Trading Hubs- Follow Up and Next Steps

From Trading Hubs Focus Group Meeting on 9/17/2015

Nick Parker nparker@spp.orgValerie Weigel - vweigel@bepc.com

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 Last Name First Name Email Attending

Cargill Power Markets LLC A Al alex_azanov@cargill.com Net Conference

Hoekman Austin austin.hoekman@mrenergy.com Net Conference

Municipal Energy Agency of Nebraska Cutsor Billy bjcutsor@nmppenergy.org Net Conference

Unrein Chad Unrein‐c.unrein@kcc.ks.gov Net Conference

Kansas City Power and Light Standifer Christopher chris.standifer@kcpl.com Net Conference

Daily‐mo@moe.com Net Conference

Municipal Energy Agency of Nebraska Beard Dave dbeard@nmppenergy.org Net Conference

Southern Company Services Olsen Erik elolsen@southernco.com Net Conference

Southwest Power Pool Guney Esat eguney@spp.org Net Conference

gsec‐tboatler@gsec.coop Net Conference

Hpanchamia Harsh Harsh‐hpanchamia@gsec.coop Net Conference

American Electric Power Lao Hongmou hlao@aep.com Net Conference

Lewis James Lewis‐lewisj@noblepower.com Net Conference

Genscape Verga Jarret jverga@genscape.com Net Conference

Kansas City Power & Light Company Flucke Jim jim.flucke@kcpl.com Net Conference

Customized Energy Solutions, LTD Krajecki Jim jkrajecki@ces‐ltd.com Net Conference

Southwest Power Pool Hyatt John jhyatt@spp.org Net Conference

Western Farmers Electric Cooperative Sullivan Kim k_sullivan@wfec.com Net Conference

Golden Spread Electric Cooperative, Inc. Nemoede Kristen knemoede@gsec.coop Net Conference

Lincoln Electric System Anderson Lee landerson@les.com Net Conference

Frisk‐Thompson Lorie lorift@bepc.com Net Conference

Southwest Power Pool Choate Marisa mchoate@spp.org Net Conference

Golden Spread Electric Cooperative, Inc. Moore Matt mmoore@gsec.coop Net Conference

Servera Max Servera‐max.servera@denverenergygroup.com Net Conference

Southwest Power Pool Bailey Micha mcbailey@spp.org Net Conference

Western Farmers Electric Cooperative Brown Natasha natasha.brown@wfec.com Net Conference

Mehta Neil Mehta‐neil.mehta@morganstanley.com Net Conference

Denver Energy, LLC Nagarsheth Raj raj.nagarsheth@denverenergygroup.com Net Conference

Powerex Corp Richard Randy randy.richard@powerex.com Net Conference

American Electric Power Garza Rene rfgarza@aep.com Net Conference

Seide Richard rseide@cinci.rr.com Net Conference

Nebraska Public Power District Pick Robert J. rjpick@nppd.com Net Conference

Sunflower Electric Power Corporation Chartier Ronald rchartier@sunflower.net Net Conference

ACES Power True Roy royt@acespower.com Net Conference

Cochran Seth cochran‐seth.cochran@dc‐energy.com Net Conference

Beach Scott Beach‐scott.beach@kcpl.com Net Conference

Boston Energy Trading and Marketing, LLC Maestranzi Stephen stephen.maestranzi@betm.com Net Conference

Enbridge Allen Travis travis.allen@enbridge.com Net Conference

Southwest Power Pool Sharp Zachary zsharp@spp.org Net Conference

Trading Hubs Focus Group Meeting - 9/17/15

Topics Discussed:1) Integrated System History and Makeup2) Makeup of SPP3) Background and Basin Electric 4) History of Existing Hubs & Protocol Requirements for New

Hubs5) Lack of SPP Trading Hub Liquidity and Brattle Study6) Trading Hub Survey Results7) Influences of Hedging & Dodd-Frank 8) Criteria for Successful Trading Hubs9) 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

8

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

9

IDEA GENERATION

The Issue ….

10

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?

Brainstorm - Causes of Low Liquidity at Trading HubsMarket 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

11

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

– Other markets provide far more transparency

• Scarcity Pricing

– 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 HubsMarket 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

14

| brattle.com15

15

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

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&reportTitle=ERCOT%20Market%20Information%20List&showHTMLView=&mimicKey

16

Next Steps1. SPP to provide list of registered Market Participants

– This information is provided on the SPP Marketplace Portal

2. Create list of Market Transparency desired by Market Participants

3. Schedule discussion with MWG and Financial participants to gain better insight financial perspective and to gain comparison of market constructs

4. Work with ICE to create:– North Hub Real Time product– 25MW transaction blocks– Physical products

5. Support RUC process improvements

17

18

THANK YOU!