Competitive Entry Exemption: New Proposal

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1 Competitive Entry Exemption: New Proposal Dr. Nicole Bouchez Principal Economist, Market Design New York Independent System Operator Installed Capacity Working Group December 10, 2013 KCC 2013 New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY

2 Background Extensive ICAP WG discussions on a Competitive Entry Exemption (CEE) proposal have not resulted in broad support. In an effort to provide what the NYISO believes is a tariff enhancement, the NYISO has further revised the CEE proposal: Exemptions based on PJM CEE rules, or ICAP market clearing rules based on Hogan s Alternative Pricing Rule ( APR ) proposal, or Rules based on both PJM s CEE rules and Hogan s APR proposal. The NYISO is also considering an exemption for units needed for reliability. The NYISO is seeking stakeholder feedback on these proposals New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 2

3 PJM Based CEE Proposal: This proposal would not change the current buyer-side mitigation ( BSM ) exemption tests and Offer Floor rules. It adds to the ways a proposed new Installed Capacity project in a Mitigated Capacity Zone (presently Load Zones, G, H, I and J) can be exempt New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 3

4 PJM Based CEE Proposal: Additional opportunities for an exemption from BSM: Create the rule based on the PJM Competitive Entry Exemption rules and a reliability exemption: A. Installed Capacity projects that receive no out-of-market funding are exempt from the Offer Floor. B. Exempts Installed Capacity projects that do receive out-ofmarket funding only if the funding is received as a part of competitive, non-discriminatory RFP open to all available resources, both new and existing New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 4

5 PJM Based CEE Proposal: Criteria for A Proposing to use the PJM criteria for no out of market funding : No costs are recovered from customers either directly or indirectly through a non-bypassable charge linked to the construction, or clearing in any ICAP auction, of the Installed Capacity project; No costs of the Installed Capacity project are supported through any contract with a term of at least one year obtained in any state-sponsored or state-mandated procurement processes that are not Competitive and Non-Discriminatory; 2013 New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 5

6 PJM Based CEE Proposal: Criteria for A (Continued) The Installed Capacity project does not have any arrangements to seek or receive, and it does not receive, any material payments from any government entity connected with the construction, or the resource clearing in an ICAP auction (industrial siting incentives and federal production tax credits are permitted), or other material support though contracts, with a term of at least one year, obtained in any statesponsored or state-mandated procurement processes connected to the construction, or clearing in any ICAP auction, or the resource; and The Installed Capacity project submits a sworn, notarized officer certification similar to the certification required for the PJM self-supply exemption New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 6

7 PJM Based CEE Proposal: Criteria for B Proposing to use the PJM criteria to determine if a state procurement process is eligible for an exemption. An RFP is competitive and non-discriminatory if: a) both new and existing Installed Capacity Resources can satisfy the requirements of the procurement process; b) the selection criteria do not give a preference to new Installed Capacity Resources; c) the procurement process does not use indirect means to discriminate against existing Installed Capacity Resources; d) the requirements are fully objective and transparent; and e) the procurement terms do not restrict the type of Installed Capacity Resource that may participate in and satisfy the requirements of the procurement New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 7

8 APR Proposal This proposal is included in the Evaluation of the New York Capacity Market by FTI Consulting uments/studies_and_reports/studies/market_studies/final_ New_York_Capacity_Report_ pdf, see pages The proposal is a design similar to the proposed (and subsequently rejected ) ISO-NE Alternative Capacity Price Rule. The NYISO does not believe FERC s decision for ISO-NE means that a NYISO proposal would necessarily be rejected given that ISO-NE has a significantly different design including both a vertical demand curve and a forward procurement New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 8

9 APR Proposal Allows BSM mitigated capacity offered below the buyer side mitigation offer floor to clear, and meet capacity obligation(s). (This means that more capacity would be purchased) Allows resources supported by out of market contracts to meet capacity market obligations (and receive capacity revenue) without impacting the capacity price paid to existing capacity suppliers and allows state policy objectives to be met without impacting existing generation. Addresses the potential in the current design of the price sending a signal for the construction of new capacity that is not actually needed because capacity subject to an offer floor is not clearing the spot auction. This is done by clearing all new capacity at the Initial Capacity Price. As is the case today, capacity subject to an Offer Floor can only offer its capacity in the ICAP Spot Market Auction (it cannot be certified bilaterally, or be sold in the Capability Period or Monthly Auctions). This is done so the mitigation measures can not be evaded New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 9

10 APR Proposal: the details How this is done: Two spot capacity auction clearings are run each month. In the first auction clearing, all offers of existing and new generators are accepted without applying any offer floors. The price determined by this auction is referred to as the Initial Auction Price. All the capacity that clears the first auction clearing will receive a capacity award. The second auction clearing uses the same offers but replaces the offer of any unit subject to an offer floor with the higher of the offer floor and the offer of the unit. The price determined by this auction is the Alternative Capacity Price New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 10

11 APR Proposal: the details Pricing: The Initial Auction Price will be paid to all new resources that cleared in this initial clearing of the auction, whether or not subject to an offer floor. All existing capacity that clears the second clearing is paid the Alternative Capacity Price. Existing capacity that does not clear the second clearing but cleared the first clearing is paid the Initial Auction Price. Capacity (including new capacity) that did not clear either auction would not be selected to provide capacity. Open questions: How long does a new resource remain new? Is it appropriate to revise the Clearing Rule on how long a resource is subject to an offer floor when applying this proposal? 2013 New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 11

12 Reliability Exemption Proposal The NYISO is also considering an exemption for incremental Installed Capacity projects that do receive out-of-market funding if that project is needed for a NYISO determined or NYISO recognized reliability need (up to the MW needed for reliability.) The NYISO intends for this requirement to cover both Bulk and Non-Bulk Power Transmission Facility Reliability Issues. The NYISO is considering if this exemption should be limited to only the RNA base case identified reliability needs or if this should apply to other scenarios as well New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 12

13 Next Steps The NYISO welcomes all comments on these proposed CEE exemptions and how we can achieve broad stakeholder support. Written comments can be sent to The NYISO plans on returning to the ICAP WG in January. Targeting BIC and MC February/March 2013 New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 13

14 2013 New York Independent System Operator, Inc. All Rights Reserved. DRAFT FOR DISCUSSION PURPOSES ONLY 14