1. Jun 18, 2003Market Operations Standing Committee of the IMO1 Market Pricing Integrated Proposal: Consequences, Trade-Offs & Implementation

2. Jun 18, 2003Market Operations Standing Committee of the IMO2 Background Three pricing issues –pre-dispatch vs. real-time prices –counter-intuitive prices in times of shortage –size, content and variability of uplift Contributing factors not only give rise to pricing issues, but also: –reduce market efficiency –jeopardize reliability of IMO-controlled grid

3. Jun 18, 2003Market Operations Standing Committee of the IMO3 Given That... Maintaining status quo is not acceptable: –pricing signals and outcomes (incl scarcity pricing) –reduced market efficiency; reliability at risk Supply is tight in Ontario for foreseeable future Market structure schedules “just enough” resources to meet market demands Significant increase in average HOEP would cause hardship to load customers then……….

4. Jun 18, 2003Market Operations Standing Committee of the IMO4 Proposed Integrated Approach Objective: –Provide rational and understandable market prices, improve efficient operation of IMO-administered Markets and improve reliable operation of IMO-controlled Grid Strategy: –Reduce frequency of need for control actions, then change manner in which control actions are utilized i.e. put control action sources of Operating Reserve “in the market” –Staging of initiatives

5. Jun 18, 2003Market Operations Standing Committee of the IMO5 Summary of Stages Stage 1 (already underway): –4-2 window; HADL; additional market information Stage 2 (under development): –reduce failed transactions –spare generation on-line Stage 3: –additional supply (R/S of domestic generation units) Stage 4: –put control action OR into the market (price & qty)

6. Jun 18, 2003Market Operations Standing Committee of the IMO6 Consequences and Trade-Offs Initiative and Approach Address Pricing, Efficiency & Reliability Issues but….. Initiatives, singly and together, have consequences that would mean trade-offs to achieve the stated objective Question: To what extent are these consequences and trade-offs acceptable in order to move the market forward from the status quo?

7. Jun 18, 2003Market Operations Standing Committee of the IMO7 Spare Generation On-Line Issues/Consequences/Trade-offs - Market Pricing Potential for reduced price volatility; scarcity pricing Downward pressure on market prices (impact of 12x ramp rate in market schedule) Issues/Consequences/Trade-offs - Suppliers Level playing field with neighbouring suppliers Potential for reduced market value of flexible generation Potential for reduced generator revenues through reduced prices What costs are guaranteed? Is auditing necessary?

8. Jun 18, 2003Market Operations Standing Committee of the IMO8 Control Action OR Issues/Consequences/Trade-offs - Suppliers Potential for not scheduling market sources of Operating Reserve Cap on Operating Reserve prices; scarcity pricing Activation vs Scheduling Issues/Consequences/Trade-offs - Loads Potential for reduced reliability and quality of service i.e. potential for increased utilization of voltage reductions Upward pressure on market prices; rational price signals and outcomes

9. Jun 18, 2003Market Operations Standing Committee of the IMO9 Control Action OR Objective is to reduce pricing issues Proposal - to offer Control Action Resources into the market based on their value Value difficult to determine directly - use participant issues to arrive at approximate value

10. Jun 18, 2003Market Operations Standing Committee of the IMO10 Control Action OR Value of Control Action Resources - participant issues 1Maintain reliability and quality - limit exposure 2Minimize competition for OR selection with dispatchable resources [Lower Bound on resource price] 3Impact on average HOEP should be consistent with the benefit of use of Control Action OR [Upper Bound on resource price]

11. Jun 18, 2003Market Operations Standing Committee of the IMO11 Control Action OR Uncertainty in implementation –Control Action Resources are included in pre- dispatch and real-time –Impact of initiatives going forward is difficult to quantify –Balance of benefits is difficult to establish Uncertainties are driving conservative impact assumptions - balance of benefits skewed depending on assumptions

12. Jun 18, 2003Market Operations Standing Committee of the IMO12 Control Action OR Implement Stage 4 in steps –Prudent approach recognizing uncertainty –Allow assumptions to be benchmarked –Allow participants to react to market changes

13. Jun 18, 2003Market Operations Standing Committee of the IMO13 Control Action OR Proposal –Implement 200 MW of 3 % V/R as soon as possible (covers 15 % of historical incidents), followed monthly by; –additional 200 MW of 3 % V/R (total 3 % covers 60 % of historical incidents) –280 MW of 5 % V/R –Removal of 200 MW supplemental OR requirement –Allow pricing of 30 minute OR shortfall

14. Jun 18, 2003Market Operations Standing Committee of the IMO14 Control Action OR Trade-off’s are required - Minimize competition for OR selection with dispatchable resources - choose conservative prices to meet objectives -choose prices which meet 95 % criteria in pre-dispatch ie. 95 % of historical pre-dispatch OR MCP’s < OR price chosen -Results in OR price of; 30 $ for 3 % Voltage Reduction resource

15. Jun 18, 2003Market Operations Standing Committee of the IMO15 Control Action OR Choosing price based on 95 % pre-dispatch criteria results in outcomes for objectives 1 and 3 1- Maintain reliability and quality - limit exposure -Load exposure expected to be less than that experienced in 2002 3- Impact on average HOEP consistent with benefit of use - Upper bound impact on average HOEP is expected to be approximately neutral

16. Jun 18, 2003Market Operations Standing Committee of the IMO16 Control Action OR Benefits of the stepped approach –Starts to address pricing signal concerns immediately (first 200 MW addresses ~ 15 % of historical incidents, second 200 MW ~ 60 %) –Starts to improve reliability based on better price signals –Allows the marketplace to gain experience with control action resources in the market –Allows for benefit of other initiatives to be observed and factored into future steps

17. Jun 18, 2003Market Operations Standing Committee of the IMO17 Failed Intertie Transactions - Update Ongoing compliance measures –clarifying MISO “safe harbours” –minor adjustments to existing “safe harbours” Ongoing MISO discussions –release of transmission capacity Ongoing NYISO discussions –protocol enhancements

18. Jun 18, 2003Market Operations Standing Committee of the IMO18 Implementation of SGOL and Control Action Operating Reserve

19. Jun 18, 2003Market Operations Standing Committee of the IMO19 Implementation Timeline Concepts Developed SGOL & ORIM Implementation Market Rules DatesMilestone New Supply Reduce Failed Transactions TP June 24 July 3 June 18 June 16 June 10 June 11 MOSC IMO Board Go live June 4 MAC Notification of intent to go live Procedures, Quick Takes issued Mid-July End July TP

20. Jun 18, 2003Market Operations Standing Committee of the IMO20 SGOL - Market Rules (MR-00235) Generation facility eligibility criteria –dispatchable, not quick start, domestic MP Obligations if they wish facility to be eligible –provide minimum loading point, minimum run time –provide costs on per start basis Other eligibility criteria –scheduled for hour “h” in “h-3” P-D schedule; notify IMO of intent to synchronize; synchronize before end of hour “h” Combined Guaranteed Costs: fuel only; auditing

21. Jun 18, 2003Market Operations Standing Committee of the IMO21 SGOL Implementation - Overview

22. Jun 18, 2003Market Operations Standing Committee of the IMO22 Affected Market Manuals MM 1.2: Facility Registration, Maintenance and De- Registration (MDP_PRO_0016); MM 4.2: Submission of Dispatch Data in the Real- Time Energy and Operating Reserve Markets (MDP_PRO_0027); MM 5.5: Physical Markets Settlement Statements (MDP_PRO_0033); IMO Charge Types and Equations (IMP_LST_0001); Format Specifications for Settlement Statement Files and Data Files (IMP_SPEC_0005)

23. Jun 18, 2003Market Operations Standing Committee of the IMO23 MM 1.2 Facility Registration, Maintenance and De-Registration Market participants are required to complete a registration form. Information to be provided: –Market Participant Name and ID; –Resource Name and ID; –Minimum Loading Point [MW]; –Minimum Run-Time [hrs]. This information should be fairly static. Any modifications will be processed via the facility registration change-management process.

24. Jun 18, 2003Market Operations Standing Committee of the IMO24 MM 4.2: Submission of Dispatch Data in the Real-Time Markets The sequence of events is: –Market participant decides to start up its unit and run in hour H; –Market participant ensures that a valid offer for the unit is submitted at least 3 hours before the dispatch hour H; –Market participant is allowed to revise its offer without restriction until the start of H-3;

25. Jun 18, 2003Market Operations Standing Committee of the IMO25 MM 4.2: continued The sequence of events is (cont’d): After the publication of the H-3 pre-dispatch results and until the start of H-2, the market participant is not allowed to revise the portion of dispatch data reflective of the unit’s Minimum Loading Point; Market participant may synchronize its unit anytime after the H-3 pre-dispatch run, but no later than the end of hour H;

26. Jun 18, 2003Market Operations Standing Committee of the IMO26 MM 4.2: continued The sequence of events is (cont’d): –Once the unit has reached its Minimum Loading Point, the IMO will constrain the unit to at least this minimum for the duration of its Minimum Run-Time;

27. Jun 18, 2003Market Operations Standing Committee of the IMO27 Settlement Principles Guarantee recovery of start-up, minimum load ramping and minimum generation cost - Combined Guaranteed Costs. The MP will be compensated if market revenues from Energy, Operating Reserve and CMSC payments, earned by the facility over the period between synchronization and the end of the MP specified Minimum Runtime is less than the Combined Guaranteed Costs submitted by the MP. Guarantee payments will be paid out to eligible Market Participants monthly, and will be calculated on a “per start” resolution. Costs for guarantee payments will be recovered from other Market Participants as a monthly uplift charge on basis of AQEW.

28. Jun 18, 2003Market Operations Standing Committee of the IMO28 MM 5.5 Physical Markets Settlement Statements Eligible Market participants must notify the IMO of an eligible facility’s Combined Guaranteed Costs by completing a cost notification form by the close of the second business day following the day of the synchronization

29. Jun 18, 2003Market Operations Standing Committee of the IMO29 Format Specifications for Settlement Statement Files and Data Files Append New Charge Types Generation Cost Guarantee Payment –Will appear in “Manual Line Item” and include Date and hour the facility synchronized Generation Cost Guarantee Recovery Debit –Will appear in “Manual Per Unit Allocation”

30. Jun 18, 2003Market Operations Standing Committee of the IMO30 IMO Charge Types and Equations Append new variables –Combined Guaranteed Cost (CGC): start-up cost + minimum load ramping cost + minimum generation cost –Generation Cost Guarantee Payment –Generation Cost Guarantee Recover Debit Append New Equations –Generation Cost Guarantee Payment –Generation Cost Guarantee Recover Debit

31. Jun 18, 2003Market Operations Standing Committee of the IMO31 Control Action OR - Implementation IMO will publish: –offer prices and quantities (to be approved by IMO Board in July) –scheduled quantities Settlements –settle and collect only for market sources of operating reserve