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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: owner-nyiso_tech_exchange@lists.thebiz.net X-To: nyiso_tech_exchange@global2000.net X-cc: X-bcc: X-Folder: \Larry_Campbell_Dec2000\Notes Folders\All documents X-Origin: Campbell-L X-FileName: lcampbel.nsf The ISO (K Robb) circulated the ISO's position on the Def Penalties this PM. It is attached. As it stands, what the ISO wants now (or previously wanted) is an issue to be decided by the BIC. What is now proposed - empowering the ISO to change the deficiency rates if an adjacent ISO modifies (presumably upward) their caps - has one large problem: if such an action were taken in the midst of a Capability Period it would cause all sorts of issues with participant positions. Having said that I offer the following: The FERC staff report strongly indicated that caps would have to exist (if at all) on a regional basis and at similar levels. In order to de-list and be free to sell out, a generator must make that decision for the following month by the 10th of the current month. That is trading a sure ICAP revenue stream for the increased opportunity to sell energy at higher prices - even if some disaster befell one of out neighbors, the amount that can move is limited by the transmission capability. What is the likelihood that any of the 3 NE ISOs will be uncapped next Summer? The transmission system limits how much energy can flow regardless of price considerations. NY-NE about 1500Mw and NY-PJM about 2000 Mw (pending return of the PARs). BME, if faced with a reserve shortage (or inability to meet load), will curtail exports to solve that problem. Jim (See attached file: Section 5.14 Proposed Tariff language.doc) rstalter@nyiso.com 11/29/2000 05:49 PM Please respond to market_relations@nyiso.com To: TIE_List_Server@nyiso.com cc: (bcc: James E. Scheiderich/NUS) Subject: DPS statement re: movement to a one month Obligation Procurement Period rstalter@nyiso.com writes to the NYISO_TECH_EXCHANGE Discussion List: The following message has been forwarded to the Tech Exchange at the request of Steven Keller of the NY PSC: Statement of the Department of Public Service Staff to the BIC Regarding Shortening the ICAP Obligation Procurement Period from Six Months to One Month The ICAP Working Group has proposed Phase II tariff language that implements the BIC/MC decisions to implement a monthly ICAP obligation procurement period (OPP) instead of the current six-month OPP. It is our understanding that this proposal is largely supported by incumbent load serving entities who are currently required to purchase their ICAP six month's in advance even though they expect to lose load to new entrants during that period. The LSE's are concerned that they may lose money trying to sell unneeded ICAP back into the market. Staff of the New York State Department of Public Service (Staff) understands those concerns. A report by the Brattle Group suggests that the existence of price caps in New York could lead to capacity migration from New York under a one-month OPP scenario. Brattle suggests that under such a system certain "optimistic" suppliers might choose not to offer to sell their ICAP to NY if they think they could do better by selling energy into external markets where they could earn high revenues in high demand month. If that happens, even to a limited extent, we believe it will likely result in increased purchase costs for ICAP purchased both on a bilateral basis and through the ISO auctions, and could also push up energy prices. In a subsequent study by KEMA it is suggested that in order to avoid capacity migration ICAP deficiency charges should be increased as much as six-fold. The obvious result would be that all LSE's would be exposed to significantly higher deficiency charges under a one-month OPP. Staff does not view this as an acceptable alternative to retaining a six-month OPP even with its potential that LSEs may incur a loss as a result of purchasing ICAP for load they expect to lose. As of November 29, 2000, the ISO has been unable to estimate the level of deficiency penalties that would be required to avoid capacity migration under a one-month OPP. As a result, the New York State Department of Public Service has been unable to verify whether the current levels need to be increased, decreased or left as they are. Because of concerns about capacity migration, and because there is very little convincing argument about the costs/benefits that would result from moving to a one-month ICAP OPP that cannot at least partially be obtained from the six month OPP with monthly deficiency auctions, Staff is opposed to such a change at this time. Until the ISO and market participants work out how to ensure that energy and ICAP markets will remain workably competitive even during peak periods, we believe it is prudent to move cautiously with regard to shortening the OPP. - Section 5.14 Proposed Tariff language.doc
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