Market Evolution Program Document ID #: MAC-03-05 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Overview Status Consultation (current and next steps) Initiative updates Breakout sessions 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Overview Day Ahead Market Multi-interval Optimization Short Term Resource Adequacy Long Term Resource Adequacy Wholesale/Retail Integration Environmental Tracking Locational Marginal Pricing 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Status Jan – team formed MOSC, RASC, TP given overview Feb 3 – web page launched Overview Discussion papers Phase 1 Consultation Plan Program Charter 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO 02/18/2003 Market Advisory Council of the IMO

Email IMO.consultation@theimo.com Phase 1 Consultation notify post IMO access Stakeholders Email IMO.consultation@theimo.com Phone 905-403-6931 input/dialog 02/18/2003 Market Advisory Council of the IMO

Working Groups/Consultation notify post Working Groups IMO access Stakeholders Email IMO.consultation@theimo.com Phone 905-403-6931 input/dialog 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Working Groups Day Ahead Market Multi-interval Optimization Long Term Resource Adequacy 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Working Groups Involve stakeholders early on as practicable: Representational perspective Leverage experience Confidence in outcomes 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Working Groups Day Ahead Market Volunteers by Thursday, Feb 21 Members notified on Friday, Feb 22 Kick off meeting (conference call) Friday, Feb 24 Multi-interval Optimization Volunteers by Wednesday, Feb 26 Members notified on Friday, Feb 28 Kick off meeting (conference call) Wednesday, March 4 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Working Groups Long Term Resource Adequacy Volunteers by Wednesday, Feb 26 Members notified on Friday, Feb 28 Kick off meeting (conference call) Friday, March 7 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Resource Adequacy Jason Chee-Aloy 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Overview Results of Nov 22 MAC input Short term resource adequacy Identified mechanisms (discussion paper) Next steps Long term resource adequacy Preliminary plan 02/18/2003 Market Advisory Council of the IMO

Objectives/Solutions Increase generator investment incentives Increase demand response Clear supplier and buyer obligations Address Operational and Planning issues 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Short Term Mechanisms Arranging Replacement Energy to Support Planned Outages Payment for Generator Start-up Capacity Reserve Market Hour Ahead Dispatchable Loads Economic Demand Response 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Short Term Mechanisms Extension of Emergency Demand Response Program Demand Conservation LDC/LSE Contracting Obligations Distributed Generation 02/18/2003 Market Advisory Council of the IMO

Recommended Short Term Mechanisms Arranging Replacement Energy to Support Planned Outages Participants arrange for replacement energy under specific conditions Hour Ahead Dispatchable Loads Schedule dispatchable loads in pre-dispatch Fixed schedule for entire hour 02/18/2003 Market Advisory Council of the IMO

Recommended Short Term Mechanisms Extension of Emergency Demand Response Program Market Rules with termination date of April 30, 2003 to be extended 02/18/2003 Market Advisory Council of the IMO

Remaining Short Term Mechanisms Further assessment: Payment for generator start-up Economic Demand Response Requires further consultation with OEB and Government: Demand conservation LDC/LSE contracting obligations Distributed generation 02/18/2003 Market Advisory Council of the IMO

Remaining Short Term Mechanisms Do not pursue: Capacity Reserve Market (as detailed in the market rules 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Next Steps Further development for Summer 2003: Continued feasibility assessments for the three recommended mechanisms Greater detail to be stakeholdered through market rule amendment and marketplace change management process 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Next Steps Break-out session objectives: Determine if there are any other short term resource adequacy mechanisms Feedback on proposed details of arranging replacement energy to support planned outages and implementing hour ahead dispatchable load process 02/18/2003 Market Advisory Council of the IMO

Long Term Resource Adequacy Discussion paper (to be issued within the week) will identify: Mechanisms used in other jurisdictions Issues to be addressed for the Ontario market Often common to other markets Many are issues still unresolved in these other markets 02/18/2003 Market Advisory Council of the IMO

Long Term Resource Adequacy Working Group Different objective to those of demand response advisory group Working towards preliminary long term resource adequacy recommendation to the IMO Board on March 28 02/18/2003 Market Advisory Council of the IMO

Multi-interval Optimization Mark Wilson 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Overview How do we optimize now? Why change what we do? What is Multi-interval Optimization (MIO)? Benefits Next Steps 02/18/2003 Market Advisory Council of the IMO

Current (5-minute) Optimization Real Time Constrained Sequence: Dispatch algorithm optimizes resources and derives dispatch instructions every 5 minutes. Each interval calculated in isolation Look Ahead Sequence: Supplements Real Time Constrained Sequence Runs every 15 minutes for 11 intervals out Identifies future Operating Reserve deficiencies Requires manual intervention in Real Time dispatch to solve identified deficiencies 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Rationale for Change Real Time Operational Issues Unit cycling caused by limited forward looking capability of the Real Time Constrained Sequence. Fast loading resources are often more economic than slow loading resources and are often loaded first resulting in: Operating Reserve deficiencies Manual intervention required to solve for future deficiencies Higher overall cost of resource dispatch Longer Optimization period will result in more efficient operation 02/18/2003 Market Advisory Council of the IMO

What is Multi-interval Optimization? Dispatch solution for the next 5 minute interval that optimizes based on a defined set of criteria over a given period of time: Optimization could be based on criteria such as: Least cost solution or Reducing the number of dispatch changes Possible optimization period is 60 minutes Provides Dispatch Advisories for future intervals to indicate potential dispatch targets 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Benefits Suppliers Should reduce resource cycling (smoothing of dispatch instructions) thereby improving facility reliability Provides future dispatch advisories 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Benefits Loads Efficiently solve reliability issues and higher cost dispatches Should reduce CMSC payments and hence overall market costs Improves transparency by reducing manual intervention in the dispatch process 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Next Steps Working Group Working towards a multi-interval optimization recommendation to the IMO Board on March 28 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Next Steps Break-out session objectives: Verify stakeholder understanding of current vs. multi-interval optimization and attendant benefits Determine preferences for: Optimization period Frequency and form of dispatch advisories 02/18/2003 Market Advisory Council of the IMO

Wholesale/Retail Integration Edward Arlitt 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Overview What is a Wholesale/Retail Issue? What are the implications? What is being investigated? Next Steps 02/18/2003 Market Advisory Council of the IMO

Wholesale/Retail Issues Common characteristics Affects both wholesale and retail markets Is in the long term interest of both markets to resolve No single governing/regulatory authority has full rule making powers or responsibility over the issue Complicated because they span the wholesale/retail market boundary (e.g. issue ownership, computer systems, business processes and financial risk management) 02/18/2003 Market Advisory Council of the IMO

Wholesale/Retail Issue Areas A more accurate assignment of prudential risk Opening the door to future retail demand response products Ensuring the wholesale/retail market boundary keeps pace with emerging technologies such as retail interval metering and distributed generation 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Implications Before we do anything: Industry-wide consensus required Changes to wholesale and retail ground rules may be required Control over ground rules and development of solutions may need to be treated as separate issues 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Implications Timing: Obtaining regulatory alignment and some form of industry-wide consensus may be a lengthy process In the meantime, there is still opportunity for stakeholdering various solution concepts for each issue area 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Under Investigation Early recognition of joint responsibility over the issues by entities on both sides of the wholesale/retail boundary A combination of potential solutions aimed at addressing one or more of the issue areas Overall, a better wholesale market interface that could potentially benefit a wide array of retail market entities 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Next Steps Break-out session objectives: Your opinions on the most pressing issues influenced by the wholesale/retail boundary Consideration for each issue: Should we continue to view the issue in a separate wholesale and/or retail context or does it require a unified solution? 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Day Ahead Market Leonard Kula 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Overview The three options Proposed approach Next Steps 02/18/2003 Market Advisory Council of the IMO

Day Ahead Market (DAM) - value to participants 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Option 1 for Summer 2003 RISKS: The market won’t be liquid or won’t clear: most participants already hedged simple, conservative prudential scheme which would require additional prudential support over what is required in the real-time physical marketplace lack of transparency of generator outage information creating large bid/ask spreads out-of-market actions 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Option 1 for Summer 2003 RISKS: Little time for: participants to prepare (systems, procedures, risk strategies) IMO to develop rules, tools, procedures & training - May 1 proved the value of comprehensive preparation Opportunity cost: delay development of Option 2 and/or Option 3 02/18/2003 Market Advisory Council of the IMO

Day Ahead Market Status Option 1: conclude that the risks outweigh the potential opportunities and reluctantly abandon pursuit of a summer 2003 implementation Option 2/3: immediately re-focus resources upon development of Option 2/3 prepare detailed recommendation on timing and choice of option for IMO Board - March 28 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Next Steps Breakout session objectives: Confirm your support of the IMO proceeding with the development of Option 2 (Day Ahead Unit Commitment Market) and/or Option 3 (Day Ahead Physical Market)? 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Next Steps Working Group Working towards a day ahead market recommendation to the IMO Board on March 28 02/18/2003 Market Advisory Council of the IMO

Market Advisory Council of the IMO Breakout Sessions Day ahead Market Multi-interval Optimization Resource Adequacy Wholesale/Retail Integration Back by 2:30 Feedback will be summarized and posted 02/18/2003 Market Advisory Council of the IMO