Energy Imbalance Market (EIM) Dan Dettmer Board Meeting February 16, 2011

EIM Description From the Western Governors’ / EIM Crossroads website: The proposed EIM is a sub-hourly, real-time energy market tool that dispatches balance energy in an economical way while maintaining reliability. The EIM will allow for the use of balancing resources and ability to make economically efficient balancing decisions. Participation in the EIM and all offers into the EIM would be voluntary. The EIM would not replace the current bilateral energy market, but would instead supplement the bilateral market with real-time balancing. The EIM would also allow for more efficient use of the transmission system by determining transmission availability based on actual flows in real-time, rather than based on OASIS-posted reserved Available Transfer Capacity (ATC) on scheduled transmission paths. The EIM may be an important tool to lower costs to consumers, help integrate variable wind and solar generation, and expand the use of the transmission system. While the EIM market has similarities to ISOs and RTOs, this proposal does not include implementing an RTO in the Western Interconnection. The EIM could utilize tools and algorithms that have been successfully implemented in other markets. Board Meeting Presentation-February 16, 20112

WIEB / Crossroads Needs / Goals Summary Board Meeting Presentation-February 16, To dispatch resources more economically while maintaining reliability More efficient use of the transmission system by determining availability based on actual flows in real-time – The proposed EIM is a sub-hourly, real-time energy market tool Participation should be voluntary and bilateral markets should remain intact

Needs / Goals Summary – cont. Board Meeting Presentation-February 16, It should not include implementing an RTO – Although EIM is a proven tool that has “worked” in other markets, e.g. SPP To help integrate variable wind and solar generation – By 2020, state RPS targets in WECC will drive installed renewables to 70,000 MW compared to 13,000 MW today – An earlier NREL analysis showed that by 2020 the Western Interconnection could reduce generation for load following by 3,100 MW through joint BA balancing efforts A similar study for CG by PNNL showed ‘significant’ savings

Where concept started / coordinating parties: Board Meeting Presentation-February 16, WECC – Mark Maher, EDT Steering Committee Chair; Michelle Mizumori, EDT Tech. Review Subcommittee Chair – Market Interface Committee (MIC): Phil Tice, Chair (DG&T) – Seams Issues Subcommittee (SIS): Steve Beuning, Chair (Xcel/PSCO)

Where concept started / coordinating parties – cont. : Board Meeting Presentation-February 16, Western Governors’ Association – Western Interstate Energy Board (WIEB) Doug Larson, Executive Dir. / Victoria Ravenscroft, staff State Provincial Steering Committee (SPSC) – SPSC Grid Utilization Work Group /Steve Oxley, Chair (WY PSC) Western Interconnection Regional Advisory Body (WIRAB) » SPSC & WIRAB each contributed $25k to WECC to lead benefit/cost study

WIEB 7

What is EIM? Board Meeting Presentation-February 16, Excerpts below are from a presentation by Phil Tice on the Efficient Dispatch Toolkit (EDT). The toolkit consists of two tools: (1) The Enhanced Curtailment Calculator (ECC) aka the “Seams Coordination Tool”, and (2) The EIM.

What is an EIM? (cont.) Board Meeting Presentation-February 16, Excerpts from presentation by Steve Beuning:

EIM – Impacts Board Meeting Presentation-February 16, Excerpts from presentation by Phil Tice on EDT:

EIM Relationships Board Meeting Presentation-February 16, From presentation by Phil Tice on EDT:

EDT Timeline Board Meeting Presentation-February 16, Apr: The WECC Board agreed to undertake a benefit/cost study. The EDT Steering & Technical Review committees were created. Sep: WECC briefed CREPC. Oct: 1st workshop. FERC approved WECC’s 2011 budget.

Market Operator - Functions Board Meeting Presentation-February 16, Excerpts from the 1/14/11 Draft Options Paper on EIM:

Market Operator – Structure Board Meeting Presentation-February 16, Excerpts from the 1/14/11 Draft Options Paper on EIM: Other Market Operator Issues: Governance – FERC Jurisdictional? / Board structure / Corporate make-up Financing Options – Start-up and ongoing. Allocation of costs and revenues. Exit Provisions – The voluntary nature of the EIM means BAs / TSPs should have an option to terminate participation over time. Options: The Market Operator could be: 1) a new division within WECC; 2) a reconstituted form of one or more of the existing Subregional Entities (e.g., WestConnect, NTTG, ColumbiaGrid, Northwest Power Pool); 3) an existing third-party which operates a market; or 4) a new third-party market operator. The third-party operator could be an expansion of an existing market operator (e.g., the California ISO, SPP, MISO, ERCOT, or PJM), an operating division of a major software vendor (e.g. OATI, Areva) interested in expanding their business, or a new for-profit or not-for-profit entity.

Footprint Possibilities Board Meeting Presentation-February 16, Excerpts from the 1/14/11 Draft Options Paper on EIM. Options 1, 3, and 4 include all CG members; option 2 – CG IOUs (Avista & PSE) only.

Benefits Study Board Meeting Presentation-February 16, Excerpts from the 1/31/11 presentation by E3; based in San Francisco, E3 also did market design work on RTO West: Potential EIM Benefits: Conceptual Magnitude

Benefits Study – cont. Board Meeting Presentation-February 16, Excerpts from the 1/31/11 presentation by E3:

Benefits Study – cont. Board Meeting Presentation-February 16, Excerpts from the 1/31/11 presentation by E3:

Cost Analysis - Board Meeting Presentation-February 16, Below are excerpts from slides presented by Utilicast at the 1/18/11 EDT Workshop. The cost analysis is targeted for completion by 3/31/11. Note: SPP spent $50M for start-up and $20M annually to establish and operate its EIM. Market Operator Cost Categories: ___________________ Market Participant Cost Categories:

Additional Observations TSP view on some loss of non-firm revenues vs. the “imputed” transmission charge / revenue received for “unauthorized” use of their wires – Same for TCs regarding forgone trading profits on current market inefficiencies Cost / benefit to participant & non-participant – Cost and revenue allocation among participants ColumbiaGrid – Presently monitoring / attending EDT / EIM workshops, webinars, technical committee meetings and other related forums. Reporting and ready to assist as needed Board Meeting Presentation-February 16,