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June 3, 2014 | NEPOOL Markets Committee

June 3, 2014 | NEPOOL Markets Committee. ISO New England Staff. System & market Operations, Market Development, Market Monitoring . Discussion of proposed changes focused on Dual Fuel Capability, Unused Oil Inventory, Unused Contracted LNG and Demand Response. Winter Reliability Program.

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June 3, 2014 | NEPOOL Markets Committee

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  1. June 3, 2014 | NEPOOL Markets Committee ISO New England Staff System & market Operations, Market Development, Market Monitoring Discussion of proposed changes focused on Dual Fuel Capability, Unused Oil Inventory, Unused Contracted LNG and Demand Response Winter Reliability Program

  2. Proposal Summary • The ISO is proposing changes focused on dual fuel resource participation in the markets: • Additional compensation will be provided to offset commissioning costs • Additional compensation will be provided for unused oil inventory • ISO is also proposing permanent rule changes through separate initiatives • Requirement to burn higher cost fuel when offered/cleared will no longer be required under competitive market conditions • ISO-initiated audit rules will be extended to apply to, and compensate for, dual fuel resource annual tests • The ISO is proposing to provide additional compensation for: • Unused oil inventory of non-dual fuel resources • Unused LNG contract volume of pipeline gas resources • Demand response (similar to Winter 2013/14)

  3. Unused Fuel Inventory Program Discussion of background information from Winter 2013/2014 and comparing and contrasting the last year’s program and this year’s program quantities

  4. Target values were established based upon this year’s proposed program structure • The unused fuel program proposed this year contemplates payment for only unused inventory subject to minimum and maximum levels • Last year’s program established a requirement of 4.2 million barrels of oil, and paid for upfront inventory and replenishment • Target requirements are intended to offer the ISO’s perspective to the marketplace on the winter operations needs and are not directly comparable to last year. • Focus of program design is obtaining incremental fuel above what may otherwise have been available • Assuming 100% participation in the unused oil inventory program, the minimum level eligible for compensation is 3.0 million barrels, while the maximum level eligible for compensation is 3.8 million barrels • The LNG component is unique and is an attempt by the ISO to balance the need to be more ‘fuel neutral,’ while understanding the benefits that accrue to the region • The maximum quantity eligible for compensation of 6 Bcf of LNG does not guarantee ‘incremental fuel’ being available to New England

  5. Additional information on Winter 2013/2014 operations and Winter 2013/14 Program • When comparing last year’s program participation to the proposed program’s minimum requirement (the lesser of 90% of usable tank capacity or 11 days at full load operation) 61% of resources that participated met or exceeded the requirement • Of those that would not have met the requirement, only one resource missed the requirement by a significant margin • When comparing last year’s program participation to the proposed program’s maximum requirement (the lesser of 95% of usable tank capacity or 15 days at full load operation) 220,000 barrels (or ~6%) were awarded above this requirement • During last winter 244,000 MWh across the 17 units studied were produced by oil units operating out of merit (define as receiving NCPC on a day) • About 20% of the total MWh generated by these 17 units over the period • About 1% of total MWh generated by all units over the period

  6. Unused Oil Inventory Program Summary of changes made to the program rules or additional details about the program rules since the Markets Committee meeting on May 23

  7. Offset risk of unused fuel oil inventory at the end of the winter period • Program design is intended to offset risk of having unused fuel oil inventory at the end of the winter period • Resources that are eligible and elect to participate in the program will be compensated for any unused fuel oil up to the lesser of the maximum compensation level and the initial inventory level based upon a fixed rate • Resources that are fully unavailable for any hours during the winter period will have their payments reduced

  8. Late season replenishment notification requirement is not required to provide program protections • ISO proposed provisions to limit inventory increases at the end of the season for the sole purposes of being compensated for unused inventory at the end of the season • Only allow inventory to be delivered after February 15 to be counted if it was noticed prior to February 1 for delivery • Require all fuel delivered in February to be maintained through November 30 for the production of electricity • Based upon feedback from participants and additional ISO evaluation, the ISO is removing the first requirement as the second requirement provides adequate coverage • ISO will track how February inventory is maintained using the existing fuel survey process • Focus of this process will be on ensuring fuel is not sold or used for purposes other than the production of electricity

  9. Focus of program design is obtaining incremental fuel above what may otherwise have been available • The concept that the minimum program levels must be reached to participate in the program and the units with shared tanks must participate all together or not at all remains unchanged • This is required to assure that the program supports the addition of incremental fuel for units participating in the program

  10. Unused CONTRACTED LNG Program Summary of changes made to the program rules or additional details about the program rules since the Markets Committee meeting on May 23

  11. Offset risk of unused contracted LNG at the end of the winter period • Program design is intended to offset risk of having unused contracted LNG volumes at the end of the winter period providing compensation for resources that acquired firmer fuel which they did not use • This program’s focus is on providing a peaking service that would augment the availability of pipeline gas • Resources that are eligible and elect to participate in the program will be compensated for any unused contracted LNG volumes up to the maximum program level based upon a fixed rate • Resources that are fully unavailable for any hours during the winter period will have their payments reduced

  12. Certification process required to participate in the LNG program was more clearly defined • ISO will require participants to submit Attachment 1 of Appendix K by December 1 to certify the participant has met the obligations outlined within the tariff including that the contract includes a “take or pay” construct, a term that spans the winter, and there is pipeline transportation to the resource’s gas meter

  13. LNG is required to be used in the production of electricity for New England • While the participation rules require requests to participant and LNG contracts to be resource specific, there will be no prohibition around transferring LNG to an alternate generator for the production of electricity in New England • Availability criteria is not transferable and will remain with the generator participating in the program

  14. Unused Fuel Programs Settlement and Billing Summary of changes made to the program rules or additional details about the program rules since the Markets Committee meeting on May 23

  15. ISO will bill load based upon estimated unused fuel on a monthly basis as a separate line item • ISO will estimate what the remaining quantities at the end of the season for both unused fuel programs and will determine an estimated Total Estimated Unused Fuel Charge • Estimate will be based upon 75% of program eligible December inventory • Winter program charges (estimated and actual) and credit line items will be identified on the bill

  16. Dual Fuel Commissioning Program Summary of clarifications made to the program rules or additional details about the program rules since the Markets Committee meeting on May 23

  17. Offset testing costs associated with restoring or commissioning dual fuel capability • Program design is intended to offset testing costs associated with restoring or commissioning dual fuel capability • Resources that are eligible and elect to participate in the program will be compensated through real-time NCPC for any testing related costs capped at a resource specific cost recovery limit • Resources that do not maintain their dual fuel capability per the obligations of the program will be charged back a portion of the compensation

  18. Cost recovery limit is established when the participant requests for a resource to participate in the program • At the time a participant requests to participate in the program, the ISO will establish a resource specific cost recovery limit (in dollars) • This is calculated based upon 20 hours of testing at full load (based upon winter SCC) adjusted for energy revenues and assuming three cold starts being incurred in supporting of testing using a similar approach to how reference levels are determined by the market monitor

  19. Costs associated with this program will be billed as part of NCPC weekly, but will be reported separately • NCPC related to dual fuel commissioning activities will be included on in the hourly services bill issues on a bi-weekly basis • These costs will be included as part of the auditing costs related to NCPC • The accompanying bill job aid will provide a breakdown of the costs associated with this program

  20. Demand Response Program Summary of clarifications made to the program rules or additional details about the program rules since the Markets Committee meeting on May 23

  21. Demand response energy payments will be reduced by any generation that is being paid for energy at the location • A deduction (G Payment) in any energy payment otherwise made for Net Supply to a generation asset located at the same Retail Delivery Point will be applied to the demand response asset’s energy payments • In the event that there are multiple demand response assets participating in the program located behind a single Retail Delivery Point, the reduction for any G Payments based on energy delivered from that Retail Delivery Point will be allocated on a pro-rata basis

  22. Proposal Summary & Schedule

  23. Proposal Summary • The ISO is proposing changes focused on dual fuel resource participation in the markets: • Additional compensation will be provided to offset commissioning costs • Additional compensation will be provided for unused oil inventory • The ISO is proposing to provide additional compensation for: • Unused oil inventory of non-dual fuel resources • Unused LNG contract volume of pipeline gas resources • Demand response (similar to Winter 2013/14)

  24. Modified Slide Appendix: Full Program Proposal New Slide The material includes the complete proposal that was presented at the Markets Committee on May 6 and May 23 Substantive changes to the design or additional details on the design have the associated slides identified as “modified” in the upper right corner with modified text highlighted in red New slides are identified as “new” in the upper right corner

  25. Dual Fuel Commissioning Program

  26. Modified Slide Offset testing costs associated with restoring or commissioning dual fuel capability • Program design is intended to offset testing costs associated with restoring or commissioning dual fuel capability • Resources that are eligible and elect to participate in the program will be compensated through real-time NCPC for any testing related costs capped at a resource specific cost recovery limit • Resources that do not maintain their dual fuel capability per the obligations of the program will be charged back a portion of the compensation

  27. Modified Slide Resources that have not recently operated on their secondary fuel are eligible to participate • Any resource that burns natural gas as its primary fuel, has not demonstrated their ability to operate on its secondary fuel since December 1, 2011, is able to switch fuels within eight hours and has a minimum tank size is eligible to participate in this program • Minimum tank size is based upon the fuel required to start the resource from a cold state plus to support EcoMin operation of the resource for the greater of the for four hours or their Minimum Run Time • This minimum tank size is intended to minimize barriers of entry and is consistent with the minimum inventory level requirements of the program • The ISO expects participants to size their tanks based upon the capability of their resources • Participants with resources that would like to participate need to submit a formal request to the ISO prior to December 1, 2014 • The ISO will work with a participant to establish a plan to commission (or restore) their resource’s dual fuel capability

  28. Modified Slide Resources will be compensated for testing costs required to commission the dual fuel capability • At the time a participant requests to participate in the program, the ISO will establish a resource specific cost recovery limit (in dollars) • This is calculated based upon 20 hours of testing at full load (based upon winter SCC) adjusted for energy revenues and assuming three cold starts being incurred in supporting of testing using a similar approach to how reference levels are determined by the market monitor • Resources will be compensated for any testing costs that they incur through the real-time NCPC settlement pursuant to Market Rule 1, Appendix F up to the cost recovery limit • Once the resource has exceeded the cost recovery limit, all testing associated with commissioning or restoring the dual fuel capability will be ineligible for any additional real-time NCPC • For the period prior the Energy Market Offer Flexibility changes being implemented, the NCPC adjustment proposed under the permanent dual fuel resource auditing rules will apply as appropriate • NCPC costs related to this program are allocated to daily RTLO excluding DARD pumps

  29. Eligible resources that elect to participate in the program must maintain their dual fuel capability • Resources that request this compensation are expected to maintain the dual fuel capability through May 31, 2018 • After a resource has established its dual fuel capability, the resource will be required to demonstrate its capability each year by: • Performing a dual fuel resource audit prior to December 1 • The ISO will schedule this audit and compensate performance consistent with the dual fuel resource audit rules • Having a minimum fuel inventory on December 1 to be able to start the resource from a cold state plus to support EcoMin operation of the resource for the greater of four hours or their Minimum Run Time • Any fuel oil burned since November 15 will be considered as in inventory • Any fuel oil burned for testing since November 15 would need to be replenished by January 1

  30. Resources that do not initially demonstrate their capability will not be compensated • Resources that do not successfully establish duel fuel capability after their commissioning testing is complete through a dual fuel resource audit by December 1, 2015 will not be compensated for their commissioning testing costs • Any prior compensation would be refunded back to monthly RTLO (excluding DARD pumps) in the month in which the resource failed to demonstrate (e.g., November-2015) • Resources that are commissioned after November 15, 2014 and prior to February 1, 2015 have 15 days after their commissioning date to meet the minimum fuel inventory requirement • Resources commissioned after February 1, 2015 must meet the minimum inventory requirement by December 1, 2015

  31. Resources that do not maintain their capability will be charged back a portion of their payments • Resources that do not maintain their dual fuel capability for the obligation period (through May 31, 2018) as demonstrated each year through performance and achieving the minimum inventory requirement are charged for the compensation associated with the remaining period for which they are obligated • If the resource was unable to demonstrate their capability because of an unplanned outage or annual maintenance no compensation would be charged back; however, the resource would be expected to demonstrate within 30 days of becoming available • If the resource is not able to demonstrate prior to May 31, 2018, the participant would be charged for the period since the resource had last met these requirements • Resources that successfully demonstrates through a dual fuel resource audit and achieve the minimum inventory requirement would be able to “recover” funds for the remainder of the period for which they are obligated

  32. Example: Resource fails to demonstrate capability after successfully restoring dual fuel capability • Resource A established their dual fuel capability on December 1, 2015 incurring total testing costs paid through real-time NCPC of $300K • This resource has an obligation to maintain their capability until May 31, 2018 (or 30 months) • The equivalent monthly rate of the $300K payment is $10K • ($300K payment / 30 months) • If Resource A is unable to demonstrate their capability for December 1, 2017, the participant would be charged back $60K for the 6 months remaining in the period • 6 months x $10K equivalent monthly rate

  33. Example: Resource demonstrates its capability after being unable to prior to December 1 • Building upon the prior example, Resource A is able to successfully demonstrate their capability on January 20, 2018 • Payments are restored starting on the first of the next month • There are 4 months remaining in the period from February 2018 through May 2018 • The participant would be paid $40K for restoring their dual fuel capability • 4 months x $10K equivalent monthly rate

  34. New Slide Costs associated with this program will be billed as part of NCPC weekly, but will be reported separately • NCPC related to dual fuel commissioning activities will be included on in the hourly services bill issues on a bi-weekly basis • These costs will be included as part of the auditing costs related to NCPC • The accompanying bill job aid will provide a breakdown of the costs associated with this program

  35. Unused Oil Inventory Program

  36. Offset risk of unused fuel oil inventory at the end of the Winter Period • Program design is intended to offset risk of having unused fuel oil inventory at the end of the winter period • Resources that are eligible and elect to participate in the program will be compensated for any unused fuel oil up to the lesser of the maximum compensation level and the initial inventory level based upon a fixed rate • Resources that are fully unavailable for any hours during the winter period will have their payments reduced

  37. Modified Slide Resources that are able to operate on oil must meet specific criteria to participate in the program • A resource must be dispatchable and use oil as its primary fuel OR • A resource must be dispatchable, use natural gas as its primary fuel and oil as its secondary fuel that: • has successfully demonstrated its dual fuel capability through a dual fuel resource audit prior to December 1; OR • has its dual fuel capability commissioned prior to January 1 (pursuant to the Dual Fuel Commissioning Program)

  38. Modified Slide Eligible resources that elect to participate in the program must meet minimum inventory requirements • Participant must submit a request by October 1 to the ISO for each resource they would like to have participate in the program • This request would include the target inventory level • Resources are obligated to hold a minimum usable inventory as of December 1 at least equal to the lesser of: • 11 days’ supply at full load operation based upon the winter SCC or • 90% of usable fuel storage capacity on-site or dedicated tank at adjacent location • Any fuel oil burned since November 15 will be considered as in inventory when evaluating if a resource met the minimum inventory obligation • All units at a station with a shared fuel supply are required to participate if one unit elects to participate unless a unit is expected to be unavailable for the winter period • This is required to assure that the program supports the addition of incremental fuel for units participating in the program

  39. Modified Slide Resources that do not meet the minimum criteria have until January 1 to meet the program obligations • Resources that do not meet the minimum inventory requirement to participate in the program on December 1 have until January 1 to meet these requirements • Any fuel oil burned since November 15 will be considered as in inventory • Any fuel oil used in testing (or commissioning) on or after November 15 must be replenished by the later of January 1 or 15 days after the commissioning date of the dual fuel resource • Resources that do not meet these criteria will not be eligible to participate in the program • The defined thresholds must be fully met for qualification in the program

  40. Resources participating in the program are expected to offer into the markets • Regardless of whether the resource has a Capacity Supply Obligation, participants must submit Supply Offers for resources participating in the program into the Day-Ahead Energy Market and Real-Time Energy Market at the resource’s maximum physical capability for each hour of the day

  41. Modified Slide Participants will need to maintain fuel for use in the production of electricity that is delivered in February • Resources that plan to schedule fuel for delivery after February 15 must notify the ISO prior to February 1 of the expected delivery to have these quantities remain eligible for compensation • Any deliveries which the ISO receives notice that are delivered prior to the end of February 28 will be eligible for compensation as a Late Season Replenishment • Any fuel that is delivered after February 1 must be maintained by the facility for use in the production of electricity through the end of November in order to prevent resources from bringing in late season deliveries solely for maximizing their program payout • Any fuel that is not used for the production of electricity will be charged back to the participant at the fixed Program Rate associated with the program

  42. Modified Slide Resources will be compensated based upon unused oil inventory • The Program Payment is calculated as: Eligible Inventory x Program Rate Where: • the Eligible Inventory will be the lesser of: • Maximum eligible inventory level • determined as the lesser of: • 15 days’ supply at full load operation based upon winter SCC or • 95% of usable fuel storage capacity on-site or dedicated tank at adjacent location • Inventory (adjusted for recent burn) on December 1 or • Inventory at the end of the day on February 15 plus Late Season Replenishment • Inventory at the end of the day on February 28 • the Program Rate is $18/bbl • Program payments are allocated to RTLO (excluding DARD pumps) for the winter period (December 1 through February 28)

  43. Eligible resource’s compensation is based upon inventory at the start and end of the Winter Period

  44. Modified Slide Resources that are unavailable during the winter will have their payments reduced • The final payment made to participants with resources participating in the program will be adjusted for their resource’s availability Program Payment x (100% - Availability Metric) Where: • the Availability Metric is calculated as: (Hours resource was available for operation in period or unavailable due to a transmission outage) / (Total period hours from December 1 through February 28) • Availability Charges are allocated back to RTLO (excluding DARD pumps) for the winter period (December 1 through February 28)

  45. Unused CONTRACTED LNG Program Discussion of proposed mechanics for LNG program

  46. Offset risk of unused contracted LNG at the end of the Winter Period • Program design is intended to offset risk of having unused contracted LNG volumes at the end of the winter period providing compensation for resources that acquired firmer fuel which they did not use • This program’s focus is on providing a peaking service that would augment the availability of pipeline gas • Resources that are eligible and elect to participate in the program will be compensated for any unused contracted LNG volumes up to the maximum program level based upon a fixed rate • Resources that are fully unavailable for any hours during the winter period will have their payments reduced

  47. Modified Slide Contracts that are submitted to participate in the program must meet specific criteria • Contract duration would be from December 1 through at least February 28 • All contracted volumes must be available to be called in this period • Must follow a “take-or-pay” construct • Must be resource (delivery point/gas meter) specific and include pipeline transportation to the meter certify that firm transportation arrangements are in place to deliver the gas during peak winter load conditions (e.g., not recallable) • Only dispatchable resources that use natural gas as its primary fuel (including dual fuel resources) may participate in the program • Contracts are expected to be used for the generation of electricity at the specified resource during the winter period;however, participants are not prohibited from transferring LNG to an alternate generator for the production of electricity in New England • Availability criteria is not transferable and must remain with the generator participating in the program • Maximum contract volume eligible for compensation is set at two days at full load based upon the winter SCC • There is no minimum contract volume to participate in the program • Fuel equivalent to ‘two days at full load’ is expected to support resource operation for several days over the peak load hours augmenting access to pipeline gas

  48. Modified Slide Contracts that do not meet the program obligations are not eligible to participate in the program • Participants must submit proposed contracts to the ISO by October 1 for review • These proposal must include the resource, LNG provider, certification of deliverability and proposed contract volumes (including any limitation on the volumes that can be taken hourly, daily, monthly or over the period) • The ISO will review and accept proposals on a first come/first served basis up to the daily capability of the LNG providers and will provide notice back to participants by October 15 • Participants must submit the contracts with the LNG providers based upon their accepted proposals to the ISO on or before December 1 along with certification that the contract includes a “take or pay” construct, a term that spans the winter, and pipeline transportation to the resource’s gas meter • ISO will review contracts against the problem obligations • Any contracts that are submitted after December 1 or do not meet the program obligations will not be eligible for compensation in the program

  49. Modified Slide Participants will be compensated based upon unused contract volumes on eligible contracts • The Program Payment is calculated as: Eligible Quantity x Program Rate Where: • the Eligible Quantity will be the lesser of: • Maximum eligible contracted volume • 2 days at full load based upon winter SCC • Contracted volume on December 1 or • Unused contracted volume at the end of the day on February 28 • the Program Rate is $3/MMBTU • Program payments are allocated to RTLO (excluding DARD pumps) for the winter period (December 1 through February 28)

  50. Modified Slide Resources that are unavailable during the winter will have their payments reduced • The final payment made to participants with resources participating in the program will be adjusted for their resource’s availability Program Payment x (100% - Availability Metric) Where: • the Availability Metric is calculated as: (Hours resource was available for operation in period or unavailable due to a transmission outage) / (Total period hours from December 1 through February 28) • Availability Charges are allocated back to RTLO (excluding DARD pumps) for the winter period (December 1 through February 28)

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