Financial Assurance forNew Demand Resources

11 May 2010

Ad Hoc Group of Demand Resource Providers

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Introduction

• Ad hoc coalition of DR Providers seeks to address certain Financial Assurance (FA) risks in the FCM

• Presentation on issues at January 2010 and April 2010 MC meetings

• This presentation provides a status update on two proposals, and offers Market Rule language on the third

• We seek review and comments onour proposals

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Review of Proposals1. Delivery Location and Type

– For Demand Resources, assets mapped must be the same type as the Resource that took on the Capacity Supply Obligation (On Peak, Seasonal Peak, RTDR or RTEG) and in the same Load Zone (or Dispatch Zone)

2. Commercialization Requirement– No forgiveness of associated Financial Assurance (FA) if New

Resource is not commercialized even if owner completely covers the obligation and subsequently retires the Resource

3. Stranded Pro-rated MWs– If a New Resource pro-rates their MWs in FCA-1 and again in

FCA-2 and fully builds their obligation, full amount of FA is not returned

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1. Delivery Location and TypeISSUE:• Demand Resources are required to qualify and clear a specific type (On Peak,

Seasonal Peak, RTDR, RTEG) in a specific Load Zone or even Dispatch Zone• Exact location of New Demand Resource assets often not known at time of auction

– this is a significant difference between DR and GenerationPROPOSAL:• Allow a MP to permanently move some portion of a CSO from a Resource in one Load

or Dispatch Zone to another of its Resources in another Load or Dispatch Zone as long as it is within the same Capacity Zone

• Allow a MP to move some portion of a CSO from one type of Demand Resource to another type of Demand Resource– An exception would be that transfers to an RTEG Resource could only come from

an RTEG Resource• Any change from cleared type and location must be submitted to the ISO for

reliability review during any bilateral window. Rules for review by ISO similar to those for other bilateral transactions.

• Total amount of Qualified Capacity would not change within the Capacity Zone, but would move to the accepting Load or Dispatch Zone

• All associated FA would move with the CSO

SEMA Deliver10 MW

1. Delivery Location and Type

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S. VT Clear

10 MW

Deliver5 MW

Clear5 MW

Total Cleared15 MW

Total Delivered15 MW

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1. Delivery Location and Type, con’t

• Due to the lack of flexibility in fulfilling FCA 1 obligations, extend the current grace period from 2 up to 3 years for delivery of a New Resource– MP must provide ISO an updated CPS, together with appropriate rationale, for

the extension

• Market Participant would still suffer loss of FA for any undelivered obligation.

• The market has received delivery of the capacity obligation that was purchased, in the relevant Capacity Zone.

1. Delivery Location and Type, con’t

Status Update:• Meetings with ISO Markets Development and Qualification personnel• Variations and options discussed. No final proposal to present yet.• Basic intent remains the same• Developing final proposal and market rule language to present for

discussion at June MC meeting

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2. Commercialization Requirement

ISSUE:• No forgiveness of associated Financial Assurance (FA) for New Resource

obligation even if completely covered by another New ResourcePROPOSAL:• Allow a New Resource (DR or Generation) a release of FA if the Market

Participanta) Covers its obligation in every Commitment Period, andb) Bilateral the obligation to another New Resource in at least one

Commitment Period, andc) Subsequently retires the Resource, or has a permanent de-list bid

accepted• The ISO would not forfeit the FA associated with this resource at the end

of the 2-year grace period if the Market Participant chooses this path

• The market is covered for the entire obligation that was purchased in each Commitment Period

2. Commercialization Requirement Status Update:• “New” in this context limited to Qualified but uncommitted MWs

– Resource or part of resource that has qualified but never cleared in any FCA– Pro-rated MW not eligible

• Applicable to both generation and demand resources• Developing final proposal and market rule language to present for

discussion at June MC meeting

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3. Stranded Pro-rated MWsISSUE:• Almost all Resources (all types) chose to prorate by MW in FCA 1• New Resources still need to deliver full non-prorated MW in order to get a

full return of FA• Continuation of floor price may lead to continued prorationStatus Update:• Consideration of feedback from ISO and NEPOOL Markets Committee• Proposal narrowed due to ISO and MC concerns

– FA of pro-rated MW only released when MW clear in a future auction and are subsequently built by the market participant

• Still applicable to both Demand and Generation Resources• Today we suggest an addition to Market Rule 1 Section III.13.3.4 (c) for

discussion• Will seek a vote at a future MC meeting

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Timing• All proposals would be effective upon approval by

NEPOOL and the FERC.• Applicable changes would apply as appropriate to

FCA-1, FCA-2, FCA-3, and all future auctions

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Questions?

Suggestions?

Feedback?

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Thank you for your time and consideration.