1. Proposed CMSC Amendments - Imports & Exports Intertie Trading Sub-committee November 24, 2003 PUBLIC

2. Proposed Rule Amendments Background - MSP consultation Negative Price Offers for Imports Constrained Off Imports / Exports

3. Background - MSP Consultation Longstanding MSP concern about constrained-off payments Consultation began with discussion paper, in February 2003 MSP report presented to IMO Board on July 3 One conclusion and six recommendations

4. Summary of MSP Recommendations Three CMSC related recommendations –Negative offers should not be used to calculate constrained-off payments. –Imports that cannot be scheduled should be removed from stack so they do not receive CMSC payments. –Self-induced constrained-off payments to generators or loads should not be made or should be fully recovered. Other recommendations included working groups –to look at the Niagara 25 Hz sub-system –to look at transmission planning issues in Ontario

5. Endorsements from Board The IMO Board endorsed the recommendations –authorized IMO to take actions necessary to implement them. At the same time Board approved an Urgent Rule amendment –related to negative offer prices for generators Other rules have been brought to the Technical Panel

6. Negative Price Offers for Imports Issue - Potentially large CMSC without efficiency rationale (e.g.) If 50 MW constrained off at -$2000 offer & zonal price $100 CMSC = [50 * 100 -(-$2000)] = $105,000 per hour. –Compared with 50 * $100 = $5000 per hour if offer were successfully scheduled. Rationale for Recommendation: –If payment of zonal price is sufficient for producing energy, it should be sufficient for not producing. Large negative prices are not indicative of costs incurred

7. Negative Price Offers - Proposal Proposed rule to limit CMSC payments to imports –when offer prices are below zero. CMSC calculated assuming a lower price limit –limit is zero $/MWh unless zonal price is less than zero, then limit is zonal price –for fairness / symmetry, applies to positive and negative CMSC, constrained on and constrained off situations Interim application: after-the-fact adjustment –for subset: positive CMSC, > 1 MW constrained off identical to urgent rule applied to generators

8. Negative Price Offers - Examples Price $/MWh 0 Zonal Price Offer Price Proposed CMSC Applied Limit Case 1: Zonal Price > 0 Generic Case: Import Constrained off from 50 MW (MS) to 0 MW Proposed CMSC not paid

9. Negative Price Offers - Examples Zonal Price Zonal Price = Applied limit Proposed CMSC = $0 Generic Case: Import Constrained off from 50 MW (MS) to 0 MW Price $/MWh Case 2 0 Case 2: Zonal Price < 0 Applied Limit CMSC not paid

10. Negative Price Offers - Examples Generic Case: Import Constrained off from 50 MW (MS) to 0 MW Offer Price CMSC < 0 No Change Potential Limit, below offer; no change IOG will be positive IOG + CMSC ~ zero Price $/MWh 0 Case 3: Zonal Price < Offer Price < 0

11. Constrained Off Imports / Exports - Current Procedure After 2 hour ahead IMO pre-dispatch –IMO notifies NYISO of successful constrained schedule imports and exports NYISO applies these as upper limits –in their hour ahead market. Going into 1 hour ahead IMO pre-dispatch –IMO applies limit for the constrained run only –allows the unconstrained market schedule to float Could be further adjustments –for failures during checkout or new TLRs

12. Proposed Limits on Schedules Proposed rules to recognize such limits –generic: possible changes with New York or others Planned implementation for New York –CS 1  CS 2 [ CS = constrained predispatch schedule] 2 hr ahead constrained pre-dispatch is upper limit on 1 hour ahead (current procedure) –MS 1  max (MS 2, CS 2 ) [ MS = predispatch market schedule] 1 hour ahead unconstrained market schedule limited –2 hour ahead constrained value is the physical limit –a larger 2 hour ahead MS implies schedule was being constrained off (MS >CS) »CMSC payment deserved since this is part of congestion management

13. Limits on Schedules with NYISO - Examples

14. Implications of Scheduling Limits Market Schedules may change (be lower) –constrained schedules not affected CMSC can be smaller quantities (positive or negative) –depending on circumstances –may be corresponding IOG reductions MCP in any interval can increase, decrease or remain unchanged depending on –whether import or export, –whether replaced by another intertie transaction