The First FCA: Observations

1
The First FCA Observations Thoughts

• Tom Kaslow
• April 11, 2008

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.

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

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 4.50 3.60 2.95
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?

6
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.