FCM Cost Allocation & Accelerated Billing

Last Updated: 06/13/2022

Below, affected participants can learn more about the changes to systems or procedures related to the Forward Capacity Market Cost Allocation & Accelerated Billing project. This project is one of several that ISO New England has undertaken, in collaboration with stakeholders, for the continued development of the region’s wholesale electricity markets. Target dates indicated below are subject to change.

Refer to the Participant Readiness Project Outlook for more detail on affected customers and systems for this and other major projects.

• Project Overview
• Required Participant Actions
• Participant Training Opportunities
• Technical Documentation, Rules, and Procedures
• Project Development Materials

Project Overview

Effective June 1, 2022, ISO New England will introduce a new cost allocation methodology for Forward Capacity Market (FCM) costs and move to daily settlements and twice-weekly billing for most monthly charges. Participants that have FCM resources in Capacity Commitment Period 13 (CCP-13) or later will need to be aware of the following changes.

Cost Allocation

Currently, FCM costs are allocated using a single monthly charge rate for each capacity zone.  This rate reflects all of the costs associated with resources located in the zone. The calculation of a single net regional clearing price (NRCP) makes it more difficult to determine the cost of each component that contributes to the single charge rate. Additionally, the current cost allocation methodology is not aligned with use of the Marginal Reliability Impact (MRI) based demand curves that were introduced for the 2020-2021 capacity commitment period.

Existing rules also use another mechanism, the capacity transfer rights fund, to reconcile settlement imbalances that arise from differences in the amount of capacity supply obligations (CSOs) of resources associated with a zone and the share of capacity market payment obligations assigned to the zone. This further obscures the overall calculation and allocation of capacity costs. 

The new cost allocation changes will allocate capacity market costs that are determined using the MRI-based demand curves and a marginal value approach. Under this approach, the zonal charge rates will be calculated based on the marginal value of the capacity located in each zone, as reflected in the zonal clearing prices determined using the MRI-based demand curves.

FCM costs that are not associated with the locational value of capacity will be allocated to the capacity load obligation (CLO) across the total region on a pro rata basis rather than using the marginal value approach. These costs include:

• Monthly reconfiguration auctions
• Seasonal variation in the CSOs of intermittent power resources
• Specifically allocated capacity transfer rights (CTRs) for pool-planned units
• Self-supply resources
• Hydro Quebec Interconnection contracts (HQICCs)

The costs for specifically allocated CTRs associated with transmission upgrades will be allocated pro rata to CLO in the affected capacity zone.

Settlements, Billing, and Impacts on Financial Assurance (FA)

Most FCM-related charges and adjustments will be settled daily and billed twice weekly with the ancillary services billing schedule. The change to twice-weekly billing for FCM charges will:

• Reduce the FA load-serving entities (LSEs) carry when the monthly CLO is calculated at the top of the month, which results in an increase in the FA required to cover the previously unbilled month plus the current month.
• Reduce the time capacity resources have to wait for payment by two to three weeks.

The residual CTR fund will no longer be necessary to settle imbalances arising from differences in the amount of CSO or resources associated with a zone and the share of payment obligations assigned to the zone, as the marginal value allocation will account for these differences.

Currently the deadline for confirming capacity load obligation bilaterals (CLOBs) is the second business day following the end of the settlement month. In order to provide LSEs information to assess their portion of the zonal capacity obligation (ZCO), a preliminary month-ahead settlement will be introduced. LSEs can use this information to determine whether to engage in a CLOB prior to the CLOB deadline, which will be noon on the first business day of the settlement month.

Additionally, the calculation of the ZCO will use the peak load obligation from the calendar year prior to the commitment period, rather than values from the calendar year two years prior to the commitment period.

Financial Assurance Management (FAM) System

Changes to FAM will introduce the new daily FCM requirements component. Daily FCM requirements will replace the capacity load charge that participants currently see as a monthly FCM requirement in FAM and the CSO payments currently included in the monthly capacity charge (MCC) of FCM delivery FA.

The daily FCM requirements are comprised of three components:

• Unpaid daily FCM charges—nets the sum of the daily FCM charges against credits for unpaid invoiced days. Unpaid daily FCM charges cannot be less than zero.
• Unbilled daily FCM charges—presents the daily FCM charges that have been settled but not billed.
• Unsettled daily FCM obligation estimate—estimates the FCM obligation the customer owes that has not been settled.

Participants will see the changes coming under this project in FAM according to the timing below:

• The daily FCM requirements will be populated in FAM when the settlements are run in the first week of June 2022.
• The capacity load obligation charge for May 2022 will remain an FA obligation through the issuance of the May non-hourly services bill in June 2022.
• There will be no CLO charge for June 2022 or thereafter.
• CSO payments for May 2022 will remain an FA credit in the MCC through the issuance of the May non-hourly services bill in June 2022.

After the changes take effect, the MCC will include the following monthly components:

• Forfeited financial assurance
• Resources retained for reliability
• Failure to cover charges
• Certain export capacity transactions
• Capacity performance payments
• Excess revenues

Required Participants Actions

Affected market participants should be mindful of the following time-bound items, some of which may require customers to take specific steps or adapt to changes in ISO New England’s systems. Please subscribe to Participant Readiness, Market Notices, Information Technology (IT) Notices, and MIS Report Issues to receive notices posted to the calendar for future projects.

Participant Training Opportunities

ISO New England may offer online or classroom-based training, information sessions, and other opportunities for affected customers to learn about changes and ask questions in advance of project implementation. Please subscribe to ISO Training to receive notices posted to the calendar for this project.

Technical Documentation, Rules, and Procedures

Market participants affected by the project should consult the following documents for specific instructions on completing related tasks or processes and helpful answers to frequently asked questions.

Project Development Materials

• 2018-05-08 and 2018-05-09 MC A07 Design Changes to the Allocation of Forward Capacity Costs Revision 1 Note: This presentation was presented before the implementation date changed from June 1, 2020 to June 1, 2022.
• ER22-1167-000 Accelerated Billing of FCM Payments and Charges
• ER18-2125-000 Cost Allocation Improvements