07/13/2012 Markets Committee

1. 07/13/2012 Markets Committee Aleks Mitreski Market Development Forward Capacity Market CSO Bilateral & Reconfiguration Auction Enhancements

2. Background • The ISO is evaluating several concerns that participants have raised regarding Capacity Supply Obligation (“CSO”) Bilateral transactions and reconfiguration auctions: • Timeframe for submission of CSO Bilateral transactions • Timeframe when Annual Re-Configuration Auctions (“ARA”) are held (this item is still being evaluated) • Allowing RTEG resources to shed CSO in an ARA(this item is still being evaluated)

3. Objective • There are two specific concerns regarding the current timeframe for submission of CSO Bilateral transactions: • Many bilateral transactions occur far in advance of the official submission window. Having the ability to record the transaction in the ISO’s bilateral system would be beneficial to participants. • Current implementation limits ability to submit multiple monthly or annual bilateral transactions at one time • The ISO has evaluated potential enhancements to accommodate these concerns and would like to collect input from stakeholders

4. CSO Bilateral Overview • A CSO bilateral transaction allows a resource to transfer/acquire CSO. The following rules constrain the submission of these transactions; • The transferring resource must have a CSO • The acquiring resource must have unobligated Qualified Capacity • The locations of the resources must meet the Capacity Zone constraints • Both parties associated with the bilateral transaction must meet financial assurance requirements • Each transaction must be submitted and confirmed by both parties during the official bilateral submission window in order to be evaluated by the ISO

5. Current CSO Bilateral Submission Timeframe • The annual bilateral submission window currently opens before and after an ARA (with exception to ARA3) • The monthly bilateral submission windows currently opens roughly a week before the Reconfiguration Auction • Layout of annual bilateral submission windows and ARAs for Commitment Period 2016-17

6. Example: Current CSO Bilateral Submission • The duration of the annual and monthly bilateral submission windows are: • 4.5 business days for annual bilateral transactions • 1.5 business days for monthly bilateral transactions • For example, the official annual bilateral submission window for ARA 2 opens Feb 4th and closes Feb 8th, 2015 • During the submission window, participants can submit new and confirm or cancel existing transactions • After Feb 8th, the ISO performs its reliability and financial assurance review and post results by March 15 Official Submittal window ISO Review Feb 4, 2015 Feb 8, 2015 March 15, 2015

7. Proposal: Overview • ISO is evaluating allowing participants to enter bilateral transactions in the ISO systems at any time prior to the official bilateral submission window • Participants can enter bilateral transactions for multiple months or years in advance of the official submission window • These are provisional, non-binding transactions because the ISO has not verified the available Qualified Capacity or CSO of the transacting resources • The final Qualified Capacity and CSO are available to the ISO shortly before the official submission window opens • By allowing submission of monthly bilateral transactions ahead of ARAs may result in resources no longer having CSO to transfer when the official submission window opens

8. Example: Proposed CSO Bilateral Submission • Timing for commitment period 2016-17 • The official annual bilateral submission window for ARA 2 opens Feb 4th and closes Feb 8th, 2015 • Participants can enter provisional bilateral transaction in advance of the official submission window after the FCA FCA for 2016-2017 Commitment Period Provisional bilateral transactions can be entered at any time Official Submission window ISO Review Feb 4, 2015 Feb 8, 2015 March 15, 2015 Feb , 2013

9. Proposal: Details • Once the official bilateral submission window opens, the ISO will verify the available Qualified Capacity and CSO for the existing provisional bilateral transactions • The bilateral transaction will be rejected if there is: • Insufficient Qualified Capacity on the acquiring resource, or • Insufficient CSO on the transferring resource • If Qualified Capacity and Capacity Supply Obligation is available, and both parties have already confirmed the transaction, then no further action from the parties is required

10. Proposal: Details (cont.) • Once the official submission window closes, the ISO will ensure that the transacting parties meet the financial assurance requirements • All confirmed transactions that meet the financial assurance requirements will have a reliability review performed by the ISO • Bilateral transactions that pass the reliability review will be accepted by the ISO and the CSO will be adjusted for each impacted resource • The date when the transaction was confirmed by both parties will be used as a tie-breaker (if needed)

11. Next Steps • The ISO will bring a formal proposal on these enhancements in the near future • There is no estimate when these changes could be implemented. • The ISO will continue to evaluate the remaining issues identified on the second slide of this presentation and will provide update to the stakeholder in the near future