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Fixing the LFRM Credits Calculation

Fixing the LFRM Credits Calculation. Presentation to the NEPOOL Markets Committee June 9, 2010. Oversight Correction of LFRM Credits. Conforming changes to LFRM Market filed Sept 29, 2009 included an oversight on how resources denied proration are compensated.

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Fixing the LFRM Credits Calculation

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  1. Fixing the LFRM Credits Calculation Presentation to the NEPOOL Markets Committee June 9, 2010

  2. Oversight Correction of LFRM Credits • Conforming changes to LFRM Market filed Sept 29, 2009 included an oversight on how resources denied proration are compensated. • Current rules subtract the FCM clearing price from the LFRM clearing price. • But resources denied proration do not receive the FCM clearing price, they receive the price as adjusted pursuant to III.13.2.7.3(b) • Proposal is consistent with the fix for penalty provisions for generators – using the adjusted rate for capacity, not the FCM clearing price.

  3. Language from LFRM Conforming Changes Filing • “The revisions adjust the methodology for calculating Forward Reserve Market compensation to account for the locational aspect of the Forward Capacity Market. The existing methodology for netting capacity payments from Forward Reserve Market compensation presumes a single region-wide capacity price. Capacity prices under the Forward Capacity Market may vary by Capacity Zone, and this potential variation must be accounted for in the method for deducting Forward Capacity Market price from Forward Reserve Market price.” (page 5)

  4. Equity & Competitive Efficiency • The current compensation mechanism was an oversight and is inconsistent with the stated intent. • Units in CT will be disadvantaged in competing to provide identical services compared to other resources on the system. • Must adjust their offer to account for having a higher amount deducted than actually receiving  an unlevel competitive playing field across zones. • This fix is only effective for the upcoming winter LFRM period.

  5. Proposed Rule Changes • III.9.87 Forward Reserve Credits. Payment for Forward Reserve is based upon a Market Participant’s Final Forward Reserve Obligation and the applicable Forward Reserve Clearing Prices. The ISO shall calculate these credits on an hourly basis for each Reserve Zone as follows: ….. • FCACP*Zonefor a Reserve Zone is the Forward Capacity Auction Clearing Price for the Capacity Zone in which the Reserve Zone is contained.If proration of capacity resources within a Reserve Zone is rejected for reliability reasons pursuant to Section III.13.2.7.3(b)(iv), then for that Reserve Zone the Forward Capacity Auction Clearing Price in the calculation shall be adjusted as described in Section III.13.2.7.3(b). *FCACPzone = Forward Capacity Auction Clearing Price for the relevent zone.

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