Long Term FTR Auctions

1. Long Term FTR Auctions Markets Committee, Summer Meeting August 2003 Michael Taniwha Manager, Market Administration ISO New England Inc.

2. Agenda • What do the Rules Say • Neighboring Control Areas Long-term FTR Auctions • Long-term FTR Auction timetable • What period for the Annual Auction • Summary of Monthly FTR Auctions to date • 2003 Congestion Revenue Fund Refund • Questions

3. What do the rules say? • Market Rule 1 • Section 7 – Financial Transmission Rights Auctions • Clause 7.1.1 Auction Period and Scope of Auctions. • (a) requires within seven (7) months of SMD Effective Date first long-term auction to be held eg. before October 1st, 2003; • Publication of long-term auction schedule; and • Such schedule shall coordinate the start and end times of the long-term FTRs of neighboring Control Areas. • (b) after the initial long-term FTR auctions, FTR auctions shall be held on a annual and monthly basis. • 50% of the feasible transmission capacity (FTRs) shall be available in the annual FTR Auction.

4. Neighboring Control Areas Long-term FTR Auctions • PJM • Annual FTR Auction period is June 2003 - May 2004 • NYISO • Annual FTR (TCC) Auction period November 2003 - October 2004, May 2004 – April 2005 • 6 monthly FTR (TCC) Auction period May 2003 - November 2003, November 2003 - April 2004 • Other FTR Markets • CALISO • Annual FTR (Firm TR) Auction period April 2003 - March 2004

5. Long-term FTR Auctions timetable • First long-term FTR Auction will be for the period October 2003 – December 2003 (3 months) • Bidding period opens August 25th – 29th, 2003. • 50% of transmission capacity will be made available. • Remaining transmission capacity will be available in October, November & December monthly FTR auctions • Second long-term FTR Auction will be for period January 2004 to ????? 2004 • Bidding period opens November 21th – 28th, 2003. • 50% of transmission capacity will be made available. • Remaining transmission capacity will be available in the monthly FTR auctions

6. What period for the Annual Auction? • ISO is considering a four month period for the second long-term auction • Followed with the first Annual FTR Auction for the period May 2004 – April 2005 • Some feedback from Market Participants suggest a calendar year (January to December) would be better • So as to be synchronized with the Standard Offer load contracts? • What do Market Participants think?

7. Pro’s • Running Annual FTR Auction before Standard Offer period may increase liquidity in the auction • Market Participants bidding for Standard Offer contracts may be able to discount their bid if they have Annual FTR to back the contract • Annual FTRs not required could be resold on secondary market to other Standard Offer holders

8. Con’s • Only 50% capacity will be available in Annual Auction • May require Market Participant to bid for balance in monthly FTR auction • Horse and Cart issue - which comes first: • Obtain an Annual FTR first and then bid for Standard Offer; or • Obtain Standard Offer supply first and then bid for Annual FTR. • Annual FTRs on secondary market can only be sold after first being cleared in auction • FTR may not be available from secondary market • No formal linkage between timing of Standard Offer RFPs and a fixed annual FTR auction schedule

15. 2003 Congestion Revenue Fund Refund • Congestion Revenue Fund stands at approximately $19 million (year-to-date) • Congestion Revenue Fund balance as of December 31st, 2003 will be refunded as per Manual 28, rule 6.3.5 • To those who have paid Transmission Congestion costs throughout the year • December bill will include refund and will be sent out in January 2004

16. Questions?