Market Pricing Issues Update John MacKenzie

1. Market Pricing Issues Update John MacKenzie Market Operations Standing Committee of the IMO

2. Agenda • Update on impact of pricing initiatives currently in place: • Hour-Ahead Dispatchable Loads • Spare Generation On-Line • Control Action Operating Reserve • Update on progress of other pricing initiatives: • Additional Control Action Operating Reserve • Removal of 200 MW Supplemental Operating Reserve • Removal of 12x ramp rate Market Operations Standing Committee of the IMO

3. Hour-Ahead Dispatchable Load • Registered HADL • ~240 MW total; 4 market participants • Very limited activity to date (market prices too low?) • ~13 k$ HADL Offer Guarantee Payments • Impact on pricing issues and prices to date - negligible Market Operations Standing Committee of the IMO

4. Spare Generation On-Line • Registered SGOL • ~5000 MW total • Activity • September to mid-November: 23 days where SGOL scheduled • mid-November to mid-December: SGOL scheduled every day • Guarantee Payments (still being calculated) • Price Impacts: • cannot determine with any confidence, as SGOL participation/scheduling is very dependent on MP behaviours Market Operations Standing Committee of the IMO

5. Control Action Operating Reserve (CAOR) Frequency of Scheduling Market Operations Standing Committee of the IMO

6. CAOR - Impact on HOEP -1 Market Operations Standing Committee of the IMO

7. CAOR Impact on HOEP - 2 • Estimate that Daily Average HOEP higher by ~0.2 $/MWh: • 48.3 $/MWh with CAOR compared to estimated 48.1 $/MWh without CAOR • Two largest estimated hourly impacts on HOEP remain as previously reported: • $53.36 $/MWh increase for August 14 hour 15 • $26.59 $/MWh increase for August 13 hour 14 • These impacts represent upper bound of the impact, as analysis of estimated HOEP used conservative assumptions regarding IMO and MP behaviours Market Operations Standing Committee of the IMO

8. CAOR - Reliability Impacts • No change • No unreliable operation of IMO-controlled grid as a result of the scheduling of CAOR • Risk of unreliable operation and/or impact on loads as result of the scheduling of CAOR has been very small Market Operations Standing Committee of the IMO

9. CAOR - Displaced Market OR • In real-time, the MW of market participant offered OR displaced by scheduled CAOR = 0.3% of total OR scheduled • In pre-dispatch, the MW of market participant offered OR displaced by scheduled CAOR = 0.4% of total OR scheduled • Therefore, market participants have supplied more than 99.5% of total OR scheduled Market Operations Standing Committee of the IMO

10. Additional Control Action Operating Reserve (CAOR) • Implementation of additional block amounts of CAOR is not possible using the current approach which can result in shortage pricing when no real shortages occur • IMO is currently researching alternative methods of offering CAOR into the market • One possible approach is to offer additional CAOR (i.e. >400 MW) into the market dynamically based on available voltage reduction (determined from primary demand) Market Operations Standing Committee of the IMO

11. Removal of Supplemental Operating Reserve • In June 2002 the Operating Reserve requirements were increased by 200 MW from 6:00 to 20:00 hours (EST) • At that time the frequency of OR shortfalls in the energy market was considered to be detrimental to system reliability (increased emergency purchases, for example) • The 200 MW of “supplemental” OR was introduced to attract additional market resources in order to maintain required reserve levels Market Operations Standing Committee of the IMO

12. Removal of Supplemental Operating Reserve • System performance is currently such that the 200 MW of supplemental OR is not required to mitigate reliability risk • The 200 MW of supplemental Operating Reserve will be removed on January 14th • An initial notice (IMO_IMDC_0064) was sent out and posted on the Pending Changes page on Dec. 22/03 • A final reminder notice will be sent out on the 14th • If conditions change the supplemental OR can be re-introduced Market Operations Standing Committee of the IMO

13. 12x Ramp Rate - What is it? • Within the real-time market (unconstrained) schedule sequence, the energy ramping capability of all dispatchable facilities is equal to what can be achieved in 60 minutes rather than 5 minutes i.e. 12x the actual ramping capability • Authorized under section 4.13.1 of Appendix 7.5 of the Market Rules; approved as temporary measure • Establishes real-time market prices on basis of the market having 60 minutes ramping capability in 5 minutes • Higher priced resources still required to meet demand change, but constrained on and not reflected in market prices • Dampening effect on market prices during ramp up and ramp down • Increased CMSC due to constrained on higher priced resources Market Operations Standing Committee of the IMO

14. 12x Ramp Rate - Progress • Continuing analysis on impact of changes • Coordinating with Multi-Interval Optimization (MIO) and Day-Ahead Market (DAM) projects • Examining other mechanisms for addressing ramping issues • Timeframe for stakeholder consultation to be determined Market Operations Standing Committee of the IMO

15. Other Programs – Next Steps • Continue to monitor impacts of 400 MW CAOR; SGOL; HADL • Monitor impacts of removing 200 MW supplemental Operating Reserve • Examine alternative methods for introducing additional 200 MW of Control Action Operating Reserve Market Operations Standing Committee of the IMO