Integrated Marketplace

2. Integrated Marketplace Commission Staff Education March 26, 2012

3. Common Acronyms ACP - Auction Clearing Price AO - Asset Owner ARR - Auction Revenue Rights BA – Balancing Authority CBA - Consolidated Balancing Authority CBT – Computer Based Training DA - Day-Ahead EIS – Energy Imbalance Service EMS - Energy Management System FERC – Federal Energy Regulatory Commission ISO - Independent System Operator LMP - Locational Marginal Price LMS – SPP Learning Center LSE – Load Serving Entity MCC - Marginal Congestion Component MLC -Marginal Loss Component MEC – Marginal Energy Component MCP - Market Clearing Price MP - Market Participants NERC – North American Electric Reliability Corporation NITS - Network Integrated Transmission Service OATT – Open Access Transmission Tariff OD – Operating Day OR - Operating Reserve RTBM - Real-Time Balancing Market RTO - Regional Transmission Organization RUC - Reliability Unit Commitment SCED - Security-Constrained Economic Dispatch SCUC - Security-Constrained Unit Commitment SPP - Southwest Power Pool TCR - Transmission Congestion Rights VER – Variable Energy Resource

4. Agenda Morning • Introduction • Integrated Marketplace Overview • Pre Day-Ahead Market Activities • Day-Ahead Market Activities Afternoon • Operating Day Market Activities • Auction Revenue Rights (ARRs) and Transmission Congestion Rights (TCRs) • Post Real-Time Market Activities

5. Section 1 introduction

6. Map of ISOs and RTOs 6 ISOs in North America: CAISO, NYISO, ERCOT, AEISO, IESO, NBSO 4 RTOs in North America: PJM, MISO, SPP, ISO-NE

7. Integrated Marketplace Net Benefits • Projected savings around $45-$100 Million/Year • Reduce total energy costs through centralized unit commitment while maintaining reliable operations • Day-Ahead Market allows additional price assurance capability prior to real-time • Includes new markets for Operating Reserve to support implementation of Consolidated Balancing Authority (CBA) and facilitate reserve sharing

8. Today versus Tomorrow’s Market Integrated Marketplace EIS Market • Transmission • Auction Revenue Rights (ARRs) • Transmission Congestion Rights (TCRs) • Energy • Day-Ahead Market • Virtual Transactions • Scheduling (Import/Export/Through) • Operating Reserve • Regulation and Reserves - Market • Settlements • Duration – Hourly (DA); 5 Minutes (RTBM) • Pricing – LMP, MCP, and ACP • Unit Commitment • Centralized Commitment • Balancing Authority • 1 SPP BA • Transmission • Scheduling (Internal / External) – All Reservations • Operating Reserve • Regulation and Reserves – Self –Designated • Settlements • Duration – Hourly • Pricing – LIP • Unit Commitment • Self-Commitment • Balancing Authority • 16 Individual BAs • Transmission • Reservations • Energy • Bilaterals • Real-Time Balancing Market 8

9. Section 2 Integrated Marketplace Overview

10. Topics Covered • SPP Roles and Responsibilities • Market Participant Roles and Responsibilities • System Models Configuration • Roles and responsibilities of Market Monitoring • Integrated Marketplace Processes and Products • Market Pricing

11. Integrated Marketplace overview:Evolution of SPP and the Integrated marketplace

12. Southwest Power Pool • Who is SPP? • Independent, non-profit, Regional Transmission Organization • ~500 employees • Membership in 9 states • Arkansas, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, Oklahoma, and Texas • Manages reliability from Little Rock, Arkansas • 24 x 7 operations • Full redundancy and backup site

13. Our Major Services • Facilitation • Reliability Coordination • Transmission Service/Tariff Administration • Market Operation • Standards Setting • Compliance Enforcement • Transmission Planning • Training Regional Independent Cost-effective Focus on reliability

14. SPP History and Major Milestones Integrated Marketplace Goes-Live March 1, 2014 EIS Market Launched; Became NERC Regional Entity Integrated Marketplace Approved Implemented Regional Scheduling Became FERC-approved RTO Implemented Reliability Coordination Implemented Tariff Administration Implemented Operating Reserve Sharing Incorporated as a Non-Profit SPP Formed Founding Member of NERC Regional Council 2004 1941 1968 2007 2001 1998 1997 1994 1991 2010 2014

15. SPP Roles and Responsibilities • Post implementation of the Integrated Marketplace, SPP is responsible for: • Providing all market services for Energy, Operating Reserve, and Transmission Service in accordance with the Open Access Transmission Tariff (OATT) and Market Protocols • Managing and administering the Tariff • Acting as the centralized SPP Balancing Authority • Providing reliable operation of the transmission system • Administering the Day-Ahead, Real-Time, Operating Reserve, and Transmission Congestion Rights Markets

16. Balancing Authority • With the Integrated Marketplace, SPP will assume the role of the Balancing Authority (BA) • Balancing Authority is the responsible entity that integrates resource plans ahead of time, maintains load-interchange-generation balance within a Balancing Authority Area, and supports Interconnection Frequency in Real-Time 1 Balancing Authorities (as it exists today) 6 2 5 SPP – BA (as it exists tomorrow) 7 4 3 8 9 13 10 11 14 12 15 16 SPP

17. Interactions with the SPP Market

18. Interactions with the SPP Market (cont’d) • Market Participants will be informed and can encourage changes by getting involved with Committees and Working Groups. SPP Board of Directors Regional State Committee Regional Entity Trustees Membership Market and Operations Policy Committee Regional Tariff WG Business Practices WG Change WG System Protection & Control WG Critical Infrastructure Protection WG Generation WG Operations Training WG Market WG Operating Reliability WG Economic Studies WG Seams Steering Committee Transmission WG Consolidated Balancing Authority Steering Committee Model Development WG

19. Interactions with the SPP Market (cont’d) • Market Participants who wish to participate in the Integrated Marketplace must: • Register as a Market Participant with SPP • Review and submit required signed legal documents • Confirm asset modeling • Clear credit requirements (cash collateral, letter of credit, etc.) • Participate in Market Trials to ensure connectivity and confirm functionality

20. Types of Market Participants

21. Market Participant Roles and Responsibilities • Market Participants are responsible for: • Submitting Resource Offers (Energy, Operating Reserves, and Virtual), Demand Bids, Interchange Schedules, and Bilateral Settlement Schedules • Own or bid to buy Transmission Congestion Rights (TCRs) • Settle transactions through SPP

22. Integrated Marketplace overview:market monitoring

23. Market Monitoring Objective - Ensure the integrity of the SPP markets Two Primary Responsibilities • Monitoring and prevention abusive practices by Market Participants • Market power abuse • Market manipulation and gaming • Monitoring and improving market efficiency • Identify market design flaws and recommend changes • Monitor system operators to identify and correct inefficient processes or procedures

24. Monitoring Reports • Annual / Monthly reports • Required under SPP Tariff • Provides overview of market activities and highlights any major developments • Special Studies • Demand Response Assessment • External Generation Access Assessment • FERC weekly pricing updates • Pricing changes • Congestion updates

25. Integrated Marketplace overview:system models

26. Network Model • Physical representation of the Transmission System Network Model where electrical equipment components (e.g. generators, loads, transmission lines, and transformers) connect

27. Commercial Model • Represents the financial market relationships of the Market Participants and the Asset Owners (AO), and the commercial relationships among the elements of the Network Model Market Participant: Entity that is financially obligated to SPP for market settlements Market Participant Asset Owner: Typically, but not necessarily, represents a company. Asset Owners can own any combination of generation, load, ARR and/or TCR assets within the SPP region Asset Owner Settlement Locations: Energy supply and demand is financially settled at the Settlement Locations Settlement Locations Commercial Model Aggregated Pricing Node: Represents an aggregation of two or more PNodes using weighting factors Aggregated Pricing Node (APNode) Pricing Node: Finest level of granularity in the Commercial Model and have a one-to-one relationship with a Node Pricing Node (PNode) Node (ENode) Node: Represents Electrical Nodes (Enode) within the Network Model Network Model

28. Model Updates • Reliability-related model changes occur monthly • Market Registration related model changes • Existing Market Participants: occurs every other month • New Market Participants: occurs every 4 months (April, August, December) • Model change is required for: • Addition, deletion, or change of electric power system components • Asset registration changes, additions, or deletions • Changes to Pricing Nodes • Changes in Market Participant registration • Model update cycle details are available in Appendix E of the Integrated Marketplace Protocols

29. Integrated Marketplace overview:Marketplace Processes, Products AND TIMELINE

30. Integrated Marketplace: Processes • The design relationship between the market processes is illustrated below

31. Integrated Marketplace: Processes (cont’d) • Day-Ahead Market • Clears for the next Operating Day • Financially binding market whose purpose is to match the set of market supply and market demand made available • Reliability Unit Commitment (RUC) Process • Exists for the same time period as Day-Ahead Market (Day-Ahead RUC) • Exists for the balance of the day (Intra-Day RUC) • Operationally binding process whose purpose is to ensure that the supply capacity cleared in the Day-Ahead Market (or for the current Operating for Intra-Day RUC) satisfactorily covers the RTO load and reliability requirement forecasts • Real-Time Balancing Market (RTBM) • Clears for the next 5-minute period • Financially and Operationally binding market whose purpose is to ensure that market resources committed through Day-Ahead Market or lastly approved RUC process are dispatched according to Real-Time load forecast

32. Integrated Marketplace: Processes (cont’d) • Reserve Market • Integrated within the Day-Ahead Market, RUC process and the Real-Time Balancing Market through co-optimization • Main purpose is to ensure that enough reserve capacity is procured so that the system can smoothly respond to contingencies • Auction Revenue Rights Process / Transmission Revenue Rights Market • Performed / Clears annually and monthly • Provides market participants with a mechanism to be pro-active and hedge against the anticipated Day-Ahead market congestion, or increase their financial benefits • Settlement Process • Performed on a 5-minute basis • Provides market participants with a measure of the financial benefits associated with their participation in the Day-Ahead and Real-Time Balancing Markets

33. Integrated Marketplace: Products • There are five market products, which can be grouped in two categories: • Energy - An amount of electricity that is Bid or Offered, produced, consumed, sold or transmitted over a period of time, which is measured or calculated in megawatt hours (MWh). • Operating Reserve • Regulating Up Reserve– Reserve capacity that is available for the purpose of providing Regulation Deployment in the up direction. • Regulating Down Reserve- Reserve capacity that is available for the purpose of providing Regulation Deployment in the down direction. • Spinning Reserve– From Resources that are synchronized to the system and fully available to serve load within the Contingency Reserve Deployment Period following a contingency event. • Supplemental Reserve– Typically from off-line Resources that are capable of being synchronized to the system and available to serve load within the Contingency Reserve Deployment Period following a contingency event. Could also be provided by online synchronized resources. Applies to: Day-Ahead, RUC, RTBM, ARR/TCR, Settlement Applies to: Day-Ahead, RUC, RTBM, Settlement Regulation Reserve Contingency Reserve

34. Integrated Marketplace: Products Characteristics Energy Regulation UP Reserves Regulation Down Reserves Manages the instantaneous difference between net actual and scheduled interchange On-Line; deployed as dispatched — Regulation-Up Regulation-Down On-Line; can respond in 10 minutes Energy synchronizedandon-line ready to serve load in abnormal conditions Spinning Reserves Supplemental Reserve Off-Line / On-Line; Can respond in 10 minutes Energy capable of being synchronized and deployed in abnormal conditions

35. Integrated Marketplace Timeline Pre Day-Ahead Market Activities OD 1 – OD 167 Post Process OD Real-Time OD -1 Day-Ahead OD -7 Day-Ahead Registration Supply Offers Metering Resource Offers Virtual Bids and Offers Outage Submittal Interchange Transactions Settlement Statements Demand Bids Market Results and Prices ARR / TCR Unit Dispatch Invoices Interchange Transactions Day-Ahead RUC Commitment Period Multi-Day Reliability Assessment Market Results and Prices Disputes

36. Integrated Marketplace overview:MARKET Pricing

37. Market PricingDefinition • Locational Marginal Price (LMP) • The LMP at pricing location is defined as the cost to serve the next increment of load at that location • (Energy) pricing locations are known as Settlement Locations • LMP = Marginal Energy Component(MEC) + Marginal Congestion Component(MCC) + Marginal Loss Component (MLC) • Market Clearing Price (MCP) • The MCP for an Operating Reserve product at a Reserve Zone is defined as the cost to provide the next capacity increment of that Operating Reserve product at that specific Reserve Zone • Auction Clearing Price (ACP) • The prices generated at each source and sink Settlement Location in each round of the Annual TCR Auction and Monthly TCR Auction based upon the submitted TCR Offers and Bids

38. Market PricingLMP – Key Concepts • Locational Marginal Price (LMP) • Applies to Energy product only • Can be impacted by both Energy and Operating Reserve offers • Hourly LMPs are posted for the Day-Ahead Market • 5-Minute LMPs are posted for each Settlement Location for the Real-Time Balancing Market • Congestion and Loss factors cause price separation

39. Market PricingMCP – Key Concepts • Market Clearing Price (MCP) • Applies to Operating Reserve product only • Can be impacted by both Energy and Operating Reserve offers • Hourly MCPs posted for the Day-Ahead Market • 5-Minute MCPs posted for the Real-Time Balancing Market • One MCP per Operating Reserve by Reserve Zone

40. Market PricingMCP – Reserve Zone Example

41. Market PricingACP – Key Concepts • Auction Clearing Price (ACP) • Prices generated at each source and sink Settlement Location in each round of the Annual TCR Auction and Monthly TCR Auction based upon the TCR Offers and Bids submitted • The key principle of Auction Clearing algorithm is to maximize the total auction value while holding the flows on the constrained transmission lines to their limit • Bids are awarded from highest to lowest and Offers are awarded from lowest to highest until the TCR availability is consumed • The auction value is calculated for each TCR based on its clearing price on the path

42. Section 3 Pre day-ahead market activities

43. Topics Covered • Market registration • Outage Notification • ARRs/TCRs Purposes • Multi-Day Reliability Assessment

44. Pre day-ahead market activities:market registration

45. Market Registration • In order to do business with SPP, you must be a registered Market Participant or be represented by one. • Market Participants must register their assets (loads and resources) prior to any market participation: • Behind the meter generation less than 10MWs are excluded. • Registration data represents a Market Participants physical and financial responsibility. Meter Agent

46. Market RegistrationResource Types • Resources that are required to register in order to participate in the Integrated Marketplace: • Generating Unit • Plant • Dispatchable Demand Response • Block Demand Response • Combined Cycle • Jointly Owned Unit • Dispatchable Variable Energy • Non-Dispatchable Variable Energy

47. Market RegistrationCharacteristics • Resource characteristics required for asset registration: • Location of Physical Resource • Legal Owner • Resource Type • Non-Price Related Operating Parameters • Settlement Location ID • Resource Settlement Area ID • Real-Time Settlement Meter Data

48. Market RegistrationUpcoming Registration Activity Timeline • Initial registration will include the following activities:

49. Pre day-ahead market activities:Outage Notification

50. Outage Notification • Market Participants will need to notify SPP when a generation and/or transmission asset needs to deviate from its normal operations • Notifications are in the form of an outage submittal through the Outage Scheduler • Types of outages include: • Unplanned (Deration, Emergency, Forced) • Planned (Maintenance, Construction)