1. SEPTEMBER 24, 2013 | NEPOOL MARKETS COMMITTEE ISO NEW ENGLAND - MARKET DEVELOPMENT Summary of NCPC Credit for Postured Generators NCPC Payments – Generator Posturing Jon Lowell & Matt Brewster

2. Preface This document presents new material not previously discussed at the Markets Committee. Therefore, every slide is labeled as: 2 New Slide – 09/24/13

3. What is Posturing? “an action of the ISO to deviate from the jointly optimized security constrained economic dispatch for Energy and Operating Reserves solution for a Resource … for the purpose of maintaining sufficient Operating Reserve (both online and off-line) or for the provision of voltage or VAR When the ISO postures a resource, the resource incurs an opportunity cost – The posture order prevents the resource from operating at times and at output levels that would have been profitable – The Posturing Credit is intended to make the postured resource financially no worse off for having followed the ISO’s posturing instructions. 3 New Slide – 09/24/13

4. Posturing for Limited Energy Resources A Limited Energy Resource is postured to preserve some amount of the available energy for future hours to provide operating reserves, VAR or voltage support in a future hour. – A manual decision is required because the cooptimized energy dispatch only incorporates a 15 minute lookahead. To meet the “no worse off” NCPC design principle, the posturing credit must compare the resource’s actual revenues to the “best alternative” revenues had the resource not been postured. – The Best Alternative results from using the postured energy in the highest priced hours, subject to the unit’s real-time EcoMax, EcoMin, hourly LEG 4 New Slide – 09/24/13

5. Posturing for Limited Energy Resources Since the same “fuel” is used in the actual dispatch and the best alternative proxy dispatch, the cost is the same for both, except… A postured resource may have energy left unused at the end of the day – The cost of replacing the unused energy the next day is avoided – The Posturing Credit values the energy remaining in storage at the end of the day at the estimated avoided cost to replace the energy the next day: For Pump Storage Resources, replacement cost = RTLMP for HE1-3 For other LEG Resources (storage hydro, gas units with LEG), value of unused energy = 0 5 New Slide – 09/24/13

6. Posturing for Limited Energy Resources Posture Credit for a Limited Energy Resource: = Max[0, Best Alternative Margin – Actual Margin] = Max[0, (Energy Revenue BA + Remaining Energy MWh Value BA ) – (Energy Revenue ACTUAL + Remaining Energy MWh Value ACTUAL )] Energy Revenue BA = Best Alternative Energy h x RTLMP h – Best Alternative Energy h represents the hourly use of available energy that maximizes potential Real-Time revenue Energy Revenue ACTUAL = Actual Energy h x RTLMP h Evaluated from start of posturing through the end of the Operating Day Available energy for shared fuel resources divided equally amongst units For non-Fast Start resources, available energy is dispatched in contiguous hours (no shutdown & restart) 6 New Slide – 09/24/13

7. Generator with Limited Energy (Fast Start) postured though end of operating day (pumped storage) 7 New Slide – 09/24/13

8. Generator with Limited Energy (Fast Start) postured temporarily and later dispatched (pumped storage) 8 New Slide – 09/24/13

9. Posturing for non-Limited Energy Resources A resource that is not energy-limited is only postured to meet a reliability need that is not fully reflected in the energy & reserve dispatch. – Once again, a manual decision is required No need to estimate the value of postured energy shifted to future hours, since there is no limit on available energy – Credit is determined separately for each postured hour – A Best Alternative Output (BAO) level is determined for each hour, based on the resource’s energy offer curve, and subject to EcoMin, EcoMax, RTHOL and hourly LEG – If BAO <= Actual energy, then credit = 0 9 New Slide – 09/24/13

10. Posturing for non-Limited Energy Resources Hourly Posture Credit for non-Limited Energy Resources: = Max[0, Best Alternative Margin – Actual Margin] = MAX[0, (RTLMP * BAO – Energy Cost at BAO) – (RT LMP * RQM – Energy Cost at RQM)] Energy cost includes No-Load and Startup Fees – For fast starts postured offline, total Start-Up fee is included each hour – For non-fast starts postured offline, remaining Start-Up fee from the RT Commitment NCPC credit is included in each hour – For resources postured online, SU & NL for BA is same as Actual and can be ignored 10 New Slide – 09/24/13

11. Fast-Start generator postured offline (without energy restriction) 11 New Slide – 09/24/13

12. Generator postured to reduce energy output (without energy restriction) 12 New Slide – 09/24/13

13. Allocation of Posturing Credits Total daily posturing credit for a LEG resource is allocated to the “reason” for the posture instruction identified at the time of the posture decision – For example, 1 st Contingency, VAR, etc.) The hourly posturing credit for non-LEG resources is allocated in accordance with the hourly reason for the posture decision, if so identified. 13 New Slide – 09/24/13