October 8, 2014

1. October 8, 2014 Bob Laurita Internal Market Monitoring New Import Capacity Resource FCM Market Power Mitigation Order to Show Cause Compliance Filing

2. Agenda • Background • Proposal • Schedule

3. Summary of Order to Show Cause (September 16, 2014) • Tight capacity conditions may allow suppliers who are aware of their pivotal role in the market to exercise market power • [The Commissioners] are concerned that the market [power] mitigation provisions…may not protect customers against unjust and unreasonable prices for capacity. • [The Commission] requires ISO-NE to, within 30 days.., either submit Tariff revisions that provide for the review and potential mitigation of importers’ offers in a manner similar to the manner in which other, existing resources are reviewed and mitigated, or show cause why it should not be required to do so.

4. Current Rules for Existing Resources De-List Bid No De-List Bid Starting Price Starting Price Must Stay Static or Permanent Delist Bid Must Stay Must Exit Dynamic De-List Threshold Free to Exit Ending Price Ending Price

5. Current Rules for New Resources Starting Price Free to Exit New Resource Offer Floor Price (individual or ORTP) Must Exit Ending Price

6. FCA Treatment of Import Capacity • Currently, most imports are qualified as New Capacity for treatment in FCA • Grandfathered Imports or Imports associated with a long term contract that cleared as New in a prior FCA (and are still under contract) are treated as Existing • Most imports are single year contracts • This is different from how New vs. Existing treatment is determined for Generation and Demand Resources • All capacity is New until it has cleared in a prior FCA, after which point it will always be treated as Existing

7. Current Mitigation Rule for Existing Import Capacity Resources • An Existing Import Capacity Resource cannot exit the FCA above the Dynamic De-list Threshold, unless the Participant submits a De-list Bid that is reviewed and approved by the IMM • The Existing Import Capacity Resource cannot exit the FCA at prices above the IMM approved De-list Bid and must exit the FCA if the price falls below the IMM approved De-list Bid • Existing Import Capacity Resources that do not submit a De-list Bid are free to exit the auction at prices below the Dynamic De-list Threshold

8. Proposed Mitigation Rule for New Import Capacity Resources • New Import Capacity Resources will be treated as if “existing” for market power mitigation purposes • The Offer Review Trigger Price (ORTP) for New Import Capacity Resources from pivotal suppliers will be set to the FCA Starting Price • Exception: The ORTP for New Import Capacity Resources backed by a single new External Resource and that is associated with an investment in transmission that increases New England’s import capability will be based on the generation technology type

9. Proposed Mitigation Rule for New Import Capacity Resources (Continued) • New Import Capacity Resources from pivotal suppliers wanting to remain in the auction below the FCA Starting Price must submit resource specific cost information* to the IMM for review and approval. The IMM will approve a New Resource Offer Floor Price • New Import Capacity Resources from pivotal suppliers will be required to remain in the FCA at prices greater than or equal to the New Resource Offer Floor Price and removed from the FCA at prices less than the New Resource Offer Floor Price * see Slide 10 for details

10. Proposed Rules for New Import Capacity Resources Pivotal Supplier Non-Pivotal Supplier Starting Price Starting Price Must Stay New Resource Offer Floor Price Free to Exit Must Exit ORTP Must Exit Ending Price Ending Price

11. Pivotal Supplier Test • A Participant with New Import Capacity Resources will be considered pivotal if, over the applicable interface(s): • The sum of the New Import Capacity Resource qualified MWs from all Participants (Q All ) less • The sum of the New Import Capacity Resource qualified MWs from the Participants (Q i) is less than • 110% of the applicable interface capacity transfer limit (D) (Q All ) - (Q i) < D x 1.10

12. Resource Cost Information • Participants must submit their import resource’s expected costs and revenues using the IMM’s Excel cost workbook • Participants must provide expected costs and revenues for the term of their project or agreement • Costs may include the Participant’s expected opportunity costs • If applicable, Participants must provide information on planned capital expenditures or investments associated with the import resource

13. Schedule • Markets Committee: October 8, 2014 • Compliance Filing: October 16, 2014 • Notification of Pivotal Supplier Status: October 22, 2014 • Resource Cost Submittal Due to IMM: November 7, 2014 • IMM Determination: December 12, 2014 • FERC Filings of IMM Determinations: December 16, 2014 • Deadline for Participant Challenges at FERC: December 23, 2014 • Deadline for FERC Order: January 15, 2015 • If FERC does not issue an order by January 15, 2015, the IMM determinations will be used in the auction • New Import Capacity Resource Withdrawal Deadline: January 16, 2015 • FCA9: February 2, 2015