New England Resource Adequacy Massachusetts Electricity Restructuring Roundtable September 23, 2005 Gordon van Welie ISO New England, Chief Executive Officer

ISO New England Overview Real improvements to the region’s electric system Over $1.5B in long-needed 345 kV transmission projects in four states have siting approval Massachusetts, Connecticut, Vermont, Maine Approximately $6B in private investment 30% increase in new, cleaner generation Over 9,000 MW of new generation Significant reductions in regional air emissions Wholesale market efficiencies: Savings  $700M/yr (2000-2004) Congestion cost reductions:  $170M/yr Single, independent point of control over management and outage scheduling of regional transmission system have reduced congestion costs  $40M/yr (2000-2004) © 2005 ISO New England Inc.

Ingredients of Successful Power System 1 Four pillars of a balanced and reliable power system: Supply: Resources to meet peak demand Transmission: Adequate power delivery system Conservation and Demand Response: Incentives for reduced use Market Structure: Accurate price signals to promote efficient operation and investment Comprehensive planning provides a roadmap to achieve the four pillars © 2005 ISO New England Inc.

Resource Adequacy: System Needs Ten-Year Plan

Planning For A Reliable Power System: Regional System Plan (RSP) ISO-led regional system planning process since 2001 Comprehensive assessment of power system needs annually Ten-year planning horizon Information for market responses Regular stakeholder meetings Transmission plan to ensure a reliable system Backstop to market solutions Basis for transmission projects eligible for regional funding Independent analysis informs state siting Process recognized as one of best in nation (US DOE) © 2005 ISO New England Inc.

Recent Operational Experience New, all-time peak demand record set on July 27, 2005 (26,921 MW) Operable Capacity Margin of 739 MW Led to OP4 Actions 1-5, 7-10, and 12 in SWCT Load Relief actions estimated at 220 MW Led to high Real-Time LMPs in NEMA/Boston and CT Highest Saturday peak load on August 13, 2005 (24,038 MW) Had it been a week day, it would have likely been our all-time summer peak Prices driven by: Weather and demand Fuel costs © 2005 ISO New England Inc.

Key Findings – RSP05 Transmission upgrades must be completed on schedule Major 345 kV projects and other upgrades Greater Connecticut is short of resources now under high-demand conditions Additional capacity required to reliably meet system-wide demand as early as 2008, and no later than 2010 Addition of 1,100 MW of incremental quick-start resources needed now (in Boston and Greater Connecticut) to satisfy CT and systemwide needs Without increasing dual-fuel capability of gas-fired capacity, system reliability is at risk Convert 400 MW by winter 2006/7; 250 MW more each year through winter 2008/9; 500 MW more in winter 2009/10 © 2005 ISO New England Inc.

Resource Adequacy: Transmission Solutions

RSP05 Projects in Massachusetts Northeastern Massachusetts (NEMA)/BOSTON 345 kV project under construction Voltage-control issues being addressed North Shore improvements under construction with long-term plans being finalized Projects in other parts of Massachusetts Central Massachusetts Project and Auburn Projects under construction Improvements made to Cape Cod load pocket (2nd Canal-Bourne project) and studies for long-term reliability are underway Springfield and Western MA improvements are needed Reduce Springfield dependencies on single 345kV line and two generators Reduce CT dependencies on Springfield capabilities © 2005 ISO New England Inc.

Transmission Solutions: Status of Major Projects Progress since 2004 18 projects placed in service 36 new projects added 272 projects needed Major 345 kV projects Southwest Connecticut Reliability Project – under construction Southern New England Reinforcement Project – under study NSTAR 345 kV Transmission Project – under construction Northwest Vermont Reliability Project – under construction Northeast Reliability Interconnect Project – permit applications under review 2005 Transmission Project Plan Grand Total: $2.4 - $4.3 Billion © 2005 ISO New England Inc.

Resource Adequacy: Market Solutions

Wholesale Market Plan Goals Efficiently price products and services needed to reliably operate power system Enable efficient short-term consumption and production decisions Ensure sufficient long-run investment decisions Complete the wholesale market design Capacity Market reform Ancillary Services Market Fully integrate demand response Updated Wholesale Market Plan available in October 2005 © 2005 ISO New England Inc.

Criteria for Resource Adequacy Solutions Objectives Retain and attract appropriate resources to ensure reliability in all areas of the region Reduce or eliminate Must-Run contracts that dampen market signals Continue cap on generator offers in energy market that protect against market power Ensure that consumers do not pay for bad investment decisions Ensure resource availability in times of greatest need Encourage customer participation (demand response) © 2005 ISO New England Inc.

New England Needs Action Completion of Transmission Projects Reliability of Fuel Supply Dual fuel capacity in Boston and Connecticut now LNG supplies Assurance of Resource Adequacy Connecticut needs additional resources now Connecticut and Boston need quick-start generation now Region needs new resources between 2008 and 2010 Need market-based, long-term, resource adequacy solution © 2005 ISO New England Inc.