1 October 2003 Electricity Markets Regional Evolution Randy Berry

2 Agenda What we said last year A look at how markets are evolving Conclusions

3 Predictions from last year Market monitoring improvements Convergence of market rules and standardization Increased transparency Power system and market system coordination To varying degrees, these predictions did occur

4 What we did not predict

5 Another thing we did not predict…

6 Design Principles for Electricity Markets Ensure Reliable Physical System Operation Provide Choices for Market Participants Facilitate Integrated Market & System Operation –Physical system operation requirements are satisfied (e.g. congestion management,security-constrained MW dispatch targets) –Market incentives directly match system dispatch signals (e.g. natural incentive for following dispatch instructions) –Market-based Congestion Management

7 Implementation Principles for Electricity Markets Technology is important Training, organization and participant management –Power system and Market system operators require extensive training to manage new and larger systems –Organization may change as they transition from market development to market operations –Active participant management to set achievable schedules and capabilities

8 Common Designs Among Converging Markets Transmission Access –Transmission rights are financial within market footprint –Cross market / border coordination based on shared physical usage on commercially significant flowgates Energy Market –Bilateral contracts are financial –Physical resources can be self-scheduled or be scheduled based on spot market bids Congestion Management –Simultaneous feasibility tests –Locational marginal prices

9 Market Migration Implementation Start with the Basics –Maintain reliable system operation –Allow limited range of market trading activities –Target specific areas to gain market experiences Recognize the maximum rate of change that can be successfully introduced –Financial models –Physical operations Build on experiences gained –Understand what worked well & not well –Understand why

10 ALSTOM’s RTOs/ISOs E3 AIMS OASIS NZ AUSTRALIA SPP ISO NE SPP/MISO FTR Forward Market PJM DMTMarket Simulation PJM ISO NE Real Time MarketFwd Market, FTR, TTSE FERC 888/ 889 NOPR FERC 2000 PJM Real Time Market ERCOT ALBERTA Market Simulation World wide experience and solutions 03 FTR - Options PJM MISO CAISO CRR, Settlements ERCOT NZ FTR PUCT Market Monitoring PJM Market Monitoring SeTrans POS MOS SeTrans

11 Electricity Market Terminology

12 Market Evolution – going from here to there

13 Diagram of Market Evolution (PJM)

14 Diagram of Market Evolution (ISO-NE)

15 Diagram of Market Evolution (ERCOT)

16 Diagram of Market Evolution (MISO)

17 Diagram of Market Evolution (SPP) 2000 – 2001,

18 Using Standards to Reduce Migration Cost and Time

19 Migration considerations Market systems evolve IT should support evolution, not prevent it The IT and applications must be chosen so that the path of migration can be traveled –You should not have to replace your system to migrate The Market Participants will place increasing demands for information and capabilities Market Monitoring and Reliability will also place increasing demands on the systems Common functions change during the evolution of the markets –bidding, publishing, settlements, database

20 Conclusions Market functionality is converging Markets accommodate regional differences by exception rather than the rule Developing markets can leverage IT, applications, market rules, business process and other existing capabilities. The industry is moving from a pioneering era to a cultivating era.

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