1. OCTOBER 8, 2013 | NEPOOL MARKETS COMMITTEE Jon Lowell & Matt Brewster ISO NEW ENGLAND – MARKET DEVELOPMENT Revised summary of ISO proposal to conform the RT NCPC credit for DA scheduled generators offline following ISO dispatch NCPC Payments – Hourly Shortfall

2. Preface This document presents the ISO proposal for Hourly Shortfall NCPC (one of the “other credits”) The proposal to conform Hourly Shortfall has changed since last discussed at the Markets Committee (September 10, 2013) Therefore, every slide is labeled as: New Slide 10/8/13

3. What is Hourly Shortfall NCPC and what has changed in the ISO proposal? New Slide 10/8/13 • Hourly Shortfall compensates a generator with a DA energy obligation which is not dispatched in RT by the ISO • A resource may be financially worse off for following ISO dispatch if the RT cost to replace its DA energy sale exceeds the DA payment • The ISO previously proposed a RT opportunity cost model to evaluate the amount by which a generator is worse off • Based upon participant feedback and further analysis, the ISO proposes to retain the current design (i.e., energy replacement cost compensation), but conformed for offer flexibility • The replacement cost model aligns the eligibility conditions with the financial value of the best alternative considered

4. Hourly Shortfall NCPC credit: eligibility New Slide 10/8/13 • Eligible resources are: pool-scheduled in the day-ahead market, offline and available, not postured, but decommitted or not dispatched by the ISO in real-time • Includes Fast Start generator with denied RT self-schedule • Intermittent Power Resources remain ineligible • Resources are evaluated during hours of a DA commitment • Fast Start generators evaluated by individual hour • Non-Fast Start generator evaluated over contiguous hours at EcoMin and for energy above EcoMin by individual hour • Only hours when the RT offer is less than or equal to the DA offer are evaluated (detailed on next two slides)

5. Hourly Shortfall NCPC credit: consideration of RT Supply Offer New Slide 10/8/13 Fast Start generator: • Each hour, RT offer (Start-up, No-Load, energy offer at DA Cleared MW) must be less than or equal to the DA offer • DA pool commitment of a Fast Start does not become a RT commitment • Evaluation of RT offer relative to DA offer prevents compensating resources that are offline due to higher RT offer • Energy quantity considered is limited to the offered RT high capacity limit; i.e., MIN(EcoMax, Limited Energy limit)

6. Hourly Shortfall NCPC credit: consideration of RT Supply Offer (continued) New Slide 10/8/13 Non-Fast Start generator: • DA EcoMin quantity is evaluated for the contiguous hours of DA commitment regardless of RT energy offer • DA pool commitment of a non-Fast Start becomes a RT commitment and resource would be producing at least EcoMin if not for ISO dispatch offline • Each hour, RT energy offer for energy quantity between DA EcoMin and DA Cleared MW must less than or equal to the DA offer to be evaluated for this quantity • Evaluation of RT energy offer relative to DA offer prevents compensating resources that would not be dispatched at DA level due to higher RT offer • Energy quantity considered is limited to the offered RT high capacity limit; i.e., MIN(EcoMax, Limited Energy limit)

7. Hourly Shortfall NCPC credit: formulas New Slide 10/8/13 Fast Start Generator: = MAX[0, (RT LMPh – DA LMPh) * MIN(DA Cleared MWh, RT High Limith)] Non-Fast Start Generator: For EcoMin energy quantity = MAX[0, ∑{ (RT LMPh – DA LMPh)* DA EcoMin MWh }] For energy quantity above EcoMin = MAX[0, (RT LMPh – DA LMPh) * {MIN(DA Cleared MWh, RT High Limith)- DA EcoMin MWh }] where: • Non-Fast Start summation is for contiguous hours of DA commitment • RT High Limit is the maximum capability; i.e., MIN(EcoMax, LEG)

8. Hourly Shortfall NCPC example for Fast Start generator New Slide 10/8/13 • Hourly credit evaluated for total DA Cleared MW • For hours where RT offer (Start-up + No-Load + energy) ≤ DA offer

9. Hourly Shortfall NCPC example for non-Fast Start generator New Slide 10/8/13 • Net credit across DA commitment evaluated for DA EcoMin quantity • Hourly credit evaluated for DA Cleared MW > DA EcoMin MW • For hours where RT energy offer ≤ DA energy offer