1. S PIEGEL & M C D IARMID New England’s Forward Capacity Market: How Did We Get Here and Where Are We Going? Scott H. Strauss APPA Legal Seminar Cambridge, MA October 2006

2. S PIEGEL & M C D IARMID Objectives Describe New England’s Multi ‑ Year Effort to Develop a Resource Adequacy Mechanism Review the Key Components of the Resource Adequacy Mechanism Developed Through a FERC- Supervised Settlement Process

3. S PIEGEL & M C D IARMID How Did We Get Here?

4. S PIEGEL & M C D IARMID Significant Events On the Road to Resource Adequacy Reliability Must Run or “RMR” Agreement Proliferation and Controversy The “PUSH” Experiment Locational Installed Capacity “Demand Curve” Filing by ISO New England

5. S PIEGEL & M C D IARMID ISO’s Proposed Demand Curve Capacity P Max PKPK C Min C Max CKCK C Target Locational ICAP Demand Curve C Min = OC C K = 1.038OC C Target = 1.054OC C Max = 1.150OC P K = EBCC P Max = 2EBCC Price d3d knee kink toe

6. S PIEGEL & M C D IARMID Additional Significant Events on the Road to Resource Adequacy Extensive and Contentious Litigation Over Demand Curve Parameters June 2005: Initial Decision Approving Demand Curve A Congressional Detour FERC Changes Direction All-Day Oral Argument

7. S PIEGEL & M C D IARMID Even More Additional Significant Events on the Road to Resource Adequacy Last Chance: Supervised Settlement Talks Our Winter of Settlement Discontent: 115 Parties Spend Five Months in Search of a New Market Design March 2006: Settlement Achieved >Strong Supporters >Strong Opponents >Strong Non ‑ Opponents June 2006: FERC Approves Settlement Agreement

8. S PIEGEL & M C D IARMID Where Are We Going?

9. S PIEGEL & M C D IARMID Forward Capacity Market (“FCM”) Components Procurement of Needed Capacity Resources in Advance Purchase Only the Amount of Capacity That is Needed Location-Specific Auctions / Capacity Transfer Rights (“CTRs”) Qualified New Resources Compete with Existing Resources

10. S PIEGEL & M C D IARMID Forward Capacity Auction Mechanics Annual ISO-Administered Auctions “Descending Clock” Format:  Auction Begins with Pre ‑ Determined Starting Price (2 x “CONE”)  Price Lowered Through Each Round  Last Round Sets Capacity Clearing Price  Existing Capacity a Price-Taker

11. S PIEGEL & M C D IARMID More FCM Components Capacity Payments Linked to Availability De-List / Retirement Bids Peak Energy Rent Deductions

12. S PIEGEL & M C D IARMID Even More FCM Components Market Power / Market Failure Protections Reconfiguration Auctions Self-Supply Option Transition Period Payments

13. S PIEGEL & M C D IARMID Self-Supply Option Load Serving Entities may designate owned or contracted resources Self-supplied resources are matched up with corresponding load obligation Both load and supply are cleared through the auction process Self-supplied capacity resources have the same rights and obligations as any FCM capacity resource

14. S PIEGEL & M C D IARMID Transition Period Necessary Because First Commitment Period Does Not Start Until 2010 Transition Period Provides a Negotiated Level of Capacity Payments

15. S PIEGEL & M C D IARMID Transition Period Payments All Listed Capacity Resources Receive Fixed Payments Based on Their Seasonal Ratings:  December 1, 2006 to May 31, 2007 $3.05/kW-mo.  June 1, 2007 to May 31, 2008 $3.05/kW-mo.  June 1, 2008 to May 31, 2009 $3.75/kW-mo.  June 1, 2009 to May 31, 2010 $4.10/kW-mo. Transition Payments Are Less Than What Would Have Been Paid Under Proposed LICAP Demand Curve

16. S PIEGEL & M C D IARMID Status of RMR Agreements  Agreements do not terminate automatically once transition period payments begin  Parties free to challenge individual RMR agreements following implementation of transition payments

17. S PIEGEL & M C D IARMID Next Steps Market Rule Drafting Commencement of Auctions Continued Litigation