FCM Offer Review Trigger Price Renewables Exemption Proposal

1. FCM Offer Review Trigger Price Renewables Exemption Proposal Abigail Krich, Boreas Renewables for RENEW Doug Hurley, Synapse Energy Economics NEPOOL Markets Committee Sept 13, 2011

2. Exemption Eligibility • New renewables that meet current Class I REC definition in any New England State • Solar thermal • Photovoltaic • Ocean thermal • Wave • Tidal • Marine or hydrokinetic • Hydro < 30 MW • Wind • Biomass, biofuels • Landfill gas • Anaerobic digester • Fuel cells • Geothermal

3. Renewable Resources in Past FCAs New summer capacity values cleared in previous FCAs (MW) Note: Values in table are to the best of my knowledge from ISO-NE FERC Filings. It is possible that the non-intermittent renewables numbers are higher than shown here or that some of these resources do not qualify for Class I RECs.

4. Exemption Mechanics • Allow FCA to clear, set Capacity Clearing Price • Post-auction, establish Alternative Capacity Price • ACP is the price that would have prevailed had the exempted resources submitted competitive offers • All offers below ACP clear, including those between CCP and ACP • All cleared offers receive a CSO for a prorated quantity such that no more than ICR is purchased

5. Exemption Mechanics Continued • All resources with a CSO paid the same price, the Alternative Capacity Price • Total FCA payments identical to the status-quo which has no renewables exemption • Exempted MWs that clear continue to be included in future ACP calculations until the need for new capacity displaces those MWs

6. Why Have A Renewables Exemption? Base Case Without Exemption Price Renewables unable to clear, capacity not recognized Capacity Clearing Price Duplicate, excess capacity purchased Quantity ICR

7. With An Exemption,Why Have Price Correction? Exemption Without Price Correction Price Exempted renewables Capacity Clearing Price (without exemption) Price suppression Capacity Clearing Price (with exemption) Quantity ICR

8. How Does Price Correction Work? Step 1: Renewables Exempt from Offer Review Trigger Price, FCA Clears Price Exempted renewables Capacity Clearing Price Quantity ICR

9. How Does Price Correction Work? Step 2: Renewables Re-priced to Determine Alternative Capacity Price Price Renewables re-priced to competitive or benchmark price Alternative Capacity Price Capacity Clearing Price Quantity ICR

10. How Does Price Correction Work? Step 3: Offers below ACP Clear, but this exceeds ICR which FERC rejected Price Excess above ICR Alternative Capacity Price Offers below ACP Clear Quantity ICR

11. Proration Eliminates Excess Capacity Step 4: All offers below ACP prorated to eliminate excess capacity Price Alternative Capacity Price Offers below ACP Clear, get prorated, receive ACP on prorated quantity Quantity ICR

12. Proration Eliminates Excess Capacity Step 4: All offers below ACP prorated to eliminate excess capacity Price Shaded area equals total FCA payments Alternative Capacity Price Offers below ACP Clear, get prorated, receive ACP on prorated quantity Quantity ICR

13. FCM Payments From Load Identical To Base Case Base Case Without Exemption Price Shaded area equals total FCA payments Capacity Clearing Price Quantity ICR

14. Previous Examples NOT To Scale! 100 MW Exempted Renewables Shown to Scale Price Excess above ICR requires proration 100 MW exempted renewables Alternative Capacity Price Offers below ACP Clear Quantity ICR ≅ 34,000 MW

15. Renewables Are So Small, Why Bother With Price Correction and Proration? Example 1: ICR Crosses Offer Curve At Level Point Price Renewables unable to clear Base Case Capacity Clearing Price Quantity ICR

16. Renewables Are So Small, Why Bother With Price Correction and Proration? Example 1: ICR Crosses Offer Curve At Level Point Price Exempted renewables No price difference, 0.3% proration ACP = CCP Quantity ICR

17. Renewables Are So Small, Why Bother With Price Correction and Proration? Example 2: ICR Crosses Offer Curve At Steep Point Price Renewables unable to clear Base Case Capacity Clearing Price Quantity ICR

18. Renewables Are So Small, Why Bother With Price Correction and Proration? Example 2: ICR Crosses Offer Curve At Steep Point Price Shielded from large price difference, same 0.3% proration Exempted renewables Alternative Capacity Price Capacity Clearing Price Quantity ICR

19. Why Price Correction and Proration? • Price correction • Needed to prevent potentially large price supression • Exemption without price correction leads to a large, unpredictable risk for suppliers • Proration • Allows price correction without purchasing excess above ICR • Ensures load pays no more than in the base case • Smaller, more predictable risk for suppliers than price suppression

20. Questions/Suggestions? Krich@BoreasRenewables.com Dhurley@Synapse-Energy.com