New England’s Response to FERC’s RTO Order No. 2000 Presented By: Kevin A. Kirby Vice President, Market Operations Massachusetts Roundtable January 29, 2001

NERTO Proposal Joint petition supported by ISO-NE, National Grid USA, Northeast Utilities Service Company, Central Maine Power Company, Vermont Electric Power Company, United Illuminating Company, Bangor Hydro-Electric Company Petitioners proposed an RTO that complies with Order No. 2000 consisting of: ISO-NE, a not-for-profit independent system operator. NEPOOL, governance relationship to ISO-NE NE ITC, an investor-owned independent transmission company Pursuant to an “RTO Agreement,” RTO responsibilities will be allocated between NE ITC and ISO-NE based on which entity has the fundamental attributes that render it best capable of carrying out the specific function.

ISO-NE’s Responsibilities In general, current ISO-NE responsibilities continue, with appropriate coordination and communications with NE ITC: system operations, including the dispatch of generation as necessary to maintain short-term reliability and to address emergency conditions security coordinator administer and operate the day-ahead and real-time wholesale markets for balancing energy and ancillary services perform the settlement functions required for the Markets it operates monitor the Markets for design flaws and the exercise of market power. perform interchange scheduling with neighboring control areas; and arranging for emergency power exchanges when necessary. administer OASIS Approve coordinated generation and transmission maintenance schedules Regional transmission planning with ITC ISO-NE expects NEPOOL to have a continuing role in the development and modification of the rules for the New England Markets (the “Market Rules”). If NEPOOL cannot reach consensus within a prescribed time period, ISO-NE will have the authority to file Market Rule changes under Section 205, as well as under the circumstances in which the ISO currently has rule-filing authority under the Interim ISO Agreement.

Role of NEPOOL ISO-NE expects NEPOOL to have a continuing role in the development and modification of the rules for the New England Markets (the “Market Rules”). If NEPOOL cannot reach consensus within a prescribed time period, ISO-NE will have the authority to file Market Rule changes under Section 205, as well as under the circumstances in which the ISO currently has rule-filing authority under the Interim ISO agreement.

NE ITC Structure Investor-owned, independent transmission company operating under incentive rates focused on increasing value to customers and shareholders Improving operating practices Applying new technology Investing capital Building new facilities Business model with efficient decision-making process subject to FERC regulation

NE ITC’s Responsibilities NE ITC will be responsible for managing transmission throughout New England, subject to appropriate coordination with ISO-NE’s responsibility for the operation of the system. manage congestion by coordinating outages with generators, through new investments, and efficient operation of the existing transmission system arranging construction of new transmission facilities in the region generator interconnections Developing maintenance standards Assist in addressing “seams” issues NE ITC will have primary responsibility for the New England open access transmission tariff (“OATT”) For access purposes, the distinction between PTF and other transmission assets would be eliminated, thereby creating “one-stop shopping” for transmission access Financial incentives built into regional transmission rates would encourage NE ITC to operate the existing transmission grid efficiently Regional transmission planning in conjunction with ISO-NE

ISO/ITC Planning Process NE ITC will jointly develop the Outlook (transmission plan) with ISO-NE. ISO-NE will lead the needs assessment phase of the process, with input from NE ITC and stakeholders and publish a preliminary scope document for comment. NE ITC will develop a Regional Transmission Outlook (plan) in response to the needs assessment and considering market responses and stakeholder input, ISO-NE will publish a draft report assessing whether the Outlook is likely to meet the identified regional needs after considering proposals by Market Participants. After considering comments and consulting with NE ITC, ISO-NE will submit its final assessment and recommendations for the regional Outlook to the ISO-NE Board for approval.

Construction of New Facilities Decision to proceed with any given project will be made by market for market-based projects and NE-ITC for regulated transmission projects. NE ITC will be obligated to arrange for construction of needed new transmission facilities.

NERTO Governance ISO proposes to work with NEPOOL under modified governance ISO proposes rule changes NEPOOL must act within 90 days Reduce required vote for NEPOOL to pass an action from 67% to 58% Eliminate ability of a single participant to invoke automatic stay Restructure voting sectors to reflect creation of ITC, lower voting threshold and elimination of automatic stay by single participant improve balance of business interests, consumer and public policy interests ISO would have ability to call for vote on its proposal if NEPOOL fails to act in prescribed period - lower threshold to pass to 53% ISO retains its current filing rights under the NEPOOL-ISO Agreement ITC would establish an advisory process to ensure consideration of stakeholder interests

ISO-NE / NYISO Agreement on Interregional Market Plan Establish and staff a joint task force to expedite activities addressing seams issues and conforming market rules. The joint task force will develop and support initiatives that result from the MOU process as well as expedite the high priority projects identified for New York and New England, including: a) Development of uniform rules for a day-ahead market (“DAM”) for (at a minimum) energy transactions; b) Development of compatible schedules for interpool energy transactions in real time; c) Development of Reserve Sharing protocols for ten-minute non-spinning reserves and thirty-minute operating reserves; d) Development of Uniform Standards for Generation Interconnection. (Minimum Interconnection Standard applicable to New England and New York.) Target dates established for identified priorities

ISO-NE / NYISO Agreement on Joint Market Monitoring Establish a Joint Monitoring Committee Reports to boards of both ISOs Market Monitors Share information across ISOs Board of ISO-NE will hire Market Advisor firm to work with Market Advisor to NYISO Board Complementary and in addition to the monitoring functions performed individually by the ISOs JMC would: Review and assess product markets Review control area market rules and procedures and recommend opportunities for improvement of efficiency and cost-effectiveness in those rules Review proposed rule changes to assess their competitive impacts The Independent boards of the ISOs will hire independent auditors to undertake periodic performance audits of the ISOs

Comments and Issues RTO Structure NSTAR filing generally supports the concept of a TRANSCO, however, The absence of tariff terms renders consideration of NE-ITC proposal premature NSTAR proposes to shift responsibility for system operations and dispatch from the ISO to the ITC in order to better manage and control congestion costs Public Power filing supports the continued central role of NEPOOL in the New England markets Governance should be improved: The voting percentage needed to pass an action at the NPC should be reduced from 66.7 % to a lesser percentage, except for “core” matters, the automatic stay should be eliminated; and a portion of NEPOOL’s Section 205 filing rights with respect to changes to the NEPOOL OATT should be delegated subject to failure to act by NPC in specified A structure (or institution) should be in place that can facilitate on an expedited basis the construction of transmission facilities across multiple service territories and regulatory boundaries. More specifics are needed on the ITC and how it will provide incremental benefits.

Comments and Issues (Cont’d) Market Monitoring: NSTAR advocates to create a new independent market monitoring entity market monitor should be an independent unit that reports directly to the FERC, as well as to the boards of ISO-NE and NE-ITC Monitoring of the NE-ITC should be included in the NERTO market monitoring function Public Power advocates that The market monitoring and mitigation process needs to be strengthened, pursued with more vigor, and modified to permit private enforcement activity by individual Participants. Market monitoring should be focused on: monitoring the behavior of market participants; and identifying design characteristics that adversely impact the markets. Disclosure of market data to the participants and consumers should be quicker and more complete. In the NERTO collaborative process some advocated that the Market Monitor not report to the ISO Boards but rather to a new board.

Next Steps Develop ITC Tariff Negotiate definitive agreements Define division of responsibilities between NE ITC and transmission asset owners Implement interregional market plan establish task force Form Joint Monitoring Committee