Update on Energy Imbalance Market Presentation to WECC Market Interface Committee October 15, 2015 Jim Price, Senior Advisor, Market Development & Analysis, CAISO jprice@caiso.com

Status of Energy Imbalance Market Implementation Full operation with PacifiCorp: 11/1/2014 Benefits analysis confirms pre-implementation study NV Energy operational 11/1/2015 Puget Sound Energy and Arizona Public Service operational 10/1/2016 Portland General Electric and Idaho Power Co. have announced plans to pursue participation Phase 1 EIM Enhancements proposal to FERC: 6/15/2015. Phase 2 stakeholder process recommendations to be presented to Board in November EIM Transitional Committee draft final proposal on long-term EIM governance adopted by Board Sept. 17

Operating benefits are consistent with earlier benefit analysis, over $21 million for first 8 months Benefits include: Efficient, automated dispatch, both inter- and intra-regional, by 15- and 5-minute intervals Reduced renewable energy curtailment through resource & load diversity Reduced flexibility reserves (measured for PacifiCorp, to be added in future reports for CAISO) Benefits increase with more transfer volume between BAAs and higher market prices BAA Nov-Dec 2014 Jan-Mar 2015 April-June 2015 * ISO $1.24 M $1.45 M $2.46 M PACE $2.31 M $2.62 M $3.26 M PACW $2.42 M $1.19 M $4.46 M Total $5.97 M $5.26 M $10.18 M * April-June 2015 analysis includes both 15 minute and 5-minute benefits. Prior reports only quantified 15-minute benefits. 3

EIM year one enhancements are pending at FERC (ER15-1919) Scalability of EIM design: Optimal management of ATC for EIM transfers, and multiple EIM transfer limits Includes EIM transfer cost for e-tag contract path (< $0.01/MWh) Simplified BAA combinations for flexible ramping constraint Compliance with 6/19/2014 FERC Order: Greenhouse gas bid flag, and cost based bid adder Implementation details: EIM administrative charge redesign Administrative pricing rules (price to use in market disruption) Settlement rules for non-participating resources Refinement of resource sufficiency criteria

Also pending: Tariff amendment to implement transition period pricing (ER15-2565) Proposal filed 8/28/2015: Provide a six-month transition period when a new EIM Entity BAA is not subject to energy pricing that normally applies when real-time market optimization relaxes a transmission constraint or power balance constraint. Goal: Protect ratepayers from unwarranted price excursions caused by new EIM Entity “learning curve” issues in financially binding market. Learning process of actually responding to dispatches cannot be avoided through pre-implementation activities, no matter how rigorous and robust the CAISO’s readiness preparations. Full range of operating situations cannot be simulated in advance. Interim waiver has continued for PacifiCorp pending FERC decision.

Also pending: Available capacity proposal (ER15-861 & EL15-53) Compliance proposal filed 8/19/2015: Automatically recognize and account for capacity EIM Entity BA has available to reliably operate its system and deploy such capacity through EIM to resolve power balance infeasibilities and manage congestion. Allows CAISO and EIM Entity to prevent power balance infeasibilities, not caused by resource insufficiency. Addresses structural market design issue identified in FERC technical conference that contributed significantly to price spikes observed after EIM. EIM will not dispatch this capacity to serve infeasibilities in other EIM Entity BAAs. Separate from “learning curve” issues

Also pending: Readiness criteria (ER15-861) Compliance proposal filed 8/28/2015: (1) Robust market simulation and minimum 30 days of parallel operation to ensure new EIM Entities can identify and resolve operational issues; and (2) certification by CAISO and new entrant at least 30 days before full EIM activation, of readiness of processes and systems. FERC had rejected proposal for 12-month transition period for each new EIM Entity to allow adjustment for implementing, participating in, and integrating into centralized market framework, but concluded readiness safeguards are necessary prior to activating prospective EIM Entity. Criteria include (in summary): network modeling, system readiness and integration, operations training and procedures, forecasting, balanced scheduling, settlements, outage management, communications, execution of necessary agreements, adequate available capacity, monitoring

ISO will present Year 1 Phase 2 enhancements to Board of Governors in November Allocation of EIM transfer congestion rent, based on location of constraint Market power mitigation: test EIM transfer limits (tests BAA’s power balance constraint) Options for outage reporting to Peak Reliability Coordinator Uniform treatment of e-Tags to establish import/export base schedules: must allow approved, pending, & adjusted e-tags Other topics require more operational experience before developing proposals: Alternatives for transmission usage charges Compensation for third party transmission “Flow entitlements”, for allocation of congestion cost offset settlements

Related development: Senate Bill 350 sets new targets for clean energy Requires California to increase the purchase of renewable energy resources from 33% in 2020, to 50% by the end of 2030. Requires buildings to double energy efficiency. Outlines a path for the ISO to become a multi-state, regional grid to promote expanded use of clean energy in California and participating western states. The ISO welcomes this landmark legislation that will lead to higher use of clean energy resources and paves the way for improved coordination over a larger geographic footprint, which is key in using renewable energy to meet consumer demand more efficiently at a lower cost.

Resources available for EIM CBT - Introduction to the Energy Imbalance Market This Computer Based Training provides a high level overview of the Energy Imbalance Market http://content.caiso.com/training/Introduction%20to%20EIM/My%20Articulate%20Projects/Introduction%20to%20the%20Energy%20Imbalance%20Market/player.html CBT - How the Energy Imbalance Market Works – This Computer Based Training describes the roles and responsibilities of the key players in EIM and the business processes that will take place. http://content.caiso.com/training/HowEIMWorks/player.html EIM Stakeholder processes http://www.caiso.com/informed/Pages/StakeholderProcesses/EnergyImbalanceMarket.aspx EIM Business Process Manual http://bpmcm.caiso.com/Pages/BPMDetails.aspx?BPM=Energy Imbalance Market