ARR and FTR Overview. Revised: 2011

ARR and FTR Overview Revised: 2011

MISO Disclaimer The following training materials are intended for use as training materials only and are not intended to convey, support, prescribe or limit any market participant activities. These materials do not act as a governing document over any market rules or business practices manual. The data used in the examples is test data and should not be used to support market analyses. 2

Common Acronyms ARR Auction Revenue Rights BRSS Baseload Reserved Source Set FTR Financial Transmission Right GFA Grandfathered Agreement LTTR Long Term Transmission Right NITS Network Integration Transmission Service PRSS Peak Reserved Source Set POD Point of Delivery POR Point of Receipt PTP Point-to-Point RE Responsible Entity RSPs Reserved Source Points SFA Simultaneous Feasibility Analysis SFT Simultaneous Feasibility Test TSR Transmission Service Reservation 3

Course Outline FTR Concepts ARR Concepts Data Gathering and ARR Registration ARR Allocation Partial Year FTR Allocation Acquiring FTRs LTTR and FTR for Merchant Upgrades RSP Addition, Replacement and Termination Helpful Resources 4

FTR Concepts In this section we will discuss: What is an FTR? Characteristics of FTRs Why would you want an FTR? What an FTR is worth Using an FTR for Hedging How to get an FTR 5

FTR Concepts What is a Financial Transmission Right (FTR)? A financial instrument that allows Market Participants (MP) to hedge against the cost and uncertainty that may arise from congestion through the use of transmission in the Day-Ahead Market Can entitle the holder to a stream of revenue based on the congestion over the FTR path Can also impose a charge on the holder based on the direction of the congestion on the transmission lines Does not protect against congestion related to Real- Time scheduling or deviations from Day-Ahead 6

FTR Concepts FTR Characteristics The MISO currently issues obligation type source point to sink point FTRs to Market Participants Source point CPNode where a schedule originates Sink point CPNode where a schedule ends FTR Obligations are defined by: MW quantity Source and Sink point Generation node, hub, load zone, or interface point FTR term Beginning and end dates of the FTR FTR period Peak or Off-peak 7

FTR Concepts FTR Characteristics This simple example illustrates the definition of an FTR with the following characteristics: MW quantity = 100 MW Source = Point A Sink = Point B A B Source 100 MWs Sink 8

What is an FTR worth? FTR Concepts FTR Valuation FTRs have a monetary value which will be paid to (or owed by) the holder FTRs values are based on the difference between the Marginal Congestion Component (MCC) of the Day- Ahead LMP at the source and sink (MCC Sink MCC Source ) x FTR MW Energy Price (MEC) LMP LMP = MEC + MCC + MLC Congestion (MCC) Losses (MLC) 9

FTR Concepts FTR Valuation Exercise FTR with the following characteristics MW quantity = 100 MW Source = Point A Sink = Point B What is this FTR worth to the Market Participant? LMP: $ 27 LMP: $39 MCC: $ 5 MCC: $15 MLC: $2 MLC: $ 4 A B Source 100 MWs Sink 10

FTR Concepts FTR Valuation Exercise LMP: $27 LMP: $39 MCC: $ 5 MCC: $15 MLC: $2 MLC: $ 4 A B Source 100 MWs Sink The value of the FTR is calculated as: (MCC B MCC A ) x FTR MW Where: MCC B = $15 MCC A = $5 =(15-5) x 100 = $1,000 credit 11

FTR Concepts FTR Valuation Exercise 2 FTR with the following characteristics: MW quantity = 100 MW Source = Point A Sink = Point B What is this FTR worth to the Market Participant? LMP: $ 27 LMP: $39 MCC: $ 15 MCC: $5 MLC: $2 MLC: $ 4 A B Source 100 MWs Sink 12

FTR Concepts FTR Valuation Exercise 2 LMP: $27 LMP: $39 MCC: $ 15 MCC: $5 MLC: $2 MLC: $ 4 A B Source 100 MWs Sink The value of the FTR is calculated as: (MCC B MCC A ) x FTR MW Where: MCC B = $5 MCC A = $15 =(5-15) x 100 = $-1,000 charge 13

FTR Concepts FTR Hedging What is an FTR used for? Market Participants use FTRs to hedge against congestion charges they may be entitled to pay in the Day-Ahead Market Hedging is making an investment in order to reduce the risk of adverse price movements in the future 14

FTR Concepts FTR Hedging There are three types of hedges, depending on the characteristics of the FTR Partial (under hedged) FTR payments from the MISO cancel out a portion of transmission congestion charges Translates to being under hedged, or exposed, to transmission congestion charges Full Hedge FTR payments from MISO exactly cover transmission congestion charges Net congestion charges and uncertainty is zero Excess (over hedged) FTR payments from MISO exceed transmission congestion charges 15

Full Hedge FTR Concepts FTR Hedging Example Bilateral transaction from point A to B for 10 MW FTR owned on same path for full 10 MW Exposure limited to transmission losses when transaction and FTR match Description Transaction Congestion Charge Description Sink (15 Source Source - 5 ) Sink * M W 10 M W = Total 100 Total LMP: $ 27 MCC: $ 5 MLC: $ 2 A LMP: $33 MCC: $10 MLC: $ 3 C B LMP: $39 MCC: $15 MLC: $ 4 FTR Target Credit ( 5-15 ) * 10 = -100 NET = 0 10 MWs Source FTR = 10 MW Sink 16

Partial Hedge 1 Description Transaction Congestion Charge Description FTR Target Credit FTR Concepts FTR Hedging Example Bilateral transaction from point A to B for 10 MW FTR owned on DIFFERENT path for full 10 MW FTR provides partial hedge for congestion costs Sink (15 Source ( 5 Source - 5 ) Sink - 10 ) * * M W 10 M W 10 = = Total 100 Total -50 NET = 50 LMP: $ 27 MCC: $ 5 MLC: $ 2 A Source LMP: $33 MCC: $10 MLC: $ 3 10 MWs C B FTR Sink LMP: $39 MCC: $15 MLC: $ 4 Transaction Sink 17

Partial Hedge 2 FTR Concepts FTR Hedging Example Bilateral transaction from point A to B for 10 MW FTR owned on same path for LESS MW (7 MW) Result is partial hedge as there is some exposure congestion costs Description Transaction Congestion Charge Description FTR Target Credit Sink Source (15-5 ) Source Sink ( 5-15 ) * * M W 10 M W 7 = = NET = 30 Total 100 Total -70 LMP: $27 MCC: $ 5 MLC: $ 2 A Source LMP: $33 MCC $10 MLC: $ 3 10 MWs FTR = 7 MW C B LMP: $39 MCC: $15 MLC: $ 4 Sink 18

Over Hedged FTR Concepts FTR Hedging Example Bilateral transaction from point A to B for 5 MW FTR owned on same path for MORE MW (7 MW) Result is over hedging as FTR amount exceeds transaction amount Description Transaction Congestion Charge Description FTR Target Credit Sink Source (15-5 ) Source Sink ( 5-15 ) * * M W 5 M W 7 = = NET = -20 Total 50 Total -70 LMP: $27 MCC: $ 5 MLC: $ 2 A Source LMP: $33 MCC: $10 MLC: $ 3 5 MWs FTR = 7 MW C B LMP: $39 MCC: $15 MLC: $ 4 Sink 19

FTR Concepts FTR Summary FTRs are financial instruments, not physical rights Don t give owners right to schedule use of MISO transmission Independent of fees associated with transmission service reservations Hedging mechanism against risk of congestion charges in the Day-Ahead market Entitles holder to a stream of revenue or charges Does not protect Market Participants from congestion charges related to Real-Time scheduling or Day-Ahead deviations MISO calculates congestion credit based on the MCC of the Day-Ahead LMP Does not hedge against transmission loss charges Credits paid to FTR owner provided that congestion payments are collected to fund all target congestion credits for FTRs 20

ARRs ARR Concepts What is an ARR and why would I want one? Who can get an ARR? Types and Characteristics What is an ARR worth? ARRs used for Hedging How to get an ARR 22

ARR Concepts What is an Auction Revenue Right (ARR)? An ARR is a Market Participant s entitlement to a share of the revenue generated in the annual FTR auctions Allocated to Market Participants based on firm historical usage of the MISO transmission system Can be a revenue or charge based on the annual FTR auction clearing price of the ARR path 23

ARR Concepts ARR Characteristics The MISO currently issues obligation type ARRs to Market Participants ARR Obligations are defined by: MW quantity Source (generation node, hub, load zone, or interface point) Sink The sink of an ARR is an ARR zone ARR term Start and end date ARR period Peak or Off-peak 24

ARR Concepts ARR Valuation The value of an ARR is determined by the clearing prices at the source and the sink in the Annual FTR Auction ARR Value = (Shadow Price Source - Shadow Price Sink ) x ARR MW The shadow price at a node in the FTR Auction represents the price of 1 MW of an FTR with its source at that node The FTR model neglects transmission line losses so the price is representative of the difference in congestion at source and sink 25

ARR Concepts ARR Valuation Exercise ARR with the following characteristics MW quantity = 10 MW Source = Point A Sink = Point B What is the value of the ARR? C -$5/MW A $25/MW Source B -$15/MW Sink 26

ARR Concepts ARR Valuation Exercise A $25/MW Source ARR = 10 MWs B -$15/MW Sink The value of the ARR is calculated as: (SP A SP B ) x ARR MW Where: SP A = $25 SP B = -$15 =-(25-(-15)) x 10 = -$400 (credit) 27

ARR Concepts ARR Hedging ARRs constitute a hedging mechanism against price uncertainty in the FTR auction ARRs provide a Market Participant with the dollar amount required to purchase FTRs in the FTR Auction ARRs are allocated based on historical usage of the transmission system but that usage can change over time As the usage deviates from the ARR path, Market Participants may acquire FTRs in the Auction that do not exactly match their ARRs, in order to obtain a closer congestion hedge in the Day- Ahead Market 28

ARR Concepts ARR Hedging There are three types of hedging, depending on the characteristics of the ARR Partial (under hedged) Full ARR payments from MISO cancel out a portion of the cost of acquiring FTRs in the Auction, which translates to being under hedged or exposed to FTR price uncertainty ARR payments from MISO exactly cover the cost of acquiring FTRs in the auction Market Participant may directly self-schedule its ARRs, without entering a bid into the FTR Auction Net charges and uncertainty is zero Excess (over hedged) ARR payments from MISO exceed the cost of acquiring FTRs in the auction 29

ARR Concepts ARR Full Hedge Example Market Participant X historically serves load at B with Resource A MP holds an ARR from A to B for 10 MW In year 1, MP X continues serving its load from A and wants to acquire 10 MW of FTRs to hedge against Day-Ahead congestion charges MP X chooses to Self-schedule it s ARR The shadow prices at A and B in the FTR Auction are $20 and $15 per MW By SS the ARR, the purchase price of the FTR will be equivalent to the amount received in ARR payments (SP A SP B ) x ARR MW = (20-15) x 10 = $50 Shadow Price: $ 20 Shadow Price: $ 15 A 10 MWs B Source Sink 30

ARR Concepts ARR Partial Hedge Example The next year, MP X serves its load at B with new Resource C MP X holds 10 MW of ARRs from A to B, but wants an FTR via Auction from C to B for 10 MW The shadow prices at A, B, and C in the FTR Auction are $20,$15 and $23 per MW, respectively The cost of acquiring the FTR ($8/MW x 10 MW = $80) exceeds MP X ARR payments ($5/MW x 10 MW = 50) Shadow Price: $ 23 C Shadow Price: $ 20 Shadow Price: $ 15 10 MWs A B Source Sink 31

ARR Concepts ARR Over Hedge Example In year 3, MP X serves its load at B with new Resource D MP X holds 10 MW of ARRs from A to B, but wants an FTR via Auction from D to B for 10 MW The shadow prices at A, B, and D in the FTR Auction are $20,$15 and $16 per MW, respectively The cost of acquiring the FTR ($1/MW x 10 MW = $10) is less than MP X ARR payments ($5/MW x 10 MW = 50) Shadow Price: $ 16 D Shadow Price: $ 20 Shadow Price: $ 15 10 MWs A B Source Sink 32

ARR Concepts ARR Summary ARRs are financial instruments, not physical rights Do not give owners the right to schedule physical use of the transmission system Independent of fees associated with transmission service reservations Hedging mechanism to manage the uncertainty of the cost of acquiring FTRs Entitles holder to revenue or charges based on the price of the FTR in the FTR auction Do not protect Market Participants from congestion charges in the Day-Ahead or Real-Time markets 33

Data Gathering & ARR Registration Data Gathering ARR Registration Nomination for Allocation Establish Eligible Transmission Services Convert Transmission Services to ARR Entitlements Request Candidates for Allocation from ARR Entitlements Establish Sources (RSPs) Establish ARR zones (Sinks) Determine distribution of RSPs within a zone Allocation of FTRs/ARRs 35

Data Gathering* Data Gathering and Annual ARR Registration** establishes which transmission services are eligible to participate in the ARR/FTR Allocation Data gathering is based on a Reference Year Reference Year is the year that is used by MISO to determine the initial ARR Zones and ARR Entitlements Establishes a qualified set of ARR Points of Delivery (sinks) and Resources (sources) Determines ARR Zones and Reserved Source Points (RSP) Determines which RSP are Baseload (BRSS) and which are Peak (PRSS) *Data Gathering is done only once at the time of the new member integration **Annual ARR Registration is done annually prior to each annual ARR Allocation 36

Data Gathering Business Rules Transmission services eligible for obtaining FTRs/ARRs in the Allocation Network Integration Transmission Service (NITS) valid during the Reference Year Yearly firm Point-to-Point (PTP) transmission service valid during the Reference Year Grandfathered Agreements (GFAs) 37

Data Gathering Business Rules Depending on the terms on the NITS/PTP/GFA contract, ARR Zone representing its Point of Delivery (POD) will fall under one of two categories Category 1 ARR Zone will correspond to the Balancing Area(s) (BAs) specified in the NITS contract that existed during the Reference Year Category 2 ARR Zone can be requested by an entity if BA is split into multiple states or, {The sink is a load zone or a subset of the load points (EPNodes) of a Category 1 ARR Zone is specified in the contract and, A set of generation resources serving the load zone or load points is specified in the contract} 38

Data Gathering ARR Zones and RSPs ARR Zones are geographic areas defined for the purpose of allocating ARRs based on where Market Participants served their load during the Reference Year Reserved Source Points (RSP) are Resources historically used by Market Participants to serve load in an ARR zone Must be a valid CPNode in the MISO Commercial Model Must meet the Resource Qualification Requirements (RQR) RSPs are associated to an ARR zone RSP RSP RSP RSP ARR Zone 2 RSP RSP ARR Zone 1 RSP MISO Footprint RSP ARR Zone 3 RSP 39

Data Gathering BRSS and PRSS MISO then determines if the RSPs are Peak or Base Baseload Reserved Source Set (BRSS) A set of RSP Resources that supply a Market Participant s baseload in an ARR Zone To be in the BRSS, the RSP must have a Capacity Factor of at least 50% Capacity factor is the ratio of the average load on a generating unit for a specific period of time related to the maximum it could have produced over that time Peak Reserved Source Sets (PRSS) The Peak Reserved Source Set (PRSS) is the set of all RSPs associated to an ARR zone (including those in the BRSS) Stage 1A only Allocates ARR Entitlements associated with BRSS RSPs ARR entitlements associated with PRSS are nominated and allocated in stage 1B of the Allocation 40

Data Gathering Excel Templates Market Participants are required to provide information that will establish: ARR Zones Reserved Source Points (RSPs) Baseload Reserved Source Set (BRSS) based on the capacity and scheduling factor information This information will be collected using Excel Templates prepared by MISO and filled out by Market Participants Walkthrough of the data gathering 41

ARR Registration Transmission Entitlements Transmission Service that has undergone the MISO registration process and has qualified for ARRs ARR Entitlements The transmission usage, transmission upgrades, or other basis for Market Participant s right to nominate and be allocated ARRs Candidate ARRs ARR nominations submitted by Market Participants to be considered throughout the Annual ARR Allocation process ARR A Market Participant s entitlements to a share of the revenue generated in the annual Financial Transmission Rights Auctions 42

ARR Registration Registration is the process of converting eligible transmission entitlements into ARR Entitlements which can then be nominated by the Market Participant in the ARR Allocation Transmission entitlements are derived from a Market Participant s transmission contracts Market Participants that are eligible for ARRs must participate in Registration to receive them The initial year of ARR Allocation has a two step Registration process Step 1: Initial data gathering Step 2: Registration process * ARR Registration process after first year will consist of only Step 2 43

ARR Registration Now that the data has been collected, the MISO works with Market Participants to establish the initial set of Transmission Entitlements that are eligible for ARR allocation A Transmission entitlement is a Market Participants right to transmission service per the Energy Market Tariff (EMT) Transmission services eligible for conversion to ARRs must be registered with the MISO Point-to-Point Firm Transmission Service Network Integration Transmission Service Grandfathered Agreements (GFAs) Registration consists of validating transmission entitlements, definition of ARR Entitlements, and signoff by Asset Owners Transmission services confirmed after the ARR Registration period not eligible for ARR allocation 44

ARR Registration Market Participants use the ARR Admin tool to Validate and signoff on the list of Transmission Entitlements Define their ARR entitlements Transmission Entitlements Entitlement Definition ARR Entitlements 45

Course Outline FTR Concepts ARR Concepts Data Gathering and ARR Registration Annual ARR Allocation Partial Year FTR Allocation Acquiring FTRs LTTR and FTR for Merchant Upgrades RSP Addition, Replacement and Termination Helpful Resources 46

Annual ARR Allocation The annual ARR Allocation is a process in which eligible Market Participants can nominate and receive ARRs (subject to SFT*) based on their firm historical usage of the MISO administered transmission system *SFT Simultaneous Feasibility Test Data Gathering Registration Nomination 1 2 3 47

ARR Allocation Nomination Nomination of a Candidate ARR (CARR) Market Participants nominating on ARR Entitlements are candidate ARRs Market Participants nominate separately for each of the eight periods Nominations are financially binding if the CARR is allocated 48

ARR Allocation Nomination ARRs will be allocated once a year, for eight different periods: Four seasons Summer: June, July, August Fall: September, October, November Winter: December, January, February Spring: March, April, May Peak and Off-Peak Four stages of the Nomination process Stage 1A Restoration (MISO re-nominates) Stage 1B Stage 2 (no Nomination) ARR Allocation utilizes a Simultaneous Feasibility Analysis (SFA) 49

ARR Allocation Stage 1A Stage 1A is the nomination of ARR entitlements which have a source at a base loading resources (BRSS) ARRs allocated in this stage are called Long Term Transmission Rights (LTTR) Allocated Stage 1A ARRs are guaranteed for the next year s allocation, as long as they are nominated (requested) 50

ARR Allocation LTTR Restoration and Termination LTTR Restoration involves: Restoration of Market Participant s Stage 1A CARRs curtailed in its year 1 Annual ARR Allocation ( year 1 Stage 1A CARRs ) Restoration of candidate LTTRs* curtailed in a Market Participant s year 2 and ensuing Annual ARR Allocations *Candidate LTTR is the re-nominated LTTR into the Stage 1A of the next Annual ARR Allocation period. LTTR is the allocation of the Stage 1A CARR (Stage 1A ARR) and Counterflow ARR for the current Annual ARR Allocation period 51

ARR Allocation LTTR Restoration and Termination LTTR Termination involves: Counterflow ARR allocation Processing of a Market Participant s LTTR termination requests in its year 2 and ensuing Annual ARR Allocations The termination process attempts to restore candidates (described in previous slide) based on any available Counterflow ARR Entitlements, and in conjunction with its attempt to maximize, subject to simultaneous feasibility, the termination of the LTTRs for which LTTR termination requests were made during Stage 1A 52

ARR Allocation Stage 1B and 2 Stage 1B allows MPs to nominate up to 100% of their entitlements that are not already allocated in Stage 1A Stage 2 - Assignment of rights to a share of the excess FTR auction revenue based on each Market Participant s unallocated eligible MW Market Participants that did not receive ARRs for their full allocation eligibility, will receive a share of the excess FTR Auction revenue FTR Auction excess revenue is the dollar amount held by the MISO after receiving and making payments associated to Bids and offers cleared in the auction and Allocated ARRs The value of Stage 2 ARRs is given by MP Stage2 Re venue = MP Stage 2 MW Total Stage 2 MW FTR Auction Excess Revenue 53

ARR Allocation Nomination Summary Data Gathering Registration Nomination 1. ARRs are allocated in 4 different stages (Stage 1A, LTTR Restoration and Termination, Stage 1B and Stage 2) 2. ARRs are allocated for 8 periods 4 seasons times both peak and off-peak periods 54

Partial Year FTR Allocation Partial Year FTR Allocation is conducted for entities integrating into MISO in the middle of the FTR planning year (planning year spans June 1 - May 31 of following year) Partial Year FTR Allocation is a single stage allocation (as opposed to multi-stage in annual ARR Allocation) with 100 % of available transmission capacity (base loaded with existing FTRs from most recent Annual FTR Auction) 56

General Process Flow for Partial Year FTR Allocation Data Gathering ARR Registration Partial Year FTR Allocation Monthly FTR Auctions Annual ARR Allocation 57

Partial Year FTR Allocation Process It is a single Stage Allocation up to Peak Usage Allocation of FTRs as opposed to ARRs for the remainder of the current Allocation Period Nomination submitted by Market Participants in spreadsheets MISO conducts Allocation SFT MISO publishes allocated FTRs effective with the integration date 58

Partial Year FTR Allocation Subsequent Monthly FTR Auctions Entities of the new ARR Zone can participate in the subsequent Monthly FTR Auctions Monthly FTR Auction conducted every month for the upcoming month 2 monthly products cleared (peak/off-peak for the next month) Details can be found in the Acquiring FTRs section 59

FTR Concepts FTR Acquisition FTRs may be acquired in several ways Purchasing in an FTR Auction By self-scheduling ARRs into the Annual FTR Auction Through the Secondary Market Funding expansion of the transmission system 61

Acquiring FTRs FTR Auction MISO conducts FTR auctions Annually Prior to the beginning of each planning year Total of 8 separate auctions in each round peak and off-peak for each of 4 seasons Monthly Prior to the beginning of each month Total of 2 separate auctions peak and off-peak for the month FTRs are acquired or sold into an auction only for the valid period of the auction An FTR valid for all three months of the Spring can be sold in the March FTR Auction: the selling entity will maintain ownership of the FTR for April and May 62

Acquiring FTRs FTR Auction Participants buy from and sell to the available pool of system FTR capacity No direct FTR trades between sellers and buyers in the FTR Auction Each FTR entered into an auction must be valid over the whole period of the auction Entire season for annual auction Entire month for monthly auction 63

Acquiring FTRs Annual FTR Auction Annual FTR Auction is performed in 3-rounds for each of the 8 periods Round 1 Third of the available capacity is sold Round 2 Half of the remaining capacity is sold Round 3 All of the available capacity is sold During Round 1, Stage 1 ARRs may be selfscheduled Self-scheduled ARRs are automatically converted into FTRs for the self-scheduled MW amount Infeasible ARRs can not be self scheduled 64

Acquiring FTRs Annual FTR Auction An FTR submitted as a bid or an offer is specified by: Bid/Offer Curve MW amount and price pairs up to 10 pairs Bid/offer and clearing prices are in $/MW-Season or $/MW- Month for all the peak or off-peak hours of the period Source-sink Peak or Off-Peak Maximum of 3000 bids (buys and sells combined) per auction (one season or month) 65

Acquiring FTRs FTR Auction Objective of Auction is to determine winning bids (to buy) and offers (to sell) FTRs Maximize value of transmission system Buy Bids ( Bid Price*MW) ( Offer Price*MW) Cleared (buy) bids are higher or equal to the clearing price Sell Offers Cleared (sell) offers are lower or equal to the clearing price Subject to simultaneous feasibility with n-1 security MW limits on all monitored elements Accounting for already-taken transmission capacity 66

Acquiring FTRs FTR Auction The bid curve for an offer to sell FTRs into the auction is non-decreasing Quantity (MW) Price ($/MW) 60 Sell Offer 0 15 50 5 15 50 35 75 35 Price ($/MW) 40 30 20 10 100 50 0 0 20 40 60 80 100 120 Quantity (MW) Up to 100 MW will be sold Nothing if the clearing price of the offered path is under $15/MW Between 0 and 5 MW if the price is $15 Between 5 and 50 MW if the price is between $15 and $35 Between 50 and 75 MW if the price is $35 Between 75 and 100 MW if the price is between $35 and $50 100 MW if the price is $50 or more 67

Acquiring FTRs FTR Auction The bid curve for a bid to buy FTRs from the auction is non-increasing Quantity (MW) Price ($/MW) 0 50 10 10 30-15 80-15 Price ($/MW) 60 50 40 30 20 10 0 Buy Bid Up to 80 MW will be bought Nothing if the clearing price of the offered path is above $50/MW Between 0 and 10 MW if the price is between $10 and $50 Between 10 and 30 MW if the price is between -$15 and $10 Between 30 and 80 MW if the price is below -$15-10 0 20 40 60 80 100 A negative clearing price represents a payment to the buyer -20 Quantity (MW) 68

Acquiring FTRs Secondary Market MISO will run a bulletin board to facilitate a Secondary Market Offers to sell FTRs may be posted daily Bids to buy FTRs may be posted daily Participants contact each other to negotiate terms of the trade outside of the MISO Bulletin board is cleaned/erased every day at midnight (EST) by the MISO Following a trade, participants may request that the MISO register the change in ownership Transfers of ownership to MPs and after all applicable credit requirements have been satisfied MISO recognizes and registers each change in ownership Adjusts buyer's and seller's accounts, settlement statements and invoices 69

Acquiring FTRs Secondary Market Ownership Transfer can include changes in the following components: MW Quantity Date but not less than 1 day No other FTR details can change The following cannot be reconfigured: Source and Sink Period (peak or off-peak) 70

LTTR and FTR for Merchant Upgrades MPs that fund transmission expansion projects and have not elected to receive credits under Attachment FF of the EMT may request Incremental allocation of FTRs and LTTRs Up to the additional transmission capacity created by the Network Upgrade(s) Consistent with the existence of FTRs and LTTRs previously issued If a MP intends to fund the network upgrades necessary to make feasible otherwise infeasible ARRs, the MISO will provide them with a detailed description of such upgrades The MP may then utilize existing EMT provisions in Attachment FF to be compensated for the upgrade or request FTRs and LTTRs 72

LTTR and FTR for Merchant Upgrades Projects that qualify for FTRs and LTTRs need to be included in the Network Model MPs will collaborate with the relevant Transmission Owners to submit the network upgrade information to the MISO prior to the cut-off date for the model release MPs may select any set of ARR sources and sinks for the incremental FTRs and LTTRs request. MPs may request the creation of a new pair of source and sink CPNodes for transmission upgrades with a construction cost in excess of $1 million 73

LTTR and FTR for Merchant Upgrades The MISO will perform the Simultaneous Feasibility Test (SFT) for the requested paths using the most recent Annual ARR Allocation models The SFT will ensure that any previously allocated LTTRs are not degraded This process may award a set of LTTRs for the network upgrade The awarded LTTRs will be automatically converted to FTRs for the remainder of the current allocation period 74

RSP Addition, Replacement and Termination RSP Replacement: Allows Market Participants to terminate an existing RSP and any associated ARR Entitlements, ARRs and LTTRs, and replace it with a new RSP RSP Addition: Allows Market Participants to add a new RSP New RSP for replacement or addition subject to eligibility rules and SFT process RSP Termination: Allows Market Participants to terminate an RSP corresponding to a retiring (or retired) Generation Resource or an expiring (or expired) longterm power purchase agreement (PPA) subject to termination eligibility rules 76

Helpful Resources Definitions Auction Revenue Rights (ARR): A Market Participant s entitlements to a share of the revenues generated in the Annual FTR Auction Long-term Transmission Right (LTTR): ARRs allocated in Stage 1A of the Annual ARR Allocation process. LTTRs carry annual rollover rights lasting ten (10) years or more Reference Year: March 1, 2004 to February 28, 2005 (for existing Market Participants as of 6/1/08) Four most recent seasons prior to ARR Registration process for the integration of a new member Baseload usage: 50% of the forecasted peak load for a Market Participant (MP) for the upcoming allocation year ARR Zones: Electrical areas defined for the purpose of allocating ARRs based upon locations where a Market Participant serves Load 78

Helpful Resources Definitions Reserved Source Point (RSP): A resource that has met the Resource Qualification Requirements for an ARR Zone Peak Reserved Source Set (PRSS): All Reserved Source Points corresponding to an ARR Zone Baseload Reserved Source Set (BRSS): RSPs that have 50% or greater capacity/scheduling factor ARR Entitlement: The transmission usage, upgrades or other basis for Market Participant s right to nominate and be allocated ARRs Eligible Base ARR Entitlements: ARR Entitlement sourcing at a Baseload RSP with an average capacity/scheduling factor of 70% or greater 79

Helpful Resources Websites www.misoenergy.org http://extranet.midwestiso.org Documentation on www.misoenergy.org Guiding documents (e.g. Business Practice Manuals, Tariff) Technical Infrastructure and Implementation documents Technical specifications Testing information Market Registration documents Client Account Representatives are assigned to each Market Participant 80

References FTR/ARR related documentation www.misoenergy.org > Markets and Operations > Market Information > Financial Transmission Rights and Auction Revenue Rights ARR BPM 004 - FTR and ARR Registration User Manual FTR User Manual Contact the FTR group at FTRServices@midwestiso.org 81

Client Relations: Helpful Resources Issues and Questions Call - 866-296-6476, Option 1 E-mail clientrelations@midwestiso.org Network Operations Center (NOC): Call - 866-296-6476, Option 2 Report Portal, Dispatch and AGC Outages 24x7 Report other items during MISO business hours 82