1. DECEMBER 17, 2013 | WESTBOROUGH, MA Reliability Committee & Transmission Committee & Markets Committee Capacity Zone Modeling Al McBride MANAGER, AREA TRANSMISSION PLANNING

2. Presentation Objectives Describe the zone modeling discussions to date Describe the ISO proposal for modeling zones in the Forward Capacity Market Provide examples of the ISO proposal Identify clarifying language that has been added to the Tariff red lines Request vote on the ISO proposal 2

3. Stakeholder Process As defined by FERC FERC has required the ISO to consider the following during the Stakeholder Process: …(1) the appropriate level of zonal modeling going forward; (2) the appropriate rules to govern intra- and inter-zonal transactions; and (3) whether objective criteria by which zones may automatically be created in response to rejected delist bids, generation retirements or other changes in system conditions would be appropriate in New England, or if not, why not. 3 Docket No. ER12-953-002: Order Issued May 31, 2013

4. Subsequent Filing As defined by FERC FERC has required the ISO to make an additional filing at a later time to address: …how it has addressed these items in its stakeholder process, and it must: (i) develop and file with the Commission revisions to the ISO- NE tariff that articulate appropriate objective criteria to revise the number and boundaries of capacity zones automatically as the relevant conditions change, or (ii) file with the Commission an explanation as to why such criteria are unnecessary. 4 Docket No. ER12-953-002: Order Issued May 31, 2013

5. Summary of Stakeholder Discussions At the July 7, 2013 Special Reliability Committee (RC) meeting we discussed: – The requirements of the FERC order – The constraints observed and expected on the New England system – The methodologies in place to calculate requirements – Considerations in the design of Capacity Zones – The timeline challenges associated with making changes for FCA-9 At the July 22 and 23, 2013 Summer RC meeting we discussed: – The possibility of making some changes in time for FCA-9 At the August 19, 2013 Special RC meeting we discussed: – The Capacity Zone creation methodologies in place in PJM and New York – The Transmission Security Analysis (TSA) that has been performed in New England for the 8 energy Load Zones – The transmission transfer capability analysis processes in place in New England – Possible ways forward to model Capacity Zones 5

6. Summary of Stakeholder Discussions, contd At the September 3, 2013 Special RC meeting we discussed: – The ISO proposal at a high level – Examples of the Capacity Zone models in place in PJM and NY – Possible objective criteria (triggers) for the creation of Capacity Zones (with examples) – Export-constrained zones – The proposed process for the analysis of transfer limits and interfaces in the RSP process – What is proposed for FCA-9 and FCA-10 (and beyond) At the September 26, 2013 Special RC meeting – The ISO presented the proposed objective criteria (trigger) for the creation of Capacity Zones (with examples) At the October 15, 2013 RC meeting – The ISO presented Attachment K and MR1, Section 12 redline tariff language At the November 19, 2013 RC meeting – The ISO presented Attachment K and MR1, Section 12 redline tariff language – An alternative proposal was presented by NRG 6

7. The ISO proposal is a two step process Step 1: Identify the potential zonal boundaries and associated transfer limits to be tested for modeling in the FCM Step 2: Use objective criteria to determine whether or not the zone should be modeled for the Capacity Commitment Period – Import-constrained zone: trigger to model the zone is based on the quantity of surplus resources in the zone above the zonal requirement – Export-constrained zone: trigger to model the zone is based on the quantity of existing and proposed new resources in the zone – Zones that are neither import- or export-constrained are collapsed into the rest-of-pool zone 7

8. What is the proposed zonal modeling timeline? 8 Pursuant To Attachment K: Conduct Transfer Analysis Identify Zones & Boundaries to be evaluated in FCM preparation Discuss with PAC Present to RC Document in RSP JanFebMarAprMayJunJulAugSepOctNovDecJanFeb SOIFCA Pursuant To Tariff Section III.12: ICR, LSR & Tie Benefits calculations Calculate whether the zones identified pursuant to Attachment K should be modeled using the objective criteria Discuss with PSPC Present to RC for vote File Capacity Zones and Requirements at FERC Retirements requests that are received in this time-frame would be captured in the zone-modeling calculation Published RSP includes forecast of future years zones & boundaries File New Capacity Zone Boundary at FERC – if proposed

9. Will the ISO proposal change the amount of capacity to be purchased in a zone? No – The proposed zonal modeling process only determines whether the zone will be separately modeled (as import- or export-constrained) The Local Sourcing Requirements (LSR) calculations for import-constrained zones are unchanged by the ISO proposal The Maximum Capacity Limit (MCL) calculations for export- constrained zones are unchanged by the ISO proposal 9

10. What is the proposed trigger to model an import-constrained zone? An import-constrained zone would be modeled when there is insufficient surplus above the required amount of capacity in the zone to allow for the removal of the largest station from the zone Example: – If the required capacity in zone is 4,000 MW and the largest station in the zone is 1,000 MW, then the zone will be modeled if the Existing Qualified Capacity in the zone is less than 5,000 MW 10

11. What is the purpose of the surplus in the import-constrained zone trigger? A zone may start out with more than enough resources to meet its requirement However, retirements and delists could be submitted for the commitment period that would reduce the existing capacity in the zone – Potentially causing the zone to become short of its requirement Modeling the zone allows the auction process to prevent the zone from becoming short of the requirement – The price in the auction would be used to identify which existing resources (or replacement new resources) be selected to meet the requirement of the zone – The need to reject such delist bids for reliability is avoided 11

12. Why is the trigger based on the largest station in the zone? New England has experienced multiple occurrences of full station retirements – Salem Harbor (4 Resources) – Brayton Point (4 Resources) – Norwalk Harbor (3 Resources) 12

13. What are the largest stations by Load Zone? 13

14. How does the use of the largest station compare with the surplus used in PJM? PJM will separately model a zone if there is less than 15% surplus import capability into the zone being tested Using the largest station (in the ISO-NE proposal) will result in surplus percentages greater than 15% in modeled zones in New England – Example: using Millstone 2 & 3 for the Connecticut Load Zone will mean that Connecticut will be modeled as a zone if there is less than 2,100 MW of surplus capacity in the zone above the requirement 2,100 MW is approximately 29% of the FCA-8 requirement in CT 14

15. What is the proposed trigger to model an export-constrained zone? An export-constrained zone would be modeled when the maximum amount of resources that can be purchased in the zone (the Maximum Capacity Limit) is less than the total of the existing and proposed new resources in the zone Example: – If the MCL for zone is 4,000 MW and there are 3,000 MW of existing resources and 2,000 MW of proposed new resources that could qualify, then the zone would be modeled as export constrained 15

16. Why is the ISO not proposing to model all Load Zones all of the time? Modeling zones that dont need to be modeled would be an unnecessary administrative and implementation burden The boundaries of several of the existing Load Zones do not correspond to constraints on the real operating system – Load Zones are used for energy market settlement aggregation They are not used to manage system dispatch Several Load Zone boundaries do not have established interface transfer capabilities – Do not provide meaningful information regarding the location of resources 16

17. Do PJM and New York model all zones all of the time? No - In PJM and New York, all parts of the system are tested, but only those portions of the system that trigger the objective criteria are separately modeled as zones in the capacity market 17

18. A newly created zone would be filed at FERC Capacity Zones that are consistent with the boundaries of existing Load Zones or Capacity Zones will be identified in the pre-FCA ICR filing – (i.e. the process would be unchanged from the current process) Proposed potential Capacity Zones that differ from the boundaries of existing Load Zones or Capacity Zones would be filed at FERC early in the qualification timeline for the given FCA – So that qualification and requirements calculations can be conducted with a FERC-approved zone 18

19. What will be analyzed for FCA-9? For FCA-9 Capacity Zones would be created by implementing the objective criteria (automatic trigger) using the existing 8 energy Load Zones as the starting point – Energy Load Zones that do not exceed the automatic trigger will be collapsed into the Rest-of-Pool Capacity zone 19

20. What will be analyzed for FCA-10 and beyond? For FCA-10 and beyond, incorporate the analysis of appropriate zonal boundaries into the annual process used to calculate transfer limits for RSP and NERC statutory requirements – The automatic trigger would continue to define whether the zone would be created 20

21. How are bilateral trading rules affected? Once a zone is modeled in the FCA, it will persist in the subsequent reconfiguration auctions and bilateral transaction windows for that Capacity Commitment Period – No change to bilateral trading rules 21

22. EXAMPLES OF THE ZONE MODELING PROCESS

23. Examples Two examples are provided to give a sense of how the proposal will work – NEMA/Boston – New Hampshire See also the Special RC presentation on September 26 for several additional examples of zonal modeling calculations 23

24. NEMA/Boston example (FCA-8 values) Line-line TSA requirement 2,788 MW Largest station 1,972 MW Total4,760 MW There were 3,685 MW of Existing Qualified Capacity in Boston - so the objective criteria would be triggered and the zone would be modeled for the commitment period 24

25. New Hampshire example (FCA-8 values) Line-line TSA requirement*3,101 MW Largest Station1,245 MW Total4,346 MW There were 4,396 MW of Existing Qualified Capacity in New Hampshire – so the zone would not be modeled 25 *Assuming zero import capability

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