NEPOOL Cold Snap Task Force Working Group

1
NEPOOL Cold Snap Task ForceWorking Group

• Pros Cons of Proposal(s)
• Issues of Concern
• June 18, 2004

2
Market Timeline Advancement Proposal

• Advantages
• Certainty about a generators price MW schedule
  is provided in time for day-ahead (1st) gas
  nominations (DAM flagging issue still needs to be
  addressed).
• Uses current Day-Ahead Real-Time Market Rules
  during Cold Snap periods (except for timeline
  shift itself).
• No change in Internal Bilateral Transactions
  (IBTs) submittals.
• No change in ISO-NE Settlement Schedules.
• ISO-NE triggers the Market Timeline Advancement,
  which in turn provides advanced notification to
  all stakeholders such that both the electric
  gas markets can react.

3
Market Timeline Advancement Proposal

• Disadvantages
• Due to its by-exception nature, it can
  potentially inject confusion during extreme
  demand periods, which are usually tough
  operational periods.
• Staffing requirements to support the Market
  Timeline Advancement will put a heavy burden on
  employees to support overall market
  administration functions.
• Increased price risk on generators due to the
  need to submit offers earlier- than-normal.
• Increased load forecast error/uncertainty due to
  the need to submit offers earlier- than-normal.
• Increased training needs in order to be prepared
  for such situations.

4
Market Timeline Advancement Proposal

• Disadvantages
• 6. Increase risk for post-analysis and price
  corrections by MMM FERC due to
  Monday-Morning-Quarterbacking.
• Does not ensure the generators will buy the
  natural gas and actually delivers the
  electricity. Lack of physical certainty that gas
  generators will deliver the MW when needed.
  Currently applicable to all generators right now,
  not just gas-fired generators.
• Does not ensure an adequate quantity of
  load/generation is actually scheduled/cleared in
  Day-Ahead Market.
• Unknown ramifications to the natural gas markets.
  Potential loss of flexibility to gas LDCs if
  electric sector increases competition natural
  gas.

5
Financially-Firm RAA Proposal

• Advantages
• Posturing of units scarcity pricing
• Provides initiative for gas units to acquire gas
  to support their RAA schedule.
• Does not undermine loads incentive to procure
  physical energy on a forward-going basis.
• More certainty for ISO operations that the
  operating plan (RAA) will materialize in real
  time.

6
Financially-Firm RAA Proposal

• Disadvantages
• Cost impacts allocation issues need to be
  addressed.
• Uncertainty still exists that gas units can still
  sell-off their fuel for higher prices
  attainable within the gas market. Gas sales are
  less risky that electric market sales.
• Potential for increased operating reserved
  charges (may or may not be a disadvantage)
• Does not address real-time commitments for
  quick-start units or contingency commitment units
  (i.e. brought online for post-contingency
  recovery).

7
Issues of Concern

• 1. The NEPOOL CSTF WG recommends that the Market
  Timeline Advancement Straw Proposal must be
  coupled with the Financially-Firm Resource
  Adequacy Assessment (RAA) Proposal. Decoupling
  the two proposals should not be allowed.
• 2. The NEPOOL CSTF WG recommends that the
  proposal(s) should only be implemented for an
  interim two-year period (thru the Winter
  2005/2006) and notes that a Sunset-Clause
  should be added to any subsequent FERC filling.
  This will ensure proper time for overall issues
  to be undertaken and addressed by the ISO
  NEPOOL Markets Committee.

8
Issues of Concern

• 3. The NEPOOL CSTF must start to address
  potential cost impacts and corresponding cost
  allocation issues associated with implementation
  of the proposal(s) and/or any other market
  changes that will result from Cold Snap
  initiatives. Keeping gas-fired generators risk
  free during Cold Snap periods is a concern. Who
  will pay for costs associated with
  inadvertent-outcomes (Settlement) of any
  problems that arise as a result of implementing
  these proposal(s)? The

9
Issues of Concern

• 4. The Market Timeline Advancement proposal needs
  to reflect the new time periods that will be
  required to perform the DAM-LMP flagging period
  (April 19th issue). May require tighter windows?
  
• 5. A finite natural gas pipeline infrastructure
  will eventually limit the amount of additional
  electric sector generation. Ceiling issue -
  reference ISO/Levitan Gas Studies. Does not
  necessarily increase physical gas supply into the
  region.

10
Issues of Concern

• 6. Should the ISO/NEPOOL CSTF allow or not allow,
  virtual supply offers during Cold Snap events?
• 7. The NEPOOL CSTF WG recommends that any
  real-time re-offer alternatives should be
  tabled such that they may be addressed on a
  longer-term basis.
• 8. What will be the mechanism for Listed or
  Delisted Units? Should New England consumers
  responsible for firming up fuel supplies for
  supply resources making sales out of New England?

11
Issues of Concern

• 9. How will units be selected for firming up fuel
  supply under the RAA proposal? Can a unit sell
  off its original gas supply, then become selected
  for RAA firmness, and then go out and procure gas
  to get a second-bite at the apple? (Risk free
  and double profits?)
• 10. If gas units can get Financially-Firm under
  the RAA proposal, why not a financially
  struggling company? How will the ISO close the
  flood gates after the concept has been opened?
  Why shouldnt all generators to try to get a
  risk free deal during Cold Snap period.

12
Issues of Concern

• 11. During the Market Timeline Advancement
  proposal, the ISO will be under-the-gun in very
  short periods (5-8 hours) to determine all
  aspects of what is exactly needed to maintain
  system reliability. Can the ISO surpass these
  obstacles now or by the Winter 2004/2005?
• 12. Can energy companies involved with both
  electric and gas sales game these proposals to
  create false shortages? Is New England setting
  itself up for a similar type California Crisis?

13
Issues of Concern

• 13. How will units be allowed to offer into the
  Market under the RAA proposal? Assuming no
  market power, is any offer taken or offers based
  on fuel cost? Since units will be Risk Free, is
  it proper to recover more than fuel costs? What
  will ISO say the profit margin should be under
  Cold Snap periods?
• 14. If a units has been made Financially-Firm
  under the RAA proposal, and the units has
  procured gas but then suffers a forced outage,
  who will be responsible for paying for the unused
  gas and potential imbalance penalties?

14
Issues of Concern

• Pertaining to cost allocation, should the costs
  associated with the Financially-Firm RAA
  proposal be allocated to Network Load similar to
  costs associated with Fixed Cost RMR Arrangement
  today? The situation is similar because it
  provides reliability assurance above and beyond
  normal market functions. A risk free support
  arrangement to maintain system reliability.
• 16. ISO needs to develop a more detailed timeline
  plan to identify what can will be done prior
  to the Winter 2004/2005.