Locational ICAP Project Power System Resource Adequacy Working Group Springfield, MA – Feb. 27, 03

1. Locational ICAP ProjectPower System Resource Adequacy Working GroupSpringfield, MA – Feb. 27, 03 Market and Regulatory Practices Amr Ibrahim

2. Purpose of the Presentation • Describe the plan to introduce Locational ICAP (LICAP) to ISO-NE constrained localities by January 2004. • Take comments and/or suggestions. Market & Regulatory Practices

3. Structure of the Presentation • Rationale for LICAP. • How it will work? • Relationship with other Initiatives. • Suggested Timelines. • Second Phase Improvements. Market & Regulatory Practices

4. Rationale for LICAP • Ensure that capacity resources are located where it is most efficient. • Address reliability concerns in certain locations within the ISO-NE control area. • Comply with FERC Orders [ER02-2330-001 of 12/20/02, and ER02-2330-000 of 09/20/02]. Market & Regulatory Practices

5. FERC Orders • Develop Locational ICAP largely on lines similar to that used by NYISO (ICAP resources are located in certain regions) , or that used by PJM (ICAP resources have a transmission path to the purchaser) - [ER02-2330-001, et al, 12/20/02] • Develop the necessary procedures that allow for the partial de-listing – [ER02-2330-000 – 09/20/02] Market & Regulatory Practices

6. How it will work (the very simple way) • Determine LOLE as a function of native capacity in all localities of the system. • Determine the native capacity level required to meet the reliability criterion of 1 day in 10 years (80% in the graph). • LSEs to acquire resources (either bilaterally, or through an auction) to cover their obligations from resources within the locality equal to percentage required to meet reliability criterion. Market & Regulatory Practices

7. NYISO ICAP – the Golden 9 Steps • NYSRC sets the Installed Reserve Margin - NYISO determines the NYCAS ICAP requirement as per NYRSDC and NPCC, and NYPSC standards. • NYISO converts NYCA ICAP into NYCA UCAP. • NYISO determines LICAP requirements and converts them to UCAP • NYISO assigns UCAP requirements—including LICAP to LSEs on Transmission Districts basis. • NYISO establishes standards and requirements applicable on transmission owners, LSE, and ICAP suppliers. • NYISO determines the amount of UCAP that internal and external suppliers (to NYCA) may supply according to the set standards. • NYISO conducts regularly scheduled ICAP auctions before and during each Capability period. • LSEs procure adequate UCAP from ICAP suppliers either bilaterally or through ISO-administered auctions to meet their requirements • NYISO monitors the compliance of Transmission owners, LSE’s and ICAP suppliers. Market & Regulatory Practices

8. LICAP Vs SMD ICAP • LICAP is Locational (tautology really) • Partial de-listing is allowed. • No change in the definition of ICAP units, or their qualification. • No change in calculation of the UCAP. • No change in the commitment period (monthly). • No change in the load-shifting adjustments. • No change in the auction procedure • No change in the deficiency rules and their charges. Market & Regulatory Practices

9. Relationship to Other Initiatives • DCA Under revision. • RMR Reduced, may be replaced. • Quick Start Complementary/Replaced. • LMP Complementary. • CRAM Meets NE deliverability requirements LICAP is a subset. Market & Regulatory Practices

10. Suggested Timelines • Date of First Auction: January 2nd, 2004 • Date of FERC Filing: July 1st, 2003 • Stakeholder Communication: May 1st, 2003 • End of Design Stage: April 15th, 2003 Market & Regulatory Practices

11. Second Phase Improvements • Redefine Constraints to include Exports • Align LICAP with the CRAM Proposal. Market & Regulatory Practices