Fourth Forward Capacity Auction Transmission Security Analysis Requirement

1. Fourth Forward Capacity Auction Transmission Security Analysis Requirement Reliability Committee Meeting February 26, 2010 Marianne Perben, Senior Engineer, FCM & Tariff Administration

2. Purpose of the Discussion • Present background information related to the 2/22/2010 FERC Filing • Review the changes to section III.12 of the Tariff that are related to capacity requirements and Capacity Zone creation • Review the assumptions and methodology that will be used for the calculation of the Transmission Security Analysis (TSA) requirements for the 2013-2014 Capacity Commitment Period (FCA #4)

3. Changes to the Calculation of Capacity Requirements • Changes to Section III.12 are three-fold • Changes to the modeling of potential Capacity Zones in the FCA • Possibility of subdivision of an energy Load Zone into multiple potential Capacity Zones depending on intra-zonal constraints • Changes to the modeling of final Capacity Zones in the FCA • Consideration of Static De-List Bids, Export Bids and Administrative Export Bids from non-pivotal suppliers, Permanent De-List Bids and Non-Price Retirement Requests in the modeling of import-constrained Capacity Zones • Changes to the Local Sourcing Requirement (LSR) for import-constrained zones • Use of the “higher of” methodology: the LSR is the higher of the probabilistic, resource adequacy based requirement (Local Resource Adequacy Requirement or LRA) and the deterministic, transmission security based requirement (Transmission Security Analysis or TSA requirement) • The use of surplus capacity is removed from the LRA calculation

4. Changes to the Calculation of Capacity Requirements, cont. • Based on the discussions held at the RC and the best current information available to the ISO, additional changes to the reliability review and TSA assumptions will be reflected in ISO Planning Procedure 10 – Planning Procedure to Support the Forward Capacity Market (PP-10) • Reliance on capacity from Real-Time Emergency Generators • Reduction of peaking generation forced outage assumptions from 33% to 20%

5. New Process for Determining Capacity Zones *If price separation occurs. • Based on the four-step process • Are there transmission constraints inside any of the energy Load Zones that need to be reflected in the FCA? • Can adjacent energy Load Zones and/or their subdivisions be aggregated? • Considering zones that are neither import nor export constrained • Considering zones for which no meaningful transfer limit can be developed • What are the requirements for all potential Capacity Zones? • Based on the zones determined in step #2 • Based on the “higher of” LSA and TSA methodology • What should be the final Capacity Zones modeled in the FCA and all subsequent Reconfiguration Auctions*? • Based on qualified resources, Non-Price Retirements and de-lists, and the requirements determined in step #3

6. Timeline • Assuming FERC’s approval, Section III.12 changes will be effective on 04/23/2010 • Due to auction software limitations, modeling of energy Load Zone subdivisions in the FCA will not be implementable until FCA #5, at the earliest • All other changes (including additional assumptions changes) will be implemented for FCA #4 • LSR requirements for FCA #4 will be calculated and presented for a vote at the 03/17/2010 Reliability Committee meeting and 04/09/2010 Participants Committee meeting • Final Capacity Zones will be reported in the 05/04/2010 FERC informational filing • PP-10 will be updated to reflect new reliability review assumptions prior to FCA #4, which is scheduled to commence on 08/02/2010

7. FCA #4 Local Capacity Requirements • The calculation of the local capacity requirements for FCA #4 will rely on the latest available data • Updated load forecast, resource data and resource availability were presented to the Power Supply Planning Committee on 02/18/2010; details are available at: http://www.iso-ne.com/committees/comm_wkgrps/relblty_comm/pwrsuppln_comm /mtrls/2010/feb182010/index.html • The transmission topology that was certified for FCA #4 was presented to the RC on 10/20/2009; details are available at: http://www.iso-ne.com/committees/comm_wkgrps/relblty_comm/relblty /mtrls/2009/oct202009/a4_fca4_basecase_development.pdf • Updates to the transmission topology since FCA #3 do not have material impacts on the network model

8. FCA #4 Local Capacity Requirements, cont. *Draft 2010 Regional System Plan data. • Due to the fact that we cannot model any subdivision of an energy Load Zone at this time and that there are no significant topology changes since FCA #3, we may model up to four zones (Rest-of-the-Pool, Connecticut, NEMA/Boston and Maine) as potential Capacity Zones for FCA #4 • Based on the latest available data*, the transmission interface transfer limits for the potential import-constrained or export-constrained Capacity Zones are:

9. Background: TSA Requirements • The TSA determines the requirement of the subarea to meet its load through internal generation and import capacity • It is performed via a series of transmission load flow studies • In performing the analysis, static transmission interface transfer limits may be established as a reasonable representation of the transmission system’s capability to serve subarea load with available existing resources • Results may be presented in the form of a deterministic operable capacity analysis

10. FCA #4 TSA Requirements • When presented in the form of a deterministic operable capacity analysis, the TSA simply compares need with available resources • Needs include • Load + Loss of Generator (“Line-Gen” scenario), or • Load + Loss of import capability (going from an N-1 import capability to an N-1-1 import capability; “Line-Line” scenario) • Resources include • N-1 Import capability • Regular generation • Operating actions (fast start units, demand response…) • Resource unavailability is applied by de-rating capacity • Example

11. FCA #4 TSA Requirements, cont. (Need – Import Limit) TSA Requirement 1 - ( Assumed Unavailable Capacity / Existing Resources) *Rest-of-the-Pool is neither import nor export constrained. Maine is export-constrained. • For each of the two potential import constrained Capacity Zones*, the TSA requirement (resource requirement that will be compared to the LRA) is the amount of internal resources (generators and Demand Resources) needed in the zone, so that the Line+Line or Line-Gen requirements can be met after proper accounting for resource unavailability • The TSA requirement can be approximated by using the following formula • The TSA requirement ensures that the zone’s transmission security margin remains close to zero

12. FCA #4 TSA Requirements, cont. • The TSA requirement calculation is an approximation, due to: • The use of static transmission interface transfer limits • The reliance on specific scenarios (“Line-Gen”) and (“Line-Line”) • The nature of the calculation • The term [Assumed Unavailable Capacity / Existing Resource] in the above equation depends on the actual proportion of regular generation, peaking generation, intermittent resources, Real-Time Emergency Generation (RT-EG), active non-RTEG Demand Resources (DR) and passive DR • The fact that the energy Load Zones boundaries do not exactly correspond to the real operating boundaries • Real operating boundaries are based on the limiting constraints that define a zone’s import capability and the ability of the generation within the zone to alleviate those constraints • The TSA requirement is calculated based on the zone’s real operating boundaries and is an approximation for what the requirement would be for the energy Load Zone

13. Example of How LSR is Determined The following example was developed to highlight the new rules regarding the LSR determination. All values below are for illustration purpose only.

14. Questions 14