LICAP New England Joel S. Gordon PSEG Energy Resources & Trade, LLC Massachusetts Restructuring Roundtable March 18, 2005

9,000 MW of Gas & Dual Fuel built since 1999. New England Capacity Total Capacity 30,958 MW 9,000 MW of Gas & Dual Fuel built since 1999. Source: RTEP 04

45% of New Gas/Oil Units have failed in the NE Market. Capacity by Fuel Type Total Capacity 30,958 MW 45% of New Gas/Oil Units have failed in the NE Market.

New Gas Units “Results of the wholesale market operations to date show that the price signals from the energy markets alone are not sufficient to support new entry and may not even support continued operation of existing units needed to reliably meet system or local load requirements.” “Actual revenues available …only support about 30 to 40 percent of the [cost of a peaker]”

Return to Cost of Service Over Half Of the Oil Fleet has Left the Market Nearly ALL in highly Transmission Constrained Areas. New Boston: 350 MW Oil/steam Devon 121 MW Oil/steam Middletown 770 MW Oil/steam Montville 494 MW Oil/steam Kendall 53 MW Oil/steam New Haven 448 MW Oil/steam Bridgeport 2 130 MW Oil/steam Salem Harbor IV 443 MW Oil/steam Yarmouth 4 604 MW Oil/steam Mystic 7 550 MW Oil/steam W. Springfield 101 MW Oil/steam Total 4,100 MW

Other Units Responses Highly Efficient Units in Constrained Areas are Also Trying to Leave the Market. Milford I & II 593 MW GCC Bridgeport Energy 451 MW GCC Wallingford 176 MW GCT Salem I-III 330 MW Coal Mystic 8,9 1,393 MW Gas Total 2,943 MW

It’s The Market Design And we need them all for reliability….. 10 Separate Generating Companies 14 Separate Generating Stations 37 Generating Units 7,043 MW of Capacity Most Operating in CT and NEMA 23% of the Total Installed Capacity And we need them all for reliability…..

Got Surplus? Certain sub-areas are critically short of capacity The Long Touted Surplus is Long Gone in New England. Certain sub-areas are critically short of capacity In 2006 there are shortages under ISO’s 90/10 case

Promise of LICAP Properly Value Existing Resources. Eliminate the Need for RMR Contracts. Send Price Signals for New Investment: When needed Where needed Allow Continuation of Price Caps for Energy. Encourage Bilateral Contracting Activity.

New England Circle of Thumbs Lack of Clarity on Who is Responsible for Long Term Reliability. We should be in crisis mode now, who is stepping up? Unwillingness to Recognize Value Or at least to pay for it. NYISO, NYSDPS, and NY Stakeholders all Support the NY LICAP design.

Proposed Design Capacity as a product: Deliverable? Disconnect with how units operate. Disconnect between obligations and payments. Disconnect between pricing and supply. Disconnect between need and purchase. Capacity is infrastructure and should be treated as such.

Competition Can Work Reasonable capacity values do not have large retail rate impact. Long term contracting for capacity has low risk for stranded costs. Continued investment improves overall efficiencies. LICAP will help maintain the benefits of competitive energy markets.