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May 23, 2014 | NEPOOL Markets Committee

May 23, 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, Demand Response and potentially LNG. Winter Reliability Program.

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May 23, 2014 | NEPOOL Markets Committee

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  1. May 23, 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, Demand Response and potentially LNG 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 CONTRACTED LNG Program Discussion of proposed mechanics for LNG program

  4. 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

  5. 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 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 • Maximum contract volume eligible for compensation is set at 2 days at full load based upon the winter SCC • There is no minimum contract volume to participate in the program

  6. 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 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 • 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

  7. 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 • Program payments are allocated to RTLO (excluding DARD pumps) for the winter period (December 1 through February 28)

  8. Resources that are unavailable during the winter will have their payments reduced • The Availability Charge is calculated as: Program Payment x (100% - Availability Metric) Where: the Availability Metric is calculated as: (Hours resource was available for operation in period) / (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)

  9. Dual Fuel Commissioning Program Summary of changes made to the program rules or additional details about the program rules since the Markets Committee meeting on May 6-7

  10. 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 • Resources that do not maintain their dual fuel capability per the obligations of the program will be charged back a portion of the compensation

  11. 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 four hours or their Minimum Run Time • 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

  12. 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 demonstrate 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

  13. To remain eligible for compensation, resources must also maintain a minimum fuel inventory • In addition to having to demonstrate their dual fuel capability each year, resources will also be required to have a minimum level of fuel inventory on-site • Fuel inventory on December 1 must be at a level 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 • 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

  14. 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 6-7

  15. 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

  16. Eligible resources that elect to participate in the program must meet minimum inventory requirements • Participant must submit 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 • 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

  17. Resources that have late season fuel deliveries scheduled will need to notify the ISO by February 1 • 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 • Any fuel that is not used for the production of electricity will be charged back to the participant at the fixed rate associated with the program

  18. Resources will be compensated based upon unused oil inventory • The Program Payment is calculated as: Eligibility Quantity x Program Rate Where: the Eligibility Quantity 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 • Inventoryat the end of the day on February 15 plus Late Season Replenishment • Inventory at the end of the day on February 28 • Program payments are allocated to RTLO (excluding DARD pumps) for the winter period (December 1 through February 28)

  19. Unused Fuel Programs Settlement and Billing Discussion of mechanics of how the Unused Oil Inventory Program and the Unused Contracted LNG Program will be settled and billed

  20. ISO will bill load based upon estimated unused fuel on a monthly basis • 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 • The monthly Estimated Program Charges for December, January and February will be calculated as: Total Estimated Unused Fuel Charge x (Days in Month/Days in Period) • The Estimated Program Charges will be include on the non-hourly services bill following each month and will be allocated to RTLO excluding DARD pumps

  21. ISO will bill actual unused fuel inventory costs on a monthly basis • Actual Program Payments, net Availability Charges would be allocated to each month in the same manner as the Total Estimated Unused Fuel Charge • On the April non-hourly services bill, the actual Program Payments net Availability Charges will be billed to load for December, January and February • If the estimated quantities were greater than the actual quantities available at the end of the season (net availability changes), this would be a refund to load • If the estimated quantities were less than the actual quantities available at the end of the season (net availability changes) this would be an incremental charge to load • All payments associated with the unused fuel programs will be included on the May non-hourly services bill

  22. Resettlements will be handled in the same manner as other market and services • Since Program Payments net Availability Charges have been allocated to each month and the Program Payments net Availability Charges will not change after the initial settlement, each month will be resettled following the same process as other charges included in non-hourly services bill • This resettlement re-allocates charges based upon changes to RTLO • Any Meter Request for Billing Adjustments (RBA) would also be handled following the same approach

  23. Demand Response Program Summary of changes made to the program rules or additional details about the program rules since the Markets Committee meeting on May 6-7

  24. ISO is modifying the participation and dispatch commitment and flexibility rules for this program • Requests to participate in the program must be received by October 1 • Total participation will be limited to 100 assets and 100MW • Proposed changes to the dispatch commitment and flexibility will be made based both operational needs and participant feedback • 6 hour maximum dispatch • Up to 30 dispatches per season • 4 hour minimum time between dispatches

  25. Proposal Summary & Schedule

  26. 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)

  27. Appendix: Full Program Proposal The material includes the topics that were presented at the Markets Committee on May 6. Changes to the slides are 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

  28. Dual Fuel Commissioning Program

  29. 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 • Resources that do not maintain their dual fuel capability per the obligations of the program will be charged back a portion of the compensation

  30. 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 • 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

  31. Modified Slide Resources will be compensated for testing costs required to commission the dual fuel capability • Resources will be compensated for any testing costs that they incur through the real-time NCPC settlement pursuant to Market Rule 1, Appendix F • 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 • The amount of testing costs are capped for each resource assuming 20 hours of testing at full load (based upon winter SCC) adjusted for energy revenues and assuming three starts being incurred in supporting of testing • 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 • NCPC costs related to this program are allocated to daily RTLO excluding DARD pumps

  32. Modified Slide 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

  33. Modified Slide 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

  34. Modified Slide 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

  35. New Slide 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

  36. New Slide 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

  37. Unused Oil Inventory Program

  38. Modified Slide 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 themaximum 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

  39. 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 their dual fuel capability through a dual fuel resource audit prior to December 1; OR • has their dual fuel capability commissioned prior to January 1 (pursuant to the Dual Fuel Commissioning Program)

  40. Modified Slide Eligible resources that elect to participate in the program must meet minimum inventory requirements • Participant must submit 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 • 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. 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

  42. New Slide Participants will need to notify the ISO of late season fuel deliveries to be eligible for compensation • 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 • Any fuel that is not used for the production of electricity will be charged back to the participant at the fixed rate associated with the program

  43. Modified Slide Resources will be compensated based upon unused oil inventory • The Program Payment is calculated as: Eligibility Quantity x Program Rate Where: the Eligibility Quantity 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 • Inventoryat the end of the day on February 15 plus Late Season Replenishment • Inventory at the end of the day on February 28 • Program payments are allocated to RTLO (excluding DARD pumps) for the winter period (December 1 through February 28)

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

  45. Resources that are unavailable during the winter will have their payments reduced • The Availability Charge is calculated as: Program Payment x (100% - Availability Metric) • The Availability Metric is calculated as: (Hours resource was available for operation in period) / (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)

  46. Unused Fuel Programs Settlement and Billing Discussion of mechanics of how the Unused Oil Inventory Program and the Unused Contracted LNG Program will be settled and billed

  47. New Slide ISO will bill load based upon estimated unused fuel on a monthly basis • 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 • The monthly Estimated Program Charges for December, January and February will be calculated as: Total Estimated Unused Fuel Charge x (Days in Month/Days in Period) • The Estimated Program Charges will be include on the non-hourly services bill following each month and will be allocated to RTLO excluding DARD pumps

  48. New Slide ISO will bill actual unused fuel inventory costs on a monthly basis • Actual Program Payments, net Availability Charges would be allocated to each month in the same manner as the Total Estimated Unused Fuel Charge • On the April non-hourly services bill, the actual Program Payments net Availability Charges will be billed to load for December, January and February • If the estimated quantities were greater than the actual quantities available at the end of the season (net availability changes), this would be a refund to load • If the estimated quantities were less than the actual quantities available at the end of the season (net availability changes) this would be an incremental charge to load • All payments associated with the unused fuel programs will be included on the May non-hourly services bill

  49. New Slide Resettlements will be handled in the same manner as other market and services • Since Program Payments net Availability Charges have been allocated to each month and the Program Payments net Availability Charges will not change after the initial settlement, each month will be resettled following the same process as other charges included in non-hourly services bill • This resettlement re-allocates charges based upon changes to RTLO • Any Meter Request for Billing Adjustments (RBA) would also be handled following the same approach

  50. Winter Demand Response Reliability Program

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