Proposal For Improvement to the Current ICAP Market Markets Committee October 12, 2004 Ken Bekman Con Edison Energy.

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Presentation transcript:

Proposal For Improvement to the Current ICAP Market Markets Committee October 12, 2004 Ken Bekman Con Edison Energy

The Problem Section (a) (iii) of Market Rule 1 In the event that a Participant has Unforced Capacity that is not bid into the Deficiency Auction in Accordance with Section (a) (iii) above, the ISO shall enter an offer of $0.00/kW-month for the excess UCAP held by the Participant;

What is Installed Capacity? The energy source. Ensures reliable operation of the Power System. Because a surplus is required to maintain reliability we enjoy: –Lower energy prices. –Reduced volatility. Only a broken market values this service at ZERO. ZERO is not a just or reasonable outcome. We can make a simple fix NOW!

The Effect in New England Those that follow the rule and actually make offers are penalized. No incentive to bid. No incentive to offer (zero is the result). No incentive to hedge your obligation. Market bias toward zero. There is no market……….

The Result

What Do Other Pools Do? New York –No obligation to offer (except divested units in NYC). –Deficiency Auction utilizing the Demand Curve. PJM –No obligation to offer. –Daily auction and if there is insufficient capacity the deficient party pays deficiency charge for the entire period. Working Forward Capacity Markets exist in both PJM and NY.

The Repair In the event that a Participant has Unforced Capacity that is not bid into the Deficiency Auction in Accordance with Section (a) (ii) above, the ISO shall enter an offer of the highest submitted offer plus $.01/ mW- month for the excess UCAP held by the Participant;

The Effect of the Repair Those that fail to offer do not distort the market. Those that offer are not penalized. The market will clear based on real offers and real bids. Thus there would be an incentive for wider participation by both buyers and sellers.

Next Steps Change Section Section (a) (iii ) of the Market Rule. Change Section 4.5 and 4.12 of Manual 20. Resolution for these changes at the November 9th Markets Committee meeting for presentation to the Participants on December 3.