1. Massachusetts Electric Restructuring Roundtable
Reliability of Bulk Electric Service in the Boston Area: The Role of the Salem Harbor Reliability Agreement
Massachusetts Electric Restructuring Roundtable
Boston, Massachusetts
Friday, June 18, 2004
Donald C. Ryan, Ph.D.
Manager, Market Contracting ISO New England Inc.

2. What Is ISO-NE? Not-for-profit corporation established in 1997
Independent System Operator of New England’s wholesale electricity supply (independent of business interests)
Regulated by the Federal Energy Regulatory Commission
Directs the day-to-day operation of the generation and transmission system
Administers the NEPOOL wholesale electric markets and the NEPOOL Open Access Transmission Tariff
Responsible for system planning and expansion for a reliable bulk electric power system

3. Why Is ISO-NE Involved With Salem Harbor?
Generators must notify ISO of their plans to retire and ISO must determine whether a retirement would have a significant adverse impact on reliability (Section 18.4 of the Restated NEPOOL Agreement)
On April 25, 2003, USGenNE sought approval to retire Salem Harbor Station as of October 1, 2004
On July 22, 2003 ISO’s assessment showed that all of Salem Harbor’s capacity is currently needed to provide reliable electric service to the North Shore (see slide 5)
Retirement application denied

4. ISO-NE’s Role (Continued)
If a unit is needed for reliability and cannot retire, ISO-NE and the generator must enter into good faith negotiations for a Reliability Agreement
If an agreement is not reached within 90 days, the generator may proceed with retirement plans even though the ISO has said no
If an agreement is reached, it (including any financial payments), must be approved by FERC

5. Salem Harbor Provides For Electric Reliability For Both The North Shore And Greater Boston Import Area

6. Salem Harbor Status – Reliability Agreement
In May of 2004, USGenNE filed a Reliability Agreement for approval by the Federal Energy Regulatory Commission
The Reliability Agreement ensures that the Salem Harbor Station units are available to support the reliability of the power system
The Agreement provides a framework for financial assistance for constructing environmental equipment if the state requires it for compliance with state emissions regulations
Charges flow to network load in the NEMA/Boston reliability region

7. Salem Harbor Status - MOU
In June of 2004, ISO New England filed comments to the filing, and submitted a Memorandum of Understanding
The MOU establishes a communications process between ISO New England, state entities, and USGenNE
The MOU allows for coordination of information among these entities to continually assess the need for the Reliability Agreement in light of progress on transmission and generation upgrades

8. Why Did ISO-NE Negotiate A Reliability Agreement With USGenNE?
To preserve the reliability of the electric power system in the Boston Area
Once the determination was made that the units were needed for reliability, ISO-NE needed to make appropriate accommodations for the continued operation of the units in the context of the environmental consent order
ISO is authorized, subject to FERC approval, to assure the continued availability of generating units that are needed to meet reliability standards

9. Why Did ISO-NE Negotiate This Type Of Reliability Agreement With USGenNE?
It provides for reliability at lowest consumer cost
Funding starts only if necessary to allow for continued operation (there may never be a dollar spent for many reasons, including if the transmission projects can be completed fast enough or if USGenNE obtains funding from another source)
Funding for the agreement may terminate if the units are no longer needed for reliability
MOU ensures communication to facilitate informed decision making
Agreement was result of a stakeholder process sponsored by DOER

10. Details Of Agreement
USGenNE proposed a reasonable approach to limit funding to the actual costs of equipment needed to keep the plant operating in environmental compliance
Repayment to those who initially paid for the compliance equipment through a mechanism to share a portion of Gross Margin from continued operation

11. Next Steps
Continue open communication with DOER and DEP in the context of the Memorandum of Understanding
Monitor Permitting of Transmission Projects and Update Reliability Assessment upon Final Permits
Respond to interventions in the FERC docket
Additional explanation regarding reliability and 18.4/18.5 process
Respond to false assertions that approval of the agreement means that funding will necessarily take place
Misunderstandings and mischaracterizations of this Reliability Agreement as a loan instead of cost reimbursement and, under certain defined circumstances, a refund of payments in whole or in part with an allowance for interest (time value of money)

12. Ensuring Reliability
Agreement is a success if reliability is preserved
Whether or not the funding takes place
Reliability is key whether or not the repayment takes place in whole or in part