Market Services Stakeholder Session

1. Market Services Stakeholder Session January 12, 2011

2. Agenda

3. Consultation and Conceptual Design Review Progress Against Objectives 12 – 18 months Share our Research & Learnings from Other Markets Clear Interpretation of Policy Framework Share our Data & Analysis Iterative Consultation if New Ideas, New Concerns, New Data Definition of the Problem

4. Solution Development and Implementation Steps may be iterative, performed more than once within each initiative • Conceptual design • define success • idea generation • stakeholder consultation • iterative • rules development • *AUC approval now required • Detailed design • processes • systems • procedures • training • Implementation • process changes • system changes • testing & training Feedback loop – is the implemented solution achieving the initial objectives? Operationalize

5. Wind Integrate new wind Complete implementation of Phase 1 Phase 2 Interties Integrate MATL ATC Allocation Intertie (ATC) restoration initiatives Implementation of long term framework Demand Response LSSi Brattle Review TCM & RAS Compliance Filing & Phased Implementation Draft RAS Rule Contingency Rules Supply Surplus Market Suspension FEOC Regulation Implementation AESO Rule updates necessary Outage Information Sharing Market Rule Transition (TOAD program) OR Redesign 2010 & 2011 Priorities

6. Market Suspension Anita Lee, P.Eng. PMP January 12, 2011

7. Purpose of review • Current rule is outdated (e.g., pricing methodology) • Current rule does not differentiate between events of lesser impact (such as temporary loss of the dispatch tool) and events of more significant impact (such as an AIES blackout) • Ensure market suspension is only used as a last resort

8. Status Update • Recommendation Paper issued December 2, 2010 • Stakeholder comments due January 14, 2011 – comments to be sent to anita.lee@aeso.ca • Development of rule changes in Q1 2011 • Stakeholder consultation on rule changes in Q2 2011

9. Highlights of Recommendation Paper • Limited Market Operation • Triggered when: • There is a temporary outage to market operation tools (DT or ETS) • The System Controller cannot access market operation tools after evacuation from the System Coordination Centre and before the Backup Coordination Centre is activated

10. Highlights of Recommendation Paper • During limited market operation: • The System Controller will use the best available EMMO for energy market dispatch • DDS dispatch and AS dispatch will be limited • Payments to Suppliers on the Margin (PSM) will be suspended • The System Marginal Price (SMP) will be set by the highest price block dispatched in the EMMO in use

11. Highlights of Recommendation Paper • Market suspension triggered when: • There has been an extended period of market operation tool outage, • The System Controller has evacuated the System Coordination Centre and cannot access or activate the Backup Coordination Centre, • The AIES has broken into two or more electrical islands, or • The AIES has experienced a blackout

12. Highlights of Recommendation Paper • A market suspension • Must be authorized by the AESO CEO or his designate, except in the case of an AIES blackout where it can be declared by the System Controller • During a market suspension • The System Controller will not necessarily follow the EMMO, but will direct generation as necessary to maintain system reliability

13. Highlights of Recommendation Paper • System Marginal Price during a market suspension will be determined as: • 30 day rolling average on peak price and 30 day rolling average off peak price, prior to initiation of the market, or • $999.99 when all available energy is dispatched and the System Controller invokes Supply Shortfall procedures in order to manage supply and demand balance

14. Highlights of Recommendation Paper • A cost-based mechanism will be provided • To ensure generators’ operating costs are covered • The cost calculation formula is similar to that for Long Lead Time Energy (LLTE), except generator start up costs are only included if a generator is directed by the System Controller to start during a market suspension, and • Directed off by the SC during the market suspension, or • Dispatched off by the SC upon the cancellation of the market suspension and return to normal market operation

15. Next Steps • Comments on the Market Suspension Recommendation Paper are due this Friday, January 14, 2011 to anita.lee@aeso.ca

16. Questions?

17. Supply SurplusRecommendations Ruppa Minhas January 12, 2011

18. Status Update • AESO responses to stakeholder comments on the Supply Surplus Discussion Paper published December 2, 2010 • Supply Surplus Recommendation Paper published for stakeholder comment on December 2, 2010 • Stakeholder comments on the Recommendation Paper are due January 14, 2011

19. Supply Surplus • Supply Surplus: • More supply than demand at $0 • Purpose: • Provide recommendations on the solutions for managing supply surplus conditions

20. Recommendations - Summary • No exemption for wind generators and cogenerators • Implement of voluntary generator curtailment request (VGCR) • Allow exports within T-2 • Update minimum stable generation (MSG) • Supply surplus report • Implemented December 8, 2010 • A voluntary generator curtailment program (VGCP) • Not recommended

21. Recommendation - No exemption for wind and cogenerators • It is necessary to include all generation types in the supply surplus procedures so that they are all on a level playing field • Allowing a blanket exemption for one generation type will not accomplish this

22. Recommendation - No exemption for Cogenerators • To ensure a FEOC market the rules must consider, and, to the extent possible, accommodate the different characteristics of each generation type without unduly favouring one type of generation over another • Minimize the impact to cogen facilities as a result of supply surplus: • Electric energy produced and consumed on site is not subject to the ISO rules: EUA, Section 2(1)(b) • Cogenerators will not be curtailed below 0MW net to grid • Generators will be curtailed to their MSG level • Revise MSG definition to better accommodate current generator limitations

23. Minimum Stable Generation • MSG definition and application requires an update • MSG workgroup • Meeting was held in October 2010 • Further consultation: • Meeting again soon: • To finalize the proposed definition • To discuss options for changing the application of MSG • To allow participants to change the MSG value on a time-ahead basis

24. Comparison – Supply Surplus and Supply Shortfall

25. Voluntary Generator Curtailment Program (VGCP) • VGCP not recommended at this time • Received mixed participant support and most participants were not in favour • May be a more complex solution than is required • Not required at this time

26. Recommendation – Supply Surplus Procedure • Curtail current hour import • Maximize the posted export ATC limit • Send out a VGCR request to voluntarily reduce generator output. 4) Dispatch flexible blocks of the $0 offers for partial volumes on a pro-rata basis and direct wind generation on a pro-rata basis. 5) Direct assets with inflexible $0 offers to MSG 6) Assess an assets involvement in RR, consider re-dispatch if required

27. Supply Surplus Report • Available on the AESO website on December 8, 2010

28. Next Steps • Stakeholder comments on recommendation paper due January 14, 2010 to ruppa.minhas@aeso.ca • MSG workgroup meeting soon • Invite will be sent out through the weekly stakeholder email and posted on the AESO website once scheduled

29. Questions?

30. Coffee Break

31. Wind Integration Program Jacques Duchesne P. Eng. Program Manager, Wind Integration January 12, 2011

32. Wind Integration – Objectives Phase 1: • Wind integration management plan designed and implemented to safely integrate 1100 MW of wind by end of 2011 Phase 2: • Wind integration plan for up to 4000 MW

33. Agenda • Program overview • Status update phase 1 • Wind Technical Rule • Wind power management • Forecasting • Status update phase 2 • Discussion Paper • Stakeholder sessions

34. Wind Integration Program – High Level View 2010 2011 2012 / 2013 Wind Power Forecast Integration Design Wind Power Forecast Roll-out

35. Phase 1 Update • Wind Technical Rule • Filed with AUC August 2010 • Hearing scheduled for February 28 • Phase 1 Recommendations - September 2010 • Use EMMO as primary tool • Use wind power management when wind ramping up too fast • For wind ramp down, activate contingency reserves from standby. No additional volume required at 1100 MW wind. • Continue implementation of centralized forecast

36. Wind Forecast • Signed contract with WEPROG January 2010 • Forecast will: • Reduce wind related Area Control Error (ACE) events • Decrease the amount of wind generation impacted by Wind Power Management • Provide visibility to system controllers • Developed implementation guide November 2010 • Roll-out to existing wind farms in progress

37. Phase 2 - Status • Market and Operational Studies completed December 2010 • Cases: 1575 MW, 1700 MW, 2500 MW & 4000 MW • Issued Discussion Paper for comments – December 2010 • Comments due back January 28 • Will hold stakeholder consultation to explore in Q 2011

38. Phase 2 Summary – Discussion Paper • Rely on the Energy Market Merit Order • Increase regulating reserve volumes. • Refine short-term wind integration recommendations • Develop a ramping service • Develop a wind firming service: A market service could be developed to firm overall wind production • Develop must offer must comply (MOMC) rules for wind

39. Next Steps • Phase 1 • Tool to calculate ramp rate and system wind power limit • Consult on rule defining use of WPM • Site specific forecast integration • Phase 2 • Stakeholder comments due back January 28 • Ongoing consultation – wind working group Q1 2011

40. Next Steps • Comments on the Phase 2 Wind Integration Discussion Paper are due Friday, January 28, 2011 to jacques.duchesne@aeso.ca

41. Questions?

42. Intertie Framework – Available Transfer Capacity Allocation Kevin Dawson, Program Manager, Interties January 12, 2011

43. Intertie Framework – Today’s Agenda • Summary of Intertie Framework Recommendation Paper • Overview of recent ATC information package (letter, term sheet) • Discussion on ATC allocation recommendation • Options considered • Recommendation • Next steps

44. Intertie Framework Recommendation Paper • Intertie Framework Recommendation Paper published October 7, 2010 contained four main recommendations: • ATC allocation by energy price and then pro rata • Implement dynamic scheduling • Develop and implement a merchant transmission service (MTS) tariff • Plan system so each intertie can simultaneously transfer path rating • Stakeholder comments have been received and posted

45. Intertie Framework – ATC Allocation • Immediate focus on ATC allocation as third tie line under construction will result in requirement to allocate limited ATC among multiple interties • ATC letter and term sheet posted December 16, 2010 • For information purposes • Provides overview of new rule framework • Process going forward • Rule drafting in progress (in integrated format) • Rule cycle for February / March • Fulsome opportunity for comment on rule change and rule language

46. Intertie Rules – Term Sheet Overview • Rule framework integrates previous OPPs with rules • Limits Total and Available Transfer Capacity (TTC, ATC) • Scheduling • Validation and setting of schedules • Congestion management on the interties • Dispatching intertie schedules • Term sheet provides overview of new rule format outlining proposed rule provisions and how they map to current rules and OPPs • Highlights where rule changes are recommended – allocation of ATC

47. ATC Allocation – Design Choices • Approval process • Approve tags, allow for other scheduling authorities to make cuts using their criteria (tariff) • Alternative does not recognize commercial product in other jurisdiction and may prematurely reject tags • Timeline • Xx:45 consistent with objective noted above • Earlier alternatives, e.g., T-2, perhaps more consistent with rest of market but don’t recognize products in other jurisdictions and may reduce overall intertie utilization • Procedures • Submissions, scheduling and congestion management • Discussed below

48. ATC Allocation Recommendation • Recall – current method is to curtail on a last in, first out (LIFO) basis • New proposal – pro rata • At xx:45, assessment and validation • Test for oversubscription first at system, then AC, then intertie level • Resolve any oversubscription by: • Netting out counterflows and wheelthroughs • Price (when implemented) • Pro rata of equal priced offers / bids at assessment level (system, AC, intertie)

49. Example ATC Pro Rata Allocation Math • Simplified example – no wheelthrough and only 1 tag per import/export • In this example, system limit is OK but AC import limit is violated • BC and Montana imports pro-rated down by 100 MW to come within limits • All interties are within limits

50. Congestion Management Choices • Number of choices considered and rejected: • Pro rata math limited to maximum of ATC on any line instead of schedules • Recognize incentive to over schedule, however “must supply” if dispatched • May need to revisit if “must supply” risk is not sufficient to limit behaviour, but mathematically implementation is problematic • Curtail first at intertie level, then AC, then system • No opportunity at xx:45 to optimize process. Recognize that on occasion cut at intertie level may be more efficient. Will monitor to see if occurrence more frequent than expected. • Expect ability to “net schedule” at system level should allow for maximized utilization of ATC • Curtail by participant not tag • Fairness issue