Capacity Procurement Mechanism Overview

ISO PUBLIC © 2011 CAISO

Capacity Procurement Mechanism

Overview

Jenny Pedersen, Client Training Consultant

Customer Services Training Department

March 3, 2011


Agenda

• Overview of Capacity Procurement Mechanism

– Reasons for procurement

– Timeframe for procurement

• What Stays the Same

• What’s New

• Procurement of Capacity At-Risk of Retirement

• Exceptional Dispatches for Capacity Procurement

– Examples

• Settlement Implications


Objectives

By the end of this training module, you will be able to:

• Describe the purpose of the Capacity Procurement

Mechanism program

• Describe the reasons for the procurement of backstop

capacity

• Describe the period of time the ISO must retain and

compensate capacity procured through the Capacity

Procurement Mechanism


Overview of Capacity Procurement Mechanism Project


Overview

• Provides a successor mechanism for the Interim

Capacity Procurement Mechanism (ICPM)

• Limited modifications to existing ICPM

• CPM will extend majority of the Tariff provisions in effect

for ICPM


Purpose

• Capacity Procurement Mechanism (CPM) enables the

ISO to procure capacity to maintain grid reliability if:

– Load Serving Entities (LSE’s) fail to meet Resource

Adequacy requirements

– Resource Adequacy (RA) resources insufficient to

meet local reliability constraints

– Significant event triggers procurement

– Through issuance of Exceptional Dispatch for non-

RA, non-RMR, or non-ICPM capacity


What Stays the Same

• Reasons for capacity procurement

– “Backstop” RA procurement where capacity is

insufficient (at least 30 days up to 12 months)

– Address unexpected conditions (Significant Events)

– To retain and compensate for 30 days any non-RA

capacity issued an Exceptional Dispatch (FERC-

approved ED provisions)

• Current bid mitigation approach

• Election of “supplemental revenues” compensation in

lieu of CPM compensation


What’s New

• Procurement of capacity at-risk of retirement

– Procurement at least 30 days for up to 12 months

– Capacity payments may be suspended when all or a

portion of CPM capacity is procured as RA capacity

by LSE

– Specific to multi-month procurement of capacity

procured as backstop or from resources in danger of

shutting down


What’s New

• Addition of two additional criteria for selection among

eligible resources in situations where a particular need

may be satisfied by two or more eligible resources

– Preference for non-use-limited resources over use-

limited resources

– Consideration of specific operational characteristics of

the resource

• Backstop authority without a sunset date

• Treatment of resources procured that later go on

Planned Outages


What’s New

• Pricing for CPM and ED capacity based on the going

forward fixed costs of a reference resource rather than a

per-resource basis.

– New payment rate for capacity is either higher of

resource’s actual going forward cost or $55/kW-year.

– Compensation based on pro rata basis to reflect

actual availability

• New charge codes associated with this project

– Settlement and allocations for different procurement

reasons


Capacity At Risk of Retirement Needed for Reliability

Tariff Section 43.2.6


Capacity At Risk of Retirement Needed for

Reliability

• Capacity procurement for resources at risk of retirement

during current RA Compliance Year

– Resource identified as being needed by the end of

the calendar year following current RA Compliance

Year.



Reliability

• Following circumstances must apply:

– Not contracted for RA or listed as RA Capacity in any

RA Plan during current RA Compliance Year

– No deficiency identified that resulted in CPM

designation for the resource in current RA

Compliance Year

– ISO technical assessment project resource will be

needed for reliability either for its locational or

operational characteristics by end of calendar year

following current RA Compliance Year



Reliability

• Following circumstances must apply (continued):

– No new generation is projected to be in operation by

the start of the subsequent RA Compliance Year that

would meet this reliability requirement.

– At least 180 day notice by resource owner to ISO and

DMM to:

• Terminate resource’s PGA

• Remove resource from PGA Schedule 1

• Request for a CPM designation under Section

43.2.6

– And provide affidavit with supporting documentation

of uneconomic resource and definite decision to retire



Reliability

• Following circumstances must apply (continued):

– Validation of affidavit and supporting documentation

by ISO

• Prior to issue of CPM designation, ISO will post report on

basis and need for CPM designation on website

– Allow no less than 7 days for stakeholder review and

comment and

– Allow no less than 30 days for LSE to procure

capacity from the resource


Term of Capacity At Risk of Retirement

Needed for Reliability

• Minimum commitment of 30 days

• Maximum commitment of 1 year based on number of

months for which the capacity is to be procured within

the current RA Compliance Year.

– May not extend into next RA Compliance Year

• CPM designation will be rescinded for any month during

which the resource is under contract with LSE for RA

Capacity


Exceptional Dispatch Procurement of Capacity


Exceptional Dispatch CPM

• Procured as initial term of 30 days

• If ISO determines that circumstances that led to

Exceptional Dispatch will extend beyond initial 30 day

period:

– ISO will issue an Exceptional Dispatch CPM or other

CPM designation for additional 30 days


Increase in RA/RMR/Monthly CPM

0

20

40

60

80

100

120

140

6/1/2011 7/1/2011

ED-CPM

RA/RMR/MnthlyCPM

43.2.5.2.4 Change in RA, RMR or CPM Status

If capacity that receives an Exceptional Dispatch CPM designation becomes RA Capacity or receives a monthly CPM designation or

Significant Event designation or receives an RMR Contract as of a certain date, then the Exceptional Dispatch CPM designation shall be

reduced by the amount of the new RA Capacity, CPM Significant Event designation, or RMR Contract from that date through the rest of

the 30-day term.


Decrease in RA,

(CPM adjusted to keep unit above Pmin=80)

0

20

40

60

80

100

120

140

6/1/2011 7/1/2011

ED-CPM

RA/RMR/CPM

43.2.5.2.4 Change in RA, RMR or CPM Status

If a resource has an RA, RMR or CPM Capacity obligation that pre-existed the resource’s Exceptional Dispatch CPM designation and,

during the term of the resource’s Exceptional Dispatch CPM designation, the amount of the resource’s RA, RMR or CPM Capacity is

reduced, the CAISO will increase the CPM designation by the amount, if any, necessary to ensure that the sum of Exceptional Dispatch

CPM designation quantity and any remaining RA Capacity is not less than PMin.


Decrease in RA/RMR/Monthly CPM

0

20

40

60

80

100

120

140

6/1/2011 7/1/2011

ED-CPM

RA/RMR/MnthlyCPM

The Above Graph is implied by this language.43.2.5.2.4 Change in RA, RMR or CPM Status

If a resource has an RA, RMR or CPM Capacity obligation that pre-existed the resource’s Exceptional Dispatch CPM designation and,

during the term of the resource’s Exceptional Dispatch CPM designation, the amount of the resource’s RA, RMR or CPM Capacity is

reduced, the CAISO will increase the CPM designation by the amount, if any, necessary to ensure that the sum of Exceptional Dispatch

CPM designation quantity and any remaining RA Capacity is not less than PMin.


2nd CPM, Occurring In First Month

0

20

40

60

80

100

120

140

160

6/1/2011 7/1/2011

Retroactive CPM Compensation

2nd ED-CPM

ED-CPM

RA

43.2.5.2.3 Subsequent Exceptional Dispatch

If the CAISO, during the term of a resource’s Exceptional Dispatch CPM designation, issues an Exceptional Dispatch to the resource that

requires Energy In excess of the sum of the resource’s CPM Capacity and RA Capacity, the CAISO will increase the capacity designated

as Exceptional Dispatch CPM Capacity by the amount equal to the difference between the Exceptional Dispatch and the sum of the

resource’s CPM Capacity or RA Capacity. The increase will be effective for the remainder of the term of the Exceptional Dispatch CPM

Designation and retroactively to the beginning of the 30-day term or the first day of the month in which the increase occurs, whichever is

later. Any incremental Exceptional Dispatch issued within any 30-day CPM term

does not result in a new 30-day term.


2nd CPM, Occurring In Second Month

0

20

40

60

80

100

120

140

160

6/1/2011 7/1/2011

Retroactive CPM Compensation

2nd ED-CPM

ED-CPM

RA

43.2.5.2.3 Subsequent Exceptional Dispatch

If the CAISO, during the term of a resource’s Exceptional Dispatch CPM designation, issues an Exceptional Dispatch to the resource that

requires Energy In excess of the sum of the resource’s CPM Capacity and RA Capacity, the CAISO will increase the capacity designated

as Exceptional Dispatch CPM Capacity by the amount equal to the difference between the Exceptional Dispatch and the sum of the

resource’s CPM Capacity or RA Capacity. The increase will be effective for the remainder of the term of the Exceptional Dispatch CPM

Designation and retroactively to the beginning of the 30-day term or the first day of the month in which the increase occurs, whichever is

later. Any incremental Exceptional Dispatch issued within any 30-day CPM term does not result in a new 30-day term


Selection of Eligible Capacity Under CPM


Eligible Capacity under CPM

• Eligible Capacity under CPM based on the following:

– Effectiveness of the Eligible Capacity at meeting the

designation criteria in Tariff Section 43.2

– Capacity costs

– Quantity of available Eligible Capacity, based on

resource’s Pmin relative to remaining amount of

capacity needed

– Operating characteristics – dispatchability, Ramp-

Rate, and load-following capability

– Subject to restrictions as Use-Limited Resource


Settlement Implications


Settlement Implications Overview

• New Charge Codes associated with settlement and

allocation for different types of CPM designations

• Prorated capacity payment based on hours of

Maintenance Outage for resources within the CPM

designation period

– Calculation of availability percentage of CPM designated

resource on Maintenance Outage =

Sum of actual Available Capacity (for each hour of the month) /

(CPM Capacity MW x total hours in month)


Settlement Implications Overview

• CPM Capacity Availability Calculations available in

RAAM Tool

– Section 7.5.2 of the RAAM User Guide discusses the CPM

Calculation tab

– ISO Website > Planning & Operation > Reliability Requirements

> Standard Capacity Product > Resource Adequacy Availability

Management Draft Tool User Guide for Market Participants

• http://www.caiso.com/2853/285377fd67210.pdf

• New Configuration Guide for Metered Demand Over TAC

Area and CPM Pre-Calculation

http://www.caiso.com/2853/285377fd67210.pdf


New Charge Codes Associated with CPM

• CC 7872 - Monthly CPM Significant Event Settlement

• CC 7873 - Monthly CPM Significant Event Allocation

• CC 7874 – Monthly CPM Insufficient Load Capacity

Area Resources Settlement

• CC 7875 - Monthly CPM Insufficient Load Capacity

Area Resources Allocation

• CC 7876 – Monthly CPM Collective Deficiency Settlement

• CC 7877 – Monthly CPM Collective Deficiency Allocation


New Charge Codes Associated with CPM

• CC 7880 – Monthly CPM Exceptional Dispatch Settlement

• CC 7881 - Monthly CPM Exceptional Dispatch Allocation

• CC 7882 – Monthly CPM Capacity at risk of retirement

Settlement

• CC 7883 – Monthly CPM Capacity at risk of retirement

Allocation

• CC 7884 – Monthly CPM Insufficient Resource Adequacy

Resources Settlement

• CC 7885 – Monthly CPM Insufficient Resource Adequacy

Resources Allocation


Payments to Resources Under CPM Designation

• Annual election must be submitted to ISO

– Monthly CPM Capacity Payment or

– Resource-Specific CPM Capacity Payment

• No election defaults to Resource-Specific CPM Capacity

Payment

• Monthly CPM Capacity Payment paid at fixed priced of

$55/kW-year

• Resource-Specific CPM Capacity Payment paid at

“going forward cost offer price”


Wrapping it up



Summary

• Effective April 1, 2011

• Provides a successor mechanism for ICPM

• Procurement of capacity at-risk of retirement

• Two additional criteria for selection among eligible

resources in situations where a particular need may be

satisfied by two or more eligible resources

• Backstop authority without a sunset date

• Treatment of resources procured that later go on

Planned Outages



Summary

• Pricing for CPM and ED capacity based on the going

forward fixed costs of a reference resource rather than a

per-resource basis

• New charge codes associated with this project


Module Quiz

True or False:

1. The Capacity Procurement Mechanism allows the ISO

to procure capacity to maintain grid reliability under

certain conditions.

2. Backstop capacity is procured in the event of insufficient

Resource Adequacy procurement.

3. The ISO will procure capacity in 6-month intervals.

TRUE

TRUE

FALSE


References


References

• Revised Draft Final Proposal, Capacity Procurement

Mechanism, and Compensation and Bid Mitigation for

Exceptional Dispatch – September 15, 2010

• BPM for Reliability Requirements, December 28, 2010

• 2nd Draft Tariff Blacklines, November 9, 2010


Thanks for attending!

Questions to [email protected]

Capacity Procurement Mechanism Overview

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