MARCH 13, 2014 | NEPOOL MARKETS COMMITTEE Jonathan Lowell PRINCIPAL ANALYST | MARKET DEVELOPMENT Updates to Market Rule 1 and Appendix F.3 to Address the New NCPC Payments Design NCPC Cost Allocation – Conforming Changes

Background – Conforming and Cleanup Changes are Required in Several Areas Related to EMOF and NCPC ISO is grouping these changes into two projects: All changes related to Appendix F NCPC cost allocation will be included under the NCPC Cost Allocation: Phase 1 project Conforming changes that do not modify the NCPC cost allocation are described in this presentation The Phase 1 Cost Allocation changes are discussed in a separate presentation as part of the same March MC agenda item All changes related to Market Rule 1, Appendix A and Appendix F (NCPC payments) will be included under the Energy Market Offer Flexibility Conforming Changes project This topic will be presented in a separate agenda item at March MC Meeting 2

Conforming Changes Required for NCPC Cost Allocation – Appendix F Existing language in III is being consolidated into Appendix F – NCPC – Some portions were incorporated into F.2 NCPC Credits, but not removed from III at that time. – One provision with general applicability will be moved into F.1 – Portions related to NCPC cost allocation will be removed from III and pulled into Appendix F.3 Charges for NCPC – Appendix F becomes home sweet home for all things NCPC-related in Market Rule 1 The new NCPC Payments design eliminates Minimum Generation Emergency (MGE) Credits as a separate NCPC credit calculation. – This requires conforming changes in Appendix F.3 so as to not impact how MGE costs are allocated 3

Overview of Min Gen Emergency NCPC – Old Design The old MGE credit compensated generators that were dispatched up out of rate by the ISO during a MGE, when most resources are being dispatched to their Emergency Min, and RTLMP is administratively set to $0/MWH The cost of MGE credits was allocated to Real-Time Generation Obligations (RTGO), excluding any Exempt RTGO – Exempt RTGO = RTGO – EcoMin energy (i.e. the out-of-merit dispatch requested by the ISO) 4

Overview of MGE NCPC – New Design In the new NCPC Payments design, out-of-rate dispatch is addressed by the Real-Time Dispatch Credit, which compensates resources when dispatched by the ISO to operate out of rate, including during an MGE To avoid any change in NCPC cost allocation, RT Dispatch Credits during a MGE must be accumulated separately for allocation to RTGO excluding exempt RTGO To abuse the famous words of William Shakespeare, A Min Gen Emergency Credit by any other name would still smell as sweet [and still be allocated like a Min Gen Emergency Credit]. 5

Overview of MGE NCPC – New Design To accomplish these changes: – Minimum Generation Emergency Credits are redefined in terms of Real-Time Dispatch Credits during a MGE – Definition of Exempt RTGO is eliminated – Rather than referring to Exempt RTGO, tariff language will instead refer to RTGO during an MGE that is eligible for a RT Dispatch NCPC Credit 6

Conforming Changes to Address MGE Cost Allocation MGE Credit definition modified to conform to new NCPC Payments terminology Definition of Exempt RTGO eliminated, but the same concept still applies Definition of MGE Charge eliminated – not used or referred to anywhere Appropriate sections of Appendix F.3 rewritten for clarity, but allocation is unchanged. 7

Appendix F.3 is Rewritten to Provide Consistency with the New Appendix F.2 and to Improve Clarity The rewrite makes no changes to how NCPC costs are allocated It does consolidate language from III into one convenient location The rewritten App F.3 will no longer require a secret decoder ring to parse sentences like: The ISO calculates for each Operating Day the non-Postured non- Synchronous Condenser related, Synchronous Condenser related, non- Local Second Contingency Protection Resource related, non-Regulation and non-SCR related economic NCPC Charges for the Real-Time Energy Market for each Market Participant … 8

Summary of Changes in Appendix F 9 Original Section DescriptionNew Location Discussion I.2.2Definition of MGE CreditsI.2.2Conformed to new NCPC Credit rules I.2.2Definition of MGE ChargeRemovedNo longer needed. Implicitly included in F I.2.2Definition of Exempt Real- Time Generation Obligation RemovedIncorporated into the description in F of how the cost of Min Gen Emergency Credits are allocated. III.3.2.3(e)(iii)Description of "following dispatch instructions" F.1(h)No change III.3.2.3(f)Postured for reliability creditF.2.3.4No longer needed. Addressed in NCPC Payments redesign. III.3.2.3(g)Accumulation of NCPC Credits to be allocated F.3.1.2Now incorporated into the new F.3.1.2

Summary of Changes in Appendix F 10 Original Section DescriptionNew Location Discussion III.3.2.3(h)Allocation of "all other" RT NCPC charges F.3.1.2(g)The tariff structure is reorganized to first describe how the cost of specific credit categories are allocated, and then describing how "all remaining" RT credits are allocated. III.3.2.3(h)No NCPC deviations for gen cleared in DA but dispatched off in RT due to MGE F.3.1.3(a)No change III.3.2.3(h)Exclusion of DARD pump RTLO in accordance with ISO instructions from RTLO deviations. F.3.1.3(b)No change III.3.2.3(i)Credits for synchronous condensing F.2.3.5No longer needed. Addressed in NCPC Payments redesign. III.3.2.3(j)Synchronous condensing NCPC charge F.3.1.2(e)Implicitly included in"all remaining" RT NCPC costs.

Summary of Changes in Appendix F 11 Original Section DescriptionNew Location Discussion F.3.1Description of how the cost of DA NCPC Credits are allocated. F.3.1.1Tariff structure reorganized for DA cost allocation F.3.1Description of how the cost of RT NCPC Credits are allocated. F.3.1.2Tariff structure reorganized for RT cost allocation F.3.1(1) - F.3.1(4) Allocation of costs for Min Gen Emergency Credits F.3.1.2(f)The conformed language describes the calculation in a single step, replacing the step-by-step instructions in the current rule, and recognizes that Exempt RTGO corresponds to the RTGO during a MGE that would be eligible for a RT NCPC Dispatch Credit (i.e. the out-of-rate MWH between the EDP and the DDP) F.3.2.1Accumulation of DA NCPC for generators, postured generators (non-VAR), and DARDs (pumps only). F.3.1.1Reworded for simplicity and clarity

Summary of Changes in Appendix F 12 Original Section DescriptionNew Location Discussion F.3.2.2Accumulation of DA LSCPR creditsF.3.1.1(c)Reworded for simplicity and clarity F.3.2.3Accumulation of DA VAR related credits F.3.1.1(a)Reworded for simplicity and clarity F.3.2.4Allocation of DA economic NCPCF F.3.2.4Allocation of DA NCPC for exports and Decs to DAGO at the External Node F.3.1.1(e)Reworded for simplicity and clarity F.3.2.4Allocation of DA NCPC for imports and Incs to DALO at the External Node F.3.1.1(d)Reworded for simplicity and clarity F.3.2.5Reserveddeleted F.3.2.6Allocation of DA NCPC VAR- related costs F.3.1.1(a)Reworded for simplicity and clarity F.3.2.7Allocation of RT Economic NCPC (Non-SCR) F.3.1.2(g)Reworded for simplicity and clarity F.3.2.8Accumulation of RT LSCPR creditsF.3.1.2(e)Reworded for simplicity and clarity

Summary of Changes in Appendix F 13 Original Section DescriptionNew Location Discussion F.3.2.9Accumulation of RT SCR creditsF.3.1.2(b)Reworded for simplicity and clarity F Accumulation of RT VAR credits (including Synch Conds & Posture) F.3.1.2(a)Reworded for simplicity and clarity F Accumulation of RT Credits for ISO Initiated Audit F.3.1.2(c)Reworded for simplicity and clarity F Determination of participants hourly RTLO deviations as the sum of the difference between RTLO and DALO over all locations F.3.2(e)Reworded for simplicity and clarity F Reserved (no content)deleted

Summary of Changes to Appendix F.3 14 Original Section DescriptionNew Location Discussion F Determination of participants hourly RTGO deviations at External Nodes as the sum of the difference between RTGO and DAGO over all External Nodes F.3.2(f)Reworded for simplicity and clarity F Allocation of "all other" economic RT NCPC costs not specifically allocated otherwise F.3.1.2(g) F (a)RT Gen deviationsF.3.2(a) F (b)RT Gen deviationsF.3.2(b) F (c)RT Gen deviationsF.3.2(c) F (d)RT Gen deviationsF.3.2(d)

Summary of Changes to Appendix F.3 15 Original Section DescriptionNew Location Discussion F (e)RTLO deviationsF.3.2(e) F (f)RTGO deviations at External Nodes F.3.2(f) F (g)Increment OffersF.3.2(g) F (overall text) Local Second Contingency Protection Resource NCPC Charges F.3.3Simplified/clarified language F (a)LSCPR/External Node CETICZF.3.3(a)Simplified/clarified language F (a)LSCPR/External Node Emergency Energy sale F.3.3(b)Simplified/clarified language F (b)LSCPR Reallocation Trigger Conditions F.3.3(c)No change

Summary of Changes to Appendix F.3 16 Original Section DescriptionNew Location Discussion F Allocation of RT VAR chargesF.3.1.2(a)Incorporated into restructured description of allocations F Allocation of RT SCR chargesF.3.1.2(b)Simplified/clarified language F Allocation of RT ISO Initiated Audit NCPC charges F.3.1.2(c)Simplified/clarified language

Next Steps Tariff review will follow the stakeholder schedule for the NCPC Cost Allocation Phase 1 These tariff changes will be voted as part of the NCPC Cost Allocation Phase 1 – Request for MC vote at either April or May meeting Targeted for Q effective date – No implementation concerns, because these changes do not alter the settlement of NCPC Charges. 17