Locational ICAP in New England Massachusetts Electric Restructuring

Locational ICAP in New England Massachusetts Electric Restructuring Roundtable Peter D. Fuller March 26, 2004

Resource Adequacy Capacity Market + Energy Market + Reserve Market(s) + Ancillaries = Sufficient capacity, of the right type, in the right place at the right time Energy Market • LMPs do not reflect all constraints Reserve Markets • Forward Reserves • Co-optimized Reserves are years away Ancillaries Source: Corporate Branding, LLC 2

Capacity Market Capability to meet regional and local peak demand plus reserves The only intrinsically meaningful features of capacity in this context are EFORd and location 1. 2. 3. 4. Not peaking vs. intermediate vs. baseload Not quick-start vs. thermal Not supply vs. demand Not gas vs. oil vs. hydro vs. . . “… the Commission finds that all capacity suppliers, regardless of the age of their resources, are entitled to the same treatment in the ICAP market. ” 3

Attributes of a LICAP Solution Promote investment in capacity-short sub-areas Ø Caps confound this objective Forward signals for investment Ø Lack of commitment to proposal confounds this objective Well-defined product Ø No progress in defining the obligations Non-discriminatory pricing Ø Caps/transition payments confound this objective 4

ISO-NE Proposal Maine Rest Of Pool NEMA Boston CT 5

‘Nested’ Approach Entire ISO-NE w/o Maine NEMA Boston CT 6

Areas of Urgent Need Major Market Deficiencies ØValuing Reliability Dispatch Decisions ØDefining Capacity Resource Obligations ØSetting Capacity Requirements Necessary Demand Curve Refinements ØCost of Entry ØRevenue Offset Assumptions 7

Conclusion Resource Adequacy is more than ICAP Capacity is Capacity LICAP Proposal is not a consensus proposal and fails to meet objectives Nested clearing methodology is needed Other aspects of the markets are critically ‘incomplete’ 8