The 2009 BGS Auctions 1 5 December 2008

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The 2009 BGS Auctions 1 5 December 2008 | Philadelphia, PA

The 2009 BGS Auctions 1 5 December 2008 | Philadelphia, PA

Agenda 2 v Overview and Board Decision v Timeline v Application Process v Auction

Agenda 2 v Overview and Board Decision v Timeline v Application Process v Auction Rules

Overview and Board Decision 3

Overview and Board Decision 3

Key Building Blocks of Auction Process v There is a single statewide process: offers

Key Building Blocks of Auction Process v There is a single statewide process: offers for all BGS load (not already procured) solicited in one process v The products are full-requirements tranches: participants bid for the right to serve these tranches v Auction format is a Clock Auction: prices tick down as long as more tranches are bid than needed v Contingency plan: any supply not procured at auction will be purchased through PJM-administered markets 4

One Auction Process for Two Types of Customers v BGS-FP Auction: smaller and mid-sized

One Auction Process for Two Types of Customers v BGS-FP Auction: smaller and mid-sized customers on fixed-price plan è Suppliers bid to serve tranches at a price in ¢/k. Wh è 3 -year supply period v BGS-CIEP Auction: larger customers on hourly price plan è Suppliers bid to serve tranches at a price in $/MWday è 1 -year supply period 5

Board Has Rendered its Decision on the Auction Process v Board met on November

Board Has Rendered its Decision on the Auction Process v Board met on November 7, 2008 to consider all elements of the Auction Process v Board approved the EDCs’ BGS Proposal: the 2009 Auction Process will be substantially the same as in 2008 6

Aspects of the BGS Auction Discussed by the Board The threshold is maintained for

Aspects of the BGS Auction Discussed by the Board The threshold is maintained for the supply period June 1, 2009 through May 31, 2010. Customers in certain rate classes CIEP Threshold and all customers with a peak load share of 1, 000 k. W or greater who take BGS must do so on a CIEP tariff. The threshold will be re-examined for 2010 ILR Payments The provisions for payments of Interruptible Load for Reliability (“ILR”) Credits to BGS-FP Suppliers are removed from the BGS-FP Supplier Master Agreement. Provision of Separate Peak Load Data The EDCs will provide separate FP and CIEP monthly Peak Load Contribution data to winning bidders in advance of the supply period 7

Aspects of the BGS Auction Discussed by the Board (cont. ) Minimum Stay Requirement

Aspects of the BGS Auction Discussed by the Board (cont. ) Minimum Stay Requirement for Larger FP Customers Larger BGS-FP customers (500 to 1, 000 k. W) who take service from a TPS and then return to BGS-FP are no longer required to stay on BGS for one year JCP&L Rate Design JCP&L’s proposal to expand its existing inverted tariff for residential customers and to introduce new demand charges applicable to certain BGS-FP commercial and industrial customers is approved Round One Bidding Extension There will be an automatic extension in the first round of bidding for both Auctions Indicative Offers Prospective bidders will be asked to provide an indicative offer at the minimum starting price (as well as the maximum starting price) for the BGS-CIEP Auction 8

Compliance Filing Was on November 21, 2008 v Compliance filing documents based on the

Compliance Filing Was on November 21, 2008 v Compliance filing documents based on the November 7 th decision were filed and posted on the Regulatory Process page on November 21, 2008: http: //www. bgs-auction. com/bgs. auction. regproc. asp è Auction Rules è Supplier Master Agreements è EDC-Specific Addenda v Final Auction Rules, SMAs, and rate design information will be posted to the BGS Auction web site after the Board decision on the compliance filing, which is expected on Monday, December 8, 2008 9

Board Has Maintained the CIEP Threshold v The CIEP threshold for the period from

Board Has Maintained the CIEP Threshold v The CIEP threshold for the period from June 1, 2009 to May 31, 2010 will remain at 1, 000 k. W v Customers who (if they take BGS) must take BGS on a CIEP tariff will be è All customers in certain rate classes, and è All customers above 1, 000 k. W v The Board has repealed switching restrictions on larger BGS-FP customers (less than 1, 000 k. W, but greater than 500 k. W) so that all BGS customers are free to come and go from BGS provided that they give appropriate notice to the EDC 10

JCP&L’s Proposed Rate Design Has Been Approved v JCP&L’s following proposals have been approved:

JCP&L’s Proposed Rate Design Has Been Approved v JCP&L’s following proposals have been approved: è To expand its existing inverted tariff for residential customers è To introduce new demand charges applicable to certain BGS-FP commercial and industrial customers 11

Some FP Customers Can Opt-In to BGS-CIEP EDC For these rate classes, all customers

Some FP Customers Can Opt-In to BGS-CIEP EDC For these rate classes, all customers on CIEP For these rate classes, Customers at or over 1, 000 k. W on CIEP (6/1/09— 5/31/10) PSE&G HTS-HV, HTS-Sub, LPL-P LPL-S JCP&L GP, GT GS, GST ACE TGS AGS-Primary, AGS-Secondary, MGS – Primary, MGS – Secondary RECO Service Classification No. 7 Service Classification No. 2 v The FP Customers who can opt-in to CIEP are: è Commercial or industrial customers v Customer must notify EDC by January 5, 2009 12

Retail Margin Remains Unchanged for the Period June 1, 2009 Through May 31, 2010

Retail Margin Remains Unchanged for the Period June 1, 2009 Through May 31, 2010 v Retail margin remains at a level of 0. 5¢/k. Wh v Retail margin only paid by customers on BGS è All BGS-CIEP customers è BGS-FP customers 750 k. W or greater CIEP customers CIEP Standby Fee Paid by all CIEP customers 13 FP customers Retail Margin Paid only by customers taking BGS Paid only by customers on BGS ≥ 750 k. W CIEP Standby Fee Retail Margin Received by BGS-CIEP Suppliers Not Received by BGS Suppliers — Board will determine the use of retail margin funds

Adjustment of Supplier Payments for Transmission Rate Changes v Section 15. 9 of the

Adjustment of Supplier Payments for Transmission Rate Changes v Section 15. 9 of the SMAs describes what happens with a transmission rate change v Decreases are reflected in supplier payments v Increases are tracked for the benefit of the supplier once Board approval is received – paid to the supplier when increase is final and no longer subject to refund v Changes to the transmission rate include: è All surcharges in addition to the base NITS OATT rate (e. g. , all applicable RTEP charges) è Changes to the transmission rate in effect as of the auction date including formula rate changes è For clarity, the EDCs will announce the transmission rate in effect as of the auction date in early January 14

Other Fundamental Aspects of Auctions Are Similar to Last Year One Process – Two

Other Fundamental Aspects of Auctions Are Similar to Last Year One Process – Two Auctions Timelines of both the BGS-FP and BGS-CIEP Auctions are basically the same è Same announcements è Same application deadlines è Same information sessions è Same trial auction date è The BGS-CIEP Auction starts one business day earlier § BGS-CIEP Auction starts Friday, January 30, 2009 § BGS-FP Auction starts Monday, February 2, 2009 15

Two Auctions Two Contracts The bid for larger customers is separated from the bid

Two Auctions Two Contracts The bid for larger customers is separated from the bid for smaller customers v Larger customers (CIEP) on an hourly-priced plan; smaller customers (FP) on a simpler fixed-price plan v Auctions for the two types of customers are concurrent but separate è CIEP Auction determines the CIEP Price in $/MW-day è FP Auction determines an all-in price in ¢/k. Wh v Winning suppliers sign different contracts è BGS-CIEP Supplier Master Agreement and BGS-FP Supplier Master Agreement are different 16

Two Approvals Board decides whether to approve results of each auction separately v Results

Two Approvals Board decides whether to approve results of each auction separately v Results of BGS-FP Auction are considered è Results are approved for all EDCs or for none è It is not possible for results for one EDC to be approved without results for other EDCs being approved as well v Results of BGS-CIEP Auction are considered è Results are approved for all EDCs or for none è It is not possible for results for one EDC to be approved without results for other EDCs being approved as well v But it is possible that results of BGS-FP Auction are approved while results of BGS-CIEP Auction are not (or vice-versa) 17

1 -Year Term for BGS-CIEP Tranches 3 -Year Term for BGS-FP Tranches v BGS-CIEP:

1 -Year Term for BGS-CIEP Tranches 3 -Year Term for BGS-FP Tranches v BGS-CIEP: è A tranche for an EDC is a fixed percentage of that EDC’s BGS-CIEP load for one year è A tranche is about 75 MW of eligible load v BGS-FP: è A tranche for an EDC is a fixed percentage of that EDC’s BGS-FP load for three years è A tranche is about 100 MW of eligible load è Rolling procurement structure: EDCs procure supply for approximately one-third of their BGS-FP Load each year for a three-year term 18

BGS-CIEP Auction: Four Products and a Single Statewide Load Cap v Tranche target: number

BGS-CIEP Auction: Four Products and a Single Statewide Load Cap v Tranche target: number of tranches available at the start of the auction for each EDC v Statewide load cap: No bidder can bid or win more than the load cap statewide EDC Tranche targets Statewide load cap 19 PSE&G JCP&L ACE RECO Total 23 11 5 1 40 14

CIEP Tranche is Percentage of Load v Total CIEP load is about 3, 000

CIEP Tranche is Percentage of Load v Total CIEP load is about 3, 000 MW on an eligible basis v BGS-CIEP Supplier provides energy, transmission, capacity, ancillary services, and any other service as may be required by PJM CIEP Loads and Tranche Sizes by EDC PSE&G 1, 696. 4 4. 35 73. 76 JCP&L 821. 4 9. 09 74. 67 ACE 323. 0 20. 00 64. 60 37. 4 100. 00 37. 40 RECO 20 CIEP Peak Load Tranche Size MW-Measure Share (MW) (%)

BGS-CIEP Payment Flow Example BGS-CIEP Supplier wins 6 of 24 tranches (25% of Load)

BGS-CIEP Payment Flow Example BGS-CIEP Supplier wins 6 of 24 tranches (25% of Load) v Capacity. The final auction price is $200/MW-day. The capacity obligation totals 30, 000 MW-days for the month è Supplier is paid 25% of 30, 000 MW-days x $200/MW-day, or $1. 5 M v Transmission. OATT is $50/MW-day. The transmission obligation totals 36, 000 MW-days for the month. è Supplier is paid 25% of 36, 000 MW-days x $50/MW-day, or $450, 000 v Ancillary services. Payment is $6/MWh and monthly energy is 500, 000 MWh @ customer meter; 514, 564 MWh adjusted for losses of 2. 9128%. è Supplier is paid 25% of 514, 564 MWh x $6/MWh, or $771, 846 v Energy. Real time LMP is $50/MWh and for hour 1, energy @ customer meter is 800 MWh; 823 MWh adjusted for losses of 2. 9128%. è Supplier is paid 25% of 823 MWh x $50/MWh, or $10, 287. 5 for hour 1 è Other hours are settled in the same way. v CIEP Standby Fee. The CIEP Standby Fee is 0. 015¢/k. Wh. Energy used by all CIEP Customers is 1, 000 MWh @ customer meter. è Supplier is paid 25% of 1, 000 MWh x $0. 15/MWh, or $37, 500. 21

CIEP Payment Flows BGS-CIEP Customer TPS Customer (if taking BGS would be on BGS-CIEP)

CIEP Payment Flows BGS-CIEP Customer TPS Customer (if taking BGS would be on BGS-CIEP) BGS-CIEP Supplier 22 Energy: LMP Ancillary Services: $6/MWh Transmission: rate based on OATT Capacity: based on auction price Retail Margin: 0. 5¢/k. Wh CIEP Standby Fee: 0. 015¢/k. Wh Dist. Rates and non by-passable charges EDC Energy x distribution loss expansion factor @ LMP Ancillary services @ payment rate Transmission @ OATT Capacity @ auction price CIEP Standby Fee @ 0. 015¢/k. Wh for all CIEP customers at customer meter

CIEP Migration is Substantial v As of October 31, 2008 there was substantial switching

CIEP Migration is Substantial v As of October 31, 2008 there was substantial switching by BGS-CIEP customers to Third Party Suppliers (TPS) Accounts EDC Total PSE&G 1, 442 965 66. 92% 1, 899. 4 1, 606. 9 84. 60% JCP&L 579 384 66. 32% 809. 6 706. 9 87. 31% ACE 114 94 82. 46% 315. 4 293. 7 93. 12% 20 11 55. 00% 38. 4 26. 6 69. 27% 2, 155 1, 454 67. 47% 3, 062. 8 2, 634. 1 86. 00% RECO Statewide 23 Switching Load (MW) % Total Switching %

BGS-FP Auction: EDC Load Caps and a Statewide Load Cap v Tranche target: number

BGS-FP Auction: EDC Load Caps and a Statewide Load Cap v Tranche target: number of tranches available at the start of the auction for each EDC v EDC load cap: No bidder can bid or win more than the load cap for an EDC v The sum of the EDC load caps exceeds the statewide load cap EDC PSE&G JCP&L ACE RECO Total Tranche Targets 29 17 7 1 54 EDC Load Caps 14 8 3 1 Statewide Load Cap 24 20

FP Tranche is Percentage of Load v FP Load on an eligible basis is

FP Tranche is Percentage of Load v FP Load on an eligible basis is approximately one-third of total FP Peak Load Share v BGS-FP Supplier provides energy, transmission, capacity, ancillary services, and any other service as may be required by PJM FP Loads and Tranche Sizes by EDC 25 FP Peak Load Share (MW) Tranche Size (%) MW-Measure PSE&G 2, 978. 6 1. 18 102. 71 JCP&L 2, 043. 4 2. 27 120. 56 ACE 703. 2 4. 55 100. 46 RECO 107. 7 25. 00 107. 65

BGS-FP Payments and Pricing Illustration Auction price (2 years ago) 9. 888¢/k. Wh Auction

BGS-FP Payments and Pricing Illustration Auction price (2 years ago) 9. 888¢/k. Wh Auction price (1 year ago) 11. 150¢/k. Wh This Year’s Auction price 10. 000¢/k. Wh # Tranches (2 years ago) 28 # Tranches (1 year ago) 28 # Tranches (this year) 29 Summer factor of 1. 0329 Tranche-weighted seasonally-adjusted avg. price 10. 341¢/k. Wh 10. 329¢/k. Wh Summer rate paid to BGS-FP Supplier 1. 238 x 10. 341 = 12. 802¢/k. Wh Rate Design Summer rate Methodology paid by rate class 26 + Retail Margin (if applicable)

Final Seasonal Factors v Each EDC has a summer factor and winter factor used

Final Seasonal Factors v Each EDC has a summer factor and winter factor used to translate the final auction price into the supplier payment rate by season v Seasonal factors in effect for entire term of BGS-FP Supplier Master Agreement EDC Summer Factor Winter Factor 27 PSE&G 1. 0329 0. 9800 JCP&L 1. 0130 0. 9919 ACE 1. 0818 0. 9473 RECO 1. 0271 0. 9822

Can a Supplier Ever Need to Pay an EDC? v Possible payments from Supplier

Can a Supplier Ever Need to Pay an EDC? v Possible payments from Supplier to EDC è Tranche Fee for cost of administering the auction (July 2009 invoice) è On a monthly basis, any PMEA / FMEA adjustments can go either way v Also: Supplier settles with PJM for costs of meeting LSE obligation è Any corrections or adjustments that would have resulted in changes to the PJM settlement, but for which the deadline has passed, will be settled between the EDC and the supplier 28

FP Migration Is Lower v Majority of FP customers still on BGS service v

FP Migration Is Lower v Majority of FP customers still on BGS service v Less than 0. 05% of residential customers have switched v But there has been some migration of FP customers among those who currently pay the retail margin Migration Among FP Customers with Peak Load Share of 750 k. W+ Accounts EDC Total Switching Load (MW) % Total Switching % PSE&G 6/1/2008 304 129 42. 43% 264. 37 114. 21 43. 20% JCP&L 6/1/2008 80 16 20. 00% 70. 34 15. 12 21. 49% ACE 8/22/2008 26 5 19. 23% 23. 03 4. 61 20. 04% RECO 6/1/2008 11 0 0. 00% 9. 21 0. 00% 421 150 35. 63% 366. 95 133. 94 36. 50% Statewide 29

Contracts Are Approved by the Board has approved statewide contracts for BGS-CIEP Suppliers and

Contracts Are Approved by the Board has approved statewide contracts for BGS-CIEP Suppliers and for BGS-FP Suppliers v Applicants must agree to these standard contract terms to qualify for the Auctions v Board approves standard credit instruments è Safe harbor for bidders who accept the standard forms of the letter of credit and the guaranty 30

Credit Provisions v BGS-CIEP – Credit Exposure is $70, 000/tranche v BGS-FP – Two

Credit Provisions v BGS-CIEP – Credit Exposure is $70, 000/tranche v BGS-FP – Two separate requirements è Mark-to-Market requirement è Independent credit requirement is $2. 4 M/tranche at beginning of supply period and declines over the term of the contract v Unsecured credit line and credit limits depend on all BGS obligations è Credit limit set together for FP Mark-to-Market and CIEP credit exposures è Unsecured credit line for FP independent credit requirement separately 31

BGS Supplier Must Meet Class I, Class II and Solar Requirements v v v

BGS Supplier Must Meet Class I, Class II and Solar Requirements v v v Compliance with Class I and II requirements must be demonstrated using RECs issued by PJM-EIS GATS For information and forms, see: www. pjm-eis. com Please contact GATS Administrator for questions: è Phone: 610 -666 -2245; Fax: 610 -771 -4114 RECs based on solar electricity or electricity generated on a customer’s premises (“behind the meter RECs”) are issued through the BPU’s New Jersey S-REC Program Please contact S-REC Program Administrator for questions: è v v 32 Phone: 201 -612 -3221; Email: [email protected] com Responsibility of issuing, tracking and trading of S-RECs is in transition from the S-REC Program Administrator to PJM-EIS GATS S-RECs issued by GATs will be eligible for RPS Compliance for the year ended May 31, 2009

BGS Supplier is Responsible for Meeting RPS v The EDCs will submit the required

BGS Supplier is Responsible for Meeting RPS v The EDCs will submit the required annual compliance reports on behalf of BGS-FP and BGS-CIEP Suppliers v To the extent permitted by applicable regulatory and contractual provisions, EDCs will make available to BGS Suppliers RECs from Committed Supply: è RECs to BGS-FP Suppliers from PSE&G, JCP&L and ACE è RECs to BGS-CIEP Suppliers from ACE 33

Board Decisions that Affect BGS Suppliers v At its meeting on September 12, 2007

Board Decisions that Affect BGS Suppliers v At its meeting on September 12, 2007 the Board set the SACP at: è $693/MWh for the period June 1, 2009 through May 31, 2010 è $675/MWh for the period June 1, 2010 through May 31, 2011 è $658/MWh for the period June 1, 2011 through May 31, 2012 v The ACP has not yet been determined for the period starting June 1, 2009 34

Changes Are Possible During 3 -year Period Decisions that affect BGS-FP Suppliers who win

Changes Are Possible During 3 -year Period Decisions that affect BGS-FP Suppliers who win at the 2009 BGS-FP Auction v Board may change the CIEP threshold in the future v Rate design subject to annual review v Board may change future level of retail margin and the customers who will pay it v Changes to RPS are pending and changes to the alternative compliance payments are possible in the future 35

PJM Web Site is a Source of Information v Home page http: //www. pjm.

PJM Web Site is a Source of Information v Home page http: //www. pjm. com/ v Reliability Pricing Model http: //www. pjm. com/markets/rpm/operations. html v Marginal Losses http: //www. pjm. com/services/courses/c-marginal-lossestraining. html è FAQs: http: //www. pjm. com/committees/mic/downloads/marginal-loss-implfaqs. pdf v PJM OASIS http: //www. pjm. com/etools/oasis. html v PJM-EIS GATS http: //www. pjm-eis. com 36

Timeline 37

Timeline 37

Calendar Monday Tuesday Wednesday Thursday Friday December 15 16 Part 1 Application 17 18

Calendar Monday Tuesday Wednesday Thursday Friday December 15 16 Part 1 Application 17 18 19 Bidders Qualified January 5 6 Part 2 Application 7 8 9 12 13 Bidders Registered 14 15 16 19 20 Info Session 21 22 Trial Auction 23 26 27 CIEP Starting Prices 28 FP Starting Prices 29 January 30 CIEP Auction Begins February 2 FP Auction Begins 3 4 5 6 38

Application Process 39

Application Process 39

Final Application Forms Are Available v Copy of final Part 1 Application and Part

Final Application Forms Are Available v Copy of final Part 1 Application and Part 2 Application included in bidder information packet v Download from Auction web site: http: //www. bgs-auction. com/bgs. bidinfo. am. asp 40

Up-Front Requirements for Part 1 Are Simple 1. Applicant’s Contact Information è Authorized Representative:

Up-Front Requirements for Part 1 Are Simple 1. Applicant’s Contact Information è Authorized Representative: represents the Applicant in the auction(s) è Legal Representative in NJ: agrees to accept service of process è Credit Representative: (in-house) can answer credit questions 2. Licensing requirements è No state licensing required è BGS supplier must be an LSE in PJM by start of supply period § 41 Applicants that are not yet BGS Suppliers show that they are LSEs or certify they have no impediments to becoming an LSE in PJM

Part 1 Financial Information and Auction Documents 3. Certifications è Agree to terms of

Part 1 Financial Information and Auction Documents 3. Certifications è Agree to terms of applicable Supplier Master Agreement è Agree to applicable Auction Rules è Agree to confidentiality of list of Qualified Bidders è Agree not to assign rights as a Qualified Bidder 4. Financial Information è Annual and quarterly financial information è Senior unsecured debt ratings è Tranches won in 2007 and 2008 BGS-FP Auctions è Additional information for entities not incorporated or otherwise formed under the laws of the United States Credit and Application Team uses information to determine amount of pre-auction security required in Part 2 Application 42

Part 2 Application: To Be Registered As A BGS-FP Bidder 1. Submit an indicative

Part 2 Application: To Be Registered As A BGS-FP Bidder 1. Submit an indicative offer statewide 2. Provide preliminary maximum interest in each EDC 3. Submit Pre-Auction Security 4. Make certifications including compliance with Association and Confidential Information Rules 43

Part 2 for BGS-FP: Indicative Offer 1. Submit an indicative offer, which is the

Part 2 for BGS-FP: Indicative Offer 1. Submit an indicative offer, which is the maximum number of tranches that the bidder is willing to serve statewide for all EDCs è At the minimum starting price è At the maximum starting price The indicative offer at the maximum starting price determines: è The maximum number of tranches that the bidder can bid in the auction (the initial eligibility) è The amount of pre-auction security required with the Part 2 Application 44

Part 2 for BGS-FP: Preliminary Maximum Interest 2. Provide preliminary maximum interest in each

Part 2 for BGS-FP: Preliminary Maximum Interest 2. Provide preliminary maximum interest in each EDC è At the maximum starting price, provide interest in each EDC § Cannot exceed statewide indicative offer or EDC load cap è Do the same at minimum starting price 45

Pre-Auction Security Depends on Credit Rating and TNW 3. Submit Pre-Auction Security Each BGS-FP

Pre-Auction Security Depends on Credit Rating and TNW 3. Submit Pre-Auction Security Each BGS-FP Qualified Bidder must submit a letter of credit (or bid bond) in an amount of $500, 000 per tranche of their indicative offer at the maximum starting price (19. 5¢/k. Wh) è The sample Pre-Auction Letter of Credit: § Is NEW! for this upcoming Auction § Is different for the BGS-FP Auction and the BGS-CIEP Auction § Acceptable modifications to the sample posted to the web site è Additional Pre-Auction Security may be required § If Qualified Bidder has Guarantor (Letter of Intent to Provide a Guaranty) § If Qualified Bidder or Guarantor does not satisfy the Minimum Rating or does not have sufficient TNW to cover indicative offer and current BGS-FP obligations (Letter of Reference) § Bidders can choose to satisfy additional Pre-Auction Security by increasing the amount of their Pre-Auction Letter of Credit è 46

Certifications Required 4. Certify compliance with Association and Confidential Information Rules è Each certification

Certifications Required 4. Certify compliance with Association and Confidential Information Rules è Each certification applies for a specific a time period; for example from qualification to Board approval of results è Certify that applicant is not “associated with” another Qualified Bidder to promote competitiveness of auctions è Keep information related to the auction confidential 5. Provide Additional Certifications è Agree that bids in Auction will be a binding obligation è Agree not to assign rights as Registered Bidder 47

Part 2 Application: To Be Registered As A BGSCIEP Bidder 1. Submit an indicative

Part 2 Application: To Be Registered As A BGSCIEP Bidder 1. Submit an indicative offer 2. Submit Pre-Auction Letter of Credit (or Bid Bond) 3. Make certifications including compliance with Association and Confidential Information Rules 48

Part 2 for BGS-CIEP: Indicative Offer 1. Submit an indicative offer at the maximum

Part 2 for BGS-CIEP: Indicative Offer 1. Submit an indicative offer at the maximum and minimum (NEW!) starting prices è Cannot exceed the statewide load cap: 14 tranches è Indicative offer at maximum starting price cannot be less than 2 tranches The indicative offer at the maximum starting price determines: è The maximum number of tranches that the bidder can bid in the auction (the initial eligibility) è The amount of pre-auction security required with the Part 2 Application No preliminary maximum interest requirement for BGS-CIEP 49

Only a Letter of Credit is Required as Pre-Auction Security 2. Submit letter of

Only a Letter of Credit is Required as Pre-Auction Security 2. Submit letter of credit (or bid bond) è Each BGS-CIEP Qualified Bidder must submit a letter of credit (or bid bond) in an amount of $375, 000 per tranche of its indicative offer at the maximum starting price ($340/MW-day) è No additional pre-auction security is required 3. Certify compliance with Association and Confidential Information Rules and provide additional certifications è Same process as with BGS-FP Registration 50

Auction Rules 51

Auction Rules 51

Auction Format is a Clock Auction v Multi-product design è Tranches for all EDCs

Auction Format is a Clock Auction v Multi-product design è Tranches for all EDCs are procured at once v Bidding proceeds in rounds è Suppliers state how many tranches they want to supply at prices suggested by the Auction Manager è Prices tick down if there is excess supply è Suppliers could switch their bids from one EDC to another in a given auction 52 BGS-FP BGS-CIEP “Price” is in ¢/k. Wh “Price” is in $/MW-day

FP Example: Prices Tick Down When There Is Excess Supply Round 1 Round 2

FP Example: Prices Tick Down When There Is Excess Supply Round 1 Round 2 53 EDC Price (¢/k. Wh) #bid # to buy Excess supply Oversupply Ratio PSE&G 18. 750 85 29 56 0. 8615 JCP&L 18. 750 20 17 3 0. 0462 ACE 18. 750 6 7 0 0. 0000 RECO 19. 000 4 1 3 0. 1500 EDC Price (¢/k. Wh) #bid # to buy Excess supply Oversupply Ratio PSE&G 17. 813 55 29 26 0. 4333 JCP&L 18. 656 37 17 20 0. 3333 ACE 18. 750 13 7 6 0. 1071 RECO 18. 430 6 1 5 0. 2500

When Does A Price Tick Down? The price for an EDC ticks down in

When Does A Price Tick Down? The price for an EDC ticks down in the next round when, and only when, there are more tranches bid than the tranche target at the current round price for that EDC At the start of the auction, prices tick down by more than at the end è Start (regime 1): 0. 5% to 5% è End (regime 2): 0. 25% to 2. 5% 54

What is a Bid in Round 1? v A bid is a number of

What is a Bid in Round 1? v A bid is a number of tranches for each EDC PSE&G JCP&L ACE RECO 10 4 2 1 v The bidder is ready to supply 10 tranches for PSE&G, 4 tranches for JCP&L, 2 tranches for ACE and 1 for RECO at the round 1 prices v Two Rules: è the total number of tranches bid on all EDCs cannot exceed bidder’s initial eligibility è FP only: the number of tranches bid on an EDC cannot exceed the EDC’s load cap 55

Automatic Extension in Round 1 v The bidding phase in round 1 is automatically

Automatic Extension in Round 1 v The bidding phase in round 1 is automatically extended for the convenience of bidders v If a bidder requests an extension in round 1, it will run concurrently with the automatic extension 56

Sample Round Reports Bidder sees: v Range of total excess supply è Total excess

Sample Round Reports Bidder sees: v Range of total excess supply è Total excess supply is the sum of excess supply for all EDCs è Range provided includes actual total excess supply è Range of 5 numbers at start of Auction v The round 2 prices v The bidder’s own bid BGS-CIEP Report: Round 1 Total Excess Supply: 181 -185 EDC Round 2 Price ($/MW-day) PSE&G 336. 25 JCP&L 332. 50 ACE 338. 00 RECO 340. 00 Bidder has no information about others’ bids, identities or eligibilities 57

Changes in Round 2 Bidding (from Round 1) v A bidder can keep the

Changes in Round 2 Bidding (from Round 1) v A bidder can keep the number of tranches bid for each EDC the same as in round 1 v A bidder may be able to: è Withdraw some tranches from the auction è Switch: Reduce tranches bid on one EDC and increase tranches bid on another EDC è Withdraw and switch 58

Can A Bidder Wait To Bid? v From one round to the next, a

Can A Bidder Wait To Bid? v From one round to the next, a bidder can never increase the total number of tranches it bids on all EDCs combined 59

Can a Bidder Always Decrease the Number of Tranches Bid? In a round, if

Can a Bidder Always Decrease the Number of Tranches Bid? In a round, if the price for an EDC has not ticked down, a bidder cannot reduce the number of tranches bid for that EDC v Any bid is a binding obligation to supply at the price at which the bid was made v If the price for an EDC does not tick down in a round, a bidder’s offer at that price cannot be rescinded è the bidder cannot decrease the number of tranches bid for the EDC (either by decreasing the number of tranches bid in total or by reducing the number of tranches bid on the EDC while increasing the number of tranches bid on another EDC) 60

What Are The Rules In Round 2? v The total number of tranches bid

What Are The Rules In Round 2? v The total number of tranches bid on all EDCs combined cannot exceed eligibility in round 2 (number of tranches bid in round 1) v BGS-FP: The number of tranches bid on any one EDC cannot exceed the load cap for that EDC 61

Bidders Must Name an Exit Price When Withdrawing a Tranche BGS-FP Example EDC PSE&G

Bidders Must Name an Exit Price When Withdrawing a Tranche BGS-FP Example EDC PSE&G JCP&L ACE RECO Price Round 1 18. 750 19. 000 2 4 2 1 17. 813 18. 606 18. 750 18. 905 2 3 2 1 Bid Round 1 Price Round 2 Bid Round 2 Exit Price 18. 703 v A bidder must enter an exit price (a final and best offer) è Above current going price è Below or equal to previous going price 62

A Bidder Could Need to Provide Additional Information When Switching BGS-CIEP Example EDC PSE&G

A Bidder Could Need to Provide Additional Information When Switching BGS-CIEP Example EDC PSE&G JCP&L ACE RECO Price Round 1 340. 00 4 4 1 1 338. 25 332. 50 336. 00 340. 00 Bid Round 2 5 2 2 1 Switching Priority 1 Bid Round 1 Price Round 2 2 v When a bidder reduces the tranches bid on one or more EDCs and increases the number of tranches bid on more than one EDC, the bidder will be asked for a switching priority v This is used by the Auction Manager in case only some of the reductions can be granted 63

A Bidder Could Need to Provide Additional Information When Switching AND Withdrawing BGS-CIEP Example

A Bidder Could Need to Provide Additional Information When Switching AND Withdrawing BGS-CIEP Example EDC PSE&G JCP&L ACE RECO Price Round 1 340. 00 2 2 5 1 338. 25 332. 50 336. 00 340. 00 3 1 4 1 Bid Round 1 Price Round 2 Bid Round 2 Exit Price 338. 61 v When decreasing the number of tranches bid from more than one EDC and switching, the bidder will be asked to designate which tranche is being withdrawn v The bidder can name an exit price for the withdrawn tranche 64

Changes in Round 2 Reporting (from Round 1) v A bidder can request a

Changes in Round 2 Reporting (from Round 1) v A bidder can request a switch or a withdrawal – but it may not always be granted è Auction Manager may retain tranches from exits or switches if necessary to fill the tranche targets è Auction Manager fills tranche target first with tranches bid at the going price, then by retaining exits, then by denying switches (if necessary) v Each bidder gets information: è A range of total excess supply è The prices for next round è The bidder’s own bid including § Any tranches requested to be withdrawn that were retained (retained at the named exit price) § Any tranches requested to be switched that were denied (retained at the last price freely bid) 65

What Are The Rules in Rounds 3, 4…? v The same as the rules

What Are The Rules in Rounds 3, 4…? v The same as the rules for round 2 è Total tranches bid (eligibility, load caps) § Eligibility in round 3 is eligibility in round 2 minus tranches withdrawn in round 2 è Reduce tranches bid (through a switch or a withdrawal) only from an EDC whose price has ticked down è Exit prices above current going price and equal to or below previous going price 66

When Does The Auction Close? v When total excess supply equals zero and prices

When Does The Auction Close? v When total excess supply equals zero and prices no longer tick down v Bidding on all EDCs will stop at the same time è An EDC’s price does not stop ticking down the moment enough tranches are bid for that EDC v Bidders are paid as a function of the final auction prices è All bidders who win tranches for a product are given the same price 67

Bids Are Submitted Online v Bidding is done through online Internet bidding v Bidders

Bids Are Submitted Online v Bidding is done through online Internet bidding v Bidders access an Internet link v Bidders log in to the auction software using a Login ID and password provided by the Auction Manager in the information packet sent to the Authorized Representative v Bids are submitted and round results received through the auction software 68

System Requirements Are Minimal Standard PC v Windows 98, Windows Me, Windows NT 4.

System Requirements Are Minimal Standard PC v Windows 98, Windows Me, Windows NT 4. 0, Windows 2000, Windows XP, or Windows Vista Internet Connection v Primary access through a company network v Secondary access through an alternative ISP v U. S. version of Microsoft’s Internet Explorer web browser, version 6. 0 or 7. 0 Internet Explorer v At least 128 -bit cipher strength Backup Systems 69 v Backup laptop and backup connection v Dedicated fax machine

To Be Technically Prepared v Bidding teams in two geographical locations è Reduces the

To Be Technically Prepared v Bidding teams in two geographical locations è Reduces the likelihood that disruptions in one location will affect your participation v Access to a backup ISP v Backup computer (preferably a laptop with charged batteries and access to the backup ISP) v A dedicated fax machine for backup bidding 70

Auctions Run Concurrently: Sample Schedule Times BGS-CIEP BGS-FP 8: 30 8: 35 8: 40

Auctions Run Concurrently: Sample Schedule Times BGS-CIEP BGS-FP 8: 30 8: 35 8: 40 Round 11 Bidding Log in/Break 8: 40 8: 45 8: 50 8: 55 9: 00 Round 1 Bidding 9: 05 9: 10 9: 15 9: 20 9: 05 9: 10 Round 11 Calculation and Report 9: 25 9: 30 9: 15 Automatic 15 -Minute Extension 9: 20 9: 25 9: 30 9: 35 9: 40 9: 45 9: 50 9: 55 Round 12 Bidding Round 1 Calculation and Report 9: 50 9: 55 10: 00 10: 05 10: 10 10: 15 10: 20 10: 25 71 Times Round 12 Calculation and Report 10: 15 Round 2 Bidding 10: 20 10: 25

Pauses v A bidder can request an extension to the bidding phase of 15

Pauses v A bidder can request an extension to the bidding phase of 15 minutes è Typically for technical problems è If feasible, the calculating and reporting phase will be shortened by 15 minutes when an extension is called v A bidder can submit a recess request during the reporting phase of a round later in the Auction (after round 10 and after the total excess supply in previous round falls below a given threshold) è Extra time to consider bid è Lasts no less than 30 minutes è One recess available to each bidder during the auction v The Auction Manager can call a time-out (for example, in case of general technical difficulty) 72

Questions? 73

Questions? 73