OCTOBER 8, 2014 Bob Laurita INTERNAL MARKET MONITORING New Import Capacity Resource FCM Market Power Mitigation Order to Show Cause Compliance Filing

Agenda Background Proposal Schedule 2

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. 3

Current Rules for Existing Resources 4 Starting Price Ending Price Static or Permanent Delist Bid Must Stay Must Exit Must Stay Free to Exit Dynamic De- List Threshold De-List BidNo De-List Bid

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

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 6

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 7

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 8

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 9 * see Slide 10 for details

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

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) 11 (Q All ) - (Q i ) < D x 1.10

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 12 Revenues (2015$) Energy Revenue ($/MWh) Ancillary Services ($/MWh) Renewable Energy Credits ($/MWh) Federal Production Tax Credit ($/MWh) Forward Reserve Revenue ($) Other Revenue ($) Operating Costs (2015$) Purchased Power Cost ($/MWh) Variable O&M Costs ($/MWh) Fixed Costs ($) Other Assumptions Project Life/Contract Duration (Years) Capacity Factor (%) Expected Shortage Event Availability (A) Expected Shortage Event Hours (H)

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,