MAY 23,2014 | nepool markets committee

1. MAY 23,2014 | nepool markets committee Chris Parent cparent@iso-ne.com | 413.540.4599 Conforming compensation rules to support extending IS0-initiated audit rules to apply to dual fuel resources Dual-Fuel Resource Auditing

2. ISO-initiated audit rules will be extended to apply to dual fuel resources • Permanent audit rules enabling the ISO to: • Audit dual fuel resources at ISO’s initiative • Confirm operational readiness of the Generating Asset on a specific fuel • Obtain updated information about the maximum capability on a specific fuel • Obtain updated fuel switching information (if capable) • Utilizes the ISO-Initiated Audit structure except: • Audits will be announced and scheduled in advance unless unit runs on specified fuel in merit • Dual Fuel Resource Audits will inform better decision making and promote confidence in dual fuel resource reliability and flexibility Note: Audit rules are being discussed at the RC and compensation and cost allocation are being discussed at the MC

3. Resources will be compensated for any ISO-initiated Dual Fuel Resource Audits through real-time NCPC • Energy Market Offer Flexibility, effective December 1, 2014, will ensure resources are compensated properly • Appropriate fuel costs, depending upon effective offer, will be used in NCPC calculation • Prior to Energy Market Offer Flexibility, an interim compensation structure is necessary to compensate resources while auditing • Depending upon when the unit was eligible for NCPC, compensation will be based on an NCPC adjustment for either DA or RT included as part of real-time NCPC • Adjustment will use reference level fuel costs to compensate resources while operating on a specific fuel • The cost allocation will go through the existing mechanism for allocating costs for ISO-initiated audits pursuant to Market Rule 1, Section III.F.3.2.19 • Daily Real-Time Load Obligation (RTLO) excluding DARD pumps

4. Total real-time NCPC cost related to dual fuel auditing would be $7M annually • Assumptions • Only included units with natural gas listed as either primary or secondary fuel on NX-12 • Units start on primary fuel and can swap to secondary fuel without coming offline • Operate for one hour at EcoMax and the remainder of minimum run time at EcoMin • If daily cost > daily revenue, unit is paid NCPC. Costs include: • Start up cost as offered on primary fuel • Energy costs and No load cost as offered on secondary fuel • All costs are from Market Monitoring reference level data • Data is from 11/13/2013 – a day in which a dual fuel audit from last year’s winter program occurred; intended to reflect similar conditions to when audits may occur • Revenue is calculated using the average real-time Hub LMP from October and November of 2013 ($40.44)

5. Proposal Summary and Schedule • ISO-initiated audit rules will be extended to apply to dual fuel resources to ensure dual fuel resource capability • Resources will be compensated through real-time NCPC • Audit rules are being discussed at the RC and compensation and cost allocation are being discussed at the MC • Proposal would be effective for September/October 2014