Frederick F. Butler Commissioner New Jersey Board of Public Utilities Budapest, Hungary April 14, th Annual Meeting of the Energy Regulators Regional Association Country Update - United States

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 2 USA Update on: Electricity Issues Natural Gas Issues Nuclear Power and Waste Disposal Issues Reliability Issues Competitive Market Issues

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 3 WHAT IS NEW IN THE UNITED STATES ENERGY MARKETS? ON A FEDERAL LEVEL: Natural Gas  More price transparency in natural gas markets  Several examples of commodity price manipulation  Potential for price manipulation of pipeline capacity  FERC is actively engaged in this process  Energy bill –IF passed – might give incentives for drilling Electric  Energy Bill?  Reliability Legislation as a “stand-alone” or as part of a comprehensive bill  Elimination of the Public Utility Holding Company Act?  Incentives for building new transmission?  Enforcement authority for the Federal Energy Regulatory Commission?  Clean-Air (including Mercury) Rules?  Promotion of clean coal-technologies?  Will Congress and the President solve the nuclear waste issue?

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 4 What’s New In Generation of Electricity? As A Critical Component of National Energy Policy We Need to Know How New Baseload Generating Units Will BE Built?  In 1998 and 1999 the Midwest experienced significant price spikes – the price of electricity on the wholesale markets went to $1.00 / kWh! Merchant power plant developers flooded the market in anticipation that these price spikes would be the norm – they proved to be the exception. Now, the Midwest has lots of gas-fired peaking units.  Chastened by the “irrational exuberance” of the price spike era, no one wanted to build any generating unit. Even in traditionally regulated states, with a greater assurance of cost recovery, there is a reluctance to build new generating capacity or large cycling capacity  We know that many of the baseload units are at the end of their useful life. In part, this is due to Clean-Air standards. What will fill the void for these units?  How will the United States respond to concerns about coal? Will we give serious consideration to “Clean Coal” technologies? If Congress and the President finally address the nuclear storage issue, will nuclear power be more acceptable? With the high price and extreme volatility in natural gas prices, how much reliance does the United States want to place on natural gas?  To offset the need for baseload generation, how much of the nation’s power requirements can be met with customer owned generation, alternative energy and demand response programs?

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 5 Fuel Diversity for Electric Generation Reduce dependency on any single fuel source Utilities can manage the risk of price spikes and volatility New generation has relied extensively on natural gas Recent hikes and fluctuations in gas prices Pending crisis with increasing natural gas prices

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 6 Fuel Diversity for Electric Generation Overall diminishing supply of fossil fuels worldwide Environmental issues as to emissions Limitations of generation using renewable energy sources, such as solar and wind Regulators are looking at how to encourage more diverse portfolios Regional differences exist on how to achieve fuel diversity in electric generation

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 7 Fuel Diversity for Electric Generation Goal of fuel diversity is to ensure price stability and fuel availability by reducing reliance on small number of fuel sources Energy efficiency and conservation recognized as important policy options Diversification seen as a way to address critical infrastructure protection concerns R&D of all potential alternative fuels for generation including nuclear, clean coal, carbon sequestration, etc. National energy policy needed to promote fuel diversity approaches

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 8 Average Delivered Fuel Prices to U.S. Electric Generators Coal is essential for the U.S. economy.

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 9 Source: National Petroleum Counsel, “Balancing Natural Gas Policy,’ Sept Since 2000, gas prices have hit historic highs. Despite high gas prices, increases in exploration and recovery haven’t been able to restrain price increases. Most of the expected increase in supply is expected to come from LNG rather than domestic supply. Despite an increase in the number of natural gas rigs to 1069 from last year's level of 938 and an increase in gas exploration by 14.0%. The natural gas spot prices are up 9.1 percent. Winter 2004 / 2005 gas = $9.38/MMBtu In addition to severe cost increases for residential and commercial, electric power plants, basic industry such as metals, automobiles, plastics, and agriculture is dependent on natural gas. Since 1993, 90% of all electric power plants were fueled by natural gas. 90% of the cost of producing ammonia is natural gas. 22% of US nitrogen fertilizer production has shut down so the US now imports 50% of nitrogen-based fertilizer What’s New In Natural Gas

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 10 Natural Gas Supply and Prices Long-term gas supply issues Need for comprehensive resource management in response to high gas prices Understanding natural gas price risk management, prudency, hedging, volatility Is there enough domestic natural gas capacity to satisfy electric reliability?

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 11 Natural Gas Supply and Prices National Petroleum Council (NPC) 2004 Report on balancing natural gas policy NARUC Gas Committee past Chair Bob Keating was very involved in NPC Report Need national policy on gas supply and energy supply for the coming decades Issues of supply/demand, LNG, imports, partnerships with Canada and Mexico

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 12 Future of Nuclear Power and Waste Disposal Top issue at Commissioners-Only Summit (January 2005) Resolution of Nuclear Waste Disposal dilemma seen as an immediate necessity Political problems have plagued the funding of the Nuclear Waste Program Central waste repository – Yucca Mountain, Nevada

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 13 Future of Nuclear Power and Waste Disposal Yucca Mountain was a campaign issue in 2004 D.C. Circuit denied most of Nevada claims about repository development (July 2004) Court ruled that EPA did not meet requirement of law on radiation standard United States did not appeal

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 14 Future of Nuclear Power and Waste Disposal Resolution of nuclear waste funding and repository issues Legislation should include provision for Nuclear Waste Fund (as per Nuclear Waste Policy Act) Since 1983, State ratepayers using nuclear- generated electricity have paid over $23 billion in fees to the Nuclear Waste Fund (NWF) Gap between NWF revenue and annual appropriations

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 15 Mandatory Reliability NARUC remains a strong and consistent supporter of legislation for mandatory reliability standards with savings clause to protect existing State authority August 14, 2003 Blackout follow -up FERC issued Vegetation Management Report and Vegetation Management Order NARUC Ad Hoc Committee on Critical Infrastructure developed plan regarding its participation in Vegetation Management data collection

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 16 Mandatory Reliability How to accomplish Mandatory Reliability without energy legislation Resolution Calling for State Action on Mandatory Reliability Standards (February 2005) Drafted by NARUC Staff Subcommittee on Electric Reliability NERC has a compliance program, but lacks enforcement mechanism

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 17 Mandatory Reliability Resolution encourages States to consider making NERC standards and RRC criteria mandatory for jurisdictional utilities States to adopt NERC reliability standards NARUC should develop Model orders and legislation that States may use to make NERC reliability standards and RRC criteria mandatory

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 18 What’s New In Retail Competition- An Update? In the U.S., there was considerable interest in competition during the late 1990s. A combination of events such as the “meltdown” in California and the perception by consumers that the benefits of retail choice are small seemed to have limited the interest in retail competition among those states that haven’t already enacted retail competition

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 19 What’s New With RTOs In The United States?

© Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 20 Contact Info: Commissioner Frederick F. Butler Phone : Fax : Board of Public Utility Two Gateway Center Newark, NJ 07102