Financial Assurance for New Demand Resources

1. Financial Assurance forNew Demand Resources Ad Hoc Group of Demand Resource Providers 11 May 2010

2. Introduction • Ad hoc coalition of DR Providers seeks to address certain Financial Assurance (FA) risks in the FCM • Presentation on issues at January 2010 and April 2010 MC meetings • This presentation provides a status update on two proposals, and offers Market Rule language on the third • We seek review and comments onour proposals

3. Review of Proposals • Delivery Location and Type • For Demand Resources, assets mapped must be the same type as the Resource that took on the Capacity Supply Obligation (On Peak, Seasonal Peak, RTDR or RTEG) and in the same Load Zone (or Dispatch Zone) • Commercialization Requirement • No forgiveness of associated Financial Assurance (FA) if New Resource is not commercialized even if owner completely covers the obligation and subsequently retires the Resource • Stranded Pro-rated MWs • If a New Resource pro-rates their MWs in FCA-1 and again in FCA-2 and fully builds their obligation, full amount of FA is not returned

4. 1. Delivery Location and Type ISSUE: • Demand Resources are required to qualify and clear a specific type (On Peak, Seasonal Peak, RTDR, RTEG) in a specific Load Zone or even Dispatch Zone • Exact location of New Demand Resource assets often not known at time of auction • this is a significant difference between DR and Generation PROPOSAL: • Allow a MP to permanently move some portion of a CSO from a Resource in one Load or Dispatch Zone to another of its Resources in another Load or Dispatch Zone as long as it is within the same Capacity Zone • Allow a MP to move some portion of a CSO from one type of Demand Resource to another type of Demand Resource • An exception would be that transfers to an RTEG Resource could only come from an RTEG Resource • Any change from cleared type and location must be submitted to the ISO for reliability review during any bilateral window. Rules for review by ISO similar to those for other bilateral transactions. • Total amount of Qualified Capacity would not change within the Capacity Zone, but would move to the accepting Load or Dispatch Zone • All associated FA would move with the CSO 4

5. 1. Delivery Location and Type Total Cleared15 MW S. VT Clear10 MW Total Delivered15 MW Deliver5 MW SEMA Deliver10 MW Clear5 MW

6. 1. Delivery Location and Type, con’t • Due to the lack of flexibility in fulfilling FCA 1 obligations, extend the current grace period from 2 up to 3 years for delivery of a New Resource • MP must provide ISO an updated CPS, together with appropriate rationale, for the extension • Market Participant would still suffer loss of FA for any undelivered obligation. • The market has received delivery of the capacity obligation that was purchased, in the relevant Capacity Zone. 6

7. 1. Delivery Location and Type, con’t Status Update: • Meetings with ISO Markets Development and Qualification personnel • Variations and options discussed. No final proposal to present yet. • Basic intent remains the same • Developing final proposal and market rule language to present for discussion at June MC meeting

8. 2. Commercialization Requirement ISSUE: • No forgiveness of associated Financial Assurance (FA) for New Resource obligation even if completely covered by another New Resource PROPOSAL: • Allow a New Resource (DR or Generation) a releaseof FA if the Market Participant • Covers its obligation in every Commitment Period, and • Bilateral the obligation to another New Resource in at least one Commitment Period, and • Subsequently retires the Resource, or has a permanent de-list bid accepted • The ISO would not forfeit the FA associated with this resource at the end of the 2-year grace period if the Market Participant chooses this path • The market is covered for the entire obligation that was purchased in each Commitment Period

9. 2. Commercialization Requirement Status Update: • “New” in this context limited to Qualified but uncommitted MWs • Resource or part of resource that has qualified but never cleared in any FCA • Pro-rated MW not eligible • Applicable to both generation and demand resources • Developing final proposal and market rule language to present for discussion at June MC meeting

10. 3. Stranded Pro-rated MWs ISSUE: • Almost all Resources (all types) chose to prorate by MW in FCA 1 • New Resources still need to deliver full non-prorated MW in order to get a full return of FA • Continuation of floor price may lead to continued proration Status Update: • Consideration of feedback from ISO and NEPOOL Markets Committee • Proposal narrowed due to ISO and MC concerns • FA of pro-rated MW only released when MW clear in a future auction and are subsequently built by the market participant • Still applicable to both Demand and Generation Resources • Today we suggest an addition to Market Rule 1 Section III.13.3.4 (c) for discussion • Will seek a vote at a future MC meeting

11. Timing • All proposals would be effective upon approval by NEPOOL and the FERC. • Applicable changes would apply as appropriate to FCA-1, FCA-2, FCA-3, and all future auctions

12. Questions?Suggestions?Feedback? Thank you for your time and consideration. 12