March 23rd Reliability Committee Alternatives to Import Constrained Zonal Demand Curves

1. March 23rd Reliability Committee Alternatives to Import Constrained Zonal Demand Curves

2. Problem: • ISO’s proposed shift of zonal curve to “adjusted N-1” import limit exposes zones to very low price premiums despite potentially large shortfalls < TSA. • If Rest of System clears low, prices are insufficient to incent new entry, despite that reliability shortfall • Even if secure dispatches can be found, shortfall, TSA could severely limit transmission and generation outages, limit bilateral transactions, increase congestion and reserve shortages, and drive frequent MLCC2 and OP4 declarations exposing resources in import-constrained zone to unjust pay-for-performance risk. • Solution: • Shift zonal curve to position where curve crosses TSA at 0.3 x Net CONE • This provides a more reasonable compromise between today’s curve (TSA clears at the Auction Cap) and ISO’s latest proposal (TSA clears at ROS + $0.80) Zonal Curve Alternative

3. Proposed Zonal Curve Modification Proposed curve intersects TSA at 0.3 x Net CONE

4. Where TSA < LRA: No adjustment – use ISO’s curves • Where TSA > LRA: add a constraint: • Adjust the modeled import limit so that at the TSA, the zonal demand curve delivers a price = $0.3 x Net CONE. • If ISO’s curves naturally produce > $0.3 x Net CONE at TSA anyway (e.g. TSA is only slightly > LRA), then no adjustment is necessary. • This should help incent new entry, when needed, to avoid and minimize problems cited on Slide 1. Proposal Mechanics

5. New Slide Indicative NEMA (Congestion Pricing) Demand CurveUsing FCA 9 Inputs Notes: LSR = 3,572 MW for NEMA in FCA 9.

6. In FCA-7, ROS cleared at the $3.15 price floor, while the system was 3000 MWs long. (Note, if we were using the ISO’s proposed demand curve this would have produced an approximate $0.50 ROS Price.) There was insufficient Existing capacity in NEMA (3033 MW) to meet the TSA (3209 MW) Using ISO's curves for NEMA (slide 61 of their January Powerpoint), the price premium in NEMA would have been about 40 cents. So the NEMA price would have been ~$3.55 Footprint obviously would not have cleared, and 47 MW of New DR probably would not have cleared as well.  So we would have expected the zone to be about 180 MW short of the TSA.  If there were delists below $3.55, then it would have cleared even shorter. The ISO created a special deferral rule, for reliability reasons, to permit Footprint and potentially other resources, to defer their CSO by a year after Footprint stated they would not be able to secure financing for the project if they lost a year of their 5 year, $15 per KW-month rate lock. The ISO fought to retain the resource because without Footprint there would have been many n-1-1 violations. Note, that without Footprint the ISO would have met their N-1 reliability standard. FCA 7 Illustration

7. III.12.2.1.3 Marginal Reliability Impact Values for Import-Constrained Capacity Zones. Prior to each Forward Capacity Auction, the ISO shall determine the Marginal Reliability Impact of incremental capacity, at various capacity levels, for each import-constrained Capacity Zone. For purposes of calculating these Marginal Reliability Impact values, the ISO shall apply the same modeling assumptions and methodology used to determine the Local Resource Adequacy Requirement pursuant to Section III.12.2.1.1, except that the capacity transfer capability between the Capacity Zone under study and the rest of the New England Control Area determined pursuant to Section III.12.2.1.1(b) shall be reduced by the greater of: (i) the Transmission Security Analysis Requirement minus the Local Resource Adequacy Requirement; (ii) zero; and (iii) the capacity transfer capability necessary to ensure that the Capacity Zone Demand Curve specifies a price equal to 0.3 times Net CONE at the Transmission Security Analysis Requirement.