August 27, 2012

1. August 27, 2012 Michael I. Henderson Director Regional Planning and Coordination Transmission Committee Teleconference FERC Order 1000: Transmission Planning & Cost Allocation Interregional Issues Update

2. Overview • This presentation provides a status update on ISO-NE, NYISO & PJM’s compliance activities and sets out the schedule leading up to the compliance filing

3. Background: The Existing Northeastern ISO/RTO Planning Coordination Protocol • Joint ISO/RTO Planning Committee (JIPC), composed of ISO/RTO representatives, coordinates work under the Protocol. • Data and information exchange. • Coordinate interconnection requests and transmission requests with cross-border impacts. • Develop a Northeast Coordinated System Plan. • Open stakeholder process through the Inter-Area Planning Stakeholder Advisory Committee (IPSAC). • Allocate the costs associated with projects having a cross-border impact consistent with each party’s tariff and applicable federal or provincial regulatory policy. • The Protocol recognizes that the individual ISO/RTOs must abide by their individual OATTS and other regional requirements.

4. Interregional Coordination: Order 1000 Requirements • Develop further procedures with neighboring regions within its Interconnection including: • Exchange of planning data on a regular basis (at least annually). • Sharing of information on regional needs and potential solutions. • “Identification and joint evaluation of interregional facilities that may be more efficient or cost-effective solutions to regional needs”. • Transparency (posting information on a website). • Separate interregional planning agreements are not required and there is no requirement for an interregional “plan”. • Encourages (but does not require) multiregional or interconnection-wide planning.

5. Interregional Coordination: Requirements, cont’d • An interregional stakeholder process is encouraged. • Jurisdictional entities can attempt to develop interregional coordination procedures with neighbors in another country. • Other specific requirements: • A developer must first propose an interregional project in each regional planning process. • Joint (interregional) evaluation must be conducted in the “same general timeframe” as the regional evaluations. • FERC declines to set a specific timeline and leaves that to the regions. • The interregional project must first be selected in both of the regional planning processes in order to receive interregional cost allocation.

6. Interregional Coordination: Compliance Plan • The Northeast ISO/RTO Planning Coordination Protocol already provides a platform and infrastructure for meeting most of the Final Rule requirements. • The Northeast RTOs, ISO-NE, NYISO and PJM, have agreed to leverage the existing Protocol to comply with the Final Rule. • JIPC is in a position to support analysis of whether needs of the regions can be met more efficiently and cost-effectively with interregional transmission projects, and analyze specific interregional projects proposed in those regions. • There is an active stakeholder process established under the Protocol. • Inter-Area Planning Stakeholder Advisory Committee (IPSAC). • Canadian neighbors are already participants in interregional planning activities in the Northeast. • DOE ARRA-funded interconnection-wide planning efforts are encouraged by FERC. • ISO-NE, NYISO and PJM are sponsors and active participants in the Eastern Interconnection Planning Collaborative (EIPC).

7. Interregional Coordination: Compliance Plan, cont’d • Draft Revisions to Northeast Protocol • Plans call for sending draft revisions to the TC. • Will discuss the draft revisions at the January TC meeting. • ISO will keep the TC advised of any further revisions and will seek stakeholder input. • Core Order 1000 compliance elements added to the Protocol would also need to be reflected in each ISO/RTO’s respective OATT or operating agreement, as applicable.

8. Interregional Cost Allocation Requirements of Order 1000 • Transmission providers in each pair of neighboring regions to develop a mutually agreeable cost allocation methodology for a transmission facility located in both regions for inclusion in each region’s tariff. • Multi-lateral cost allocation is encouraged but is not required. • The Final Rule does not propose a uniform methodology and does not address cost recovery. • Allows for regional flexibility. • If region(s) cannot agree, FERC will decide. • Principles do not prohibit voluntary participant funding.

9. Interregional Cost Allocation: Compliance Plan • Northeast Protocol currently suggests that each region pay for the cost of the interregional transmission facilities located in their respective service areas. • ISO-NE, NYISO and PJM are considering a proposal to allocate the cost of interregional transmission facilities based on the relative proportions of the avoided costs of the respective regional alternatives. • This should not preclude the negotiation of an alternative cost allocation. • Requires modifications to the respective OATTs for implementation. • Discussions with the TC are planned through March. • An NPC vote is required in April 2013.

10. Northeast Compliance Activities: Status • NYISO, PJM and ISO-NE have agreed to address interregional issues in the context of the Protocol. • ISO/RTOs have held discussions at IPSAC as well as with their regional stakeholders. • http://www.iso-ne.com/committees/comm_wkgrps/othr/ipsac/mtrls/index.html • Note: The IPSAC provides an opportunity for interregional stakeholders to discuss common issues.

11. Northeast Compliance Activities: Status, continued • March 30th IPSAC • ISO/RTOs posted a “Matrix” of interregional issues for discussion. • Draft modifications to the Northeast Protocol were discussed and comments were provided. • June 22nd IPSAC • Order 1000-A clarifications were discussed. • Responses were provided to comments on the Protocol. • “Strawman” proposal for interregional cost allocation was discussed. • August 27th IPSAC • Further discussions on the draft revisions to the Protocol and the “Strawman” proposal for interregional cost allocation. • Responses were provided to comments received. • ISO/RTO talks are continuing to discuss revisions to the draft Protocol and to further engage their regional stakeholders.

12. Summary: Proposed Order 1000 Protocol Coordination Process • JIPC will annually and proactively review regional needs/solutions (whether reliability, economic or public policy) identified in the three regional planning processes and identify (with IPSAC input) potential for more efficient and cost-effective interregional projects that could meet those needs. • If an interregional transmission project is proposed in the planning process of more than one region (whether in response to the JIPC review or otherwise), the pertinent regions will analyze the project in their planning processes with JIPC analysis/assistance. • JIPC will perform specified types of studies to support the foregoing. • If approved in the pertinent regions, the costs will be allocated per the formula (a strawman has been proposed).

13. Schedule • Draft Revisions to Northeast Protocol • Plans call for sending draft revisions to the TC. • Will discuss this at the January TC meeting. • ISO will keep the TC advised of any further revisions and will seek input. • Attachment K Modifications • Will begin discussions at the January TC meetings. • Further discussions are planned at the February and March TC meetings. • The NPC vote is required by the April meeting. • Compliance Filing on Interregional Planning & Cost Allocation • Due 18 months from Effective Date of Final Rule – April 11, 2013. • Final Rule’s requirements will apply only to “new transmission facilities”. • After the Effective Date of the compliance filings (e.g. , after FERC Approval).

14. INTERREGIONAL COST ALLOCATION“Strawman Proposal”(As Posted for 6/22/12 IPSAC WebEx) 14

15. Interregional Cost Allocation • Proposed Approach • Strive for “simplicity” to the extent feasible. • Address compatibility with regional cost allocation methods. • Proportional savings in transmission project costs allocated to each region. • Applicable to various needs. • e.g., reliability, economic, public policy • Discuss the feasibility of a “multi-lateral” methodology. • Include methodology(-ies) in individual OATTS.

16. “Strawman Proposal” for Interregional Cost Allocation • Proposed Process • Region A has identified Transmission Project X to meet a Reliability Need identified in its regional planning process at Cost (X). • Region B has identified Transmission Project Y to meet a Reliability Need identified in its regional planning process at Cost (Y). • Regions A & B through their interregional planning process have determined that Interregional Transmission Project Z at Cost (Z) will address the Reliability Needs in both regions “more efficiently and cost effectively” than the separate regional Transmission Projects X & Y. • The Cost of Project Z is less than the combined cost of Projects X & Y. • Regions A & B have each determined that Interregional Project Z is the preferred solution to their individual Reliability Needs and have each adopted that project in their respective Regional Plans replacing Projects X & Y respectively.

17. Cost Allocation “Strawman” • Interregional Cost Allocation Methodology • Cost Allocation to Region A = Cost (Z) x Cost(X)/[Cost(X) + Cost(Y)] • Cost Allocation to Region B = Cost (Z) x Cost(Y)/[Cost(X) + Cost(Y)] • Example • Region A, Project X Cost = Cost (X) = $60 Million • Region B, Project Y Cost = Cost (Y) = $40 Million • Interregional Project Z Cost = Cost (Z) = $80 Million • Cost Allocation to Region A = $80 x 60/(60 + 40) = $48 Million • Cost Allocation to Region B = $80 x 40/(60 + 40) = $32 Million

18. Interregional Cost Allocation Issues • Cost allocation within New England is clear. • Foreign systems will allocate costs in accordance with their internal requirements. • Some details of interregional cost allocation still need to be worked out, but the framework should be simple and easy to administer. • Examples: Quality of cost estimates, cost overruns, cost underruns.

19. Summary • The Protocol provides a platform and infrastructure for compliance with the interregional coordination requirements of Order 1000. • Protocol can be modified to meet requirements (with core elements mirrored in regional OATTs). • Interregional cost allocation requirements of Order 1000 can be met through agreed parallel provisions in the OATTs of the regions, to which the Protocol points. • ISO remains committed to discussing compliance approach and provisions with New England stakeholders. • Time to the compliance filing is short, but the necessary Protocol and OATT modifications should be fairly straightforward.