1. The First FCA: Observations & Thoughts
Tom Kaslow
April 11, 2008
April 11, 2008
Electric Restructuring Roundtable

2. Forward Capacity Market Objectives
Implement a capacity market with a defined capacity product.
Provide market signals that encourage new entry where and when needed.
Implement a market that will stabilize and equilibrate around the cost of new entry.
April 11, 2008
Electric Restructuring Roundtable

3. First FCA Observations
Significant qualified supply offered into FCA1.
Existing capacity exceeded ICR & LSR requirements.
Auction cleared at the floor, but only one data point.
ISO filing identifies conflicting standards.
Installed Capacity Requirement/Local Sourcing Requirement plan into OP4
Transmission Security Analysis plans to avoid OP4
April 11, 2008
Electric Restructuring Roundtable

4. What might be over the horizon?
Will any of the hardwired FCM mechanisms create problems?
One possible scenario for FCA2.
FCA1
FCA2
FCA3
2XCONE
$15.00/kw-mo
$12.00
$9.84
CONE
$7.50
$6.00
$4.92
Clearing Price
$4.50
$3.60
Floor Price
$2.95
April 11, 2008
Electric Restructuring Roundtable

5. What might be over the horizon?
FCM will get what it signals. Will it be what we need?
Could displacement of flexible resources with less predictable energy sources (intermittent resources) or resources with less access outside of OP4 lead to increased frequency of OP4 events?
Is there a desirable upper bound on OP4?
What are the economic, reliability and environmental considerations of higher OP4 frequency?
April 11, 2008
Electric Restructuring Roundtable

6. Electric Restructuring Roundtable
Conclusion
New England has a lot riding on FCM.
Subsequent FCA results will be important.
Need to consider acceptability of possible future outcomes.
Frequent OP4.
Early sustained surplus might lead to prices spikes later.
April 11, 2008
Electric Restructuring Roundtable