Reserve Markets The ability to Self-supply

1
Reserve Markets The ability to Self-supply

• June 27, 2000

2
FERC orders regarding the ability to self-supply.

• FERC established a part of its Order No. 888 the
  right to self-supply of operating reserve
• FERC further in a recent NYISO decision directed
  NYISO to devise a plan that will permit its
  customers to self-supply outside the NYISO
  market
• The RNA Section 14.2 (d) provides the
  Participants with the ability to self-schedule
  (self-supply) OR and AGC

3
Why the need to Self-Supply?

• Any market Participant must be able to chose the
  most efficient manner by which it wants to serve
  its own needs.
• Some Participants have invested in physical or
  bilateral resources to meet their market
  obligations and must be able to use them if
  warranted.
• ISO-NE/NEPOOL OR markets must be residual
  alternatives and not forced markets.

4
OR obligations fall on Load Serving Entities.

• OR obligations fall on primarily Load Serving
  Entities, although some OR is assigned to
  entities with external transactions.
• OR obligations are assigned on a load ratio basis
  with disregard to who is causing the need for OR.
• If direct assignments cannot be found, indirect
  assignments as general uplift in some form will
  take place.

5
NEPOOL Practices to Self-supply of OR fall into
two categories.

• 1) Bid ones resources into the OR markets and
  hope it will come out right. (This means relying
  on a proper functioning spot market and a correct
  ISO-NE dispatch)
• 2) Purchase ones OR requirements from the
  bilateral market. Essentially having a third
  party taking over ones OR responsibility. (This
  means relying on a proper functioning forward
  market)

6
Bid ones resources to SS OR

• A Load Serving entity with resources can bid its
  resources into the NEPOOL OR market and hope that
  the resources will be accepted and thereby
  indirectly meet its own obligations.
• Without having a direct ANI measure for OR
  established, its generation sells OR in to the
  market and Load pays for its OR obligation.
  Financially the Participant settles the sell
  versus buy account as a or - balance.
• The Participant must rely on NEPOO market rules
  and ISO operation and hope that it can indirectly
  self-supply.
• No current methodology is available to provide
  for direct self-supply.

7
Purchase from the Forward market.

• A Load Serving entity can contract bilaterally
  with a third party to supply its OR requirements
  either as a contract-for-differences, CDF, or via
  a direct transfer of the OR obligation. Such
  contracts essentially form the basis for
  self-supply.

8
Load Serving entitys true inability to
Self-Supply in NEPOOL

• Regardless of a Load Serving entitys desire and
  method to attempt to self-supply OR, current
  NEPOOL market rules and ISO-NE operation prevent
  true SS.
• A major cost of creating and paying for OR comes
  in the form of an Uplift assignment via the
  Energy market.
• LOL Energy based uplift for 12 months amounted to
  around 50M whereas the OR market amounted to
  about 58M. Essentially 1/2 of the cost of the OR
  market cannot be SS and this presents a
  competitive market problem.
• Posturing of OR resources caused by ISO-NE
  technical deficiencies places a posturing uplift
  obligation an all load serving entities, even on
  those who are providing the technical solution to
  the ISO-NE deficiency.

9
Conclusion

• All the regions OR requirements in MW must be
  fully assigned to the OR market and not
  indirectly via some other market.
• ANI like computations for OR must be created to
  indicate who has adequate OR and who does not.
• Participants must be able to Self-supply its
  obligations by the use of its resources and only
  be required to purchase from the NEPOOL/ISO-NE
  residual markets if it chooses to do so.
• OR Uplift should be allocated to -ANI only.
• Cascading of a Participants higher quality OR to
  a lower quality must be facilitated via the
  billing system. (Currently one can sell low and
  be required to buy back at a higher price for a
  lower quality OR)