JuLY 11-13, 2012 | NEPOOL markets committee STOWE, VT

1. JuLY 11-13, 2012 | NEPOOL markets committee STOWE, VT Andrew Gillespie Principal analyst | market development 2nd Presentation FCM Compliance and Conforming Changes

2. Compliance Proposal Carry-forward Out-of-Market Capacity

3. Compliance Requirement • Carry-forward Out-of-Market (OOM) Capacity “OOM resources entering in FCA 6 or any subsequent FCAs prior to the implementation of the new rules will be carried forward under the existing rules and treated as new in the first auction in which offer floor mitigation is put into place.” • January 19 Order, 138 FERC 61,027 at P 47. • In practical terms, the objective is to have this OOM capacity participate in the primary FCM auction (FCA) so that it is subject to the same buyer-side mitigation as all other new capacity offers

4. Identification of Carry-Forward OOM • The OOM capacity in question is capacity that cleared in FCA 6 or FCA 7 that was either [based on Section III.13.2.7.8.1.1(c)]: • New self-supplied capacity, or • Capacity that cleared below 0.75xCONE and was found by the Internal Market Monitor (IMM) to be ineligible to set the clearing price (i.e., inconsistent with the costs reviewed by the IMM) • Capacity from ISO RFPs and capacity associated with Permanent De-List Bids and/or Non-Price Retirement Requests that have been rejected for reliability reasons is NOT included

5. Proposed Compliance Design Summary • When the minimum offer price rule is implemented, all OOM capacity resources will be assigned an offer floor price during qualification • Offer floor prices will be determined consistent with the provisions in Appendix A for reviewing new offers • New Section III.A.21 – part of prior redesign proposal (link to proposed Appendix A revisions – A07A MR 1 Appendix A Redlined 11-30-11) • Like all other new capacity offers, any OOM capacity resource with an offer floor price greater than $0.00/kW-mo will be included in the auction as a supply resource at the start of the descending clock auction

6. FCA 8 – Qualification • Like new resources, carried-forward OOM having an Offer Review Trigger Price can submit a New Capacity Qualification Package requesting an even lower offer floor price, subject to Internal Market Monitor review and approval • Also like new resources, carried-forward OOM not having an Offer Review Trigger price must submit, by the New Capacity Qualification Deadline, a request for an offer floor price , subject to Internal Market Monitor review and approval • Otherwise, the resource’s offer floor price will be set equal to the FCA Staring Price • And like the notification process for new resources, the offer floor price to be used in the auction will be included in the resource’s qualification determination notification • No other ‘new’ qualification requirement is intended to apply to carried-forward OOM

7. Design Summary – OOM ClearsFCA 8 Participation If, at the end of the auction, the OOM capacity has not been removed (i.e., the capacity cleared in the auction) : • The capacity will no longer be deemed OOM, and no further action or treatment will be taken • The resource will continue to be an existing resource

8. Design Summary – OOM Does Not ClearFCA 8 Participation If, at the end of the auction, the auction price is less than the OOM capacity’s offer floor price and the OOM capacity has been removed (i.e., the capacity did not clear in the auction), the following will be applied: • Any previous multi-year election made when this OOM capacity first cleared as new will be terminated as of FCA 8 • Any CSO for FCA 6 or FCA 7 will remain and will not be impacted by this determination • Going forward (beginning with FCA 9), this capacity will be deemed to have never previously been counted as capacity • In any subsequent FCA this OOM capacity must qualify and participate as new capacity (i.e., as if it has never been a capacity resource) • No other adjustment or modifications are intended • A resource’s Interconnection Agreement will not be adjusted based on this determination

9. FCA 9 – Qualification For carried-forward OOM removed from the auction in FCA 8: • In subsequent FCAs the resource must qualify and participate in the FCA as a ‘new’ resource • To become an ‘Existing’ resource it must clear the FCA • This does not mean that the status of the project/resource will be ignored during qualification • A resource that had, for example, become commercial and delivered on its CSO in FCA 6 or 7 would not have the same requirements as a yet-to-be-built project attempting to qualify for the first time • e.g., site control, critical path schedule, etc. • The ISO may waive the submission of any information not required for evaluation of a project [III.13.1.1.2.1 and III.13.1.1.2.2] • The qualification requirements are not meant to result in the modification of a resource’s Interconnection Agreement • Other circumstances may occur requiring modification, but the removal of the carry-forward OOM from FCA 8 is not intended, by itself, to be a cause for immediate modification

10. FCA 9 – Qualification & Overlapping Interconnection Impacts • Each resource will be evaluated/modeled according to its status • While there is no auction priority given to carried-forward OOM capacity/resources, some or all of the qualification requirements and resource parameters that are used in the overlapping interconnection impacts analysis may be different • Example: • Resource A is a yet-to-be built resource, with an Interconnection Request in the queue • Resource B is a resource already built and operational, and has a Capacity Network Resource Capability (the capacity ‘deliverability’ part of the Interconnection Agreement – explicitly or indirectly) • How each resource is evaluated in the overlapping interconnection impacts analysis is different • Resource A may or may not qualify based on the network upgrades necessary • Resource B has already gone through the queue, obtained a CSO, and satisfied the obligations necessary for the associated transmission network upgrades

11. FCA 9 – Participation For carried-forward OOM removed from the auction in FCA 8: • As previously described (Slide 6) • So affected resources (the carry-forward OOM) having an Offer Review Trigger Price can request an even lower offer floor price • If there is no applicable Offer Review Trigger price, the participant must submit by the New Capacity Qualification Deadline a request for an offer floor price • If the offer clears the auction • The resource will clear as ‘new’ • In subsequent FCAs the resource will be “Existing”

12. Conforming Changes Proposal

13. Conforming Change Proposals for FCM Redesign • Update administrative rate for Inadequate Supply or Insufficient Competition conditions • Specify Offer Review Trigger Price for resources comprised of different asset or measurement types • Capacity Export Through Import-Constrained Zones (CETICZ) Settlement

14. Conforming Change – Administrative Rate • Update the administrative rate paid to existing resources under Inadequate Supply or Insufficient Competition conditions • The April 13, 2011 order specified that the ISO replace 1.1 times CONE with: • 1.1 times Capacity Clearing Price from last FCA with adequate supply for Inadequate Supply conditions • 1.1 times Capacity Clearing Price from last competitive FCA for Insufficient Competition conditions • More appropriate is to replace the original CONE value with the Offer Review Trigger Price of a combustion turbine • This value more closely resembles the original and intended value of CONE and, thus, the intended administrative price to be paid existing resources under Inadequate Supply or Insufficient Competition conditions

15. Conforming Change –Offer Review Trigger Price for Resources Comprised of Different Asset Types • Specify treatment of resources with different asset types • Current qualification rules and procedures apply to new capacity resources made up of the same asset or measurement type • Proposed clarification is to specify that the higher applicable Offer Review Trigger Price will be applied to a qualified Forward Capacity Auction resource consisting of two or more different asset or measurement types

16. Conforming Change – CETICZ Settlement • The following settlement provisions regarding CETICZ transactions are inconsistent with the current settlement method • Section III.13.7.2.2.A • Charge Amount to Capacity Load Obligations in the Capacity Zone where Resource is located = Capacity Clearing Price location of the resource x Cleared MWs of Export Bid or Administrative Export De-list Bid] • Credit Amount to Capacity Load Obligations in the Capacity Zone where the export interface is located = Capacity Clearing Price location of the resource x Cleared MWs of Export Bid or Administrative Export De-list Bid]

17. Conforming Change – CETICZ Settlement, cont’d • The proposal is to remove outdated tariff language regarding the settlement of CETICZ transactions • The following three slides demonstrate the effect of the provisions cited (in Section III.13.7.2.2.A) and how removing these provisions align the tariff with the current settlement practice

18. FCM Cost Allocation – Example Without CETICZ Zone closed at LSR, @$5.00) 8,762 x 5 = 43,810 Over collection = 86,524 – 81,000 = 5,524 Over collection = residual CTR Settlement correct

19. FCM Cost Allocation – Example With CETICZ (1,000 MW in Import-Constrained Zone) + 1,000 CETICZSame system total Total Credit +$2,000 from case w/o CETICZ Load charge/credit based on price at resource’s zone (ROP) Charge to exporter based on price difference between zones Settlement correct – same as case w/o CETICZ, but amounts incorrect Was $38,286 Was $42,714

20. FCM Cost Allocation – Example With CETICZ CORRECTED(1,000 MW in Import-Constrained Zone) PROPOSAL – delete load charge/credit Settlement correct – same as case w/o CETICZ, and amounts are correct Was $38,286 Was $42,714

21. schedule

22. Tentative Schedule of Meetings and Events