SEPTEMBER 12, 2012 | MARKETS COMMITTEE Aleks Mitreski MARKET DEVELOPMENT (413) Hourly Offer and Intraday Reoffers Overview of Current Market Components

Presentation Objective This presentation is intended to provide high level overview of the current Day-Ahead and Real-Time Energy Market offer rules with focus on: – Timing and offer requirements in the DAM – Parameters used to formulate an offer in the DAM – Modification of offers during the Re-Offer Period – Supplemental commitments during the Resource Adequacy Assessment – Commitment and Dispatch of generators in real-time – Parameter re-offer/re-declaration in real-time 2

Energy Markets Overview 3 Real-Time Energy Market balances differences between the Day-Ahead scheduled amounts of electricity and the actual real-time requirements DAM produces financially binding schedules for the production and consumption of electricity (occurs on the day before the operating day) Energy Markets Day-Ahead Energy Markets (DAM) Real-Time Energy Markets

Energy Markets Overview (cont.) 4 Real-Time Energy Market Day-Ahead Energy Market ―00:00 ―16:00 DA Energy Market results published Real-Time Energy Market starts 16:00―18:00― Re- Offer Period ―12:00 DA Energy Market offer and bid period closes OPERATING DAY OPERATING DAY -1 22:00― Initial RAA is performed to finalize operating plan for next day RAA is performed throughout the operating day

DAY-AHEAD ENERGY MARKET Review of offer structure, clearing, obligations

Day-Ahead Energy Market The DAM allows participants to sell/purchase energy on a forward basis Load/Asset Related Demand Virtual Transactions (Increments/Decrements) Dispatchable Asset Related Demand External Transactions (Imports/Exports) Generators The DAM produces financially binding positions that are satisfied through: – Physical performance (i.e. delivery/consumption) in real-time, or – Cash settlement at the Real-Time Price for Day-Ahead quantities not delivered/consumed 6

Price Taker versus Price Sensitive Behavior Participants have the ability to participate in the energy market as price-sensitive or a price taker (i.e.,fixed) A fixed demand in the market effectively represents a bid to consume energy at any cost below $1,000 MWh A fixed supply in the market effectively represents an offer to sell energy at $0 MWh 7

Participation – Load/ARD Load/ARD participate through Demand Bids only in the DAM Demand Bids can be submitted as: – Fixed Demand Bid specifying quantity and location (one per hour) or – An individual priced Demand Bid specifying price, quantity and location Participants can submit up to 10 individual demand bids per location, per hour The price range can be between $0 and $1,000 MWh 8

Participation – External Transactions External Transactions are submitted to capture energy flow into New England (Import) or out to one of the neighboring areas (Export) in the DAM and RTM External Transactions can be submitted as: – Fixed External Transaction specifying quantity and external node ranging in duration from one hour to 24 hours – An individual priced External Transaction specifying price, quantity and external node ranging in duration from one hour to 24 hours The price range can be between $0 and $1,000MWh 9

Participation – Virtual Transactions Virtual Transactions are a virtual supply Increments (INCs) and virtual demand Decrements (DECs) only in the DAM Virtual Transactions can be submitted as; – Up to 50 priced bid blocks per location, per participant The price range can be between $0 and $1,000MWh 10

Participation – Generators Generators participate by submitting Supply Offer with physical and financial parameters in the DAM and RTM 11 Physical Parameters (sample) Time Interval Emergency MinHourly Economic MinHourly Economic MaxHourly Start Up TimeDaily Notification TimeDaily Minimum Down TimeDaily Minimum Run TimeDaily Manual Response RateDaily Financial Parameters (sample) Time Interval Start Up FeeDaily No Load FeeDaily Incremental Energy Offer Daily

Generator’s Financial Parameters Start Up Fee is the cost a generator incurs when started. Separate cost can be designated when coming on-line from the following three states (in $) – Cold – Intermediate – Hot No Load Fee is the cost a generator incurs for each hour it remains on-line (in $/hr) Incremental Offers are the blocks of energy quantities paired with particular prices that reflect what a generator can produce at certain incremental cost (price/quantity pairs) – Quantity must be monotonically increasing – Cost must be between $0 MWh and $1,000 MWh – Identical price/pair blocks are used for the entire day 12

Example: Incremental Energy Offer 13 Price MW Quantity $60300 $50250 $40200 $30150 $20100 $1050

Generator’s Physical Parameters Emergency Minimum is the lowest value at which the generator can be dispatched during Minimum Generation Emergency Economic Minimum (“EcoMin”) is the lowest value at which the generator can be dispatched during normal conditions Economic Maximum (“EcoMax”) is the highest value at which the generator can be dispatched during normal conditions Manual Response Rate is the rate at which the generator can ramp its output 14

Generator’s Physical Parameters (cont.) Notification Time is the time needed for generator to synchronize once informed to come on-line Start Up Time is the time the generator needs to reach its Economic Minimum once synchronized to the system Minimum Run Time is the shortest duration the generator has to remain on-line (after reaching Economic Minimum and available for ISO dispatch) prior to being asked to come off- line, Minimum Down Time is the shortest duration between the time the generator has gone off-line and the time to come on- line, reach Economic Minimum and is available for ISO dispatch 15

Example: Generation Physical Parameters 16

Example: Financial & Physical Parameters 17 Parameter Offered Value Emergency Minimum 25 MW Economic Minimum 50 MW Economic Maximum 300 MW

Generator Self Scheduling Resource can chose to self-schedule (i.e., fixed) their output and become a price taker. A self-schedule “overrides” the resources financial parameters effectively reflecting a desire to operate at zero price, assuming no reliability issues. There are two key aspects of self-scheduling; – Self-Commitment: A request for a resource to come online for a duration (e.g., Minimum Run Time) at its EcoMin and be economically dispatched between its EcoMin and EcoMax – Self-Dispatch: An adjustment of a resource’s EcoMin to a desired minimum output level. Resources will continue to be dispatched between their EcoMin and EcoMax 18

Self Scheduling in DAM Generator can Self-Schedule which will result in clearing the Day Ahead Energy Market as a price taker – Equivalent to an offer to produce at the EcoMin at no cost (zero price offer), and compensated at the Day-Ahead Clearing Price (set by another generator) This is achieved by setting the Must Run flag and the parameters are treated as: – Start Up Fee = $0 – No Load Fee = $0 – Energy price pair blocks below the Economic Minimum offered at $0 Generator will clear the Day Ahead Energy Market with at least the energy below the Economic Minimum (unless there is a reliability issue) 19

Example: Self-Schedule in DAM 20 Parameter Offered Value Emergency Minimum 25 MW Economic Minimum 50 MW 150MW Economic Maximum 300 MW Generator Self-Schedules in the DAM and sets its Economic Minimum at 150MW At a minimum, generator A will clear 150MW for all 24hr of the day at the Day-Ahead clearing price Clearing/dispatch of output above 150MW will be on economic merit

Example: Self-Scheduling & Dispatchable Range A generator that is not constrained by its physical parameter is eligible to set the Real Time Price – When self-scheduled, participants often increase the Economic Minimum from their DAM offer, which naturally decreases the range in which a generator is eligible to set the Real-Time Price 21

RE-OFFER PERIOD AND THE RESOURCE ADEQUACY ASSESSMENT Modification of financial parameters as previously submitted in the DAM, supplemental commitments

Re-Offer Period Between 16:00 and 18:00 prior to the operating day, Participants may modify certain financial Supply Offer parameters that were submitted in the DAM – The Incremental Offer (price/quantity pairs) can be modified for all generators – For generators that have not cleared the DAM, the Start Up and No Load fee can be modified – Generators that did not clear the DAM can also request to self- schedule Physical parameters can be re-declared only through phone call to the Control Room 23

Resource Adequacy Assessment Between 18:00 and 22:00, the ISO performs the initial Resource Adequacy Assessment to ensure that resources committed in the DAM can meet the operational requirements (e.g., forecasted load, operating reserves) During this time, supplemental commitments are considered using offers submitted in the DAM (or modified during the Re- Offer Period) 24

REAL-TIME ENERGY MARKET Dispatching resources, settling Day-Ahead positions

Real-Time Energy Market Redeclaration Participants cannot change the financial parameters of their Supply Offers Participants have the ability to self-schedule (self-commit) in real-time, with 30 minute advance notice – If approved, the generator will be permitted to come on-line – If approved, the generator will at least be operated at its Economic Minimum parameter Participant can also self-scheduled its output by re-declaring their the Economic Minimum (self-dispatch) or to request release to go off-line. Physical parameters in real-time can only be re-declared through phone call to the Control Room 26

Real-Time Energy Market The ISO is evaluating system needs throughout the operating day and will commit additional generators as needed During the operating day, economic dispatch of committed generators is done based on the incremental offer submitted in the DAM (or modified during the Re-Offer period) 27

Settlement Generators that clear in the DAM and produce energy up to their cleared schedule are not impacted by the Real-Time Price for that energy During an hour, if a generator produces less energy than its Day-Ahead cleared schedule then it must procure the shortfall at the Real-Time Price If a generator is dispatched above its Day-Ahead schedule then the additional energy is settled based on the Real-Time Price Generators which were committed/dispatched out of merit for system needs are made whole through NCPC (i.e., indifferent regarding Real-Time Prices) 28

Summary As discussed, participants do not have an opportunity to update financial parameters after the Re-Offer Period The Incremental Offer blocks must be identical for each hour of the day The price of the Incremental Offer blocks can range between $0 and $1,000 During upcoming meetings, the ISO will discuss the observed problems with the current market rules and the proposed enhancements 29

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