Schedule 2 - VAR Support Non-$0 Capacity Cost

1. Schedule 2 - VAR SupportNon-$0 Capacity Cost 7/31/01

2. Non-$0 CC Charge • The Non-$0 CC Charge Provides Compensation (A “VAR Payment”) To A “Qualified Generator” For Maintaining That Unit’s Capability To Provide VAR Support When Directed To Do So. ISO New England

3. “Qualified Generators” • A “Qualified Generator” Is A Generator That Is In The NEPOOL Market System And Provides Measurable Voltage Support, As Determined From Time To Time By NEPOOL, To The NEPOOL Control Area. • Further Detail Regarding The Criteria And Procedure For Identifying A Generator As A “Qualified Generator” Is Forthcoming. ISO New England

4. Interim Listing Of “Qualified Generators” • Listed “Qualified Generators”, As Shown In The “Generator Claimed VAR Capability Report” Located At This Web Site, Are Defined As Those Generators In The Market System (EMS). ISO New England

5. Determination Of “Qualified VARs” • Within Two Years Of August 1, 2001, The Qualified VARs For Each Qualified Generator Must Be Physically Determined By Testing. • At Least Once Every Five Years After That Initial Test, The VAR Capability Of Each Qualified Generator Across Its Full Operating Range Must Be Retested. ISO New England

6. Interim Determination Of “Qualified VARs” • Until Initial Testing Is Completed For A Qualified Generator, Data Regarding The Generator’s Lagging VAR Capability At Full Load Available From Prior Testing Of That Generator Or From The Unit Manufacturer, As Reflected In Form NX-12D Submitted By The Generator To The ISO, Will Be Utilized For This Purpose. ISO New England

7. Interim Determination Of “Qualified VARs” • The “Qualified VARs” From Form NX-12D Will Be Adjusted For Losses To Station Service And Energizing The Generator Leads And Generator Step-Up Transformer, Costs Which Are Not Recoverable Under Schedule 2. ISO New England

8. Establishment of VAR Rate • The VAR Rate Will Be Established Each Year As Of January 1 On A Prospective Basis For That Calendar Year In Accordance With The Following Formula: • VAR Rate = Base VAR Rate * Min (1, (1.2* Forecast Peak Adjusted Load For The Year/Sum (Qualified Generator’s Seasonal Claimed Capability))). ISO New England

9. Base VAR Rate • The “Base VAR Rate” = A Series Of Annual Rates That Are Based On Estimates Of The Carrying Cost Per kVar Per Year To Generators Associated With The Equipment To Provide VAR Support. • The Proxy Value is $0.90 /kVar-yr in 2001 And Increases In Three Steps To $1.05 /kVar-yr in 2004 And Thereafter. ISO New England

10. VAR Rate • The VAR Rate Is Determined By Multiplying The Appropriate Base VAR Rate By A Factor Which Effectively Caps the VAR Revenue Requirements By Adjusting The Base VAR Rate Downward To The Extent That The Amount Of Qualified Generation Exceeds 120% Of NEPOOL’s Projected Annual Peak Load. ISO New England

11. ISO Calculation Of Qualified VARs • The Generator’s Full Load Is Defined, For VAR Capability Purposes, As The Net MW Output Value Shown For The Summer Season Within The ISO New England Seasonal Claimed Capability (SCC) Report As Posted On The ISO Website. ISO New England

12. ISO Calculation Of Qualified VARs • The Generator’s Lagging VAR Capability At Full Load (MWSCC) Is That Value Recorded On NEPOOL Form NX-12D from NEPOOL Operating Procedure OP14, Appendix B, Corresponding To Point 13 Which Is Defined As The Most Restrictive Maximum MVAR Lagging Capability At The Intersection Of Two Limitations. ISO New England

13. ISO Calculation Of Qualified VARs • The Generator’s Terminal Voltage (kV) Is That Value Shown On NEPOOL Form NX-9B In The Transformer Impedance Display Associated With The GSU Transformer. ISO New England

14. ISO Calculation Of Qualified VARs • Utilizing the Generator’s SCCsummer MW Rating, The Maximum MVAR Lagging Capability And The Generator’s Terminal Voltage The Generator’s Apparent Power And Power Factor Is Calculated In Order To Determine The Generator’s Current Under These Conditions. ISO New England

15. ISO Calculation Of Qualified VARs • The Generator’s Step-Up Transformer(s) Impedance Data Of Interest Is That Value X (%) on a 100 MVA Base As Shown On NEPOOL Form NX-9B In The Transformer Impedance Display Associated With The GSU Transformer. ISO New England

16. ISO Calculation Of Qualified VARs • The Generator’s Current And The GSU’s Reactance (X %) Is Used To Determine The GSU MVAR Losses On A Per Unit Basis And Ultimately An Actual Basis. • The Generator’s Lagging VAR Capability At Full Load Minus The Actual VAR Losses Across The GSU = The Generator’s Qualified VARs. ISO New England

17. Issues • Eight Five Percent (85%) Of Those Potentially “Qualified Generators”, Listed In The “Generator Claimed VAR Capability Report” Located At This Web Site, Have No NX-12D On File Or, IF On File, The Form Does Not Contain The Required Point 13 (Lagging MVAR) Data. ISO New England

18. Issues • The NX-9B Forms As Captured In The Official ISO Access Database Is Devoid Of GSU Data Associated With Those Potentially “Qualified Generators”. • Many Forms Are Associated With New Units Whose Generators Are Not Yet In The Market (EMS) • Less Than 2% Of Data Is Available To Determine GSU MVAR Losses ISO New England

19. Required Action • All Potentially Qualified Generators, As Listed In The “Generator Claimed VAR Capability Report” Located At This Web Site, Are Requested To Submit Data To Support Payment For Qualified VARs In Accordance With The Associated Web Document Titled, “Filing Requirements For Qualified Generators - VAR Capability Payments”. ISO New England