Should Utilities Own Generation in New England? Restructuring Roundtable December 8, 2006 Douglas Horan SVP – Strategy, Law and Policy NSTAR

Utility Ownership of All Generation Is the Wrong Model Not Feasible Utility generation assets, business structures and management would need to be rebuilt Not Desirable Market is powerful efficiency driver “Balkanization” of generation loses benefits of scale

Utility Ownership of Some Generation Probably Makes Sense Customer outcomes could be improved by utility generation ownership in the following instances: Optimizing Basic Service Replacing Long Term Contracts Supporting the Distribution System

Optimizing Basic Service Active utility management of an energy portfolio will create better results for Basic Service customers than passive RFP procurement Portfolio should be optimized Likely to be primarily contract based But for some portfolio elements (eg, peakers), ownership may offer more benefits for customers than contract purchases

Replacing Long Term Contracts Whether long term commitments will be needed to “make generation happen” in New England is still uncertain If needed, utility contracts may be seen as the likely vehicle Long term contracts pose substantial risks to customers (recall the IPPs); utility ownership may provide a better risk/value balance for customers

Supporting the Distribution System Some areas of a distribution system pose unique service challenges (eg, Martha’s Vineyard) Generation may be a least cost alternative to expensive T&D expansion Utility ownership provides needed control and reliability

Concluding Thoughts “Utility Ownership” and “Market Competition” are not goals; they are tools. Apply them where they produce the result you need. In the near term, utility generation ownership is likely to remain a targeted solution. If we are still having this discussion in five years, the reverse will likely be true.