1. Public Market Surveillance Panel Consultation on CMSC Issues Related to Constrained off Payments to Generators and Imports Market Operations Standing Committee March 5, 2003

2. Public Contents Purpose & Context of Consultation CMSC Payments - Background Constrained off Payments –Various Rationale Noted Implications of Retaining Constrained off Payments Issues for Discussion Request for Additional Comments

3. Public Purpose & Context of Consultation Ongoing issue for MSP signaled earlier –constrained off payments do not seem necessary or appropriate and have the potential for abuse MSP Report: May-August 2002 MSP Backgrounder paper April, 2002 –experience from the operation of the market MSP invites input –to focus discussion, reconsider constrained off payments for energy to generators and imports –if not eliminated, may need additional safeguards against abuse

4. Public Purpose & Context of Consultation (cont.) Timetable –Feb 21: Posting of discussion paper –Mar 31: Final date for submission of comments –early May: MSP conclusions and recommendations to IMO Board MOSC Consultation –to introduce issues –to promote some initial discussion of issues –to encourage subsequent written comments

5. Public CMSC Payments - Background Design alternative to locational pricing –CMSC payments based on difference between offers (bids) and MCP –intended for transmission / reliability limits –but also induced by non-transmission causes Mitigation framework limited to transmission Weight of the recent evidence in other markets –constrained-off payments are not regarded as necessary in spot markets

6. Public CMSC Payments for Energy - May to Dec 2002

7. Public Constrained off Payments - Various Rationale Noted Keep wholesale prices lower than otherwise Enhance reliability –by maintaining critical plant in the marketplace Information about transmission bottlenecks –helpful in identifying areas for investment Operational benefits to the marketplace –encourages compliance; selection rule Compensates for departures from optimality –existing generation and transmission endowment

8. Public Implications of Retaining Constrained off Payments Constrained off payments may interfere with appropriate signaling in the market –no incentive for generators to seek enhancements –siting of new generation is indifferent to transmission conditions Potential to affect CMSC with offer price –treatment of negative offer prices –some aspects of the local market power mitigation framework need to be reviewed

9. Public Issues for Discussion Primary Discussion Issues –Implications for efficiency –Implications for reliability –Implications for coordinating transmission & generation Additional or Optional issues (selected subset) –Implications for local market power mitigation –Implications for investment decisions –Audience identified issues –Discussion of one or two issues as time permits

10. Public Implications for Efficiency What are the implications of keeping or removing constrained off payments? –Impact on market price –Total payments –Signals for suppliers or consumers –Etc.

11. Public Implications for Reliability What are the implications of keeping or removing constrained off payments? –Is it necessary or desirable to compensate a market participant to comply with a dispatch instruction? –Do payments help maintain critical plant in the market place? Are constrained off payments the right vehicle? –etc.

12. Public Implications for Coordinating Transmission & Generation What are the implications of keeping or removing constrained off payments? –Are CMSC payments providing good transmission investment signals? Are there other more effective drivers or signals? What else is needed for transmission investment? –Are generator siting signals being blunted? –Is there a basis for treating new generation differently from earlier existing generation? –etc.

13. Public Additional Issues for Discussion To be determined –local market power mitigation framework? –investment decisions? –other identified issues?

14. Public Request for Additional Comments See Consultation page and Discussion Paper http://www.theimo.com/imoweb/consult/consult_cmsc.asp Provide written comments for posting on web site –send to MACD@theIMO.com For background information on CMSC –see links from Consultation page