Pay-for-Performance Forward Capacity Market Delivery Financial Assurance (FCM Delivery FA)

In this section

Last update: 03/14/2024

Below, affected ISO New England (ISO-NE) participants can learn more about changes to existing systems or procedures related to the FCM Delivery FA project. This project is one of several that ISO-NE has undertaken, in collaboration with stakeholders, for the continued development of the region’s wholesale electricity markets.

See Participant Readiness Project Outlook for more detail on specifically 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

ISO-NE is updating the Forward Capacity Market (FCM) delivery Financial Assurance (FA) formula to reduce collateral shortfalls for Pay-for-Performance (PFP) penalties that generators are assessed if they fail to operate or underperform during long-duration capacity scarcity conditions (CSC). Beginning March 1, 2024, financial assurance calculations will include amounts resulting from the updated FCM delivery FA formula. A second phase of updates is planned for later in 2024.

This project is follows work done under the Forward Capacity Market Pay-for-Performance (FCM PFP) Project in 2018.

Phase I: March 1, 2024, pending FERC approval

In this first phase of the project, each of the FCM delivery FA factors below will be modified as follows:

The discount factor (DF) was intended to represent the likelihood that a single resource portfolio may reach its monthly stop-loss limit under different capacity performance rates. The DF has had no impact on collateral calculations because the value has been set to 1 since the 2021/2022 Capacity Commitment Period (CCP). The DF will be removed from the calculation.
The scaling factor is used to assess the risk of a CSC occurring in the remaining months of a season. Currently more collateral is held in the summer than in the winter due to the scaling factors in use. However, an extreme weather event in the winter may also result in CSCs. The scaling factors for December, January, and February will increase to 2, 1.7, and 1.4 respectively.
The capacity weighted average performance (CWAP) represents the performance of the participant’s portfolio during CSCs occurring in the prior three CCPs. It assumes the largest resource in the portfolio is unavailable during the entire duration of the scarcity condition, and excludes resources that have reached the annual stop-loss limit. CWAP is calculated once per year at the beginning of each CCP for the prior three CCPs. Operating performance during a CSC in the current CCP is not included, resulting in a year lag in adjusting FA for underperforming resources. Beginning with phase I of the project, CWAP will continue to be calculated at the start of each CCP but will also be updated during the delivery season at the end of each month that a CSC occurs, increasing FA for resources with poor operating performance and decreasing FA for resources that are performing well.
The average balancing ratio (ABR) is the duration-weighted average of all of the system-wide capacity balancing ratios calculated for each system-wide CSC occurring in the previous three CCPs. Consistent with the changes to CWAP, the ABR calculation will continue to be performed at the start of each CCP, but will also be updated during the delivery season at the end of each month when a CSC occurs.
The intra-month collateral (IMC) will be introduced to remove the lag in recalculating FA when performance penalties occur. Currently there can be a lag of up to approximately 22 days between when performance penalties have been incurred and when ISO requires collateral to be posted to cover such penalties. Going forward, collateral requirements will be increased or decreased to reflect preliminary capacity performance bonus/penalty payments. Collateral requirements will be updated three calendar days after preliminary performance scores are available and will remain through the last day of the month in which the CSC occurred.

Phase II: Planned for 2024 and subject to FERC approval

Financial Assurance Management (FAM) will be updated to include a new “Forward-Looking Delivery FA” line item in the Incremental Changes section of the Monthly FCM Requirements display on the Obligations Detail tab to allow participants to view the FCM delivery FA for the upcoming month. The detailed components of Forward-Looking Delivery FA for the upcoming month and all future months for which an FCA has been conducted can be viewed by clicking on the Forward-Looking Delivery FA hyperlink.
Additional changes to the FCM delivery FA calculation are under development.

Required Participant Actions

Affected market participants are required to take specific steps or adapt to changes in ISO-NE systems as described below, and should be mindful of additional time-bound items, some of which may require participants to take specific steps or adapt to changes in ISO-NE systems both before and after the project implementation date.

TIMING OR DEADLINE	SYSTEM	ACTION OR EVENT
Phase I: February 13, 2024	FAM Sandbox	Participants can test automated scripts and view the changes coming to the FCM Delivery FA Component on the Obligations Detail tab.
Phase I: March 1, 2024	FAM Production	First financial assurance run using the new calculation. FAM is updated with changes to the FCM Delivery FA Component drill-down.
Phase II: TBD 2024	FAM Sandbox	Participants can test automated scripts and view the changes coming to the FCM Delivery FA Component on the Obligations Detail tab.
Phase II: TBD 2024	FAM Production	First financial assurance run using the new calculation. FAM is updated with changes to the FCM Delivery FA Component drill-down.

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.

DATE	EVENT AND SUPPORTING MATERIALS
2024 Q1	Quarterly Settlements Forum (QSF) Presentation Recording
February 12, 2024	Financial Assurance for the Forward Capacity Market (self-paced training)
Currently available	Pay-for-Performance Introduction video

DATE

EVENT AND SUPPORTING MATERIALS

2024 Q1

Quarterly Settlements Forum (QSF)

February 12, 2024

Financial Assurance for the Forward Capacity Market (self-paced training)

Currently available

Pay-for-Performance Introduction video

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.

Technical Specifications and Documentation

DOCUMENT	NOTES (if necessary)
About FCM Pay-for-Performance (PFP) Rules	An introduction to performance incentives in the Forward Capacity Market (FCM); part of the online FCM Participation Guide
FCM Pay-for-Performance Financial Assurance Model Spreadsheet	Basic FCM Delivery FA Model designed to help participants approximate their delivery FA requirements under PFP. An updated file date will be available prior to go-live.
FCM Delivery FA Parameters	Marketwide parameters for FCM delivery FA calculation
FCM Pay-for-Performance Financial Assurance Instructions including FCM Delivery FA Calculation	Memo to the Budget and Finance Subcommittee from ISO New England's Market and Credit Risk department which includes calculation explanations and examples

Rules and Procedures

DOCUMENT	NOTES (if necessary)
Financial Assurance Policy	Section VII.A—FCM Delivery Financial Assurance
Market Rule 1 - Section 13	Forward Capacity Market

Project Development Materials

FCM Performance Incentives Key Project page
ER24-661-000—Update to FCM Delivery Financial Assurance Calculation in the Financial Assurance Policy (FAP)
2024-01-24 BFS A02 Pay for Performance Financial Assurance—Update to the FAP regarding PFP penalties and unsecured potential credit risk exposure regarding market participants with inadequate corporate liquidity profiles
2023-11-28 BFS A07 Financial Assurance Policy FCM Delivery – IMC Changes - Redline Pages Only—Proposed changes to the Financial Assurance Policy