1. Barker, Dunn & Rossi1 Bilateral Contract and Settlement Market Rules for CMS Phase I Presented to NEPOOL Markets Committee January 23, 2001

2. Barker, Dunn & Rossi2 Drafting Principles zCMS Phase I Rules (Contracts & Settlements) drafted using Sept, 2000 draft of End-State CMS/MSS Rules. zCross references to RNA used where possible zAll Settlements Calculations contained in single section zAll Bilateral Contracts contained in single section

3. Barker, Dunn & Rossi3 Scope of Presentation zOverview of Rules yBilateral Contracts – Section 4 ySettlements Calculations – Section 6 zNumerical Examples

4. Barker, Dunn & Rossi4 Overview of Rules zBilateral Contracts and Settlement Treatment zReal-Time Market Settlements zNCPC Calculations yNCPC Rules will be included when finalized zFCR Settlements zMarginal Loss and Congestion Revenue zInadvertent

5. Barker, Dunn & Rossi5 Types of Bilateral Contracts zRelevant sections ySection 4.2 covers basic rules and timelines zTypes yUnit, System, Obligation Transfer, Load Asset Contract and External (ICAP Only) xUnit Contract must specify Location xSystem Contract must specify Location xObligation Transfer Contract must settle where actual load obligation resides xAbove Continue to be financial instruments only xExternal must link with Supply Offer or Demand Bid at External Node

6. Barker, Dunn & Rossi6 Bilateral Contract Submittal zSection 4.3 describes submittal process zAppendix-4A sets out content requirements zSubmittal similar to today except: yNo External Contracts other than ICAP yNo Pre-Determined Conditions yNo Non-Standard Provisions zLinked Dispatchable and Firm Contracts retained zValidation similar to today

7. Barker, Dunn & Rossi7 Bilateral Contract Settlement Treatment zSection 6.3 describes settlement treatment zSettlement treatment similar to today except yLocation specific for Energy zSeller incurs an increased financial obligation for Unit, System, Obligation Transfer and Load Asset (Operating Reserve) Contracts zSeller incurs a reduction in financial obligation for Load Asset (Energy) Contract zSystem and Obligation Transfer Contracts remain dispatchable

8. Barker, Dunn & Rossi8 Real-Time Settlements zSections 6.4, 6.5 and 6.6 zSettlement Quantities zSupply Obligation Payments zSettlement Obligation Payments zNet Settlements

9. Barker, Dunn & Rossi9 Real-Time Settlement Quantities zReal-Time Base Supply Obligation and Base Settlement Obligation quantities for Energy as submitted by Assigned Meter Reader zElectrical Load calculated for External Nodes, Nodes and Load Zones. zReal-Time Ancillary Service Supply Obligation based on designated amounts zSchedule changes at External Nodes accounted for zDispatchable Loads pay Nodal, all other Loads pay Zonal

10. Barker, Dunn & Rossi10 Real-Time Supply Obligation Payments zEnergy Settlements based on Nodal Prices zAncillary Service Settlements based on A/S Clearing Price zUnit Contract Transactions included zLoad Asset Transactions (Reserve) included

11. Barker, Dunn & Rossi11 Real-Time Settlement Obligation Payments - Energy zPayments from Participants based on Settlement Obligation as modified for Bilateral Transactions zEnergy Settlements based on Locational Prices yNodal for Dispatchable Load yZonal for all other Load

12. Barker, Dunn & Rossi12 Real-Time Energy Settlement - Examples zExamples yEnergy Settlement with Unit Contract yEnergy Settlement with System Contract

13. Barker, Dunn & Rossi13 Real-Time Energy Settlement – Unit Contract Example 400 Mws GeneratorLoad 50% UC Sale at Zone A Node A CP = $30 Zone A = CP = $35 Gen Settlements at Zone A (-200 x 35) = -$7000 Load Settlements at Zone A (+200 x 35) = +$7,000 (-400 x 35) = -$14,000 Gen Settlements At Node A: (400 x $30) = $12,000 Note: $2,000 ($14,000 - $12,000) excess collected = Congestion Cost Gen Supply Obligation at Node A = 400 Gen Supply Obligation at Zone A = -200 Load Supply Obligation at Zone A = 200 Load Settlement Obligation at Zone A = -400 -$7000

14. Barker, Dunn & Rossi14 Real-Time Energy Settlement – System Contract Example 400 Mws GeneratorLoad 100 MW System Contract Sale at Zone A (Gen is seller) Node A CP = $30 Zone A = CP = $35 Gen Settlements at Zone A (-100 x 35) = -$3500 Load Settlements at Zone A (-300 x 35) = -$10,500 Gen Settlements At Node A: (400 x $30) = +$12,000 Note: $2,000 ($14,000 - $12,000) excess collected = Congestion Cost Gen Supply Obligation at Node A = 400 MWs Gen Settlement Obligation at Zone A = -100 MWs Load Settlement Obligation at Zone A = (-400 + 100) = -300

15. Barker, Dunn & Rossi15 Real-Time Energy Settlement – Obligation Transfer Contract Example 400 Mws GeneratorLoad 50% Obligation Transfer Contract – Gen is Seller Node A CP = $30 Zone A = CP = $35 Gen Settlements at Zone A (-200 x $35) = -$7,000 Load Settlements at Zone A (-200 x $35) = -$7,000 Gen Settlements At Node A: (400 x $30) = +$12,000 Note: $2,000 ($14,000 - $12,000) excess collected = Congestion Cost Gen Supply Obligation at Node A = 400 MWs Gen Settlement Obligation at Zone A = (-400 x.5) = -200 MWs Load Settlement Obligation at Zone A = (-400 – (-400 x.5)) = -200 MWs Note: Must Settle at Zone A

16. Barker, Dunn & Rossi16 Net Monthly Settlement zSection 6.16 zJust a summation of all Trading Interval calculations performed for a Billing Period zAdjusted Net Interchange calculation retained (Section 6.15). yPosturing and EETs zSupply Obligation payments and Settlement Obligation payments netted for each Participant.

17. Barker, Dunn & Rossi17 Settlement Obligation Payments – Ancillary Services zSections 6.7 and 6.8 zA/S Clearing Prices calculated based on Co-optimized results. zPayments from Participants based on sum of Real-Time Supply Obligation payments made to Participants zAGC and Operating Reserve yAGC payment based on REG share of total AGC requirement yOperating Reserve payment based on MW share of total Operating Reserve Requirement zSystem Contracts and Obligation Transfer Contracts included as an adjustment to MW Settlement Obligations

18. Barker, Dunn & Rossi18 Marginal Loss Revenue zSection 6.13.1 zCalculated based on comparing for each Trading Interval: ySum of Supply Obligations payments (less Congestion Component portion) and ySum of Settlement Obligation payments (less Congestion Component portion) zSurplus, if any, is allocated in proportion to total Electrical Load (Nodal + Zonal +External Node).

19. Barker, Dunn & Rossi19 FCR Settlements – Target FCR Payments zSection 6.12 zFCR Auction to be developed zPayments to FCR Holders made if: yCongestion Component of Locational Price of specified destination Location is greater than Congestion Component of Locational Price of specified origin Location yPayment based on MW amount of FCR and difference in Congestion Components of Locational Prices. zPayments from FCR Holders collected if: yCongestion Component of Locational Price of specified destination Location is less than Congestion Component of Locational Price of specified origin Location yPayment collected based on MW amount of FCR and difference in Congestion Components of Locational Prices

20. Barker, Dunn & Rossi20 Actual FCR Payments – Revenue Adequacy zSection 6.13.2 zActual FCR Payments equal Target FCR Payments if Congestion Revenue is adequate zRevenue adequacy calculated on a monthly basis by calculating Congestion Revenue collected in Real-Time zIf Revenue Collected >= Target FCR Payments, Revenue is adequate, excess added to Congestion Revenue Fund

21. Barker, Dunn & Rossi21 FCR Settlements – Revenue Adequacy – Cont. zIf Revenue Collected + Congestion Revenue Fund balance < Target FCR Payments, then Ratio down Target Payments to match zCongestion Revenue Fund balance at end of year used to make FCR Holders whole if Actual FCR Payments less than Target

22. Barker, Dunn & Rossi22 Inadvertent zSection 6.14 zInadvertent Settlements remain the same as today except: yInadvertent Mwhrs are priced out for each Trading interval at each External Nodes at the External Node Price.