MISO’s Midwest Market Initiative

APEX

Ron McNamaraOctober 31, 2005

The Midwest ISO is an independent, non-profit entity that monitors the transmission grid of high voltage electricity across much of the Midwest.

Who We Are

Midwest ISO Membership

Operational Since December 15, 2001 •23 Transmission Owners•36 Control Areas•119,207 MW of peak load•137,000+ MW generating capacity •97,000+ miles of transmission lines•947,000 square miles•15.1 million customers• 1,504 generating units in the reliability footprint• Carmel and St. Paul Control Centers

The Role of RTOs

Monitor flow of power over the grid

Schedule transmission service

Perform transmission security analysis for the Reliability Area footprint

Manage power congestion through LMPs

Approve transmission & coordinate generation maintenance outages

Perform long term planning & analysis for region

Operate Real-Time & Day-Ahead Markets

MISO Day 1 Operations

Bilateral transactions facilitated by “physical” transmission service provided under regional OATTMISO’s primary responsibilities related to the market include:

• Acceptance and analysis of requests to reserve transmission capacity for future scheduling of transactions

• Acceptance of schedules for approved reservations• Monitoring transmission usage• Providing reliability coordination• Invoicing participants monthly for use of transmission lines as

well as other associated services

MISO Day 2 Operations

In addition to the “Day 1” activities, MISO began operating energy markets on 1 April 2005:

• Implementation of market-based congestion management system through LMP

• Day Ahead Market• Real Time Spot Market• Financial Transmission Rights

Midwest ISO Energy Markets

Some critical design elements: Real-Time Centralized Security Constrained Economic Dispatch

with Locational Marginal Pricing (LMP) Day-Ahead Security Constrained Economic Dispatch with

Locational Marginal Pricing (LMP) Security Constrained Unit Commitment in Day-Ahead Market Financial Transmission Rights that settle against Day-Ahead

Market Reliability Assessment Commitment (RAC) Seams with other markets *Ancillary service markets including Resource Adequacy

Midwest ISO Energy Markets

Market design accommodates: Self-Schedules and Bilateral Schedules Pre-OATT Contracts (grand fathered agreements) Ancillary Service Procurement Control Area Activities Use Limited and Demand Response Resources Accommodate Retail Access Programs Load Aggregation and Trading Hubs Market Power Mitigation

Real-Time Centralized Dispatch

MISO uses the Security Constrained Economic Dispatch (SCED) program every 5 minutes of each operating hour

MISO sends control areas Net Scheduled Interchange (NSI) and basepoints for generators

– NSI and resource basepoints sent every 5 minutes– Dynamic Schedules sent every 5 minutes– Ramped Control Area NSI sent every 4 seconds– Ramped Dynamic Schedule values sent every 4 seconds

Control Areas will be responsible for regulation between dispatch interval and for operating reserves

MISO calculates ex-post Real-Time LMPs based on actual system activity

Day-Ahead Market

MISO uses a Security Constrained Unit Commitment programs and a Security Constrained Economic Dispatch (SCED) program to find the least cost-commitment and schedule

MISO calculates Day-Ahead LMPs based on schedule

Day-Ahead Market accommodates:

Multi-part generation offers (Start-up cost, no-load cost, incremental cost curve)

Fixed and price sensitive demand bids

Virtual supply offers and virtual demand bids

Transmission Rights

• MISO allocates Financial Transmission Rights to participants based on existing OATT transmission service.– 4 tiers…with a restoration step.– Yearly, seasonal, peak/off peak.– Monthly “true up” process.

• FTRs allow parties to hedge congestion costs in the Day-Ahead Market

• MISO also runs FTR auctions in which participants can bid to buy and offer to sell FTRs

• In addition to FTRs for OATT transmission service, MISO accommodates scheduling under pre-OATT transmission service.

RAC Process

The following principles have guided development of this RAC process: The RAC process should allow the Midwest ISO to commit the capacity it deems necessary to reliably operate the grid at the least commitment cost;

The RAC process should have a transparent and equitable implementation process;

The RAC process is not intended to create any ‘new’ markets outside of the existing proposed energy markets; and

The RAC process should be incentive compatible with the Midwest ISO’s proposed Day-Ahead and Real-Time Energy Markets;

Midwest ISO Seams

SPP TVA

MAPP

IMO

PJM

In co-operation with our neighbors we developed and implemented seams agreements that result in improved information sharing, communications, and coordination:

– RTO to other RTO/ISO’s (PJM,SPP,IMO)

– RTO to other Reliability Coordinators (TVA)

– RTO to other Control Areas (MAPP)

The Reliability Charter

Midwest ISO & Balancing Area roles and responsibilities: Real-Time Energy Market

Multi-Balancing Area Implementation The Midwest ISO will not directly control generation 5-minute LMP Base-points produced by the Midwest ISO and sent to

Market Participants using 5-minute Load Forecast at Balancing Area granularity

Net Scheduled Interchange calculated by the Midwest ISO and sent to each Balancing Area continuously

Balancing Area performs regulation between 5 minute LMP base-points

Generation limits sent by market participants has generation set aside for regulation and operating reserves “blocked off” from LMP dispatch

Improved Reliability Functions Center Around System Operations Dispatch

Security-ConstrainedEconomicDispatch Congestion

Redispatch

Real-TimeBalancing

CoordinateInter-utility

Flows w/Others

Keep FlowsWithin Limits

Maintain Voltage and Frequency

Monitor Flows, Limits &

Contingencies

Grid OperatingInstructions

Manage OperatingReserves

Benefits for participantsReduced barriers to trade

– Elimination of pancaked transmission rates– Uniform access -- one stop shopping for transmission service and

interconnection– TLR replaced with market-based redispatch

Coordinated markets– Liquidity/transparency– Expanded choices

• Self-scheduled generation or load• Bilateral transactions• Spot purchases or sales• Forward hedging• Virtual transactions

Actual Results - Real Time Peak Prices

Real-Time Peak Price Trend of MISO and Neighboring Markets

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4/1/20054/8/20054/15/20054/22/20054/29/20055/6/20055/13/20055/20/20055/27/20056/3/20056/10/20056/17/20056/24/20057/1/20057/8/20057/15/20057/22/20057/29/20058/5/20058/12/20058/19/20058/26/20059/2/20059/9/20059/16/20059/23/20059/30/200510/7/2005Time

$/MWh

MISO_AvgPeak_RT PJM_AvgPeak_RT NYISO_AvgPeak_RT IMO_AvgPeak_RT

Actual Results - Average Peak Prices

7-Day Rolling Average of Real-Time Peak Prices of MISO and Neighboring Markets

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MISO_AvgPeak_RT PJM_AvgPeak_RT NYISO_AvgPeak_RT IMO_AvgPeak_RT

Concluding Remarks

• Just the beginning:– Commitment process– Capacity Mechanism– Ancillary Services– Multiple control areas– Joint and Common Market Activities– Enough to keep us busy for several years to come!

• Questions?– rmcnamara@midwestiso.org– 317.249.5774