Black Sea Regional Transmission System Planning Project – Market Development

2. Black Sea Regional Transmission System Planning Project – Market Development November 11, 2010 Richard Dillon Director, Market Development rdillon@spp.org

3. Agenda • Market History and Development • Integrated Marketplace 3

4. Market history

5. Markets are Evolutionary 1998 Tariff administration (transmission market)2007 Energy Imbalance Service (EIS) Market (real-time energy) 2014 Integrated Marketplace (day ahead and real-time energy)

6. Evolutionary Development at SPP • Member Driven • Consensus-centric • Define the issue to solve • Design, Build, Test, Implement • Plan, Do, Check, Adjust

7. Net benefits in cost reductions for members • Transmission market centralization – avoided software and personnel costs • EIS Market - ~$100 million/year production cost savings • Integrated Marketplace – additional ~$150 million/year production costs savings 7

8. Markets identify need for Transmission to become more efficient 8

9. What kind of markets does SPP have now? Transmission: Participants buy and sell use of regional transmission lines that are owned by different parties Energy Imbalance Service (EIS): Participants buy and sell wholesale electricity in real-time Market uses least expensive energy from regional resources to serve demand (load) first Sometimes it’s less expensive for a market participant to purchase power from another provider than to generate SPP monitors resource/load balance to ensure system reliability

10. Market Operation • Monitors supply/demand balance • Ensures economic dispatchwhile meeting system reliability • Provides settlement data • 32 participants • 2009 wholesale market transactions = $1.14 billion SPP’s energy market is like the “NYSE”… …and follows over 200 pages of market protocols.

11. Benefits of current real-time energy market

12. Integrated Marketplace Overview

13. Day Ahead market makes regional generation choices

14. Benefits of Operating Reserves market Greater access to reserve electricity Improve regional balancing of supply and demand Facilitate integration of renewable resources

15. Day-Ahead Market Scope and Objective • Determines least-cost solution to meet Energy bids and Reserve requirements • Participants submit offers to submit bids to purchase Energy and/or sell: • Energy • Regulation-Up • Regulation-Down • Spinning Reserve • Supplemental Reserve 15

16. Reliability Unit Commitment (RUC) Scope and Objective • Day-Ahead RUC performed following Day-Ahead Market clearing • Intra-Day RUC performed throughout operating day as needed, at least every four hours • RUC ensures market physical commitment produces adequate deliverable capacity to meet SPP Load Forecast and Operating Reserve requirements 16

17. Real-Time Balancing Market similar to today’s EIS - balancing resources and load • Uses Security Constrained Economic Dispatch (SCED) to ensure results are physically feasible • Operates on continuous 5-minute basis • Calculates Dispatch Instructions for Energyand clears Operating Reserve by Resource • Energy and Operating Reserve are co-optimized • Settlements based on difference between results of RTBM process and Day-Ahead Market clearing • Charges imposed on Market Participants for failure to deploy Energy and Operating Reserve as instructed 17

18. Day Ahead Market Day Ahead Reliability Unit Commitment Intra-Day RUC Settlement Real Time Balancing Market SPP Integrated Market Functions Time ARR/TCR Auction Makes sure enough capacity committed for next operating time frame Real time dispatch much like today’s EIS Market • Performs unit commitment • Sets DA prices • TCRs cleared

19. EIS vs. Integrated Marketplace Features

20. SPP design leverages proven features from other RTO markets.

21. Design was selective for regional differences

22. ARRs and TCRs

23. ARRs and TCRs allow Resource owners to be indifferent to unit commitment impact on congestion Annual TCR Auction Annual ARR Awards Monthly TCR Auction

24. Auction Revenue Right (ARRs) … • Market Participant’s entitlement to a share of revenue generated in TCR auctions • Allocated to Market Participants based on firm transmission rights (NITS or PTP) on SPP transmission grid • Can be a credit or charge based on the TCR auction clearing price of the ARR path Auction Revenue ARR Holders

25. Transmission Congestion Rights (TCRs) are… • Financial Instruments that entitle owner to a stream of revenues or charges • Based on hourly Day Ahead marginal congestion component differences across the path -OR-

26. Settlement of ARRs/TCRs • Net Auction revenues are allocated to holders of ARRs • TCRs settled using Day-Ahead Market prices • Auction revenues, congestion revenues, congestion rights revenues are settled concurrently with Operating Day

27. Integrated Marketplace Project Roadmap Market OperationsSPPMPs SettlementsSPPMPs Congestion RightsSPPMPs RegulatorySPPMPs

28. Summary • Identify the issue(s) you are solving • Review other entities’ solutions • Use what solves your issues • Design before building • Understand that all design has imperfections • After insuring reliability, economics is key