Forming the Northeast RTO “History and Market Evolution”

1. Forming the Northeast RTO“History and Market Evolution” Gordon van Welie President and Chief Executive Officer ISO New England Inc. March 15, 2002

2. Regional Transmission Organization (RTO)- History • January RTO Filings • ISO - New England, New York ISO, PJM all filed for RTO status • July 12, 2001 FERC Order • Conveyed a new vision for larger regional markets: the four RTO model • Mediation Process • Largely a forum for individual interests • State and Congressional Involvement • Weighed in on FERC’s July 12, 2001 Order • Northeast RTO Discussions • Three Boards unable to reach common vision for NERTO despite good faith efforts, ISO-NE, NYISO forge ahead with common market design

3. On January 28, 2002, the Boards of ISO-NE and NYISO signed an agreement to develop a common electricity market and evaluate the development of a Northeast RTO. A formal alliance is made between ISO New England and NYISO

4. NYISO and ISO-NE committed to: • Developing a common NY and NE energy market consisting of: • Single Day Ahead and Real Time Markets • A New England-based “Standard Market Design” and best practices (incorporating changes required by FERC Market Design rulemaking) • Evaluating the economic benefits and system reliability implications of a NYISO & ISO-NE RTO. • Submitting a filing to FERC by June 30th. • Preparing a comprehensive integration plan.

5. Benefits to the Northeast • Holds the promise of operational and economic benefits for stakeholders across the Northeast, including: • Builds on the longstanding relationship between ISO-NE and NYISO to rapidly bring the benefits of an open market to the Northeast. • Improved market efficiencies; • Efficiency gained from combining the two grids under one operator; • Improved long-term planning and investment in transmission capacity; and, • Formally integrates an already “natural” electric market, both from a physical assets perspective and from a market policy perspective. • Facilitates the formation of an RTO under FERC Order 2000.

6. Three Key Objectives Economic & Security Evaluation Integration Plan RTO Filing RTO Stakeholder Collaboration Regulator Review FERC Filing June 30, 2002 Ongoing Integration Effort

7. Possible Northeast Market Evolution (including Canada) CONSOLIDATE MARKETS STANDARDIZE MARKET DESIGN Stage 3 – Consolidated Market IMO Value Creation Stage 2 - NY Implements SMD 2.0 IMO NPCC IMO SMD2.0 ? IMO IMO Stage 1 - NE Implements SMD 1.0 NPCC NYISO ISO-NE SMD2.X IMO ISO-NE NYISO IMO IMO IMO SMD2.0 SMD 1.0 MACC NYISO ISO-NE PJM NPCC Stage 0 - Current State Markets MACC PJM NY SMD 1.0 IMO IMO IMO IMO MACC PJM NPCC NYISO ISO-NE NY NEPOOL Note: The extent of standardization within the Canadian market is still to be addressed. The intent is to create seamless markets, however, the Canadian entities require flexibility on the degree of convergence with U.S. markets. PJM MACC PJM Timing Month 24 Month 36 Month 12

8. Forming the Northeast RTO“RTO Planning” William J. Museler President and Chief Executive Officer New York Independent System Operator March 15, 2002

9. Driving Principles for Planning Efforts • ENSURE STAKEHOLDER INPUT • Maximize reuse - take maximum advantage of existing resources, infrastructure, systems andintellectual property of the two ISOs. • Incorporate an orderly, risk-managed transition to the RTO vision. • Maintain integrity of current markets and system reliability. • Adhere to baseline principles in the Mediation Report.

10. June 30th Filing • Early June: Complete presentation of the RTO Plan to New York and New England regulators and stakeholders. • The ISOs hope that the Transmission Owners will also join in the filing. • June 30th: RTO Plan Filed with the Commission • The filing will include: • Market implementation plan. • Functions and characteristics set forth in the Commission’s Order 2000. • Shortcomings identified by the Commission in the ISOs’previous RTO applications.

11. Supplier Transmission Generators Public Power End Users Stakeholder Working Groups TO/ISO Agreement Issues Operations & Facilities Economic & Reliability Evaluation Governance (RTO Board & Stakeholders) Transmission Planning, ITCs & Tariffs Market Monitoring & Mitigation Market Design & System Implementation NEPOOL PARTICIPANTS COMMITTEE NY MANAGEMENT COMMITTEE Stakeholder Participation Sectors Regulators - State Commissions ISOs

12. Web site established to facilitate document/data sharing

13. Canadian Prospects are Encouraging • The RTO will enhance already considerable trading among New York, New England and adjacent Canadian regions. • The IMO and TransEnergie have accepted the ISOs’ invitation to participate in task force meetings. New Brunswick is also interested. • The ISOs are exploring with the IMO the benefits of increased coordination and collaboration in transmission planning, coordinated congestion management and certain identical market rules

14. Northeast Control Area Interconnections Maritime Area Quebec 1925 MW 700 MW Ontario 1000 MW 1500 MW New England 2400 MW 1600 MW New York 2500 MW PJM

15. Northeastern North American Power Markets - Summer Capacity (MW) Forecast 2001 36,250 34,277 27,126 26,846 3,228 2,157 2010 40,829 34,956 31,766 28,939 2,763 2,201 NY HQ NE ONT NB NS Source: EIA-411

16. Summer 2001 Estimated Transfer Limits 78 S 640 W 735 80 HQ 1,100 MT S 2,350 S 1,500 450 W 2,400 W 1,600 690 1,330 1,000 ON 0 ECAR 2,000 225 400 700 1,500 S 1,450 W 1,750 S 1,400 W 1,700 2,550 NY S 1,950 W 2,050 NE 550 600 1,000 1,000 PJM 2,150 Source: NPCC Summer 2001 Multi-Area Probabilistic Reliability Assessment

17. In Summary • Both parties are engaged, committed and building momentum toward forming the NERTO; • The NERTO promises significant benefits for consumers in both New York and New England and embraces FERC’s long-range vision for regional electricity markets; • If you understand and agree with the NERTO vision, we encourage you to actively support it.