capacity demand curve in iso-ne: results from stakeholder demand curve submissions

Copyright © 2014 The Brattle Group, Inc.

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Capacity Demand Curve in ISO-NE:Results from Stakeholder Demand Curve Submissions

ISO New England

Samuel A. NewellKathleen SpeesMike DeLuciaBen Housman

February 27 , 2014

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Table of Contents

What are the Parameter Values of the Initial Demand Curve? Slide 3

Can you Report the Percent of Draws Clearing Below NICR for Each Curve? Slide X

Summary of Submitted Curves and Simulation Results Slides 3-6

How Would an Error in the Estimate of Net CONE Affect the Curves’ Performance? Slides 7-8

Details on Individual Curves

NESCOE Submitted Curve Slide 9

National Grid Submitted Curve Slide 10

Northeast Utilities Submitted Curve Slide 11

Mass. Attorney General’s Office Submitted Curve Slide 12

Mass. Department of Public Utilities Submitted Curves Slides 13-14

NRG Submitted Curves Slides 15-16

NextEra Submitted Curves Slide 17

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Stakeholder Demand Curve Specifications

Cap Kink 1 Kink 2 Kink 3 Foot Additional Notes

NESCOE Curve

Price (% of Net CONE) 1.5x 1.0x 0.7x NA 0.0x

Quantity (% of ICR) -4.0% 0.7% 1.8% NA 8.3%

National Grid Curve (tuned to 1-in-10 LOLE)

Price (% of Net CONE) 2.0x 1.3x 0.7x 0.7x 0.0x

Quantity (% of ICR) -2.8% 0.5% 0.5% 1.8% 8.3%

Northeast Utilities Curve

Price (% of Net CONE) 1.5x NA NA NA 0.0x

Quantity (% of ICR) -2.8% NA NA NA 8.3%

Mass. Attorney General's Office Curve

Price (% of Net CONE) 1.6x 1.2x NA NA 0.0x

Quantity (% of ICR) -6.0% 0.0% NA NA 8.0%

MA DPU Curve



MA DPU Curve (tuned to 1-in-10 LOLE)



NRG Curve w/ Cap at 2x Net CONE


Quantity (% of ICR) 1.0% 3.0% NA NA 11.0%

NRG Curve w/ Cap at 1.5x Net CONE


Quantity (% of ICR) 2.0% 4.9% NA NA 16.1%

NextERA ($8.3 Net CONE and Cap at $18)



NextERA ($8.3 Net CONE and Cap at $25)


Quantity (% of ICR) -2.8% 1.8% NA NA 8.3%NEPGA Request NEPGA asked for simulations of a curve that achieved a frequency below NICR

that is lower than the initial candidate curve. The results of the NRG curves meet this criteria.

Vertical section of curve between 1.3x and 0.7x Net CONE shifted right of NICR to achieve 1-in-10 LOLE

See note above

NextEra requested nine simulations, testing three different Net CONE Values of $3.0, $8.3, and $16.0 against three different curves. See the "NextEra Simulation Results - Summary Table" slide for full results

See note above

Same curve as above but with Kink and Foot points shifted right to achieve 1-in-10 LOLE

NRG requested two curves, with caps at 2.0x Net CONE and 1.5x Net CONE, that each achieve a Freq. Below NICR of less than or equal to 1%, Freq. Below Min. Acceptable of no more than 1%, and an Average LOLE of no more than 0.100

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Stakeholder Demand Curves

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Stakeholder Demand CurvesPerformance Summary

The curves we received generally perform better than the candidate curve in one dimension but show tradeoffs in other dimensions

Curve Performance

NESCOE Curve Reduced price volatility; falls short of reliability objectives

National Grid Curve Slightly increased price volatility; performance otherwise very similar to candidate curve

Northeast Utilities Curve Reduced price volatility; falls slightly short of reliability objectives

Mass. AGO Curve Reduced price volatility; falls slightly short of reliability objectives

Mass. DPU Curve Reduced price volatility; falls short of reliability objectives. Can be tuned to meet 1-in-10 LOLE by shifting foot to the right

NRG Curve Improved reliability, higher costs

NextEra Curves Submitted range of curves. Middle curve performs similarly to candidate curve

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Summary Table of Results

Price * Quantity

AverageStandard Deviation

Frequency at Cap

Average LOLE

Average Reserve Margin

Reserve Margin

Standard Deviation

Frequency Below NICR

Frequency Below

Minimum Acceptable

Average

($/kW-m) ($/kW-m) (% of draws) (%) (%) (%) (% of draws) (% of draws) ($mil)

Stakeholder Curves

NESCOE Curve $8.3 $2.4 5.6% 0.129 12.2% 2.5% 43.1% 14.5% $3,283

National Grid Curve (tuned to 1-in-10 LOLE) $8.3 $4.0 4.9% 0.100 13.1% 2.2% 26.6% 5.9% $3,298

Northeast Utilities Curve $8.3 $2.4 7.6% 0.107 13.1% 2.6% 33.7% 9.1% $3,309

Mass. Attorney General's Offi ce Curve $8.3 $2.2 0.4% 0.107 13.1% 2.6% 33.7% 9.0% $3,310

MA DPU Curve $8.3 $2.4 14.6% 0.140 11.8% 2.6% 47.9% 16.9% $3,272

MA DPU Curve (tuned to 1-in-10 LOLE) $8.3 $2.0 6.8% 0.100 13.5% 2.8% 31.2% 7.9% $3,321

NRG Curve w/ Cap at 2x Net CONE $8.3 $4.5 13.4% 0.060 15.4% 2.1% 7.5% 0.7% $3,379

NRG Curve w/ Cap at 1.5x Net CONE $8.3 $3.2 24.6% 0.060 15.7% 2.3% 8.7% 1.1% $3,389

NextERA ($8.3 Net CONE and Cap at $18) $8.3 $3.8 3.7% 0.089 13.6% 2.2% 22.8% 4.6% $3,325

NextERA ($8.3 Net CONE and Cap at $25) $8.3 $5.0 1.8% 0.077 14.2% 2.0% 15.2% 2.8% $3,338

Candidate Demand Curves

Initial Candidate Curve $8.3 $3.7 5.1% 0.100 13.1% 2.2% 28.9% 6.1% $3,309

Flatter Curve $8.3 $3.0 6.2% 0.100 13.2% 2.4% 29.7% 7.2% $3,317

Steeper Curve $8.3 $4.5 11.5% 0.100 12.9% 1.8% 26.1% 5.3% $3,316

Cap at 1.5x Net CONE (tuned to 1-in-10 LOLE) $8.3 $2.3 6.6% 0.100 13.4% 2.6% 31.3% 8.0% $3,327

Price Reliability

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How Would an Error in the Administrative Estimate of Net CONE Affect Demand Curves’ Performance?

Performance if Administrative Net CONE is Too Low True Net CONE = $8.3/kW-m (33% Higher than $6.2/kW-m Administrative Estimate)

* The cap of the Mass. DPU curve is defined as a function of Gross CONE. This example assumes that the administrative estimate of Gross CONE is 33% lower than the true value.

▀ Having an accurate administrative Net CONE estimate is crucial to good performance, but performance degrades more quickly with some curves than with others

▀ Curves with price caps on the low end at 1.5x Net CONE show the most substantial performance degradation and lowest realized reliability outcomes (i.e. NESCOE, NU, and MA DPU curves)

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Frequency BelowNICR

Frequency Below Min. Acceptable

Average

($/kW- ($/kW-m) (% of (%) (%) (%) (% of draws) (% of draws) ($mil)


NESCOE Curve $8.3 $1.2 36.6% 0.321 8.5% 2.9% 90.9% 58.0% $3,218

National Grid Curve $8.3 $3.0 14.9% 0.146 11.4% 2.2% 47.9% 17.1% $3,263

NU Curve $8.3 $1.3 40.7% 0.256 9.5% 2.9% 82.2% 45.5% $3,224

Mass. AGO Curve $8.3 $1.2 10.2% 0.269 9.3% 2.9% 83.7% 48.8% $3,221

Mass. DPU Curve, Tuned to 1-in-10* $8.3 $0.9 52.6% 0.315 8.6% 3.0% 89.4% 56.5% $3,214

NRG Curve, Cap = 2x Net CONE $8.3 $3.4 30.0% 0.084 13.9% 2.1% 18.3% 4.7% $3,291

NRG Curve, Cap = 1.5x Net CONE $8.3 $1.6 59.4% 0.109 13.2% 2.7% 33.7% 10.6% $3,284

Price Reliability

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How Would an Error in the Administrative Estimate of Net CONE Affect Demand Curves’ Performance?

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Frequency BelowNICR


Average

($/kW- ($/kW-m) (% of (%) (%) (%) (% of draws) (% of draws) ($mil)


NESCOE Curve $8.3 $3.3 0.4% 0.081 14.2% 2.4% 18.9% 4.0% $3,342

National Grid Curve $8.3 $4.6 1.5% 0.072 14.6% 2.2% 11.7% 2.4% $3,330

NU Curve $8.3 $3.1 1.2% 0.065 15.2% 2.4% 11.7% 1.9% $3,372

Mass. AGO Curve $8.3 $3.1 0.1% 0.065 15.2% 2.4% 11.7% 1.7% $3,380

Mass. DPU Curve, Tuned to 1-in-10* $8.3 $2.5 0.4% 0.051 16.4% 2.7% 7.2% 0.5% $3,409

NRG Curve, Cap = 2x Net CONE $8.3 $5.1 6.6% 0.044 16.8% 2.1% 3.5% 0.1% $3,411

NRG Curve, Cap = 1.5x Net CONE $8.3 $4.1 9.7% 0.040 17.4% 2.3% 2.4% 0.1% $3,431

Price Reliability

* The cap of the Mass. DPU curve is defined as a function of Gross CONE. This example assumes that the administrative estimate of Gross CONE is 33% higher than the true value.

▀ If the estimate of Net CONE were higher than the true value, the demand curve would attract more supply than needed to meet reliability objectives, and customer costs would increase

▀ All curves exceed reliability objectives in this example, but steeper curves (candidate, NESCOE, and National Grid) are less susceptible to the over-procurement problem

Performance if Administrative Net CONE is Too High True Net CONE = $8.3/kW-m (Administrative Estimate is 33% Higher at $11.1/kW-m)

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NESCOE Submitted Curve

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average

($/kW-m) ($/kW-m) (% of draws) (%) (%) (%) (% of draws) (% of draws) ($mil/year)


Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

NESCOE Curve $8.3 $2.4 5.6% 0.129 12.2% 2.5% 43.1% 14.5% $3,283

Price Reliability

Curve ParametersCap Kink 1 Kink 2 Foot

Prices% of Net CONE 1.5x 1.0x 0.7x 0.0x$/kW-m (w/ Net CONE = $8.3) $12.5 $8.3 $5.8 $0

Corresponding Quantities in FCA7Reserve Margin 7.7% 12.9% 14.1% 21.5%% of NICR -4.0% 0.7% 1.8% 8.3%MW 31,649 33,202 33,545 35,711

Reduced Price Volatility Falls Short of Reliability Objectives

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National Grid Submitted Curve (tuned to achieve 1-in 10 LOLE)

Curve Parameters

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average



Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

National Grid Curve (tuned to 1-in-10 LOLE) $8.3 $4.0 4.9% 0.100 13.1% 2.2% 26.6% 5.9% $3,298

Price Reliability

Cap Kink 1 Kink 2 Kink 3 Foot

Prices% of Net CONE 2.0x 1.3x 0.7x 0.7x 0.0x$/kW-m (w/ Net CONE = $8.3) $16.6 $10.8 $5.8 $5.8 $0.0

Corresponding Quantities in FCA7Reserve Margin 9.0% 12.7% 12.7% 14.1% 21.5%% of NICR -2.8% 0.5% 0.5% 1.8% 8.3%MW 32,053 33,133 33,133 33,545 35,711

Bimodal Pricing

Slightly Increased Price Volatility

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Northeast Utilities Submitted CurveCurve Parameters

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average



Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

Northeast Utilities Curve $8.3 $2.4 7.6% 0.107 13.1% 2.6% 33.7% 9.1% $3,309

Price Reliability

Cap Foot

Prices% of Net CONE 1.5x 0.0x$/kW-m (w/ Net CONE = $8.3) $12.5 $0.0

Corresponding Quantities in FCA7Reserve Margin 9.0% 21.5%% of NICR -2.8% 8.3%MW 32,053 35,711

Reduced Price Volatility Falls Slightly Short of Reliability Objectives

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Mass. Attorney General’s Office Submitted Curve

Curve ParametersCap Kink Foot

Prices% of Net CONE 1.6x 1.2x 0.0x$/kW-m (w/ Net CONE = $8.3) $13.3 $9.7 $0.0

Corresponding Quantities in FCA7Reserve Margin 5.4% 12.1% 21.1%% of NICR -6.0% 0.0% 8.0%MW 30,990 32,968 35,605

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average



Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

Mass. Attorney General's Office Curve $8.3 $2.2 0.4% 0.107 13.1% 2.6% 33.7% 9.0% $3,310

Price Reliability

Reduced Price Volatility Falls Slightly Short of Reliability Objectives

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Mass DPU Submitted CurveCurve Parameters (Cap at 1x Gross CONE)

Cap Kink 1 Foot



Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average



Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

MA DPU Curve $8.3 $2.4 14.6% 0.140 11.8% 2.6% 47.9% 16.9% $3,272

Price Reliability

Reduced Price Volatility Falls Short of Reliability Objectives

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Mass DPU Submitted Curve (tuned to 1-in-10)

Cap Kink 1 Foot



Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average



Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

MA DPU Curve (tuned to 1-in-10 LOLE) $8.3 $2.0 6.8% 0.100 13.5% 2.8% 31.2% 7.9% $3,321

Price Reliability

Curve Parameters (Cap at 1x Gross CONE)

Reduced Price Volatility

Cap at 1x Gross CONE

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NRG Submitted Curve with Cap at 2x Net CONE

Curve Parameters

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average



Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

NRG Curve w/ Cap at 2x Net CONE $8.3 $4.5 13.4% 0.060 15.4% 2.1% 7.5% 0.7% $3,379

Price Reliability

Cap Kink 1 Foot


Corresponding Quantities in FCA7Reserve Margin 13.3% 15.5% 24.5%% of NICR 1.0% 3.0% 11.0%MW 33,298 33,957 36,594

Note: NRG requested a demand curve that achieves a Freq. Below NICR of less than or equal to 10%, a Freq. Below Min. Acceptable of no more than 1%, and an Average LOLE less than 0.100.

Improved Reliability Overprocurement

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NRG Submitted Curve with Cap at 1.5x Net CONE

Curve ParametersCap Kink 1 Foot


Corresponding Quantities in FCA7Reserve Margin 14.4% 17.7% 30.2%% of NICR 2.0% 4.9% 16.1%MW 33,627 34,590 38,272

Price * Quantity


Frequency at Cap

Average LOLE

Average RM

RM St. Dev.

Freq. Below NICR


Average



Vertical at NICR $8.3 $5.7 28.3% 0.124 11.6% 1.2% 28.3% 6.3% $3,283

NRG Curve w/ Cap at 1.5x Net CONE $8.3 $3.2 24.6% 0.060 15.7% 2.3% 8.7% 1.1% $3,389

Price Reliability

Note: NRG requested a demand curve that achieves a Freq. Below NICR of less than or equal to 10%, a Freq. Below Min. Acceptable of no more than 1%, and an Average LOLE less than 0.100.

Improved Reliability Overprocurement

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NextEra Simulation Results - Summary Table

Price * Quantity


Frequency at Cap

Average LOLE

Average Reserve Margin

Reserve Margin

Standard Deviation

Frequency Below NICR

Frequency Below

Minimum Acceptable

Average

($/kW-m) ($/kW-m) (% of draws) (%) (%) (%) (% of draws) (% of draws) ($mil)

Actual Net CONE at $3.0

Price Cap at $10, Kink at $5 $3.0 $0.8 0.0% 0.040 17.0% 1.2% 0.0% 0.0% $1,240

Price Cap at $18, Kink at $6.5 $3.0 $0.9 0.0% 0.031 18.1% 1.1% 0.0% 0.0% $1,252



Price Cap at $10, Kink at $5 $8.3 $1.7 33.7% 0.213 10.0% 2.7% 76.5% 36.5% $3,224




Price Cap at $10, Kink at $5 Will Not Attract New Entry w/ Net CONE Above Price Cap



Price Reliability

capacity demand curve in iso-ne: results from stakeholder demand curve submissions

Documents

initial demand curve

low true net cone

increaseall curves

middle curve

function of gross cone

steeper curves candidate

ma dpu curves

good performance