02/18/2003Market Advisory Council of the IMO1 Market Evolution Program Document ID #: MAC-03-05

02/18/2003Market Advisory Council of the IMO2 Overview Status Consultation (current and next steps) Initiative updates Breakout sessions

02/18/2003Market Advisory Council of the IMO3 Overview Day Ahead Market Multi-interval Optimization Short Term Resource Adequacy Long Term Resource Adequacy Wholesale/Retail Integration Environmental Tracking Locational Marginal Pricing

02/18/2003Market Advisory Council of the IMO4 Status Jan – team formed –MOSC, RASC, TP given overview Feb 3 – web page launched –Overview –Discussion papers –Phase 1 Consultation Plan –Program Charter

02/18/2003Market Advisory Council of the IMO5

02/18/2003Market Advisory Council of the IMO6 Phase 1 Consultation Stakeholders IMO notify post access Phone input/dialog

02/18/2003Market Advisory Council of the IMO7 Working Groups/Consultation Stakeholders IMO notify post access Phone input/dialog Working Groups

02/18/2003Market Advisory Council of the IMO8 Working Groups Day Ahead Market Multi-interval Optimization Long Term Resource Adequacy

02/18/2003Market Advisory Council of the IMO9 Working Groups Involve stakeholders early on as practicable: –Representational perspective –Leverage experience –Confidence in outcomes

02/18/2003Market Advisory Council of the IMO10 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

02/18/2003Market Advisory Council of the IMO11 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

02/18/2003Market Advisory Council of the IMO12 Resource Adequacy Jason Chee-Aloy

02/18/2003Market Advisory Council of the IMO13 Overview Results of Nov 22 MAC input Short term resource adequacy –Identified mechanisms (discussion paper) –Next steps Long term resource adequacy –Preliminary plan

02/18/2003Market Advisory Council of the IMO14 Objectives/Solutions Increase generator investment incentives Increase demand response Clear supplier and buyer obligations Address Operational and Planning issues

02/18/2003Market Advisory Council of the IMO15 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

02/18/2003Market Advisory Council of the IMO16 Short Term Mechanisms Extension of Emergency Demand Response Program Demand Conservation LDC/LSE Contracting Obligations Distributed Generation

02/18/2003Market Advisory Council of the IMO17 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

02/18/2003Market Advisory Council of the IMO18 Recommended Short Term Mechanisms Extension of Emergency Demand Response Program –Market Rules with termination date of April 30, 2003 to be extended

02/18/2003Market Advisory Council of the IMO19 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

02/18/2003Market Advisory Council of the IMO20 Remaining Short Term Mechanisms Do not pursue: –Capacity Reserve Market (as detailed in the market rules

02/18/2003Market Advisory Council of the IMO21 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

02/18/2003Market Advisory Council of the IMO22 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

02/18/2003Market Advisory Council of the IMO23 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

02/18/2003Market Advisory Council of the IMO24 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

02/18/2003Market Advisory Council of the IMO25 Multi-interval Optimization Mark Wilson

02/18/2003Market Advisory Council of the IMO26 Overview How do we optimize now? Why change what we do? What is Multi-interval Optimization (MIO)? Benefits Next Steps

02/18/2003Market Advisory Council of the IMO27 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

02/18/2003Market Advisory Council of the IMO28 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

02/18/2003Market Advisory Council of the IMO29 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

02/18/2003Market Advisory Council of the IMO30 Benefits Suppliers –Should reduce resource cycling (smoothing of dispatch instructions) thereby improving facility reliability –Provides future dispatch advisories

02/18/2003Market Advisory Council of the IMO31 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

02/18/2003Market Advisory Council of the IMO32 Next Steps Working Group –Working towards a multi-interval optimization recommendation to the IMO Board on March 28

02/18/2003Market Advisory Council of the IMO33 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

02/18/2003Market Advisory Council of the IMO34 Wholesale/Retail Integration Edward Arlitt

02/18/2003Market Advisory Council of the IMO35 Overview What is a Wholesale/Retail Issue? What are the implications? What is being investigated? Next Steps

02/18/2003Market Advisory Council of the IMO36 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)

02/18/2003Market Advisory Council of the IMO37 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

02/18/2003Market Advisory Council of the IMO38 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

02/18/2003Market Advisory Council of the IMO39 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

02/18/2003Market Advisory Council of the IMO40 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

02/18/2003Market Advisory Council of the IMO41 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?

02/18/2003Market Advisory Council of the IMO42 Day Ahead Market Leonard Kula

02/18/2003Market Advisory Council of the IMO43 Overview The three options Proposed approach Next Steps

02/18/2003Market Advisory Council of the IMO44 Day Ahead Market (DAM) - value to participants

02/18/2003Market Advisory Council of the IMO45 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

02/18/2003Market Advisory Council of the IMO46 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

02/18/2003Market Advisory Council of the IMO47 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

02/18/2003Market Advisory Council of the IMO48 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)?

02/18/2003Market Advisory Council of the IMO49 Next Steps Working Group –Working towards a day ahead market recommendation to the IMO Board on March 28

02/18/2003Market Advisory Council of the IMO50 Breakout Sessions Day ahead Market Multi-interval Optimization Resource Adequacy Wholesale/Retail Integration Back by 2:30 Feedback will be summarized and posted