Winter Reliability 2014/15

1. Winter Reliability 2014/15 JUNE 4, 2014

2. Winter 2014/15 Reliability • Creation of Winter Hardening Product (WHP) • Non-discriminatory – fuel neutral • Seasonal Forward Reserve type product – September 15th auction for December 15th to March 15th commitment period • Sealed Bid • Procure MWs not fuel • Single clearing price • Potential to be a permanent solution to winter reliability or other seasonal needs .

3. Product • Fuel on site - 3 Days fuel on site (3 days of WHP MWs clearing the auction) or firm no notice LNG contract with strong LD provisions or a must take agreement (resource owners which participate based under the LNG provision will be required to offer in the energy market based on their LNG contract price or lower, plus normal adder to prevent the sale of the LNG when the value is greater than the penalty). • Resources which take on a Winter Hardening Obligation (WHO) must show they have 3 days of fuel on site by the start of the winter hardening period, December 15th, a failure to do so will result in the WHO resource being penalized 10% of the WHO’s total seasonal payments per day up to 150% of the total WHO payments. • A resource owner may offer in all or a portion of its qualified capacity into the auction.

4. Resource Obligation • Resource owner which receives a WHO must perform during a” Triggering Event” (defined below). • Triggering event • The ISO may institute a Winter Hardening Event if there are three days or more where the anticipated high temperatures do not exceed 20 degrees or a single day where the temperature drops below 5 degrees, when there is a winter storm emergency, or any time where the ISO deems an emergency condition exists (reasons for the event needs to be provided to NEPOOL Participants Committee within thirty days of the event).  A triggering event can last an entire day or a portion there of. • A Triggering Event may not last more than 60 consecutive hours (length of a winter storm) or 100 hours over a seven day span (to cover all peak hours over a week).  If either of these maximums are met, then there must be at least 72 hours before the next triggering event can be declared. • Failure to perform – as defined by the current Shortage Event availability rules (except for planned maintenance waiver).

5. How Much WHO MWs to Procure • Winter Peak + Winter Peak Reserves = Wind MWs + Solar MWs + DR MWs + Import MWs + Other MWs + (Gen MWs – Winter Hardening MWs) x Gen EFORd + Winter Hardening MWs. Where: • Solve for Winter Hardening MWs • Winter Peak is the average MWs and reserves of the single peak hour of the three peak winter days over the past three years • Wind MWs is 1 minus the average EFORd of wind CSO MWs for the average of the three most recent winter Reserve Constraint Penalty Factor events which lasted thirty minutes or longer multipled by CSO MWs • Solar MWs is 1 minus the average EFORd of CSO solar MWs for the average of the three most winter Reserve Constraint Penalty Factor events which lasted thirty minutes or longermultiplied by CSO MWs. • DR MWs is 1 minus the average EFORd of CSO DR MWs for the average of the three most recent winter Reserve Constraint Penalty Factor events which lasted thirty minutes or longermultiplied by CSO MWs • Import MWsis1 minus the average EFORd of CSO Import MWs for the average of the three most recent winter Reserve Constraint Penalty Factor events lasting thirty minutes or longerX CSO MWs • Gen MWs is the CSO Qualified MWs of all traditional in front of the meter central station generation (Gas, Oil, Nuclear and Coal). • Gen EFORdis the average total of natural gas MWs providing energydivided by total natural gas MWs for the three most recent winter Reserve Constraint Penalty Factor events lasting thirty minutes or longer. • Other MWs is 1 minus the average EFORd of CSO of all other resources MWs for the average of the three most recent winter Reserve Constraint Penalty Factor events lasting thirty minutes or longer multiplied by the CSO MWs

6. PENALTY • Two penalties • Failure to have inventory. • If the resource fails to have the requisite 3 days of inventory on site at the start of the winter hardening period, December 15th, then the resource will be penalized 10% of the total seasonal WHO payments per day, up to a maximum of 150% of total WHO seasonal payments • Failure to perform • Penalties will be measured and paid hourly during any Hardening Event • Hourly penalty will be 1/24 x (0.5 x total Seasonal WHO payments/MW) x (WHO MW sold - MWs available) • Available MWs determined using Shortage Event availability calculation [except no planned maintenance] • Penalty caps • The sum of failure to have inventory and failure to perform penalties cannot exceed 200% of the total program payments to that resource. • Penalty receipts. • Penalties will be refunded to load paying for the program. • Obligation transfer • WHO participants may transfer their obligations by transferring their physical, on-site fuel (oil, coal or LNG) to a non-WHO generator.  This will ensure that the region will continue to benefit from the additional fuel available to the region.  The WHO must provide documentation of their outage to the ISO. No transfering for economics.

7. Benefits • Non-discriminatory – all resources that meet the product requirements may participate • Market Based – ancillary services type auction • Stabilize natural gas prices and reduce uplift – bringing LNG into the region will dampen some of the volatility in the region’s natural gas prices; • Potential to earn WHO revenues will drive resources with dual-fuel potential to implement/maintain dual fuel. • Reduce uplift • Improve reliability versus the 2013/14 reliability and ISO’s proposed 2014/15 fix • Defines the need • Voluntary – unlike Pay for Performance, resource owners have the opportunity to choose to participate. • Resources that are hardened, have firm fuel, and can run under any weather condition are rewarded. • Fosters fuel diversity. l