1. ONTARIO: Straddling the Northeast and Midwest RTOs
Presentation to Ontario Power Summit
Update on Regional market Developments
June 11, 2002
Toronto, Ontario
Amir Shalaby
Manager of Regulatory and Government Affairs
The Independent Electricity Market Operator
Toronto, Ontario, Canada

2. Scope of Presentation Overview of Ontario electricity markets
Ontario’s participation in current policy choices at FERC
RTO developments in the Midwest & Northeast
Next frontiers for markets and regional scope for Ontario

3. Ontario: Quick Background
11 million people. 3 Million Customers .Sales of 150 TWh; valued at Over $10 billion /year..
Trade with US: ± 5 TWh/yr (± 3% of production)
6,000 MW interconnection with the U.S. (Northeast and Midwest) and Canadian Provinces
Totally unbundled industry structure
Four Transmitters, 90 distributors, many generators, an Independent Operator
Divestiture and privatization of the former Ontario Hydro is underway
Wholesale and retail electricity markets were open on May 1, 2002

4. Ontario Straddles the Northeast and the Midwest
Manitoba
(369 MW Limit)
Ontario
Quebec (North)
(80 MW Limit)
Quebec (South)
(1130 MW Limit)
Minnesota
(150 MW Limit)
(* 200 MW Limit)
New York (East)
(400 MW Limit)
Michigan
(2450 MW Limit)
New York (Niagara)
(2100 MW Limit)

5. The Neighbourhood: Midwest ISO/TRANSLink/SPP/Alliance/PJM/NERTO
Midwest ISO Service Territory
TRANSLink (Non-MISO Members)
SPP Service Territory
Alliance Service Territory
PJM West Service Territory
PJM Service Territory
NERTO
Ontario

6. Northeast & Midwest: Different Origins, Different Evolution Plans
Northeast: • Evolves from operating ISOs
• High density, frequent congestion, geographically small
• Current focus is on market design / role of ITCs/ cost benefits
• Ontario’s IMO active in discussions
Midwest: • Numerous control areas and transmission Owners • Largest geographic RTO
• Early stages of market development
• Focus is on consolidation of control areas, role of ITCs, Transmission agreements and coordination with other RTOs.
• Ontario’s IMO starting discussions
NY/NE ISOs and PJM

7. Active Two-way Trade with New York and US Midwest
Trade Between Ontario and Michigan
Trade Between Ontario and New York

8. Source: London Economics
Day Ahead Prices
Source: London Economics

9. Illustrative Wholesale Electricity Price in Ontario ($65/MWh)
Congestion
Management and
Ancillary Services
2.9
Wholesale Market
Services Charges
6.2
Line Losses
1.3
Debt Retirement
Charge
7.0
Transformation
Connection
Service Charge
IMO
Administration
Charge
1.0
Transmission
Charges
9.0
Line Connection
Service Charge
Rural Rate
Settlement Charge
1.0
Network Service
Charge
Commodity
Charge 43

10. Regulatory Developments and IMO Views on Policy Choices at FERC

11. A Flurry of Regulatory Developments
Ontario: Market based permits, Merchant transmission proposals, Market evolution
Canada:NEB Permits. Lobbying and influence in U.S., Provincial policy developments
U.S.: Comprehensive Legislation, , DOE Infrastructure Study, Busy FERC Agenda, evolving organizations: Northeast RTO, Midwest ISO, NAESB/NERC
Ontario Drivers:
leadership change - elections
IPO of companies
market opening (wholesale/retail)
Canada Drivers:
Court challenge to NEB (BC)
increased merchant lines
departure from language of current regulations
different industry structure across the province
U.S. Drivers:
10 year cycle on legislation
3 year cycle on NOPRs
California/Enron
Desire for standardization

12. Developments at FERC: Standard Market Design and Tariff
Generation Interconnection Standards
Various RTO rules/orders/announcements
Standards Developments (reliability, business practices)
Office of Market Oversight

13. IMO Perspective on Standard Market Design
Ontario’s market design is compatible in principles, concepts and in certain aspects in detail design
Two incomplete components in Ontario are LMP and day ahead markets
Comfortable with Financial Transmission reservations and rights , not physical

14. IMO Perspective on Allocation of RTO Functions
Straightforward if SMD is adopted
Most RTO functions belong with the independent entity of the RTO due to the integrated nature of functions of a SMD
Transmission owners are asset operators and managers, proponents for transmission rates, and partners in planning and congestion relief.
April decisions on Translink and Alliance provide guidance

15. IMO Perspective on Standards Developments
Process should enable various jurisdictions to adopt compatible standards
Best facilitated with an international, self-governing , industry based organization
Reliability standards have a public interest nature to them
Reliability standards do interact with business practices. Coordination is therefore in the best interest of the entire industry

16. RTO Developments in the Midwest and Northeast

17. NYISO and ISO-NE committed to:
Developing a common NY and NE energy market
Evaluating the economic benefits and system reliability implications while maintaining integrity of current markets
Preparing a comprehensive integration plan with orderly transmission
Ensuring stakeholder input
Maximizing reuse of existing assets
Submitting a filing to FERC by June 30th

18. Ontario’s Involvement in RTO Developments
Submissions to FERC on: design/allocation of functions/standards development
Participation in Northeast evolution: MOU agreement, mediation at FERC, NERTO design, seams mending at FERC(June 12)
Discussions with MISO
Review of emerging standards

19. Possible Northeast Market Evolution (including Ontario)
CONSOLIDATE MARKETS
Value Creation
STANDARDIZE MARKET DESIGN
Stage 3 – Consolidated Market
IMO
Stage 2 - NY Implements SMD 2.0
IMO
NPCC
IMO
IMO
Stage 1 - NE Implements SMD 1.0
NPCC
NYISO
ISO-NE
IMO
SMD2.0
ISO-NE
NYISO
IMO
SMD2.0
SMD 1.0
MACC
NYISO
ISO-NE
NPCC
PJM
Stage 0 - Current State Markets
PJM NY
SMD 1.0
PJM
IMO
PJM
IMO
MACC
NYISO
ISO-NE
PJM NY
NEPOOL
PJM
PJM
PJM
Timing
Now
Month 12
Month 24
Month 36

20. Next Frontiers for Markets and Regional Scope for Ontario

21. Opportunities with Neighbouring RTOs
Shared reserves and other synergies
Coordinated scheduling of transactions
Eliminating export transmission tariffs
Coordinated planning
Dealing with circulating power
Joint assessment of interconnection projects near borders
Closer coordination of outage plans
Common energy day ahead market and other features

22. Relevance of Regulatory Developments to Ontario
Increased emphasis on independence
Challenge to integrate markets and reliability
Move to converge to “standard market Design”
Further context for evaluation of ‘unfinished business’ in Ontario:
LMP and day ahead markets are central to SMD
PBR for transmission has been deferred
Interregional coordination with U.S. RTOs (day ahead, license plates, Open System Scheduling, Transmission Planning)
Merchant transmission framework

23. Additional Resource Materials
IMO Web site:
Great source of information
On-Line Web Courses (capability training courses)
Training Guides
Market Rules and Manuals
IMO Help Centre:

24. Appendix: Ontario’s IMO Functions

25. Ontario Restructuring
Policy Development: Committees, White paper, Design Committee
Bill
Enabling Legislation
Government
Regulations
Companies
Institutions
Rules
Agreements
Many established in past 2 years
Wholesale
Market Rules
Hydro One
IMO
Operating
OPG
Distributors
Retailers
OEB
ESA
OFC
Market
Power
Retail
Licenses
Codes

26. Day 1 Market Statistics Ontario’s new market has 239 participants
93 Local Distribution Companies
89 Industrial Consumers
19 Generators
34 Wholesale Buyers/Sellers
4 Transmitters
1st 5-min price for electricity was $25.43 MW/hr or 2.54 cents kW/hr
At opening market demand was 14,500 MW

27. Market Prices on Day 1

28. Market Demand on Day 1

29. IMO - Operational Authority
Serves as reliability authority for Ontario
Directs the operations of the IMO-controlled grid - does not physically operate the system
Maintains short-term reliability:
implements interchange scheduling
establishes operating procedures
redispatches generation for Emergencies
approves transmission maintenance schedules
coordinates and approves transmission and generation outages
establishes Emergency Plan

30. IMO - Tariff Administration and Design
Transmission Rates
Transmission Owners develop and propose revenue requirements, rate design, and the rate levels necessary to recover the costs of service.
The OEB requires and approves.
Approved rates are billed and settled by the IMO and transferred to the TOs.
Market Rules
Market rules (often called RTO tariffs in the U.S.) are developed in a consultative ‘Technical Panel’ of the IMO and approved by IMO Board of Directors. Appeals can be made to the OEB.

31. IMO - Interconnection Requests
IMO conducts system impact studies in coordination with affected TOs.
Evaluation is based on impact on reliability of IMO-controlled grid.
IMO submits approval or disapproval of each connection proposal to the OEB.
System impact study evaluation results are used by the OEB to assess compliance with the Transmission System Code and to assess whether to grant a “leave to construct”.

32. IMO - Real-Time Energy Market
bid-based
security-constrained 5-minute dispatch
single settlement
generators submit single-part bids and perform their own unit commitment
open to dispatchable loads and generators
allows for submission of bilateral contract data for settlement purposes

33. IMO - Real-Time Market for Operating Reserves
10 minute and 30 minute reserve markets
bid-based
joint co-optimization with energy market
Three other ancillary services (voltage support, black start, AGC) are procured through competitively tendered contracts

34. IMO - Financial Transmission Rights Market
auction FTRs across the interconnections
ability to hedge against changes in locational differences in energy prices between the uniform Ontario price and the prices for each intertie zone

35. IMO - Congestion Management
uniform price for energy across Ontario for each 5 minute interval
Different locational prices across interconnections if congested
generators will be paid if constrained on or off
the IMO will publish 5-minute and hourly prices at each relevant node within Ontario to provide information on congestion within Ontario
Ontario will assess implementation of LMP within Ontario at a later time (18 months)

36. IMO - Market Monitoring
Accountability is with the independent Board members and the Market Surveillance Panel (MSP)
market power mitigation is the shared responsibility of the MSP , the Ontario Energy Board, and the competition Bureau. Joint Statement in place.
unit created at the IMO to support the analysis and investigations