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FCM Financial Assurance – Proposed Changes

FCM Financial Assurance – Proposed Changes. Herb Healy. February 9, 2011. Financial Assurance Issue. Any new (i.e., non-commercial) resources securing an FCM CSO must post Financial Assurance (FA) True whether acquiring in an FCA, or via annual bilateral, or ARA

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FCM Financial Assurance – Proposed Changes

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  1. FCM Financial Assurance – Proposed Changes Herb Healy February 9, 2011

  2. Financial Assurance Issue • Any new (i.e., non-commercial) resources securing an FCM CSO must post Financial Assurance (FA) • True whether acquiring in an FCA, or via annual bilateral, or ARA • Once posted, only way to obtain return of FA is for resource to physically show up in the capacity market • True regardless of whether the resource subsequently sheds all acquired CSO and permanently delists from the market; and • True regardless of whether the resource had any impact on price formation in any FCA • Result is resources that had no impact on FCA market prices, nor count toward meeting ICR, and with little likelihood of ever being commercialized, are left dormant with no incentive to remove them from the market • BUT: take up space in the deliverability queue (i.e., Overlapping Impact Analysis) for at least the 2-year grace period for commercialization • Following examples illustrate the issue

  3. Example of FA Issue – Acquisitions • New resource A assumes CSO in FCA1; posts FA • Resource B is new resource with qualified, non-committed capacity for CCP1 AND has not participated in any future FCA (i.e., no future commitments) • Resource A transfers CSO to resource B in annual bilateral; resource B posts FA for CSO • Market now has 2 FA’s for same CSO • Resource B transfers CSO to existing resource C (not required to post FA) • Resource B subsequently permanently delists from the market • FA consequence: • Both resources A and B must become commercial to obtain FA recovery • But only resource A is subject to price formation and moral hazard concerns  Resource B should be allowed to recover its FA

  4. Example of FA Issue – Excess RTEG • Like other resources, all new RTEG must post FA • Per FCM Market Rule 1, only first 600 MW of RTEG clearing in a FCA counts toward meeting ICR • In FCA1, 875 MW of RTEG cleared  275 MW excess cleared • No transparency in FCA1; DR Providers could not make informed decisions on how much excess RTEG was still in auction • Excess RTEG above 600 MW that clears a FCA • Does not set FCA clearing price • Does not offset procurement of other supply resources • Takes up space in subsequent deliverability queue • Must price-prorate to 600 MW equivalent • Excess MWs will never receive compensation • No incentive to bring these resources to market • BUT, must prove commercial to recover its FA  Should be way for excess RTEG to permanently de-list and leave market without forfeiting its FA

  5. EnerNOC Proposed Fix - Overview • Remove the FA recovery barrier currently preventing certain resources from leaving the market and limiting deliverability queue space • Can be accomplished by providing a FA recovery mechanism for certain resources that • Have not been involved in price-formation in an FCA (avoids market concerns of price formation and moral hazard); and • Completely cover any current and all future CSO’s; and • Subsequently permanently de-list ( or elect non-price retirement) from the market

  6. EnerNOC Proposed Fix – Specifics • Recovery of FA for any new resource that acquires a CSO via a bilateral transaction but has no CSO’s acquired through a FCA, and completely covers its CSO (via bilateral transactions) ,and subsequently permanently de-lists (or elects a non-price retirement) • Recovery of FA for RTEG resources where all FCM commitments for that resource have been covered (via bilateral transactions) and the resource is subsequently permanently de-listed (or elects a non-price retirement), to the extent that the RTEG resource represents excess capacity above the 600 MW FCM RTEG cap • Example for FCA1: • Determine MP’s share of the 875 MW of RTEG that cleared • Apply that ratio to the excess 275 MW; that becomes the MP’s share of the excess for which MP can recover his FA • If MP covers all his obligations in all delivery periods for those resources, and subsequently retires his share of the RTEG excess as calculated above, MP gets back his FA for that share

  7. Herb Healy101 Federal StreetSuite 1100Boston, Ma 02110Tel: 860-306-4503Email: hhealy@enernoc.com Questions?

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