Forming the Northeast RTO“History and Market Evolution”

Gordon van WeliePresident and Chief Executive Officer

ISO New England Inc.

March 15, 2002

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Regional Transmission Organization (RTO)- History January RTO Filings

ISO - New England, New York ISO, PJM all filed for RTO status

July 12, 2001 FERC Order Conveyed a new vision for larger regional

markets: the four RTO model Mediation Process

Largely a forum for individual interests State and Congressional Involvement

Weighed in on FERC’s July 12, 2001 Order Northeast RTO Discussions

Three Boards unable to reach common vision for NERTO despite good faith efforts, ISO-NE, NYISO forge ahead with common market design

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

A formal alliance is made between ISO New England and NYISO

On January 28, 2002, the Boards of ISO-NE and NYISO signed an agreement to develop a common electricity market and evaluate the development of a Northeast RTO.

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

NYISO and ISO-NE committed to: Developing a common NY and NE energy market

consisting of: Single Day Ahead and Real Time Markets A New England-based “Standard Market Design” and best

practices (incorporating changes required by FERC Market Design rulemaking)

Evaluating the economic benefits and system reliability implications of a NYISO & ISO-NE RTO.

Submitting a filing to FERC by June 30th. Preparing a comprehensive integration plan.

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Benefits to the Northeast Holds the promise of operational and economic benefits for

stakeholders across the Northeast, including:

Builds on the longstanding relationship between ISO-NE and NYISO to rapidly bring the benefits of an open market to the Northeast.

Improved market efficiencies; Efficiency gained from combining the two grids under

one operator; Improved long-term planning and investment in

transmission capacity; and, Formally integrates an already “natural” electric market, both

from a physical assets perspective and from a market policy perspective.

Facilitates the formation of an RTO under FERC Order 2000.

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

RTO Stakeholder CollaborationRegulator Review

Economic &Security

EvaluationRTO Filing

IntegrationPlan

Three Key Objectives

FERC Filing June 30, 2002

Ongoing Integration Effort

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Val

ue C

reat

ion

NY

PJM

NEPOOL

Stage 0 - Current State Markets

Stage 1 - NE Implements SMD 1.0

NYISO ISO-NE

PJM

NY

PJM

SMD 1.0

NYISO ISO-NE

SMD 1.0

ISO-NENYISO

Stage 2 - NY Implements SMD 2.0

Stage 3 – Consolidated MarketSTANDARDIZE MARKET DESIGN

CONSOLIDATE MARKETS

NYISOISO-NE

Possible Northeast Market Evolution (including Canada)

SMD2.0

PJM

SMD2.X

Timing

IMO

SMD2.0 ?

MACC

NPCC

MACC

MACC

MACC

NPCC

NPCC

NPCC

IMOIMOIMO

IMOIMOIMO

IMO

IMO

IMO

IMOIMO

PJM

IMO

Month 12 Month 24 Month 36

Note: The extent of standardization within the Canadian market is still to be addressed. Theintent is to create seamless markets, however,the Canadian entities require flexibility on thedegree of convergence with U.S. markets.

Forming the Northeast RTO“RTO Planning”

William J. MuselerPresident and Chief Executive Officer

New York Independent System Operator

March 15, 2002

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Driving Principles for Planning Efforts ENSURE STAKEHOLDER INPUT Maximize reuse - take maximum

advantage of existing resources, infrastructure, systems andintellectual property of the two ISOs.

Incorporate an orderly, risk-managed transition to the RTO vision.

Maintain integrity of current markets and system reliability.

Adhere to baseline principles in the Mediation Report.

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

June 30th Filing Early June: Complete presentation of the RTO Plan to New York

and New England regulators and stakeholders. The ISOs hope that the Transmission Owners will also join in the

filing. June 30th: RTO Plan Filed with the Commission

The filing will include: Market implementation plan. Functions and characteristics set forth in

the Commission’s Order 2000. Shortcomings identified by the

Commission in the ISOs’previous RTO applications.

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Operations&

Facilities

Market Design &

SystemImplementation

Market Monitoring &

Mitigation

Economic &ReliabilityEvaluation

TransmissionPlanning, ITCs

& Tariffs

Stakeholder Working Groups

TransmissionGenerators End Users

Public PowerSupplierSectorsStakeholderParticipation

ISOs

NY MANAGEMENT COMMITTEE NEPOOL PARTICIPANTS COMMITTEE

TO/ISOAgreement

Issues

Regulators - State Commissions

Governance(RTO Board &Stakeholders)

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Web site established to facilitate document/data sharing

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Canadian Prospects are Encouraging The RTO will enhance already

considerable trading among New York, New England and adjacent Canadian regions.

The IMO and TransEnergie have accepted the ISOs’ invitation to participate in task force meetings. New Brunswick is also interested.

The ISOs are exploring with the IMO the benefits of increased coordination and collaboration in transmission planning, coordinated congestion management and certain identical market rules

Northeast Control Area Northeast Control Area InterconnectionsInterconnections

Ontario

Quebec

New York

NewEngland

Maritime Area

PJM

2500 MW

2400 MW

1000 MW 15

00 M

W

1600 MW

1925 MW

700 M

W

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

Northeastern North American Power Markets - Summer Capacity (MW)

200136,25034,27727,12626,8463,2282,157

NY

NEONT

HQ

NBNS

201040,82934,95631,76628,939

2,7632,201

Source: EIA-411

Forecast

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

HQ

NY

Source: NPCC Summer 2001 Multi-Area Probabilistic Reliability Assessment

ECAR

PJM

NE

MT

ON

S 1,450W 1,750

S 1,500 W 1,600

1,000

1,500

S 2,350 W 2,400

0

1,100

2,150

S 640W 735

400

S 1,950W 2,050

2,000

1,000

225

S 1,400W 1,700

2,550

700

550

450 1,330

1,000

600

80 78

690

Summer 2001 Estimated Transfer Limits

Massachusetts Electric Restructuring RoundtableMarch 15, 2002

In Summary Both parties are engaged,

committed and building momentum toward forming the NERTO;

The NERTO promises significant benefits for consumers in both New York and New England and embraces FERC’s long-range vision for regional electricity markets;

If you understand and agree with the NERTO vision, we encourage you to actively support it.