1. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation FERC Compliance Filing – July 2, 2004 NEPOOL Markets Committee June 23, 2004 Mark Karl

2. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation FERC LICAP order directed ISO-NE to submit a compliance filing on July 2, 2004 – Filing requirement responds to interventions requesting FERC order a LICAP zone for SWCT. – FERC states an intention to create a SWCT zone unless ISO presents evidence why they should not. – ISO is also directed to respond as to whether a SWCT energy zone should be created in advance of LICAP implementation.

3. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Load Assets are the smallest level of granularity in the settlement/ market system. Each Load Asset exists only within a single NEPOOL Metering Domain. Metering Domains may exist only within a single load zone. Load Assets are therefore specific to a single load zone, and are the basis for tracking and assigning all settlement and market obligations.

4. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Since energy and LICAP obligations are assigned to Load Assets, the zones used for energy and LICAP must be coincident. – The energy zones are the smallest geographic aggregation for market purposes. The model allows energy zones to be aggregated together into a larger LICAP zone, but LICAP zones can not be a subset of an energy zone. The result of these dependencies is that energy zones must be the smaller of the zones needed for either LICAP or energy.

5. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation The assessment of energy market zones for the nodal/ zonal pricing docket focused on price congestion within and among zones. Observed or expected price separation reflects electrical constraints that define zones. For the 2004-2005 RTEP process, ISO-NE Planning has prepared PRELIMINARY Capability Responsibility and local sourcing requirements. An assessment of likely LICAP price separation is presented here and forms the basis for LICAP zone recommendations.

6. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation DISCLAIMERS: – Sourcing requirements are PRELIMINARY. – Planning analysis is based on the at criteria state consistent with the LICAP filing. – The at criteria approach may change depending on the outcome of the LICAP hearings. – The CT load swap is included in sourcing requirements and this may also change in the LICAP hearings. – Prices are based on the as-filed demand curve. All demand curve parameters may change. – This analysis is focused only on the Connecticut issue as required for FERC compliance.

7. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Preliminary Connecticut requirements by RTEP zone:

8. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Indicative Clearing - Connecticut Cleared Capacity Transfers:

9. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Indicative Pricing (Cleared against as-filed uncapped demand curve):

10. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Assessment of Results: – Constraint between SWCT and Norwalk/Stamford does not bind, resulting in no price separation. – Constraint between SWCT and Connecticut does bind, resulting in substantial price separation. – Although changes in the demand curve may change price levels, the magnitude of separation will not change

11. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Assessment of Results: – Changes in transfer limits will change separation magnitude. – Limits are unlikely to decrease enough to significantly separate SWCT and Norwalk/ Stamford. – Limits are unlikely to increase enough (until 345 phase 1 is completed) to significantly converge CT and SWCT

12. M A R K E T S D E V E L O P M E N T SWCT LICAP Zone Recommendation Conclusion and Recommendation: – For LICAP purposes Connecticut should be divided into two zones: SWCT inclusive of Norwalk/ Stamford Rest-of-Connecticut – Although Rest-of-Connecticut clears at zero, energy market considerations still require a separate zone. Given that LICAP constraint does not bind, aggregation into rest-of-pool is a moot issue. Changes in OC calculation may still separate CT and ROP