. Discount MW Based on System Reliability Value

Relative Reliability Curve


System Price

Discounted MainePayout Rate

0%

20%

40%

60%

80%

100%

2,500 3,500 4,500

Mar

gina

l Val

ue (%

)

Local Generation (ICAP MW)

MCL

Marginal Value

0

1,000

2,000

3,000

4,000

5,000

2,500 3,500 4,500

Cum

ulati

ve V

alue

(MW

)

Local Generation (ICAP MW)

MCL

x-y line

Cumulative Value

Cumulative Reliability Value of Maine Capacity

Marginal Reliability Value (as % of System Capacity)

Approach 4: Discounted MW to Reliability ValueConcept • Discount Maine suppliers’ MW to equivalent

marginal reliability value at the system level (declines at MW > MCL)

• Makes Maine supply offers appear higher per MW compared to system MW as oversupply increases

• Cumulative MW asymptotes at MCL

Supplier Payments

• Maine Payout Rate = System Price * Marginal Reliability Value

Pros • Most economically rational• Substantially mitigates price volatility

Cons • Complex, untested


• Inconsistent with current DCA

Slope: $2.2/kW-m per 100 MW (steepest slope, assumes system clears at Net CONE)

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$0

$5

$10

$15

$20

3,40

0

3,50

0

3,60

0

3,70

0

3,80

0

3,90

0

4,00

0

4,10

0

4,20

0

4,30

0

4,40

0

Pric

e ($

/kW

-m IC

AP)

Local ICAP MW

MCL

System Net CONE

Maine Net CONE

Export-Constrained ZoneHow Does the Curve Slope Affect Price Separation?

▀ A flatter Maine curve will:− Still result in the same average price over the

long run (based on local Net CONE, currently assumed at 10% lower than system Net CONE)

− Reduce price volatility (i.e. reduce the magnitude of any one price separation event)

− Increase the frequency of price separation to 25% (compared to 13% with a vertical curve), but result in the same average price delta across years

Maine Price Separation Schematic

More frequent (but smaller) price separation events occur with a flat curve (resulting in the same average price in both cases).

An identical supply shock causes more price separation with a steeper curve.

0 20 40 60 80 100

-$0 to -$2

-$2 to -$4

-$4 to -$6

-$6 to -$8

< -$8

Frequency (Count of 1,000 Draws)

Pric

e Se

para

tion

from

Sys

tem

($/k

W-m

)

Frequency of Price Separation by Magnitude(Maine Price minus System Price)

Vertical at MCL1x Width Curve2x Width Curve (Flattest)

2x Width curve shows 58% of price separation events within $4/kW-m of RoS price

2x Width curve shows 51% of price separation events more than $8/kW-m below RoS price

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Export-Constrained ZoneComparison of Alternative Approaches

System Price

Prorated

Sloped Maximum Demand Curve

Reliability ValueVertical

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Contents


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Next Steps

Date Meeting or Deadline

June 10-11, 2014 MC Capacity zone demand curve concepts and candidate curves

June 20, 2014 Participants submit additional questions which Brattle will endeavor to answer at the July 8-10 MC

July 8-10, 2014 MC Answers to stakeholder questions

July 18, 2014 Participants submit additional questions which Brattle will endeavor to answer at the August 5-6 MC

Aug. 5-6, 2014 MC Answers to stakeholder questions

Aug. 8, 2014 Participants submit additional alternative zonal demand curve proposals for quantitative & qualitative analysis

Sep. 3-4, 2014 MC Results of quantitative analysis for stakeholder proposals (and ISO proposed demand curves)

▀ Please submit questions, comments, or alternative proposed curves to ISO-NE by July 18, for Brattle response in the August MC meeting

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Contents


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Quantity Zonal Load CostAverage Standard

DeviationFrequency

at CapFrequency

of Price Separation

Average Quantity

Above (Below) MCL

Standard Deviation

System LOLE

Final Customer

Costs

Averageof Bottom

20%

Averageof Top 20%

($/kW-m) ($/kW-m) (% of draws) (% of draws) (MW) (MW) (events/yr) ($mil/year) ($mil/year) ($mil/year)

MaineInitial Candidate Curve (1.5x System) $10.0 $4.4 4.3% 13.2% (385) 152 0.093 $288 $103 $4571x System Shape $10.0 $4.4 4.3% 13.1% (385) 151 0.094 $289 $105 $4572x System Shape $10.0 $4.4 4.3% 13.5% (378) 153 0.094 $288 $101 $457Maine with Sloped Curve $10.0 $4.1 3.7% 18.6% (265) 161 0.096 $288 $122 $455Maine with Sloped Curve (2x Wider) $10.0 $3.7 3.1% 25.2% (176) 163 0.099 $288 $140 $448Vertical in Zones and System $10.0 $6.6 38.7% 11.6% (410) 187 0.145 $283 $66 $529Vertical in Zones (System Sloped) $10.0 $4.4 4.3% 13.5% (378) 153 0.094 $288 $102 $457Flatter, Curves at 1,500 Width $10.0 $4.4 4.3% 13.5% (377) 153 0.094 $288 $101 $458Steeper, Cap at 1.75x in Zones $10.0 $4.4 4.3% 13.1% (386) 151 0.093 $289 $106 $457PJM VRR $10.0 $4.0 6.6% 22.3% (320) 158 0.095 $288 $120 $447LSR at 1.2x Net CONE $10.0 $4.4 4.3% 13.5% (378) 153 0.094 $288 $102 $458

Price

AppendixMaine Simulation Results

Notes: System LOLE exceeds 0.100 in base case for 3 reasons: (1) slight difference in approach to translating system curve to zones (impact of 0.002), (2) applying a vertical curve in Maine in the base Case (impact of 0.002), and (3) change from 15% to 10% higher/lower Net CONE in zones (impact of 0.002).Base case assumes true Net CONE in NEMA/Boston and Connecticut is 10% higher than system.Zonal load costs reflect capacity procurement costs paid by customers in each zone, assuming all zonal CTRs are awarded to local customers.

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Appendix B: Detailed Local ResultsNEMA Results

▀ Avg Price: $12.2/kW-m (SD = 4.3kW-m)

▀ Avg cleared quantity +TTC as % of LSR + TTC: 107.4% (SD = 9.2%)

▀ % of draws below TSA: 20.0%▀ Avg Cost: $958 mil

▀ Avg Price: $12.2/kW-m (SD = $3.9kW-m)


▀ % of draws below TSA: 9.6%▀ Avg Cost: $960 mil

Initial Candidate Curve

Vertical Curve for Zones (System Sloped)

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Appendix B: Detailed Local ResultsConnecticut Results



▀ % of draws below TSA: 17.6%▀ Avg Cost: $1,233 mil



▀ % of draws below TSA: 7.0%▀ Avg Cost: $1,234 mil

Initial Candidate Curve

Vertical Curve for Zones (System Sloped)

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AppendixMaine ResultsLocal Curve Vertical at MCL

▀ Avg Price: $10.0/kW-m (SD = $4.4 kW-m)

▀ Avg cleared quantity as % MCL: 90.1%

▀ % of draws above MCL: 0.0%▀ Avg Cost: $289 mil

▀ Avg Price: $10.0/kW-m (SD = $4.1 kW-m)

▀ Avg cleared quantity as % MCL: 93.4%

▀ % of draws above MCL: 22.9%▀ Avg Cost: $288 mil

Local Curve Same Shape as System Curve

Note: Assumes import-constrained curves have same sloped shape as system.

2 nd stakeholder update: locational capacity demand curves in iso-ne

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