Trading Hubs - Follow Up and Next Steps From Trading Hubs Focus Group Meeting on 9/17/2015

Nick Parker [email protected] Valerie Weigel - [email protected]

Agenda 1) Focus Group Meeting Attendees 2) Recap of Face-to-Face Meeting on 9/17/2015 3) Idea Generation* 4) Next Steps

*The ideas included in this presentation were gathered from the Trading Hubs Focus Group meeting attendees, and do not necessarily reflect SPP’s position. 2

Company Cargill Power Markets LLC

Kansas City Power and Light

Last Name A Hoekman Cutsor Unrein Standifer

First Name Al Austin Billy Chad Christopher

Municipal Energy Agency of Nebraska Southern Company Services Southwest Power Pool

Beard Olsen Guney

Dave Erik Esat

Municipal Energy Agency of Nebraska

Hpanchamia Lao Lewis Genscape Verga Kansas City Power & Light Company Flucke Customized Energy Solutions, LTD Krajecki Southwest Power Pool Hyatt Western Farmers Electric Cooperative Sullivan Golden Spread Electric Cooperative, Inc. Nemoede Lincoln Electric System Anderson Frisk‐Thompson Southwest Power Pool Choate Golden Spread Electric Cooperative, Inc. Moore Servera Southwest Power Pool Bailey Western Farmers Electric Cooperative Brown Mehta Denver Energy, LLC Nagarsheth Powerex Corp Richard American Electric Power Garza Seide Nebraska Public Power District Pick Sunflower Electric Power Corporation Chartier ACES Power True Cochran Beach Boston Energy Trading and Marketing, LLC Maestranzi Enbridge Allen Southwest Power Pool Sharp American Electric Power

Harsh Hongmou James Jarret Jim Jim John Kim Kristen Lee Lorie Marisa Matt Max Micha Natasha Neil Raj Randy Rene Richard Robert J. Ronald Roy Seth Scott Stephen Travis Zachary

Email [email protected] [email protected] [email protected] Unrein‐[email protected] [email protected] Daily‐[email protected] [email protected] [email protected] [email protected] gsec‐[email protected] Harsh‐[email protected] [email protected] Lewis‐[email protected] [email protected] [email protected] jkrajecki@ces‐ltd.com [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] Servera‐[email protected] [email protected] [email protected] Mehta‐[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] cochran‐seth.cochran@dc‐energy.com Beach‐[email protected] [email protected] [email protected] [email protected]

Attending Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference Net Conference

Trading Hubs Focus Group Meeting - 9/17/15 Topics Discussed: 1) 2) 3) 4) 5) 6) 7) 8) 9)

Integrated System History and Makeup Makeup of SPP Background and Basin Electric History of Existing Hubs & Protocol Requirements for New Hubs Lack of SPP Trading Hub Liquidity and Brattle Study Trading Hub Survey Results Influences of Hedging & Dodd-Frank Criteria for Successful Trading Hubs Idea Generation 6

Trading Hubs Focus Group Meeting – (cont’d) Primary Objectives and Focus Group Response •

Is there a Trading Hub problem in SPP? - YES

•

Does SPP need a new Trading Hub that would be more liquid? MAYBE

•

Does SPP need to make any market construct changes to facilitate more activity at existing Trading Hubs?- YES

•

Does SPP need to redefine existing Trading Hubs to increase liquidity? - MAYBE

•

Does SPP need to facilitate Dodd-Frank in a different manner to increase liquidity at existing Trading Hubs?

•

What can market participants do to encourage more liquidity at existing hubs or a new hub? - SEE NEXT SLIDES 7

Current North Hub and South Hub

North Hub (496 pnodes)---LES (58), NPPD (191), OPPD (247) South Hub (537 pnodes)---AEP(102), OKGE (309), WFEC (125), GRDA (1)

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IDEA GENERATION

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The Issue ….

Chicken/Egg Problem … How do you attract new market participants that could provide liquidity, when you need liquidity to attract them in the first place? 10

Brainstorm - Causes of Low Liquidity at Trading Hubs Market Make Up Issues: •

Over capacity –

Generation is long which leads to lower volatility

•

SPP is small in relation to other markets

•

Make up of participants –

•

Some utilities can’t hedge loads

Need more financial participants in SPP

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Brainstorm - Causes of Low Liquidity at Trading Hubs Market Construct Issues from the Focus Group: •

RUC - when units are RUC’d for reliability it doesn’t allow true price formation to occur in the real time

•

SPP holds a 35% reserve margin … but, not all is economic

•

Not enough transparency in the market –

•

Scarcity Pricing –

•

Other markets provide far more transparency SPP relaxes reserve requirement

Cost of transmission service to drive out of SPP is very high compared to other markets 12

Brainstorm - Causes of Low Liquidity at Trading Hubs Market End Results: •

Difficult to get in and out of positions

•

Not that market isn’t liquid … just the cost of that liquidity is too high

•

No retail choice

•

ICE related products are lacking

•

–

No real-time North Hub product

–

Minimum transaction blocks are too high

Ability to hedge basis with entities willing to take that risk 13

Brainstorm - Ideas to Create More Liquidity •

Create a joint MISO/SPP Trading Hub

•

Create a “Super” Hub

•

Put positions out on ICE

•

Virtual blocking –

On-peak and off-peak virtual block products

•

More data transparency

•

Use basis products to hedge around illiquid Trading Hubs

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ICE Products ICE Financial Structure exists for • Financial North Hub DA • Financial South Hub DA • Financial South Hub RT ICE does not have a real time product for North Hub ICE does not have a physical market for SPP ICE only trades in 50MW blocks for SPP 15 | brattle.com

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Market Transparency •

Other markets provide far more transparency than SPP does

•

Provide information more readily to participants

•

Need more transparency –

•

RUC 

Which units are being RUC’d?



What is cause for each units RUC?

–

Wind/load forecasts by zones

–

Reserves

Example of ERCOT transparency: http://mis.ercot.com/misapp/GetReports.do?reportTypeId=11460&re portTitle=ERCOT%20Market%20Information%20List&showHTMLView= &mimicKey 16

Next Steps 1.

SPP to provide list of registered Market Participants –

2. 3. 4.

Create list of Market Transparency desired by Market Participants Schedule discussion with MWG and Financial participants to gain better insight financial perspective and to gain comparison of market constructs Work with ICE to create: – – –

5.

This information is provided on the SPP Marketplace Portal

North Hub Real Time product 25MW transaction blocks Physical products

Support RUC process improvements

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THANK YOU!

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