FEBRUARY 14, 2013 RELIABILITY COMMITTEE MEETING Steve Weaver SYSTEM OPERATIONS In-Day Reserves & Supplemental Procurement

Background In accordance with OP-8, ISO maintains in real-time a total Ten Minute Reserves (TMR) at least equal to 100% of the largest single source contingency in New England and Thirty Minute Operating Reserves (TMOR) equal to 50% of the second largest contingency – ISO adjusts the allocation of TMR to compensate for generator non- performance In accordance with OP-8, the ISO can also increase the TMOR requirement for an incremental amount of replacement reserves based upon system conditions – ISO has not carried a real-time replacement reserves since June 1,

Background Operating the system to only meet minimum operating reserve requirements requires emergency actions on peak to account for uncertainties in – – Instantaneous peak load – Load forecast error – Generator contingencies and reductions – Gas resource unavailability due to fuel limitations ISO operations commits supplemental capacity in the RAA when necessary to preclude excessive reliance on emergency actions to maintain system reliability 3

Proposal: Replacement Reserves Starting with the Winter of 2013/2014, the ISO will operate the system to meet an incremental replacement reserve requirement (as part of total operating reserve requirement) – Replacement reserves can be met by resources providing ten or thirty minute capability – The incremental replacement reserve requirement would be included in the Forward Reserve Market, Day-Ahead Market, RAA/SCRA and in real- time with a discrete RCPF Having an increased reserve requirement will reduce the need to use supplemental commitments under normal operating conditions – The system will be committed to meet load plus the reserve requirements Resources in real-time will be redispatched to meet the total operating reserve requirement ensuring capability is available to manage uncertainties that may materialize within the operating day 4

Proposal: Replacement Reserves (cont.) Operations would not take emergency actions to maintain replacement reserves; rather only using these actions to maintain the minimum operating reserve requirement Operations will continue to commit supplement capacity in addition to replacement reserves in order to maintain system reliability 5

Operating Reserve Requirement In many hours the system has available reserves in excess of the total operating reserve requirement 6

Operating Reserve Requirement and Replacement Reserves Including replacement reserves in the total operating reserve requirement will not necessarily result in additional commitment – The commitment process results in available reserves being in excess of the total operating reserve requirement in many hours 7

Available Reserves above Requirement All Hours:

Available Reserves above Requirement Peak Hours:

Shortage of Replacement Reserves When there is a shortage of the replacement reserves (but not the minimum operating reserve requirement), emergency actions are not taken to meet the replacement reserves 10

Shortage of Minimum Operating Reserve Requirement When there is a shortage of available reserves against the minimum operating reserve requirement, the ISO will take emergency actions under OP4 – The ISO will not use emergency actions to explicitly restore replacement reserves 11

Immediate Next Steps The ISO is evaluating the expected amount of replacement reserves under normal system conditions – This will be discussed further at a future Reliability Committee (March/April) meetings – The ISO is planning to perform a high-level cost impact analysis of the increase in the operating reserve requirement in the Forward Reserve Market and Day-Ahead and Real-Time markets for discussion at a future Markets Committee (April/May) The ISO is evaluating the TMOR Reserve Constraint Penalty Factor (RCPF) in the context of the use of replacement reserves to determine if a tiered RCPF (i.e., TMOR demand curve) is appropriate – This will be discussed at the March Markets Committee meeting 12

Immediate Next Steps (cont.) The ISO is proposing changes to the Forward Reserve Market penalties to ensure appropriate incentives for resources to be available and respond when dispatched – This was discussed at the February Markets Committee meeting and will be discussed at future Markets Committee meetings 13

Longer-term Actions The ISO is evaluating the development of additional reserve product(s) – The additional reserve product(s) will not be available for Winter- 2013/14 – The ISO is evaluating the stakeholder and implementation schedule 14

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Related Market & Operational Changes ProjectDescriptionEffective TMOR RCPFModify the TMOR RCPF to reduce need for manual actions re-dispatch system to maintain TMOR Jun-2012 TMR & Non-PerformanceIncrease the 10-Minute Reserve (TMR) requirement to reflect historical non- performance of resources Jul-2012 Off-line Reserve Capability Determination Add performance probability to the audit process that establishes the CLAIM10 and CLAIM30 values Jun-2013 FRM TMNSR ProcurementAllow ISO to procure additional TMNSR based upon historical non-performance of resources Jun-2013 Day-Ahead Energy Market Schedule Shift timing of the DAM and RAA so that they better coordinate with the gas pipeline scheduling system Jun

Related Market & Operational Changes ProjectDescriptionEffective FRM IncentivesModify the Failure to Reserve Penalty rate and triggers for when TMOR obligations are assessed for Failure to Activate Penalty Aug-2013 Generation Capacity Auditing Modify the auditing rules of various parameters such as seasonal claimed capability, start-up time and response rate Oct-2013 FCM Shortage Event Triggers Modify system-wide and local shortage event definition to ensure that these events reflect shortage conditions Oct-2013 TMOR RCPF & Replacement Reserves Establish a multi-segment demand curve for TMOR based upon the incremental replacement reserve requirement Oct

Related Market & Operational Changes ProjectDescriptionEffective Energy Offer Flexibility & NCPC Payments Allow resources to reoffer intra-day and ensure cost recovery (NCPC) provides complimentary incentives to follow dispatch Q PRD: Full IntegrationIntegrate demand response into the energy market Jun-2017 FCM Performance Incentives Modify FCM penalty structure to create strong incentives for all capacity suppliers, without exception, to maximize performance and availability during scarcity conditions Jun