Capacity Procurement Mechanism

Overview
Jenny Pedersen, Client Training Consultant

Customer Services Training Department

March 3, 2011

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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

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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

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Overview of Capacity Procurement Mechanism Project

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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

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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

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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

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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

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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

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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

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Capacity At Risk of Retirement Needed for Reliability
Tariff Section 43.2.6

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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.

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Capacity At Risk of Retirement Needed for
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

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Capacity At Risk of Retirement Needed for
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
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Capacity At Risk of Retirement Needed for
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

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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

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Exceptional Dispatch Procurement of Capacity

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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

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 Increase in RA/RMR/Monthly CPM
140

120

100

80
ED-CPM
60
RA/RMR/MnthlyCPM
40

20

0
6/1/2011 7/1/2011

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.

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 Decrease in RA,
(CPM adjusted to keep unit above Pmin=80)
140

120

100

80
ED-CPM
60
RA/RMR/CPM
40

20

0
6/1/2011 7/1/2011
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.

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 Decrease in RA/RMR/Monthly CPM
140

120

100

80
ED-CPM
60
RA/RMR/MnthlyCPM
40

20

0
6/1/2011 7/1/2011

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.

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 2nd CPM, Occurring In First Month
160
140
120 Retroactive CPM
Compensation
100
2nd ED-CPM
80
60 ED-CPM
40
RA
20
0
6/1/2011 7/1/2011
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.

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 2nd CPM, Occurring In Second Month
160
140
120 Retroactive CPM
Compensation
100
2nd ED-CPM
80
60 ED-CPM
40
RA
20
0
6/1/2011 7/1/2011
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

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Selection of Eligible Capacity Under CPM

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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

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Settlement Implications

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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)

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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

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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

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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
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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”

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Wrapping it up

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Capacity Procurement Mechanism
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

ISO PUBLIC © 2011 CAISO

Capacity Procurement Mechanism
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

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Module Quiz

True or False:
1. The Capacity Procurement Mechanism allows the ISO
to procure capacity to maintain grid reliability under
certain conditions. TRUE
2. Backstop capacity is procured in the event of insufficient
Resource Adequacy procurement. TRUE
3. The ISO will procure capacity in 6-month intervals.
FALSE

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References

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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

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Thanks for attending!

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