03/11/2013 MARKETS COMMITTEE Aleks Mitreski MARKET DEVELOPMENT (413) Overview of Market Rule revisions that reflect proposed Energy Market change Energy Market Offer Flexibility

Background The ISO has discussed the following changes to the energy market: – Permit updates to offers in real-time – Permit updates to certain supply offer values on an hourly granularity – Allow the ability to submit negative offers – Change the way Self-Scheduling is performed This presentation provides an overview of the revisions to the Market Rule language that reflects these changes 2

Definitions Changes New definitions are introduced for: Minimum Run Time is the number of hours that a Generator Asset must remain online after it has been scheduled to reach its Economic Minimum Limit before it can be released for shutdown from its Economic Minimum Limit Minimum Down Time is the number of hours that must elapse after a Generator Asset has been released for shutdown at or below its Economic Minimum Limit before the Generator Asset can be brought online and be released for dispatch at its Economic Minimum Limit Reserve Adequacy Analysis is the analysis performed by the ISO to determine if adequate Resources are committed to meet forecasted load, Operating Reserve, and security constraint requirements for the current and next Operating Day Energy Offer Cap is $1,000/MWh (updated throughout the tariff) Energy Offer Floor is negative $150/MWh (updated throughout the tariff) 3

Definitions Changes Revision to Self-Schedule definition: For a Generator Asset, Self-Schedule is the action of a Market Participant in committing or scheduling a Generator Asset to provide Energy in an hour at its Economic Minimum Limit, whether or not in the absence of that action the Generator Asset would have been scheduled or dispatched by the ISO to provide the Energy. For a Dispatchable Asset Related Demand, Self-Schedule is the action of a Market Participant in committing or scheduling a Dispatchable Asset Related Demand to consume Energy in an hour at its Minimum Consumption Limit, whether or not in the absence of that action the Dispatchable Asset Related Demand would have been scheduled or dispatched by the ISO to consume Energy. Participants can no longer modify the Economic Minimum Limit of a Generator Asset for Self-Scheduling purposes 4

Definitions Changes Revision to Self-Scheduled MW definition: Self-Scheduled MW is an amount, in megawatts, that is Self-Scheduled and is equal to: (i) a Generator Asset’s Economic Minimum Limit; (ii) a Dispatchable Asset Related Demand’s Minimum Consumption Limit; or (iii) for Regulation purposes with respect to a generating Resource for which the Regulation Self-Schedule flag is set for the hour and the unit was on Regulation for at least 20 minutes during the applicable hour of the Operating Day, the median value of all Regulation setpoints (Desired Dispatch Point) used by the Resource while regulating. 5

Definitions Changes Revision to Economic Minimum Limit that should represent: (a) for Resources with an incremental heat rate, the maximum of: (i) the lowest output level as specified by physical design characteristics, environmental regulations or licensing limits; and (ii) the lowest output level at which a one MW increment increase in the output level would not decrease the incremental cost, calculated based on the incremental heat rate, of providing an additional MW of output, and (b) for Resources without an incremental heat rate, the lowest output level as specified by physical design characteristics, environmental regulations or licensing limits. Note: Economic Minimum Limit is a value based on the physical characteristics of the unit. Any change to this value must be justified by a physical change to the resource, by a change to its incremental heat rate, or by change in environmental regulations or licensing limits 6

Ability to Submit Supply Offers on an hourly basis in the Day-Ahead Energy Market Revisions made to Section III.10.1A In d) introduce the ability to vary Energy offers on an hourly basis in the Day-Ahead Energy Market (ii) the price and quantity Blocks, and (iii) Start Up Fee and No Load Fee In e) introduce the ability to vary Regulation offers on an hourly basis in the Day-Ahead Energy Market Various clean up items 7

Self-Scheduling Changes Revisions made to Section III Clarify that a Self-Schedule request may not result in the Generator Asset operating for less than its Minimum Run Time Dispatch of a Self-Scheduled generator above its Economic Min will be based on the economic merit of the offer 8

Ability to Update Supply Offers in Real-Time Revisions made to Section III In b) introduce the ability – For generators to modify Start Up Fee, No Load Fee, price and quantity Blocks, and Regulation offer as long as submitted 30 minutes before the top of the hour – For DARDs to modify the price and quantity Blocks In d) introduce the ability to request Self-Schedule during the operating day (Self-Schedule is at Economic Min) In e) introduce the ability to request a desired dispatch output above Economic Min when reoffer not available as specified in b), which will be considered as energy offered at the floor price 9

Minimum Generation Emergency Revisions made to Section III.2.5 In c) specify that when the ISO declares a Minimum Generation Emergency event that the energy price will be set at the Energy Offer Floor 10

Definitions Changes A number of defined terms are removed as conforming change to an already removed Appendix H – Cold Weather Conditions – Cold Weather Events – Cold Weather Warning – Cold Weather Watch – Effective Heating Degree Days – Effective Temperature – Seven Day Forecast 11

Future Steps April Markets Committee – for vote May Participants Committee – for vote June FERC filing Q – Tentative implementation timeframe 12