Appendix H – Operations During Cold Weather Conditions

Robert B. BurkePrincipal Analyst – Market DevelopmentJuly 12, 2010

Agenda

• Background• Issue• Proposed Changes• Schedule

2

Background

• Appendix H describes changes to standard Market Operations when Cold Weather Conditions are forecast

• Need to conform Appendix H to FCM• May 11 MC presentation on Appendix H

– Primary issue raised regarded recovery of Extraordinary Fuel Expense

– Requirement of a FERC 205 filing to obtain approval of costs beyond the Supply Offer cap

– Section III.13.6.1.1.3 suggested by some committee members instead

• Extraordinary Fuel Expense– Expected to happen rarely

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Issue

• Presently there are 3 separate areas of Market Rule 1 that deal with extraordinary fuel cost recovery– Appendix H (Cold Weather Conditions)– Section III.13.6.1.1.3 (Extraordinary Fuel Prices)– Appendix A (Market Monitoring, Reporting and Market Power

Mitigation)• The first two:

– Address cost recovery based on Supply Offer cap– Only allows for recovery of fuel commodity costs and fuel

transportation and delivery costs• The third addresses cost recovery when there is mitigation

(Appendix A)– Allows for recovery of fuel and variable operating and maintenance

costs• First and third have data submittal requirements

Appendix H Discussion

• Extraordinary Fuel Expense provision– This provision only applies during Cold Weather Events– Requires a FERC 205 filing to obtain approval of costs beyond

the Supply Offer cap– Applies to direct fuel expense including fuel commodity costs and

fuel transportation and delivery costs (including pipeline penalties), but excluding incremental financial assurance costs, if any

Extraordinary Fuel Prices

• Section III.13.6.1.1.3, Inability to Recover Full Operational Cost Due to Extraordinary Fuel Prices

• This provision applies any time “…If due to extraordinary fuel prices, a Market Participant cannot submit a Supply Offer which would recover its full operational cost…”

• Other differences are: – Capacity resources only, may not include highest bid block

– Payments shall not exceed fuel costs (commodity, transportation and imbalance charges/penalties)

Appendix A

• Section III.A.10 - Request for Additional Cost Recovery– Applies when Supply Offer is mitigated– Identifies the right to file under Section 205 of FPA– Identifies the timing for such filing– Identifies content of the filing– Identifies the cost allocation– Includes fuel and variable operating and maintenance costs

• Section III.A.10.1 states:– “… If, as a result of mitigation applied to a Resource under this Appendix A

for all or part of one or more Operating Days, a Market Participant believes that it will not recover the fuel and variable operating and maintenance costs of the Resource for those Operating Days, the Market Participant may, within sixty days of the receipt of the first Invoice issued containing credits or charges for the applicable Operating Day, submit a filing to the Commission seeking recovery of those costs pursuant to Section 205...”

Issue For ISO-NE

• Cost recovery determinations are more appropriately made by FERC– FERC has the expertise and experience in evaluating the justness and

reasonableness of requests for cost recovery– Existing Appendix H language regarding 205 filing:

• …seeking a determination that the payment of the Extraordinary Fuel Expense is just and reasonable

– ISO views Supply Offer cap as a mitigation limit– Supply Off cap is approved by FERC

• A number of issues may arise in evaluating requests for cost recovery that the ISO is not in the appropriate position to address:– Reasonableness of: fuel procurement strategies, affiliate transactions, fuel

sale and resale decisions, fixed and variable cost tradeoffs in fuel procurement

– Appropriateness of inclusion of penalties• In the past FERC has required the ISO to file cost recovery

determinations under Section 205 of the FPA

Proposed Change

• ISO-NE proposes to remove:– Extraordinary Fuel Expense from Appendix H– Section III.13.6.1.1.3 - Inability to Recover Full Operational Cost

Due to Extraordinary Fuel Prices

• Revise Section III.A.10 – Request for Additional Cost Recovery– Add additional language

• Inability to recover fuel and variable O&M despite having submitted Supply Offer at the offer cap

– Would create a single process whether Supply Offer was mitigated or not

– Would apply at all times to both fuel costs and variable O&M costs

Changes Previously Presented

• Eliminate generation economic outages and associated generation outage scheduling material

• Eliminate exact ISO website references and language for notices

• Update terminology for FCM

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Schedule

• Markets Committee– Initial Presentation: May 11– Review language: July 12– MC vote: August

• September: PC vote• September/October: FERC Filing• Requested effective date: December 1, 2010

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Questions

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