August 9, 2013 | NEPOOL markets committee

1. August 9, 2013 | NEPOOL markets committee ISO New England - market development Summary of NCPC Design Changes Since the July 10, 2013 Markets Committee Presentation NCPC Payments Jon Lowell

2. NCPC DESIGN Changes Aspects of the NCPC Payments design that have been modified since the July 10, 2013 Markets Committee meeting

3. Preface This document is a complete summary of the proposed NCPC design for credits related to out-of-merit operation, as of August 9, 2013. Changes to the design from what was presented at the July 10, 2013 meeting are indicated as: • “New Slide” • “Updated Slide” Minor changes to text are shown in red. Deleted text is shown in light gray with a wavy underline. New Slide Updated

4. Updated Effective Offers for Commitment Decisions • When a Commitment Decision occurs, the Commitment Cost of the Supply Offer in place at the time is “locked in” for purposes of NCPC for the duration of the commitment • Commitment Costs include the Start-Up Fee, No Load Fee, Energy Cost at the EcoMin limit • Start-Up Fee is from the offer for the commitment “release for dispatch”start hour • Commitment Cost are locked with each Commitment Decision • Resources with multiple Commitment Decisions through the day may have different Effective Offer costs evaluated by NCPC • Effective Offers for Commitment Decisions that span multiple days are used in settlement for subsequent days

5. Updated Effective Offers after a Reoffer or Mitigation • Commitment Costs used in the NCPC settlements will be based upon the lesser of the original Effective Offer at the time of commitment or a participant’s final re-offer • For resources that are mitigated, the Commitment and Dispatch Costs used in NCPC settlement will be based upon the mitigated Supply Offer

6. Updated NCPC Settlement Periods • For DA NCPC and RT Commitment NCPC, each discrete period of contiguous scheduled hours are evaluated separately (i.e., NCPC Settlement Period) • May include one or more Commitment Decisions • For RT Dispatch NCPC, each hour is evaluated separately • No transfer of profit/loss between NCPC Settlement Periods • A Settlement Period ends at the earlier of a) the last hour of a commitment in which energy is produced/consumed (including shutdown ramp) or b) the end of the operating day • NCPC Settlement Periods are truncated at operating day boundaries • Commitment Decisions may continue into next day • Separate NCPC Settlement Period begins with the start of next day

7. Self-Schedule Offers in Day-Ahead Must Respect Inter-temporal Offer Parameters New Slide • When a Day-Ahead Self Schedule is for less than the Min Run Time, or violates the Min Down Time, the Day-Ahead Market will clear additional hours economically, as needed to create a feasible schedule. • The NCPC Credit will evaluate the minimum required number of additional hours as self-scheduled, starting with contiguous hours prior to the self-schedule, and continuing with hours following the self-schedule, as needed. • All hours in between two self-schedule hours that violate the Min Down Time will be evaluated as self-scheduled. • If, as a result, the first hour of the DA schedule is now evaluated as self-scheduled, the resource will not be eligible for the Startup Fee. • In the current rules, entire day is considered self-scheduled.

8. Updated Day-Ahead NCPC Credit Determination • Eligible Quantity: total day-ahead scheduled output • Hourly cost: the Eligible Quantity cost determined using Effective Offers for commitment and dispatch cost • Hourly revenue: (Eligible Quantity x DA LMP) • Startup and No Load costs not considered in DA Credit* • NCPC credit = MAX [0, ∑(Hourly Cost) - ∑(Hourly Revenue)] • summation includes all hours in the Settlement Period • Best alternative is to break-even ($0) *ISO is reviewing this aspect of the design to address the helpful comments received, but a new proposal has not yet been finalized.

9. Updated Hours Evaluated for RT Commitment NCPC • Cost and revenues are calculated for each hour of a commitment Decision Interval • When the resource is ramping from an offline state to its EcoMin limit, energy cost is not calculated because these costs are included in the Start-Up fee; however, revenues are included to offset the costs included in the Start-Up fee • Hourly cost is not calculated explicitly • Hourly revenue = (revenue metering x RT LMP) • Similarly, shutdown costs are permitted in the Startup Fee • Therefore, revenues after release for shutdown are included • During periods after the resource is released for shutdown, neither hourly cost or revenue are included in the NCPC credit determination

10. Application of Start-Up Fee for RT Commitment NCPC Credits Updated • Late Start • Start-Up fee is included in the costs if the resource releases for dispatch not more than 30 minutes earlier or later than the scheduled commitment start • Early Start (similar to current treatment) • If accepted by the Control Room as “pool-scheduled”, the eligible amount is 100% of Min(Early Startup Fee, Original Commitment Startup Fee) • Otherwise, resource must self-schedule: Startup Fee is not eligible • The appropriate Start-Up fee for cold/intermediate/hot status is included based on status at the time of the start • Start-Up fee is apportioned over the number of hours in the Commitment Decision duration • the Start-Up fee is amortized through the end of the commitment in which minimum run time expires • the amortization period is not extended if a new commitment is added after the time when minimum run time expires • Start-Up fee may be applied across Settlement Periods in two operating days

11. Updated Application of the Start-Up Fee for Resources released for dispatch before or after start time • When a resource is released for dispatch more than 30 minutes later than the scheduled commitment start, the Start-Up fee will be reduced in proportion to the number of minutes later than planned the actual release occurs (discounting 30 minute grace period) • Example: when 54 minutes late to release for a 2 hour commitment the Start-up fee reduction equals (54-30)/120 = 0.2 • When a resource releases for dispatch more than 30 minutes earlier than requested by the ISO, the Start-Up fee will not be included in NCPC

12. Application of the Start-Up Fee for Resources that shutdown ahead of the end time Updated • When the ISO requests or approves a participant request to shutdown ahead of the end of the Commitment Decision duration, the total Start-Up fee will be considered for NCPC • Resources that trip (or are otherwise forced to shutdown due to operational problems) will be considered for only the portion of the Start-Up fee apportioned to the hours when the resource was online • A trip caused by a network equipment failure unrelated to plant operation will not disqualify consideration of the full Startup Fee in the credit determination (current treatment) • If the ISO requests that a resource restart following a trip, the additional Start-Up fee will be apportioned to the hours of the Commitment Decision

13. Updated Settlement Period for RT Commitment NCPC • Each contiguous block of committed hours (i.e., real-time online operation between times of startup and shutdown) is evaluated separately for RT Commitment NCPC credit • May include one or more commitment decisions • Hourly profit = Hourly Revenue – Hourly Cost • NCPC credit = MAX [0, Maximum Profit] – Final Profit ] • Maximum Profit = maximum total profit (sum of hourly profits) possible by choosing to shutdown at any hour after minimum run time has expired • Final Profit = sum of hourly profitsover the Settlement Period

14. Updated Settlement Period for RT Dispatch NCPC Credits • Each hour is evaluated separately for RT Dispatch NCPC Credit • NCPC Dispatch Credit = MAX (0, Hourly Cost – Hourly Revenue) • When the dispatch Hourly Revenue exceeds Hourly Cost, the additional profit that the resource earned by exceeding the DDP will be used to increase revenuereduce cost in the RT Commitment NCPC determination

15. Anticipated Stakeholder schedule

16. NCPC Payments - Future Schedule • June & July • NCPC Credits design – refinements and additional details • Impact analysis • August – tariff language review • September – tariff language review • October – MC vote • November – PC vote • November/December – FERC filing • Q4 2014 – NCPC rules become effective coincident with the Energy Market Offer Flexibility rules