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13 June 2012 | Milford, MA

13 June 2012 | Milford, MA. Henry Yoshimura. NEPOOL Markets Committee. Price-Responsive Demand Transition Period – Demand Reduction Threshold Price. Director, Demand Resource Strategy ISO New England Inc. Forward Reserve Fuel Index and the Demand Reduction Threshold Price.

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13 June 2012 | Milford, MA

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  1. 13 June 2012 | Milford, MA Henry Yoshimura NEPOOL Markets Committee Price-Responsive Demand Transition Period – Demand Reduction Threshold Price Director, Demand Resource Strategy ISO New England Inc.

  2. Forward Reserve Fuel Index and the Demand Reduction Threshold Price • The Forward Reserve Market (FRM) uses a strike price based on the Forward Reserve Fuel Index • The Forward Reserve Fuel Index is presently a monthly index • The ISO proposed changing the monthly Forward Reserve Fuel Index to a daily index • The NEPOOL Participants Committee approved the change to a daily index in May 2012 (target implementation Q4 2012) • The transition period rules for price-responsive demand require that Demand Reduction Offers be made at prices greater than or equal to a monthly Demand Reduction Threshold Price (DRTP) • The DRTP is based on the monthly Forward Reserve Fuel Index • Order No. 745 requires that the DRTP be a monthly value

  3. Forward Reserve Fuel Index and the Demand Reduction Threshold Price (cont) • Because the monthly Forward Reserve Fuel Index is being phased out, a rule change is needed to retain the current monthly fuel index for use in the monthly DRTP computation • The current calculation of the monthly Forward Reserve Market Index will continue in the future • The name of the current monthly Forward Reserve Market Index must be changed to “fuel price index for the month” since the monthly index will no longer be used in the FRM

  4. Demand Reduction Threshold Price Requirements • The price of a Demand Reduction Offer submitted into the energy market must be greater than or equal to the monthly Demand Reduction Threshold Price (DRTP) • The purpose of the DRTP is to comply with the Commission’s consumer net benefits test of Order No. 745 • Paragraph 79 of Order No. 745 requires that the DRTP be updated by the 15th day of the month before its effective date: • “The supply curve analysis [used to determine the DRTP] should be updated monthly, by the 15th day of the preceeding [sic] month in advance of the effective date, to allow demand response providers as well as other market participants to plan, while still reflecting current supply conditions.”

  5. Current Market Rule for Establishing the DRTP • Market Rule 1, Section E.6.iv-v. states: A historic threshold price Pth shall be determined as the point on the smoothed supply curve beyond which the benefit to load from the reduced LMP resulting from demand response exceeds the cost to load associated with compensating demand response. The Demand Reduction Threshold Price for the upcoming month shall be determined by the following formula:  where FPIh is the Forward Reserve Fuel Index for the same month of the previous year, and FPIc is the Forward Reserve Fuel Index for the current month (emphasis added) The ISO will post the resulting Demand Reduction Threshold Price on its website in advance of the Demand Reduction Threshold Price’s effective date.

  6. Proposed Market Rule Change The Demand Reduction Threshold Price for the upcoming month shall be determined by the following formula: where FPIh is the historicForward Reserve Ffuel priceIindex for the same month of the previous year, and FPIc is the Forward Reserve Ffuel priceIindex for the current month. The historic and current fuel price indices used to establish the Demand Reduction Threshold Price for a month shall be based on the lesser of the monthly natural gas or heating oil fuel indices applicable to the New England Control Area, as calculated three business days before the start of the month preceding the Demand Reduction Threshold Price’s effective date. The ISO will post the resulting Demand Reduction Threshold Price, along with the index-based fuel price values used in establishing the Demand Reduction Threshold Price, on its website by the 15th day of the preceding month in advance of the Demand Reduction Threshold Price’s effective date.

  7. Process • MC to vote on the proposed change in July 2012 • PC to vote on the proposed change in August 2012 • ISO filing to change the Forward Reserve Fuel Index to a daily index (previously voted on by the PC in May 2012) will include the rule changes proposed herein • A filing with the Commission changing the Forward Reserve Fuel Index to a daily index has not yet been made • ISO expects an order from the Commission in October 2012, in time for November 2012 implementation

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