MEPCO Update (11/15/07 revision) TC Meeting - November 16, 2007

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 2 FERC Order Accepting Tariff Revisions On October 29, 2007, the FERC conditionally accepted the MEPCO Roll-In Proposal (filed jointly by the ISO, MEPCO and the PTOs, collectively the Filing Parties) to treat the MEPCO transmission facilities as Pool Transmission Facilities (PTF) ER conditions are described (see paragraphs 35-42)

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 3 October 29 Order Conditions Modify the associated provisions to be in compliance with Order 890 (PP35-37) –Eliminate the 30-day notice provision for MEPCO approving customer reassignments (P36) –Eliminate existing price cap for reassignments by grandfathered right holders (P37) –Include a five-year term for rollover rights (P37) Modify date for electing grandfathered treatment to ten business days after the date of the issuance of the October 29 Order (P38)

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 4 October 29 Order Conditions (cont.) Provide Casco Bay with an option comparable to the grandfathering option provided to MEPCOs other long-term firm point-to-point customers (P39) In exchange for the $800,000 that Casco Bay pays to MEPCO, provide Casco Bay with a hedge against congestion and marginal losses (P40) –The October 29 Order does not describe the nature of these hedges –The ISO and MEPCO believe that the finding of hedges is not supported by the record and may be substantively incorrect, and is considering seeking rehearing on this point

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 5 October 29 Order Conditions (cont.) Preserve Casco Bays existing rights, with the exception that they become subject to the same scheduling and curtailment rights as other grandfathered agreements (PP41) –October 29 Order is not clear as to whether (or how) to apply the same scheduling and curtailment rights to Casco Bay as are applied to internal or external grandfathered agreements If external scheduling and curtailment rights are applied to Casco Bay, this would be inconsistent with existing treatment of Casco Bays Maine Independence Station (MIS) Filing Parties are directed to revise tariff sheets to state that they will become effective on November 1, 2007 (PP42) –On October 31, the Filing Parties requested expedited clarification or, in rehearing, to change the MEPCO Roll-in Proposal effective date from November 1, 2007 to December 1, 2007

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 6 Related Informational Filing On November 14, ISO submitted an informational report to update the Commission on changes being made to the Loss Component calculation for the Graham Node in the Maine Load Zone on the New England market system –ISO made this filing because the change relates to the findings made and the compliance requirements imposed in the October 29 Order (specifically, Casco Bays hedge against marginal losses) Under Schedule 20B and the ISO OATT, Casco Bay is responsible for MEPCO real power losses and any losses associated with other transmission service under the OATT

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 7 Related Informational Filing (cont.) Recognizing: a)that a significant portion of the MIS output flowed over the MEPCO lines as well as 115-kV PTF, b)Casco Bays liability under the Casco Bay TSA to pay for MEPCO real power losses and any losses associated with other transmission service under the OATT, and c)the MR1 Loss Component definition pertaining to marginal losses and its exclusion of double collection (see below) ISO staff took steps in preparation for 3/1/03 SMD market implementation to take into account the anti-double-collection concerns by treating the Graham Node as though it were an equivalent non-PTF Node and mapping the Loss Component for the Graham Node to the Loss Component calculated for Maine Yankee Node –Under MR1 definition, the Loss Component…of the nodal LMP at a given Node on the non-PTF system reflects the relative cost of losses at that Node adjusted as required to account for losses on the non-PTF system already accounted for through tariffs associated with the non-PTF –The Graham Node was mapped to utilize the Maine Yankee Loss Component due to its proximity of the MIS to the MEPCO system and Casco Bays liability for real power losses under its TSA

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 8 Related Informational Filing (cont.) Stakeholder statements made during MEPCO Roll-in Proposal discussions raised concerns by other ISO staff about the foregoing loss-mapping solution As part of the resulting investigation: –ISO and MEPCO each recently learned that the other had not been collecting losses from Casco Bay; therefore, no double collection was at issue –ISO determined that while, as a matter of electrical location and given the proximity of the MIS to the MEPCO system, the Graham Node is analogous to a node on a non-PTF (i.e., MEPCO) system, it is in fact a PTF node; therefore, the double-counting limitation of the Loss Component language, strictly speaking, does not apply to that Node

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 9 Related Informational Filing (cont.) In practical terms, this mapping of the Graham Node had three relevant impacts on the New England markets –Since neither the ISO nor MEPCO were charging Casco Bay for losses, the MIS was not paying anything for PTF or MEPCO losses over for the transmission of MIS power from the Graham substation to the Maine Yankee substation –Load in the energy market throughout New England has paid for this favorable treatment for Casco Bay/MIS via reconciliation within the loss revenue fund –The Maine zonal price paid by load has been slightly higher than it would have been if such losses had been reflected in the system model

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 10 Related Informational Filing (cont.) As a result of the investigation and conclusions discussed above: –The ISO revised the system model so that the Loss Component calculated at the Graham Node is consistent with its physical location on the PTF system, (i.e., the MeY-Graham loss mapping was removed). As such, this change will slightly reduce Maine zonal prices –Given the finding in the October 29 Order that Casco Bay has a hedge against losses in the New England market system, the ISO is developing a mechanism (to be effective on 11/14/2007) to hold Casco Bay harmless from such losses, pending the Commissions consideration of and action on the any potential rehearing request This mechanism: –will be included as a part of a Commission filing, –as currently envisioned, would seek to hold Casco Bay/MIS harmless against marginal losses over the transmission path from Maine Yankee to Orrington (on the MEPCO-owned lines) while maintaining Casco Bays liability for real power losses on those lines Casco Bay has indicated that the above concept is what they intended as the stated hedge against losses

MEPCO Update (11/16, 2007) © 2005 ISO New England Inc. 11 Next Steps A filing is required on or before November 28, either: –in compliance with the October 29 FERC Order, or –explaining that the conditions contained in that Order are not acceptable, in which case the roll-in will not presently go forward As explained in the MEPCO Roll-In Proposal filing, the Filing was a fully integrated proposal and, accordingly, the Filing Parties made implementation expressly contingent upon Commission approval without modification –The Filing Parties are seeking input from the Transmission Committee, Casco Bay and other entities, including obtaining an understanding of what Casco Bay views as its congestion hedge –The Filing Parties are considering whether the conditions imposed in the October 29 Order are acceptable –If the roll-in does not go forward, it will be necessary to limit the dual MEPCO/NRI interconnection transfer capabilities to those that are currently in place for the New Brunswick external interface (max. of 700 MW N-to-S, and 280 MW S-to-N). –As described in the August 16 filing, the Filing Parties do not have an alternate mechanism that will provide for the administration of transmission service provisions across two parallel AC external ties, one of which is PTF and the other non-PTF (i.e., the single New England/New Brunswick external interface)