IRH Comments on the ISO’s Proposed Market Rule Changes for Dispatchable Imports

1. IRH Comments on the ISO’s Proposed Market Rule Changes for Dispatchable Imports NEPOOL Markets Committee November 13, 2007 Rose Pysh Vice Chair of the IRH

2. Background • In May or June of 2007 ISO began presenting a dispatchable imports proposal to presumably treat external generation like internal generation. • The NEPOOL Markets Committee is scheduled to discuss (for the 5th time) the ISO proposal and what it feels are the necessary Market Rule 1 changes at its November 13th meeting. • Presumably this will be scheduled for a vote at the MC December meeting and tariff language will be voted on at the December TC meeting.

3. ISO Proposal • The ISO initially stated that the FCM Settlement Agreement requires the elimination of the transmission reservation requirement.[1] [1] Section 11, Part VI of the FCM Settlement Agreement states as follows: • “Market Rules, operating procedures and manuals shall be changed to allow External Resources to participate in the Forward Capacity Market and Transition Period on a basis comparable to internal generation Resources. Among the changes that are required are that the timing for Real Time contract submittals be modified to allow them to be made after the Day Ahead Energy Market closes and as soon as one hour before an operating hour in order to allow for the purchase of required transmission.” • ISO-NE has interpreted the last sentence of Section 11, Part VI as requiring the elimination of the transmission reservation requirement. According to the ISO, this language means that External Resources need not reserve transmission prior to one hour prior to the Operating Hour, even when an External Resource is a capacity resource.

4. ISO Proposal • In its initial proposal, a capacity importer need only prove 1 hour before an energy transaction flows that it has reserved sufficient transmission to cover the flow. • However, there would be no other transmission reservation requirement necessary to receive capacity revenues for dispatchable imports. No energy would need to flow in order to receive such a credit. • Thus an importer could price energy at $999, so that no energy would flow, make no transmission reservations for use over the Phase I/II HVDC tie and receive significant value for the capacity.

5. IRH Position • The ISO-NE’s interpretation goes far beyond the actual language of the FCM settlement and would result in: • a change from current practice, • a significant reduction of revenues to Schedule 20 A providers for their Phase I/II HVDC entitlements • a wealth transfer from New England customers without true capacity benefit.

6. IRH Position (cont.) • Under its current, revised proposal, the ISO would require Transmission service reservations comparable to the current structure if a capacity import would reduce HQICCs. However, for capacity imports that do not reduce HQICCs, there is no requirement for Transmission service, unless the linked energy is dispatched by ISO. • If the ISO does not change its proposal, the Schedule 20 A service providers will be deprived of just and reasonable rate revenues for use of the Phase I/II HVDC tie and will be forced to file with FERC revisions to Schedule 20 A to clarify terms and conditions for reservation and to ensure appropriate rate recovery for capacity imports over the Phase I/II HVDC tie.

7. IRH Position (cont.) • The FCM Settlement Agreement requires changes to the market rules to allow External Resources to participate in the FCM and Transition Period “on a basis comparable to internal generation Resources”. • ISO-NE’s proposed changes to timing of Real Time offers by External Resources is consistent with the FCM Settlement Agreement because those changes would make the timing of Real Time offers by External Resources comparable to the timing of Real Time offers by internal generation.

8. IRH Position (cont.) • ISO-NE’s proposal to eliminate the transmission reservation requirement is inconsistent with and violates the FCM Settlement Agreement. • Internal generation has physical and contractual arrangements in place to deliver energy to the PTF when internal generation submits its Real Time offer. • The FCM Settlement Agreement requires that an External Resources have comparable arrangements in place to deliver energy to the PTF when the External Resource submits its Real Time offer. • The existing transmission reservation requirement satisfies this comparability requirement and should not be eliminated.

9. IRH Proposal • The FCM Settlement Agreement does not require the elimination of the transmission reservation requirement. The FCM Settlement Agreement merely states that the Re-Offer Period for External Resources must end sometime after the Day Ahead Market closes, but not later than one hour before the start of the Operating Day, because External Resources need time to make transmission reservations. • The logical interpretation of this provision is not that the transmission reservation requirement should be eliminated but that External Resources must have transmission reservations in place by the end of the Re-Offer Period for the following Operating Day.

10. IRH Conclusion • Elimination of the transmission reservation requirement invites litigation (unnecessarily) • Separation of the vote on the two aspects of the proposal would allow for implementation of the market rule changes per the settlement agreement without violating the rights of the SSPs

11. On behalf of the IRH, thank you for your time and attention. Questions?