Building A Northeast RTO: A Measured Approach ISO New England Inc. October 2001 Building A Northeast RTO: A Measured Approach Gordon van Welie President and Chief Executive Officer ISO New England Inc. Massachusetts Restructuring Roundtable • October 19, 2001 http://www.iso-ne.com

Background FERC issued an order on July 12, 2001 to create a Northeastern regional transmission organization (RTO) 45-day mediation process initiated before FERC administrative law judge to develop RTO business plan Mediation ended Sept. 7 – administrative law judge made recommendations to FERC on Sept. 17 “RTO Week” - October 15-19 Order expected on October 24

What FERC’s order would create A multi-regional wholesale electric power market for the Northeastern U.S. Combine existing markets in PJM, New York and New England: 14 states and D.C. Produce the world’s largest wholesale power market, with 20%+ of U.S. population $20 billion+ market with 140 gigawatts of installed generating capacity Northeast RTO

Building an RTO FERC’s Goal ISO New England Inc. October 2001 Building an RTO FERC’s Goal Build a single Northeastern power market based on the PJM design and incorporating best practices from NY, New England. The Challenge Balance the goal of a quick transition to the new market with the need to manage the risks inherent in such a large and complex undertaking. http://www.iso-ne.com

Considerations in Creating an RTO The process for creating an RTO should: Be realistic and achievable Ensure an orderly, effective transition from the three existing markets while safeguarding current systems and reliability Strike a balance between expeditious implementation and common-sense management of the risk inherent in new markets, new technologies, and the merger of three “high-tech” companies Incorporate stakeholder input

ISO-NE’s Recommended Approach Establish a new RTO board with a “balanced” governance model Develop and implement an approved plan Planning phase (~1 year) Implementation phase (~2 years) Employ best practices for design and implementation Utilize risk management

Establish New RTO Board and Governance Prompt establishment of a new organization and board of directors Full independence from market participants and software vendors Equal representation from existing ISOs

Phase 1: Planning – Key Tasks Develop RTO market rules Define RTO architecture and operating criteria (including appropriate accommodation for an ITC) Define business practices Form implementation teams Technical feasibility assessment

Phase 2 – System and Market Implementation System procurement On-site integration Data conversion Technical audit Training Cut-over

Benefits of a Two-Phase Approach Identifies and resolves key issues first Manages and mitigates risks Ensures appropriate consideration of best practices from New York and New England Enhances cooperation between existing ISOs and the new regional RTO Provides stability during transition period

Alternative Approaches to Building a Single Northeastern Market ISO New England Inc. October 2001 Alternative Approaches to Building a Single Northeastern Market Create the RTO, define the implementation timeframe and let management immediately proceed with implementation “Management works out the details” Create the RTO, define the implementation timeframe and let management immediately proceed with implementation “Management works out the details” Create the RTO and ensure that a viable implementation plan has been developed and approved before starting implementation “Management executes an approved plan” Create the RTO and ensure that a viable implementation plan has been developed and approved before starting implementation “Management executes an approved plan” The second approach, embodied in ISO New England’s proposed plan, is the prudent way to proceed http://www.iso-ne.com

Benefits of ISO New England Approach ISO New England’s approach: Uses best practices to ensure success Ensures that a realistic scope, schedule and cost are determined up front Ensures maximum possible risk mitigation Provides a way to manage potential conflicts – such as resource allocation between existing ISOs and new RTO Provides controls, checkpoints and a structured, measured transition that safeguards reliability

Security, Reliability, and RTOs Security of electricity infrastructure is part of grid reliability equation RTO formation must feature alternate control centers and fail-over/redundancy to support grid reliability and integrity of the power supply ‘Hardened’ facilities may be indicated Communications/computer systems Located away from other risks

Questions?