NYISO Market Overview

1. NYISO Market Overview

2. Presentation Overview Introduction Market Overview Day-Ahead Market Real-Time Market Installed Capacity Transmission Congestion Contracts Cost-Based Products

3. NYISO in the Northeast

4. NYISO Roles Reliability Markets Planning

5. Reliability Managing the efficient flow of power on nearly 10,900 miles of high-voltage transmission lines -- from more than 500 generating units -- on a minute-to-minute basis, 24 hours-a-day, seven days-a-week.

6. Markets Administering & monitoring New York’s wholesale electricity markets totaling $11 Billion annually -- running auctions that match the buyers and sellers of power.

7. Planning Conducting long-term assessments of New York State’s electricity resources and needs and evaluating the feasibility of proposed projects to meet those needs.

9. Here are the NYCA Zones. There are 11 internal and 4 external. IESO – Independent Electric System Operator HQ – Hydro Quebec ISO New England PJM Load pays the LBMP at the zone they are located in.Here are the NYCA Zones. There are 11 internal and 4 external. IESO – Independent Electric System Operator HQ – Hydro Quebec ISO New England PJM Load pays the LBMP at the zone they are located in.

10. NY Capability by Fuel Type

11. NY Generation by Fuel Type

13. Reliability Regulation North American Electric Reliability Corporation (NERC) Independent, self-regulatory, not-for-profit organization with mission to improve the reliability and security of the bulk power system in the U.S., Canada and part of Mexico Compliance with NERC Reliability Standards became mandatory and enforceable in the U.S. in 2007

14. NYISO Markets

15. NY Electricity Markets Bilateral Contracts - The first way to purchase wholesale electricity is to set up a contract directly between a generator and a load. Many of these bilateral contracts were first set up when the utilities sold off their generators to new owners. Both parties (buyer and seller) were skeptical as to how successful the new market would operate. They wanted to hedge themselves by purchasing or selling a portion of the electricity for a set price over a set time frame. As a matter of fact when the market first opened about 70% of the electricity was purchased bilateraly. As loads and generator owners became more comfortable with the new market, the percentage of bilaterals reduced to about 45% of total electricity purchased and stayed in that range ever since. Day–Ahead Market (DAM) The NYISO’s DAM operates a day in advance of the actual day. For example, bids for tomorrow’s DAM were closed at 5:00 a.m. this morning. The computer takes the bids and runs a program that will clear tomorrows market which begins at 12: 00 tonight. DAM prices are posted by the NYISO by 11:00 a.m. About 51 % of the electricity is purchased through the DAM. Real Time Market The NYISO’s Real Time Market is the equivalent of a spot market. No matter how much is purchased bilaterally and through the DAM, it is never going to be 100% accurate. Forecasts change and outages occur. The Real Time Market allows buyers and sellers to make up any differences that occur during the actual hour. About 4% of the total electricity is purchased in the Real Time Market. OTHER MARKETS: Installed Capacity (ICAP) Transmission Congestion Contracts (TCC’s) Reserve Regulation Bilateral Contracts - The first way to purchase wholesale electricity is to set up a contract directly between a generator and a load. Many of these bilateral contracts were first set up when the utilities sold off their generators to new owners. Both parties (buyer and seller) were skeptical as to how successful the new market would operate. They wanted to hedge themselves by purchasing or selling a portion of the electricity for a set price over a set time frame. As a matter of fact when the market first opened about 70% of the electricity was purchased bilateraly. As loads and generator owners became more comfortable with the new market, the percentage of bilaterals reduced to about 45% of total electricity purchased and stayed in that range ever since. Day–Ahead Market (DAM) The NYISO’s DAM operates a day in advance of the actual day. For example, bids for tomorrow’s DAM were closed at 5:00 a.m. this morning. The computer takes the bids and runs a program that will clear tomorrows market which begins at 12: 00 tonight. DAM prices are posted by the NYISO by 11:00 a.m. About 51 % of the electricity is purchased through the DAM. Real Time Market The NYISO’s Real Time Market is the equivalent of a spot market. No matter how much is purchased bilaterally and through the DAM, it is never going to be 100% accurate. Forecasts change and outages occur. The Real Time Market allows buyers and sellers to make up any differences that occur during the actual hour. About 4% of the total electricity is purchased in the Real Time Market. OTHER MARKETS: Installed Capacity (ICAP) Transmission Congestion Contracts (TCC’s) Reserve Regulation

16. Market Overview Two-Settlement System: Day-Ahead and Real-Time Markets Bid Based Security-Constrained Economic Dispatch (SCED) and Commitment (SCUC) Locational Based Marginal Pricing (LBMP) Co-optimization of Energy, Operating Reserves and Regulation Scarcity pricing for operating reserves Bid Production Cost Guarantees (Uplift) Virtual Bidding Transmission Congestion Contracts (TCC) Installed Capacity Markets (ICAP) Demand Side Participation Market Power mitigation with conduct and impact tests and Automated Mitigation Procedure (AMP) Rana has already introduced these concepts… You will be able to see these philosophies as we go through the presentationRana has already introduced these concepts… You will be able to see these philosophies as we go through the presentation

17. The NYISO Market Timeline consists of the DAM and the RT. RT is also referred to the Balancing Market. DAM Prior to 5am, Load Forecast, Load Energy Bids, Generator Offers for Energy, Reserve and Regulation and DADRP bids submitted for the day-ahead market. The DAM schedule is posted by 11am. Settlements are solved on an hourly basis RT, the market closes 75 minutes prior to each hour in RT. This is also referred to HAM or Hour Ahead Market Bids. After the HAM closes our software solves to meet the actual demand by sending signals: 6 seconds for Regulation 5minute basepoints for Energy, Reserve In RT or Balancing Market, settlements are at RTD, Real Time Dispatch, intervals - 5 minute intervals. The NYISO Market Timeline consists of the DAM and the RT. RT is also referred to the Balancing Market. DAM Prior to 5am, Load Forecast, Load Energy Bids, Generator Offers for Energy, Reserve and Regulation and DADRP bids submitted for the day-ahead market. The DAM schedule is posted by 11am. Settlements are solved on an hourly basis RT, the market closes 75 minutes prior to each hour in RT. This is also referred to HAM or Hour Ahead Market Bids. After the HAM closes our software solves to meet the actual demand by sending signals: 6 seconds for Regulation 5minute basepoints for Energy, Reserve In RT or Balancing Market, settlements are at RTD, Real Time Dispatch, intervals - 5 minute intervals.

19. Day-Ahead Market Security Constrained Unit Commitment (SCUC) scheduling software optimizes for least cost solution Co-optimizes energy and ancillary service bids (reserve & regulation) Hourly Locational Based Marginal Prices (LBMP) Binding forward contracts issued to Suppliers and Loads Bilateral transaction scheduling Installed capacity suppliers are required to bid Virtual resources (zonal supply/demand) allowed to bid into DAM

20. Day-Ahead Market (cont.) DAM operations began in December 1999 Significant redesign in February 2005 Five pass methodology: Bid load pass BPS Forecast pass LRR Forecast pass Forecast Re-dispatch pass Bid Re-dispatch pass

21. Four Pass Methodology Bid load pass (Including LRR evaluation) BPS Forecast pass Forecast Re-dispatch pass Bid Re-dispatch pass

23. Real-Time Market External transaction and generation suppliers may adjust bids hourly for consideration in the Real-Time Market evaluation to address in-day operating conditions Real-Time Market scheduling software re-optimizes energy, reserve and regulation bids every 5 minutes Provides for commitment of “quick start” resources including 10 and 30-minute gas turbines Produces 5-minute Locational Based Marginal Prices (LBMP)

24. Real-Time Market (cont.) Real-Time Commitment (RTC) Security constrained unit commitment & dispatch software Co-optimizes to simultaneously solve load, reserves & regulation req. Runs every 15 minutes, optimizes over next 2 ½ hour period Issues binding commitments for units to start Real-Time Dispatch (RTD) Multi-period security constrained dispatch Co-optimizes to simultaneously solve load, reserves & regulation req. Runs approximately every 5 minutes Optimizes over next 60 minute period Issues binding dispatch instructions for units to operate

25. RT/DAM LBMP Results Generators Paid the LBMP (where they inject power) at the Generator Bus. Load Charged the Zonal LBMP based where the Load is located. Zonal LBMP is a Load Weighted Average for the Zone. LBMP is the cost to provide the next MW of load at a specific location in the grid. This concsits of the cost of energy, losses and congestion. LBMPs are determined in DAM (hourly) and I RT (every 5 minutes). There are LBMPs for each Generator Bus and for each Zone. A zone is a load weighted average. Generators are paid the LBMP at their generator bus. Load pays the Zonal LBMP.LBMP is the cost to provide the next MW of load at a specific location in the grid. This concsits of the cost of energy, losses and congestion. LBMPs are determined in DAM (hourly) and I RT (every 5 minutes). There are LBMPs for each Generator Bus and for each Zone. A zone is a load weighted average. Generators are paid the LBMP at their generator bus. Load pays the Zonal LBMP.

26. RT/DAM AS Results Generators All flexibly dispatched generators must offer operating reserves. Paid the Clearing Price for the location and service provided. Performance factors included in real-time settlement. Load Fully purchase AS in Day-Ahead Market. Real-Time balancing lies with suppliers.

27. Guarantee Payments (“Uplift”) BPCG: Bid Production Cost Guarantee (BPCG) Ensuring recovery of sufficient revenue to cover as-offered costs Meet qualifying criteria Based on [Submitted bid costs less Total Revenue] DAM and/or RT Types: Power Suppliers (internal) Transaction Customers (imports) DAM Margin Assurance Guarantees Generator's DAM margin (profit) is not reduced by balancing market settlements in RT due to reliability scheduling Uplift _ Incurred when market revenues are not sufficient to satisfy all market obligations while ensuring all suppliers recover sufficient revenue to cover their full as-offered costs Uplift _ Incurred when market revenues are not sufficient to satisfy all market obligations while ensuring all suppliers recover sufficient revenue to cover their full as-offered costs

28. Generator Bidding Flexibility Fully featured market bidding capabilities Hourly bidding flexibility: Startup Cost Minimum generation bid and MW Incremental energy in 11 bid/MW pairs Normal and emergency operating limits Operating reserve bids Regulation reserve bids and availability Self-scheduling and economic scheduling options Response rates for normal, emergency and regulation operation Minimum run time, minimum down time, maximum starts per day

29. Load Bidding Flexibility Fully featured market bidding capabilities Hourly bidding flexibility Fixed load requirements Bilateral load Price capped load in 3 bid/MW pairs Demand Response with all generator bid characteristics

30. Virtual Trading Virtual Supply offers and Virtual Load bids are placed in DAM only. Financial Transactions only No effect on RT physical energy consumption Does not compromise physical commitment of energy resources for system reliability Virtual Market was a request from MPs Virtual Market allows companies outside electricity industry to participate in NY’s markets It has facilitated price convergence between DA and RT markets Virtual Market does not compromise physical commitment of energy resources for system reliability because Virtual bids and offers are not input for the passes of reliability in SCUC, no bids/offers are placed in RT Virtual Market was a request from MPs Virtual Market allows companies outside electricity industry to participate in NY’s markets It has facilitated price convergence between DA and RT markets Virtual Market does not compromise physical commitment of energy resources for system reliability because Virtual bids and offers are not input for the passes of reliability in SCUC, no bids/offers are placed in RT

31. Reserve & Regulation Requirements

32. Wind Integration Summer 2008 – Established centralized third-party wind power forecasting tools and incorporated predictions into Day-Ahead and Real-Time Market tools to improve commitment and scheduling of resources. Summer 2009 – Implemented Wind Resource Management to incorporate the economic preferences of each wind facility within the NYISO’s real-time dispatch process. This modification minimizes necessary energy limitations and duration, identifies the most efficient resource to limit, incorporates instructions into market clearing prices and avoids manual out-of-market actions. Future Enhancements - NYISO is developing internal tools to alert system operators of potential for significant wind ramp events. Sudden large changes in wind speeds and output levels High wind speeds approaching turbine cut-out levels

33. Limited Energy Storage Resources (LESR) LESR are generators offering Regulation Service only, characterized by limited energy storage or the inability to sustain continuous operation for a minimum period of one hour. Includes flywheel and battery storage technologies. Energy levels will be managed by ISO to maximize market participation within the limits of scheduling and operational needs.

34. Demand Response

35. Installed Capacity (ICAP) Role of Capacity Market Ensures Resource Adequacy Supports market signals for investment Suppliers offer capacity based on proven ability to supply Loads procure capacity based on forecasted peak loads, plus reliability margins, with locational requirements 16.5% Reserve Margin for Capability Year 2008/2009 New York City must procure locally 80% of forecasted peak Long Island must procure locally 97.5% of forecasted peak

36. Transmission Congestion Contracts (TCCs) Financial instrument Available between any generator, proxy or zonal location TCCs are fully funded by TOs Financial obligation – right to collect and obligation to pay congestion rents Used to hedge transmission system congestion costs Settled in the Day-Ahead Market Do not have to participate in the energy market Used to hedge costs resulting from transmission system congestion DAM Congestion Rents determined by the difference in the Congestion Component at the TCC point of injection and point of withdrawal for each hour of the TCC effective period Used to hedge costs resulting from transmission system congestion DAM Congestion Rents determined by the difference in the Congestion Component at the TCC point of injection and point of withdrawal for each hour of the TCC effective period

37. Transmission Congestion Contracts (TCCs) MPs purchase TCCs via NYISO TCC Auctions: Centralized Auction 1 year and 6 month durations available Monthly Reconfiguration Auction 1 month durations available Fixed price TCCs available for 5 and 10 year durations for historical loads Incremental TCCs may be awarded for transaction expansion Owners of TCCs can sell TCCs: Monthly NYISO TCC reconfiguration auctions Secondary Market NYISO deals with Primary Holders only Used to hedge costs resulting from transmission system congestion DAM Congestion Rents determined by the difference in the Congestion Component at the TCC point of injection and point of withdrawal for each hour of the TCC effective period Used to hedge costs resulting from transmission system congestion DAM Congestion Rents determined by the difference in the Congestion Component at the TCC point of injection and point of withdrawal for each hour of the TCC effective period

38. Cost-Based Products Voltage Support Services Black Start Service

39. Voltage Support Service (VSS) Reactive Power Service VSS Suppliers Receive Monthly Payments based on Annual Rate of $3,919/MVar Requirements: Generator’s MVAR testing and capability established Auto Voltage Regulator required NYISO coordinates bus voltage profiles TOs responsible for local control in their network VSS is Cost Based Ancillary Services Maintain a desired voltage level on NYCA transmission/distribution grid during Real Time Operations. There are incentives to VSS suppliers to participate in ICAP such that they receive a monthly payment vice if they were VSS only they would receive VSS payments only for the hours of providing VSS.VSS is Cost Based Ancillary Services Maintain a desired voltage level on NYCA transmission/distribution grid during Real Time Operations. There are incentives to VSS suppliers to participate in ICAP such that they receive a monthly payment vice if they were VSS only they would receive VSS payments only for the hours of providing VSS.

40. Black Start Service Black Start Restoration Plan Fixed payment based on provider’s costs NYISO selects generating resources with black start capability based on: Electrical location in the grid Startup time Maximum Response rate Maximum Power output Currently three providers Black Start is a Cost Based Ancillary Services NYISO currently is not looking for any additional Black Start Providers. Note there are Local Black Start Restoration coordinated through the TO. Black Start is a Cost Based Ancillary Services NYISO currently is not looking for any additional Black Start Providers. Note there are Local Black Start Restoration coordinated through the TO.

41. NYISO Tariffs

42. More Information NYISO Home Page www.nyiso.com New York Market Orientation Course (NYMOC) www.nyiso.com/public/services/market_training

43. Good morning and welcome to today’s symposium, “The Future is Now: Energy Efficiency, Demand Response and Advanced Metering.” I am Mark Lynch and I serve as President and CEO of the New York Independent System Operator. Good morning and welcome to today’s symposium, “The Future is Now: Energy Efficiency, Demand Response and Advanced Metering.” I am Mark Lynch and I serve as President and CEO of the New York Independent System Operator.