Update on CAISO / PacifiCorp Energy Imbalance Market Presentation to WECC Seams Issues & Market Issues Subcommittees October 10, 2013 Jim Price, Senior Advisor, Market Development & Analysis, CAISO Additional info: http://www.caiso.com/informed/Pages/StakeholderProcesses/EnergyImbalanceMarket.aspx

Presentation overview: PacifiCorp implementation and EIM stakeholder process are in progress 2013 2014 Implementation agreement FERC review Implementation work System testing market simulation Board authorization 3/20/2013 Filing 4/30/2013 FERC acceptance 6/28/2013 Process Merger Go live 10/1/2014 tariff language EIM stakeholder process FERC review Expand on principles in the MOU Establish the project description and schedule Description based on EIM straw proposal Schedule identifies project tasks Board authorization 11/8/2013 Filing FERC acceptance Stakeholder meetings: 4/11/2013 – Folsom 6/6/2013 – Folsom 7/9/2013 – Phoenix 8/20/2013 – Portland 9/30/2013 – Folsom

March 2012: CAISO proposed a scalable approach for implementing Energy Imbalance Market (EIM) No critical mass required – each participant can enter EIM when ready Preserves participants’ autonomy and current practices Balancing authorities balance and provide their own ancillary services Balancing authorities can trade bilaterally Participants retain all physical scheduling rights Flexible modes of participation are available BAA 1 BAA 2 BAA 3 Confidential - Attorney Work Product - Prepared in Anticipation of Litigation

CAISO proposed a scalable approach for implementing Energy Imbalance Market (EIM) network modeling transmission monitoring BAAs bidding/self-scheduling intra-hour dispatch settlements

Benefits of Energy Imbalance Market Leverages existing CAISO market Enhances reliability through improved situational awareness in CAISO and EIM footprint Captures the benefits of geographical diversity of load and resources Potentially reduces reserve requirements Provides easy entry/exit for EIM participation

Major changes through stakeholder process include: Refined definitions and roles of participants Replaced initial processes with process for EIM Participating Resources to submit hourly base schedules and resource plans via Market Operator, with EIM Entity review and adjustments Several refinements in offset & neutrality cost allocations Refined under- and over-scheduling provisions Provisions for unit commitment and flexible ramping Refined approach for Greenhouse Gas (GHG) compliance

Energy Imbalance Market key definitions EIM Entity is a balancing authority, representing one or more EIM Transmission Service Providers that make transmission available to EIM, that enables the EIM to occur in its balancing authority area (BAA). By enabling the EIM, real-time load and generation imbalances within its BAA will be settled through the EIM. EIM Entity determines eligibility of resource types, and required transmission service, within its BAA. (15-minute economic bids on its interties? Dynamic transfers?) EIM Participating Resource is a resource located within the EIM Entity BAA that is eligible and elects to participate in the EIM. In the 5-minute market, eligible resources may include generators, participating loads & demand response, non-generator resources, and dynamic transfers. In the 15-minute market, imports and exports may also be eligible.

EIM builds on FERC Order 764 for financially binding 15-minute functions in real-time market CAISO EIM Day Ahead Schedule Base Schedule (basis of financial settlement) 15-Minute Unit Commitment & Energy Schedule, and Incremental AS Awards 15-Minute Unit Commitment & Energy Schedule Real-Time Dispatch Real-Time Dispatch

Market input data As needed Prior to operating hour (T-75 minutes) Resource operational characteristics Network model topology Static contingencies observed Prior to operating hour (T-75 minutes) Economic bids and hourly base schedules Ongoing Transmission and generation outages 15-minute base schedules Load and VER forecasts Dynamic contingency list Actual ETC/ATC scheduling limits and ETC uses

EIM design includes functionality to submit base schedules and review/approve resource plans

Timeline: Submission of hourly base schedules and resource plans Market 1 Market 2 Market 3 Market 4 T-75: Deadline for EIM Participating Resources to submit real-time bids & base schedules. Market Operator publishes advisory results at T-60. (Balanced? Feasible transmission? Sufficient flexible ramping?) Base schedules can be revised up to T-55. T-45: Market Operator publishes advisory results. T-40: EIM Entity may adjust base schedules. T-20: E-Tag deadline for intertie hourly transmission profile and energy schedule for Market 1 T T = Start of the Hour T-37.5: Start of Market 1 optimization EIM Entity Scheduling Coordinator has full visibility of all base schedules at all times.

Load Scheduling Options for load forecast for establishing base schedule: Use ISO forecast, or Use EIM Entity’s forecast, subject to under- & over-scheduling charges when errors exceed 5% threshold EIM Entity defines Load Aggregation Points (LAPs) For example, internal to the CAISO LAPs are defined by large utility service territories The number of LAPs must be weighed against the availability of multiple granular load forecasts CAISO will determine Load Distribution Factors (LDFs) using its state estimator CAISO uses LDFs to distribute LAP forecast to individual nodes within the network model.

Base schedule should be balanced prior to start of real-time market Load forecast from prior slide Resource plans: base schedules Self-scheduled resources Intertie schedules Base generation schedules Resource plans also include: Ancillary services reservations protected from dispatch Operational characteristics (e.g., ramp rate) Economic Bids = Base schedule must be balanced or they will be adjusted prior to start of EIM.

Ancillary service requirements EIM Entity remains responsible for meeting ancillary services requirements per NERC and WECC, dispatching contingency reserves, and managing load reductions Reserve deployment & sharing schedules Capacity to meet reserve sharing obligations is included in the resource plans used for base schedules. The capacity is protected for dispatch through EIM. EIM Entity is responsible for its share of DCS compliance EIM Entity deploys operating reserves and regulation in conformance with NERC, WECC, and reserve sharing group policies If reserves are dispatched, they will be subject to EIM imbalance settlement until reflected in the base schedule

Market optimization uses the economic bids submitted at T-75 minutes CAISO will provide advisory feedback on schedules up to the binding 15-minute market, so base schedules can be developed without congestion 15-minute process builds on FERC Order No. 764 Multi-interval Security Constrained Unit Commitment, with 15-minute interval granularity Imbalance energy = difference between base schedule and 15-minute schedule 5-minute dispatch process Multi-interval Security Constrained Economic Dispatch, with 5-minute interval granularity Imbalance energy = difference between 15-minute schedule and 5-minute dispatch

Congestion management CAISO will manage congestion in EIM by automatically activating constraints, before flows approach capacity This allows the EIM dispatch to try and resolve the congestion Alerts the EIM Entity that they may be required to initiate UFMP Once activated, constraint will be enforced to maintain flows below the limit EIM will coordinate with WECC’s Unscheduled Flow Mitigation Procedure (UFMP) and Enhanced Curtailment Calculator (ECC) If EIM Entity initiates UFMP, CAISO will reflect the affected schedules in EIM dispatch, and enforce constraint limits as requested by RC.

EIM Entity identifies resource constraints to address reliability issues which cannot be modeled CAISO will not issue exceptional dispatch instructions to EIM Entity resources CAISO’s dispatch will reflect reliability constraint within EIM area until the base schedule can be updated Any resource constraint for reliability will be settled at the EIM LMP

Publication of prices and other information Locational marginal prices for 15-minute market and RTD will be published on OASIS for all nodes and LAPs. Binding transmission constraints and shadow prices will be published on OASIS LMP marginal cost of congestion component reflects congestion contribution from binding network constraints Additional market data will be published as in ISO market Some data are subject to a non-disclosure agreement

EIM settlement and accounting Settlement metering is required for generators. Options: CAISO Metered Entity, Scheduling Coordinator Metered Entity Allocation of uplift costs will minimize comingled charges between ISO and EIM Entities to the extent possible. Unaccounted-for energy Inadvertent energy CAISO will maintain a dynamic schedule to track energy between EIM Entities and CAISO Net scheduled interchange change every 5 minutes through the dynamic schedule to ensure AGC control accuracy Hourly energy is updated on the e-Tag within 60 minutes of the end of the operating hour EIM Entity responsible for tracking and administering payment for inadvertent energy via WECC process

EIM administration Administrative Costs Forecasting Services Administrative rate of $0.19 per MWh volume as calculated by: Generation = max (5% of gross generation, generation imbalance energy), plus Load = max (5% gross load, load imbalance energy) Startup costs equal $0.03 times an EIM Entity’s total annual energy usage Forecasting Services CAISO load forecast is included in Administrative Rate VER forecasting available for $0.10 per MWh Dispute resolution is through Customer Inquiry, Dispute and Information (CIDI) Market monitoring provided by CAISO

Transmission Service Transmission capacity is made available through EIM Entities, and communicated through dynamic e-Tag and transmission registry: EIM Participating Resources can offer their contracted capacity Network service within EIM Entities allows redispatch up to available network capacity TSPs make uncommitted capacity available Reciprocity: Since transfer capability will be limited, as made available through EIM Entities, initial design proposes no charge for transmission for EIM transfers between EIM Entities EIM stakeholder process will continue discussion of transmission rate design for EIM transfers

CAISO is committed to ensuring EIM design will properly account for Greenhouse Gas (GHG) costs Entities that import energy to California have obligation to surrender compliance instruments to California Air Resources Board (CARB) ISO will inform EIM Participating Resources of their net incremental EIM transfers to California for CARB compliance The market optimization will consider GHG costs using GHG bids submitted by EIM Participating Resources

Process for New EIM Entities Encourage interested parties to engage as early as possible Implementation details depend on system complexity and timing of commitment Future implementations will occur on an annual commitment cycle with 12-18 month lead time Implementation requires significant network modeling changes Must align with CAISO spring and fall software release cycle New entrants pay start up fee ($0.03 per MWh of demand) Payment will be established through implementation agreement filed with FERC

Guiding objectives for governance drive toward a long-term independent EIM Prompt & direct input Adaptable structure Promote successful implementation STEP 1 STEP 2 Stakeholder Transition Committee Roles: Advise on EIM matters Propose independent EIM structure Independent EIM structure