J U N E 1 0 - 1 1 , 2 0 1 4 | N E P O O L M A R K E T S C O M M I T T E E

Chris ParentC P A R E N T @ I S O - N E . C O M | 4 1 3 . 5 4 0 . 4 5 9 9

Conforming compensation rules to support extending IS0-initiated audit rules to apply to dual-fuel resources

Dual-Fuel Resource Auditing

2

ISO-initiated audit rules will be extended to apply to dual-fuel resources

• Permanent audit rules enabling the ISO to:– Audit dual-fuel resources at ISO’s initiative– Confirm operational readiness of the Generating Asset on a specific fuel– Obtain updated information about the max capability on a specific fuel– Obtain updated fuel switching information (if capable)

• Utilizes the ISO-initiated audit structure except:– Audits will be announced and scheduled in advance unless unit runs on

specified fuel in merit

• Dual-fuel resource audits will inform better decision making and promote confidence in dual-fuel resource reliability and flexibility

Note: Audit rules are being discussed at the RC and compensation and cost allocation are being discussed at the MC

3

Resources will be compensated for any ISO-initiated dual-fuel resource audits through real-time NCPC

• Energy Market Offer Flexibility, effective December 1, 2014, will ensure resources are compensated properly – Appropriate fuel costs, depending upon effective offer, will be used in NCPC

calculation

• Prior to Energy Market Offer Flexibility, an interim compensation structure is necessary to compensate resources while auditing– Depending upon when the unit was eligible for NCPC, compensation will be based

on an NCPC adjustment for either DA or RT included as part of real-time NCPC– Adjustment will use reference level fuel costs to compensate resources while

operating on a specific fuel

• The cost allocation will go through the existing mechanism for allocating costs for ISO-initiated audits pursuant to Market Rule 1, Section III.F.3.2.19 – Daily Real-Time Load Obligation (RTLO) excluding DARD pumps

4

RT NCPC adjustment for a resource scheduled only in RT for a dual-fuel resource audit

Hour 1 2 3RT LMP $55 $60 $65

DDP 10 30 10

10 30 1010 MW $50 /MWh ($500) ($1,500) ($500)30 MW $240 /Start ($240) $0 $0

3 Hours $100 /Hour ($100) ($100) ($100)$550 $1,800 $650

($290) $200 $50$3,000

($3,040)$40

10 30 10$100 /MWh ($1,000) ($3,000) ($1,000)$300 /Start ($300) $0 $0$150 /Hour ($150) ($150) ($150)

$550 $1,800 $650($900) ($1,350) ($500)

$3,000($5,750)$2,750

RT NCPC Adjustment = MAX[ (Calculated Offer Costs – MAX[RT Offer Costs, RT Revenue]),0]

Dual Fuel Generator

EcoMaxMin Run Time

RevenueNet Revenue

Note: Assume Resource starts on

higher priced (audited) fuel and is eligible to

receive Start-Up (i.e., If started on least cost

fuel, Start-Up not considered in

calculated offer costs)

= MAX[ ($5,750 - MAX[$3,040 , $3,000]) , 0] = $2,710

Calculated Offer Costs

RT RevenueRT Offer Costs

Sum (Cost)Sum (Revenue)

NCPC Credit

Sum (Cost)NCPC Credit

No Load

Eligible QuantityEnergy Cost

Start-Up CostNo Load Cost

Energy CostStart-Up CostNo Load Cost

RevenueNet Revenue

Sum (Revenue)

Eligible QuantityRT Offer - Least Cost Fuel

Audit

EnergyStart-Up

EcoMin EnergyStart-UpNo Load

Reference Level- Higher Priced Fuel

5

RT NCPC adjustment for a resource that clears DA and uses part of DA schedule to audit• Resource runs at DA schedule (i.e., is not otherwise eligible to receive RT NCPC)

– Resource will receive a RT NCPC adjustment for all hours of the audit equaling the difference between 1) the audit costs based on the Reference Levels calculated using the fuel on which the audit was performed and 2) amounts calculated for that same operation as reflected in the greater of the Day-Ahead Supply Offer and the cost-based Reference Levels calculated using the fuel on which the Day-Ahead Supply Offer was based.

– Assume resource starts on higher priced fuel

EcoMin 10 MW Hour 1 2 3 4 5EcoMax 30 MW 10 10 30 30 20

Min Run Time 5 Hours

10 10 30 30 20Energy $50 /MWh ($500) ($500) ($1,500) ($1,500) ($1,000)Start-Up $200 /Start ($200) $0 $0 $0 $0No Load $100 /Hour ($100) ($100) ($100) ($100) ($100)

($3,000)

10 10 30 0 0Energy $100 /MWh ($1,000) ($1,000) ($3,000) $0 $0Start-Up $300 /Start ($300) $0 $0 $0 $0No Load $200 /Hour ($200) ($200) ($200) $0 $0

($5,900)

$2,900

Real-Time

RT NCPC Adjustment = [Eligible Calculated RT Costs - Eligible DA Offer Costs]= [$5,900 - $3,000] =

DA Supply Offer- Least Cost Fuel

Reference Level- Higher Priced Fuel

Sum(Eligible DA Offer Costs)

Audit Economic Operation

Sum(Eligible Calculated RT Costs)

DDP MW

Eligible RT Quantity

RT Start-Up CostRT No Load Cost

DA Cleared MW'sDA Energy cost

DA Start-Up Cost DA No Load Cost

RT Energy cost

Dual Fuel Generator

6

Conforming compensation rules supporting dual-fuel auditing added to section III.1.5.2 of Market Rule 1

III.1.5.2(e)(iii)Market Participants will be compensated for audits of dual fuel capability conducted under this Section III.1.5.2 pursuant to Appendix F. If a Market Participant has a Generator Asset that cleared in the Day-Ahead Energy Market and the Market Participant is directed by the ISO to perform an audited for all or part of the Generator Asset’s Day-Ahead schedule on a fuel other than the fuel that formed the basis of the Generator Asset's Supply Offer in the Day-Ahead Energy Market, and Appendix F would otherwise not compensate the Generator Asset on the higher-priced fuel, then the Market Participant will receive additional compensation equal to the difference between 1) the audit costs based on the cost-based Reference Levels calculated using the fuel on which the audit was performed and 2) amounts calculated for that same operation as reflected in the greater of the Day-Ahead Supply Offer and the cost-based Reference Levels calculated using the fuel on which the Day-Ahead Supply Offer was based. Compensation pursuant to this Section III.1.5.2(e)(iii) shall be charged in accordance with Section III.F.3.2.19 of Appendix F.

7

Proposal Summary and Schedule

• ISO-initiated audit rules will be extended to apply to dual fuel resources to ensure dual-fuel resource capability– Resources will be compensated through real-time NCPC

• Audit rules are being discussed at the RC and compensation and cost allocation are being discussed at the MCDate Committee ActionMay 20, 2014 RC Discuss Proposal & Tariff LanguageMay 23, 2014 MC Discuss ProposalJune 3, 2014 MC Discuss Proposal & Tariff LanguageJune 10-11, 2014 MC VoteJune 18, 2014 RC Vote

•Proposal would be effective for September/October 2014

8

Total real-time NCPC cost related to dual-fuel auditing estimated to be $7M annually• Assumptions

– Only included units with natural gas listed as either primary or secondary fuel on NX-12

– Units start on primary fuel and can swap to secondary fuel without coming offline– Operate for one hour at EcoMax and the remainder of minimum run time at

EcoMin

• If daily cost > daily revenue, unit is paid NCPC. Costs include:– Start up cost as offered on primary fuel– Energy costs and No load cost as offered on secondary fuel

• All costs are from Market Monitoring reference level data– Data is from 11/13/2013 – a day in which a dual-fuel audit from last year’s winter

program occurred; intended to reflect similar conditions to when audits may occur

• Revenue is calculated using the average real-time Hub LMP from October and November of 2013 ($40.44)