Proposed Changes to Bilateral Capacity Supply Obligation Transfer Rules

1. Proposed Changesto Bilateral Capacity Supply ObligationTransfer Rules NEPOOL Markets Committee June 10, 2009

2. Overview of Issue • Challenge for DR Providers in FCM is anticipating retail customer interest years in advance of Capacity Commitment Period (“CCP”). • Availability of Bilateral Capacity Supply Obligation (“CSO”) Transfer process increases flexibility, but ability to transfer still limited by location and resource type of existing Qualified Capacity. • CNE suggests more flexibility in the process in limited situations to encourage DR customer participation in FCM without adversely affecting reliability.

3. Overview of Mechanics • Qualified Capacity for Demand Resources is based on Load Zone and resource type (e.g., 25 MW RTDR in SEMA). • Under Bilateral CSO Transfer rules, a DR Provider must have unobligated Qualified Capacity from a Capacity Acquiring Resource to match with excess CSO from a Capacity Transferring Resource. • As a result, a DR Provider cannot acquire CSO from any Load Zone to serve a customer unless the Provider already has excess Qualified Capacity in the customer’s Load Zone and of the Customer’s resource type.

4. Three Scenarios Project Sponsor wishes to move CSOs between Load Zones without increasing the Project Sponsor’s overall CSO. Project Sponsor wishes to move CSO from one DR type to another within a Load Zone. Project Sponsor active in the DR market wishes to take over the CSO from a DR Provider that is either leaving the market or has not obtained enough customers to fulfill its entire CSO.

5. Scenario One - Proposal • Permit DR Providers to engage in internal Bilaterals between Load Zones, so long as such transfers do not increase the overall CSO of such DR Providers. • Excess Qualified Capacity would not be necessary for such transfers, but transfers would otherwise be subject to the same Bilateral rules. • DR Providers and customers would benefit by permitting DR Providers to move CSOs between Load Zones to better align supply with demand.

6. Permit DR Providers to move CSOs from one resource type to another (excluding RTEG) to align with actual sales, so long as such transfers do not change the Project Sponsors’ overall CSOs (e.g., CSO from OPDR moved to RTDR). Excess Qualified Capacity would not be required for such internal Bilateral CSO Transfers, but such transfers would otherwise be subject to Bilateral rules. DR Provider and customer would benefit from permitting such a transfer to better align supply with demand within a Load Zone. Scenario Two – Proposal

7. Scenario Three - Proposal Permit a DR Provider to engage in a Bilateral CSO transfer with another DR Provider within Load Zone and DR type. Excess Qualified Capacity would not be necessary for such transfers, but transfers would otherwise be subject to the same Bilateral rules. Both DR Providers, as well as existing customers of acquiring DR Provider, benefit from allowing such transfers to account for one DR Provider exceeding its projections and another either not meeting its projections or else wishing to leave the market.

8. Conclusion • Potential solutions serve to increase flexibility without adversely affecting reliability. • Such flexibility is needed in the case of DR in particular given the nature of the resources and the difficulty in anticipating customer interest so far in advance. • Absent such flexibility, DR Providers will be forced to turn some customers away while shedding other CSO, potentially discouraging future program participation.

9. Questions and Discussion