July 11-13, 2012 | NEPOOL markets committee Stowe, vt

1. July 11-13, 2012 | NEPOOL markets committee Stowe, vt Andrew Gillespie Principal analyst | market development 2nd Presentation FCA #7 Modifications - Inadequate Supply & Insufficient Competition

2. Scope

3. Scope • With the ‘hardwiring’ of zones, the affect on the system-wide provisions may require design changes • Consequently, the ISO will not be proposing any changes or clarifications to the system-wide Inadequate Supply or Insufficient Competition provisions at this time • There are a few general clarifications that the ISO would like to include in this package • Rationing election regarding Administrative Export De-Lists Bids • De-List combination limitations in the dynamic de-list bid range • Clarification that administrative pricing under Inadequate Supply or Insufficient Competition does not override a multi-year election for recently cleared new resource, or the price prorating of Real-Time Emergency Generation resources

4. inadequate supply & Insufficient competition provisions Introduction

5. Background • The Inadequate Supply and Insufficient Competition provisions specified in Section III.13.2.8 are a result of the June 16, 2006 Settlement Agreement • The objective of this proposal is to ensure that these provisions and the actions to be taken under these conditions are completely, adequately and appropriately specified in the tariff • These provisions apply to all FCAs (FCA #7 and future FCAs) • The use of CONE will remain for FCA #7 • A replacement for CONE for FCA #8 and subsequent FCAs is proposed in other ISO proposals

6. Overview • At the start of the primary auction (FCA), conditions are assessed on both a zonal and system-wide basis • Inadequate Supply occurs if there is not enough new and existing capacity to meet the system-wide Installed Capacity Requirement (ICR), or the Local Sourcing Requirement (LSR) in an import-constrained zone • Insufficient Competition occurs if there is enough new and existing capacity to meet ICR or LSR (in an import-constrained zone), but the ‘surplus’ does not meet specific thresholds • Under these conditions, certain pricing rules are to be applied

7. Import-constrained zones Inadequate Supply and Insufficient Competition Design Summary

8. Inadequate Supply – Import-Constrained Zone At the beginning of the auction, there will be Inadequate Supply in a zone if: • The amount of existing capacity is less than the LSR amount, and - Tariff clarification recommended (see Calculation Guidelines slide) • There is not enough new capacity offered to satisfy the LSR amount In this case, the following will apply: • All new offers will be accepted and paid a rate equal to the starting price • All existing resources will be paid a rate equal to 1.1 x CONE • Any approved de-list above 1.1 x CONE will be deemed to have cleared (subject to a reliability review) and will not receive a Capacity Supply Obligation – see sections III.13.2.5.2.5 & III.13.2.5.2.7 • Any penalty assessed in this zone during the commitment period will be assessed at a rate equal to 1.1. x CONE – Tariff clarification recommended

9. Insufficient Competition – Import-Constrained Zone At the beginning of the auction, there will be Insufficient Competition in a zone if: • The amount of existing capacity is less than the LSR amount, and - Tariff clarification recommended (see Calculation Guidelines slide) • There is enough new capacity offered to satisfy the LSR amount, but the amount is either: • Less than 300MW (including generators and demand resources only) • The ISO is deferring a review of this threshold • The amount of new capacity offered is less than twice the amount of new needed to satisfy the LSR amount • The new capacity offered by a participant is deemed pivotal

10. Insufficient Competition – Import-Constrained Zone, continued If there is Insufficient Competition in a zone, the following will apply: • All new offers that clear will be paid a rate equal to the clearing price • All existing resources will be paid a rate equal to the lower of either the clearing price or 1.1 x CONE • Any approved de-list above 1.1 x CONE but less than the clearing price will be deemed to have cleared (subject to a reliability review) and will not receive a Capacity Supply Obligation – see sections III.13.2.5.2.5 & III.13.2.5.2.7 • Any penalty assessed in this zone during the commitment period will be assessed at a rate equal to the lower of either the clearing price or 1.1. x CONE– Tariff clarification recommended

11. System-wide Inadequate Supply and Insufficient Competition Design Summary

12. System-wide • With the ‘hardwiring’ of zones, the affect on these provisions may require design changes • Zones are now ‘hardwired’ whereas before only if there was price separation in the primary auction (FCA) would there be a separate capacity zone going forward • In this context, the Inadequate Supply and Insufficient Competition provisions refer to the ROP capacity zone, and may not be suitable for import-constrained zones with adequate supply (zones without price separation) • Consequently, the ISO will not be proposing any changes or clarifications to the system-wide provisions at this time

13. Calculation Guidelines

14. Guidelines • All amounts shall be determined at the auction starting price • Tariff clarification on this point recommended for Insufficient Competition provisions • Capacity associated with administrative de-list bids will not be included as existing capacity • Tariff clarification recommended to the provision describing the determination of New Capacity Required (Section III.13.2.4) Examples: • Administrative Export De-List Bids • Static De-List Bids for reductions due to ambient air conditions

15. Previous questions

16. Questions & Answers • When will participants know if these provisions are being used? • The auctioneer will notify participants, as applicable, during the auction. • Wasn’t the pivotal supplier test deleted with other FCM reforms? • Yes. The FCM Pivotal Supplier test [Section III.13.2.3.3] which dealt with existing capacity was deleted with January 31, 2012 FCM filing. • However, the pivotal supplier reference for these provisions relates to new offers [Section III.13.2.8.2(b)(iii)], and was unaffected.

17. schedule

18. Tentative Schedule of Meetings and Events