Recent Behavior of the Responsive Reserve Market presented to the Demand-Side Working Group December 2005

2 RRS Cost Q:What is the “cost” of RRS? A:Every $1 in RRS prices = $20M/year to the market (8760 hrs/yr *2300 MW) = $61k/year per 100 MW load *. For example: An entity with 250 MW of load retains an additional $458k / year if RRS prices are lowered by $3 / MWh *. (Based on 8760 hours/year, 2300 MW RRS every hour, average system load of 33,000 MW.)

3 RRS-MCPC (Jan ’04 – Nov ’05) RRS prices generally track BES and natural gas prices. RRS shows greater % volatility than either BES or natural gas.

4 Hurricane Rita and RRS After the first shock, increased generator bids returned the bid stack to app. 93% of it’s typical size. But RRS-MCPC stayed 200% to 400% higher until 300+ MW of LaaR returned.

5 Hurricane Rita and AS RRS price often moved counter to BES price. RRS price movements are difficult to correlate with other AS prices.

6 RRS Bids and Marginal Cost Neither generators nor loads seem to be bidding their marginal cost for providing RRS. 1.The “marginal cost” of providing RRS is difficult to quantify for both generators and loads. 2.Generators routinely bid into RRS at $.01. As a typical example, in May of 2005 generators submitted 476 bids covering 36,391 MWh at $.01. Another 1,179 bids covering 42,801 MWh were submitted in May at $.11 or less, including one generator that bid in every hour of every day.