ONTARIO: Straddling the Northeast and ONTARIO: Straddling the Northeast and Midwest RTOsMidwest RTOs

Presentation to Ontario Power Summit Presentation to Ontario Power Summit

Update on Regional market DevelopmentsUpdate on Regional market Developments

June 11, 2002June 11, 2002

Toronto, OntarioToronto, Ontario

Amir Shalaby

Manager of Regulatory and Government Affairs

The Independent Electricity Market Operator

Toronto, Ontario, Canada

2

Scope of PresentationScope of Presentation

• Overview of Ontario electricity markets

• Ontario’s participation in current policy choices at FERC

• RTO developments in the Midwest & Northeast

• Next frontiers for markets and regional scope for Ontario

3

Ontario: Quick BackgroundOntario: Quick Background• 11 million people. 3 Million Customers .Sales

of 150 TWh; valued at Over $10 billion /year..

• Trade with US: ± 5 TWh/yr (± 3% of production)

• 6,000 MW interconnection with the U.S. (Northeast and Midwest) and Canadian Provinces

• Totally unbundled industry structure

• Four Transmitters, 90 distributors, many generators, an Independent Operator

• Divestiture and privatization of the former Ontario Hydro is underway

• Wholesale and retail electricity markets were open on May 1, 2002

4

Ontario Straddles the Northeast and Ontario Straddles the Northeast and the Midwest the Midwest

New York (Niagara)(2100 MW Limit)

New York (East)(400 MW Limit)

OntarioManitoba(369 MW Limit)

Quebec (North)(80 MW Limit)

Michigan(2450 MW Limit)

Minnesota(150 MW Limit)

Quebec (South)(1130 MW Limit)(* 200 MW Limit)

5

The Neighbourhood:The Neighbourhood:Midwest ISO/TRANSLink/SPP/Alliance/PJM/NERTOMidwest ISO/TRANSLink/SPP/Alliance/PJM/NERTO

Midwest ISO Service Territory

TRANSLink (Non-MISO Members)

SPP Service Territory

Alliance Service Territory

PJM West Service Territory

PJM Service Territory

NERTO

Ontario

6

Northeast: • Evolves from operating ISOs

• High density, frequent congestion, geographically small

• Current focus is on market design / role ofITCs/ cost benefits

• Ontario’s IMO active in discussions

Midwest: • Numerous control areas and transmission Owners • Largest geographic RTO

• Early stages of market development

• Focus is on consolidation of control areas, role of ITCs, Transmission agreements and coordination with other RTOs.

• Ontario’s IMO starting discussions

Northeast & Midwest: Different Origins, Northeast & Midwest: Different Origins, Different Evolution PlansDifferent Evolution Plans

CONNECTICUT

DISTRICT OF COLUMBIA

DELAWARE

MASSACHUSETTS

MAINE

NEW HAMPSHIRE

NEW JERSEY

NEW YORK

PENNSYLVANIA

VIRGINIA

WEST VIRGINIA

proposedproposedproposedproposedproposedproposedproposedproposedproposed

operatingoperatingoperatingoperatingoperatingoperatingoperatingoperatingoperating NY/NE ISOs and

PJM

7

Active Two-way Trade with New Active Two-way Trade with New York and US MidwestYork and US Midwest

Trade Between Ontario and Michigan Trade Between Ontario and New York

in MWh

0500000

100000015000002000000250000030000003500000

1999 2000 2001

Tra

de

(MW

h)

Exports to Michigan (MWh) Imports from Michigan (MWh)

in MWh

0500000

100000015000002000000250000030000003500000

1999 2000 2001

Tra

de

(M

Wh

)

Exports to New York (MWh) Imports from New York (MWh)

in dollars

$-

$50

$100

$150

$200

1999 2000 2001

Tra

de

(m

illio

n C

AN

$)

Exports to Michigan ($) Imports from Michigan ($)

in dollars

$-

$50

$100

$150

$200

1999 2000 2001

Tra

de

(mill

ion

CA

N$)

Exports to New York ($) Imports from New York ($)

8

Day Ahead Prices

Source: London Economics

9

Illustrative Wholesale Electricity Price Illustrative Wholesale Electricity Price in Ontario ($65/MWh)in Ontario ($65/MWh)

TransmissionCharges

9.0

Debt Retirement Charge

7.0

Wholesale Market Services Charges

6.2

Rural RateSettlement Charge

1.0

IMOAdministration

Charge1.0

Line Losses1.3

CongestionManagement andAncillary Services

2.9

Network ServiceCharge

Line ConnectionService Charge

TransformationConnection

Service Charge

CommodityCharge

43

10

Regulatory Developments and IMO Regulatory Developments and IMO Views on Policy Choices at FERC Views on Policy Choices at FERC

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A Flurry of Regulatory A Flurry of Regulatory DevelopmentsDevelopments

Ontario:Ontario: Market based permits, Merchant transmission proposals, Market evolution

Canada:NEB Canada:NEB Permits. Lobbying and influence in U.S., Provincial policy developments

U.S.:U.S.: Comprehensive Legislation, , DOE Infrastructure Study, Busy FERC Agenda, evolving organizations: Northeast RTO, Midwest ISO, NAESB/NERC

12

Developments at FERC:Developments at FERC: • Standard Market Design and Tariff• Generation Interconnection Standards• Various RTO rules/orders/announcements• Standards Developments (reliability, business

practices)• Office of Market Oversight

13

IMO Perspective on Standard Market IMO Perspective on Standard Market DesignDesign

• Ontario’s market design is compatible in principles, concepts and in certain aspects in detail design

• Two incomplete components in Ontario are LMP and day ahead markets

• Comfortable with Financial Transmission reservations and rights , not physical

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IMO Perspective on Allocation of IMO Perspective on Allocation of RTO FunctionsRTO Functions

• Straightforward if SMD is adopted

• Most RTO functions belong with the independent entity of the RTO due to the integrated nature of functions of a SMD

• Transmission owners are asset operators and managers, proponents for transmission rates, and partners in planning and congestion relief.

• April decisions on Translink and Alliance provide guidance

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IMO Perspective on Standards IMO Perspective on Standards DevelopmentsDevelopments

• Process should enable various jurisdictions to adopt compatible standards

• Best facilitated with an international, self-governing , industry based organization

• Reliability standards have a public interest nature to them

• Reliability standards do interact with business practices. Coordination is therefore in the best interest of the entire industry

16

RTO Developments in the Midwest RTO Developments in the Midwest and Northeastand Northeast

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NYISO and ISO-NE committed to:NYISO and ISO-NE committed to:• Developing a common NY and NE energy market

• Evaluating the economic benefits and system reliability implications while maintaining integrity of current markets

• Preparing a comprehensive integration plan with orderly transmission

• Ensuring stakeholder input

• Maximizing reuse of existing assets

• Submitting a filing to FERC by June 30th

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• Submissions to FERC on: design/allocation of functions/standards development

• Participation in Northeast evolution: MOU agreement, mediation at FERC, NERTO design, seams mending at FERC(June 12)

• Discussions with MISO

• Review of emerging standards

Ontario’s Involvement in RTO Ontario’s Involvement in RTO DevelopmentsDevelopments

19

Val

ue

Cre

atio

n

NY

PJM

NEPOOL

Stage 0 - Current State Markets

NYISO ISO-NE

PJM

Stage 1 - NE Implements SMD 1.0

NY

PJM

SMD 1.0

NYISO ISO-NE

PJM

MACC

NPCC

IMO

IMO

SMD 1.0

ISO-NENYISO

SMD2.0

PJM

PJM

NPCC

Stage 3 – Consolidated Market

NYISOISO-NESMD2.0

IMO

NPCCIMO

PJM

PJM

MACC

CONSOLIDATE MARKETS

STANDARDIZE MARKET DESIGN

Timing

IMO

IMO

Stage 2 - NY Implements SMD 2.0

Now Month 12 Month 24 Month 36

Possible Northeast Market Evolution Possible Northeast Market Evolution (including Ontario)(including Ontario)

IMO

IMO

20

Next Frontiers for Markets and Next Frontiers for Markets and Regional Scope for Ontario Regional Scope for Ontario

21

Opportunities with Neighbouring Opportunities with Neighbouring RTOsRTOs

• Shared reserves and other synergies

• Coordinated scheduling of transactions

• Eliminating export transmission tariffs

• Coordinated planning

• Dealing with circulating power

• Joint assessment of interconnection projects near borders

• Closer coordination of outage plans

• Common energy day ahead market and other features

22

Relevance of Regulatory Relevance of Regulatory Developments to OntarioDevelopments to Ontario

• Increased emphasis on independence

• Challenge to integrate markets and reliability

• Move to converge to “standard market Design” • Further context for evaluation of ‘unfinished business’ in Ontario:

– LMP and day ahead markets are central to SMD

– PBR for transmission has been deferred

– Interregional coordination with U.S. RTOs (day ahead, license plates, Open System Scheduling, Transmission Planning)

– Merchant transmission framework

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Additional Resource MaterialsAdditional Resource Materials

• IMO Web site: www.theimo.com–Great source of information–On-Line Web Courses (capability training courses)

–Training Guides

–Market Rules and Manuals

• IMO Help Centre: –1-888-448-7777

–905-403-6900

–helpcentre@theIMO.com

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Appendix: Ontario’s IMO FunctionsAppendix: Ontario’s IMO Functions

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Bill 35 - 1998

Enabling Legislation Bill 35 - 1998

Enabling Legislation

GovernmentRegulations

Companies Institutions Rules Agreements

• Hydro One• OPG• Distributors• Retailers

• IMO• OEB• ESA• OFC

• Wholesale Market Rules• Retail• Licenses • Codes

• Operating

• Market Power

• Many established in past 2 years

Ontario RestructuringOntario Restructuring Policy Development: Committees, White

paper, Design Committee 1995-1999

Policy Development: Committees, White paper, Design Committee 1995-1999

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Day 1 Market StatisticsDay 1 Market Statistics

• Ontario’s new market has 239 participants– 93 Local Distribution Companies – 89 Industrial Consumers– 19 Generators– 34 Wholesale Buyers/Sellers– 4 Transmitters

• 1st 5-min price for electricity was $25.43 MW/hr or 2.54 cents kW/hr

• At opening market demand was 14,500 MW

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Market Prices on Day 1Market Prices on Day 1

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Market Demand on Day 1Market Demand on Day 1

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IMO - Operational AuthorityIMO - Operational Authority– Serves as reliability authority for Ontario– Directs the operations of the IMO-controlled

grid - does not physically operate the system – Maintains short-term reliability:

• implements interchange scheduling

• establishes operating procedures

• redispatches generation for Emergencies

• approves transmission maintenance schedules

• coordinates and approves transmission and generation outages

• establishes Emergency Plan

30

IMO - Tariff Administration and DesignIMO - Tariff Administration and DesignTransmission Rates– Transmission Owners develop and propose

revenue requirements, rate design, and the rate levels necessary to recover the costs of service.

– The OEB requires and approves.– Approved rates are billed and settled by the IMO

and transferred to the TOs.

Market Rules– Market rules (often called RTO tariffs in the U.S.)

are developed in a consultative ‘Technical Panel’ of the IMO and approved by IMO Board of Directors. Appeals can be made to the OEB.

31

IMO - Interconnection RequestsIMO - Interconnection Requests– IMO conducts system impact studies in

coordination with affected TOs. – Evaluation is based on impact on reliability of

IMO-controlled grid.– IMO submits approval or disapproval of each

connection proposal to the OEB.– System impact study evaluation results are used by

the OEB to assess compliance with the Transmission System Code and to assess whether to grant a “leave to construct”.

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IMO - Real-Time Energy MarketIMO - Real-Time Energy Market• bid-based• security-constrained 5-minute dispatch• single settlement• generators submit single-part bids and perform their

own unit commitment• open to dispatchable loads and generators• allows for submission of bilateral contract data for

settlement purposes

33

IMO - Real-Time Market for IMO - Real-Time Market for Operating ReservesOperating Reserves

• 10 minute and 30 minute reserve markets• bid-based• joint co-optimization with energy market

• Three other ancillary services (voltage support, black start, AGC) are procured through competitively tendered contracts

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• auction FTRs across the interconnections

• ability to hedge against changes in locational differences in energy prices between

the uniform Ontario price and the prices for each intertie zone

IMO - Financial Transmission IMO - Financial Transmission Rights MarketRights Market

35

IMO - Congestion ManagementIMO - Congestion Management• uniform price for energy across Ontario for each 5 minute

interval• Different locational prices across interconnections if congested

• generators will be paid if constrained on or off

• the IMO will publish 5-minute and hourly prices at each relevant node within Ontario to provide information on congestion within Ontario

• Ontario will assess implementation of LMP within Ontario at a later time (18 months)

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IMO - Market MonitoringIMO - Market Monitoring• Accountability is with the independent Board members and

the Market Surveillance Panel (MSP)• market power mitigation is the shared responsibility of the

MSP , the Ontario Energy Board, and the competition Bureau. Joint Statement in place.

• unit created at the IMO to support the analysis and investigations