WHAT IS AN RTO AND HOW DO YOU OPERATE WITHIN AN RTO MARKET?

Presented by:

Bill Clarke

Executive Director, RTO Market Services & Analytics

February 16, 2012

Topics Covered Today

TEA Overview

Overview of RTO Markets

Differences between an imbalance market and a dual clearing market?

TEA’s Board of Director’s Directions to TEA Staff

“TEA does not take a position in the RTO debate as far as whether it is „good or bad‟, however, TEA will be ready to meet the RTO challenge if and when they develop.”

TEA will provide a “central clearinghouse” of expertise in regulatory & operational attributes associated with RTOs impacting TEA‟s market (operating & planned)

MISO, SPP, PJM, Cal-ISO, NY-ISO, NE-ISO, etc

TEA OVERVIEW

About TEA

TEA‟s focus as a strategic partner is to provide energy solutions to public power utilities, including:

Risk management

Advisory Services

Asset management

Asset optimization

TEA maintains its headquarters in Jacksonville, Florida.

Operations center in Seattle (Bellevue), Washington

TEA currently employs approximately 181 people.

About TEA

Provides services to 46 public power utilities across the U.S.

Markets clients‟ output of more than 28,000 MW of generation of all fuel types

Purchases and schedules 113 Bcf of natural gas annually

Sold and scheduled 27.3 million MWh of power last year

Routinely executes over 100,000 transactions annually for the benefit of its public power clients

What We Do

1997 Market Intelligence & Reach

2012 Market Intelligence & Reach

Who We Serve

TEA Serves 46 Companies Nationwide:

East Coast Bilateral Markets

Alabama Municipal Electric Authority

Gainesville (FL) Regional Utilities *

Henderson (KY) Utilities Commission

Jacksonville Electric Authority *

Lafayette Utilities System

Louisiana Energy & Power Authority

Municipal Electric Authority of Georgia *

North Carolina Municipal Power Agency 1

Piedmont Municipal Power Agency

Santee Cooper *

* Equity Member

Who We Serve

West Coast Bilateral Markets

Anaheim, Calif.

Benton PUD

Burbank W&P

Clark PUD

Cowlitz PUD *

Emerald PUD

Flathead Electric

Franklin PUD

Grays Harbor PUD

Glendale, CA

Harvest Wind

Klickitat PUD

Lakeview P & L

Lewis PUD

Mason PUD

Merced Irrigation District

Pacific PUD

White Creek Wind

* Equity Member

Who We Serve

RTO/ISO Services (MISO, PJM, SPP)

AMP, Inc.

City of Dover, DE

City of Fulton, MO.

City of Springfield, IL.

City Utilities (Springfield, MO) *

Columbia, MO.

Nebraska Public Power District *

Prairie State Generating Station (5 Municipal Owners)

Rochester Public Utilities

Southern Minnesota Municipal Power Agency

University of Missouri

* Equity Member

OVERVIEW OF RTO MARKETS

Concerns Raised by Utilities Regarding the RTO Markets

Bilateral (non-RTO) Market

Vertically integrated utilities

Public power‟s primary objective is to keep the lights on and minimize costs to customers

Control area (Balancing Authority) oversees operation of a utility‟s generation, transmission, & load

Vertically integrated utilities

Utility serves load through owned generation and long-term purchase agreements

Utility utilizes the physical bilateral market to sell excess generation or displace higher cost resources

Bilateral (non-RTO) Market

How Does the Environment Change with an RTO Market?

Today‟s Environment RTO Environment

A New Way of Looking At Our Business under an RTO

First priority will still be to keep the lights on Second priority

manage costs and a significantly greater number of uncertainties

The business model moves

from the vertically integrated utility to separate business units Generation (source) and load

(sink) viewed as individual businesses

Balancing authority oversees operation of a utility‟s generation & load

RTO provides dispatch signals to utility

RTO oversees transmission grid operations

A New Way of Looking At Our Business under an RTO (continued)

Utility‟s load served through lowest cost, market-supplied resource

All load pays the market clearing price at the individual node (Locational Marginal Price)

Utility sells generation into market

All units paid market clearing price at the individual node (LMP)

Utility uses financial bilateral market to hedge market price (LMP) uncertainty

Fixed price bilateral for floating LMP (fixed for floating swap)

A New Way of Looking At Our Business under an RTO (continued)

FERC’s Stated Goals for an RTO

From FERC Order 2000

Improve efficiency in transmission grid management

Improve grid reliability

Remove remaining opportunities for discriminatory transmission practices

Improve market performance

Facilitate lighter handed regulation

Practical Outcome of an RTO Market

Allows for economic signals to manage congestion instead of TLRs (Transmission Loading Relief measures)

More transparency in costs and revenues to operate generating resources and serving loads

Should let the market serve your load at the same costs, or lower, through centralized unit commitment and dispatch

Differences between an Imbalance Market and a Dual Clearing Market

Comparison of Features

Imbalance Market

1. Single market

Real time balancing market

2. Locational imbalance prices (LIP)

3. Submittal of balanced schedules prior to market period

4. Security Constrained Economic Dispatch (SCED)

Dual Clearing Market

1. Three separate markets

Day-ahead

Real time Balancing

Congestion rights market

2. Locational marginal prices (LMP)

3. All load and generation scheduled through the RTO

4. Security Constrained Economic Dispatch (SCED) & Security Constrained Unit Commitment (SCUC)

Comparison of Features

Imbalance Market

5. Bilateral transactions are physical

6. Imbalance occurs when actual differs from scheduled

Actual generation and load could be balanced but if different from scheduled, the difference is settled as an imbalance

Dual Clearing Market

5. Bilateral transactions within the market are financial

6. Load and generation cleared in the day-ahead market

Difference between day-ahead and actual is settled in the real time market

Comparison of Features:

Imbalance Market

7. Single market settlement

Imbalance market has few settlement charge types

Dual Clearing Market

7. Three market settlement

DAM, RTBM, FTR

Settlement is complex with numerous charge types

MISO has about 56

SPP has 51 proposed

CAISO has 100s

NOTE: A participant in either type of market needs to decide to either implicitly trust the market settlement or delve into the details to make sure settlement and invoices are correct

Comparison of Features

Imbalance Market

8. Data requirements are numerous

Daily resource plan

Hourly generation plan

Ancillary service plan

Hourly plan to meet ancillary service requirements

Hourly offer curves

Hourly balanced schedules

Inter BA schedules – tagged

Intra BA schedules – RTO Scheduling System (RTOSS)

All loads scheduled - RTOSS

Dual Clearing Market

8. Data requirements are numerous2

Annual loads and resources plans

Annual Auction Revenue Rights (ARR) & Financial Transmission Rights (FTR) process

Monthly FTR auctions

Day-ahead unit, load, and transaction submittals

Reliability Assessment Commitment (RAC) submittals

Real time market submittals

RTO Tariff

Single tariff for all participants in the footprint Load and point-to-point reservations

pay transmission rate

RTO collects transmission charges for all participants

Transmission tariff rates based on utilities‟ annual revenue requirements as reported to the RTO

Transmission rate can be a single rate or zonal rates Zonal rates based on utilities‟ annual

revenue requirements for the utilities in that zone

Utilities are paid by the RTO for their revenue requirements

Individual Utility Tariffs

Multiple transmission tariffs across the footprint

Requires a coordinated approach to capture real time imbalance energy as it flows across each system Real time flows differ from

scheduled flows, requiring after the fact true up

How do you determine which source served which sink when the changing loads are across multiple utilities and multiple generating units were moved to cover the imbalance?

Single RTO Tariff or Individual Utility Tariffs

Can an imbalance market function with individual tariffs?

In my opinion? Yes, but first you need to ask the question of why one would want to do that.

What is the end goal for the group? Spreading the impact of intermittent resources across a greater

number of resources?

Better utilization of lower cost resources in the region?

What is the aversion to a single tariff versus individual tariffs?

Revenue collection?

Can be accomplished with a single tariff

Control?

Heading down the path of an imbalance market already accepts some level of control passed to a regional entity

Overall: Regardless of an imbalance market (with a single regional tariff or individual utility tariffs), or a dual clearing market, business as you know it today changes significantly in an organized market structure.

You are turning over a portion of the control of your system to a regional market entity.

This is not necessarily a negative.

Utilities that are long with low cost generation can benefit.

Loads can potentially benefit by being served through lower cost resources.

Transmission congestion within the market footprint can be reduced in an imbalance market and largely eliminated in a dual clearing market.

Comparison of Features: Imbalance

market versus dual clearing market

Central Unit Commitment & Economic Dispatch

CUSTOMERS Industrial Commercial Residential

Bilateral

Transactions

Spot

Market

ALL energy is

scheduled through

the market

Utility-Owned Generation Resources

Typical Market Structure The market will only

communicate with the Market

Participant on market-related

issues

TEA is typically

a Market Participant in an RTO

What is a Market Participant?

Financially liable for all RTO charges

Credit limits set between MP and RTO

Holder of FTRs

Responsible for trading, scheduling, settling, and cash transfers within the RTO for all assets registered under the MP

Market Participant

What is an Asset Owner?

Typically an owner of an asset

Can only be represented by one Market Participant (MP)

May own one or more assets

What is an Asset?

Any combination of generation, load, and/or FTRs across one or more control areas

Asset Owner

Important Note:

Your generation is being sold to the market either at the DAM or the RTBM LMPs

Your load is being served by the market either at the DAM or the RTBM LMPs

Within the confines of a centrally dispatched market, you are trying to minimize the cost of serving your customer while maximizing the revenue produced from the market by your generators- all while trying to manage the uncertainties of the market place

“Am I no longer in control of my own generation assets?”

You Control:

Whether you want to offer the unit into the market (Both market types)

The offer price (Both market types)

The operating parameters of how you want to run your unit (Both market types)

If you want to “force” the unit to run and at what output regardless of market economics (Dual clearing market)

How you run the unit and the settlement of the market is then dependent on the type of market

Questions and

Answers