Reduction of OOM?

It would appear that the plague of OOM requests that have distorted prices
in New York may soon be reduced to the point that a true market may evolve
and introduce some interest in serving load without the unhedgable risk of
"uplift charges".

The difficulty in looking ahead is to determine what the real prices will be
without the numerous OOM requests that have been made in the past. The
information that has been published in the past with regard to generation
OOM did not quantify how much generation was removed from the bid stack at
any one time. Certainly a significant number of peak hours were affected
but it is unknown to what degree. At a guess a number of hours probably had
over 1000 MW of generation OOM, effectively removing this generation from
the bid stack but showing up as "uplift charges" on that portion of the
electricity bill.

Two pieces of information would be extremely helpful in taking a stab at
what the energy prices should have been/are without the large OOM shadow
bilateral market that presently exists.

1. How much generation in aggregate was loaded OOM for each hour in each
zone?
2. Approximately how much was the uplift assigned to each zone on a daily
basis?

On a side note it is interesting to note that there is a recent presentation
to the AMP/ICM Task Force by one of the participants that has determined
that if all the large suppliers collude in tandem to withhold 50 MW each
that there could conceivably be an increase in price. While this conspiracy
theory is of concern to said presenter it would seem highly unlikely,
especially considering that bid load or exports provide a much higher impact
on price in reality than the unlikely scenario of some large suppliers all
colluding in tandem.
What should be of concern does not seem to be on their radar screen. Why are
there so many OOM requests in NYC alone? Despite the more complex system in
NYC the number of requests is significant. The resultant distortion in price
has the result of making a market that is very difficult to predict and very
difficult to hedge. The uplift charges assigned to those trying to serve
load can be devastating, well that is those without the ability to pass it
through.
An interesting market development has resulted from the numerous OOM
requests. The numerous OOM requests have translated into unhedgeable uplift
that deters retail competition. The result of a lack of retail competition
would be that customers would continue to reside with the incumbent provider
instead of with another retail provider. While this may not be the intent of
OOM requests it is realistically the result and one that should be garnering
the attention of regulators to a higher degree than other theoretical
scenarios.

The continued practice to over regulate this market will deter generator
development. I have heard some arguments that the CAP market in NYC will
ensure investment and construction of new generation. To be clear the
argument pointed to the current cap of ~$112/kw/year and that this would
ensure that generation would be developed. ICAP payments are not a
guaranteed revenue stream to any generator, especially payments of
$9.40/kw/month. New generation will result in more competition for the
payments which will result in lower capacity prices, especially in the
longer term. There is only a fixed amount of load and reductions in ICAP
prices do not result in an increase in demand for ICAP, prices will come
down; a review of the recent ICAP auctions proves that this true. The larger
the assumption for ICAP payments in a new generator development proforma,
the increased risk that is assumed going forward, especially in light of the
high regulatory risk in this market. A 25% decline in ICAP payments would be
devastating to a proforma that relied heavily on ICAP as a revenue stream.
Certainly the recent auction clearing prices suggest that the volatility is
greater than 25% and therefore concludes that an assumption for high ICAP
revenues are not a substitute for a viable and competitive energy market.
Certainly looking at the current forward prices, the surplus of ICAP and the
mitigated volatility it will not be long before generators with low capacity
factors and high maintenance costs will be closely examining the economics
of continuing to participate in the market.

In conclusion the modeling of the 138 KV in NYC promises to reduce OOM
requests by 70%, hopefully this will be the result. Certainly a significant
increase in information for OOM requests should be posted that should
include what load pocket, how much generation is loaded OOM and any other
information that is pertinent including a mechanism to request an audit of
those OOM requests to determine their validity. If all the requests are
always valid then there should not be a problem subjecting requests to an
audit. OOM requests are a deviation from the market based software dispatch,
these exceptions to the normal dispatch should be examined as closely as
generators are scrutinized when they deviate from their scheduled
dispatches.

Joe

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