1 Market Operations Standing Committee Meeting April 23, 2003 Market Evolution Program

2 Overview Consultation Initiative Status

3 Overview Day Ahead Market Multi-Interval Optimization Short Term Resource Adequacy Long Term Resource Adequacy Wholesale/Retail Integration Environmental Tracking Locational Marginal Pricing

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6 Working Groups/Consultation Stakeholders IMO notify post access Phone input/dialog Working Groups

7 Working Groups were formed after an initial fact-finding period for initiatives that were mature enough to benefit:  Multi-Interval Optimization  Day Ahead Market  Long Term Resource Adequacy Advisory process to help IMO make informed recommendations, particularly with respect to stakeholder perspective on issues

8 Next Steps Stakeholder workshops planned for May/June on the Long Term Resource Adequacy and Day Ahead Market initiatives Dates announced by the end of this week Format:  Face - to - Face  Webcast Each consists of an educational component and an opportunity for questions/input Presentations will be made available in PowerPoint and as a Media Player file with audio

9 Locational Marginal Pricing  Nodal pricing behaviour since market opening is being assessed  Expect decision in the next few weeks on priority of continuing this work Environmental Information Tracking  RFP for system prepared based on draft regulations  Early stages of assessing training and education needs of consumers/participants

10 Day Ahead Market Leonard Kula

11 Day Ahead Market  DAM discussion paper  Examined and ruled-out simple DAM for summer 2003  Formed DAM Working Group following Feb 18 MAC  Developed DAM Objectives and Key Principles  Prepared Feasibility Study - Mar 28 IMO Board accepted DAM direction and approved commencement of design phase  Staged approach - high level design to be completed by July at which time an assessment will be made whether to proceed further

12 Day Ahead Market Assessment of high level design:  How well it addresses some of the problems evident in current market design and operation  Appropriate linkages to long term resource adequacy initiative  Broad stakeholder consensus on the benefits of implementing the proposed design  Appropriate cost recovery mechanism Working Group is engaged in identifying design issues and potential solutions Stakeholder workshops planned for early June on proposed high level design

13 Day Ahead Market DAM Working Group:  Principles and Objectives  DAM and impact on Market Participant Classes  Reviewed other DAM Options  Working Group consensus to proceed with SMD-style DAM  Commencing discussions of high-level design features

14 Day Ahead Market Design User Requirements  WHAT the DAM will look like - complete September 2003  Split into high level design and detailed design: High level design - present to MAC June 11, IMO Board July 3 Detailed design  Significant portion of participant-facing elements System Requirements  HOW the DAM will work - complete November 2003  Fewer participant-facing elements

15 Multi-Interval Optimization Mark Wilson

16 Multi-Interval Optimization - What have we done? Feb 18 MAC Breakout sessions Working Group  Formed with representation from generators and loads  Meets either via conference call or face-to-face sessions on a weekly basis  Focussed on three key issues: Optimization Function Optimization Time Period Dispatch Advisories (How,What,When)

17 Multi-Interval Optimization Objectives Improved Operational Reliability  Resources will automatically be scheduled in advance to allow ramp rate capability to be utilized to solve future reliability concerns Operational Stability  Reduced Unit Cycling - The number of start/stop sequences for resources will be reduced relative to current operation  Improved Compliance - Non-compliance with dispatch instructions will be reduced Improved Market Transparency  IMO manual intervention in the dispatch solution will be reduced Improve Market Efficiencies  Constraint payments caused by limited ramp capability will be reduced compared to present dispatch

18 Two Proposals

19 Issues/Recommendation Issues ABB Solution  Calculation time  Potential hardware upgrade costs IMO Solution  Solution may not always be optimal Recommendation  Implement IMO solution  IMO Board approved design stage funds  Will go back in July for build phase funding

20 Next Steps

21 Resource Adequacy Jason Chee-Aloy

22 Short Term Resource Adequacy  Options reviewed, recommended mechanisms being implemented: Emergency Demand Response Hour Ahead Dispatchable Load Replacement Energy

23 Long Term Resource Adequacy  Discussion paper  Working Group formed  Performing feasibility assessment with recommendation targeted for July, design to be completed by year end  Six options currently under investigation  LECG consultants engaged  Working Group is engaged in identifying issues and potential solutions  Stakeholder workshops planned for early to mid-May on draft feasibility assessment

24 Long Term Resource Adequacy LTRA Working Group:  Objectives  Evaluation Criteria  Draft Feasibility Study

25 Wholesale/Retail Integration Edward Arlitt

26 What is a Wholesale/Retail Issue? No formal definition, but generally these issues all display four common characteristics:  Both the wholesale and retail markets are affected  It is in the long-term interest of both markets to resolve them  No single governing/regulatory authority has full rule-making powers or responsibility over the issue  They are generally complicated by the fact that they span the wholesale/retail market boundary - particularly in areas such as issue ownership, computer systems, business processes and financial risk management activities

27 Wholesale/Retail Integration Issue Areas:  Financial Stresses across the market boundary  Opening the door to future demand response products that retail customers can participate in while providing a reliability benefit  Ensuring that the wholesale/retail market boundary keeps pace with emerging technologies such as retail-level metering and microgeneration Developments:  Wholesale/Retail Integration discussion paper soliciting stakeholder feedback to be released shortly  Upcoming Pilot Projects

28 Wholesale/Retail Integration The Approach:  Avoid overlap with topics being addressed in existing stakeholder forums  Use of Pilot Projects to look ahead to future logistical challenges  Ensure that future solutions do not conflict with the evolving role of various market participants and retail entities  Ensure alignment with other MEP initiatives