Bilateral Contract and Settlement Market Rules for CMS Phase I

1. Bilateral Contract and Settlement Market Rules for CMS Phase I Presented to NEPOOL Markets Committee January 23, 2001 Barker, Dunn & Rossi

2. Drafting Principles • CMS Phase I Rules (Contracts & Settlements) drafted using Sept, 2000 draft of “End-State” CMS/MSS Rules. • Cross references to RNA used where possible • All Settlements Calculations contained in single section • All Bilateral Contracts contained in single section Barker, Dunn & Rossi

3. Scope of Presentation • Overview of Rules • Bilateral Contracts – Section 4 • Settlements Calculations – Section 6 • Numerical Examples Barker, Dunn & Rossi

4. Overview of Rules • Bilateral Contracts and Settlement Treatment • Real-Time Market Settlements • NCPC Calculations • NCPC Rules will be included when finalized • FCR Settlements • Marginal Loss and Congestion Revenue • Inadvertent Barker, Dunn & Rossi

5. Types of Bilateral Contracts • Relevant sections • Section 4.2 covers basic rules and timelines • Types • Unit, System, Obligation Transfer, Load Asset Contract and External (ICAP Only) • Unit Contract must specify Location • System Contract must specify Location • Obligation Transfer Contract must settle where actual load obligation resides • Above Continue to be financial instruments only • External must link with Supply Offer or Demand Bid at External Node Barker, Dunn & Rossi

6. Bilateral Contract Submittal • Section 4.3 describes submittal process • Appendix-4A sets out content requirements • Submittal similar to today except: • No External Contracts other than ICAP • No Pre-Determined Conditions • No Non-Standard Provisions • Linked Dispatchable and Firm Contracts retained • Validation similar to today Barker, Dunn & Rossi

7. Bilateral Contract Settlement Treatment • Section 6.3 describes settlement treatment • Settlement treatment similar to today except • Location specific for Energy • Seller incurs an increased financial obligation for Unit, System, Obligation Transfer and Load Asset (Operating Reserve) Contracts • Seller incurs a reduction in financial obligation for Load Asset (Energy) Contract • System and Obligation Transfer Contracts remain dispatchable Barker, Dunn & Rossi

8. Real-Time Settlements Sections 6.4, 6.5 and 6.6 Settlement Quantities Supply Obligation Payments Settlement Obligation Payments Net Settlements Barker, Dunn & Rossi

9. Real-Time Settlement Quantities • Real-Time Base Supply Obligation and Base Settlement Obligation quantities for Energy as submitted by Assigned Meter Reader • Electrical Load calculated for External Nodes, Nodes and Load Zones. • Real-Time Ancillary Service Supply Obligation based on designated amounts • Schedule changes at External Nodes accounted for • Dispatchable Loads pay Nodal, all other Loads pay Zonal Barker, Dunn & Rossi

10. Real-Time Supply Obligation Payments • Energy Settlements based on Nodal Prices • Ancillary Service Settlements based on A/S Clearing Price • Unit Contract Transactions included • Load Asset Transactions (Reserve) included Barker, Dunn & Rossi

11. Real-Time Settlement Obligation Payments - Energy • Payments from Participants based on Settlement Obligation as modified for Bilateral Transactions • Energy Settlements based on Locational Prices • Nodal for Dispatchable Load • Zonal for all other Load Barker, Dunn & Rossi

12. Real-Time Energy Settlement - Examples • Examples • Energy Settlement with Unit Contract • Energy Settlement with System Contract Barker, Dunn & Rossi

13. Real-Time Energy Settlement – Unit Contract Example Generator Load Zone A = CP = $35 Node A CP = $30 400 Mws 50% UC Sale at Zone A 400 Mws Gen Supply Obligation at Zone A = -200 Load Supply Obligation at Zone A = 200 Load Settlement Obligation at Zone A = -400 Gen Supply Obligation at Node A = 400 Gen Settlements at Zone A (-200 x 35) = -$7000 Load Settlements at Zone A (+200 x 35) = +$7,000 (-400 x 35) = -$14,000 Gen Settlements At Node A: (400 x $30) = $12,000 Note: $2,000 ($14,000 - $12,000) excess collected = Congestion Cost -$7000 Barker, Dunn & Rossi

14. Real-Time Energy Settlement – System Contract Example Generator Load 100 MW System Contract Sale at Zone A (Gen is seller) Zone A = CP = $35 Node A CP = $30 400 Mws 400 Mws Gen Settlement Obligation at Zone A = -100 MWs Load Settlement Obligation at Zone A = (-400 + 100) = -300 Gen Supply Obligation at Node A = 400 MWs Gen Settlements At Node A: (400 x $30) = +$12,000 Note: $2,000 ($14,000 - $12,000) excess collected = Congestion Cost Gen Settlements at Zone A (-100 x 35) = -$3500 Load Settlements at Zone A (-300 x 35) = -$10,500 Barker, Dunn & Rossi

15. Real-Time Energy Settlement – Obligation Transfer Contract Example Generator Load Zone A = CP = $35 50% Obligation Transfer Contract – Gen is Seller Node A CP = $30 400 Mws 400 Mws Note: Must Settle at Zone A Gen Settlement Obligation at Zone A = (-400 x .5) = -200 MWs Load Settlement Obligation at Zone A = (-400 – (-400 x.5)) = -200 MWs Gen Supply Obligation at Node A = 400 MWs Gen Settlements At Node A: (400 x $30) = +$12,000 Note: $2,000 ($14,000 - $12,000) excess collected = Congestion Cost Gen Settlements at Zone A (-200 x $35) = -$7,000 Load Settlements at Zone A (-200 x $35) = -$7,000 Barker, Dunn & Rossi

16. Net Monthly Settlement • Section 6.16 • Just a summation of all Trading Interval calculations performed for a Billing Period • Adjusted Net Interchange calculation retained (Section 6.15). • Posturing and EET’s • Supply Obligation payments and Settlement Obligation payments netted for each Participant. Barker, Dunn & Rossi

17. Settlement Obligation Payments – Ancillary Services • Sections 6.7 and 6.8 • A/S Clearing Prices calculated based on Co-optimized results. • Payments from Participants based on sum of Real-Time Supply Obligation payments made to Participants • AGC and Operating Reserve • AGC payment based on REG share of total AGC requirement • Operating Reserve payment based on MW share of total Operating Reserve Requirement • System Contracts and Obligation Transfer Contracts included as an adjustment to MW Settlement Obligations Barker, Dunn & Rossi

18. Marginal Loss Revenue • Section 6.13.1 • Calculated based on comparing for each Trading Interval: • Sum of Supply Obligations payments (less Congestion Component portion) and • Sum of Settlement Obligation payments (less Congestion Component portion) • Surplus, if any, is allocated in proportion to total Electrical Load (Nodal + Zonal +External Node). Barker, Dunn & Rossi

19. FCR Settlements – Target FCR Payments • Section 6.12 • FCR Auction to be developed • Payments to FCR Holders made if: • Congestion Component of Locational Price of specified destination Location is greater than Congestion Component of Locational Price of specified origin Location • Payment based on MW amount of FCR and difference in Congestion Components of Locational Prices. • Payments from FCR Holders collected if: • Congestion Component of Locational Price of specified destination Location is less than Congestion Component of Locational Price of specified origin Location • Payment collected based on MW amount of FCR and difference in Congestion Components of Locational Prices Barker, Dunn & Rossi

20. Actual FCR Payments – Revenue Adequacy • Section 6.13.2 • Actual FCR Payments equal Target FCR Payments if Congestion Revenue is adequate • Revenue adequacy calculated on a monthly basis by calculating Congestion Revenue collected in Real-Time • If Revenue Collected >= Target FCR Payments, Revenue is adequate, excess added to Congestion Revenue Fund Barker, Dunn & Rossi

21. FCR Settlements – Revenue Adequacy – Cont. • If Revenue Collected + Congestion Revenue Fund balance < Target FCR Payments, then Ratio down Target Payments to match • Congestion Revenue Fund balance at end of year used to make FCR Holders whole if Actual FCR Payments less than Target Barker, Dunn & Rossi

22. Inadvertent • Section 6.14 • Inadvertent Settlements remain the same as today except: • Inadvertent Mwhrs are priced out for each Trading interval at each External Nodes at the External Node Price. Barker, Dunn & Rossi