1. ANCILLARY SERVICES THE NEXT STEP IN MARKET GRANULARISATION

2. DEFINITION Ancillary services are defined as all those activities on the interconnected grid that are necessary to support the transmission of power in maintaining and ensuring reliable operation and the required degree of quality and safety. Ancillary services are defined as all those activities on the interconnected grid that are necessary to support the transmission of power in maintaining and ensuring reliable operation and the required degree of quality and safety.

3. WHY ANCILLARY SERVICES? SYSTEM OPERATOR DUTIES SYSTEM OPERATOR DUTIES CONTROL THE FREQUENCY OF THE SYSTEM WITHIN CERTAIN BOUNDS. CONTROL THE FREQUENCY OF THE SYSTEM WITHIN CERTAIN BOUNDS. CONTROL THE VOLTAGE QUALITY AND PROFILE OF THE SYSTEM WITHIN CERTAIN BOUNDS CONTROL THE VOLTAGE QUALITY AND PROFILE OF THE SYSTEM WITHIN CERTAIN BOUNDS MAINTAIN STABILITY OF THE SYSTEM MAINTAIN STABILITY OF THE SYSTEM PREVENT OVERLOADS IN THE TRANSMISSION SYSTEM PREVENT OVERLOADS IN THE TRANSMISSION SYSTEM RESTORE THE SYSTEM OR PORTION OF THE SYSTEM AT THE EARLIEST WHEN REQUIRED. RESTORE THE SYSTEM OR PORTION OF THE SYSTEM AT THE EARLIEST WHEN REQUIRED. TRANSPARENCY IN THE SYSTEM TRANSPARENCY IN THE SYSTEM

4. WHAT ARE ANCILLARY SERVICES Unbundled Services to facilitate market operations Unbundled Services to facilitate market operations Voltage Support Voltage Support Regulation Regulation Help to maintain reliable operation Help to maintain reliable operation Reserves Reserves Scheduling Scheduling Consists of physical equipment and human resources Support Consists of physical equipment and human resources Support

5. NERC IDENTIFIED AND DEFINED 12 SERVICES SYSTEM CONTROL SYSTEM CONTROL VOLTAGE CONTROL VOLTAGE CONTROL REGULATION REGULATION OPERATING RESERVES OPERATING RESERVES SPINNING SPINNING SUPPLEMENTAL SUPPLEMENTAL ENERGY IMBALANCE ENERGY IMBALANCE LOAD FOLLOWING LOAD FOLLOWING LOSS REPLACEMENT LOSS REPLACEMENT BACKUP SUPPLY BACKUP SUPPLY DYNAMIC SCHEDULING DYNAMIC SCHEDULING SYSTEM BLACK-START SYSTEM BLACK-START NETWORK STABILITY NETWORK STABILITY

6. FERC REQUIRES THESE 6 NORMAL OPERATIONS REQUIRE 6 SERVICES TO MAINTAIN GENERATION/LOAD BALANCE NORMAL OPERATIONS REQUIRE 6 SERVICES TO MAINTAIN GENERATION/LOAD BALANCE System control System control Voltage control Voltage control Regulation Regulation Energy imbalance Energy imbalance Load following Load following Loss replacement Loss replacement

7. FERC ANCILLARY SERVICES CATEGORY -1 CATEGORY-1: SERVICES REQUIRED FOR ROUTINE OPERATION SYSTEM CONTROL SYSTEM CONTROL THE CONTROL AREA OPERATOR FUNCTIONS THAT SCHEDULE GENERATION AND TRANSACTIONS AND CONTROL GENERATION IN REAL-TIME TO MAINTAIN GENERATION/LOAD BALANCE. THE CONTROL AREA OPERATOR FUNCTIONS THAT SCHEDULE GENERATION AND TRANSACTIONS AND CONTROL GENERATION IN REAL-TIME TO MAINTAIN GENERATION/LOAD BALANCE. VOLTAGE CONTROL VOLTAGE CONTROL THE INJECTION OR ABSORPTION OF REACTIVE POWER FROM GENERATORS OR CAPACITORS TO MAINTAIN SYSTEM VOLTAGES WITHIN REQUIRED RANGES. THE INJECTION OR ABSORPTION OF REACTIVE POWER FROM GENERATORS OR CAPACITORS TO MAINTAIN SYSTEM VOLTAGES WITHIN REQUIRED RANGES. REGULATION REGULATION THE USE OF GENERATION OR LOAD TO MAINTAIN MINUTE-TO- MINUTE GENERATION/LOAD BALANCE WITHIN THE CONTROL AREA. THE USE OF GENERATION OR LOAD TO MAINTAIN MINUTE-TO- MINUTE GENERATION/LOAD BALANCE WITHIN THE CONTROL AREA. LOAD FOLLOWING/ENERGY IMBALANCE LOAD FOLLOWING/ENERGY IMBALANCE THE USE OF GENERATION TO MEET THE HOUR-TO-HOUR AND DAILY VARIATIONS IN LOAD THE USE OF GENERATION TO MEET THE HOUR-TO-HOUR AND DAILY VARIATIONS IN LOAD

8. FERC ANCILLARY SERVICES CATEGORY -2 CATEGORY-2: SERVICES NEEDED TO PREVENT AN OUTAGE FROM BECOMING A CATASTROPHE CATEGORY-2: SERVICES NEEDED TO PREVENT AN OUTAGE FROM BECOMING A CATASTROPHE SPINNING RESERVES SPINNING RESERVES SUPPLEMENTAL RESERVES SUPPLEMENTAL RESERVES NETWORK STABILITY SERVICES NETWORK STABILITY SERVICES CATEGORY-1 CAN ALSO ACT LIKE CATEGORY-2 SERVICES AND PREVENT VOLTAGES FROM DECAYING SO FAR THAT VOLTAGE COLLAPSE OCCURS, AND SYSTEM CONTROL IS REQUIRED TO MANAGE THESE SERVICES. CATEGORY-1 CAN ALSO ACT LIKE CATEGORY-2 SERVICES AND PREVENT VOLTAGES FROM DECAYING SO FAR THAT VOLTAGE COLLAPSE OCCURS, AND SYSTEM CONTROL IS REQUIRED TO MANAGE THESE SERVICES.

9. FERC ANCILLARY SERVICES CATEGORY -3 CATEGORY-3: SERVICES NEEDED TO RESTORE THE SYSTEM AFTER A BLACKOUT CATEGORY-3: SERVICES NEEDED TO RESTORE THE SYSTEM AFTER A BLACKOUT SYSTEM BLACKSTART CAPABILITY SYSTEM BLACKSTART CAPABILITY THE ABILITY OF A GENERATING UNIT TO PROCEED FROM A SHUTDOWN CONDITION TO AN OPERATING CONDITION WITHOUT ASSISTANCE FROM THE ELECTRICAL GRID AND THEN TO ENERGIZE THE GRID TO HELP OTHER UNITS START AFTER A BLACKOUT OCCURS. THE ABILITY OF A GENERATING UNIT TO PROCEED FROM A SHUTDOWN CONDITION TO AN OPERATING CONDITION WITHOUT ASSISTANCE FROM THE ELECTRICAL GRID AND THEN TO ENERGIZE THE GRID TO HELP OTHER UNITS START AFTER A BLACKOUT OCCURS.

10. RESERVES IMPORTANT FOR BOTH ENERGY AND REACTIVE POWER IMPORTANT FOR BOTH ENERGY AND REACTIVE POWER NEEDED FOR MAINTAINING THE INTEGRITY OF THE TRANSMISSION SYSTEM NEEDED FOR MAINTAINING THE INTEGRITY OF THE TRANSMISSION SYSTEM DESIGNED TO RESPOND TO UNCERTAINITIES DESIGNED TO RESPOND TO UNCERTAINITIES GENERATION OUTAGE GENERATION OUTAGE LOAD VARIATIONS LOAD VARIATIONS

11. TYPES OF RESERVES SPINNING:- SPINNING:- FREQUENCY STABILISATION FREQUENCY STABILISATION AVAILABLE INSTANTLY AVAILABLE INSTANTLY TIME OF RESPONSE – FEW SECONDS TO 5 MINUTES TIME OF RESPONSE – FEW SECONDS TO 5 MINUTES CAN BE FAST START UNITS OR DMS LOADS CAN BE FAST START UNITS OR DMS LOADS NO MANUAL INTERVENTION NO MANUAL INTERVENTION ENERGY REQUIRED IS NOT LARGE ENERGY REQUIRED IS NOT LARGE ON-BARS FOR SHORT PERIODS OF TIME ON-BARS FOR SHORT PERIODS OF TIME SUPPLEMENTAL SUPPLEMENTAL ENERGY BALANCING ENERGY BALANCING TIME OF RESPONSE – SEVERAL MINUTES TO HALF-HOUR TIME OF RESPONSE – SEVERAL MINUTES TO HALF-HOUR MAY REQUIRE MANUAL INTERVENTION MAY REQUIRE MANUAL INTERVENTION LARGER ENERGY REQUIREMENTS LARGER ENERGY REQUIREMENTS BACK-UP BACK-UP TIME OF RESPONSE – MORE THAN HALF-HOUR TIME OF RESPONSE – MORE THAN HALF-HOUR EXPECTED TO STAY ON BARS FOR A LONGER PERIOD EXPECTED TO STAY ON BARS FOR A LONGER PERIOD

12. FREQUENCY REGULATION PRIMARY FREQUENCY CONTROL PRIMARY FREQUENCY CONTROL DROOP SETTING DROOP SETTING FREQUENCY RESPONSE OF HVDC LINK FREQUENCY RESPONSE OF HVDC LINK SECONDARY FREQUENCY CONTROL SECONDARY FREQUENCY CONTROL AUTOMATIC GENERATION CONTROL AUTOMATIC GENERATION CONTROL DIRECT CONTROL OF SPECIFIED PLANTS DIRECT CONTROL OF SPECIFIED PLANTS ABILITY TO DISCONNECT DEMAND ABILITY TO DISCONNECT DEMAND FREQUENCY CONTROL CAN ALSO BE ATTAINED BY SENDING PRICE SIGNALS TO GENERATORS(ABT?) FREQUENCY CONTROL CAN ALSO BE ATTAINED BY SENDING PRICE SIGNALS TO GENERATORS(ABT?)

13. FREQUENCY RANGE AND ACTIONS

14. FREQUENCY BAND

15. AVERAGE RESERVE CLEARING PRICES IN NYISO IN 2002 10 Minute Spin 10 Minute Spin East: $3.03 East: $3.03 West: $2.82 West: $2.82 10 Minute Non Synch 10 Minute Non Synch East: $1.51 East: $1.51 West: $1.27 West: $1.27 30 Minute Reserve: $1.13 30 Minute Reserve: $1.13

16. LOAD-FOLLOWING RESERVE TYPICALLY 1% OF CAPACITY IS OF THIS TYPE TYPICALLY 1% OF CAPACITY IS OF THIS TYPE LINKED TO AGC AND FGMO LINKED TO AGC AND FGMO HIGHER O&M COSTS AND HEAT RATES HIGHER O&M COSTS AND HEAT RATES COST INCLUDES FIXED COSTS COST INCLUDES FIXED COSTS FIXED COSTS ARE HIGHER SINCE LIFETIME OF THE UNIT IS LOWERED FIXED COSTS ARE HIGHER SINCE LIFETIME OF THE UNIT IS LOWERED

17. REACTIVE SUPPORT SERVICES

18. VOLTAGE CONTROL EQUIPMENT

19. NETWORK STABILITY SERVICES MAINTENANCE AND USE OF SPECIAL EQUIPMENT (POWER-SYSTEM STABILIZERS AND DYNAMIC-BRAKING RESISTORS) TO MAINTAIN A SECURE TRANSMISSION SYSTEM. MAINTENANCE AND USE OF SPECIAL EQUIPMENT (POWER-SYSTEM STABILIZERS AND DYNAMIC-BRAKING RESISTORS) TO MAINTAIN A SECURE TRANSMISSION SYSTEM.

20. PROVIDING ANCILLARY SUPPORT ANCILLARY SERVICE CAN BE ARRANGED BY ANCILLARY SERVICE CAN BE ARRANGED BY OWNING THE EQUIPMENT NECESSARY TO PROVIDE THE SERVICE OWNING THE EQUIPMENT NECESSARY TO PROVIDE THE SERVICE CONTRACTING WITH THE ANCILLARY SERVICE PROVIDERS ON A LONG TERM BASIS CONTRACTING WITH THE ANCILLARY SERVICE PROVIDERS ON A LONG TERM BASIS CREATING A MARKET FOR SUPPLY OF SERVICE. CREATING A MARKET FOR SUPPLY OF SERVICE.

21. PRICING ANCILLARY SERVICES COSTS ARE NOT TRIVIAL :- 10% OF ENERGY CHARGES ARE TOWARDS ANCILLARY SERVICES IN USA COSTS ARE NOT TRIVIAL :- 10% OF ENERGY CHARGES ARE TOWARDS ANCILLARY SERVICES IN USA SIZING HAS TO BE DONE FOR THE GRID BASED ON REGULATORY REQUIREMENT SIZING HAS TO BE DONE FOR THE GRID BASED ON REGULATORY REQUIREMENT RESOURCES HAVE TO BE GROUPED IN DIFFERENT SERVICES BASED ON HARD DATA :- DETERMINING THE SERVICE QUALITY ORDER RESOURCES HAVE TO BE GROUPED IN DIFFERENT SERVICES BASED ON HARD DATA :- DETERMINING THE SERVICE QUALITY ORDER CRUCIAL FOR BIDDING CRUCIAL FOR BIDDING COSTING IS USUALLY ON REPLACEMENT COST, LOST PROFITS AND OPPORTUNITY COSTS COSTING IS USUALLY ON REPLACEMENT COST, LOST PROFITS AND OPPORTUNITY COSTS

22. TYPICAL PRICING IN CALIFORNIA ISO

23. ABT AND THE ANCILLARY MARKET CONCEPT OF LOOSE POWER POOL CONCEPT OF LOOSE POWER POOL RESPONSIBILITY OF RESERVES, LOAD FOLLOWING ETC LIES WITH THE STATES RESPONSIBILITY OF RESERVES, LOAD FOLLOWING ETC LIES WITH THE STATES RESERVES, LOAD FOLLOWING ETC IN STATE PURVIEW RESERVES, LOAD FOLLOWING ETC IN STATE PURVIEW REACTIVE POWER PRICING MECHANISM IN PLACE FOR THE LOOSE POWER POOLS REACTIVE POWER PRICING MECHANISM IN PLACE FOR THE LOOSE POWER POOLS THIS IS FOR THE AREA AS A WHOLE THIS IS FOR THE AREA AS A WHOLE REACTIVE SUPPORT MAY STILL BE REQUIRED AT VARIOUS BUSES REACTIVE SUPPORT MAY STILL BE REQUIRED AT VARIOUS BUSES THIS OPENS UP A MARKET OPPURTUNITY THIS OPENS UP A MARKET OPPURTUNITY PRESENTLY MVAR BY GENERATORS ARE NOT COMMERCIALLY MONITORED PRESENTLY MVAR BY GENERATORS ARE NOT COMMERCIALLY MONITORED UI MECHANISM PROVIDES A COMPREHENSIVE BALANCING MARKET AND A PRICING THRESHOLD FOR EMBEDDED ANCILLARY SERVICES/MARKETS UI MECHANISM PROVIDES A COMPREHENSIVE BALANCING MARKET AND A PRICING THRESHOLD FOR EMBEDDED ANCILLARY SERVICES/MARKETS REGULATOR HAS PROVIDED LARGE BANDWIDTH FOR FREQUENCY REGULATOR HAS PROVIDED LARGE BANDWIDTH FOR FREQUENCY LOAD FOLLOWING, SPINNING RESERVES YET TO MATURE LOAD FOLLOWING, SPINNING RESERVES YET TO MATURE FGMO ALREADY IN PLACE AS MANDATED SERVICE FGMO ALREADY IN PLACE AS MANDATED SERVICE AVR IN SERVICE IS ALSO MANDATED AVR IN SERVICE IS ALSO MANDATED DUE TO UNBUNDLING GENCO’S MAY NOT READILY PART WITH FREE SERVICES LIKE IN THE PAST DUE TO UNBUNDLING GENCO’S MAY NOT READILY PART WITH FREE SERVICES LIKE IN THE PAST

24. UI PROVIDES THE REFERENCE PRICE FOR MW BASED IMBALANCE ANCILLARY SERVICES POWER POOL ABT UI PRICE STATE SYSTEM ANCILLARY MARKET OPPORTUNITY FOR PROCURING MVAR FROM ISGS AS AN ANCILLARY SERVICE ISGS