1. Technical Conference June 28, 2010

2. 2 1/9/2014

3. 3 Southern Company Energy Auction Technical Conference Agenda Welcome and Introductions Energy Auction Overview Auction Emphasis Week Survey Results Enhancements Under Consideration Clearing Logic Discussion Next Steps

4. Energy Auction Overview

5. 5 1/9/2014 Southern Company Energy Auction What Is It? A bid-based and offer-based auction of electrical energy for delivery into the Southern Balancing Authority Area (SBAA) –Two Day-Ahead energy auctions (recallable and firm-LD) –Hour-Ahead energy auctions –Auction participants can offer to sell energy into or bid to buy energy from any or all of the energy auctions –Open to all entities doing business in the SBAA who have completed the registration process

6. 6 1/9/2014 Southern Company Energy Auction What is its Purpose? To mitigate potential concerns about Southern Companys alleged generation dominance in the SBAA –Mitigates physical withholding By requiring Southern Company to offer all of its available capacity –Mitigates economic withholding By placing a seller offer price cap on Southern Companys mandatory offers

7. 7 1/9/2014 Southern Company Energy Auction Other Attributes Southern Companys compliance with the auction rules is monitored by an Independent Auction Monitor –The Brattle Group Day-to-day administration of the energy auction is now conducted by an Independent Auction Administrator –TranServ Other auction participants are not governed by the mitigation measures of Southern Company

8. 8 1/9/2014 Southern Company Energy Auction Day-Ahead Energy Auctions Firm-LD (16 hours) and recallable energy (16 hours) Into SoCo Bid period opens at 12N two days prior to Delivery Day Bid period closes and auction evaluated at 6:45 AM one day prior to Delivery Day Auctions held every business day except for NERC holidays

9. 9 1/9/2014 The Southern Company Energy Auction Hour-Ahead Energy Auctions Non-firm energy for the upcoming hour Into SoCo Bid period open 75 minutes prior to Delivery Hour Bid period closes and auction is evaluated 60 minutes prior to Delivery Hour Auctions held every hour including weekends and NERC holidays

10. 10 1/9/2014 Energy Auction History and Timeline Phase I Initial Phase I FERC filing (10/17/08) –Southern Company only seller; other participants can only bid to buy –DAE auction closed at 6:30 AM –HAE auction ran from 60-45 minutes prior to Delivery Hour FERC conditionally accepts filing (12/18/08) –Conditioned upon allowing third-party sellers within one year (Phase II) Phase I implemented (4/23/09) 10

11. 11 1/9/2014 Energy Auction History and Timeline Phase II Phase II Technical Conference held (8/3/09) –Sent out survey prior to Technical Conference to solicit industry feedback –Proposed adjustments to timing as result of survey –Discussed complexities of clearing logic with multiple sellers Phase II FERC filing (10/19/09) –Implemented ability for third parties to sell –Day-Ahead auction closing shifted from 6:30 AM to 6:45 AM –Hour -Ahead bid period moved: opens at 75 minutes prior; closes at 60 minutes prior FERC accepts filing (12/17/09) Phase II implemented (1/4/10)

12. 12 1/9/2014 Energy Auction History and Timeline Recent Events IAM filed annual report (4/23/10) Auction Emphasis Week (AEW) (5/17/10-5/21/10) Sent out survey at the end of AEW Technical Conference (6/28/2010)

13. 13 1/9/2014 Auction Training Materials Available Set up new users and roles Entering bids and offers Setting up counterparty credit limits General webMarket system tutorials Market clearing process tutorial

14. 14 1/9/2014 http://www.southerncompany.com/energyauction/trainingTools.aspx Phase II training tools (Effective 12/4/10) –New Buyer and New Seller Instructions (PDF 243 KB)New Buyer and New Seller Instructions –Making a Bid in webMarket (PDF 181 KB)Making a Bid in webMarket –Making an Offer in webMarket (PDF 172 KB)Making an Offer in webMarket –Energy Auction Clearing Methodology (Phase II-Third Party Sellers) (PDF 51 KB)Energy Auction Clearing Methodology (Phase II-Third Party Sellers)

15. 15 1/9/2014 TranServ Contacts and Training Material Questions on auction registration, adding users, setting up credit, other general questions contact : –TranServ International Support desk: 763-205-7099 –E-mail: Support@TranServInternational.netSupport@TranServInternational.net Detailed training materials can be found on the Southern Company Energy Auction website: http://www.southerncompany.com/energyauction/trainingTools.aspx http://www.southerncompany.com/energyauction/trainingTools.aspx

16. Questions? 16

17. Auction Emphasis Week

18. 18 1/9/2014 Auction Emphasis Week May 17-21, 2010 – Day-Ahead energy auctions Tues, May 18 for delivery Wednesday, May 19 Wednesday, May 19 for delivery Thursday, May 20 Thursday, May 20 for delivery Friday, May 21 – Hour-Ahead energy auctions HE 12 through HE 22, Tuesday, May 18 HE 12 through HE 22, Wednesday, May 19 HE 12 through HE 22, Thursday, May 20 Participation –Nine third-party participants Dreamland picture used by permission 18

19. Survey Results 11 completed responses

20. 20 1/9/2014 Question #1

21. 21 1/9/2014 Question #2

22. 22 1/9/2014 Question #3

23. 23 1/9/2014 Question #4

24. 24 1/9/2014 Question #5

25. 25 1/9/2014 Question #6

26. 26 1/9/2014 Question #7

27. 27 1/9/2014 Question #8

28. 28 1/9/2014 Question #9

29. 29 1/9/2014 Question #10

30. 30 1/9/2014 Question #11

31. 31 1/9/2014 Question #12

32. 32 1/9/2014 Question #13

33. 33 1/9/2014 Question #14

34. 34 1/9/2014 Question #15

35. 35 1/9/2014 Question #16

36. 36 1/9/2014 Question #17 What primary factors have caused your company to not participate (or to not regularly participate) in the Southern Company Energy Auction? Lack of participation in host CA Not a true market indicator. Bilaterals are more efficient. Lack of participation from other counterparties Generally, a lack of overall interest from the marketplace Bilateral market easier to use As a seller, there appears to be a lack of buyer participation. Also, the prices of the SoCo mkt in general are also not always advantageous to a seller outside of SoCo. N/A We find it hard to see what we have submitted and or been rewarded.

37. 37 1/9/2014 Questions #18-20 Southern Company is open to considering enhancements to the webMarket system. Please indicate how each of the following enhancements would affect your likelihood of participating in the energy auction:

38. 38 1/9/2014 Question #18

39. 39 1/9/2014 Question #19

40. 40 1/9/2014 Question #20

41. 41 1/9/2014 Question 21 Are there other enhancements to the webMarket software or to the energy auction process that would increase the likelihood of your participation in the Southern Company Energy Auction? If so, please list and provide a brief explanation. Allowing submission of strips in the HAE. Allowing the bidder or seller to know the pricing of each hour, not just the cleared price of a successful auction. I would think this would all more aggressive bidding/offering and as well giving the Southern Control Area participants a more clear picture of the markets. Rib dinner for every cleared market 1) idea of auction is great and want it to work (2) find it hard to see what we have submitted (3) find it hard to see what has been rewarded (4) find the system cumbersome to use, (5) we have to close offer screen and reopen to get results, (6) would also be easier to have 1 screen with bids/offers instead of having to have 2 different screens open (one bid/one offer) (7) would like to be able to submit multiple hrs instead of 1 at a time (8) I think our over-all feeling is that the auction is great but web system is so cumbersome to use that we stay away from the auction.

42. Questions? 42

43. Enhancements Under Consideration

44. 44 1/9/2014 Enhancements Under Consideration Allowing submission of bids prior to opening of bid period (but bids are not effective until bid period) –Primarily needed for the Hour-Ahead energy auction –Bid period is only open for 15 minutes –Several auction participants have requested the ability to submit bids multiple hours in advance

45. 45 1/9/2014 Enhancements Under Consideration Making the bid/offer spread available in real time during the bid period –Could be posted as either the spread ( e.g., $5) or the lowest bid/highest offer ( e.g., 30/35) –Creates additional transparency during the bid period

46. 46 1/9/2014 Enhancements Under Consideration Posting the bid/offer spread after the fact –Currently, price is only posted if a transaction clears –Bid/offer spread would be posted whenever a transaction does not clear –Would be posted on the same schedule as the clearing price –Provides a trend of indicative prices every hour and every day regardless of whether a transaction clears –Could be posted as either the lowest bid/highest offer ( e.g., 30/35) or the median between the lowest bid and highest offer ( e.g., $32.50)

47. 47 1/9/2014 Enhancements Under Consideration Limited transmission modeling –Incorporate transmission modeling similar to the Florida brokerage system for intra-balancing authority transactions –Would facilitate Into GTC and Into MEAG delivery points –Could also incorporate automated tagging for intra-balancing authority tags

48. 48 1/9/2014 Enhancements Under Consideration Complex transmission modeling –Incorporate transmission modeling, including first-tier markets (similar to the Florida brokerage system) –Would facilitate selling into the auction from sources outside the Southern Balancing Authority Area –Could also incorporate automated tagging

49. Revised Clearing Logic

50. 50 1/9/2014 Auction Clearing Protocol Discussion Phase I clearing protocol –One seller; multiple buyers –Determined the economic crossover of the supply and demand curves –Maximized buyer-seller surplus –Greatest complexity was treatment of linked bids and offers Phase II introduced additional complexities –Assignment constraints No enabling contract Credit constraints Statutory limitations –Linked bids and offers Options for Phase II logic –Modify Phase I logic to handle additional complexities –Develop new, optimization-oriented clearing logic

51. 51 1/9/2014 Existing Clearing Protocol Initial credit screen Pass 1 - Determine auction clearing price –Traverse bid and offer stack to find unconstrained crossover point (where the next bid is higher than the next offer) Determine set of potentially winning bid/offer blocks Pass 2 – Initial matching of winning bids and offers –Attempt to match bids to offers –Set aside (temporarily infeasible) any bid or offer that is constrained Pass 3 – Secondary matching of winning bids and offers –Attempt to resolve all temporary infeasibilities 51

52. 52 1/9/2014 Potential Limitations of Existing Clearing Protocol With no credit or linking constraints, Phase II clearing logic produces exactly the same result as the Phase I clearing logic Under lightly constrained conditions, Phase II clearing logic produces exactly the same result as an optimization-oriented solution Under certain highly constrained conditions, Phase II clearing logic could leave a higher priority unconstrained bid or offer unmatched in order to resolve a lower priority constraint –To date, the Phase II clearing logic has never produced such a solution

53. 53 1/9/2014 Enhancements Under Consideration Possible solutions: 1.Elimination of linking –Linking originally established to handle issues such as minimum loading on a combined-cycle –Elimination of linking greatly simplifies clearing protocol –Sellers with partially sold units can either buy back the sold portion of the unit or sell the remaining unsold portion in the post-auction bilateral markets, depending upon market price at that time 2.Revised clearing mechanism

54. 54 1/9/2014 Alternative Auction Clearing Protocol Implement a clearing logic that determines a single Auction Clearing Price (ACP) and all possible transactions at that price that: –Generates the maximum total buyer-seller surplus, and –Does not leave any higher-priority unconstrained bids or offers unmatched, –Subject to Assignment constraints Linked bid or offer constraints

55. 55 1/9/2014 Auction Clearing Protocol Protocol premises –Economic equilibrium of demand and supply will provide maximum economic surplus –To guarantee matching of higher priority, unconstrained bids/offers first, optimization is run first without linking constraints Basic construct of protocol –Step 1: Initialization –Step 2: Optimization –Step 3: Finalization

56. 56 1/9/2014 Step 1: Initialization 1-1: Create bid/offer stacks (sort in priority order) –Same process as current protocol 1-2: Create credit matrix –Establishes who can do business with whom 1-3: Create surplus matrix –Calculates the buyer/seller surplus for all possible bid/offer combinations 1-4: Determine unconstrained crossover –Same process as current protocol

57. 57 1/9/2014 Step 2: Optimization 2-1 Determine price level –For initial iteration, begin with the bid price at the crossover point –For subsequent optimization, increment up and then down the bid stack from the crossover point to establish price 2-2 Run optimization process –Objective is to create matches between bids and offers that maximize surplus –Include all bids/offers willing to transact at the price level determined in Step 2-1 –Observes credit constraints as identified in credit matrix in Step 1-2 –Does not observe linking constraints –Utilizes surplus matrix created in Step 1-3

58. 58 1/9/2014 Step 2: Optimization 2-3 Feasibility checks for links –Determine if the optimized solution results in the violation of a link constraint –If no link violations exist, add solution to solution candidates list Note: if all bids or offers are matched in the priority order at the crossover point, optimization is complete (proceed to step 3) –If linking violations exist, iterations will be necessary Eliminate highest priority bid or offer with a link violation and re-run optimization Step 2-2 (continue until no violations exist) Repeat steps 2-1 thru 2-3 for next price level –Continue until bid stack is exhausted or time limit is reached

59. 59 1/9/2014 Step 3: Finalization Determine optimized solution and calculate ACP –Find solution candidate with maximum surplus –Greater of the offer price of the last offer block matched and the bid price of the next bid block after the last block matched. –Matched volume and lower ACP will be used as tiebreakers in the event mualtiple ACPs result in the same surplus

60. 60 1/9/2014

61. Questions? 61

62. Next Steps

63. Technical Conference June 28, 2010