FERC Order in Devon Power LLC, et al. ER03-563-00

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FERC Order inDevon Power LLC, et al. ER03-563-00

• Robert Ethier
• Director, Market Monitoring
• ISO New England Inc.
• May 2, 2003

2
Background

• NRG had applied for Reliability Must Run (RMR)
  agreements with the FERC to recover the full cost
  of service for its Connecticut fleet.
• ISO-NE had proposed, and the Commission had
  accepted, a scarcity pricing mechanism called the
  Proxy CT that provided special mitigation rules
  for generators in chronically congested areas
  (DCAs).
• The intent of the Proxy CT was to control local
  market power while allowing price signals to
  incent investment in chronic problem areas.
• These areas were identified as CT, SWCT and
  NEMA/Boston

3
FERC Action on April 25, 2003

• Denied NRGs request for RMR arrangements for
  full cost of service recovery
• Allowed guaranteed recovery of only certain
  maintenance costs required for reliability
• New agreements required within 30 days reflecting
  this ruling

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FERC Action (contd)

• FERC rejected the Proxy CT (combustion turbine)
  proposal it had previously accepted
• ISO to modify Market Rule 1 by June 1 with
  temporary measure Peaking Unit Safe Harbor
  offer
• Allows fixed cost component in offers of certain
  units
• ISO-NE required to file Locational ICAP plan by
  March 1 ,2004.

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FERC Action (contd)

• Directed ISO-NE to establish temporary bidding
  rules
• Permit selected peaking units to raise their
  offers to reflect fixed and variable costs (PUSH)
  Peaking Unit Safe Harbor
• Peaking unit defined as capacity factor less than
  10, resident in identified DCAs
• Allow peaking units to set price
• Offers would be allowed to reflect total fixed
  costs, levelized over 2002 MWhs of generation

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FERC Action (contd)

• FERC Rationale
• RMR contracts suppress market-clearing prices,
  increase uplift payments, and make it difficult
  for new generators to profitably enter the
  market.
• In short, extensive use of RMR contracts
  undermines effective market performance.

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FERC Action (contd)

• FERC Rationale
• Our reason for increasing the safe harbor energy
  bids of these units is to provide a market
  mechanism for high cost, seldom run units to
  recover their fixed costs.
• When a peaking unit is called, all sellers will
  be able to receive a high market price and
  recover fixed costs. This feature will encourage
  entry by new generators.

8
Rule Development

• ISO-NE intends extensive discussions with
  stakeholders on rules changes
• Regular and special Markets Committee meetings in
  May to develop rules
• ISO-NE to make compliance filing by May 30
• ISO-NE to implement temporary rules changes on
  June 1
• Rule changes in effect until introduction of
  Locational ICAP

9
Locational ICAP

• Order directs ISO-NE to develop a mechanism to
  implement location or deliverability requirements
  in the ICAP or resource adequacy market
• Capacity within chronically constrained areas to
  be appropriately compensated for reliability
• Discussions ongoing with stakeholders
• Resource Adequacy Working Group
• Markets Committee
• ISO-NE intends to file revised ICAP rules no
  later than March 1, 2004, for implementation no
  later than June 1, 2004, as required by the Order
• Consistent with existing Locational ICAP schedule