Locational Installed Capacity Restructuring Roundtable James G. Daly On behalf of Coalition in FERC ER03-563-030 03/18/05

Coalition Members Attorney General of Massachusetts Attorney General of Rhode Island Rhode Island PUC Associated Industries of Massachusetts New Hampshire Consumer Advocate NSTAR Electric and Gas Strategic Energy LLC The Energy Consortium

Devon Order – April 25, 2003 P37 FERC directed ISO-NE to file “a mechanism that implements location or deliverability requirements in the ICAP or resource adequacy market….so that capacity within DCAs may be appropriately compensated for reliability” DCA = Designated Congested Areas

LICAP Milestones To Date Event Highlights Date Initial Filing Heavily contested by all 03/01/04 FERC set for hearing Parameters of Demand Curve Capacity Transfer Rights Capacity Transfer Limits Delayed implementation until 01/01/06 06/02/04 ISO filed new case New witnesses, new testimony New Demand curves Critical hours payments for capacity only 08/31/04 ISO-NE further revisions New market power mitigation measures 10/12/04 Intervener Testimony 11/04/04 FERC narrows scope of hearing NEMA/Boston is a LICAP zone Alternative mechanisms won’t be considered LICAP concerns cost recovery not incentives States responsible for resource adequacy No need to pursue 18.4 retirement in order to get to RMR 11/08/04

ISO-NE Demand Curve

Other filed Demand Curves $/KWM Applies to new capacity only

Estimated 5 year ISO LICAP Proposal Cost ISO-NE 1/5/05 Revised Coalition 1/28/05 Base LICAP Cost $9.1B $13.1B Status Quo RMR Cost $4.8B $1.7B PER adjustment $0.9B $1.4B Current ICAP $1.1B Net Cost Impact $2.3B $8.3B

Net Incremental Bill Impact of ISO-NE Proposal

LICAP Very Sensitive to Capacity Changes Impact of OC on LICAP cost Increase OC by 4.86% in 2005 (Approved PC OC 03/11/05) and 2% in subsequent years Base Case Case with PC approved OC Increase differential 5 year net cost $8.3B $14.5B $6.2B Impact of unit retirement on LICAP cost Retire Salem Harbor 1-4 (711 MW) in 2006 Base Case With Salem Harbor retired Increase differential 5 year net cost $8.3B $12.7B $4.4B

RMR Agreement Status FERC Nov., 8 Order – “we expect that few additional units that have not already applied for them will use RMR agreements”

RMR Agreement Status (cont’d) Total: 6,738 For additional information, please go to: http://www.iso-ne.com/settlement_reports/Reliability_Agreement_Information/

Will LICAP eliminate RMR? FERC objective to eliminate RMR ISO response: “What we're testifying to is that we've developed a proposal that will lessen the need for RMRs” (source Mr. LaPlante hearing transcript 3/10/05) Units seeking RMR looking to cover cost-of-service Units not seeking RMR content with market revenues Market structure leading to the higher of cost of service or market