Standard Market Design Project Update

1
ISO New England Objectives
Gordon van WelieFERC Technical Conference March
4, 2005
2
ISO New England Objectives for the Conference

• Primary objectives are the discussion and
  validation of
• The implementation sequence of the Ancillary
  Services Market, Day-Ahead Load Response and
  Special Case Nodal Pricing
• The Ancillary Services Market conceptual design
  and in particular, the principle of specifying
  locational reserve requirements
• The importance of the Wholesale Markets Plan as a
  tool to bring structure to the market enhancement
  process and the ISO business planning/budgeting
  process.

3
2005 Wholesale Markets Priorities

• Capacity market enhancements (LICAP)
• Ancillary services market enhancements and Demand
  participation in wholesale markets
• Seams
• Improved integration of operating decisions and
  market pricing (depends on item 2.)
• We will seek validation that these are the
  correct priorities going forward

4
Ancillary Services Market

• Objective is to
• Provide price signals that encourage efficient
  provision of system and locational operating
  reserves
• Improve market pricing during supply shortage
  conditions
• Enable demand to participate directly in
  real-time energy and reserves market
• A functional Ancillary Services Market (ASM)
  is necessary to address uplift costs resulting
  from the lack of flexible quick-start resources
  in load pockets. (ASM will attract flexible
  resources and will allow us to make further
  improvements to real time pricing to reflect
  out-of-merit dispatch)

5
Demand Participation in Wholesale Markets

• Objective is to increase market efficiency and
  reliability through increased participation by
  demand side resources in the market
• Day-Ahead Load Response
• Special Case Nodal Pricing
• Transition to direct demand participation in
  energy and reserves Market (Scoped under the
  Ancillary Services Market)

6
2006 Wholesale Markets Plan Process

• We will again identify and prioritize market
  enhancements with stakeholders during the next
  three months
• Wholesale Markets Plan for 2005 was developed
  based on priorities as identified in 2004.
  Circumstances have changed since last year
• Wholesale Markets Plan for 2006 is to be
  discussed and presented to NECPUC, NEPOOL markets
  committee, NEPOOL participants committee and FERC
  in the May/June timeframe
• The Wholesale Market Plan will drive most of the
  capital budget and a part of the operating budget
  for the ISO, which will be presented to
  stakeholders in the September/October timeframe

7
Importance of the annual Wholesale Markets Plan

• The ISO has sized the capital budget at
  approximately 20 - 25M per year, which is
  consistent with our internal resource
  capabilities.
• This means that we will be constrained as to the
  number of projects we are able to deliver in any
  one year. We currently have an identified
  backlog that will stretch over three to five
  years (depending on stakeholder process and
  market design complexity).
• Our criteria for prioritizing and sequencing
  projects are- Market efficiency- ISO
  operational efficiency and effectiveness-
  Project implementation efficiency (budget
  efficiency)