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Midwest ISO -Settlement Lessons Learned

APPA Business and Financial Conference

September 19, 2006

Minneapolis, Minnesota

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Midwest ISO History at a Glance

1996 1999

Discussions begin to voluntarily form Midwest ISO

First Board of Directors elected

2001

•Move into 701 building

•Begin providing reliability services

•Acquire St. Paul office

2002

Begin selling transmission service

2005

•Year began with 532 employees

•Midwest Market launched

2000

•79 employees at Midwest ISO at the end of November

April 2005 – Market Launch

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Midwest ISO Facts ~200 Market Participants

35 Control Areas within reliability region

116,700 MW of peak load

133,000+ MW generating capacity

93,600 miles of transmission lines

947,000 square miles

15.1 million customers

1,504 generating units in the reliability footprint

Operates an energy market that processes an average of $3 billion per month

Carmel, Indiana and St. Paul, Minnesota Control Centers

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Midwest MarketThe Midwest ISO

market consists of three components:

• Day Ahead Energy Market

• Real Time Energy Market

• Financial Transmission Rights Market

FTR

DayAhead

RealTime

MidwestMarket

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Midwest ISO Settlement Organization Transmission Settlement

• Calculate and Produce Monthly Transmission Settlement Statements

• 10 FTE + 2 IT Support

Market Settlement

• Calculate and Produce Daily Market Settlement Statements

• Meter Data Collection

• Charge Type Market Design and Settlement System Design

• 8 FTE “Run Team” + 3 FTE Business Analyst + 3 IT Support

Market Quality

• Market Dispute Resolution and Process Improvement

• 9 FTE + 1-2 Contractors

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Market Settlement Statistics Settle Approximately $3 Billion per month

Produce ~6,000 Statements per day

• ~300 Asset Owners * 3 Statements + 1 Summary * 5 Operating Days

Settle each Operating Day 4 times (+ Non-standard)

• 7, 14, 55 and 105 days after Operating Day

• Non-standard (Temporary) 155 and 365 days after Operating Day

32 Charge Types for 3 Markets

Processed ~13,000 Market Disputes in 2005

• Peak backlog > 3,000 in November 2005

• Backlog ~1,000 for 2005, currently 70

• Average Dispute resolution time ~ 30 days, now < 10 days

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Market Settlement Process8:00 am to 1:00 pm:

Acquire data from Upstream Systems: Day Ahead + Real-time (DART); FTR; Pricing; Physical Scheduling

Acquire Meter Data from Asset Owners via the MISO Portal interface

Make data adjustments for resolved Disputes other System issues

1:00 pm to ~2:00 pm:

Validate Settlement Input data – Reports, Data Validation Routines, Manual Inspection

Repair and Re-stage invalid data

2:00 pm to ~6:00 pm:

Execute Lodestar Data Acquisition (Load data to Settlement System) – Error Check/Re-execute

Execute Settlement Calculations - Validate Calculation results

Create Statements

8:00 am to Noon:

Validate Statement Content Data

Pre-Post Statements

Validate and post Credit Results for Credit System

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Monthly Disputes

• 429 Disputes per month for First 7 months of 2006

Disputes by Operating Month

0

500

1000

1500

2000

2500

3000

3500

Apr-05 May-05

Jun-05 Jul-05 Aug-05

Sep-05

Oct-05 Nov-05 Dec-05

Jan-06 Feb-06

Mar-06 Apr-06 May-06

Jun-06 Jul-06

Month

Dis

pu

tes

Monthly Disputes

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Historical BacklogDispute Baclog Over Time

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06

Open Disputes New Disputes

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Dispute ResourcesDispute Resources

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06

Month

FT

Es

Total FTE MISO FTE Contractor FTE

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Dispute ProductivityProductivity (HRS/Dispute)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06

Month

Ho

urs

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Dispute Turn Around Time

• Disputes are being resolved by MISO in less than 10 days on average• Impact to Re-Settlements is governed by MP Submission• Submission Deadline is 115 days per Tariff• MISO will continue to seek to reduce Deadline to 70 Days

Dispute Resolution Time by Op Date

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06

Month

Res

olu

tio

n T

ime

(Day

s)

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Open Dispute Summary

As of Aug 10, 2006

Dispute Type $$ CountFTR 724.74 2NAI 2,734.17 3OTHER 753,436.05 4PSS 1,008,092.03 1RSG 282,343.39 34RSG1 18,534.28 15UD 7,896.62 11

TOTAL $2,073,036.54 70

Open Dispute Summary

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Ancillary Services Market Project

Coordinate Efforts

DESIGN

IMPLEMENT

Business Model Development

Develop Business Practices

Business Requirements Defined

2Q

Regulation and Contingency Reserves Rules

FERC Filings

Document Systems Requirements

Regulation and Contingency Reserves

System Development

Environments Build Out

Integration Testing

Operational Testing and Cutover

2006 20073Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2008

(Establish - PMO, Governance, Communications Strategy, Project Risks, Funding)

0 1 2 3 (Versions – 0, 1, 2, 3, and final)

1 2 (1- Balancing Authority, 2-Resource Adequacy, 3-AS Tariff Sheets)3

(Assess – “as is” & “end state” functions, technologies, security )

(Document – processes, roles, transition, training)

Timeline

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Ancillary Services Market Project Balancing Authority Functional Alignment

Deliverability Test

Infrastructure and Technology

Market Design

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Ancillary Services Market Project Balancing Authority Functional Alignment

• NERC Functional Model and Standards

• Balancing Authority Agreement

• MISO move to an interchange-wide Area Control Error (ACE)

• Simultaneous co-optimization of the objective function for energy, regulation, spinning reserves and non-spinning reserves

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Over Prepare Staffing / Resources obtained ahead of market start

• Many Participants acquired additional staff after Market Start

• Don’t add “Training new staff” to a long list of post market-start activities

• May take up to 2 months for new staff to be functional

Your Internal Processes - ALL of your Processes will change – Participants often forgot about changes to existing internal processes that are deeply affected by start of Market

• Budgeting & Forecasting – how will you forecast Market Determinants?

• Interaction with Accounting System – how to the Market charges map to existing accounts?

• Reporting – what executive/manager reporting is needed? Needs to be adjusted?

Over Prepare…

• Perform “What if…” Testing – even if ISO Testing schedule excludes charges, test your systems/staff

• Test All the way to Settlements – don’t stop at successful bid submission!

• Don’t rely on ISO to fully prepare your staff – we have very limited insight

If you are still learning general concepts at market start – how will you deal with the truly complex issues?

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Market Data Be data flexible – Participant should maintain ability to do reporting and data

analysis

• The ISO’s will never be able to meet all reporting needs

• The ISO’s data provision requirements do not include your Financial Reporting

What “Non-Settlement” data do you need?

• Need more than prices and MW’s - “Start-times”, “On reasons”, “Commit Type” (Non-settlement data) – what do these map to in your internal systems? Are you logging these? Should you log these?

• What data does your Analysis group require? Are you capturing it? Can you provide what you capture in a user-friendly format?

Reporting Data

• What data do your internal reports require? Will all of your reports continue to work? Have you mapped the ISO data to your existing report structures?

• Will you be able to deliver a “Dashboard-like” synopsis of market activity and outcomes to your management team?

• Do you need the ability to track and understand Market-wide Data determinants? May aide in early identification of Market-wide Issues.

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Track Market IssuesConsider Market-wide Issues – not just Company-centric

Leading cause of re-Settlement at MISO was Market-wide Charge recalculation

• Revenue Neutrality Uplift

• Over Collected Losses

• Day Ahead Revenue Sufficiency Guarantee Make Whole Payments

Make sure you have the data to evaluate these issues

Will aide in your forecasting and issue reporting

Being proactive will cause faster correction of issue

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Market Results to Traders ASAP Provide market results to trading floor as fast as possible

• How fast? 1 day? 2 days? 1 week? 1 month? – How long can you afford to lose money?

• New concept for non-market participants – was ‘once-a-month’ interaction

• Tied into Dispatch (Operator Log) – need to incorporate into Settlement process

• You don’t have to wait for ISO Settlement statement for many charges

Importance and stature of Settlement Team will increase

• Back-office becomes much more important to Front-office

• Included in deal decisions – “What additional charges?”; etc.

• Tend to be most knowledgeable on ISO – will be sought out by many departments – Incorporate this into staffing decisions

Ability to do “What if…” Settlement runs

• Answer “Use Finscheds Yes/No?” type questions

• If your trader changed his strategy, what would the Settlement amount change to?

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Market Software & Process Testing Test everything – don’t just look where the light is brightest

• Test all charges – not just the test-scripted charges - No one asked for Production Cost calculation details

• Test your processes not just software

• Test your reports

• Test your analysis

You are best judge of the correct outcomes:

• Use staff to test – not consultants

• Don’t count on vendor to find the issues with shadow system

• Don’t count on the ISO staff to find the issues with charges

• We need your help!

• Your input is required to control your destiny

Correct Issues with Vendor and ISO before ‘Go Live’

• Performing corrections on “Production” system is much more costly (Hours and dollars)

• Corrections take much longer – therefore more time you have to live with issue

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Support the ISO and your Vendor Support your ISO

• Work with the ISO to resolve issues – towards common goal of getting them resolved

• Be active at the ISO forums – don’t count on your Regulatory or Trading organizations to provide feedback on Settlement issues

• Provide meaningful and specific feedback to the ISO – review test outcomes

• Establish a relationship with the ISO staff

Support your Vendor

• Work with your vendor to resolve issues – they can often provide access to other Participants with similar issues

• Provide meaningful and specific feedback to your vendor – review test outcomes

• Don’t count on the Vendor to exactly understand the market from your point of view

• Establish a relationship with the Vendor staff

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Staffing for ISO Settlements Requirements change from “Check-out” based skill-set to Business Analyst

and Technical skill sets

Requires deeper all-around knowledge

• Requires knowledge of areas that were not required previously – Gen Dispatch, Gen Costing, Meter Data, Bids/Offers, etc.

Requirements are higher – position becomes more valuable and challenging

• Attract a different set of internal candidates

Good Business and Technical skill set required

• Large data sets require a degree of technical ability

• Data Base queries

• Deeper spreadsheet analysis and manipulation skills

• Profit/Loss analysis often falls to Settlement Staff after ISO start

Don’t expect Shadow System to replace “Thinking” by staff

• These are great tools, but must be placed in the right hands