Capacity Market Power Mitigation

Transcription

1 Capacity Market Power Mitigation Design work group May 2, 2018 Public

2 Agenda Review current proposal Describe the change and why Review approach now Why still 50% net cone Cost review Public 1

3 Supply side market power mitigation: CMD2 Proposal Must-offer requirement remains for all capacity resources Proposed market power screen Mitigation will apply to firms that have the ability to profitably increase the clearing price of an auction by 10% or more by economically withholding capacity from a base auction Offer cap Offers of existing capacity assets controlled by firms that fail market power screen are capped at the default offer price cap, which is 50% of net-cone Offer cap relief Mitigated firms may request an asset-specific offer cap with the support of cost data Only avoidable costs may be included Cost submission and supporting documentation must be attested by a corporate officer Rebalancing auctions Market power mitigation measures are not applied to rebalancing auctions 2

4 Market power mitigation Identifying firms that can exert market power Identification: Firms that have the ability to profitably withhold capacity from the auction to create an average 10% change in price will be deemed to have market power The 10% change in price will be measured by averaging the change in market price above and below the demand curve inflection point Firms that have the ability to profitably withhold this capacity will be subject to mitigation Why did the AESO proposes not to mitigate all market participants? Not every firm has the ability to profitably exercise market power, mitigating these firms isn t required. 3

5 10% price change Illustrative example By withholding 94MWs of capacity a firm is able to increase the clearing price by 11.6% above the demand curve inflection point Increase the clearing price by 8.4% below the inflection point The minimum size of a portfolio require to profitably implement this strategy is 1,028MWs (before the withholding) Note: this demand curve is in ICAP terms, the actual demand curve used by the AESO in each auction will be in UCAP terms. The UCAP demand curve has not yet been developed. The slope of the ICAP and UCAP demand curves is not expected to be materially different 4

6 Why the change in approach The previous market power mitigation approach was based on an implied upward sloping supply curve with the expectation that the auction cleared at the reliability target Why the change in approach The configuration of the upward sloping supply curve could require subjective assumptions around costs of suppliers Evaluating the changes above and below the inflection point doesn t pre-suppose on which part of the demand curve the market may clear 10% accounts for the risk to the participant in employing a withholding strategy while also limiting the price impacts to consumers of withheld capacity Rule language becomes more stable for market participants relative to the previous approach 5

7 How many firms may be mitigated With this approach, the expectation is that firms with portfolios 1,050 MW of UCAP would be subject to mitigation This assumes the final shape of the demand curve isn t materially different from the preliminary shape of the ICAP curve (this is the AESO s expectation) Based on previous information shared with the SAM3.0 market mechanics work group this approach may identify 4 suppliers with the ability to profitably exert market power Market-Power-Considerations-RSIHHI.pdf 6

8 Market power mitigation Default offer price cap The AESO is continuing to suggest the default offer price cap be set at 50% of net-cone in the base auction Rationale Combined-cycle and simple-cycle gas-fired generation have expected energy and ancillary services revenues above their net going-forward costs Assets with demonstrated costs above this level are able to request an exemption to the offer cap 7

9 Market power mitigation Cost submission Only avoidable costs for that obligation period may be included Costs that would have been incurred regardless of asset operation should not be included in the submission, such as ongoing fixed operating costs, property taxes, decommissioning costs (if those costs would be incurred regardless of operation of the asset) Information provided in the cost submission should be the same information used to make internal decisions regarding the asset and attested by a corporate officer The AESO expects that the costs information to be an unbiased estimate of the actual cost to maintain and operate the asset for that obligation period Expected energy and AS market revenues net of variable operating costs should be used to reduce the fixed cost expectations 8

10 Market power mitigation Rebalancing auctions Market power mitigation measures will not be applied to rebalancing auctions. Rationale: The ability of a firm to profitably withhold capacity to the benefit of the firm s overall portfolio are limited Assumes most of the portfolio has been sold in the base auction The volume of capacity purchased in the rebalancing auctions represents a small portion of the overall market requirements Not applying market power mitigation measures to a rebalancing auction will reduce the risk of over-mitigation 9

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