Proposed Changes to NEPOOL Manual 20

1. Proposed Changes to NEPOOL Manual 20 Mark Karl NEPOOL Markets Committee May 13, 2003

2. Resource-Like Treatment Changes

3. Manual 20 Changes – Resource Like Treatment • Resource-like treatment applies to grandfathered external contracts converting from ICAP to UCAP • Historic basis was ICAP associated with energy import • Energy face value must be converted to UCAP • Could elect Unit-Based EFORd or Control Area CARL adjustment • Resource-like treatment is an optional alternative • Concept is to calculate an EFORd on a transaction rather than on a unit

4. Manual 20 Changes – Resource Like Treatment • GADS Formulae and Definitions do not fit well when applied to transactions • Forced and Planned Outage Hours plus Service Hours and Reserve Shutdown sum to 8760 annual hours for a unit • These categories are well defined for a generating resource • For transactions the total annual hours may not sum to 8760 due to 5 by 16 requirement or transaction dispatch • Primary focus of proposed changes is to define data submission requirements

5. Manual 20 Changes – Resource Like Treatment • Additional impact of proposed changes is to specify in the manual that the 80% delivery rule is applicable to resource-like treatment • No impact to UCAP credit as long as delivery exceeds 80% of the 5x16 requirement • To restate, UCAP=ICAP as long as the transaction delivers in excess of 80% of peak requirement • If delivery percentage for a month drops from 80% to 79%, the EFORd calculated for the month changes from 0% to 21% • Actual monthly EFORd is still based on a 12 month rolling average • As applied here the 80%/20% rule attempts to mimic the EFORd forgiveness given to an internal resource for transmission failures

6. External ICAP Contract Checkout

7. Manual 20 Changes – Contract Checkout • During the first month of SMD problems arose related to day-ahead checkout of dispatchable ICAP • M-20 and OP-9 required dispatchable offer in both DAM and RTM, and required transaction to clear DAM in external market. • Forced resource to clear transaction DAM with no way of knowing if energy is actually needed. • Scheduling Penalty effectively excluded many (but not all) dispatchable external resources from ISO-NE ICAP market.

8. Manual 20 Changes – Contract Checkout • Changes were submitted/ approved to create exemptions to external clearing requirement (OP9 and M20) • Transaction does not clear but resource is on-line • Transaction does not clear, resource is off-line but has a 30 minute or less startup • Both still required to offer DAM/RTM but no scheduling penalty for failure to clear in external market • Failure to deliver penalty still applied subject to 80% rule.

9. Manual 20 Changes – Contract Checkout • Additional clearing/ checkout exemption now proposed for inclusion • Self-nomination of inability to clear externally with a resource that will not clear and is not quick-start • In return for exemption Participant agrees to self-commit external resource to deliver if called • If contract does not deliver full monthly deficiency rate applies

10. Manual 20 Changes – Contract Checkout • Review by ISO TSO indicates that implementation of this third exemption effectively exempts all dispatchable externals from DAM checkout (but not DAM/RTM offer requirements) • All categories of external resources will fall into one of the tree categories • The recently passed exemptions are paper manual processes for both Participants and ISO TSO • This exemption imposes an additional process on Participants, TSO and ISO Settlements • If all dispatchable externals get exemptions upon request, why not just eliminate DAM checkout for dispatchable externals? (DAM/RTM offer requirements would remain)

11. Manual 20 Changes – Contract Checkout • What does New York do? • New York does not check out dispatchable externals • Externals required to offer DAM and deliver if called • Substantial delivery penalty used to incent compliance: NYISO ICAP Manual Section 4.9.4: Charges Associated with External Unforced Capacity Deficiencies.“…if an entity fails to deliver part or all of the Energy associated with External Unforced Capacity it sold in the NYCA it will be deemed retroactively deficient for such failure. External Installed Capacity Suppliers unable to deliver such Energy to the NYCA border will be assessed the deficiency charge for Unforced Capacity associated with such failure and will be deemed to have been deficient from the last time the External Capacity Supplier ‘demonstrated’ delivery of its Installed Capacity Equivalent, or any part thereof, until it next delivers…”

12. Manual 20 Changes – Contract Checkout • ISO-NE Recommendation regarding proposed contract checkout changes: • Paper self-nomination process difficult to implement in practice and prone to error, resulting in on-going disputes • Consumes more human resources than it provides in benefit to the pool • Accommodate the proposed change and eliminate the previous checkout-related changes by eliminating external DAM clearing reqmt. • Retain DAM/RTM offer requirements and RTM checkout • NYISO requires de-listed ICAP sold externally to submit DAM/RTM offers to NYISO to support external call • Impose monthly penalty charge for failure to deliver dispatchable ICAP • No change for fixed/ self-scheduled transactions